Scudder Variable Life
Investment Fund
Annual Report
December 31, 1995
An open-end management investment company that offers shares
of beneficial interest in six types of diversified portfolios.
<PAGE>
Scudder Variable Life Investment Fund
Contents
Letter from the Fund's President 2
Money Market Portfolio Management Discussion 3
Bond Portfolio Management Discussion 4
Bond Portfolio Summary 5
Balanced Portfolio Management Discussion 6
Balanced Portfolio Summary 7
Growth and Income Portfolio Management Discussion 8
Growth and Income Portfolio Summary 9
Capital Growth Portfolio Management Discussion 10
Capital Growth Portfolio Summary 11
International Portfolio Management Discussion 12
International Portfolio Summary 13
Investment Portfolios, Financial Statements, and Financial Highlights
Money Market Portfolio 14
Bond Portfolio 20
Balanced Portfolio 27
Growth and Income Portfolio 37
Capital Growth Portfolio 46
International Portfolio 54
Notes to Financial Statements 64
Report of Independent Accountants 68
Tax Information 69
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Global stock and bond markets generally were strong in 1995, as slow
growth, moderate inflation, and falling interest rates provided a positive
economic backdrop. The biggest investment story of the year was the stunning
advance in the domestic stock market, as the average U.S. equity mutual fund
tracked by Lipper Analytical Services rose 31.07%. The U.S. bond markets rallied
as well, as evidenced by the average return of 17.30% for funds in Lipper's
income category--the product of sharply declining interest rates.
Internationally, while several European bourses provided solid returns in 1995,
interest rate declines in that region were not as compelling to investors as
those in the U.S., and market returns were correspondingly lower. Japan's stock
market was essentially flat, although the investment climate in that country
appeared to be improving as the year drew to a close.
Despite its impressive performance in 1995, the U.S. stock market appears
to be reasonably valued based on 1996 earnings forecasts. In addition, the
long-term outlook for U.S. financial assets is positive, as the economy is
expected to grow without inflation. A repeat of 1995's exceptional performance
is unlikely, however, especially if the economy slows in the coming year, as
anticipated. Many international markets are attractively valued by comparison,
and economies such as those in Europe are just beginning to realize the full
impact of falling interest rates and corporate restructuring--underscoring the
value of a global approach to investing.
We see a number of trends underway that support the outlook for investment
in the U.S. and around the world. Technology is bringing efficiencies to every
stage of the product cycle, from design to distribution. Globalization has
widened the competitive universe, making inflationary price increases less
likely. Deregulation is subjecting major industries to market discipline,
increasing capacity and reducing supply bottlenecks. While investing will always
involve uncertainties and market fluctuation, the net result of these forces may
well be an era of disinflationary growth that benefits investors and raises
living standards worldwide. We look forward to the challenges and opportunities
afforded by the evolving economic landscape, and thank you for your continued
investment in Scudder Variable Life Investment Funds.
Sincerely,
/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
2
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Money market funds generally provided attractive returns in 1995, despite
falling interest rates that resulted in lower yields. Many investors found the
combination of principal stability and solid real (inflation-adjusted) returns
provided by money funds attractive, and money funds consistently attracted
assets, ending the year with approximately $775 billion in total assets, up from
approximately $619 billion at the end of 1994 (source: Money Fund Report, IBC
Financial Publishing).
As of December 31, Money Market Portfolio posted a competitive 5.28% 7-day
net annualized yield. The Fund provided investors with $0.055 per share in
income distributions, contributing to a 5.65% total return for the annual
period.
Because longer-term instruments allow investors to lock in higher current
rates during periods of falling interest rates, we extended the Fund's average
maturity during the fiscal year. Money Market Portfolio's average maturity was
57 days at the close of the fiscal period. By comparison, the Fund's average
maturity was 35 days as of December 31, 1994. With the economy continuing to
slow, we believe that the Federal Reserve may lower interest rates further, and
we expect that in the coming months Money Market Portfolio's average maturity
will remain relatively long in order to capture higher yields.
Corporate commercial paper offered the most attractive yields available
during the period and remained a significant portion of the Fund. These
securities allow high-quality companies to raise short-term funds at a lower
rate than loans offered by banks. Commercial paper made up approximately 74% of
the Fund's portfolio at the end of the period.
With the economy moving at its current slow pace and inflation under
control, Money Market Portfolio will continue to lean toward longer-term
high-quality money market securities. As always, maintaining a stable one dollar
share price is a top priority, although this share price cannot be guaranteed.
Given these characteristics, and the potential for attractive real returns in
view of low inflation, which now stands at about 2%, we believe Money Market
Portfolio remains an appropriate place for your short-term investment needs and
can play an important role in your investment plan.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Neff /s/Stephen L. Akers
Robert T. Neff Stephen L. Akers
Lead Portfolio Manager
/s/Nicca B. Alcantara
Nicca B. Alcantara
3
<PAGE>
BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Slowing economic growth and low inflation prompted the Federal Reserve
Board to reverse course mid-year and cut short-term rates on two occasions in
1995, while rates on long-term bonds ended the year nearly two percentage points
lower, falling from 7.87% to 5.95% as measured by the 30-year U.S. Treasury. The
U.S. fixed-income markets benefited from 1995's declining interest rate
environment as evidenced by the 18.47% return of the unmanaged Lehman Brothers
Aggregate Bond Index for the year. Bond Portfolio provided a total return of
18.17% for the 12 months ended December 31, in keeping with both the Lehman
Index and the average A-rated Corporate Bond fund tracked by Lipper Analytical
Services, which returned 18.45%.
Throughout the period, we managed the portfolio actively, seeking to
capitalize upon shifts in relative valuation among the U.S. Treasury, mortgage
and corporate sectors, as well as changes in the yield curve. Going into 1995,
we extended duration--and therefore the portfolio's sensitivity to interest rate
changes--to benefit more fully from the rally in bond prices while capturing
higher yields. In addition, we began early in the year to trim our weighting in
mortgage-backed securities, particularly high-coupon issues trading at a
premium, in favor of Treasuries; mortgage-backeds tend to underperform in
periods of falling interest rates, as investors become wary of prepayments and
seek to maintain durations in order to benefit from bond market strength.
Throughout the year, we implemented a more "bulleted" portfolio configuration
focused on intermediate maturities where we saw the most potential for rate
declines and price appreciation. Finally, we maintained significant exposure to
the corporate sector, seeking bonds with favorable yield characteristics and
business outlooks versus comparable issues.
Going forward, it is unlikely that 1996 will see fixed-income prices rally
to the extent they did in 1995. However, economic growth is expected to continue
to slow, meaning that inflation should remain benign and that the Fed should
have room for further easing, especially if progress towards fiscal restraint in
Washington remains on course. Our generally positive outlook for interest rates
is reflected in the portfolio's modestly above-neutral duration. Average quality
of portfolio holdings remains a high "AAA." Bond Portfolio remains focused both
on identifying areas of the fixed-income market that represent strong relative
value and on providing competitive yields.
Sincerely,
Your Portfolio Management Team
/s/Ruth Heisler /s/Renee L. Ross
Ruth Heisler Renee L. Ross
Lead Portfolio Manager
/s/William M. Hutchinson
William M. Hutchinson
4
<PAGE>
BOND PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BOND PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,817 18.17% 18.17%
5 Year $15,913 59.13% 9.74%
10 Year $23,008 130.08% 8.69%
LB AGGREGATE BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,847 18.47% 18.47%
5 Year $15,727 57.27% 9.47%
10 Year $25,079 150.79% 9.62%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Bond Portfolio
Year Amount
- ----------------------
85 $10,000
86 $11,227
87 $11,364
88 $11,984
89 $13,380
90 $14,459
91 $17,004
92 $18,196
93 $20,449
94 $19,470
95 $23,008
LB Aggregate Bond Index
Year Amount
- ----------------------
85 $10,000
86 $11,526
87 $11,844
88 $12,778
89 $14,635
90 $15,946
91 $18,498
92 $19,867
93 $21,804
94 $21,168
95 $25,079
The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate
bond issues and mortgage securities. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Bond Portfolio.
- -------------------------------------------------------------------
ASSET QUALITY
- -------------------------------------------------------------------
By Quality
- -------------------
AAA 81%
AA 1% The average quality of the
A 12% portfolio remains a high
BBB 6% "AAA".
----
100%
====
- -------------------
Average Quality: AAA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
EFFECTIVE MATURITY
- -------------------------------------------------------------------
- ---------------------------
Less than 1 year 17%
1 - 3 years 11%
3 - 7 years 37%
7 - 12 years 11%
12 years or greater 24%
----
100%
====
- ---------------------------
Weighted average effective maturity: 9 years
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
- -----------------------------------
U.S. Treasury Obligations 56%
Corporate Bonds 14%
Commercial Paper 13%
Foreign Bonds 7%
Asset-Backed Securities 5%
U.S. Government Agency
Pass-Thrus 3%
U.S. Government Guaranteed
Mortgages 2%
----
100%
====
- -----------------------------------
5
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Slow economic growth, low inflation, and falling interest rates boosted
both the U.S. equity and bond markets in 1995. Stocks rose a stunning 37.58% as
measured by the unmanaged S&P 500 Index, while the bond market returned 18.47%
as gauged by the unmanaged Lehman Brothers Aggregate Bond Index. Balanced
Portfolio provided a total return of 26.67% for the 12 months ended December 31,
exceeding the 25.16% return of the average balanced fund tracked by Lipper
Analytical Services.
With respect to the equity portion of the Portfolio, we continue to focus
on U.S. companies with strong balance sheets, leading market positions, and
solid prospects for above-average growth. Individual market sectors that
performed particularly well over the year included technology, consumer staples,
healthcare, and financial services. While the technology group was slightly
underweighted, these sectors were generally well-represented in the equity
portion of the portfolio. Going forward, we expect that an environment of slower
economic growth and low inflation will be positive for those companies capable
of delivering consistently above-average earnings growth rates. Moreover, we
believe that growth stock prices overall are well within a reasonable range.
Thus we have retained substantial weightings in healthcare, media, and services,
as well as selected finance issues. With respect to the volatile technology
sector, we have built positions in companies that operate in less
commodity-oriented segments and are market leaders in growing niches, including
LSI Logic, Atmel, and Informix. Our portfolio is underweight in manufacturing
and retail/consumer discretionary, both of which are more economically sensitive
than other sectors.
On the fixed-income side, throughout the period, we sought to capitalize
upon shifts in relative valuation among the Treasury, mortgage, and corporate
sectors. Going into 1995, we extended duration--and therefore the portfolio's
sensitivity to interest rate changes--to benefit more fully from the rally in
bond prices. In addition, we began early in the year to trim our weighting in
mortgage-backed securities in favor of Treasuries; mortgage-backeds tend to
underperform in periods of falling interest rates, as investors become wary of
prepayments and seek to maintain durations in order to benefit from bond market
strength. Throughout the year, we implemented a more "bulleted" portfolio
configuration focused on intermediate maturities where we saw the most potential
for rate declines and price appreciation. Going forward, we believe the outlook
for interest rates is generally positive, and this is reflected in the
fixed-income portion of the portfolio's modestly above-neutral duration.
Sincerely,
Your Portfolio Management Team
/s/Bruce F. Beaty /s/Ruth Heisler
Bruce F. Beaty Ruth Heisler
Lead Portfolio Manager
/s/Renee L. Ross /s/William F. Gadsden
Renee L. Ross William F. Gadsden
6
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BALANCED PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,667 26.67% 26.67%
5 Year $18,100 81.00% 12.60%
10 Year $27,803 178.03% 10.77%
S&P 500 INDEX (60%)
AND LBAB INDEX (40%)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,134 31.34% 31.34%
5 Year $19,428 94.28% 14.20%
10 Year $34,053 240.53% 13.03%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Balanced Portfolio
Year Amount
- ----------------------
85 $10,000
86 $11,671
87 $11,475
88 $13,105
89 $15,660
90 $15,361
91 $19,497
92 $20,855
93 $22,410
94 $21,950
95 $27,803
S&P 500 Index
Year Amount
- ----------------------
85 $10,000
86 $11,866
87 $12,490
88 $14,564
89 $19,178
90 $18,583
91 $24,244
92 $26,092
93 $28,721
94 $29,101
95 $40,036
LBAB Index
Year Amount
- ----------------------
85 $10,000
86 $11,526
87 $11,844
88 $12,778
89 $14,635
90 $15,946
91 $18,498
92 $19,867
93 $21,804
94 $12,168
95 $25,079
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market and
The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Balanced Portfolio. The Balanced Portfolio, with its
current name and investment objective, commenced operations on May 1, 1993.
Performance figures include the performance of its predecessor, the Managed
Diversified Portfolio. Since adopting its current objectives, the cumulative
and average annual returns are 32.95% and 11.25%, respectively.
- -------------------------------------------------------------------
EQUITY HOLDINGS
- -------------------------------------------------------------------
Sector breakdown of the Five Largest Equity Holdings
Portfolio's equity holdings ----------------------------
- --------------------------- 1. PHILIP MORRIS COMPANIES INC.
Consumer Staples 18% Tobacco, food products and brewing
Health 17%
Technology 14% 2. MERCK & CO. INC.
Financial 9% Leading ethical drug manufacturer
Consumer Discretionary 9%
Service Industries 8% 3. AMERICAN INTERNATIONAL GROUP, INC.
Manufacturing 7% Major international insurance
Media 7% holding company
Durables 5%
Other 6% 4. PROCTER & GAMBLE CO.
---- Diversified manufacturer of consumer
100% products
====
- --------------------------- 5. PEPSICO. INC.
Soft drinks, snack foods and food
services
- -------------------------------------------------------------------
FIXED INCOME HOLDINGS
- -------------------------------------------------------------------
By Asset Type By Quality
- ----------------------------------- -----------------
U.S. Treasury Obligations 48% AAA 79%
Corporate Bonds 18% AA 2%
Cash Equivalents 11% A 8%
U.S. Government Agency BBB 11%
Pass-Thrus 7% ----
Foreign Bonds 5% 100%
Asset-Backed Securities 5% ====
U.S. Government Guaranteed -----------------
Mortgages 5%
Collateralized Mortgage
Obligations 1%
----
100%
====
- -----------------------------------
7
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Falling interest rates, low inflation, and strong corporate earnings
combined to make 1995 a spectacular year for the U.S. stock market, which
returned 37.58% as measured by the unmanaged S&P 500 Index. Growth and Income
Portfolio's net asset value rose $1.72 per share over the year, to $7.98 on
December 31. In addition, the Portfolio distributed $0.19 per share in income
and $0.04 per share in capital gains to shareholders. The Portfolio's total
return of 31.74% for the year modestly exceeded that of the average growth and
income fund tracked by Lipper Analytical Services, which returned 30.82%. The
Portfolio's underperformance relative to the S&P 500 is consistent with its
conservative, yield-oriented philosophy, which is designed to provide
competitive performance in strong markets and above-average performance in weak
markets.
For much of the first half of the year, leadership among stock market
sectors vacillated with investor speculation regarding the impact on cyclical
industries of Federal Reserve policy. In July, the Fed reversed course and began
to ease short-term interest rates as signs of an economic slowdown emerged,
setting off another wave of market realignment. The Portfolio adhered to its
income-based discipline in the face of these market gyrations, purchasing only
those stocks with dividend yields at least 20% higher than the market average,
many of which were temporarily out of favor and represented a high degree of
value.
Throughout 1995, the Portfolio maintained overweight positions in the
year's top two performing sectors: financial services and healthcare. Many
financial companies have been the beneficiaries of declining interest rates, and
one significant addition to the Portfolio, the Student Loan Marketing
Association, turned in exceptional performance, more than doubling in value
after purchase. Health stocks surged on the strength of an improved regulatory
outlook and a merger wave fed in particular by undervaluation in the
pharmaceutical group. The Portfolio did not have meaningful exposure to the
technology sector, a natural consequence of our emphasis on high dividends and
strong fundamentals, which meant that we missed both the upsurge and year-end
correction experienced by that group.
