SCUDDER (logo)
Scudder Variable Life
Investment Fund
Semiannual Report
June 30, 1998
An open-end management investment company that offers shares of beneficial
interest in seven types of diversified portfolios.
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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 Performance Update ....................................... 9
Growth and Income Portfolio Summary ........................................ 10
Capital Growth Portfolio Management Discussion ............................. 11
Capital Growth Performance Update .......................................... 12
Capital Growth Portfolio Summary ........................................... 13
Global Discovery Portfolio Management Discussion ........................... 14
Global Discovery Performance Update ........................................ 15
Global Discovery Portfolio Summary ......................................... 16
International Portfolio Management Discussion .............................. 17
International Performance Update .......................................... 18
International Portfolio Summary ............................................ 19
Investment Portfolios, Financial Statements, and Financial Highlights
Money Market Portfolio ............................................ 20
Bond Portfolio .................................................... 25
Balanced Portfolio ................................................ 32
Growth and Income Portfolio ....................................... 42
Capital Growth Portfolio .......................................... 52
Global Discovery Portfolio ........................................ 61
International Portfolio ........................................... 70
Notes to Financial Statements .............................................. 79
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SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
We are pleased to present the results of Scudder Variable Life Investment
Fund for the six-month period ended June 30, 1998.
The Portfolios have had another successful six months, with all seven
delivering positive returns and more than half of the Portfolios outperforming
the average total return of funds in their respective categories, according to
Lipper Analytical Services. We believe investors should be pleased with this
performance, which is consistent with many of the Portfolios' longer-term track
records.
While the U.S. economy continued on its remarkable era of prosperity during
the first six months of 1998, U.S. stocks continued to exhibit high valuations
and corporate profit growth slowed as the period came to an end. Earlier this
year the Federal Reserve Board worried that the U.S. economy might be growing
too rapidly, but so far the Fed has left rates untouched. The overall investment
environment is still supported by strong economic growth, benign inflation, and
high investor confidence. However, the market environment is beginning to grow
increasingly volatile, as profit growth appears to be entering a stage of
deceleration and the impact of the Asian crisis seems to be making its way
around the globe.
For investors, this is a good time to evaluate your current investment
allocations to see if they are still in line with your long-term objectives. In
our view, diversification across many asset classes should provide opportunities
for growth while reducing risk exposure in the environment that we anticipate in
the near future. In an uncertain market environment, the Fund's broad selection
of portfolios with various investment objectives offers this diversification and
flexibility, making it an attractive choice for many investors.
Finally, it should be noted that David B. Watts retired as President of
Scudder Variable Life Investment Fund in May of this year, and I have assumed
that role and its responsibilities. I am pleased to join the Fund's team in this
capacity, and look forward to serving your needs in the future.
Thank you for your continued investment in Scudder Variable Life Investment
Fund. On the following pages you will find letters from each investment team
regarding the market environment and specific portfolio strategy during the
six-month period. We think you will find it informative reading.
Sincerely,
/s/William M. Thomas
William M. Thomas
President,
Scudder Variable Life Investment Fund
2
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MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Money Market Portfolio maintained its $1.00 share price throughout the
period and provided a positive total return of 2.56% for the six months ended
June 30, 1998. This performance exceeds the 2.54% average return for funds in
the Variable Life Money Market category for the same period, according to Lipper
Analytical Services. The Portfolio's 30-day net annualized yield at the end of
June was 5.23%. Among its peers, the Portfolio ranked in the top quartile of 108
funds in its Lipper category.
During the six months, the U.S. economy enjoyed an extended period of great
strength, including a still-climbing stock market, a strong dollar, high
consumer confidence, and low unemployment. Earlier in 1998, the Federal Reserve
Board worried that the U.S. economy was growing too rapidly, but so far the Fed
has left interest rates unchanged. Short-term interest rates have now been
anchored below 5.5% since February of 1997. In this environment of a nearly flat
yield curve, we believe that there is little reward for extending the maturity
of the Portfolio. As a result, we gradually shortened the average maturity
toward the end of the period. On June 30, 1998, the Portfolio's average maturity
stood at 25 days, down from 33 days at the beginning of the period.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
We have taken a
defensive stance,
shortening the Portfolio's
average maturity in
anticipation of possible
increases in short-term
interest rates.
The Portfolio was invested in a diversified mix of high-quality money
market instruments, including commercial paper, repurchase agreements,
certificates of deposit issued by major banks, and short-term obligations issued
by highly-rated companies. We continued to overweight commercial paper in the
Portfolio because it tends to offer some of the highest money market yields
available. In addition, we have increased our holdings in floating and
variable-rate securities. These securities have longer maturities (of up to one
year) and indexing characteristics, meaning that their rates are tied to another
rate -- such as the prime rate or the 30-day commercial paper rate -- and are
adjusted upward or downward each time the base rate changes. Variable-rate
securities tend to have a yield advantage of 0.05% - 0.10% versus a similar
fixed-rate issue that matures in 30 days.
Our outlook is for the domestic economy to continue to be strong for the
near term. While the second quarter of 1998 was weaker than the first, we
anticipate a continuation of healthy economic growth during the second half of
the year. We will continue to maintain a defensive stance, anticipating that the
next move by the Fed will likely be one that will support shortening the
Portfolio's maturity.
In the months ahead, we will continue to monitor the economic and interest
rate environment, as we position the Portfolio for current income, and stability
and liquidity of capital.
Sincerely,
Your Portfolio Management Team
/s/Frank J. Rachwalski, Jr. /s/John W. Stuebe
Frank J. Rachwalski, Jr. John W. Stuebe
Lead Portfolio Manager
3
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BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The U.S. economy grew at a rapid pace during the first calendar quarter of
1998, despite the drag of the Asian crisis, increasing wage pressures, and fears
of a rate hike by the Federal Reserve early in the year. The good news for bond
investors was that the robust economy began to show several signs of slowing as
the semiannual period progressed, which lessened the chance of an interest rate
increase by the Fed.
The Bond Portfolio provided a total return of 3.50% for the six-month
period ended June 30, 1998, compared to a total return of 3.92% for the
unmanaged Lehman Aggregate Bond Index for the same period.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Signs of decelerating
growth in the U.S.
economy are positive for
bond investors because
they decrease the
likelihood of increased
interest rates.
We continued with our strategy of lengthening portfolio duration over the
six-month period, which stood at 5.5 years as of the end of the period. This was
up from 4.9 years at the end of 1997. The Portfolio's duration represents its
overall sensitivity to changes in interest rates.
We manage the Portfolio with a diversified approach, which generally means
maintaining broad exposure to a range of securities in the corporate, Treasury,
and mortgage-backed sectors. As Treasuries rallied in June, corporate bonds
failed to keep pace. As a result, the Portfolio's overweighting in corporates
held back performance during this period. Since we take the long view in
managing the Portfolio, we tend to hold a larger percentage in corporate bonds
than the benchmark Lehman index.
In the corporate bond sector we emphasized non-cyclical issues, that is,
bonds that tend to be less affected by changes in the economic or business cycle
such as cable, defense, and telecommunications bonds. We also increased our
weighting in the oil sector, an area that has underperformed for some time. With
the price of oil dipping to record lows recently, we regarded this as a buying
opportunity. Over the long term, we believe a low oil price is not sustainable,
which should bode well for oil issues.
We expect the current environment of slowing growth and benign inflation to
continue to provide a good environment for bond investors. We may not have
witnessed the full effects of the Asian crisis on U.S. companies and the economy
as events there continue to unfold. We think the crisis will help contain
inflation and contribute to a slowing of the U.S. economy without dire
consequences for U.S. investors. However, there are still many uncertainties
including the next steps for Japan's new political leadership and the risk of
further currency devaluations in Asia. In this environment, we plan to continue
with our diversified approach, while emphasizing securities that can add
incremental value to the Portfolio's long-term returns.
Sincerely,
Your Portfolio Management Team
/s/Stephen A. Wohler /s/Kelly D. Babson
Stephen A. Wohler Kelly D. Babson
Lead Portfolio Manager
4
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BOND PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
Bond Portfolio
--------------------------------------
1 Year $ 10,954 9.54% 9.54%
5 Year $ 13,528 35.28% 6.23%
10 Year $ 22,662 126.62% 8.52%
--------------------------------------
LBAB Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,053 10.53% 10.53%
5 Year $ 13,944 39.44% 6.87%
10 Year $ 23,812 138.12% 9.06%
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
Yearly periods ended June 30
BOND PORTFOLIO
Year Amount
--------------------------
'88 10000
'89 11221
'90 12101
'91 13394
'92 15276
'93 17077
'94 16853
'95 18968
'96 19918
'97 21543
'98 23812
LBAB INDEX
Year Amount
-----------------------------
'88 10000
'89 10917
'90 11614
'91 12777
'92 14675
'93 16752
'94 16366
'95 18235
'96 19095
'97 20688
'98 22662
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 Portfolio 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 Portfolio's expenses. See Financial
Highlights for the Bond Portfolio.
Chart Title: ASSET QUALITY
- -----------------------------------------
U.S. Government
& Agencies 29%
AAA* 13%
AA 9%
A 19%
BBB 14%
BB 11%
B 5%
-----
100%
-----
Average Quality: A
*Category includes cash equivalents
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Portfolio maintains
broad exposure to a range of
securities in the corporate,
Treasury and mortgage-backed
sectors -- each advantageous
at different times and in
certain market conditions.
Chart Title: EFFECTIVE MATURITY
- -------------------------------------------
Less than 1 year 7%
1 - 3 years 12%
3 - 7 years 42%
7 - 12 years 12%
12 years or greater 27%
-----
100%
-----
Weighted average effective maturity: 9 years
Chart Title: DIVERSIFICATION
- -----------------------------------------------
Corporate Bonds 54%
U.S. Government & Agencies 20%
U.S. Government Agency Pass-Thrus 11%
Foreign Bonds - U.S.$ Denominated 4%
Government National Mortgage Assoc. 4%
Asset-Backed Securities 3%
Collateralized Mortgage Obligations 2%
Short Term Investments 2%
-----
100%
-----
5
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BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Balanced Portfolio provided a total return of 13.38% for the six-month
period ended June 30, 1998, surpassing the average return of 9.61% for similar
funds tracked by Lipper Analytical Services. Among its peers, the Portfolio
ranked in the top 16% of 51 funds in the Variable Life Balanced category
according to Lipper.
The stock market added to its gains over the six months, but with increased
volatility during the second quarter. Many investors became concerned about
worsening economic conditions in Asia and the strong U.S. dollar, which caused a
temporary pullback, although the underlying strong fundamentals of the U.S.
economy helped stocks recover in the final weeks of the period.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
The Portfolio's two areas
of concentration -- large
company growth stocks
and investment grade
bonds -- benefited from
careful security selection
and a declining interest
rate environment,
respectively.
The Portfolio's equity position is constructed company by company with a
focus on businesses which we believe have solid long-term franchises, focused
and experienced management teams, and sustainable above average earnings growth.
Among the Portfolio's equity holdings, the two best performing sectors were
health, particularly large pharmaceutical stocks (including third-largest
holding Pfizer), and consumer discretionary stocks (top ten holdings Home Depot
and Wal-Mart Stores). The equity portion of the Portfolio also benefited from
its lack of exposure to energy stocks, which underperformed for most of the
period.
Bonds provided attractive income and total returns over the period, as
yields on long-term bonds generally declined, and the economy grew at a moderate
pace with no inflation to speak of. We manage the fixed income portion of the
Portfolio with a diversified approach, by investing in the corporate, Treasury,
and mortgage-backed sectors. While we usually overweight corporate bonds to gain
a yield advantage, other sectors, such as Treasuries, can also provide valuable
components to overall returns. In the corporate bond sector, we emphasized
non-cyclical issues, increased our weighting in the oil sector, and continued
with an underweighted position in the mortgage sector.
In the months ahead, aftershocks from the economic crisis in Asia will
likely increase. Combined with a strong dollar and slower economic growth, we
view any increase in interest rates by the Federal Reserve as unlikely, at least
in the near term. Overall, we are keenly aware of the relatively high prices of
stocks and will keep this in mind as we continue to seek high quality growth
companies that we believe are able to deliver the earnings growth expected of
them. We believe that the Balanced Portfolio will continue to provide attractive
and consistent performance over time, with reduced volatility, through
investment in a portfolio of quality stocks and bonds.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter /s/George Fraise
Valerie F. Malter George Fraise
Lead Portfolio Manager
/s/Kelly D. Babson /s/Stephen A. Wohler
Kelly D. Babson Stephen A. Wohler
6
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BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
Balanced Portfolio
--------------------------------------
1 Year $ 12,278 22.78% 22.78%
5 Year $ 20,567 105.67% 15.51%
10 Year $ 34,008 240.08% 13.02%
--------------------------------------
S&P500 Index (60%)
and LBAB Index (40%)
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 12,221 22.21% 22.21%
5 Year $ 21,426 114.26% 16.45%
10 Year $ 39,848 298.48% 14.82%
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
Yearly periods ended June 30
BALANCED PORTFOLIO
Year Amount
--------------------------
'88 10000
'89 11221
'90 12101
'91 13394
'92 15276
'93 17077
'94 16853
'95 18968
'96 19918
'97 21543
'98 23812
S&P 500 INDEX
Year Amount
--------------------------
'88 10000
'89 12053
'90 14042
'91 15078
'92 17103
'93 19435
'94 19709
'95 24845
'96 31303
'97 42170
'98 54892
LBAB INDEX
Year Amount
--------------------------
'88 10000
'89 11610
'90 12439
'91 12721
'92 14884
'93 16535
'94 16486
'95 19633
'96 22888
'97 27699
'98 34008
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. 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 Portfolio 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 Portfolio'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 109.50% and 15.39%, respectively.
Chart Title: EQUITY HOLDINGS
- -----------------------------------------
Sector breakdown of the
Portfolio's equity holdings
- -----------------------------------------
Health 21%
Consumer Staples 20%
Technology 15%
Consumer Discretionary 12%
Manufacturing 10%
Media 8%
Financial 7%
Durables 5%
Service Industries 2%
------
100%
------
Chart Title: FIVE LARGEST EQUITY HOLDINGS
- ------------------------------------------
1. General Electric Co. Leading producer of electrical equipment
2. Proctor & Gamble Co. Diversified manufacturer of consumer products
3. Pfizer, Inc. Leading international pharmaceutical company
4. Coca-Cola Co., Inc. International soft drink company
5. Home Depot, Inc. Building supply/home improvement stores
FIXED INCOME HOLDINGS
Chart Title: FIXED INCOME HOLDINGS
- -------------------------------------------
By Asset Type
- -------------------------------------------
Corporate Bonds 50%
U.S. Government Agencies 24%
U.S. Gov't Agency Pass-Thrus 14%
Asset-Backed Securities 5%
Foreign - U.S.$ Denominated 3%
GNMA 2%
Collateralized Mortgage 2%
Obligations
-----
100%
-----
- -------------------------------------------
By Quality
- -------------------------------------------
U.S. Government & Agencies 36%
AAA* 18%
AA 9%
A 19%
BBB 9%
BB 9%
-----
100%
-----
*Category includes cash equivalents
7
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GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The equity markets got off to a great start at the beginning of the year,
sputtered somewhat in the second quarter, and rebounded strongly in the final
weeks of the period to record impressive half year gains. The Growth and Income
Portfolio's Class A Shares provided a total return of 10.00% for the six months,
compared to a total return of 17.71% for the unmanaged S&P 500 Index for the
same period.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
We continue to focus on
finding stocks with
attractive valuations and
a higher than average
dividend yield, which we
believe has helped the
Portfolio to provide
attractive returns over the
long term.
The Portfolio's strategy, which focuses on stocks with relatively high
dividend yields and attractive valuations, generally was not in favor during the
period, as low and non-dividend yielding stocks -- primarily very large market
capitalization ("mega-cap") growth stocks -- provided top performance. As a
result, the Portfolio's strong absolute return fell short of the S&P 500 return
due to the substantial component of mega-cap growth stocks in the index.
The Fund especially benefited from its exposure to consumer-oriented
holdings. Unilever, Bristol-Myers Squibb, and American Home Products delivered
particularly strong returns for the period. In the retail area, Sears, Rite Aid,
and May Department Stores all exceeded returns of the overall market. The
weakest performers were cyclical, commodity-oriented companies, including
chemical companies BetzDearborn and Witco, paper company Temple-Inland, and
steel producers Allegheny Teledyne and Oregon Steel Mills.
Our sector weightings did not change radically during the six-month period.
However, we did increase the defensiveness of the Portfolio this year, by adding
to the energy, telecommunications, REIT (real estate investment trust), and
electric utilities areas, where we believe valuations are truly low. The
telecommunications sector, in our view, will be one of the least vulnerable to
negative developments in Asia (and the global domino effects), while benefiting
from an explosion in demand for high speed data services. Financial services
holdings, which are characteristically defensive in nature, continued to
comprise the Portfolio's largest sector exposure, at 25% of assets.
So far this year, the stock market has not agreed with us, choosing instead
a "flight to quality" that has focused on high p/e (price/earnings ratio) and
mega-cap growth stocks. We think the current environment that favors this type
of stock will fade, especially as earnings continue to decelerate and investors
realize they can find more attractive values at reasonable prices among stocks
with relatively high dividend yields.
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 /s/Lori J. Ensinger
Benjamin W. Thorndike Lori J. Ensinger
8
<PAGE>
GROWTH AND INCOME PORTFOLIO
PERFORMANCE UPDATE as of June 30, 1998
- --------
CLASS A
- --------
Growth and Income Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 12,105 21.05% 21.05%
Life of $ 24,230 142.30% 23.68%
Fund*
--------------------------------------
S&P 500 Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 13,017 30.17% 30.17%
Life of $ 27,614 176.14% 27.58%
Fund*
* The Fund commenced operations on May 2, 1994.
On May 1, 1997, existing shares were designated
as Class A shares.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
GROWTH AND INCOME PORTFOLIO
Year Amount
---------------------------
5/94* 10000
6/94 9915
12/94 10397
6/95 12498
12/95 14304
6/96 15747
12/96 17588
6/97 21214
12/97 23458
6/98 27614
S&P500 INDEX
Year Amount
---------------------------
5/94* 10000
6/94 9854
12/94 10235
6/95 11817
12/95 13483
6/96 14645
12/96 16472
6/97 19528
12/97 21491
6/98 23640
--------
CLASS B
--------
--------------------------------------
Growth and Income Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 12,092 20.92% 20.92%
Life of $ 13,501 35.01% 29.41%
Fund**
--------------------------------------
S&P 500 Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 13,017 30.17% 30.17%
Life of $ 14,430 44.30% 36.91%
Fund**
** The Fund commenced selling Class
B shares on May 1, 1997.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
GROWTH AND INCOME PORTFOLIO
Year Amount
--------------------------
5/1/97** 10000
6/97 11085
9/97 11916
12/97 12258
3/98 13968
6/98 14430
S&P500 INDEX
Year Amount
---------------------------
5/1/97** 10000
6/97 11165
9/97 12179
12/97 12288
3/98 13852
6/98 13501
~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 Portfolio 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 Portfolio's
expenses. See Financial Highlights for the Growth and Income Portfolio.
9
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
Chart Title: DIVERSIFICATION
- ------------------------------
Equity Securities 98%
Cash Equivalents 2%
-----
100%
-----
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
----------------------------------
Sector breakdown of the
Portfolio's equity holdings
----------------------------------
Financial 25%
Manufacturing 14%
Durables 11%
Communications 9%
Energy 9%
Consumer Staples 7%
Utilities 7%
Health 6%
Consumer Discretionary 5%
Other 7%
-----
100%
-----
We believe our emphasis on stocks with
lower p/e ratios and attractive valuations
will provide sustainable performance as
valuations converge to more normal levels
over the long term.
Chart Title: TEN LARGEST EQUITY HOLDINGS
(22% OF PORTFOLIO)
- -----------------------------------------
1. Ford Motor Co. Leading automobile manufacturer
2. Chase Manhattan Corp. Commercial bank
3. Xerox Corp. Leading manufacturer of copiers and duplicators
4. H.J. Heinz Co. Major manufacturer of processed foods
5. First Union Corp. Commercial bank
6. Bell Atlantic Corp. Telecommunication services
7. American Home Products Corp. Major diversified pharmaceutical
company
8. Dana Corp. Manufacturer of automotive parts
9. Imperial Chemical Industries PLC Leading international chemical
company
10. Lincoln National Corp. Holding company for insurance and financial
products
10
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Investors continued to favor stocks with the largest market capitalizations
(market-cap) over the first six months of 1998. In this environment, the Capital
Growth Portfolio -- Class A returned 15.85%, which compares to the 17.71% return
of the unmanaged S&P 500 for the six-month period ended June 30, 1998.
Valuations have taken a back seat to stability of earnings as the primary
criteria for stock selection. Investors are displaying a willingness to invest
in mega-cap stocks with p/e multiples greater than 40 whose expected earnings
are presumably assured. We believe that there are few assurances in investing,
especially when it comes to paying relatively high prices for a potential stream
of earnings.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Over the period, investors
showed a preference for
high price/earnings
multiple stocks with
presumed future earnings
streams over stocks with
stable earnings.
Record high confidence and robust spending on the part of consumers has
ruled the roost so far this year, with a favorable impact on the Portfolio's
holdings. Carnival, the cruise line operator, was a new position that has been a
beneficiary of strong consumer confidence and the "wealth effect" many have
experienced with a rising stock market. Another strong performer was Home Depot,
a top holding, which benefited from declining interest rates and high housing
turnover.
The technology sector was another story, as Asian worries resurfaced to
hold back returns. Our semiconductor and semiconductor-related holdings were
particularly hard hit, including Intel and Applied Materials. We stayed with
these positions during the six months because our ongoing strategy is to
emphasize dominant participants in various industry segments and we do not
attempt to time short-term changes in stock prices.
In the financial services sector, we made several sales and reductions in
the wake of the April 6th proposed merger announcement by Travelers and
Citicorp. These sales were made based on our belief that the benefits of
consolidation already had been realized in the stock prices. Despite our reduced
position, we remained overweighted in this sector, reflecting a long lasting and
successful portfolio theme.
A decelerating economy and the delayed impact of the Asian crisis will
likely shape how the stock market acts as we move into the second half of 1998.
Stock market returns for the first six months of 1998 have already exceeded the
11% average annualized return for stocks over the long term. In the context of
three years of historically above average returns, we have positive, but more
modest expectations for the second half of 1998.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Lead Portfolio Manager
11
<PAGE>
CAPITAL GROWTH PORTFOLIO
PERFORMANCE UPDATE as of June 30, 1998
- --------
CLASS A
- --------
Capital Growth Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 12,682 26.82% 26.82%
5 Year $ 24,884 148.84% 20.00%
10 Year $ 45,195 351.95% 16.28%
S&P 500 Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 13,017 30.17% 30.17%
5 Year $ 28,243 182.43% 23.06%
10 Year $ 54,892 448.92% 18.55%
* On May 12, 1997, existing shares
were designated as Class A shares.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
Yearly periods ended June 30
CAPITAL GROWTH PORTFOLIO
Year Amount
--------------------------
'88 10000
'89 12053
'90 14042
'91 15078
'92 17103
'93 19435
'94 19709
'95 24845
'96 31303
'97 42170
'98 54892
S&P500 INDEX
Year Amount
--------------------------
'88 10000
'89 11691
'90 12630
'91 12978
'92 15375
'93 18162
'94 18002
'95 21658
'96 26094
'97 35637
'98 45195
- --------
CLASS B
- --------
Capital Growth Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 12,655 26.55% 26.55%
Life of $ 13,658 36.58% 31.63%
Fund**
S&P 500 Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 13,017 30.17% 30.17%
Life of $ 13,601 36.01% 32.87%
Fund**
** The Fund commenced selling Class B
shares on May 12, 1997. Index
comparisons began on May 31, 1997.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
CAPITAL GROWTH PORTFOLIO
Year Amount
--------------------------
5/97** 10000
6/97 10449
9/97 11232
12/97 11554
3/98 13166
6/98 13601
S&P500 INDEX
Year Amount
---------------------------
5/97** 10000
6/97 10581
9/97 11739
12/97 11569
3/98 13079
6/98 13391
~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 Portfolio 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 Portfolio's expenses. See
Financial Highlights for the Capital Growth Portfolio.
12
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
Chart Title: DIVERSIFICATION
- ------------------------------------------------
Equity Securities 93%
Cash Equivalents 7%
------
100%
------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
----------------------------------
Sector breakdown of the
Portfolio's equity holdings
----------------------------------
Financial 18%
Technology 16%
Consumer Discretionary 14%
Energy 11%
Health 10%
Manufacturing 8%
Consumer Staples 7%
Media 5%
Durables 5%
Other 6%
-----
100%
-----
Record high consumer confidence
and spending during the period
contributed to the strong performance
of some of the Portfolio's top holdings.
Chart Title: TEN LARGEST EQUITY HOLDINGS
(24% OF PORTFOLIO)
- -----------------------------------------
1. American International Group, Inc. Major international
insurance holding company
2. EXEL, Ltd. Provider of liability insurance
3. Home Depot, Inc. Building supply/home improvement stores
4. Procter & Gamble Co. Diversified manufacturer of consumer products
5. WorldCom, Inc. Long distance telecommunication services
6. Schering-Plough Corp. Pharmaceutical and consumer products
7. Intel Corp. Semiconductor memory circuits
8. Royal Dutch Petroleum Co. International energy company
9. Compaq Computer Corp. Leading manufacturer of personal computers
10. Omnicom Group, Inc. Leading advertising company
13
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
For the six-month period ended June 30, 1998, the Global Discovery
Portfolio -- Class A returned 16.68%, compared to the 10.40% return of its
benchmark, the unmanaged Salomon Brothers World Equity Extended Market Index.
Relative to its peers, the Portfolio ranked in the top 35% of 48 funds in the
Variable Life Global category during the semiannual period according to Lipper
Analytical Services.
In our view, three factors contributed to the Portfolio's strong
performance over the six months: good stock selection, an overweighting in
Europe, and an underweighting in Asia and Latin America. Europe has been one of
the best performing areas in the world, and near period-end European Monetary
Union member nations agreed to the initial participants (11 of 15 Western
European countries) in the single currency, the euro, which will be introduced
on January 1, 1999. Asia, on the other hand, remains troubled. While we have
seen some positive progress with several International Monetary Fund agreements,
we believe the worst is not behind us yet.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
The Portfolio benefited
significantly from its
individual stock selection
approach, which seeks
diversification by country,
industry, and business
line.
During the period, we continued to stick with our strategy of selecting
well-run, rapidly growing companies. Our approach seeks diversification through
exposure to multiple countries, industries, and business lines. This tends to
result in holdings with a relatively low correlation to one another, thereby
reducing overall portfolio volatility. Good examples of this approach are three
of the Portfolio's top holdings: Network Appliance (U.S. technology), Jeronimo
Martins (supermarkets in Portugal, Brazil, and Poland), and Bank of Ireland. The
performance of each of these stocks is driven by different factors.