Economic growth should continue to slow in 1996, and the Portfolio should
benefit from its significant weightings in sectors with historically resilient
earnings, including healthcare and consumer staples, as well as from its
exposure to the financial group, which should continue to thrive in the
prevailing low-interest-rate environment. Undervalued sectors such as
manufacturing and energy are also well-represented in the Portfolio. We believe
Growth and Income Portfolio, with its disciplined approach, remains an excellent
"core" investment for those seeking both participation in the equity markets and
more consistent performance than the average equity vehicle.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Hoffman /s/Kathleen T. Millard
Robert T. Hoffman Kathleen T. Millard
Lead Portfolio Manager
/s/Benjamin W. Thorndike
Benjamin W. Thorndike
8
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,174 31.74% 31.74%
Life of
Fund* $13,820 38.20% 21.44%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,758 37.58% 37.58%
Life of
Fund* $14,305 43.05% 23.98%
*The Fund commenced operations on May 2, 1994.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Growth and Income Portfolio
Year Amount
- ----------------------
5/2/94* $10,000
6/94 $ 9,854
9/94 $10,488
12/94 $10,235
3/95 $10,903
6/95 $11,817
9/95 $12,688
12/95 $13,483
S&P 500 Index
Year Amount
- ----------------------
5/2/94* $10,000
6/94 $ 9,915
9/94 $10,400
12/94 $10,398
3/95 $11,411
6/95 $12,500
9/95 $13,493
12/95 $14,305
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market.
Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns were higher
due to maintenance of the Fund's expenses. See Financial
Highlights for the Growth and Income Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
- --------------------------- Sector breakdown of the
Equity Securities 94% Portfolio's equity holdings
Cash Equivalents 6% ---------------------------
---- Financial 18%
100% Health 14%
==== Manufacturing 14%
- --------------------------- Consumer Staples 12%
Energy 9%
A graph in the form of a pie chart Durables 6%
appears here, illustrating the Communications 6%
exact data points in the table Utilities 4%
to the right. Consumer Discretionary 4%
Other 7%
----
100%
====
The portfolio's focus is on sectors with earnings that
should be resilient as the economy slows, such as financial
and healthcare.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- -------------------------------------------------------------------
1. UNITED TECHNOLOGIES CORP.
Manufacturer of aerospace, climate control systems, and elevators
2. STUDENT LOAN MARKETING ASSOCIATION
Student loan financing programs
3. ELI LILLY & CO.
Leading pharmaceutical company
4. XEROX CORP.
Leading manufacturer of copiers and duplicators
5. TRW INC.
Defense electronics, automotive parts and systems
6. LOCKHEED MARTIN CORP.
Manufacturer of aircraft, missiles and space equipment
7. KIMBERLY-CLARK CORP.
Consumer paper products and newsprint
8. PHILIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
9. H&R BLOCK INC.
Tax consulting and preparation
10. BAXTER INTERNATIONAL INC.
Manufacturing and distributor of hospital and laboratory products
and services
9
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
A combination of slow growth, declining interest rates, and low inflation
helped propel U.S. equities to unanticipated peaks in 1995. Capital Growth
Portfolio's total return of 28.65% for the 12 months ended December 31, in part
reflects this strong market environment. The Portfolio's net asset value rose
$2.85 per share to $15.08 over the period. In addition, the Portfolio
distributed to shareholders $0.11 per share in income and $0.43 in capital gains
in 1995. While the Portfolio's performance for the year lagged that of the
unmanaged S&P 500 Index, which returned 37.58%, it was roughly in keeping with
the 30.79% total return of the average growth fund tracked by Lipper Analytical
Services.
Over the first half of 1995, Portfolio performance was aided by significant
weightings in the financial and technology sectors, including positions in the
Federal National Mortgage Association (mortgages) and Intel (semiconductors). As
the year progressed, the Portfolio de-emphasized sectors that have historically
experienced above-average volatility, such as media and communications, in favor
of sectors with earnings growth that should be sustainable even as the economy
slows, such as financial services and healthcare. Many financial stocks stand to
benefit from the current low-interest-rate environment, including such holdings
as FNMA and American International Group (insurance). Companies in the health
sector, such as Columbia/HCA Healthcare (hospital management) and Merck
(pharmaceuticals), should be more resistant to earnings disappointments than
companies with products and services of a less essential nature.
Despite their downturn in the latter part of 1995, technology stocks as a
group continue to display the potential for above-average long-term earnings
growth. Our focus with respect to this sector is on achieving broad exposure to
market leaders, and to avoid overexposure to the erratic semiconductor group and
individual issues trading at very high multiples. Accordingly, we have trimmed
our positions in Intel and Microsoft (software) and have added to holdings such
as Hewlett-Packard and Applied Materials, which display better value and have
diversified sources of revenue. Finally, we have increased our energy sector
holdings in view of the relative value presented by that group.
Going forward, the prospect of fiscal restraint on the part of the U.S.
government and continued low interest rates should provide a favorable backdrop
for equity investing. Despite a slowing economy and less compelling valuations,
earnings in selected groups should continue to be attractive and be rewarded by
the market. We are confident that Capital Growth Portfolio is positioned to
benefit investors seeking capital appreciation over time.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Lead Portfolio Manager
10
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,865 28.65% 28.65%
5 Year $20,863 108.63% 15.84%
10 Year $34,709 247.09% 13.25%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,758 37.58% 37.58%
5 Year $21,544 115.44% 16.58%
10 Year $40,036 300.36% 14.87%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Capital Growth Portfolio
Year Amount
- ----------------------
85 $10,000
86 $12,230
87 $11,998
88 $14,646
89 $17,977
90 $16,637
91 $23,218
92 $24,709
93 $29,868
94 $26,980
95 $34,709
S&P 500 Index
Year Amount
- ----------------------
85 $10,000
86 $11,866
87 $12,490
88 $14,564
89 $19,178
90 $18,583
91 $24,244
92 $26,092
93 $28,721
94 $29,101
95 $40,036
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market.
Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some
periods were higher due to maintenance of the Fund's expenses. See
Financial Highlights for the Capital Growth Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
- --------------------------- Sector breakdown of the
Equity Securities 94% Portfolio's equity holdings
Cash Equivalents 6% ---------------------------
---- Health 16%
100% Technology 15%
==== Financial 14%
- --------------------------- Energy 8%
Media 7%
A graph in the form of a pie chart Manufacturing 6%
appears here, illustrating the Consumer Staples 6%
exact data points in the table Consumer Discretionary 5%
to the right. Service Industries 5%
Other 12%
----
94%
====
Sectors such as financial services should maintain
earnings growth as the economy slows.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- -------------------------------------------------------------------
1. CAPITAL CITIES/ABC INC.
TV and radio broadcasting, cable programming and publishing
2. FEDERAL NATIONAL MORTGAGE ASSOCIATION
Insurer and holder of mortgage loans
3. COLUMBIA/HCA HEALTHCARE CORP.
Leading Hospital management company
4. HEWLETT-PACKARD CO.
Measurement and test instruments, computer systems
5. APPLIED MATERIALS, INC..
Producer of reactors used to manufacture thin film
6. AMERICAN INTERNATIONAL GROUP, INC.
Major international insurance holding company
7. INTEL CORP.
Semiconductor memory circuits
8. MCDONALD'S CORP.
Worldwide fast food restaurant franchiser
9. ROYAL DUTCH PETROLEUM CO.
International energy company
10. JOHNSON & JOHNSON
Healthcare products
11
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The international equity investment climate was generally positive in 1995,
as slow growth, low interest rates, and low inflation prevailed in most major
economies. The International Portfolio's return of 11.11% for the 12 months
ended December 31, is in line with the 11.46% return of the unmanaged Morgan
Stanley Capital International Europe, Australia, and Far East plus Canada Index,
and compares favorably with the 9.41% average return of international funds
tracked by Lipper Analytical Services.
Throughout the year, Portfolio weightings favored Europe at the expense of
Japan. This strategy proved effective, as European stock markets in aggregate
produced solid returns. Among the major European bourses, Switzerland and Great
Britain turned in especially strong performances, with returns of 25.9% and
17.2%, respectively. After a shaky start to the year, the Japanese market
essentially finished flat, staging a recovery over the last quarter based on
lower interest rates and signs of a more determined effort on the part of the
government to address the underlying problems in the economy.
Going forward, while we have trimmed our European holdings, we remain
modestly overweight in the region, which we consider attractively valued. With
growth falling and unemployment rising, a key issue is whether France and other
European governments laboring under large budget deficits will be able to meet
the criteria established in Maastricht for European Monetary Union. We believe
that some degree of monetary stimulus is likely and that rates will fall
further, and have therefore added to or initiated positions in interest rate
sensitive stocks, such as French insurer AXA and Spanish motorway operator
Acesa.
Outside of Europe, we have increased our Japanese weighting. The yen has
given back some of its gains versus the dollar--a positive for Japan's
export-driven economy. Firms continue to restructure and interest rates are low.
Moreover, Japan is one of the few markets poised to benefit from the early
stages of economic recovery and upward revisions in corporate earnings.
Accordingly, we have added to Japanese stocks that are sensitive to economic
growth, such as retail conglomerate Ito-Yokado and specialized component
manufacturer THK.
In the year ahead, we will continue to focus on finding companies with the
ability to thrive in an increasingly globalized economy characterized by slow
growth and low inflation. The International Portfolio continues to provide a
vehicle for important exposure to economies and stock markets outside of the
United States.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
Lead Portfolio Manager
/s/Joan R. Gregory
Joan R. Gregory
12
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,111 11.11% 11.11%
5 Year $16,403 64.03% 10.40%
Life of
Fund* $21,773 117.73% 9.39%
LB Aggregate Bond Index
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,146 11.46% 11.46%
5 Year $15,540 55.40% 9.21%
Life of
Fund* $15,509 55.09% 5.24%
*The Fund commenced operations on May 1, 1987.
Index comparisons begin May 31, 1987.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Bond Portfolio
Year Amount
- ----------------------
5/31/87* $10,000
87 $ 8,997
88 $10,502
89 $14,470
90 $13,363
91 $14,893
92 $14,433
93 $19,896
94 $19,727
95 $21,919
MSCI EAFE & Canada Index
Year Amount
- ----------------------
5/31/87* $10,000
87 $ 9,138
88 $11,682
89 $12,968
90 $ 9,980
91 $11,186
92 $ 9,824
93 $12,961
94 $13,915
95 $15,509
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far
East (EAFE) & Canada Index is an unmanaged capitalization-weighted measure
of stock markets in Europe, Australia, the Far East and Canada. Index returns
assume dividends reinvested net of witholding tax and, unlike Fund returns,
do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the International Portfolio.
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
By Region By Sector
(Excluding Cash Equivalents) (Equity Holdings)
- ---------------------------- ---------------------------
Europe 53% Manufacturing 21%
Japan 27% Financial 12%
Pacific Basin 13% Metals & Minerals 9%
Latin America 4% Technology 8%
Canada 3% Durables 7%
---- Energy 7%
100% Service Industries 6%
==== Health 5%
Consumer Staples 5%
Other 20%
----
100%
====
Graphs in the form of pie charts appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- -------------------------------------------------------------------
1. SAP AG
German computer software manufacturer
2. CANON NC.
Leading producer of visual image and information equipment in Japan
3. MATSUSHITA ELECTRICAL INDUSTRIAL CO., LTD.
Consumer electronic products manufacturer in Japan
4. SMC CORP.
Leading maker of pneumatic equipment in Japan
5. FUJITSU LTD.
Leading manufacturing of computers in Japan
6. KYOCERA CORP.
Leading ceramic package manufacturer in Japan
7. TELECOM ITALIA MOBILE SPA
Cellular telecommunication services in Italy
8. SKANDIA FOERSAEKRINGS AB
Swedish financial conglomerate
9. HUTCHISON WHAMPOA, LTD.
Container terminal and real estate company in Hong Kong
10. HEINEKEN HOLDINGS N.V.
Brewery in the Netherlands
13
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
11.8% REPURCHASE AGREEMENT
----------------------------------------------------------------
9,374,000 Repurchase Agreement with
Donaldson, Lufkin &
Jenrette dated 12/29/95
at 5.85%, to be repurchased
at $9,380,093 on 1/2/96,
collateralized by a $9,902,000
U.S. Treasury Bill, 11/14/96
(Cost $9,374,000) ................................. 9,374,000
----------
----------------------------------------------------------------
73.8% COMMERCIAL PAPER
----------------------------------------------------------------
CONSUMER STAPLES 3.1%
Package Goods/
Cosmetics 2,500,000 Procter & Gamble Co., 5.52%, 2/20/96 ................ 2,480,833
----------
HEALTH 7.5%
Pharmaceuticals 3,000,000 Abbott Laboratories, 5.58%, 1/23/96 ................. 2,989,770
3,000,000 Eli Lilly & Co., 5.62%, 3/5/96 ...................... 2,970,027
----------
5,959,797
----------
FINANCIAL 48.1%
Banks 8.7% 3,000,000 Deutsche Bank Financial Inc., 5.52%, 3/25/96 ........ 2,961,360
1,000,000 J.P. Morgan & Co., Inc., 5.61%, 1/31/96 ............. 995,325
3,000,000 Prudential Funding Corp., 5.68%, 1/24/96 ............ 2,989,113
----------
6,945,798
----------
Business
Finance 7.5% 3,000,000 New Center Asset Trust, 5.34%, 4/23/96 .............. 2,949,715
3,000,000 Norwest Corp., 5.67%, 2/5/96 ........................ 2,983,463
----------
5,933,178
----------
Consumer
Finance 16.9% 3,000,000 American Express Credit Corp., 5.69%, 1/23/96 ....... 2,989,568
3,000,000 AT&T Capital Corp., 5.58%, 1/5/96 ................... 2,998,140
1,500,000 Ford Credit Receivables Funding Inc.,5.67%,2/7/96 ... 1,491,259
3,000,000 General Electric Capital Corp., 5.44%, 5/10/96 ...... 2,941,067
3,000,000 Household Finance Corp., 5.68%, 2/9/96 .............. 2,981,540
----------
13,401,574
----------
Other Financial
Companies 15.0% 3,000,000 American General Finance Corp., 5.38%, 3/26/96 ...... 2,961,892
3,000,000 Ciesco L.P., 5.63%, 2/22/96 ......................... 2,975,603
3,000,000 Corporate Asset Funding Corp., 5.7%, 1/22/96 ........ 2,990,025
3,000,000 Matterhorn Capital Corp., 5.74%, 1/12/96 ............ 2,994,738
----------
11,922,258
----------
MANUFACTURING 7.5%
Chemicals 3.7% 3,000,000 E.I. du Pont de Nemours & Co., 5.57%, 2/8/96 ........ 2,982,362
----------
Machinery/
Components/
Controls 3.8% 3,000,000 Pitney Bowes Credit Corp., 5.67%, 1/18/96 ........... 2,991,967
----------
TECHNOLOGY 3.8%
Diverse
Electronic
Products 3,000,000 Motorola Inc., 5.6%, 1/26/96 ........................ 2,988,333
----------
ENERGY 3.8%
Oil Companies 3,000,000 Chevron Oil Finance Co., 5.55%, 1/11/96 ............. 2,995,375
----------
TOTAL COMMERCIAL PAPER (Cost $58,601,475) ........... 58,601,475
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
10.6% U.S. TREASURY OBLIGATIONS
----------------------------------------------------------------
3,000,000 U.S. Treasury Bill, 5.31%, 3/7/96 2,970,795
3,000,000 U.S. Treasury Bill, 5.21%, 6/13/96 2,928,865
2,500,000 U.S. Treasury Note, 6%, 6/30/96 2,502,688
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $8,402,348) 8,402,348
----------
----------------------------------------------------------------
3.8% SHORT-TERM NOTES
----------------------------------------------------------------
1,000,000 FCC National Bank Notes, 5.8%, 10/10/96 1,000,000
2,000,000 Morgan Bank Delaware, 6.5%, 5/6/96 2,003,033
----------
TOTAL SHORT-TERM NOTES (Cost $3,003,033) 3,003,033
----------
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $79,380,856) (a) 79,380,856
==========
- -------------------------------------------------------------------------------------------------------------
<FN>
(a) Cost for federal income tax purposes is $79,380,856.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments, at value (including repurchase agreements
of $9,374,000) (amortized cost $79,380,856) (Note A) ................... 79,380,856
Cash ........................................................................... 88
Receivables:
Portfolio shares sold .................................................. 426,045
Interest ............................................................... 113,354
----------
Total assets ................................................... 79,920,343
LIABILITIES
Payables:
Portfolio shares redeemed .............................. $ 129,977
Accrued management fee (Note B) ........................ 24,463
Other accrued expenses (Note B) ........................ 18,012
-----------
Total liabilities .............................. 172,452
-----------
Net assets, at value ........................................... $79,747,891
===========
NET ASSETS
Net assets consist of:
Paid-in capital ........................................ 79,747,891
-----------
Net assets, at value ........................................... $79,747,891
===========
NET ASSET VALUE, offering and redemption price per share
($79,747,891/79,747,891 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) .................................................. $1.00
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Interest ............................................. $4,982,809
Expenses (Note A):
Management fee (Note B) ........................... $306,996
Accounting fees (Note B) .......................... 30,000
Trustees' fees (Note B) ........................... 15,730
Custodian fees .................................... 16,922
Legal ............................................. 15,115
Auditing .......................................... 12,773
Other ............................................. 13,669 411,205
----------------------
Net investment income ................................ 4,571,604
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,571,604
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1994 1995
- --------------------------------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income and net increase in net assets
resulting from operations .............................................. $ 4,571,604 $ 2,768,491
------------- -------------
Distributions to shareholders from net investment income
($.055 and $.037 per share, respectively) .............................. (4,571,604) (2,768,491)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold .............................................. 148,542,887 186,827,297
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment in ........... 4,571,604 2,768,491
Cost of shares redeemed ................................................ (163,864,512) (147,877,533)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions. (10,750,021) 41,718,255
------------- -------------
INCREASE (DECREASE) IN NET ASSETS ......................................... (10,750,021) 41,718,255
Net assets at beginning of period ......................................... 90,497,912 48,779,657
------------- -------------
NET ASSETS AT END OF PERIOD ............................................... $ 79,747,891 $ 90,497,912
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT
YEARS ENDED DECEMBER 31, DECEMBER OF OPERATIONS)
---------------------------------------------------------------------- 31, TO JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(e) 1986
---------------------------------------------------------------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) .............. .055 .037 .025 .033 .057 .076 .088 .068 .060 .026 .064
Less distributions from
net investment income ... (.055) (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060) (.026) (.064)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ............ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) ........... 5.65 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95 2.59(d) 6.59(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ....... 80 90 49 34 28 32 15 11 8 3 -
Ratio of operating
expenses, net to
average daily net
assets (%) (a) ........... .50 .56 .66 .64 .67 .69 .72 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
daily net assets (%) ..... 5.51 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06 5.10(c) 6.75(c)
(a) Portion of expenses
reimbursed
(Note B) ............. $ -- $ -- $ -- $ -- $ -- $ -- $ .001 $ .003 $ .006 $ .022 $ .133
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</TABLE>
19
<PAGE>
<TABLE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
13.4% COMMERCIAL PAPER
----------------------------------------------------------------
13,972,000 American Express Credit Corp., 5.003%, 1/2/96
(Cost $13,972,000) .................................. 13,972,000
----------
----------------------------------------------------------------
55.7% U.S. TREASURY OBLIGATIONS
----------------------------------------------------------------
2,145,000 U.S. Treasury 7.25%, 5/15/16 ........................ 2,449,311
10,405,000 U.S. Treasury 6.25%, 8/15/23 ........................ 10,705,809
3,025,000 U.S. Treasury Note, 4.625%, 2/29/96 ................. 3,022,641
5,940,000 U.S. Treasury Note, 4.75%, 2/15/97 .................. 5,904,716
2,300,000 U.S. Treasury Note, 6.75%, 5/31/99 .................. 2,402,419
1,125,000 U.S. Treasury Note, 6%, 10/15/99 .. ................. 1,153,125
24,250,000 U.S. Treasury Note 5,625%, 11/30/00 ................. 24,469,705
5,030,000 U.S. Treasury Note, 6.375%, 8/15/02 ................. 5,274,408
970,000 U.S. Treasury Note, 5.875%, 2/15/04 ................. 990,457
4,125,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 11/15/10 (6.05**) ....... 1,700,449
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $56,836,899) .. 58,073,040
----------
----------------------------------------------------------------
2.0% U.S. GOV'T GUARANTEED MORTGAGES
----------------------------------------------------------------
1,940,521 Government National Mortgage Association, 10%,
8/15/20* (Cost $2,088,486) ........................ 2,135,777
----------
----------------------------------------------------------------
3.3% U.S. GOVERNMENT AGENCY PASS-THRUS
----------------------------------------------------------------
1,990,199 Federal National Mortgage Association, 7%, 8/1/25* .. 2,006,359
1,468,056 Federal National Mortgage Association, 6.5%, 10/1/25* 1,450,615
----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $3,398,741) ................................. 3,456,974
----------
----------------------------------------------------------------
0.1% COLLATERALIZED MORTGAGE OBLIGATIONS
----------------------------------------------------------------
151,335 Federal National Mortgage Association, REMIC,
8.5%, 4/25/18 (Cost $143,673) ....................... 153,320
----------
----------------------------------------------------------------
3.3% FOREIGN BONDS - U.S. $ DENOMINATED
----------------------------------------------------------------
1,000,000 J. Seagram & Sons Inc., 9%, 8/15/21 ................. 1,243,880
1,000,000 Korea Development Bank, 9.6%, 12/1/00 ............... 1,151,520
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 ... 1,092,140
----------
TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
(Cost $3,110,129) ................................. 3,487,540
----------
----------------------------------------------------------------
3.3% FOREIGN BONDS - NON U.S. $ DENOMINATED
----------------------------------------------------------------
DM 2,000,000 Federal Republic of Germany, 6.5%, 7/15/03 .......... 1,453,682
FFr 9,000,000 Government of France OAT, 7.5%, 4/25/05 ............. 1,947,209
----------
TOTAL FOREIGN BONDS - NON U.S. $ DENOMINATED
(Cost $3,238,086) ................................. 3,400,891
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
5.3% ASSET-BACKED SECURITIES
----------------------------------------------------------------
Credit Card
Receivables 2.9% 375,000 Chase Manhattan Credit Card Trust, 1991 "A", 7.65%,
11/15/98 .......................................... 375,116
2,500,000 Standard Credit Card Trust, Series 1990#3B, 9.85%,
7/10/97 ............................................. 2,641,400
---------
3,016,516
---------
Home Equity
Loans 1.1% 705,480 Contimortgage Home Equity Loan Trust, Series
1994-5 A1, 9.07%, 5/15/06* .......................... 708,016
470,072 United Companies Financial Corp., Home Equity
Loan Series 1993#B1, 6.075%, 7/25/14* ............. 465,371
---------
1,173,387
---------
Manufactured
Housing
Receivables 1.3% 1,298,309 Green Tree Financial Corp., Securitized NIM
Series 1994B, 7.85%, 7/15/04* ....................... 1,324,478
---------
TOTAL ASSET-BACKED SECURITIES
(Cost $5,729,122) ................................. 5,514,381
---------
----------------------------------------------------------------
13.6% CORPORATE BONDS
----------------------------------------------------------------
Financial 1.1% 1,000,000 Banc One Corp., 8.74%, 9/15/03 ...................... 1,155,160
----------
Media 1.1% 1,000,000 Time Warner Inc., 9.125%, 1/15/13 ................... 1,126,950
----------
Durables 1.2% 1,000,000 Lockheed Martin Corp., 9%, 1/15/22 .................. 1,277,360
----------
Manufacturing 4.3% 1,000,000 ARCO Chemical Co., 9.375%, 12/15/05 ................. 1,210,240
1,000,000 ITT Destinations, 6.25%, 11/15/00 ................... 1,003,560
1,000,000 ITT Destinations, 6.75%, 11/15/05 ................... 1,004,110
1,000,000 Monsanto Co., 8.7%, 10/15/21 ........................ 1,244,060
----------
4,461,970
----------
Technology 1.1% 1,000,000 Loral Corp., 8.375%, 6/15/24 ........................ 1,148,330
----------
Energy 3.6% 2,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 .............. 2,627,760
1,000,000 Enron Corp., 10%, 6/1/98 ............................ 1,093,760
----------
3,721,520
----------
Transportation 1.2% 600,000 American Airlines, 8.8%, 9/16/15 .................... 660,450
575,000 American Airlines, 8.39%, 1/2/17 .................... 615,250
----------
1,275,700
----------
TOTAL CORPORATE BONDS (Cost $12,393,590) ............ 14,166,990
----------
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO # 100.0%
(Cost $100,910,726) (a) ......................104,360,913
===========
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
21
<PAGE>
BOND PORTFOLIO
- -------------------------------------------------------------------------------
* Effective maturities will be shorter due to amortization and prepayments.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) At December 31, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $100,923,081 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost ............. $3,678,945
Aggregate gross unrealized depreciation for all investments in which
there is an excess of tax cost over market value .................. (241,113)
----------
Net unrealized appreciation ....................................... $3,437,832
==========
- --------------------------------------------------------------------------------
At December 31, 1995, the Bond Portfolio had a net tax basis capital loss
carryforward of approximately $428,367, which may be applied against any
realized net taxable capital gains of each succeeding year until fully utilized
or until December 31, 2003, whichever occurs first.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments
and U.S. Government securities), for the year ended December 31, 1995,
aggregated $75,113,605 and $122,317,664, respectively. Purchases and sales of
U.S. Government securities for the year ended December 31, 1995, aggregated
$158,950,501 and $172,496,242, respectively.
- --------------------------------------------------------------------------------
<TABLE>
COMMITMENTS:
As of December 31, 1995, the Bond Portfolio entered into the following forward
foreign currency exchange contracts resulting in net unrealized depreciation of
$20,855.
<CAPTION>
NET UNREALIZED
APPRECIATION/
SETTLEMENT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- ------------------------ ----------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Deutschemarks 1,850,586 U.S. Dollars 1,306,523 1/22/96 13,068
French Francs 7,318,455 U.S. Dollars 1,463,106 1/22/96 (33,923)
-------
(20,855)
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $100,910,726)
(Note A).......................................................... $104,360,913
Cash................................................................ 581
Unrealized appreciation on forward currency exchange contracts
(Note A).......................................................... 13,068
Receivables:
Interest.......................................................... 1,299,285
Investments sold.................................................. 10,552,620
Portfolio shares sold............................................. 297,074
Receivable on closed forward currency exchange contracts (Note A)... 17,989
------------
Total assets................................................ 116,541,530
LIABILITIES
Payables:
Portfolio shares redeemed......................................... $43,916,987
Accrued management fee (Note B)................................... 51,700
Other accrued expenses (Note B)................................... 24,463
Unrealized depreciation on forward currency exchange
contracts (Note A).......................................... 33,923
-----------
Total liabilities........................................... 44,027,073
------------
Net assets, at market value......................................... $ 72,514,457
============
NET ASSETS
Net assets consist of:
Undistributed net investment income............................... $ 2,587,204
Net unrealized appreciation (depreciation) on:
Investments................................................. 3,450,187
Foreign currency related transactions....................... (20,098)
Accumulated net realized loss..................................... (422,732)
Paid-in capital................................................... 66,919,896
------------
Net assets, at market value......................................... $ 72,514,457
============
NET ASSET VALUE, offering and redemption price per
share ($72,514,457 -:- 10,126,562 outstanding
shares of beneficial interest, no par value,
unlimited number of shares authorized)............................ $7.16
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 9,483,844
Expenses (Note A):
Management fee (Note B)....................................... $ 657,112
Accounting fees (Note B)...................................... 43,187
Trustees' fees (Note B)....................................... 17,202
Custodian fees................................................ 19,516
Auditing...................................................... 16,326
Legal......................................................... 8,521
Other......................................................... 14,814 776,678
----------------------------
Net investment income........................................... 8,707,166
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain from:
Investments................................................... 5,316,995
Foreign currency related transactions......................... 319,329 5,636,324
----------
Net unrealized appreciation (depreciation) during the period on:
Investments................................................... 8,218,048
Foreign currency related transactions......................... (20,098) 8,197,950
---------- -----------
Net gain on investment transactions............................. 13,834,274
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $22,541,440
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income..................................................... $ 8,707,166 $ 8,806,288
Net realized gain (loss) from investment transactions..................... 5,636,324 (5,607,148)
Net unrealized appreciation (depreciation) on investment
transactions during the period.......................................... 8,197,950 (9,672,581)
------------- ------------
Net increase (decrease) in net assets resulting from operations............. 22,541,440 (6,473,441)
------------- ------------
Distributions to shareholders from:
Net investment income ($.45 and $.43 per share, respectively)............. (9,011,114) (8,525,294)
------------- ------------
Net realized gain from investment transactions ($.17 per share)........... -- (3,161,229)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold................................................. 57,366,869 86,578,280
Net asset value of shares issued to shareholders in
reinvestment of distributions........................................... 9,011,114 11,686,523
Cost of shares redeemed................................................... (149,798,464) (66,398,542)
------------- ------------
Net increase (decrease) in net assets from Portfolio share transactions..... (83,420,481) 31,866,261
------------- ------------
INCREASE (DECREASE) IN NET ASSETS........................................... (69,890,155) 13,706,297
Net assets at beginning of period........................................... 142,404,612 128,698,315
------------- ------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $2,587,204 and $2,188,157, respectively)........................ $ 72,514,457 $142,404,612
============= ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period................................... 21,973,579 17,350,092
------------- ------------
Shares sold............................................................... 8,433,349 12,843,292
Shares issued to shareholders in reinvestment of distributions............ 1,343,624 1,713,654
Shares redeemed........................................................... (21,623,990) (9,933,459)
------------- ------------
Net increase (decrease) in Portfolio shares............................... (11,847,017) 4,623,487
------------- ------------
Shares outstanding at end of period......................................... 10,126,562 21,973,579
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
<TABLE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT
YEARS ENDED DECEMBER 31, (e) DECEMBER OF OPERATIONS)
--------------------------------------------------------------------- 31, TO JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
--------------------------------------------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a)............ .44 .43 .48 .49 .52 .53 .54 .54 .49 .23 .45
Net realized and
unrealized gain
(loss) on
investment
transactions.......... .69 (.77) .38 (.02) .61 (.02) .18 (.19) (.40) .08 .44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................ 1.13 (.34) .86 .47 1.13 .51 .72 .35 .09 .31 .89
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income..... (.45) (.43) (.48) (.46) (.47) (.50) (.39) (.43) (.29) (.17) (.33)
Net realized gains
on investment
transactions............ -- (.17) (.15) (.19) (.02) -- -- -- -- (.03) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions......... (.45) (.60) (.63) (.65) (.49) (.50) (.39) (.43) (.29) (.20) (.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period............. $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67 $ 6.56
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) 18.17 (4.79) 12.38 7.01 17.61 8.06 11.65 5.46 1.22 4.90(d) 15.11(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions)....... 73 142 129 113 74 42 22 3 3 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a)............ .56 .58 .61 .63 .69 .73 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%)............ 6.29 6.43 6.59 6.89 7.51 8.05 8.04 7.86 7.53 6.88(c) 7.48(c)
Portfolio turnover
rate (%).................. 177.21 96.55 125.15 87.00 115.86 71.02 103.41 245.23 186.05 23.82(c) 6.27(c)
<FN>
(a) Portion of expenses
reimbursed (Note B)..... $ -- $ -- $ -- $ -- $ -- $ -- $ .01 $ .04 $ .08 $ .21 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</FN>
</TABLE>
26
<PAGE>
<TABLE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------------------
4.5% REPURCHASE AGREEMENT
-----------------------------------------------------------------------------
3,023,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 12/29/95 at 5.85%,
to be repurchased at $3,024,965 on 1/2/96,
collateralized by a $2,582,000 U.S. Treasury
Bond, 7.25%, 8/15/22 (Cost $3,023,000)............ 3,023,000
----------
-----------------------------------------------------------------------------
19.2% U.S. TREASURY OBLIGATIONS
-----------------------------------------------------------------------------
250,000 U.S. Treasury Bill, 5.3%, 1/11/96.................. 249,698
700,000 U.S. Treasury Bond, 7.25%, 5/15/16................. 799,309
300,000 U.S. Treasury Bond, 8.125%, 5/15/21................ 379,359
1,350,000 U.S. Treasury Bond, 6.25%, 8/15/23................. 1,389,029
275,000 U.S. Treasury Note, 4.375%, 11/15/96............... 272,982
550,000 U.S. Treasury Note, 4.75%, 2/15/97................. 546,733
250,000 U.S. Treasury Note, 6.125%, 5/31/97................ 253,048
900,000 U.S. Treasury Note, 5.25%, 7/31/98................. 900,279
200,000 U.S. Treasury Note, 5.875%, 3/31/99................ 203,562
1,000,000 U.S. Treasury Note, 6.75%, 5/31/99................. 1,044,530
1,000,000 U.S. Treasury Note, 6.375%, 1/15/00................ 1,038,280
3,650,000 U.S. Treasury Note, 5.625%, 11/30/00............... 3,683,069
1,250,000 U.S. Treasury Note, 6.375%, 8/15/02................ 1,310,738
800,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 11/15/10 (6.05**)....... 329,784
1,460,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 2/15/12 (6.13**)........ 551,646
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $12,503,802). 12,952,046
----------
-----------------------------------------------------------------------------
2.0% U.S. GOV'T GUARANTEED MORTGAGES
-----------------------------------------------------------------------------
719,018 Government National Mortgage Association, 10%,
8/15/20 (a)....................................... 791,366
532,237 Government National Mortgage Association, 8.75%,
12/15/24 (a)...................................... 556,188
----------
TOTAL U.S. GOV'T GUARANTEED MORTGAGES
(Cost $1,278,803)................................. 1,347,554
----------
-----------------------------------------------------------------------------
2.7% U.S. GOVERNMENT AGENCY PASS-THRUS
-----------------------------------------------------------------------------
805,276 Federal National Mortgage Association, 7%,
9/1/25 (a)........................................ 811,815
993,206 Federal National Mortgage Association, 6.5%,
10/1/25 (a)....................................... 981,406
----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $1,751,178)................................. 1,793,221
----------
-----------------------------------------------------------------------------
0.2% COLLATERALIZED MORTGAGE OBLIGATIONS
-----------------------------------------------------------------------------
151,335 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (Cost $145,376)........................... 153,320
----------
-----------------------------------------------------------------------------
0.8% FOREIGN BONDS - U.S. $ DENOMINATED
-----------------------------------------------------------------------------
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23................... 274,707
250,000 Seagram Co., Ltd., 6.875%, 9/1/23.................. 249,268
----------
TOTAL FOREIGN BONDS -- U.S. $ DENOMINATED
(Cost $461,469)................................... 523,975
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------------------
1.5% FOREIGN BONDS - NON U.S. $ DENOMINATED
-----------------------------------------------------------------------------
DM 650,000 Federal Republic of Germany, 6.5%, 7/15/03........ 472,447