Looking ahead, as an "equity culture" develops in Europe (traditionally,
investors have preferred bonds and interest-bearing investments offered by
banks), we think there will be a tremendous opportunity for small-cap stock
investing. Companies in Germany, especially, have a considerable way to go to
integrate equity investing into the corporate financing system. We also think
Eastern Europe presents some attractive investment possibilities.
With U.S. market valuations relatively high and the economic cycle
extended, we expect to find more attractive opportunities abroad than in the
United States. Asia has some promising companies, but we believe the region is
not out of the woods yet, and risk exceeds opportunity at this juncture. As
events unfold in the United States, Europe, and Asia in the months ahead, we
intend to continue with our individual stock selection approach, which we
believe has served the Portfolio well to date.
Sincerely,
Your Portfolio Management Team
/s/Gerald J. Moran /s/Sewall F. Hodges
Gerald J. Moran Sewall F. Hodges
Lead Portfolio Manager
14
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PERFORMANCE UPDATE as of June 30, 1998
- --------
CLASS A
- --------
Global Discovery Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,921 19.21% 19.21%
Life of $ 13,835 38.35% 16.18%
Fund*
Salomon Brothers World Equity
EMI Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,083 10.83% 10.83%
Life of $ 12,202 22.02% 9.62%
Fund*
* The Fund commenced operations on
May 1, 1996. On May 2, 1997,
existing shares were designated
as Class A shares.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
GLOBAL DISCOVERY PORTFOLIO
Year Amount
--------------------------
5/96* 10000
6/96 9946
9/96 9945
12/96 10197
3/97 9895
6/97 11010
9/97 11701
12/97 11052
3/98 12493
6/98 12202
SALOMON BROTHERS WORLD EQUITY EMI INDEX
Year Amount
-----------------------------
5/96* 10000
6/96 10167
9/96 10383
12/96 10550
3/97 10215
6/97 11605
9/97 12242
12/97 11857
3/98 13903
6/98 13835
- --------
CLASS B
- --------
Global Discovery Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,892 18.92% 18.92%
Life of $ 13,292 32.92% 27.76%
Fund**
Salomon Brothers World Equity
EMI Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,083 10.83% 10.83%
Life of $ 12,361 23.61% 19.92%
Fund**
** The Fund commenced selling Class
B shares on May 2, 1997.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
GLOBAL DISCOVERY PORTFOLIO
Year Amount
--------------------------
5/2/97** 10000
6/97 11153
9/97 11853
12/97 11196
3/98 12656
6/98 12361
SALOMON BROTHERS WORLD EQUITY EMI INDEX
Year Amount
---------------------------------------
5/2/97** 10000
6/97 11177
9/97 11790
12/97 11403
3/98 13375
6/98 13292
~The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization stock universe of 22 countries. Index returns assume reinvestment
of dividends and, unlike Portfolio 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
Portfolio's expenses. See Financial Highlights for the Global Discovery
Portfolio.
15
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
Chart Title: DIVERSIFICATION
- -----------------------------
By Region
(Excluding 9% Cash Equivalents)
-------------------------------
Europe 58%
U.S. & Canada 39%
Japan 1%
Other 2%
-----
100%
-----
A graph in the form of a pie chart
appears here, illustrating the exact
data points in the above table.
The Portfolio was 97% invested in European
and North American holdings at the end of
the period, significantly limiting its
exposure to weakened Asian and Latin
American markets.
Chart Title: DIVERSIFICATION
- -----------------------------
By Sector
(Excluding 9% Cash Equivalents)
-------------------------------
Service Industries 21%
Technology 17%
Financial 14%
Health 10%
Consumer Staples 8%
Consumer Discretionary 8%
Communication 7%
Energy 4%
Manufacturing 3%
Other 8%
-----
100%
-----
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Chart Title: TEN LARGEST EQUITY HOLDINGS
(30% OF PORTFOLIO)
- -----------------------------------------
1. Network Appliance, Inc. Designer and manufacturer of network data storage
devices in the United States
2. Serco Group PLC Facilities management company in the United Kingdom
3. Sterling Commerce, Inc. Producer of electronic data interchange products
and services in the United States
4. Jeronimo Martins SA Food producer and retailer in Portugal
5. Bank of Ireland PLC Bank in Ireland
6. Millicom International Cellular SA Developer and operator of cellular
telephone networks in Luxembourg
7. Vitesse Semiconductor Corp. Manufacturer of digital integrated circuits in
the United States
8. Marschollek Lautenschlaeger und Partner AG Leading independent life
insurance company in Germany
9. Altran Technologies SA Engineering and consulting services in France
10. Provident Financial PLC Personal finance group in the United Kingdom
16
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The past six months have been characterized by the outstanding performance
of the Portfolio's European equity holdings, as well as limited exposure to the
economic crisis in Southeast Asia and the weak Japanese market. These conditions
helped the International Portfolio -- Class A to provide a total return of
20.51% for the six-month period ended June 30, 1998. This performance exceeds
the 15.59% total return of the unmanaged Morgan Stanley Capital International
Europe, Australia, Far East and Canada Index for the same period. Among its
peers, the Portfolio ranked in the top 17% of 110 funds in the Variable Life
International category as tracked by Lipper Analytical Services.
During the period, the Portfolio focused on European companies, which
continue to benefit from three favorable trends: the beginning of a cyclical
economic recovery, ongoing corporate restructuring, and optimism that European
Monetary Union (EMU) will prompt further movement toward a more economically
integrated Europe. The peripheral markets -- especially Italy, Portugal, and
Spain -- were particularly robust, as steeply declining interest rates and the
promise of EMU was translated into higher than expected growth for these
countries.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
During the first half of
1998, we focused on the
many positive events in
Europe and remained
cautious toward emerging
markets due to the
aftershocks of the crisis in
Southeast Asia.
The major market to disappoint was Japan, where the Tokyo Stock Exchange
Stock Price Index (TOPIX) fell 1.3% in U.S. dollars during the six-month period,
and the yen weakened as well. The Portfolio maintained an already underweight
exposure to Japan, while selectively shifting the focus of stock selection from
global blue chips toward potential beneficiaries of domestic deregulation and
corporate restructuring.
We are also maintaining a cautious stance toward most emerging markets. In
Asia, the deep structural adjustments required should continue to hold equity
valuations down. These small, developing countries were overwhelmed by global
capital flows which their weak financial systems and economic structures were
ill-adapted to handle. Uncertainty remains high, since the future course of
these economies depends on multiple government policy actions that have yet to
appear. In addition, the currency crisis in Southeast Asia has also exposed
potential structural issues in Latin America, making these markets less
attractive and leading us to maintain a modest exposure to this less-established
area.
In the months ahead, we will continue to position the Portfolio to benefit
from the longer term secular gains to be derived from industry consolidation and
corporate restructuring in Europe. With respect to Japan, the Portfolio's
exposure to restructuring is relatively light for now, but we remain vigilant in
anticipation of the time that this theme will become as promising there as it
has been in Europe.
Sincerely,
Your Portfolio Management Team
/s/Irene T. Cheng /s/Carol L. Franklin
Irene T. Cheng Carol L. Franklin
Lead Portfolio Manager
/s/Nicholas Bratt /s/Joan R. Gregory
Nicholas Bratt Joan R. Gregory
/s/Sheridan Reilly /s/Deborah A. Chaplin
Sheridan Reilly Deborah A. Chaplin
17
<PAGE>
INTERNATIONAL PORTFOLIO
PERFORMANCE UPDATE as of June 30, 1998
CLASS A
International Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,520 15.20% 15.20%
5 Year $ 19,993 99.93% 14.86%
10 Year $ 33,155 231.55% 12.73%
MSCI EAFE & Canada Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 10,629 6.29% 6.29%
5 Year $ 16,247 62.47% 10.19%
10 Year $ 19,404 94.04% 6.85%
* On May 8, 1997, existing shares
were designated as Class A shares.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- -------------------------------------------
Yearly periods ended June 30
INTERNATIONAL PORTFOLIO
Year Amount
--------------------------
'88 10000
'89 10963
'90 11307
'91 10072
'92 9994
'93 11943
'94 13875
'95 14189
'96 16083
'97 18257
'98 19404
MSCI EAFE & CANADA INDEX
Year Amount
--------------------------
'88 10000
'89 11955
'90 15537
'91 13965
'92 15205
'93 16584
'94 20094
'95 20620
'96 24007
'97 28780
'98 33155
- --------
CLASS B
- --------
International Portfolio
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 11,499 14.99% 14.99%
Life of $ 12,327 23.27% 20.04%
Fund**
MSCI EAFE & Canada Index
--------------------------------------
Period Growth Total Return
Ended of --------------------
6/30/98 $10,000 Cumu- Average
lative Annual
--------------------------------------
1 Year $ 10,629 6.29% 6.29%
Life of $ 11,196 11.96% 11.00%
Fund**
** The Fund commenced selling Class
B shares on May 8, 1997. Index
comparisons began on May 31, 1997.
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:
Chart Title: GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------
INTERNATIONAL PORTFOLIO
Year Amount
--------------------------
5/97** 10000
6/97 10534
9/97 10495
12/97 9686
3/98 11109
6/98 11196
MSCI EAFE & CANADA INDEX
Year Amount
-----------------------------
5/97** 10000
6/97 10513
9/97 10649
12/97 10036
3/98 11412
6/98 12089
~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
reinvestment of dividends net of withholding tax and, unlike Portfolio 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 Portfolio's
expenses. See Financial Highlights for the International Portfolio.
18
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1998
Chart Title: DIVERSIFICATION
- -----------------------------
By Region
(Excluding 4% Cash Equivalents)
-------------------------------
Europe 84%
Japan 9%
Pacific Basin 5%
Latin America 1%
U.S. & Canada 1%
-----
100%
-----
A graph in the form of a pie chart
appears here, illustrating the exact
data points in the above table.
Top holdings include companies such as
AEGON that are already well positioned for
the challenges of increased global
competition, as well as companies in the
process of restructuring with global
agendas in mind, including Alcatel Alsthom.
Chart Title: DIVERSIFICATION
- -----------------------------
By Sector
(Excluding 4% Cash Equivalents)
-------------------------------
Financial 24%
Manufacturing 21%
Durables 7%
Communications 7%
Media 6%
Health 6%
Consumer Staples 6%
Technology 4%
Service Industries 4%
Other 15%
-----
100%
-----
A graph in the form of a pie chart
appears here, illustrating the exact
data points in the above table.
Chart Title: TEN LARGEST EQUITY HOLDINGS
(19% OF PORTFOLIO)
- -----------------------------------------
1. Hoechst AG Chemical producer in Germany
2. Alcatel Alsthom Manufacturer of transportation, telecommunication and
energy equipment in France
3. AEGON Insurance Group NV Insurance company in the Netherlands
4. Bayerische Vereinsbank AG Commercial bank in Germany
5. Novartis AG Pharmaceutical company in Switzerland
6. WPP Group PLC Advertising agency in the United Kingdom
7. Mannesmann AG Diversified construction and technology company in Germany
8. Skandia Foersaekrings AB Financial conglomerate in Sweden
9. SAP AG Computer software manufacturer in Germany
10. Credit Suisse Group Provider of bank services, management services and
life insurance in Switzerland
19
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 1.0%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 6/30/1998
at 5.75% to be repurchased at $1,210,193 on 7/1/1998, collateralized by a
$1,305,000 U.S. Treasury Bill, 6/24/1999 (Cost $1,210,000) .................... 1,210,000 1,210,000
-----------
COMMERCIAL PAPER 73.4%
- -------------------------------------------------------------------------------------------------------------------
Baxter International, Inc., 5.5%, 7/17/1998* ..................................... 6,000,000 5,985,200
Bell Atlantic Corp., 5.65%, 7/20/1998* ........................................... 2,958,000 2,949,179
Broadway Capital Corp., 5.63%, 7/6/1998* ......................................... 4,167,000 4,163,742
Coca-Cola Enterprises, Inc., 5.53%, 7/9/1998* .................................... 6,000,000 5,992,627
Countrywide Home Loan Corp., 5.54%, 7/16/1998* ................................... 6,000,000 5,986,150
CSW Credit, Inc., 5.53%, 7/20/1998* .............................................. 5,000,000 4,985,407
Eksportfinans A/S, 5.8%, 7/6/1998* ............................................... 3,733,000 3,729,993
Ford Motor Credit Co., 5.56%, 7/2/1998* .......................................... 1,000,000 999,846
Ford Motor Credit Co., 5.36%, 8/3/1998* .......................................... 5,000,000 4,975,433
Frontier Corp., 5.58%, 7/6/1998* ................................................. 4,000,000 3,996,900
Gotham Funding Corp., 5.65%, 7/10/1998* .......................................... 6,000,000 5,991,525
JP Morgan, 5.28%, 10/15/1998* .................................................... 4,000,000 3,937,813
Lehman Brothers Corp., 5.62%, 7/15/1998* ......................................... 6,000,000 5,986,887
Madison Funding Corp., 5.56%, 7/13/1998* ......................................... 1,217,000 1,214,744
Monsanto Co., 5.51%, 7/23/1998* .................................................. 5,600,000 5,581,144
Northern Indiana Public Services, 5.6%, 7/17/1998* ............................... 2,842,000 2,834,927
Old Line Fund Corp., 5.55%, 7/21/1998* ........................................... 6,000,000 5,981,500
Salomon Smith Barney, 5.55%, 7/10/1998* .......................................... 3,649,000 3,643,937
Sanwa Business Credit Corp., 5.62%, 7/10/1998* ................................... 4,000,000 3,994,380
Svenska Handelsbanken, 5.51%, 8/6/1998* .......................................... 3,112,000 3,094,853
Thunder Bay Funding Corp., 5.57%, 7/15/1998* ..................................... 6,000,000 5,987,003
-----------
Total Commercial Paper (Cost $92,013,190) ........................................ 92,013,190
-----------
CERTIFICATE OF DEPOSIT 2.4%
- -------------------------------------------------------------------------------------------------------------------
Huntington National Bank, 5.8%, 9/22/1998 (Cost $2,999,485) ...................... 3,000,000 2,999,485
SHORT-TERM AND MEDIUM-TERM NOTES 23.2%
- -------------------------------------------------------------------------------------------------------------------
American Honda Finance Corp., Floating Rate Note, 5.67%, 5/26/1999** ............. 5,000,000 4,999,549
Bankers Trust Co., Floating Rate Note, 5.61%, 3/19/1999** ........................ 4,000,000 3,998,877
Goldman Sachs & Co., 5.69%, 3/26/1999** .......................................... 5,000,000 5,000,000
Household Finance Corp., Floating Rate Note, 5.64%, 3/9/1999** ................... 5,000,000 5,000,000
Merrill Lynch & Co., 5.63%, 4/14/1999** .......................................... 5,000,000 5,000,000
Sigma Finance Corp., Floating Rate Note, 5.63%, 4/27/1999** ...................... 5,000,000 5,000,000
-----------
Total Short-Term and Medium-Term Notes (Cost $28,998,426) ........................ 28,998,426
-----------
===================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $125,221,101) (a) ...................... 125,221,101
===========
===================================================================================================================
</TABLE>
* Annualized yield at time of purchase; not a coupon rate.
** Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of
the U.S. Treasury Bill rate. These securities are shown at their rate as
of June 30, 1998.
(a) Cost for federal income tax purposes is $125,221,101.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investment securities (cost $125,221,101) .................................. $ 125,221,101
Interest receivable ........................................................ 231,673
Receivable for Portfolio shares sold ....................................... 1,898,392
Other assets ............................................................... 1,059
----------------
Total assets ............................................................... 127,352,225
Liabilities
Payable for Portfolio shares redeemed ...................................... 1,256,220
Accrued management fee ..................................................... 37,249
Other payables and accrued expenses ........................................ 11,247
----------------
Total liabilities .......................................................... 1,304,716
----------------
Net assets, at value ....................................................... $ 126,047,509
================
Net Assets
Net assets consist of:
Accumulated net realized loss .............................................. (4,318)
Paid-in capital ............................................................ 126,051,827
----------------
Net assets, at value ....................................................... $ 126,047,509
================
Net asset value offering and redemption price per share
($126,047,509 / 126,047,509 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.
21
<PAGE>
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Interest ..................................................... $ 3,229,243
Expenses:
Management fee ............................................... 210,581
Custodian fees ............................................... 4,630
Accounting fees .............................................. 12,862
Trustees' fees and expenses .................................. 11,316
Legal ........................................................ 3,342
Auditing ..................................................... 6,560
Other ........................................................ 8,043
-------------
257,334
-------------
Net investment income ........................................ 2,971,909
-------------
Net increase in net assets resulting from operations ......... $ 2,971,909
=============
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................ $ 2,971,909 $ 5,351,284
Net realized gain (loss) from investment transactions ................ -- (1,835)
------------- -------------
Net increase in net assets resulting from operations ................. 2,971,909 5,349,449
------------- -------------
Distributions to shareholders from net investment income ............. (2,971,909) (5,351,284)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ............................................ 191,359,488 258,430,588
Net asset value of shares issued to shareholders in
reinvestment of distributions ..................................... 2,971,909 5,348,533
Cost of shares redeemed .............................................. (170,860,265) (258,986,535)
------------- -------------
Net increase (decrease) in net assets from Portfolio share
transactions ...................................................... 23,471,132 4,792,586
------------- -------------
Increase (decrease) in net assets .................................... 23,471,132 4,790,751
Net assets at beginning of period .................................... 102,576,377 97,785,626
------------- -------------
Net assets at end of period .......................................... $ 126,047,509 $ 102,576,377
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
MONEY MARKET 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.
<TABLE>
<CAPTION>
Six Months Ended Years Ended December 31,
June 30, 1998 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................... .026 .051 .050 .055 .037 .025
Less distributions from net
investment income ..................... (.026) (.051) (.050) (.055) (.037) (.025)
------ ------ ------ ------ ------ ------
Net asset value, end of period .......... $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
====== ======= ======= ======= ======= =======
Total Return (%) ........................ 2.56** 5.25 5.09 5.65 3.72 2.54
Ratios and Supplemental Data
Net assets, end of period
($ millions) .......................... 126 103 98 80 90 49
Ratio of operating expenses to
average daily net assets (%) .......... .45* .46 .46 .50 .56 .66
Ratio of net investment income to
average daily net assets (%) .......... 5.23* 5.15 4.98 5.51 3.80 2.55
</TABLE>
* Annualized
** Not annualized
24
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 0.3%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated
6/30/1998 at 5.75% to be repurchased at $300,048 on 7/01/1998,
collateralized by a $325,000 U.S. Treasury Bill, 6/24/1999 (Cost $300,000) ...... 300,000 300,000
----------
COMMERCIAL PAPER 1.7%
- -------------------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.588, 7/2/1998 (Cost $1,500,000) ........................ 1,500,000 1,500,000
----------
U.S. GOVERNMENT & AGENCIES 20.2%
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.625%, 11/30/2000 ............................................. 4,000,000 4,008,760
U.S. Treasury Note, 5.625%, 12/31/2002 ............................................. 1,000,000 1,004,370
U.S. Treasury Note, 6.25%, 1/31/2002 ............................................... 2,500,000 2,555,850
U.S. Treasury Note, 6.5%, 5/15/2005 ................................................ 1,000,000 1,055,470
U.S. Treasury Note, 6.25%, 2/15/2007 ............................................... 1,000,000 1,047,190
U.S. Treasury Bond, 7.25%, 5/15/2016 ............................................... 7,000,000 8,200,920
----------
Total U.S. Government & Agencies (Cost $17,796,103) ................................ 17,872,560
----------
GOVERNMENT NATIONAL MORTGAGE ASSOC. 3.8%
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 10%, 8/15/2020 (a) ............. 986,135 1,083,841
Government National Mortgage Association Pass-thru, 7.5%, 7/15/2026 (a) ............ 2,199,304 2,261,148
----------
Total Government National Mortgage Assoc. (Cost $3,306,679) ........................ 3,344,989
----------
U.S. GOVERNMENT AGENCY PASS-THRUS 10.5%
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8%, 4/1/2008 (a) ................................. 429,416 440,062
Federal Home Loan Mortgage Corp., 7.713%, 9/1/2024 (a) ............................. 1,500,150 1,559,451
Federal National Mortgage Association, 8%, 12/1/2009 (a) ........................... 1,140,706 1,179,912
Federal National Mortgage Association, 7% with various maturities to 7/1/2026 (a) .. 6,079,861 6,167,226
----------
Total U.S. Government Agency Pass-thrus (Cost $9,061,245) .......................... 9,346,651
----------
COLLATERALIZED MORTGAGE OBLIGATION 1.7%
- -------------------------------------------------------------------------------------------------------------------
Residential Asset Securitization Trust, Series 1997-A6, 7.25%, 9/25/2012
(Cost $1,522,734) ............................................................... 1,500,000 1,502,344
----------
FOREIGN BONDS -- U.S. $ DENOMINATED 4.5%
- -------------------------------------------------------------------------------------------------------------------
Hutchison Whampoa, Ltd., 7.5%, 8/1/2027 ............................................ 1,000,000 773,990
Nippon Telegraph & Telephone Corp., 9.5%, 7/27/1998 ................................ 1,000,000 1,002,080
Norsk Hydro AS, 7.75%, 6/15/2023 ................................................... 1,500,000 1,707,555
Petroleos Mexicanos SA, 8.85%, 9/15/2007 ........................................... 500,000 483,000
----------
Total Foreign Bonds-- U.S. $ Denominated (Cost $4,152,224) ......................... 3,966,625
----------
ASSET BACKED 3.2%
- -------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.1%
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 .... 1,000,000 1,009,680
----------
Home Equity Loans 0.2%
United Companies Financial Corp., Home Equity Loan, Series 1993-B1, 6.075%,
7/25/2014 ....................................................................... 164,132 164,081
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufactured Housing Receivables 1.9%
Green Tree Financial Corp., Series 1997-1 B2, 7.76%, 3/15/2028 ..................... 650,000 636,467
Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/2028 ..................... 1,000,000 1,012,500
----------
1,648,967
----------
Total Asset Backed (Cost $2,820,824) ............................................... 2,822,728
----------
CORPORATE BONDS 54.1%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 2.3%
Tricon Global Restaurants, 7.65%, 5/15/2008 ........................................ 1,000,000 1,007,500
Westpoint Stevens, Inc., 7.875%, 6/15/2005 ......................................... 1,000,000 1,007,500
----------
2,015,000
----------
Consumer Staples 2.5%
Bass America Inc., 6.625%, 3/1/2003 ................................................ 1,000,000 1,015,970
J. Seagram & Sons Inc., 9%, 8/15/2021 .............................................. 1,000,000 1,237,390
----------
2,253,360
----------
Communications 1.1%
MCI Communications Corp., 6.125%, 4/15/2012 ........................................ 1,000,000 996,280
----------
Financial 14.1%
Associates Corp. of North America, 6.625%, 5/15/2001 ............................... 2,000,000 2,030,060
BankAmerica Corp., 7.125%, 5/1/2006 ................................................ 1,000,000 1,052,450
First USA Bank, 5.85%, 2/22/2001 ................................................... 1,500,000 1,493,325
First Union Capital II, 7.85%, 1/1/2027 ............................................ 1,750,000 1,858,815
General Electric Capital Corp., 6.02%, 5/1/2001 .................................... 1,500,000 1,507,500
ICI Investments, 6.75%, 8/7/2002 ................................................... 1,500,000 1,524,600
Simon Debartolo Group, Inc., 6.625%, 6/15/2003 ..................................... 2,500,000 2,499,250
Taubman Realty Group L.P., Medium Term Note, 8%, 7/30/2001 ......................... 500,000 521,890
----------
12,487,890
----------
Media 9.2%
Cablevision Systems Corp., 7.875%, 2/15/2018 ....................................... 1,000,000 1,047,500
Cox Communications, Inc., 6.85%, 1/15/2018 ......................................... 1,000,000 1,005,000
News America, Inc., 7.25%, 5/18/2018 ............................................... 1,000,000 1,024,660
Outdoor Systems, Inc., 8.875%, 6/15/2007 ........................................... 1,000,000 1,040,000
TCA Cable TV, Inc., 6.53%, 2/1/2028 ................................................ 1,000,000 1,003,604
Time Warner Inc., 9.125%, 1/15/2013 ................................................ 1,000,000 1,217,050
Time Warner Inc., 6.875%, 6/15/2018 ................................................ 750,000 752,925
Viacom Inc., 7.75%, 6/1/2005 ....................................................... 1,000,000 1,065,450
----------
8,156,189
----------
Service Industries 0.6%
ServiceMaster L.P., 7.45%, 8/15/2027 ............................................... 500,000 513,438
----------
Durables 3.2%
BE Aerospace, 8%, 3/1/2008 ......................................................... 850,000 847,875
Martin Marietta Corp., 6.5%, 4/15/2003 ............................................. 1,000,000 1,010,680
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ............... 1,000,000 1,026,940
----------
2,885,495
----------
Manufacturing 1.4%
Argo-Tech Corp., 8.625%, 10/1/2007 ................................................. 500,000 500,000
Graham Packaging Co., 8.75%, 1/15/2008 ............................................. 750,000 746,250
----------
1,246,250
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 3.6%
Loral Corp., 8.375%, 6/15/2024 ..................................................... 1,000,000 1,208,260
Pitney Bowes, Inc., 6.27%, 1/20/2012 ............................................... 2,000,000 2,002,500
----------
3,210,760
----------
Energy 6.4%
Anadarko Petroleum Corp., 7%, 11/15/2027 ........................................... 1,000,000 1,022,100
Barrett Resources Corp., 7.55%, 2/1/2007 ........................................... 750,000 767,813
Chesapeake Energy Corp., 8.5%, 3/15/2012 ........................................... 1,000,000 925,000
Dawson Production Services, Inc., 9.375%, 2/1/2007 ................................. 300,000 300,750
Phillips Petroleum Corp., 6.65%, 7/15/2018 ......................................... 1,250,000 1,246,125
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ..................................... 1,500,000 1,460,625
----------
5,722,413
----------
Construction 0.6%
Nortek, Inc., 9.125%, 9/1/2007 ..................................................... 500,000 511,250
----------
Transportation 3.4%
Allied Holdings Inc., 8.625%, 10/1/2007 ............................................ 700,000 703,500
Atlantic Express, Inc., 10.75%, 2/1/2004 ........................................... 675,000 718,875
Continental Airlines Inc., Series 1997-1A, 7.461%, 4/1/2015 ........................ 991,014 1,060,484
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ................................... 500,000 526,250
----------
3,009,109
----------
Utilities 5.7%
Houston Light & Power Capital Corp., 8.257%, 2/1/2037 .............................. 500,000 531,563
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ....................................... 2,500,000 2,506,250
PacifiCorp, 6.15%, 1/15/2008 ....................................................... 1,000,000 990,700
Public Service Co. of Colorado, 6%, 4/15/2003 ...................................... 1,000,000 993,750
----------
5,022,263
----------
Total Corporate Bonds (Cost $46,791,653) 48,029,697
----------
PUT -- PURCHASED 0.0%
- -------------------------------------------------------------------------------------------------------------------
Put on Chicago Board of Trade U.S. Treasury Bond, expires 8/22/98 (Cost $90,834) ... 72 23,625
----------
===================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $87,342,296) (b) ......................... 88,709,219
==========
===================================================================================================================
</TABLE>
(a) Effective maturities will be shorter due to prepayments.