FFr2,400,000 Government of France OAT, 7.5%, 4/25/05........... 519,256
---------
TOTAL FOREIGN BONDS -- NON U.S. $ DENOMINATED
(Cost $946,463)................................. 991,703
---------
-----------------------------------------------------------------------------
2.0% ASSET-BACKED SECURITIES
-----------------------------------------------------------------------------
AUTOMOBILE RECEIVABLES 0.3%
176,685 Premier Auto Trust Asset Backed Certificate
Series 1994-3, 6.8%, 12/2/99 (a)................. 178,672
---------
CREDIT CARD RECEIVABLES 0.8%
62,500 Chase Manhattan Credit Card Trust, 1991 "A",
7.65%, 11/15/98 (a).............................. 62,519
250,000 First Chicago Master Trust, Series 1991-D,
8.4%, 6/15/98.................................... 252,890
250,000 Standard Credit Card Trust, Series 1990-6B,
9.625%, 9/10/97.................................. 264,608
---------
580,017
---------
HOME EQUITY LOANS 0.3%
88,185 Contimortgage Home Equity Loan Trust, Series
1994-5 A1, 9.07%, 5/15/06 (a).................... 88,502
117,518 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 (a).............. 116,343
---------
204,845
---------
MANUFACTURED HOUSING
RECEIVABLES 0.6%
420,749 Green Tree Financial Corp. Series 1995-7 A1, 6%,
10/15/26......................................... 421,669
---------
TOTAL ASSET-BACKED SECURITIES (Cost $1,397,605)... 1,385,203
---------
-----------------------------------------------------------------------------
7.3% CORPORATE BONDS
-----------------------------------------------------------------------------
CONSUMER DISCRETIONARY 0.4%
250,000 Price/Costco Inc., 7.125%, 6/15/05................ 261,348
---------
CONSUMER STAPLES 0.4%
270,000 J. Seagram & Sons Inc., 7%, 4/15/08............... 279,083
---------
FINANCIAL 0.4%
250,000 NationsBank Corp., 7.25%, 10/15/25................ 259,420
---------
MEDIA 1.7%
1,000,000 Time Warner Inc., 9.125%, 1/15/13................. 1,126,950
---------
DURABLES 0.5%
250,000 Lockheed Martin Corp., 9%, 1/15/22................ 319,340
---------
MANUFACTURING 1.1%
250,000 Corning Inc., 8.75%, 7/15/99...................... 270,632
200,000 ITT Destinations, 6.25%, 11/15/00................. 200,712
300,000 ITT Destinations, 6.75%, 11/15/05................. 301,233
---------
772,577
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------------------
TECHNOLOGY 0.8%
500,000 Loral Corp., 8.375%, 6/15/24.......................... 574,165
---------
ENERGY 1.3%
500,000 Atlantic Richfield Co., 8.25%, 2/1/22................. 578,165
250,000 Enron Corp., 10%, 6/1/98.............................. 273,440
---------
851,605
---------
TRANSPORTATION 0.3%
100,000 American Airlines, 8.8%, 9/16/15...................... 110,075
100,000 American Airlines, 8.39%, 1/2/17...................... 107,000
---------
217,075
---------
UTILITIES 0.4%
250,000 Commonwealth Edison Co., 9.05%, 10/15/99.............. 266,940
---------
TOTAL CORPORATE BONDS (Cost $4,514,595)............... 4,928,503
---------
-----------------------------------------------------------------------------
0.6% PREFERRED STOCKS
-----------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------------
TECHNOLOGY
Computer Software 2,500 SAP AG (Cost $372,379)................................ 378,709
---------
-----------------------------------------------------------------------------
59.2% COMMON STOCKS
-----------------------------------------------------------------------------
CONSUMER DISCRETIONARY 5.1%
Department & Chain
Stores 2.8% 15,400 Nordstrom, Inc. ...................................... 623,700
26,900 Rite Aid Corp. ....................................... 921,325
16,000 Wal-Mart Stores Inc. ................................. 358,000
---------
1,903,025
---------
Restaurants 0.9% 13,800 McDonald's Corp. ..................................... 622,725
---------
Specialty Retail 1.4% 16,300 Corporate Express, Inc.* ............................. 491,037
27,300 Intimate Brands, Inc. ................................ 409,500
---------
900,537
---------
CONSUMER STAPLES 10.6%
Alcohol & Tobacco 1.9%
14,100 Philip Morris Companies Inc. ......................... 1,276,050
---------
Consumer Electronic &
Photographic Products 0.6%
8,400 Duracell International Inc. .......................... 434,700
---------
Food & Beverage 5.2% 22,000 Albertson's Inc. ..................................... 723,250
6,000 CPC International Inc. ............................... 411,750
14,000 ConAgra Inc. ......................................... 577,500
17,500 PepsiCo Inc. ......................................... 977,812
25,600 Sara Lee Corp. ....................................... 816,000
---------
3,506,312
---------
Package Goods/
Cosmetics 2.9% 2,700 Clorox Co. ........................................... 193,387
4,800 Colgate-Palmolive Co. ................................ 337,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8,200 Gillette Co. ......................................... 427,425
11,900 Procter & Gamble Co. ................................. 987,700
---------
1,945,712
---------
HEALTH 10.3%
Biotechnology 0.8% 13,139 Guidant Corp. ........................................ 555,123
---------
Hospital Management 1.2% 15,800 Columbia/HCA Healthcare Corp. ........................ 801,850
---------
Medical Supply
& Specialty 1.9% 11,900 Becton, Dickinson & Co. .............................. 892,500
7,500 Medtronic Inc. ....................................... 419,062
---------
1,311,562
---------
Pharmaceuticals 6.4% 4,500 American Home Products Corp. ......................... 436,500
14,870 Eli Lilly & Co. ...................................... 836,437
10,400 Johnson & Johnson .................................... 890,500
16,500 Merck & Co. Inc. ..................................... 1,084,875
5,300 Sandoz Ltd. AG (ADR) ................................. 242,806
14,600 Schering-Plough Corp. ................................ 799,350
---------
4,290,468
---------
COMMUNICATIONS 1.6%
Cellular Telephone 0.5% 11,600 AirTouch Communications, Inc.* ....................... 327,700
---------
Telephone/
Communications 1.1% 11,300 American Telephone & Telegraph Co. ................... 731,675
---------
FINANCIAL 5.2%
Banks 1.0% 15,300 State Street Boston Corp. ............................ 688,500
---------
Insurance 2.9% 10,850 American International Group, Inc. ................... 1,003,625
6,000 EXEL, Ltd. ........................................... 366,000
7,700 MBIA Inc. ............................................ 577,500
---------
1,947,125
---------
Other Financial
Companies 1.3% 7,200 Federal National Mortgage Association ................ 893,700
---------
MEDIA 4.4%
Advertising 0.6% 9,500 Interpublic Group of Companies Inc. .................. 412,062
---------
Broadcasting &
Entertainment 3.8% 8,400 Broderbund Software Inc.* ............................ 510,300
4,000 Capital Cities/ABC Inc. .............................. 493,500
16,700 Time Warner Inc. ..................................... 632,513
11,600 Viacom Inc. "B"* ..................................... 549,550
6,600 Walt Disney Co. ...................................... 389,400
---------
2,575,263
---------
SERVICE INDUSTRIES 5.1%
EDP Services 2.3% 9,400 First Data Corp. ..................................... 628,625
16,900 General Motors Corp. "E" ............................. 878,800
---------
1,507,425
---------
Investment 0.8% 27,000 Charles Schwab Corp. ................................. 543,375
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miscellaneous
Commercial Services 0.6% 22,900 Sensormatic Electronics Corp. .......................... 397,888
---------
Miscellaneous
Consumer Services 0.7% 11,000 Service Corp. International ............................ 484,000
---------
Printing/Publishing 0.7% 8,600 Reuters Holdings PLC "B" (ADR) ......................... 474,075
---------
DURABLES 2.7%
Aerospace 1.3% 11,400 Boeing Co. ............................................. 893,475
---------
Telecommunications
Equipment 1.4% 10,700 DSC Communications Corp.* .............................. 394,562
26,400 L.M. Ericsson Telephone Co. "B" (ADR) .................. 514,800
---------
909,362
---------
MANUFACTURING 4.5%
Chemicals 0.9% 11,900 Sigma-Aldrich Corp. .................................... 589,050
---------
Diversified
Manufacturing 2.3% 10,200 Dover Corp. ............................................ 376,125
11,700 General Electric Co. ................................... 842,400
6,150 Thermo Electron Corp.* ................................. 319,800
---------
1,538,325
---------
Electrical Products 1.3% 4,200 ASEA AB (ADR) .......................................... 406,875
5,700 Emerson Electric Co. ................................... 465,975
---------
872,850
---------
TECHNOLOGY 7.8%
Computer Software 0.8% 7,600 Informix Corp.* ........................................ 228,000
3,600 Microsoft Corp.* ....................................... 315,900
---------
543,900
---------
Diverse Electronic
Products 1.4% 10,200 Applied Materials, Inc.* ............................... 401,625
9,600 Motorola Inc. .......................................... 547,200
---------
948,825
---------
Electronic Data
Processing 1.4% 8,000 Hewlett-Packard Co. .................................... 670,000
9,100 Silicon Graphics Inc.* ................................. 250,250
---------
920,250
---------
Military Electronics 1.1% 21,200 Loral Corp. ............................................ 749,950
---------
Office/Plant
Automation 1.3% 7,700 3Com Corp.* ............................................ 359,013
6,800 Cisco Systems, Inc.* ................................... 507,450
---------
866,463
---------
Semiconductors 1.8% 14,900 Atmel Corp.* ........................................... 333,387
10,600 Intel Corp. ............................................ 601,550
9,400 LSI Logic Corp. ........................................ 307,850
---------
1,242,787
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY 1.9%
Engineering 0.9% 8,800 Fluor Corp. ........................................... 580,800
----------
Oil/Gas Transmission 1.0% 17,900 Enron Corp. ........................................... 682,437
----------
TOTAL COMMON STOCKS (Cost $32,024,744) ................ 39,869,326
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $58,419,414) (b) ............................... 67,346,560
==========
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* Non-income producing security.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) Effective maturities will be shorter due to amortization and prepayments.
(b) At December 31, 1995, the net unrealized appreciation on investments based on cost for federal
income tax purposes of $58,466,593 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market
value over tax cost ............................................................................... $9,608,851
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over market value ............................................................................ (728,884)
----------
Net unrealized appreciation ......................................................................... $8,879,967
==========
</FN>
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and U.S. Government securities), for
the year ended December 31, 1995, aggregated $40,832,157 and $36,997,809, respectively. Purchases and sales of U.S.
Government securities for the year ended December 31, 1995, aggregated $20,096,985 and $9,538,073, respectively.
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS:
As of December 31, 1995, the Balanced Portfolio entered into the following forward foreign currency exchange
contracts resulting in net unrealized depreciation of $6,165.
<CAPTION>
NET UNREALIZED
APPRECIATION/
SETTLEMENT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- --------------------------- --------------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Deutschemarks 659,903 U.S. Dollars 465,895 1/22/96 4,660
French Francs 2,335,440 U.S. Dollars 466,901 1/22/96 (10,825)
-------
(6,165)
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $58,419,414) (Note A).................. $67,346,560
Cash .......................................................................... 690
Unrealized appreciation on forward currency exchange contacts (Note A) ........ 4,660
Receivables:
Investments sold ............................................................ 85,270
Dividends and interest ...................................................... 412,970
Portfolio shares sold ....................................................... 195,695
-----------
Total assets .............................................................. 68,045,845
LIABILITIES
Payables:
Portfolio shares redeemed ................................................... $57,674
Accrued management fee (Note B) ............................................. 26,469
Other accrued expenses (Note B) ............................................. 25,088
Unrealized depreciation on forward currency exchange
contracts (Note A) ........................................................ 10,825
-------
Total liabilities ......................................................... 120,056
-----------
Net assets, at market value ................................................... $67,925,789
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income ......................................... $ 483,837
Net unrealized appreciation (depreciation) on:
Investments ............................................................... 8,927,146
Foreign currency related transactions ..................................... (5,965)
Accumulated net realized gain ............................................... 1,831,568
Paid-in capital ............................................................. 56,689,203
-----------
Net assets, at market value ................................................... $67,925,789
===========
NET ASSET VALUE, offering and redemption price per share
($67,925,789 divided by 6,206,064 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .............. $10.95
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
<TABLE>
BALANCED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest ...................................................... $ 1,516,654
Dividends (net of foreign taxes withheld of $5,268) ........... 564,132
-----------
2,080,786
Expenses (Note A):
Management fee (Note B) ....................................... $ 269,230
Accounting fees (Note B) ...................................... 37,353
Trustees' fees (Note B) ....................................... 15,758
Custodian fees ................................................ 24,505
Auditing ...................................................... 6,833
Legal ......................................................... 3,253
Other ......................................................... 13,961 370,893
---------- -----------
Net investment income ........................................... $ 1,709,893
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain from:
Investments ................................................... 2,268,896
Foreign currency related transactions ......................... 38,133 2,307,029
----------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................... 9,165,065
Foreign currency related transactions ......................... (5,965) 9,159,100
---------- -----------
Net gain on investment transactions ............................... 11,466,129
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $13,176,022
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 1,709,893 $ 1,464,324
Net realized gain (loss) from investment transactions .................. 2,307,029 (70,680)
Net unrealized appreciation (depreciation) on investment
transactions during the period ....................................... 9,159,100 (2,374,110)
----------- -----------
Net increase (decrease) in net assets resulting from operations .......... 13,176,022 (980,466)
Distributions to shareholders from:
Net investment income ($.30 and $.30 per share, respectively) .......... (1,673,390) (1,442,472)
----------- -----------
Net realized gains from investment transactions
($.06 and $.77 per share, respectively) .............................. (316,977) (3,525,834)
----------- -----------
Portfolio share transactions:
Proceeds from shares sold .............................................. 16,676,142 14,384,876
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................................ 1,990,367 4,968,306
Cost of shares redeemed ................................................ (7,450,950) (12,950,121)
----------- -----------
Net increase in net assets from Portfolio share transactions ............. 11,215,559 6,403,061
----------- -----------
INCREASE IN NET ASSETS ................................................... 22,401,214 454,289
Net assets at beginning of period ........................................ 45,524,575 45,070,286
----------- -----------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $483,837 and $392,285, respectively) .............. $67,925,789 $45,524,575
=========== ===========
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ................................ 5,076,236 4,407,727
----------- -----------
Shares sold ............................................................ 1,667,336 1,539,383
Shares issued to shareholders in reinvestment of distributions ......... 204,454 532,133
Shares redeemed ........................................................ (741,962) (1,403,007)
----------- -----------
Net increase in Portfolio shares ....................................... 1,129,828 668,509
----------- -----------
Shares outstanding at end of period ...................................... 6,206,064 5,076,236
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
<TABLE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT
YEARS ENDED DECEMBER 31, (e) DECEMBER OF OPERATIONS)
--------------------------------------------------------------------- 31, TO JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
--------------------------------------------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period........ $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a)............... .30 .29 .30 .29 .35 .42 .40 .33 .34 .15 .31
Net realized and
unrealized gain (loss)
on investment
transactions............. 2.04 (.48) .42 .36 1.77 (.59) 1.06 .64 (.45) (.11) 1.50
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................. 2.34 (.19) .72 .65 2.12 (.17) 1.46 .97 (.11) .04 1.81
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income................... (.30) (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23) (.18) (.23)
Net realized gains
on investment
transactions............. (.06) (.77) (.23) (.19) -- (.05) -- -- (.13) (.09) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.......... (.36) (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36) (.27) (.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period.............. $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35 $ 7.58
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) 26.67 (2.05) 7.45 6.96 26.93 (1.91) 19.50 14.21 (1.68) .46(d) 30.60(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions)........ 68 46 45 37 25 16 18 11 12 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a)............. .65 .75 .75 .75 .75 .75 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ............ 3.01 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42 4.20(c) 4.87(c)
Portfolio turnover
rate (%)................... 87.98 101.64 133.95* 51.66 62.03 49.03 77.98 109.95 111.00 28.86(c) 64.12(c)
<FN>
(a) Portion of expenses
reimbursed (Note B) $ -- $ -- $ -- $ -- $ .01 $ -- $ .01 $ .03 $ .03 $ .17 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares outstanding
during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
*On May 1, 1993, the Portfolio adopted its present name and investment objective which is a balance of growth and income
from a diversified portfolio of equity and fixed income securities. Prior to that date, the Portfolio was known as the
Managed Diversified Portfolio and its investment objective was to realize a high level of long-term total rate of return
consistent with prudent investment risk. The portfolio turnover rate increased due to implementing the present investment
objective. Financial highlights for the nine periods ended December 31, 1993 should not be considered representative of
the present Portfolio.
</FN>
</TABLE>
36
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------
5.5% REPURCHASE AGREEMENT
-------------------------------------------------------------------------------
2,860,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 12/29/95 at 5.85%, to be repurchased
at $2,861,859 on 1/2/96, collateralized by a $2,108,000
U.S. Treasury Bond, 8.875%, 8/15/17 (Cost $2,860,000) .. 2,860,000
---------
-------------------------------------------------------------------------------
2.5% CONVERTIBLE BONDS
-------------------------------------------------------------------------------
HEALTH 0.3%
Pharmaceuticals 140,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 .................... 132,300
---------
FINANCIAL 0.1%
Other Financial
Companies 40,000 First Financial Management Corp., 5%, 12/15/99 .......... 64,300
---------
SERVICE INDUSTRIES 0.4%
Miscellaneous
Commercial Services 335,000 ADT Operations Inc. LYON, 7/6/10 ........................ 159,963
54,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ........... 58,050
---------
218,013
---------
TECHNOLOGY 1.7%
Computer Software 0.2% 120,000 Softkey International, Inc., 5.5%, 11/1/00 .............. 89,700
---------
Semiconductors 1.5% 850,000 VLSI Technology, Inc., 8.25%, 10/1/05 ................... 788,375
---------
TOTAL CONVERTIBLE BONDS (Cost $1,326,234) ............... 1,292,688
---------
-------------------------------------------------------------------------------
2.6% CONVERTIBLE PREFERRED STOCKS
-------------------------------------------------------------------------------
Shares
-------------------------------------------------------------------------------
HEALTH 1.1%
Health Industry
Services 21,500 FHP International Corp., "A", Cum. $1.25 ................. 572,438
---------
FINANCIAL 0.8%
Consumer Finance 10,400 Advanta Corp., 6.75% .................................... 399,100
---------
MANUFACTURING 0.7%
Containers & Paper 0.4% 700 Boise Cascade Corp. "G", Cum $1.58 ...................... 20,038
4,500 International Paper Co., 5.25% .......................... 202,500
---------
222,538
---------
Industrial Specialty 0.3% 10,000 Cooper Industries, Inc., 6%* ............................ 137,500
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $1,308,308) .... 1,331,576
---------
-------------------------------------------------------------------------------
89.4% COMMON STOCKS
-------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 3.9%
Department &
Chain Stores 3.5% 12,100 J.C. Penney Co., Inc. ................................... 576,262
1,200 May Department Stores ................................... 50,700
9,300 Melville Corp. .......................................... 285,975
13,800 Rite Aid Corp. .......................................... 472,650
</TABLE>
The accompanying notes an integral part of the financial statements.
37
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10,900 Sears, Roebuck & Co. .................................... 425,100
---------
1,810,687
---------
Specialty Retail 0.4% 13,000 Intimate Brands, Inc. ................................... 195,000
---------
CONSUMER STAPLES 12.0%
Alcohol & Tobacco 4.1% 10,400 Anheuser Busch Companies, Inc. .......................... 695,500
9,600 Philip Morris Companies Inc. ............................ 868,800
17,980 RJR Nabisco Holdings Corp. .............................. 555,132
1,080 Schweitzer-Mauduit International, Inc.* ................ 24,975
---------
2,144,407
---------
Food & Beverage 3.3% 9,700 General Mills, Inc. ..................................... 560,175
22,800 H.J. Heinz Co. .......................................... 755,250
11,000 Quaker Oats Co. ......................................... 379,500
---------
1,694,925
---------
Package Goods/
Cosmetics 4.6% 6,000 Avon Products Inc. ..................................... 452,250
6,700 Clorox Co. .............................................. 479,887
2,000 Colgate-Palmolive Co. ................................... 140,500
10,800 Kimberly-Clark Corp. .................................... 893,700
8,400 Tambrands Inc. ......................................... 401,100
---------
2,367,437
---------
HEALTH 13.3%
Health Industry
Services 0.3% 2,900 U.S. HealthCare, Inc. .................................. 134,850
---------
Medical Supply &
Specialty 1.4% 18,800 Bausch & Lomb, Inc. ..................................... 744,950
---------
Pharmaceuticals 11.6% 8,600 American Home Products Corp. ............................ 834,200
20,000 Baxter International Inc. ............................... 837,500
6,700 Bristol-Myers Squibb Co. ............................... 575,362
16,000 Carter-Wallace Inc. ..................................... 182,000
19,100 Eli Lilly & Co. ......................................... 1,074,375
13,700 Schering-Plough Corp. ................................... 750,075
10,900 SmithKline Beecham PLC (ADR)............................. 604,950
7,200 Warner-Lambert Co. ...................................... 699,300
18,200 Zeneca Group PLC......................................... 352,206
1,300 Zeneca Group PLC (ADR) .................................. 75,888
---------
5,985,856
---------
COMMUNICATIONS 5.6%
Telephone/
Communications 23,100 Alltel Corp. ............................................ 681,450
14,500 GTE Corp. ............................................... 638,000
18,500 Hong Kong Telecommunications Ltd. (ADR).................. 328,375
12,300 Koninklijke PTT Nederland ............................... 447,594
12,500 Sprint Corp.............................................. 498,438
11,800 Tele Danmark A/S (ADR) .................................. 325,975
---------
2,919,832
---------
FINANCIAL 17.0%
Banks 6.1% 9,200 Bankers Trust New York Corp. ........................... 611,800
9,700 Chemical Banking Corp. .................................. 569,875
15,800 CoreStates Financial Corp. .............................. 598,425
14,900 First Bank System Inc. .................................. 739,412
8,100 J.P. Morgan & Co., Inc. ................................ 650,025
---------
3,169,537
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance 3.3% 6,952 Allstate Corp. .......................................... 285,901
6,800 EXEL, Ltd. .............................................. 414,800
4,200 Hartford Steam Boiler Inspection & Insurance Co. ........ 210,000
15,300 Lincoln National Corp.................................... 822,375
---------
1,733,076
---------
Other Financial
Companies 3.4% 5,000 Federal National Mortgage Association ................... 620,625
17,000 Student Loan Marketing Association....................... 1,119,875
---------
1,740,500
---------
Real Estate 4.2% 10,584 HGI Realty, Inc. (REIT) ................................. 242,109
17,600 Health Care Property Investment Inc. (REIT) ............. 618,200
18,800 Meditrust SBI (REIT)..................................... 655,650
15,700 Nationwide Health Properties Inc. (REIT) ................ 659,400
---------
2,175,359
---------
MEDIA 0.5%
Print Media
4,600 Reader's Digest Association Inc. "A" .................... 235,750
---------
SERVICE INDUSTRIES 2.6%
Miscellaneous
Consumer Services 1.6% 20,900 H&R Block Inc. .......................................... 846,450
---------
Printing/Publishing 1.0% 14,200 Deluxe Corp. ............................................ 411,800
1,700 Dun & Bradstreet Corp. .................................. 110,075
---------
521,875
---------
DURABLES 6.2%
Aerospace 5.6% 11,742 Lockheed Martin Corp. .................................. 927,618
13,700 Rockwell International Corp. ............................ 724,388
1,300 Thiokol Corp. ........................................... 44,038
12,900 United Technologies Corp. ............................... 1,223,888
---------
2,919,932
---------
Automobiles 0.5%
9,400 Dana Corp. ............................................. 274,950
---------
Construction/
Agricultural Equipment 0.1% 500 PACCAR, Inc. ........................................... 21,063
---------
MANUFACTURING 13.1%
Chemicals 3.2% 5,400 Dow Chemical Co. ........................................ 380,025
11,200 E.I. du Pont de Nemours & Co. ........................... 782,600
2,100 Lubrizol Corp. .......................................... 58,537
18,400 Lyondell Petrochemical Co. .............................. 420,900
---------
1,642,062
---------
Diversified
Manufacturing 3.8% 25,500 Dresser Industries Inc. ................................ 621,562
4,700 Olin Corp. .............................................. 348,975
12,600 TRW Inc. ................................................ 976,500
---------
1,947,037
---------
Electrical Products 0.9%
6,500 Thomas & Betts Corp. .................................... 479,375
---------
Industrial Specialty 0.3%
4,900 Corning Inc. ............................................ 156,800
---------
Machinery/
Components/Controls 0.7% 3,000 General Signal Corp. .................................... 97,125
7,100 Timken Co. .............................................. 271,575
---------
368,700
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office Equipment/
Supplies 2.0% 7,600 Xerox Corp. ............................................. 1,041,200
---------
Specialty Chemicals 2.0% 11,300 Betz Laboratories Inc. .................................. 463,300
19,100 Witco Corp. ............................................. 558,675
---------
1,021,975
---------
Wholesale Distributors 0.2% 1,400 Alco Standard Corp. ..................................... 119,700
---------
ENERGY 8.9%
Oil Companies 7.9% 6,100 Exxon Corp. ............................................. 488,762
12,500 Murphy Oil Corp. ........................................ 518,750
8,200 Pennzoil Co. ............................................ 346,450
7,800 Repsol SA (ADR) ......................................... 256,425
3,400 Royal Dutch Petroleum Co. (New York shares) ............. 479,825
15,156 Societe Nationale Elf Aquitaine (ADR) ................... 556,983
4,900 Texaco Inc. ............................................. 384,650
14,619 Total SA (ADR)........................................... 497,046
26,700 YPF S.A. "D" (ADR) ...................................... 577,388
---------
4,106,279
---------
Oilfield Services/
Equipment 1.0% 10,300 Halliburton Co. ......................................... 521,437
---------
METALS & MINERALS 1.6%
Steel & Metals 22,500 Freeport McMoRan Copper & Gold, Inc. "A" ................ 630,000
13,500 Oregon Steel Mills Inc. ................................ 189,000
---------
819,000
---------
TRANSPORTATION 0.5%
Railroads 18,300 Canadian National Railway Co.* .......................... 274,500
---------
UTILITIES 4.2%
Electric Utilities 12,700 CINergy Corp. ........................................... 388,937
6,000 CMS Energy Corp. ........................................ 179,250
12,300 National Power PLC (ADR) ................................ 113,775
7,400 PacifiCorp .............................................. 157,250
3,300 Pacific Gas & Electric Co. ............................. 93,637
11,100 PowerGen PLC (ADR)....................................... 145,687
17,400 Southern Company ........................................ 428,475
3,100 Texas Utilities Co., Inc. ............................... 127,488
16,000 Unicom Corp. ............................................ 524,000
----------
2,158,499
----------
TOTAL COMMON STOCKS (Cost $38,498,256) 46,293,000
----------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $43,992,798) (a) ............................... 51,777,264
==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------
<S> <C> <C>
* Non-income producing security.
(a) At December 31, 1995, the net unrealized
appreciation on investments based on cost for
federal income tax purposes of $44,003,751 was
as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of market value over tax cost........................ $8,264,388
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over market value........................ (490,875)
----------
Net unrealized appreciation ......................... $7,773,513
==========
- -----------------------------------------------------------------------------
Purchases and sales of investment securities (excluding
short-term investments), for the year ended December 31, 1995,
aggregated $29,962,747 and $8,412,075, respectively.
</TABLE>
41
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $43,992,798) (Note A)....... $51,777,264
Cash................................................................ 814
Receivables:
Investments sold............................................ 112,347
Dividends and interest...................................... 176,163
Portfolio shares sold....................................... 157,901
-----------
Total assets........................................ 52,224,489
LIABILITIES
Payables:
Investments purchased....................................... $ 53,204
Portfolio shares redeemed................................... 98,724
Accrued management fee (Note B)............................. 85,616
Other accrued expenses (Note B)............................. 24,511
-----------
Total liabilities................................... 262,055
-----------
Net assets, at market value ........................................ $51,962,434
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income......................... $ 403,970
Net unrealized appreciation on investments.................. 7,784,466
Accumulated net realized gain............................... 665,292
Paid-in capital............................................. 43,108,706
-----------
Net assets, at market value......................................... $51,962,434
===========
NET ASSET VALUE, offering and redemption price per share
($51,962,434 DIVIDED BY 6,510,714 outstanding shares of beneficial
interest, no par value, unlimited number of
shares authorized).......................................... $7.98
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of
$9,696).......................................... $1,273,665
Interest........................................... 135,250
----------
1,408,915
Expenses (Note A):
Management fee (Note B)............................ $169,852
Accounting fees (Note B)........................... 38,256
Trustees' fees (Note B)............................ 15,468
Custodian fees..................................... 26,622
Federal registration............................... 7,475
Auditing........................................... 4,086
Legal.............................................. 2,265
Other.............................................. 6,597
--------
Total expenses before reductions................... 270,621
Management fee reduction (Note B) ................. (1,982)
--------
Expenses, net.............................................. 268,639
----------
Net investment income...................................... 1,140,276
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments........................................ 686,492
Foreign currency related transactions.............. (1,006) 685,486
--------
Net unrealized appreciation on investments during the period 8,112,233
----------
Net gain on investment transactions........................ 8,797,719
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $9,937,995
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
<TABLE>
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
MAY 2, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income....................................... $ 1,140,276 $ 251,018
Net realized gain from investment transactions.............. 685,486 124,765
Net unrealized appreciation (depreciation) on investment
transactions during the period...................... 8,112,233 (327,767)
---------- -----------
Net increase in net assets resulting from operations................ 9,937,995 48,016
---------- -----------
Distributions to shareholders from:
Net investment income ($.19 and $.04 per share, respectively) (895,880) (86,114)
---------- -----------
Net realized gains from investment transactions
($.04 per share) (150,289) --
---------- -----------
Portfolio share transactions:
Proceeds from shares sold .................................. 29,272,260 22,441,709
Net asset value of shares issued to shareholders
in reinvestment of distributions.................... 1,046,169 86,114
Cost of shares redeemed..................................... (7,322,663) (2,415,483)
---------- -----------
Net increase in net assets from Portfolio share transactions........ 22,995,766 20,112,340
---------- -----------
INCREASE IN NET ASSETS.............................................. 31,887,592 20,074,242
Net assets at beginning of period................................... 20,074,842 600
---------- ---------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $403,970 and $164,132, respectively)... $51,962,434 $20,074,842
=========== ===========
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period........................... 3,204,882 100
---------- ---------
Shares sold................................................. 4,166,992 3,576,097
Shares issued to shareholders in reinvestment of
distributions 151,454 13,561
Shares redeemed.............................................. (1,012,614) (384,876)
---------- ---------
Net increase in Portfolio shares............................. 3,305,832 3,204,782
---------- ---------
Shares outstanding at end of period.................................. 6,510,714 3,204,882
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period (e) and other
performance information derived from the financial statements.