(b) At June 30, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $87,342,296 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ............................................... $ 1,883,615
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ............................................... 516,692
------------
Net unrealized appreciation .......................................................... $ 1,366,923
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the six months
ended June 30, 1998, aggregated $44,270,238 and $29,142,371, respectively.
Purchases and sales of direct U.S. Government obligations for the six
months ended June 30, 1998, aggregated $30,082,576 and $24,041,914,
respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1998 was $139,691,772.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at market (identified cost $87,251,462) ............. $88,685,594
Purchased options, at market (cost $90,834) ...................... 23,625
Cash ............................................................. 39,310
Receivable for investments sold .................................. 3,497,644
Interest receivable .............................................. 1,290,590
Receivable for Portfolio shares sold ............................. 37,506
Other assets ..................................................... 887
-----------
Total assets ..................................................... 93,575,156
Liabilities
Payable for investments purchased ................................ 3,296,205
Payable for Portfolio shares redeemed ............................ 81,383
Accrued management fee ........................................... 34,009
Other payables and accrued expenses .............................. 37,420
-----------
Total liabilities ................................................ 3,449,017
-----------
Net assets, at market value ...................................... $90,126,139
===========
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ....................... 1,455,877
Net unrealized appreciation (depreciation) on investments ........ 1,366,923
Accumulated net realized gain (loss) ............................. 982,007
Paid-in capital .................................................. 86,321,332
-----------
Net assets, at market value ...................................... $90,126,139
===========
Net asset value offering and redemption price per share
($90,126,139 / 13,099,193 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) ................................................... $6.88
=====
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BOND PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Interest ........................................................ $ 2,941,316
Expenses:
Management fee .................................................. 200,157
Accounting fees ................................................. 19,988
Trustees' fees and expenses ..................................... 11,316
Auditing ........................................................ 7,761
Legal ........................................................... 3,514
Other ........................................................... 8,729
-----------
251,465
-----------
Net investment income ........................................... 2,689,851
-----------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments ..................................................... 1,172,088
Futures ......................................................... (40,082)
-----------
1,132,006
-----------
Net unrealized appreciation (depreciation) during the
period on investments ........................................ (883,197)
-----------
Net gain (loss) on investment transactions ...................... 248,809
-----------
Net increase (decrease) in net assets resulting from
operations ................................................... $ 2,938,660
===========
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................. $ 2,689,851 $ 4,441,580
Net realized gain (loss) from investment transactions ............. 1,132,006 194,189
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................. (883,197) 1,334,379
-------------- ---------------
Net increase (decrease) in net assets resulting from operations ... 2,938,660 5,970,148
-------------- ---------------
Distributions to shareholders from:
Net investment income ............................................. (2,486,034) (4,208,036)
-------------- ---------------
Net realized gains from investment transactions ................... (295,454) (189,814)
-------------- ---------------
Portfolio share transactions:
Proceeds from shares sold ......................................... 21,224,809 27,517,062
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................. 2,781,488 4,397,850
Cost of shares redeemed ........................................... (15,424,362) (17,869,599)
-------------- ---------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................... 8,581,935 14,045,313
-------------- --------------
Increase (decrease) in net assets ................................. 8,739,107 15,617,611
Net assets at beginning of period ................................. 81,387,032 65,769,421
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $1,455,877 and $1,252,060,
respectively) .................................................. $ 90,126,139 $ 81,387,032
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ......................... 11,852,430 9,775,320
-------------- --------------
Shares sold ....................................................... 3,089,627 4,073,136
Shares issued to shareholders in reinvestment of distributions .... 410,585 661,744
Shares redeemed ................................................... (2,253,449) (2,657,770)
-------------- ---------------
Net increase (decrease) in Portfolio shares ....................... 1,246,763 2,077,110
-------------- --------------
Shares outstanding at end of period ............................... 13,099,193 11,852,430
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Six Months Ended Years Ended December 31,
June 30, 1998 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 6.87 $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................... .22 .44 .41 .44 .43 .48
Net realized and unrealized gain
(loss) on investment transactions ..... .02 .15 (.22) .69 (.77) .38
------ ------- ------- ------- ------- -------
Total from investment operations ........ .24 .59 .19 1.13 (.34) .86
------ ------- ------- ------- ------- -------
Less distributions from:
Net investment income ................... (.20) (.43) (.62) (.45) (.43) (.48)
Net realized gains on investment
transactions .......................... (.03) (.02) -- -- (.17) (.15)
------ ------- ------- ------- ------- -------
Total distributions ..................... (.23) (.45) (.62) (.45) (.60) (.63)
------ ------- ------- ------- ------- -------
Net asset value, end of period .......... $ 6.88 $ 6.87 $ 6.73 $ 7.16 $ 6.48 $ 7.42
====== ======= ======= ======= ======= =======
Total Return (%) ........................ 3.50** 9.10 2.82 18.17 (4.79) 12.38
Ratios and Supplemental Data
Net assets, end of period ($
millions) ............................. 90 81 66 73 142 129
Ratio of operating expenses to
average daily net assets (%) .......... .60* .62 .61 .56 .58 .61
Ratio of net investment income to
average daily net assets (%) .......... 6.38* 6.55 6.20 6.29 6.43 6.59
Portfolio turnover rate (%) ............. 136.95* 56.07 85.11 177.21 96.55 125.15
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
31
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 2.9%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 6/30/1998
at 5.75% to be repurchased at $4,088,653 on 7/1/1998, collateralized by a
$4,395,000 U.S. Treasury Bill, 6/24/1999 (Cost $4,088,000) ....................... 4,088,000 4,088,000
----------
COMMERCIAL PAPER 1.1%
- -------------------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 5.588%, 7/2/1998 (Cost $1,500,000) ........................ 1,500,000 1,500,000
----------
U.S. GOVERNMENT & AGENCIES 9.0%
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.25%, 7/31/1998 ................................................ 1,000,000 1,000,000
U.S. Treasury Note, 5.625%, 12/31/1999 .............................................. 1,500,000 1,502,340
U.S. Treasury Note, 5.5%, 2/29/2000 ................................................. 1,000,000 999,690
U.S. Treasury Note, 5.75%, 10/31/2000 ............................................... 1,000,000 1,004,690
U.S. Treasury Note, 6.25%, 1/31/2002 ................................................ 1,000,000 1,022,340
U.S. Treasury Note, 5.625%, 2/15/2006 ............................................... 1,000,000 1,004,060
U.S. Treasury Bond, 7.25%, 5/15/2016 ................................................ 5,250,000 6,150,690
----------
Total U.S. Government & Agencies (Cost $12,590,470) ................................. 12,683,810
----------
GOVERNMENT NATIONAL MORTGAGE ASSOC. 0.7%
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 10%, 8/15/2020 (a) .............. 365,391 401,594
Government National Mortgage Association Pass-thru, 8.75%, 12/15/2024 (a) ........... 521,510 546,934
----------
Total Government National Mortgage Assoc. (Cost $887,972) ........................... 948,528
----------
U.S. GOVERNMENT AGENCY PASS-THRUS 5.2%
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8%, 4/1/2008 (a) .................................. 715,693 733,436
Federal National Mortgage Association, 6.5% with various maturities to
2/1/2026 (a) ..................................................................... 2,281,149 2,277,392
Federal National Mortgage Association, 7% with various maturities to
9/1/2026 (a) ..................................................................... 4,230,808 4,290,968
----------
Total U.S. Government Agency Pass-thrus (Cost $7,021,674) ........................... 7,301,796
----------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.9%
- -------------------------------------------------------------------------------------------------------------------
General Electric Capital Mortgage Services, Inc., Series 1992-2F, 7%, 6/25/2007 ..... 230,341 232,285
Prudential Home Mortgage Securities Co., Series 1993-43-A1, 5.4%, 10/25/2023 ........ 525,003 521,228
Residential Asset Securitization Trust, Series 1997-A6, 7.25%, 9/25/2012 ............ 500,000 500,781
----------
Total Collateralized Mortgage Obligations (Cost $1,257,620) ......................... 1,254,294
----------
FOREIGN BONDS -- U.S.$ DENOMINATED 1.3%
- -------------------------------------------------------------------------------------------------------------------
Midland Bank PLC, 6.95%, 3/15/2011 .................................................. 500,000 512,905
Norsk Hydro AS, 7.75%, 6/15/2023 .................................................... 1,000,000 1,138,370
Seagram Co., Ltd., 6.875%, 9/1/2023 ................................................. 250,000 251,498
----------
Total Foreign Bonds-- U.S.$ Denominated (Cost $1,773,523) ........................... 1,902,773
----------
ASSET BACKED 1.7%
- -------------------------------------------------------------------------------------------------------------------
Automobile Receivables 0.3%
Premier Auto Trust Asset Backed Certificate, Series 1996-3, 6.5%, 3/6/2000 .......... 365,942 366,857
----------
Credit Card Receivables 0.7%
Proffitt's, Inc. Credit Card Master Trust, 6%, 9/15/2004 ............................ 500,000 498,535
Sears Credit Account Master Trust, Series 1995-A4, 6.25%, 1/15/2003 ................. 566,667 567,375
----------
1,065,910
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Equity Loans 0.7%
First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/2016 .......................... 1,000,000 999,063
United Companies Financial Corp., Home Equity Loan Series 1993-B1, 6.075%,
7/25/2014 ........................................................................... 41,033 41,020
----------
1,040,083
----------
Total Asset Backed (Cost $2,472,183) ................................................ 2,472,850
----------
CORPORATE BONDS 18.5%
Consumer Discretionary 0.7%
Tricon Global Restaurants, 7.65%, 5/15/2008 ......................................... 500,000 503,750
Westpoint Stevens, Inc., 7.875%, 6/15/2005 .......................................... 500,000 503,750
----------
1,007,500
----------
Consumer Staples 0.7%
Bass America Inc., 6.625%, 3/1/2003 ................................................. 750,000 761,978
J. Seagram & Sons Inc., 7%, 4/15/2008 ............................................... 270,000 279,428
----------
1,041,406
----------
Financial 4.9%
Associates Corp. of North America, 6.625%, 5/15/2001 ................................ 750,000 761,273
First USA Bank, 5.85%, 2/22/2001 .................................................... 1,000,000 995,550
Fleet Financial Group, 6.875%, 1/15/2028 ............................................ 1,000,000 1,024,190
General Electric Capital Corp., 6.02%, 5/1/2001 ..................................... 500,000 502,500
ICI Investments, 6.75%, 8/7/2002 .................................................... 500,000 508,200
Lehman Brothers Holding Corp., Medium Term Note, 6.33%, 8/1/2000 .................... 500,000 502,770
Simon Debartolo Group, Inc., 6.625%, 6/15/2003 ...................................... 1,000,000 999,700
Southern National Corp., 7.05%, 5/23/2003 ........................................... 1,000,000 1,035,700
Wells Fargo & Co., 6.875%, 4/1/2006 ................................................. 500,000 514,105
----------
6,843,988
----------
Media 3.2%
Cablevision Systems Corp., 7.875%, 2/15/2018 ........................................ 500,000 523,750
Cox Communications, Inc., 6.85%, 1/15/2018 .......................................... 750,000 753,750
News America, Inc., 7.25%, 5/18/2018 ................................................ 500,000 512,330
TCA Cable TV, Inc., 6.53%, 2/1/2028 ................................................. 500,000 501,802
Time Warner Inc., 9.125%, 1/15/2013 ................................................. 1,000,000 1,217,050
Time Warner, Inc., 6.875%, 6/15/2018 ................................................ 500,000 501,950
Viacom Inc., 7.75%, 6/1/2005 ........................................................ 500,000 532,725
----------
4,543,357
----------
Service Industries 1.0%
Primedia, Inc., 7.625%, 4/1/2008 .................................................... 500,000 487,500
ServiceMaster L.P., 7.45%, 8/15/2027 ................................................ 1,000,000 1,026,875
----------
1,514,375
----------
Durables 0.7%
Martin Marietta Corp., 6.5%, 4/15/2003 .............................................. 400,000 404,272
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ................ 500,000 513,470
----------
917,742
----------
Manufacturing 0.2%
Corning Inc., 8.75%, 7/15/1999 ...................................................... 250,000 256,793
----------
Technology 1.4%
Loral Corp., 8.375%, 6/15/2024 ...................................................... 750,000 906,195
Pitney Bowes, Inc., 6.27%, 1/20/2012 ................................................ 1,000,000 1,001,250
----------
1,907,445
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 1.6%
Atlantic Richfield Co., 8.25%, 2/1/2022 ............................................. 500,000 602,980
Phillips Petroleum Corp., 6.65%, 7/15/2018 .......................................... 750,000 747,675
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ...................................... 1,000,000 973,750
----------
2,324,405
----------
Transportation 1.4%
Continental Airlines Inc., Series 1997-1A, 7.461%, 4/1/2015 ......................... 991,014 1,060,484
Newport News Shipbuilding Co., 8.625%, 12/1/2006 .................................... 375,000 394,688
Northwest Airlines Corp., 7.875%, 3/15/2008 ......................................... 500,000 505,780
----------
1,960,952
----------
Utilities 2.7%
Commonwealth Edison Co., 9.05%, 10/15/1999 .......................................... 250,000 259,005
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ........................................ 1,500,000 1,503,750
PacifiCorp, 6.15%, 1/15/2008 ........................................................ 1,500,000 1,486,050
Public Service Co. of Colorado, 6%, 4/15/2003 ....................................... 500,000 496,875
----------
3,745,680
----------
Total Corporate Bonds (Cost $25,450,940) 26,063,643
----------
Shares
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 58.7%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 7.1%
Department & Chain Stores 6.3%
Consolidated Stores Corp.* .......................................................... 18,200 659,750
Costco Companies, Inc.* ............................................................. 21,600 1,362,150
Dayton Hudson Corp. ................................................................. 15,800 766,300
Home Depot, Inc. .................................................................... 33,600 2,790,893
Nordstrom, Inc. ..................................................................... 12,700 981,075
Wal-Mart Stores Inc. ................................................................ 39,700 2,411,775
----------
8,971,943
----------
Hotels & Casinos 0.8%
Royal Caribbean Cruises Ltd. ........................................................ 13,700 1,089,150
----------
Consumer Staples 11.9%
Alcohol & Tobacco 1.2%
Philip Morris Companies, Inc. ....................................................... 42,800 1,685,250
----------
Food & Beverage 4.7%
Coca-Cola Co., Inc. ................................................................. 36,700 3,137,850
H.J. Heinz Co. ...................................................................... 30,300 1,700,588
Interstate Bakeries Corp. ........................................................... 28,400 942,525
Suiza Foods Corp.* .................................................................. 13,100 781,906
----------
6,562,869
----------
Package Goods/Cosmetics 6.0%
Colgate-Palmolive Co. ............................................................... 24,500 2,156,000
Estee Lauder Companies "A" .......................................................... 12,500 871,094
Gillette Co. ........................................................................ 35,890 2,034,514
Procter & Gamble Co. ................................................................ 38,000 3,460,375
----------
8,521,983
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health 12.2%
Health Industry Services 2.5%
HBO & Company, Inc. ................................................................. 34,000 1,198,500
HEALTHSOUTH Corp.* .................................................................. 42,200 1,126,213
Total Renal Care Holdings, Inc.* .................................................... 35,100 1,210,950
----------
3,535,663
----------
Hospital Management 0.7%
Tenet Healthcare Corp. * ............................................................ 30,300 946,875
----------
Medical Supply & Specialty 0.5%
Guidant Corp. ....................................................................... 10,200 727,388
----------
Pharmaceuticals 8.5%
Bristol-Myers Squibb Co. ............................................................ 14,600 1,678,088
Eli Lilly & Co. ..................................................................... 25,416 1,679,045
Johnson & Johnson ................................................................... 14,700 1,084,125
Merck & Co., Inc. ................................................................... 14,700 1,966,125
Pfizer, Inc. ........................................................................ 31,300 3,401,919
Schering-Plough Corp. ............................................................... 9,500 870,438
Warner-Lambert Co. .................................................................. 19,500 1,352,813
----------
12,032,553
----------
Financial 3.8%
Banks 0.5%
First Union Corp. ................................................................... 13,200 768,900
----------
Insurance 3.3%
American International Group, Inc. .................................................. 18,375 2,682,750
MBIA, Inc. .......................................................................... 12,400 928,450
UNUM Corp. .......................................................................... 17,700 982,350
----------
4,593,550
----------
Media 4.4%
Advertising 1.8%
Interpublic Group of Companies Inc. ................................................. 21,450 1,301,770
Outdoor Systems, Inc.* .............................................................. 45,825 1,283,100
----------
2,584,870
----------
Broadcasting & Entertainment 2.6%
Clear Channel Communications, Inc. * ................................................ 16,400 1,789,650
Univision Communication Inc.* ....................................................... 26,700 994,575
Walt Disney Co. ..................................................................... 8,000 840,500
----------
3,624,725
----------
Service Industries 1.4%
Miscellaneous Commercial Services 0.6%
AccuStaff, Inc.* .................................................................... 27,700 865,625
----------
Miscellaneous Consumer Services 0.8%
Service Corp. International ......................................................... 25,600 1,097,600
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 3.2%
Aerospace 0.8%
AlliedSignal Inc. ................................................................... 26,000 1,153,750
-----------
Telecommunications Equipment 2.4%
Ascend Communications, Inc.* ........................................................ 24,900 1,234,106
Lucent Technologies Inc. ............................................................ 25,300 2,104,644
-----------
3,338,750
-----------
Manufacturing 5.7%
Chemicals 0.7%
Monsanto Co. ........................................................................ 17,700 988,988
-----------
Diversified Manufacturing 4.4%
General Electric Co. ................................................................ 50,500 4,595,500
Textron, Inc. ....................................................................... 21,600 1,548,450
-----------
6,143,950
-----------
Machinery/Components/Controls 0.6%
Federal-Mogul Corp. ................................................................. 13,100 884,250
-----------
Technology 9.0%
Computer Software 4.1%
Cadence Design System Inc.* ......................................................... 22,000 687,500
Computer Associates International, Inc. ............................................. 19,425 1,079,302
Microsoft Corp.* .................................................................... 25,000 2,709,375
PeopleSoft Inc.* .................................................................... 27,000 1,269,000
-----------
5,745,177
-----------
EDP Peripherals 0.5%
EMC Corp.* .......................................................................... 16,700 748,369
-----------
Electronic Data Processing 0.9%
Sun Microsystems, Inc.* ............................................................. 28,700 1,246,656
-----------
Office/Plant Automation 1.4%
Cisco Systems, Inc.* ................................................................ 20,900 1,924,106
-----------
Semiconductors 2.1%
Intel Corp. ......................................................................... 30,600 2,268,225
Linear Technology Corp. ............................................................. 11,900 717,719
-----------
2,985,944
-----------
Total Common Stocks (Cost $51,422,913) .............................................. 82,768,884
-----------
PURCHASED OPTIONS 0.0%
- -------------------------------------------------------------------------------------------------------------------
Put on Chicago Board of Trade U.S. Treasury Bond, expires 8/22/98 (Cost $54,923) .... 44 14,437
-----------
===================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $108,520,218) (a) ......................... 140,999,015
===========
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) Effective maturities will be shorter due to prepayments. At June 30, 1998,
the net unrealized appreciation on investments based on cost for
(b) federal income tax purposes of $108,529,053 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost .............................................. $ 33,364,302
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value .............................................. 894,340
------------
Net unrealized appreciation .......................................................... $ 32,469,962
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the six months
ended June 30, 1998, aggregated $45,702,623 and $32,907,172, respectively.
Purchases and sales of direct U.S. Government obligations for the six
months ended June 30, 1998, aggregated $13,459,728 and $14,748,258,
respectively.
The aggregate face value of futures contracts opened and closed for the
six months ended June 30, 1998 was $117,115,628.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at market (identified cost $108,465,295) ........ $ 140,984,578
Purchased options, at value (cost $54,923) ................... 14,437
Cash ......................................................... 804
Receivable for investments sold .............................. 1,719,524
Dividends and interest receivable ............................ 751,339
Other assets ................................................. 1,698
----------------
Total assets ................................................. 143,472,380
Liabilities
Payable for investments purchased ............................ 1,571,082
Accrued management fee ....................................... 51,631
Other payables and accrued expenses .......................... 29,012
----------------
Total liabilities ............................................ 1,651,725
----------------
Net assets, at market value .................................. $ 141,820,655
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................... 939,383
Net unrealized appreciation (depreciation) on investments .... 32,478,797
Accumulated net realized gain ................................ 5,626,536
Paid-in capital .............................................. 102,775,939
----------------
Net assets, at market value .................................. $ 141,820,655
================
Net asset value, offering and redemption price per
share ($141,820,655 / 9,995,420 outstanding shares
of beneficial interest, no par value, unlimited number
of shares authorized) ..................................... $14.19
======
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Dividends (net of foreign taxes withheld of $1,873) ............ $ 389,648
Interest ....................................................... 1,750,831
------------
2,140,479
Expenses:
Management fee ................................................. 306,669
Custodian fees ................................................. 4,876
Accounting fees ................................................ 32,503
Trustees' fees and expenses .................................... 11,315
Auditing ....................................................... 7,967
Legal .......................................................... 3,766
Registration fees .............................................. 286
Other .......................................................... 3,189
------------
370,571
------------
Net investment income .......................................... 1,769,908
------------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments .................................................... 5,734,116
Futures ........................................................ (19,738)
------------
5,714,378
------------
Net unrealized appreciation (depreciation) during the
period on:
Investments .................................................... 8,859,792
Foreign currency related transactions .......................... 9
------------
8,859,801
------------
Net gain (loss) on investment transactions ..................... 14,574,179
------------
Net increase (decrease) in net assets resulting from
operations .. ............................................... $ 16,344,087
============
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
BALANCED PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 1,769,908 $ 2,817,310
Net realized gain (loss) from investment transactions ........... 5,714,378 6,087,508
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................... 8,859,801 13,062,144
-------------- --------------
Net increase in net assets resulting from operations ............ 16,344,087 21,966,962
-------------- --------------
Distributions to shareholders from:
Net investment income ........................................... (1,641,967) (2,678,045)
-------------- --------------
Net realized gains from investment transactions ................. (6,021,604) (4,951,322)
-------------- --------------
Portfolio share transactions:
Proceeds from shares sold ....................................... 15,109,307 24,546,671
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 7,663,571 7,629,367
Cost of shares redeemed ......................................... (8,005,954) (16,483,255)
-------------- --------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................. 14,766,924 15,692,783
-------------- --------------
Increase (decrease) in net assets ............................... 23,447,440 30,030,378
Net assets at beginning of period ............................... 118,373,215 88,342,837
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $939,383 and $811,442,
respectively) ................................................ $ 141,820,655 $ 118,373,215
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ....................... 8,902,042 7,608,722
-------------- --------------
Shares sold ..................................................... 1,106,956 2,001,001
Shares issued to shareholders in reinvestment of distributions .. 573,423 651,149
Shares redeemed ................................................. (587,001) (1,358,830)
-------------- ---------------
Net increase (decrease) in Portfolio shares ..................... 1,093,378 1,293,320
-------------- --------------
Shares outstanding at end of period ............................. 9,995,420 8,902,042
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Six Months Ended Years Ended December 31,
June 30, 1998 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $13.30 $ 11.61 $ 10.95 $ 8.97 $ 10.23 $ 10.02
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................... .18 .34 .31 .30 .29 .30
Net realized and unrealized gain
(loss) on investment transactions ..... 1.55 2.32 .95 2.04 (.48) .42
------ ------- ------- ------- ------- -------
Total from investment operations ........ 1.73 2.66 1.26 2.34 (.19) .72
------ ------- ------- ------- ------- -------
Less distributions from:
Net investment income ................... (.18) (.33) (.30) (.30) (.30) (.28)
Net realized gains on investment
transactions .......................... (.66) (.64) (.30) (.06) (.77) (.23)
------ ------- ------- ------- ------- -------
Total distributions ..................... (.84) (.97) (.60) (.36) (1.07) (.51)
------ ------- ------- ------- ------- -------
Net asset value, end of period .......... $14.19 $ 13.30 $ 11.61 $ 10.95 $ 8.97 $ 10.23
====== ======= ======= ======= ======= =======
Total Return (%) ........................ 13.38** 24.21 11.89 26.67 (2.05) 7.45
Ratios and Supplemental Data
Net assets, end of period ($
millions) ............................. 142 118 88 68 46 45
Ratio of operating expenses to
average daily net assets (%) .......... .57* .57 .60 .65 .75 .75
Ratio of net investment income to
average daily net assets (%) .......... 2.74* 2.73 2.82 3.01 3.19 3.01
Portfolio turnover rate (%) ............. 79.03* 43.10 67.56 87.98 101.64 133.95(b)
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income, as well as long-term
preservation of capital, 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 period
ended December 31, 1993 should not be considered representative of the
present Portfolio.