<CAPTION>
FOR THE PERIOD
MAY 2, 1994
YEAR (COMMENCEMENT
ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1995 1994
------------ ----------------
<S> <C> <C>
Net asset value, beginning of period......................................... $ 6.26 $ 6.00(b)
------ ------
Income from investment operations:
Net investment income (a) ........................................... .23 .13
Net realized and unrealized gain (loss) on investment transactions... 1.72 .17(f)
------ ------
Total from investment operations............................................. 1.95 .30
------ ------
Less distributions from:
Net investment income................................................ (.19) (.04)
Net realized gains on investment transactions........................ (.04) --
------ ------
Total distributions.......................................................... (.23) (.04)
------ ------
Net asset value, end of period............................................... $ 7.98 $ 6.26
====== ======
TOTAL RETURN (%)............................................................. 31.74 4.91(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions)....................................... 52 20
Ratio of operating expenses, net to average net assets (%) (a) .............. .75 .75(c)
Ratio of net investment income to average net assets (%)..................... 3.18 3.63(c)
Portfolio turnover rate (%) ................................................. 24.33 28.41(c)
(a) Portion of expenses waived (Note B) .................................... $ -- $ .03
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts have been calculated using the monthly average shares
outstanding during the period method.
(f) The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio
securities during the period because of the timing of sales and purchases
of Portfolio shares in relation to fluctuating market values during the period.
</TABLE>
45
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
5.8% REPURCHASE AGREEMENT
----------------------------------------------------------------
19,661,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 12/29/95 at 5.85%, to be
repurchased at $19,673,780 on 1/2/96,
collateralized by a $12,135,000 U.S. Treasury
Bond, 11.25%, 2/15/15
(Cost $19,661,000) ............................. 19,661,000
----------
----------------------------------------------------------------
1.0% PREFERRED STOCKS
----------------------------------------------------------------
Shares
----------------------------------------------------------------
FINANCIAL 0.3%
Banks 8,000 First Nationwide Bank, non-cum. 11.5% (a)......... 898,000
----------
TECHNOLOGY 0.7%
Computer Software 15,000 SAP AG............................................ 2,272,251
----------
TOTAL PREFERRED STOCKS (Cost $3,149,733) 3,170,251
----------
----------------------------------------------------------------
93.2% COMMON STOCKS
----------------------------------------------------------------
CONSUMER
DISCRETIONARY 5.3%
Department &
Chain Stores 2.3% 100,000 May Department Stores ............................ 4,225,000
120,000 Walgreen Co....................................... 3,585,000
----------
7,810,000
----------
Recreational
Products 0.3% 80,000 Acclaim Entertainment Inc.* ...................... 990,000
----------
Restaurants 2.1% 160,000 McDonald's Corp. ................................. 7,220,000
----------
Specialty
Retail 0.6% 75,600 Intimate Brands, Inc. ............................ 1,134,000
36,000 Toys "R" Us Inc.* ................................ 783,000
----------
1,917,000
CONSUMER STAPLES 6.0%
Alcohol &
Tobacco 1.1% 40,000 Philip Morris Companies Inc. .................... 3,620,000
----------
Food &
Beverage 1.7% 105,000 PepsiCo Inc. ..................................... 5,866,875
----------
Package
Goods/
Cosmetics 3.2% 70,000 Clorox Co. ....................................... 5,013,750
56,000 Estee Lauder Companies "A"* ...................... 1,953,000
45,000 Procter & Gamble Co. ............................. 3,735,000
----------
10,701,750
----------
HEALTH 15.8%
Health
Industry
Services 0.8% 115,600 Bergen Brunswig Corp. "A" ........................ 2,875,550
----------
Hospital
Management 3.3% 220,000 Columbia/HCA Healthcare Corp. .................... 11,165,000
----------
Medical
Supply &
Specialty 2.7% 68,000 Becton, Dickinson & Co. .......................... 5,100,000
70,000 Medtronic Inc. ................................... 3,911,250
----------
9,011,250
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 9.0% 7,500 Astra AB "A" (Free)...................... 299,458
133,050 Astra AB "B" (Free)...................... 5,272,284
40,000 BioChem Pharma, Inc.*.................... 1,605,000
80,000 Eli Lilly & Co. ......................... 4,500,000
80,000 Johnson & Johnson ....................... 6,850,000
102,800 Merck & Co. Inc. ........................ 6,759,100
89,000 Schering-Plough Corp. ................... 4,872,750
----------
30,158,592
----------
COMMUNICATIONS 1.5%
Cellular
Telephone 0.4% 41,000 Associated Group, Inc. "A"* ............. 773,875
32,770 Associated Group, Inc. "B"* ............. 622,630
----------
1,396,505
----------
Telephone/
Communications 1.1%
115,000 Century Telephone Enterprises............ 3,651,250
----------
FINANCIAL 13.3%
Banks 2.9% 78,600 MBNA Corp. .............................. 2,898,375
95,000 Norwest Corp. ........................... 3,135,000
80,000 Wachovia Corp. .......................... 3,660,000
----------
9,693,375
----------
Insurance 7.1% 88,500 American International Group, Inc. ...... 8,186,250
11,800 Chubb Corp. ............................. 1,141,650
60,000 EXEL, Ltd. .............................. 3,660,000
31,300 General Re Corp. ........................ 4,851,500
80,000 MBIA Inc. ............................... 6,000,000
----------
23,839,400
----------
Other
Financial
Companies 3.3%
90,000 Federal National Mortgage Association ... 11,171,250
----------
MEDIA 7.5%
Broadcasting &
Entertainment 4.6% 106,000 Capital Cities/ABC Inc. ................. 13,077,750
40,000 Walt Disney Co. ......................... 2,360,000
----------
15,437,750
----------
Cable
Television 2.4% 129,750 Comcast Corp. "A"........................ 2,359,828
84,576 Tele-Comm Liberty Media Group "A"........ 2,272,980
178,307 Tele-Communications Inc. "A"............. 3,543,852
----------
8,176,660
----------
Print Media 0.5%
28,000 Gannet Co., Inc.......................... 1,718,500
----------
SERVICE INDUSTRIES 4.7%
EDP Services 0.4% 55,400 National Data Corp. ..................... 1,371,150
----------
Environmental
Services 0.7% 40,000 Browning Ferris Industries............... 1,180,000
69,900 Destec Energy Inc.* ..................... 961,125
----------
2,141,125
----------
Investment 2.4% 35,000 Dean Witter, Discover & Co. ............. 1,645,000
127,400 Franklin Resources Inc. ................. 6,417,775
----------
8,062,775
----------
Miscellaneous
Consumer
Services 1.2% 100,000 H&R Block Inc. .......................... 4,050,000
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DURABLES 4.2%
Aerospace 2.8% 110,000 Rockwell International Corp. ............ 5,816,250
40,000 United Technologies Corp. ............... 3,795,000
----------
9,611,250
----------
Telecommunications
Equipment 1.4% 40,000 DSC Communications Corp.* ............... 1,475,000
60,000 General Instrument Corp.* ............... 1,402,500
46,000 Nokia AB Oy "A".......................... 1,777,553
----------
4,655,053
----------
MANUFACTURING 6.5%
Chemicals 2.0% 65,000 E.I. du Pont de Nemours & Co. ........... 4,541,875
46,000 Sigma-Aldrich Corp. ..................... 2,277,000
----------
6,818,875
----------
Diversified
Manufacturing 2.1% 60,000 Canadian Pacific Ltd. ................... 1,087,500
60,000 TRW Inc.................................. 4,650,000
21,000 Thermo Electron Corp.* .................. 1,092,000
----------
6,829,500
----------
Electrical
Products 1.4% 131,600 Philips NV (New York shares)............. 4,721,150
----------
Machinery/
Components/
Controls 1.0% 100,000 Parker-Hannifin Group.................... 3,425,000
----------
TECHNOLOGY 13.9%
Diverse
Electronic
Products 2.5% 210,000 Applied Materials, Inc.* ................ 8,268,750
----------
Electronic
Data
Processing 5.1% 65,000 Compaq Computer Corp.* .................. 3,120,000
125,000 Hewlett-Packard Co. ..................... 10,468,750
40,000 International Business Machines Corp..... 3,670,000
----------
17,258,750
----------
Military
Electronics 0.7% 65,000 Loral Corp. ............................. 2,299,375
----------
Office/Plant
Automation 2.3% 72,000 3Com Corp.* ............................. 3,357,000
25,000 Cabletron Systems Inc.* ................. 2,025,000
30,000 Cisco Systems, Inc.* .................... 2,238,750
----------
7,620,750
----------
Semiconductors 3.3% 130,000 Intel Corp. ............................. 7,377,500
30,000 Micron Technology Inc. .................. 1,188,750
50,000 Texas Instruments Inc. .................. 2,587,500
----------
11,153,750
----------
ENERGY 8.5%
Oil & Gas
Production 1.3% 78,800 Triton Energy Corp. ..................... 4,521,150
----------
Oil Companies 6.2% 79,800 Amoco Corp. ............................. 5,735,625
40,000 Mobil Corp. ............................. 4,480,000
100,000 Repsol SA (ADR) ......................... 3,287,500
51,000 Royal Dutch Petroleum Co. (New York shares) 7,197,375
----------
20,700,500
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oil/Gas
Transmission 1.0% 85,000 Enron Corp. ............................. 3,240,625
----------
TRANSPORTATION 2.5%
Airlines 1.2% 55,000 AMR Corp.* .............................. 4,083,750
----------
Railroads 1.3% 60,000 Consolidated Rail Corp. ................. 4,200,000
----------
UTILITIES 3.5%
Electric
Utilities 10,000 CILCORP, Inc. ........................... 423,750
20,000 CMS Energy Corp. ....................... 597,500
43,700 Centrais Eletricas Brasileiras
S/A (ADR)* (a)........................ 589,950
6,800 Central Costanera SA (ADR)............... 210,800
100,000 Houston Industries Inc. ................ 2,425,000
126,750 Iberdrola SA ............................ 1,159,872
30,000 Illinova Corp. .......................... 900,000
50,000 National Power PLC....................... 349,205
100,000 PowerGen PLC ............................ 826,595
79,000 Public Service Co. of New Mexico*........ 1,392,375
50,000 Scottish Power PLC....................... 287,444
30,000 TNP Enterprises Inc. .................... 562,500
60,000 Unicom Corp. ............................ 1,965,000
----------
11,689,991
-----------
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $274,581,998) 313,143,976
-----------
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $297,392,731) (b) ............... 335,975,227
===========
- --------------------------------------------------------------------------------------------------------------
<FN>
* Non-income producing security.
(a) Securities valued in good faith by the Valuation Committee of the Trustees.
The cost and market value of these securities at December 31, 1995 aggregated
$1,466,894 and $1,487,950 (.44% of net assets), respectively.
(b) At December 31, 1995, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $297,392,731 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost .......................................... $ 45,011,124
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value .......................................... (6,428,628)
------------
Net unrealized appreciation ......................................................... $ 38,582,496
============
- --------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments),
for the year ended December 31, 1995, aggregated $332,871,804 and $334,755,688,
respectively.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $297,392,731) (Note A)...... $335,975,227
Cash................................................................ 3,743
Receivables:
Investments sold............................................ 1,375,062
Dividends and interest...................................... 364,657
Portfolio shares sold....................................... 362,505
------------
Total assets........................................ 338,081,194
LIABILITIES
Payables:
Portfolio shares redeemed ................................. $216,110
Accrued management fee (Note B)............................. 132,445
Other accrued expenses (Note B)............................. 64,159
--------
Total liabilities .................................. 412,714
------------
Net assets, at market value ........................................ $337,668,480
============
NET ASSETS
Net assets consist of:
Undistributed net investment income......................... $ 1,250,850
Net unrealized appreciation on:
Investments......................................... 38,582,496
Foreign currency related transactions............... 21
Accumulated net realized gain............................... 28,441,999
Paid-in capital............................................. 269,393,114
-------------
Net assets, at market value ........................................ $ 337,668,480
=============
NET ASSET VALUE, offering and redemption price per share
($337,668,480/22,392,030 outstanding shares of beneficial
interest, no par value, unlimited number
of shares authorized)....................................... $15.08
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of
$85,921)........................................ $ 4,002,539
Interest............................................ 742,001
-----------
4,744,540
Expenses (Note A):
Management fee (Note B)............................. $ 1,383,919
Accounting fees (Note B)............................ 73,583
Trustees' fees (Note B)............................. 18,743
Custodian fees...................................... 108,047
Auditing............................................ 30,194
Legal............................................... 16,187
Other............................................... 24,335 1,655,008
----------- -----------
Net investment income....................................... 3,089,532
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments......................................... 28,459,799
Foreign currency related transactions............... (20,393) 28,439,406
------------
Net unrealized appreciation during the period on:
Investments......................................... 40,611,076
Foreign currency related transactions .............. 4,421 40,615,497
----------- -----------
Net gain on investment transactions......................... 69,054,903
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $72,144,435
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
<TABLE>
CAPITAL GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income....................................... $ 3,089,532 $ 1,195,374
Net realized gain from investment transactions.............. 28,439,406 8,741,905
Net unrealized appreciation (depreciation) on investment
transactions during the period...................... 40,615,497 (35,951,788)
------------ -------------
Net increase (decrease) in net assets resulting from operations..... 72,144,435 (26,014,509)
------------ -------------
Distributions to shareholders from:
Net investment income ($.11 and $.05 per share, respectively) (2,245,727) (889,382)
------------ -------------
Net realized gain from investment transactions
($.43 and $1.31 per share, respectively)............ (8,804,833) (23,981,060)
------------ -------------
Portfolio share transactions:
Proceeds from shares sold................................... 125,834,281 157,574,508
Net asset value of shares issued to shareholders in
reinvestment of distributions....................... 11,050,560 24,870,442
Cost of shares redeemed .................................... (116,840,991) (131,982,527)
------------ -------------
Net increase in net assets from Portfolio share transactions 20,043,850 50,462,423
------------ -------------
INCREASE (DECREASE) IN NET ASSETS................................... 81,137,725 (422,528)
Net assets at beginning of period .................................. 256,530,755 256,953,283
------------ --------------
Net assets at end of period (including undistributed net
investment income of $1,250,850 and $507,243,
respectively)............................................... $337,668,480 $ 256,530,755
============ ==============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period........................... 20,979,934 17,184,932
------------ --------------
Shares sold................................................. 9,213,682 12,319,350
Shares issued to shareholders in reinvestment of
distributions 896,773 1,905,054
Shares redeemed............................................. (8,698,359) (10,429,402)
------------ --------------
Net increase in Portfolio shares............................ 1,412,096 3,795,002
------------ --------------
Shares outstanding at end of period................................. 22,392,030 20,979,934
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<CAPTION>
SIX FOR THE PERIOD
MONTHS JULY 16, 1985
ENDED (COMMENCEMENT)
YEAR ENDED DECEMBER 31, (e) DECEMBER OF OPERATIONS)
------------------------------------------------------------------------ 31, TO JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(e)(f) 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period........ $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93 $ 6.00(b)
Income from investment
operations:
Net investment income (a).. .14 .06 .06 .11 .16 .25 .35 .16 .15 .09 .19
Net realized and unrealized
gain (loss) on investment
transactions............. 3.25 (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28) (.07) 1.87
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................ 3.39 (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13) .02 2.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income..... (.11) (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09) (.07) (.13)
Net realized gains on
investment transactions. (.43) (1.31) (.27) (.23) -- (.23) -- -- (.39) (.21) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions......... (.54) (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48) (.28) (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period.................... $15.08 $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67 $ 7.93
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)............ 28.65 (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88) .26(d) 34.66(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
period ($ millions)....... 338 257 257 167 108 45 45 17 10 1 --
Ratio of operating expenses,
net to average net
assets(%)(a).............. .57 .58 .60 .63 .71 .72 .75 .75 .75 .75(c) .60(c)
Ratio of net investment
income to average net
assets(%)................. 1.06 .47 .46 .95 1.49 2.71 3.51 2.17 1.68 2.21(c) 2.95(c)
Portfolio turnover rate(%).. 119.41 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34 38.78(c) 86.22(c)
(a) Portion of expenses
reimbursed (Note B).... $ -- $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04 $ .20 $ .81
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares
outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund from June 30 to December 31.
</TABLE>
53
<PAGE>
<TABLE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
7.0% REPURCHASE AGREEMENT
----------------------------------------------------------------------------------
U.S. $37,648,000 Repurchase Agreement with Donaldson, Lufkin
& Jenrette dated 12/29/95 at 5.85%, to be
repurchased at $37,672,471 on 1/2/96, collateralized
by a $39,769,000 U.S. Treasury Bill, 11/14/96
(Cost $37,648,000)...................................... 37,648,000
----------
----------------------------------------------------------------------------------
0.0% BONDS
----------------------------------------------------------------------------------
DM 350,000 Deutsche Bank AG, 8%, 4/11/00 (Cost $190,295)........... 268,517
----------
----------------------------------------------------------------------------------
3.9% PREFERRED STOCKS
----------------------------------------------------------------------------------
<CAPTION>
Shares
----------------------------------------------------------------------------------
GERMANY 3.4%
15,000 RWE AG (Producer and marketer of petroleum
and chemical products)............................... 4,188,482
92,500 SAP AG (Computer software manufacturer)................. 14,012,216
----------
18,200,698
----------
ITALY 0.5% 1,500,000 Fiat SpA (Multi-industry, automobiles).................. 2,742,749
----------
TOTAL PREFERRED STOCKS (Cost $9,723,236)................ 20,943,447
----------
----------------------------------------------------------------------------------
89.1% COMMON STOCKS
----------------------------------------------------------------------------------
ARGENTINA 0.7%
170,000 YPF S.A. "D" (ADR) (Petroleum company).................. 3,676,250
----------
AUSTRALIA 0.6%
1,556,504 Ampol Exploration Ltd. (Oil and gas exploration company)* 3,401,203
----------
BRAZIL 2.9%
8,578,870 Centrais Eletricas Brasileiras S/A "B" (pfd.)
(Electric utility).................................. 2,321,357
5,086,206 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) .......................... 2,093,249
28,110,000 Companhia Vale do Rio Doce (pfd.) (Diverse mining
and industrial complex)............................. 4,627,398
22,000,000 Petroleo Brasileiro S/A (pfd.) (Petroleum company) ..... 1,878,471
65,040,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services)........................ 3,131,717
2,330,200,000 Usinas Siderurgicas de Minas Gerais S/A (pfd.)
(Non-coated flat products and electrolytic
galvanized products)* .............................. 1,893,984
----------
15,946,176
----------
CANADA 2.4%
160,000 Barrick Gold Corp. (Gold exploration and production
in North and South America)......................... 4,219,007
206,500 Canadian National Railway Co. (Operator of one of
Canada's two principal railroads)*.................. 3,097,500
203,043 Canadian Pacific Ltd. (Ord.) (Transportation and
natural resource conglomerate)...................... 3,699,457
200,000 Hemlo Gold Mines, Inc. (Large gold producer, with
single mine in Ontario; active exploration
company)............................................ 1,904,413
----------
12,920,377
----------
DENMARK 0.8% 85,000 Unidanmark A/S "A" (Bank holding company) 4,212,471
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINLAND 1.5%
116,000 Nokia AB Oy "A" (Leading manufacturer of
cellular telephones) ................................ 4,482,525
247,000 Outokumpu Oy "A" (Metals and minerals).................. 3,920,139
----------
8,402,664
----------
FRANCE 6.9%
55,000 AXA SA (Insurance group providing insurance, finance
and real estate services)............................ 3,710,898
9,300 Carrefour (Hypermarket and food retailing).............. 5,649,213
36,800 Compagnie Bancaire SA (Bank)............................ 4,123,165
12,000 LVMH Moet-Hennessy Louis Vuitton SA (Producer of
wines, spirits and luxury products).................. 2,502,556
88,000 Michelin "B" (Leading tire manufacturer)................ 3,513,883
20,000 Societe Generale (Bank)................................. 2,473,932
50,780 Societe Nationale Elf Aquitaine (Petroleum company)..... 3,745,946
15,996 Societe Nationale Elf Aquitaine (ADR) .................. 587,853
72,508 Total SA "B" (International oil and gas exploration,
development and production).......................... 4,899,590
16,000 Union des Assurances Federales SA (Insurance group) .... 1,913,719
95,523 Valeo SA (Automobile and truck components
manufacturer) ....................................... 4,429,486
----------
37,550,241
----------
GERMANY 4.3%
86,980 Deutsche Bank AG (Bank) ................................ 4,127,072
14,860 Mannesmann AG (Bearer) (Diversified construction
and technology company).............................. 4,737,565
69,000 Schering AG (Pharmaceutical and chemical producer)...... 4,577,361
3,027 Siemens AG (Bearer) (Manufacturer of electrical and
electronic equipment) ............................... 1,658,775
74,200 VEBA AG (Electric utility, distributor of oil and
chemicals)........................................... 3,154,471
12,000 Viag AG (Provider of electrical power and natural gas
services, aluminum products, chemicals, ceramics
and glass)........................................... 4,816,754
----------
23,071,998
----------
HONG KONG 4.3%
3,000,000 First Pacific Co., Ltd. (International management and
investment company).................................. 3,317,168
209,787 HSBC Holdings Ltd. (Bank)............................... 3,174,275
2,700,159 Hong Kong & China Gas Co., Ltd. (Gas utility)........... 4,347,492
1,182,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company)...................................... 7,184,481
1,510,000 Television Broadcasts, Ltd. (Television broadcasting)... 5,379,955
----------
23,403,371
----------
INDONESIA 1.6%
370,000 HM Sampoerna (Foreign registered) (Tobacco company)..... 3,851,301
200,000 Indocement Tunggal (Foreign registered) (Cement
producer) ........................................... 671,332
75,400 Indonesia Satellite Corp. (ADR) (International
telecommunication services).......................... 2,752,100
402,000 Kalbe Farma (Foreign registered) (Pharmaceutical
producer and distributor)* .......................... 1,362,563
----------
8,637,296
----------
Italy 2.4%
65,000 Luxottica Group SpA (ADR) (Manufacturer and marketer
of eyeglass frames and eyeglasses)................... 3,802,500
4,210,000 Telecom Italia Mobile SpA (Cellular
telecommunication services)*......................... 7,419,262
1,130,000 Telecom Italia SpA (Telecommunication services)......... 1,759,836
----------
12,981,598
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
JAPAN 25.6%
140,000 Bridgestone Corp. (Leading automobile tire manufacturer)..... 2,222,652
508,000 Canon Inc. (Leading producer of visual image and
information equipment)..................................... 9,196,128
510 DDI Corp. (Long distance telephone and cellular operator).... 3,949,661
825 East Japan Railway Co. (Railway operator).................... 4,009,196
705,000 Fujitsu Ltd. (Leading manufacturer of computers)............. 7,848,499
190,000 Hitachi Construction Machinery Co., Ltd.
(Leading maker of hydraulic shovels)....................... 2,299,129
497,000 Hitachi Ltd. (General electronics manufacturer).............. 5,003,679
465,000 Hitachi Metals, Ltd. (Major producer of high-quality
specialty steels).......................................... 5,806,873
88,000 Horipro Inc. (Growing entertainment production company)...... 1,175,605
77,000 Ito-Yokado Co., Ltd. (Leading supermarket operator).......... 4,740,755
465,000 Itochu Corp. (Leading general trading company)............... 3,128,509
58,000 Jusco Co., Ltd. (Major supermarket operator)................. 1,510,358
830,000 Kawasaki Steel Corp. (Major integrated steelmaker)........... 2,892,546
44,000 Keyence Corp. (Specialized manufacturer of sensors).......... 5,068,732
103,000 Kyocera Corp. (Leading ceramic package manufacturer)......... 7,647,725
37,000 Mabuchi Motor Co., Ltd. (Manufacturer of DC motors).......... 2,299,516
280,000 Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment)................. 2,954,501
520,000 Matsushita Electrical Industrial Co., Ltd. (Consumer
electronic products manufacturer).......................... 8,456,922
500,000 Mitsubishi Heavy Industries, Ltd. (Diversified heavy
machinery manufacturer and leading shipbuilder)............ 3,983,543
380,000 NGK Spark Plug Co., Ltd. (Leading manufacturer of
automotive spark plugs).................................... 4,782,188
540,000 NSK Ltd. (Leading manufacturer of bearings and other
machinery parts)........................................... 3,920,619
33,000 Nichiei Co., Ltd. (Finance company for small and
medium-sized firms)........................................ 2,459,826
50,000 Nippon Electric Glass Co., Ltd. (Leading producer of
cathode-ray tube glass).................................... 948,693
945,000 Nisshin Steel Co., Ltd. (Blast furnace steelmaker)........... 3,814,763
390,000 Ricoh Co., Ltd. (Leading maker of copiers and
information equipment)..................................... 4,266,215
110,000 SMC Corp. (Leading maker of pneumatic equipment)............. 7,954,501
44,000 Seven-Eleven Japan Co., Ltd. (Leading convenience
store operator)............................................ 3,100,871
250,000 ShinMaywa Industries, Ltd. (Leading maker of dump
trucks and other specialty vehicles)....................... 2,061,955
530,000 Sumitomo Corp. (Leading general trading company, with
offices, subsidiaries and affiliates throughout the world). 5,387,222
1,710,000 Sumitomo Metal Industries, Ltd. (Leading integrated
crude steel producer)*..................................... 5,181,316
75,000 THK Co., Ltd. (Manufacturer of linear motion systems
for industrial machinery).................................. 2,134,559
145,000 Takeda Chemical Industries, Ltd. (Leading
pharmaceutical manufacturer).............................. 2,386,254
720,000 Toshiba Corp. (General electronics manufacturer)............ 5,638,722
-----------
138,232,233
-----------
KOREA 2.2%
186,000 Korea Electric Power Corp. (ADR) (New) (Electric utility)... 4,929,000
7,870 Pohang Iron & Steel Co., Ltd. (Leading producer
of steel products for construction and shipbuilding
industries) (b)........................................... 570,931
93,400 Pohang Iron & Steel Co., Ltd. (ADR)......................... 2,043,125
3,376 Samsung Electronics Co., Ltd. (GDS) (Voting)................ 324,096
664 Samsung Electronics Co., Ltd. (GDS) (Voting) (New (a))...... 61,752
873 Samsung Electronics Co., Ltd. (GDS) (Voting) (New (a))...... 81,189
56,650 Samsung Electronics Co., Ltd. (GDS) (Non-voting)
(Major electronics manufacturer).......................... 3,399,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
11,148 Samsung Electronics Co., Ltd. (GDS) (Non-voting) (New (a))........ 657,732
-----------
12,066,825
-----------
MALAYSIA 1.3%
445,000 Malayan Banking Bhd. (Leading banking and financial
services group)................................................. 3,749,655
2,100,000 Renong Berhad (Holding company involved in engineering and
construction, financial services, telecommunication and
information technology)......................................... 3,109,029
-----------
6,858,684
-----------
NETHERLANDS 5.4%
105,000 AEGON Insurance Group NV (Insurance company)...................... 4,653,268
24,000 Akzo-Nobel N.V. (Chemical producer)............................... 2,780,351
204,870 Elsevier NV (International publisher of scientific,
professional, business, and consumer information books)......... 2,736,545
46,137 Getronics N.V. (Computer and software distributor)................ 2,159,837
43,750 Heineken Holdings N.V. "A" (Brewery).............................. 7,181,980
85,000 Koninklijke PTT Nederland (Telecommunication services)............ 3,093,128
114,000 Philips Electronics N.V. (Leading manufacturer of
electrical equipment)........................................... 4,127,083
26,935 Wolters Kluwer CVA (Publisher).................................... 2,552,108
-----------
29,284,300
-----------
NORWAY 0.7%
271,889 Saga Petroleum AS "A" (Oil and gas exploration
and production)................................................. 3,632,035
-----------
PHILIPPINES 0.5%
4,008,000 C&P Homes, Inc. (Home construction company)*...................... 2,941,456
-----------
PORTUGAL 0.3%
30,192 Jeronimo Martins (Food producer and retailer)..................... 1,677,446
-----------
SPAIN 4.2%
41,140 Acerinox, S.A (Stainless steel producer).......................... 4,161,482
400,000 Autopistas Concesionaria Espanol SA (Motorway
builder and operator)........................................... 4,550,701
22,000 Banco Popular Espanol, S.A. (Retail bank)......................... 4,057,213
160,000 Compania Telefonica Nacional de Espana S.A.
(Telecommunication services).................................... 2,215,993
133,000 Repsol SA (Integrated oil company)................................ 4,358,409
525,000 Union Electrica Fenosa SA (Producer and distributor
of electrical energy)........................................... 3,159,522
-----------
22,503,320
-----------
SWEDEN 5.4%
99,000 Astra AB "A" (Free) (Pharmaceutical company)...................... 3,952,840
600 Astra AB "B" (Free)............................................... 23,776
101,000 Autoliv AB (Free) (Manufacturer of safety airbags for
automobiles).................................................... 5,904,475
356,400 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment)................... 6,949,800
57,000 Mo och Domsjo AB "B" (Free) (Manufacturer of newsprint,
paperboard, and various sawn timber products)................... 2,430,466
144,000 S.K.F. AB "B" (Free)* (Manufacturer of roller bearings)........... 2,755,462
270,000 Skandia Foersaekrings AB (Free) (Financial conglomerate).......... 7,302,245
-----------
29,319,064
-----------
SWITZERLAND 4.3%
5,180 Brown, Boveri & Cie. AG (Bearer) (Manufacturer of
electrical equipment)........................................... 6,021,949
5 Brown, Boveri & Cie. AG (Registered).............................. 1,132
3,600 Ciba-Geigy AG (Bearer) (Pharmaceutical company)................... 3,154,470
2,514 Nestle SA (Registered) (Food manufacturer)........................ 2,783,034
1,710 SGS Holdings SA (Bearer) (Trade inspection company)............... 3,397,302
5,000 Sandoz Ltd. AG (Registered) (Pharmaceutical company).............. 4,580,749
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S> <C>
8,054 Swiss Bank Corp. (Bearer) (Universal bank).................. 3,291,054
------------
23,229,690
------------
TAIWAN 0.5%
819,000 Taiwan Semiconductor Manufacturing Co.
(Manufacturer of integrated circuits and other
semiconductor devices).................................... 2,566,222
------------
THAILAND 1.4%
175,000 Bangkok Bank Ltd. (Foreign registered) (Leading
commercial bank, providing full range of financial
services)................................................ 2,125,844
525,220 Thai Farmers Bank (Foreign registered) (Commercial bank)... 5,295,986
------------
7,421,830
------------
UNITED KINGDOM 8.9%
725,000 Argyll Group PLC (Owner and operator of retail food
supermarkets)............................................ 3,829,995
600,017 British Petroleum PLC (Major integrated world oil company). 5,010,987
236,000 Carlton Communications PLC (Television post
production products and services)........................ 3,540,345
143,938 De La Rue PLC (Printer of commercial banknotes and
securities).............................................. 1,455,921
655,706 Lasmo PLC (Oil production and exploration)................. 1,772,718
170,000 Midlands Electricity PLC (Electric companies).............. 2,007,446
137,530 National Grid Group PLC (Operator of electric
transmission system in England and Wales)................ 425,238
511,110 PowerGen PLC (Electric utility)............................ 4,224,811
307,362 RTZ Corp. PLC (Mining and finance company)................. 4,469,998
654,200 Reuters Holdings PLC (International news agency)........... 5,992,053
598,345 SmithKline Beecham PLC "A" (Manufacturer of ethical
drugs and healthcare products)........................... 6,600,720
130,000 Thorn EMI PLC (Amusement and recreational services)........ 3,063,141
300,000 Zeneca Group PLC (Manufacturing and marketing of
pharmaceutical and agrochemical products and
specialty chemicals)..................................... 5,805,588
------------
48,198,961
------------
TOTAL COMMON STOCKS (Cost $421,638,324).................... 482,135,711
------------
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $469,199,855) (c).................................. 540,995,675
============
- ------------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
(a) New shares issued during 1995, eligible for a pro rata share of 1995 dividends.
(b) Securities valued in good faith by the Valuation Committee of the Trustees. The cost and
market value of these securities at December 31, 1995 aggregated $736,139 and $570,931
(.10% of net assets), respectively.
(c) At December 31, 1995, the net unrealized appreciation on investments based on cost for
federal income tax purposes of $469,199,855 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess
of market value over tax cost............................................................... $ 89,136,201
Aggregate gross unrealized depreciation for all investments in which there is an excess of
tax cost over market value.................................................................. (17,340,381)
------------
Net unrealized appreciation................................................................... $ 71,795,820
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------
At December 31, 1995, the International Portfolio had a net tax basis capital
loss carryforward of approximately $4,914,971, which may be applied against
any realized net taxable capital gains of each succeeding year until fully
utilized or until December 31, 2003, whichever occurs first.