* Annualized
** Not annualized
41
<PAGE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 2.3%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 6/30/1998
at 5.75% to be repurchased at $4,526,723 on 7/1/1998, collateralized by a
$4,865,000 U.S. Treasury Bill, 6/24/1999 (Cost $4,526,000) ..................... 4,526,000 4,526,000
----------
Shares
- -------------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS 0.3%
- -------------------------------------------------------------------------------------------------------------------
Financial 0.2%
Consumer Finance 0.1%
Advanta Corp. 6.75% ............................................................... 5,547 128,968
----------
Real Estate 0.1%
Security Capital Industrial Trust "B", 7% ......................................... 6,300 197,662
----------
Manufacturing 0.1%
Industrial Specialty
Cooper Industries, Inc., 6% ....................................................... 10,000 176,250
----------
Total Convertible Preferred Stocks (Cost $502,710) ................................ 502,880
----------
COMMON STOCKS 97.4%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 4.5%
Department & Chain Stores 4.4%
J.C. Penney Co., Inc. ............................................................. 42,400 3,066,050
May Department Stores ............................................................. 21,800 1,427,900
Rite Aid Corp. .................................................................... 36,400 1,367,275
Sears, Roebuck & Co. .............................................................. 47,000 2,869,938
----------
8,731,163
----------
Hotels & Casinos 0.1%
Homestead Village, Inc.* .......................................................... 3,562 42,299
----------
Consumer Staples 6.9%
Alcohol & Tobacco 1.6%
Philip Morris Companies, Inc. ..................................................... 63,900 2,516,063
RJR Nabisco Holdings Corp. ........................................................ 24,780 588,525
----------
3,104,588
----------
Food & Beverage 4.0%
H.J. Heinz Co. .................................................................... 80,400 4,512,450
Unilever NV (New York shares) ..................................................... 41,900 3,307,481
----------
7,819,931
----------
Package Goods/Cosmetics 1.3%
Avon Products, Inc. ............................................................... 34,500 2,673,750
----------
Health 5.6%
Pharmaceuticals
American Home Products Corp. ...................................................... 68,700 3,555,225
Bristol-Myers Squibb Co. .......................................................... 29,600 3,402,150
SmithKline Beecham PLC (ADR) ...................................................... 30,200 1,827,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Zeneca Group PLC ................................................................. 18,200 781,593
Zeneca Group PLC (ADR) ........................................................... 31,200 1,368,900
----------
10,934,968
----------
Communications 8.9%
Telephone/Communications
Alltel Corp. ..................................................................... 43,200 2,008,800
Bell Atlantic Corp. .............................................................. 91,550 4,176,969
BellSouth Corp. .................................................................. 38,500 2,584,313
Frontier Corp. ................................................................... 64,300 2,025,450
GTE Corp. ........................................................................ 59,400 3,304,125
Sprint Corp. ..................................................................... 46,600 3,285,300
Telecom Corp. of New Zealand ..................................................... 33,000 136,342
----------
17,521,299
----------
Financial 24.6%
Banks 12.4%
Banc One Corp. ................................................................... 34,500 1,925,531
Bankers Trust New York Corp. ..................................................... 13,400 1,555,238
Chase Manhattan Corp. ............................................................ 71,600 5,405,800
First Union Corp. ................................................................ 77,408 4,509,016
Firstar Corp. .................................................................... 41,400 1,573,200
Fleet Financial Group Inc. ....................................................... 17,400 1,452,900
KeyCorp .......................................................................... 52,300 1,863,188
NationsBank Corp. ................................................................ 38,500 2,945,250
Old Kent Financial Corp. ......................................................... 19,180 689,881
US Bancorp ....................................................................... 56,400 2,425,200
----------
24,345,204
----------
Insurance 4.9%
EXEL, Ltd. (ADR) ................................................................. 34,300 2,668,969
Lincoln National Corp. ........................................................... 37,400 3,417,425
Mid Ocean, Ltd. .................................................................. 20,600 1,617,100
Safeco Corp. ..................................................................... 45,300 2,058,319
----------
9,761,813
----------
Consumer Finance 0.0%
Associates First Capital Corp. ................................................... 8 615
----------
Other Financial Companies 1.7%
Federal National Mortgage Association ............................................ 16,900 1,026,675
J.P. Morgan & Co., Inc. .......................................................... 20,000 2,342,500
----------
3,369,175
----------
Real Estate 5.6%
Arden Realty Group, Inc. ......................................................... 31,800 822,825
Boston Properties, Inc. (REIT) ................................................... 23,000 793,500
Equity Office Properties Trust (REIT) ............................................ 41,700 1,183,238
Equity Residential Properties Trust (REIT) ....................................... 20,000 948,750
General Growth Properties, Inc. (REIT) ........................................... 10,200 381,225
Health Care Property Investment, Inc. (REIT) ..................................... 27,100 977,294
Meditrust Corp. (REIT) ........................................................... 28,740 802,924
Nationwide Health Properties, Inc. (REIT) ........................................ 50,900 1,215,238
ProLogis Trust (REIT) ............................................................ 72,844 1,821,100
ProLogis Trust Warrants* (expire 9/1/98) ......................................... 8,307 2,856
Security Capital Atlantic, Inc. .................................................. 91,887 2,050,229
----------
10,999,179
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous 0.0%
Jardine Strategic Holdings Ltd. .................................................. 17,695 34,505
----------
Service Industries 1.1%
Environmental Services
Browning Ferris Industries ....................................................... 59,900 2,081,525
----------
Durables 11.0%
Aerospace 2.6%
Lockheed Martin Corp. ............................................................ 24,788 2,624,430
Rockwell International Corp. (New) ............................................... 50,400 2,422,350
----------
5,046,780
----------
Automobiles 5.9%
Dana Corp. ....................................................................... 66,000 3,531,000
Echlin, Inc. ..................................................................... 18,100 888,031
Ford Motor Co. ................................................................... 102,500 6,047,487
Meritor Automotive, Inc. ......................................................... 52,133 1,251,192
----------
11,717,710
----------
Construction/Agricultural Equipment 1.2%
Caterpillar, Inc. ................................................................ 17,400 920,025
PACCAR, Inc. ..................................................................... 27,800 1,452,550
----------
2,372,575
----------
Tires 1.3%
Goodyear Tire & Rubber Co. ....................................................... 41,000 2,641,938
----------
Manufacturing 12.3%
Chemicals 4.6%
Akzo-Nobel N.V. (ADR) ............................................................ 17,700 1,962,488
Dow Chemical Co. ................................................................. 20,300 1,962,756
Eastman Chemical Co. ............................................................. 27,900 1,736,775
Imperial Chemical Industries PLC (ADR) (New) ..................................... 53,400 3,444,300
----------
9,106,319
----------
Containers & Paper 1.3%
Boise Cascade Corp. .............................................................. 31,231 1,022,815
Temple-Inland, Inc. .............................................................. 30,500 1,643,188
----------
2,666,003
----------
Diversified Manufacturing 0.7%
Olin Corp. ....................................................................... 33,500 1,396,531
----------
Electrical Products 0.7%
Thomas & Betts Corp. ............................................................. 27,500 1,354,375
----------
Industrial Specialty 1.5%
Corning, Inc. .................................................................... 86,800 3,016,300
----------
Office Equipment/Supplies 2.4%
Xerox Corp. ...................................................................... 45,900 4,664,588
----------
Specialty Chemicals 1.1%
BetzDearborn Inc. ................................................................ 26,700 1,104,713
Witco Corp. ...................................................................... 33,000 965,250
----------
2,069,963
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energy 10.4%
Oil Companies 9.1%
Atlantic Richfield Co. ........................................................... 24,900 1,945,313
British Petroleum PLC (ADR) ...................................................... 21,900 1,932,675
Lyondell Petrochemical Co. ....................................................... 76,168 2,318,364
Royal Dutch Petroleum Co. (New York shares) ...................................... 21,000 1,151,063
Societe Nationale Elf Aquitaine (ADR) ............................................ 44,156 3,135,076
Texaco Inc. ...................................................................... 52,600 3,139,563
Total SA (ADR) ................................................................... 36,066 2,357,815
YPF SA "D" (ADR) ................................................................. 62,400 1,875,900
-----------
17,855,769
-----------
Oil/Gas Transmission 1.3%
Williams Cos., Inc. .............................................................. 76,400 2,578,500
-----------
Metals & Minerals 1.6%
Steel & Metals
Allegheny Teledyne Inc. .......................................................... 82,152 1,879,227
Freeport McMoRan Copper & Gold, Inc. "A" ......................................... 37,100 528,675
Oregon Steel Mills, Inc. ......................................................... 13,500 251,438
Phelps Dodge Corp. ............................................................... 8,200 468,938
-----------
3,128,278
-----------
Construction 3.3%
Forest Products
Georgia Pacific Timber Group ..................................................... 27,200 627,300
Georgia Pacific Corp. ............................................................ 43,700 2,575,569
Westvaco Corp. ................................................................... 32,600 920,950
Weyerhaeuser Co. ................................................................. 52,600 2,429,463
-----------
6,553,282
-----------
Transportation 0.8%
Railroads
CSX Corp. ........................................................................ 36,500 1,660,750
-----------
Utilities 6.4%
Electric Utilities
CINergy Corp. .................................................................... 58,300 2,040,500
Duke Energy Corp. ................................................................ 48,936 2,899,458
P G & E Corp. .................................................................... 6,700 211,469
PacifiCorp ....................................................................... 89,100 2,015,888
PowerGen PLC (ADR) ............................................................... 6,100 343,888
Southern Company ................................................................. 73,400 2,032,263
Unicom Corp. ..................................................................... 61,200 2,145,825
Wisconsin Energy Corp. ........................................................... 30,000 911,250
-----------
12,600,541
-----------
Total Common Stocks (Cost $152,972,835) .......................................... 191,850,216
-----------
===================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $158,001,545) (a) 196,879,096
===========
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) At June 30, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $157,981,113 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ................................................ $ 42,086,370
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ................................................ 3,188,387
------------
Net unrealized appreciation ............................................................ $ 38,897,983
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1998, aggregated
$52,385,331 and $33,071,775, respectively.
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at market (identified cost $158,001,545) ......................... $ 196,879,096
Cash .......................................................................... 772
Receivable for investments sold ............................................... 90,965
Dividends and interest receivable ............................................. 402,860
Foreign taxes recoverable ..................................................... 75,678
Other assets .................................................................. 851
-----------------
Total assets .................................................................. 197,450,222
Liabilities
Payable for investments purchased ............................................. 41,028
Accrued management fee ........................................................ 73,012
Other payables and accrued expenses ........................................... 39,428
-----------------
Total liabilities ............................................................. 153,468
-----------------
Net assets, at market value ................................................... $ 197,296,754
=================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) .................................... 1,313,594
Net unrealized appreciation (depreciation) on investments ..................... 38,877,551
Accumulated net realized gain ................................................. 7,736,706
Paid-in capital ............................................................... 149,368,903
-----------------
Net assets, at market value ................................................... $ 197,296,754
=================
Class A
Net asset value, offering and redemption price per share ($183,906,475
/ 15,726,716 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ............. $11.69
======
Class B
Net asset value, offering and redemption price per share ($13,390,279 /
1,147,227 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ............. $11.67
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income
Income:
Dividends (net of foreign taxes withheld of $55,381) ......... $ 2,609,691
Interest ..................................................... 121,372
------------
2,731,063
Expenses:
Management fee ............................................... 432,571
Accounting fees .............................................. 46,908
Trustees' fees and expenses .................................. 11,143
Distribution fees (Class B) .................................. 12,956
Custodian fees ............................................... 7,613
Auditing ..................................................... 12,168
Legal ........................................................ 4,011
Other ........................................................ 3,022
------------
530,392
------------
Net investment income ........................................ 2,200,671
------------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments .................................................. 7,818,417
Foreign currency related transactions ........................ (540)
------------
7,817,877
------------
Net unrealized appreciation (depreciation) during the
period on:
Investments .................................................. 6,309,643
Foreign currency related transactions ........................ 147
------------
6,309,790
------------
Net gain (loss) on investment transactions ................... 14,127,667
------------
Net increase (decrease) in net assets resulting from
operations ................................................ $ 16,328,338
============
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 2,200,671 $ 3,168,725
Net realized gain (loss) from investment transactions ............ 7,817,877 11,499,153
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................ 6,309,790 16,941,421
-------------- --------------
Net increase (decrease) in net assets resulting from operations .. 16,328,338 31,609,299
-------------- --------------
Distributions to shareholders from:
Net investment income (Class A) .................................. (1,723,810) (2,910,650)
-------------- --------------
Net investment income (Class B) .................................. (91,213) (36,879)
-------------- --------------
Net realized gains from investment transactions (Class A) ........ (10,931,939) (3,884,391)
-------------- --------------
Net realized gains from investment transactions (Class B) ........ (570,393) --
-------------- --------------
Portfolio share transactions:
Class A
Proceeds from shares sold ........................................ 36,558,839 62,828,541
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 12,655,749 6,795,041
Cost of shares redeemed .......................................... (25,034,310) (28,405,112)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions .................................................. 24,180,278 41,218,470
-------------- --------------
Class B*
Proceeds from shares sold ........................................ 6,517,599 6,839,326
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 661,606 36,879
Cost of shares redeemed .......................................... (677,318) (359,995)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions .................................................. 6,501,887 6,516,210
-------------- --------------
Increase (decrease) in net assets ................................ 33,693,148 72,512,059
Net assets at beginning of period ................................ 163,603,606 91,091,547
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $1,313,594 and $927,946, respectively) ... $ 197,296,754 $ 163,603,606
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ........................ 13,656,612 9,724,734
-------------- --------------
Shares sold ...................................................... 3,107,468 6,010,142
Shares issued to shareholders in reinvestment of distributions ... 1,111,634 689,859
Shares redeemed .................................................. (2,148,998) (2,768,123)
-------------- ---------------
Net increase (decrease) in Portfolio shares ...................... 2,070,104 3,931,878
-------------- --------------
Shares outstanding at end of period .............................. 15,726,716 13,656,612
============== ==============
Class B*
Shares outstanding at beginning of period ........................ 593,475 --
-------------- --------------
Shares sold ...................................................... 553,255 622,208
Shares issued to shareholders in reinvestment of distributions ... 58,159 3,342
Shares redeemed .................................................. (57,662) (32,075)
-------------- ---------------
Net increase (decrease) in Portfolio shares ...................... 553,752 593,475
-------------- --------------
Shares outstanding at end of period .............................. 1,147,227 593,475
============== ==============
</TABLE>
* Prior period information is for the period May 1, 1997 (commencement of sale
of Class B shares) to December 31, 1997.