- -----------------------------------------------------------------------------
From November 1, 1995 through December 31, 1995, the International Portfolio
incurred approximately $3,652,097 of net realized capital losses which the
Portfolio intends to elect to defer and treat as arising in the fiscal year
ended December 31, 1996.
- -----------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments),
for the year ended December 31, 1995, aggregated $246,433,640 and $211,051,347,
respectively.
- -----------------------------------------------------------------------------
Sector breakdown of the International Portfolio's equity securities is noted
on the Portfolio Summary.
- -----------------------------------------------------------------------------
<TABLE>
Transactions in written call option contracts during the year ended
December 31, 1995 were:
<CAPTION>
PREMIUMS
PRINCIPAL AMOUNT RECEIVED ($)
-----------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994..................... - -
Contracts written.................................. JPY 3,752,000,000 1,200,836
Contracts closed................................... JPY (3,752,000,000) (1,200,836)
-----------------------------------------
Outstanding at December 31, 1995..................... - -
============= =========
</TABLE>
- -----------------------------------------------------------------------------
<TABLE>
COMMITMENTS:
As of December 31, 1995, the International Portfolio entered into the following
forward foreign currency exchange contracts resulting in net unrealized appreciation
of $7,747,842.
<CAPTION>
NET UNREALIZED
APPRECIATION/
SETTLEMENT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- --------------------------- -------------------------- ----------- ---------------
<S> <C> <C> <C>
Japanese Yen 1,434,720,000 U.S. Dollars 17,133,031 4/15/96 3,033,949
Japanese Yen 2,705,000,000 U.S. Dollars 27,617,540 5/17/96 921,852
Japanese Yen 2,206,000,000 U.S. Dollars 25,723,533 7/12/96 3,792,041
-----------
7,747,842
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
<TABLE>
- -----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $469,199,855) (Note A)......... $ 540,995,675
Cash................................................................... 788,449
Unrealized appreciation on forward currency exchange contracts (Note A) 7,747,842
Receivables:
Investments sold..................................................... 2,062,098
Portfolio shares sold................................................ 1,122,116
Foreign taxes recoverable ........................................... 795,897
Dividends and interest .............................................. 279,722
-------------
Total assets...................................................... 553,791,799
LIABILITIES
Payables:
Investments purchased ............................................... $3,256,983
Portfolio shares redeemed ........................................... 1,583,122
Accrued management fee (Note B)...................................... 390,027
Other accrued expenses (Note B)...................................... 184,759
Payable on closed forward currency exchange contracts (Note A)...... 174,415
----------
Total liabilities................................................. 5,589,306
-------------
Net assets, at market value $ 548,202,493
=============
NET ASSETS
Net assets consist of:
Undistributed net investment income................................. $ 5,598,231
Net unrealized appreciation on:
Investments ..................................................... 71,795,820
Foreign currency related transactions............................ 7,763,610
Accumulated net realized loss....................................... (8,741,483)
Paid-in capital..................................................... 471,786,315
-------------
Net assets, at market value............................................ $ 548,202,493
=============
NET ASSET VALUE, offering and redemption price per share
($548,202,493/46,398,169 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized)...... $11.82
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
- -----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $1,092,029).......... $ 7,980,980
Interest......................................................... 2,125,283
-----------
10,106,263
Expenses (Note A):
Management fee (Note B).......................................... $ 4,357,541
Accounting fees (Note B)......................................... 277,867
Trustees' fees (Note B) ......................................... 23,623
Custodian fees .................................................. 581,990
Auditing ........................................................ 62,767
Legal ........................................................... 33,163
Other ........................................................... 55,614 5,392,565
---------- -----------
Net investment income .............................................. 4,713,698
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments...................................................... (7,286,434)
Options.......................................................... 736,708
Foreign currency related transactions............................ (1,376,862) (7,926,588)
----------
Net unrealized appreciation during the period on:
Investments ..................................................... 46,850,491
Foreign currency related transactions............................ 9,269,441 56,119,932
---------- -----------
Net gain on investment transactions................................. 48,193,344
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $52,907,042
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
INTERNATIONAL PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income........................................... $ 4,713,698 $ 2,210,527
Net realized gain (loss) from investment transactions........... (7,926,588) 3,671,002
Net unrealized appreciation (depreciation) on investment
transactions during the period................................ 56,119,932 (14,866,907)
------------ ------------
Net increase (decrease) in net assets resulting from
operations...................................................... 52,907,042 (8,985,378)
------------ ------------
Distributions to shareholders from:
Net investment income ($.01 and $.07 per share, respectively)... (572,293) (1,958,854)
------------ ------------
Net realized gain from investment transactions ($.04 per share). (1,628,833) -
------------ ------------
Portfolio share transactions:
Proceeds from shares sold....................................... 383,866,201 313,276,872
Net asset value of shares issued to shareholders in
reinvestment of distributions................................. 2,201,126 1,958,854
Cost of shares redeemed......................................... (360,607,349) (70,378,561)
------------ ------------
Net increase in net assets from Portfolio share transactions...... 25,459,978 244,857,165
------------ ------------
INCREASE IN NET ASSETS............................................ 76,165,894 233,912,933
Net assets at beginning of period................................. 472,036,599 238,123,666
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed
net investment income of $5,598,231 and $722,015,
respectively)................................................... $548,202,493 $472,036,599
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period......................... 44,139,826 21,943,195
------------ ------------
Shares sold..................................................... 34,890,301 28,463,330
Shares issued to shareholders in reinvestment of distributions.. 216,220 177,916
Shares redeemed................................................. (32,848,178) (6,444,615)
------------ ------------
Net increase in Portfolio shares................................ 2,258,343 22,196,631
------------ ------------
Shares outstanding at end of period............................... 46,398,169 44,139,826
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER
PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
MAY 1, 1987
(COMMENCEMENT
YEARS ENDED DECEMBER 31, OF OPERATIONS)
------------------------------------------------------------------------- TO DECEMBER 31,
1995(E) 1994(E) 1993(E) 1992(E) 1991(E) 1990(E) 1989(E) 1988(E) 1987
------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period......... $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26 $ 6.00(b)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a)... .11 .06 .09 .10 .12 .25 .10 .09 --
Net realized and unrealized
gain (loss) on investment
transactions.............. 1.07 (.15) 2.90 (.36) .77 (.89) 2.22(f) .79 (.64)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................. 1.18 (.09) 2.99 (.26) .89 (.64) 2.32 .88 (.64)
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income.. (.01) (.07) (.14) (.09) (.20) (.04) -- -- --
In excess of net investment
income.................... -- -- (.12) -- -- -- -- -- --
From net realized gains on
investment transactions... (.04) -- -- -- -- -- -- -- (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions......... (.05) (.07) (.26) (.09) (.20) (.04) -- -- (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period...................... $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%).............. 11.11 (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73 (10.64)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions)................ 548 472 238 65 41 35 17 3 2
Ratio of operating expenses,
net to average net
assets(%)(a)................ 1.08 1.08 1.20 1.31 1.39 1.38 1.50 1.50 1.50(c)
Ratio of net investment income
to average net assets(%).... .95 .57 .91 1.23 1.43 2.89 1.30 1.59 .02(c)
Portfolio turnover rate(%).... 45.76 33.52 20.36 34.42 45.01 26.67 57.69 110.42 146.08(c)
(a) Portion of expenses
reimbursed (Note B)...... $ -- $ -- $ -- $ -- $ -- $ -- $ .02 $ .14 $ .07
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated using the monthly average shares
outstanding during the period method.
(f) Includes provision for federal income tax of $.03 per share.
</TABLE>
63
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end, diversified management investment
company. Its shares of beneficial interest are divided into six separate
diversified series, called "Portfolios." The Portfolios are comprised of the
Money Market Portfolio, Bond Portfolio, Balanced Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, and International Portfolio.
<TABLE>
The Fund is intended to be the funding vehicle for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). As of December 31, 1995, ownership breakdown of the Portfolios by
each Participating Insurance Company is as follows:
<CAPTION>
PORTFOLIOS
-------------------------------------------------------------------------------------
GROWTH
PARTICIPATING MONEY AND CAPITAL INTERNA-
INSURANCE COMPANIES MARKET BOND BALANCED INCOME GROWTH TIONAL
- ----------------------------------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. .... --% --% --% --% --% 46.5%
AUSA Life Insurance Co. ............... -- -- -- -- -- 1.2
Banner Life Insurance Co. ............. 0.7 1.3 7.3 2.2 1.7 0.6
Charter National Life Insurance Co. ... 55.9 32.5 73.5 87.4 27.5 15.2
Companion Life Insurance Co.
of New York ......................... -- 0.1 -- -- -- --
Fortis Benefits Insurance Co. ......... -- -- -- -- -- 0.3
Intramerica Life Insurance Co. ........ 5.3 3.0 5.2 9.2 2.4 1.5
Lincoln Benefit Life Co. .............. -- 2.2 3.6 -- -- --
Mutual of America Life Insurance Co. .. -- 55.1 -- -- 62.9 24.4
Paragon Life Insurance Co. ............ -- 0.1 0.4 -- 0.1 0.1
Providentmutual Life and Annuity Co.
of America .......................... -- 5.2 -- 1.2 -- 0.1
Safeco Life Insurance Co. ............. -- -- 10.0 -- -- 2.6
Security First Life Insurance Co. ..... -- -- -- -- -- 0.1
Union Central Life Insurance Co. ...... 37.7 -- -- -- 5.0 7.2
United Companies Life Insurance Co. ... 0.1 -- -- -- -- --
United of Omaha Life Insurance Co. .... 0.3 0.5 -- -- -- 0.2
USAA Life Insurance Co. ............... -- -- -- -- 0.4 --
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100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
The policies described below are followed consistently by the Fund in
the preparation of the financial statements for its Portfolios in conformity
with generally accepted accounting principles.
SECURITY VALUATION. The Money Market Portfolio values all securities
utilizing the amortized cost method permitted in accordance with Rule 2a-7
under the Investment Company Act of 1940, as amended, and pursuant to which the
Portfolio must adhere to certain conditions. Under this method, which does not
take into account unrealized gains or losses on securities, an instrument is
initially valued at its cost and thereafter assumes a constant
accretion/amortization to maturity of any discount/premium.
Securities in each of the remaining Portfolios are valued in the following
manner:
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation
is used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are
no such sales, the value is the high or "inside" bid quotation. Securities
which are not quoted on the
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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NASDAQ System but are traded in another over-the-counter market are valued
at the most recent sale price on such market. If no sale occurred, the security
is then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent
bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty
days are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees.
OPTIONS. An option contract is a contract in which the writer of the
option grants the buyer of the option the right to purchase from (call option),
or sell to (put option), the writer a designated instrument at a specified
price within a specified period of time. Certain options, including options on
indices, will require cash settlement by the Fund if the option is exercised.
During the period, the International Portfolio purchased put options on
currencies and wrote call options on currencies as a hedge against potential
adverse price movements in the value of portfolio assets.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend
and interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract (forward contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the
period, the non-money market Portfolios utilized forward contracts as a hedge
in connection with portfolio purchases and sales of securities denominated in
foreign currencies and the Bond Portfolio, Balanced Portfolio, and the
International Portfolio utilized forward contracts as a hedge against changes
in exchange rates relating to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of
the underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge the Fund gives up the
opportunity to profit from favorable exchange rate movements during the term of
the contract.
65
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter
into repurchase agreements with U.S. and foreign banks and broker/dealers
whereby the Fund, through its custodian, receives delivery of the underlying
securities, the amount of which at the time of purchase and each subsequent
business day is required to be maintained at such a level that the market
value, depending on the maturity of the repurchase agreement and the underlying
collateral, is equal to at least 100.5% of the resale price.
FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate
taxpayer as provided for in the Internal Revenue Code of 1986, as amended. It
is each Portfolio's policy to comply with the requirements of the Internal
Revenue Code which are applicable to regulated investment companies and to
distribute all of its investment company taxable income to the separate
accounts of the Participating Insurance Companies which hold its shares.
Accordingly, the Portfolios paid no federal income taxes and no provision for
federal income taxes was required.
DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends
from the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and
the Capital Growth Portfolio are declared and paid quarterly in April, July,
October and January. All of the net investment income of the International
Portfolio normally will be declared and distributed as a dividend annually.
During any particular year, net realized gains from investment transactions for
each Portfolio, in excess of available capital loss carryforwards, would be
taxable to the Portfolio if not distributed and, therefore, will be distributed
to the Participating Insurance Companies.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
The differences primarily relate to investments in forward contracts, passive
foreign investment companies, post October loss deferral, non-taxable
distributions, and certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Portfolios may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of each Portfolio.
The Portfolios use the specific identification method for determining realized
gain or loss on investments for both financial and federal income tax reporting
purposes.
EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.
B. RELATED PARTIES
- ----------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser
a fee, based on average daily net assets, equal to an annual rate of 0.37%
for the Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the
Balanced Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for
the Capital Growth Portfolio, and 0.875% for the International Portfolio.
The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder
Fund Accounting Corp., a subsidiary of the Adviser, for determining the daily
net asset value per share and maintaining the portfolio and general accounting
records of the Fund.
Related fees for such services are detailed in each Portfolio's statement of
operations.
66
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
For a period of five years from the date of execution of a Participation
Agreement with the Fund, and from year to year thereafter as agreed by the Fund
and the Participating Insurance Companies, each of the Participating Insurance
Companies has agreed to reimburse the Fund to the extent that the annual
operating expenses of any Portfolio of the Fund, other than the International
Portfolio, exceed three-quarters of one percent (0.75 of 1%) of that
Portfolio's average annual net assets. The Participating Insurance Companies
have agreed to reimburse the Fund to the extent that such expenses of the
International Portfolio exceed one and one-half percent (1.50 of 1%) of the
Portfolio's average annual net assets. The Adviser may advance some or all of
such reimbursement to the Fund prior to receiving payment therefore from a
Participating Insurance Company, but it is under no obligation to do so. If the
Adviser does advance such reimbursement to the Fund and does not receive
payment therefore, it will be entitled to be repaid such amounts by the Fund.
In addition to the reimbursement by Participating Insurance Companies noted
above, until April 30, 1996, the Adviser has agreed to waive part or all of its
fees for the Growth and Income Portfolio to the extent that the Portfolio's
expenses will be maintained at 0.75%.
The Fund pays each Trustee not affiliated with the Adviser and not a
Trustee of other Scudder affiliated funds $12,000 annually plus specified
amounts for attended board and committee meetings. The Fund pays
each Trustee not affiliated with the Adviser and who is a Trustee of other
Scudder affiliated funds $7,500 annually plus specified amounts for attended
board and committee meetings. Allocated Trustees' fees for each Portfolio for
the year ended December 31, 1995 are detailed in each Portfolio's statement of
operations.
C. LINE OF CREDIT
- -------------------------------------------------------------------------------
The International Portfolio and several other Funds ("The Participants")
share in a $500 million revolving credit facility for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Participants are charged an
annual commitment fee which is allocated among each of the Participants.
Interest is calculated based on the market rates at the time of the borrowing.
The International Portfolio may borrow up to a maximum of 25 percent of its net
assets under the agreement. In addition, the International Portfolio also
maintains an uncommitted line of credit.
67
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF SCUDDER VARIABLE LIFE INVESTMENT FUND:
We have audited the accompanying statements of assets and liabilities of
Scudder Variable Life Investment Fund (comprised of the six Portfolios
identified in Note A), including the investment portfolios, as of December 31,
1995, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Scudder Variable Life Investment Fund (comprised of the six
Portfolios identified in Note A) as of December 31, 1995, the results of their
operations, the changes in their net assets, and their financial highlights for
each of the periods indicated therein in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 29, 1996
68
<PAGE>
TAX INFORMATION
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Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Capital Growth Portfolio, and Growth and Income Portfolio designate $812,877,
$13,576,749, and $587,060, respectively, as capital gain dividends for the
year ended December 31, 1995.
Pursuant to section 854 of the Internal Revenue Code, the percentages of
ordinary income dividends paid in calendar year 1995 which qualify for the
dividends received deduction for corporations are as follows: Balanced
Portfolio 34.09%, Capital Growth Portfolio 59.53%, and Growth and Income
Portfolio 100%.
69
<PAGE>
Celebrating Over 75 Years of Serving Investors
------------------------------------------------------------------------------
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped Scudder become one
of the largest and most respected investment managers in the world. Though times
have changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
An investment in the Money Market Portfolio is neither insured nor
guaranteed by the United States Government and there can be no assurance that
the Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