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class A (c)
- --------------------------------- For the Period
May 2, 1994
Six Months Ended Years Ended December 31, (commencement of
June 30, 1998 ----------------------------------- operations) to
(Unaudited) 1997 1996 1995 December 31, 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 11.48 $ 9.37 $ 7.98 $ 6.26 $ 6.00(b)
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .......................... .14 .27 .27 .23 .13
Net realized and unrealized gain (loss) on
investment transactions ...................... .98 2.47 1.46 1.72 .17
------- ------- ------- ------- -------
Total from investment operations ............... 1.12 2.74 1.73 1.95 .30
------- ------- ------- ------- -------
Less distributions from:
Net investment income .......................... (.12) (.26) (.23) (.19) (.04)
Net realized gains on investment
transactions ................................. (.79) (.37) (.11) (.04) --
------- ------- ------- ------- -------
Total distributions ............................ (.91) (.63) (.34) (.23) (.04)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 11.69 $ 11.48 $ 9.37 $ 7.98 $ 6.26
======= ======= ======= ======= =======
Total Return (%) ............................... 10.00** 30.47 22.17 31.74 4.91**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......... 184 157 91 52 20
Ratio of operating expenses, net to
average daily net assets (%) ................. .57* .58 .66 .75 .75*
Ratio of operating expenses, before
reductions, to average daily net assets (%) .. .57* .58 .66 .75 1.62*
Ratio of net investment income to average
daily net assets (%) ......................... 2.43* 2.54 3.14 3.18 3.63*
Portfolio turnover rate (%) .................... 36.83* 28.41 32.18 24.33 28.41*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Original capital.
(c) On May 1, 1997 existing shares were designated as Class A shares.
* Annualized
** Not annualized
50
<PAGE>
GROWTH AND INCOME PORTFOLIO
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class B
- ------------------------------ For the Period
May 1, 1997
(commencement of
Six Months Ended sale of Class B
June 30, 1998 shares) to
(Unaudited) December 31, 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................................ $11.47 $ 9.44
------ ------
Income from investment operations:
Net investment income ....................................................... .13 .14
Net realized and unrealized gain (loss) on investment transactions .......... .97 2.02
------ ------
Total from investment operations ............................................ 1.10 2.16
------ ------
Less distributions from:
Net investment income ....................................................... (.11) (.13)
Net realized gains on investment transactions ............................... (.79) --
------ ------
(.90) (.13)
------ ------
Net asset value, end of period .............................................. $11.67 $11.47
====== ======
Total Return (%) ............................................................ 9.87** 22.89**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...................................... 13 7
Ratio of operating expenses to average daily net assets (%) ................. .82* .80*
Ratio of net investment income to average daily net assets (%) .............. 2.20* 2.13*
Portfolio turnover rate (%) ................................................. 36.83* 28.41
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
51
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 7.0%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at
5.75% to be repurchased at $60,550,670 on 7/1/98, collateralized by a
$15,904,000 U.S. Treasury Note, 6.25%, 10/31/2001 and a $44,305,000
U.S. Treasury Bond, 7.5%, 2/15/2005 (Cost $60,541,000) ......................... 60,541,000 60,541,000
-----------
Shares
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.0%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 13.2%
Department & Chain Stores 7.6%
Costco Companies, Inc.* ........................................................... 220,100 13,880,056
Dayton Hudson Corp. ............................................................... 341,600 16,567,600
Home Depot, Inc. .................................................................. 279,300 23,199,356
Walgreen Co. ...................................................................... 296,300 12,240,894
-----------
65,887,906
-----------
Hotels & Casinos 1.8%
Carnival Corp. "A" ................................................................ 230,500 9,133,563
Mirage Resorts, Inc.* ............................................................. 294,700 6,280,794
-----------
15,414,357
-----------
Specialty Retail 3.8%
AutoZone, Inc.* ................................................................... 291,800 9,319,363
Office Depot, Inc.* ............................................................... 262,200 8,275,688
Tiffany & Co. ..................................................................... 188,400 9,043,200
Viking Office Products, Inc.* ..................................................... 183,900 5,769,863
-----------
32,408,114
-----------
Consumer Staples 6.6%
Alcohol & Tobacco 1.3%
Philip Morris Companies, Inc. ..................................................... 290,400 11,434,500
-----------
Food & Beverage 2.8%
H.J. Heinz Co. .................................................................... 175,500 9,849,938
Keebler Foods Co.* ................................................................ 65,500 1,801,250
Suiza Foods Corp.* ................................................................ 210,500 12,564,219
-----------
24,215,407
-----------
Package Goods/Cosmetics 2.5%
Procter & Gamble Co. .............................................................. 238,700 21,736,619
-----------
Health 9.2%
Health Industry Services 1.8%
HEALTHSOUTH Corp.* ................................................................ 390,200 10,413,463
Total Renal Care Holdings, Inc.* .................................................. 141,300 4,874,850
-----------
15,288,313
-----------
Medical Supply & Specialty 1.7%
Becton, Dickinson & Co. ........................................................... 188,400 14,624,550
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pharmaceuticals 5.7%
American Home Products Corp. ...................................................... 160,200 8,290,350
Bristol-Myers Squibb Co. .......................................................... 115,300 13,252,294
Merck & Co., Inc. ................................................................. 65,100 8,707,125
Schering-Plough Corp. ............................................................. 209,200 19,167,950
-----------
49,417,719
-----------
Communications 2.3%
Telephone/Communications
WorldCom, Inc.* ................................................................... 407,200 19,723,750
-----------
Financial 16.8%
Banks 1.7%
BankAmerica Corp. ................................................................. 167,300 14,460,994
-----------
Insurance 9.2%
Allstate Corp. .................................................................... 91,900 8,414,594
American International Group, Inc. ................................................ 179,950 26,272,690
Conseco, Inc. ..................................................................... 226,600 10,593,550
EXEL, Ltd. (ADR) .................................................................. 318,000 24,744,375
MBIA, Inc. ........................................................................ 127,800 9,569,025
-----------
79,594,234
-----------
Consumer Finance 3.2%
American Express Co. .............................................................. 127,700 14,557,800
Associates First Capital Corp. .................................................... 176,700 13,583,813
-----------
28,141,613
-----------
Other Financial Companies 2.7%
Federal National Mortgage Association ............................................. 243,200 14,774,400
Travelers Group, Inc. ............................................................. 134,850 8,175,281
-----------
22,949,681
-----------
Media 4.7%
Advertising 1.9%
Omnicom Group, Inc. ............................................................... 332,500 16,583,438
-----------
Cable Television 1.8%
Tele-Comm Liberty Media Group "A"* ................................................ 391,350 15,189,272
-----------
Print Media 1.0%
Tribune Co. ....................................................................... 124,700 8,580,919
-----------
Service Industries 2.1%
Investment 1.0%
Franklin Resources, Inc. .......................................................... 162,800 8,791,200
-----------
Miscellaneous Commercial Services 1.1%
AccuStaff, Inc.* .................................................................. 293,300 9,165,625
-----------
Durables 4.8%
Aerospace 2.9%
Lockheed Martin Corp. ............................................................. 113,300 11,995,638
United Technologies Corp. ......................................................... 136,900 12,663,250
-----------
24,658,888
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobiles 0.9%
Magna International, Inc. "A" ..................................................... 114,600 7,864,425
-----------
Telecommunications Equipment 1.0%
Nokia AB Oy "A" (ADR) ............................................................. 116,300 8,439,019
-----------
Manufacturing 7.4%
Chemicals 1.6%
Praxair, Inc. ..................................................................... 130,700 6,118,394
Sigma-Aldrich Corp. ............................................................... 213,500 7,499,188
-----------
13,617,582
-----------
Diversified Manufacturing 3.5%
Dresser Industries, Inc. .......................................................... 214,300 9,442,594
General Electric Co. .............................................................. 107,100 9,746,100
Textron, Inc. ..................................................................... 148,100 10,616,919
-----------
29,805,613
-----------
Electrical Products 0.7%
Emerson Electric Co. .............................................................. 99,400 6,001,275
-----------
Machinery/Components/Controls 1.6%
Parker-Hannifin Group ............................................................. 370,350 14,119,594
-----------
Technology 14.7%
Computer Software 2.9%
Computer Associates International, Inc. ........................................... 146,800 8,156,575
Parametric Technology Corp.* ...................................................... 267,000 7,242,375
Sterling Commerce, Inc.* .......................................................... 197,200 9,564,200
-----------
24,963,150
-----------
Diverse Electronic Products 2.0%
Applied Materials, Inc.* .......................................................... 328,600 9,693,700
Harris Corp. ...................................................................... 165,100 7,377,906
-----------
17,071,606
-----------
Electronic Data Processing 6.8%
Compaq Computer Corp. ............................................................. 590,700 16,761,113
Hewlett-Packard Co. ............................................................... 214,900 12,867,138
International Business Machines Corp. ............................................. 120,400 13,823,425
Sun Microsystems, Inc.* ........................................................... 340,800 14,803,500
-----------
58,255,176
-----------
Semiconductors 3.0%
Intel Corp. ....................................................................... 249,600 18,501,600
Linear Technology Corp. ........................................................... 125,700 7,581,281
-----------
26,082,881
-----------
Energy 9.9%
Oil Companies 6.3%
Atlantic Richfield Co. ............................................................ 120,600 9,421,875
Exxon Corp. ....................................................................... 161,000 11,481,313
Mobil Corp. ....................................................................... 105,900 8,114,588
Repsol SA (ADR) ................................................................... 148,600 8,173,000
Royal Dutch Petroleum Co. (New York shares) ....................................... 306,900 16,821,956
-----------
54,012,732
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil/Gas Transmission 1.1%
Williams Cos., Inc. ............................................................... 288,400 9,733,500
-----------
Oilfield Services/Equipment 2.5%
Diamond Offshore Drilling, Inc. ................................................... 106,800 4,272,000
Santa Fe International Corp. ...................................................... 164,100 4,964,025
Schlumberger Ltd. ................................................................. 186,700 12,753,944
-----------
21,989,969
-----------
Transportation 1.3%
Airlines 0.6%
AMR Corp.* ........................................................................ 61,600 5,128,200
-----------
Railroads 0.7%
Wisconsin Central Transportation Co.* ............................................. 285,300 6,240,938
-----------
Total Common Stocks (Cost $585,739,965) ........................................... 801,592,759
-----------
===================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $646,280,965) (a) ....................... 862,133,759
===========
===================================================================================================================
</TABLE>
* Non-income producing security.
(a) At June 30, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $646,296,654 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ................................................... $227,123,299
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ................................................... 11,286,194
------------
Net unrealized appreciation ............................................................... $215,837,105
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1998, aggregated
$225,247,698 and $179,346,025, respectively.
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at market (identified cost $646,280,965) ........................ $ 862,133,759
Cash ......................................................................... 181
Receivable for investments sold .............................................. 12,317,626
Dividend and interest receivable ............................................. 606,633
Other assets ................................................................. 4,519
----------------
Total assets ................................................................. 875,062,718
Liabilities
Payable for investments purchased ............................................ 26,311,149
Accrued management fee ....................................................... 296,687
Other payables and accrued expenses .......................................... 61,678
----------------
Total liabilities ............................................................ 26,669,514
----------------
Net assets, at market value .................................................. $ 848,393,204
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................................... 1,940,727
Net unrealized appreciation (depreciation) on:
Investments .................................................................. 215,852,794
Foreign currency related transactions ........................................ (63)
Accumulated net realized gain (loss) ......................................... 80,808,971
Paid-in capital .............................................................. 549,790,775
----------------
Net assets, at market value .................................................. $ 848,393,204
================
Class A
Net asset value, offering and redemption price per share
($847,737,901 / 37,473,404 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ...................... $22.62
======
Class B
Net asset value, offering and redemption price per share
($655,303 / 29,008 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ...................... $22.59
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
CAPITAL GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $85,398) ....................... $ 3,978,010
Interest ................................................................... 1,005,081
----------------
4,983,091
Expenses:
Management fee ............................................................. 1,757,877
Custodian fees ............................................................. 8,126
Accounting fees ............................................................ 65,520
Trustees' fees and expenses ................................................ 11,541
Distribution fees (Class B) ................................................ 778
Auditing ................................................................... 40,826
Legal ...................................................................... 7,053
Other ...................................................................... 3,180
----------------
1,894,901
----------------
Net investment income ...................................................... 3,088,190
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from investments .................................. 80,987,915
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ 25,095,177
Foreign currency related transactions ...................................... (37)
----------------
25,095,140
----------------
Net gain (loss) on investment transactions ................................. 106,083,055
----------------
Net increase (decrease) in net assets resulting from operations ............ $ 109,171,245
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
CAPITAL GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 3,088,190 $ 5,491,160
Net realized gain (loss) from investment transactions ........... 80,987,915 37,539,012
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................... 25,095,140 119,146,257
-------------- --------------
Net increase (decrease) in net assets resulting from operations . 109,171,245 162,176,429
-------------- --------------
Distributions to shareholders from:
Net investment income (Class A) ................................. (2,560,033) (5,641,454)
-------------- --------------
Net investment income (Class B) ................................. (1,525) (1,600)
-------------- --------------
Net realized gain from investment transactions (Class A) ........ (37,496,910) --
-------------- --------------
Net realized gain from investment transactions (Class B) ........ (31,248) (33,950,004)
-------------- --------------
Portfolio share transactions:
Class A
Proceeds from shares sold ....................................... 123,779,610 214,983,317
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 40,056,943 39,591,458
Cost of shares redeemed ......................................... (60,895,398) (141,850,976)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions ................................................. 102,941,155 112,723,799
-------------- --------------
Class B*
Proceeds from shares sold ....................................... 27,763 530,116
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 32,773 1,600
Cost of shares redeemed ......................................... (7,598) (2,612)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions ................................................. 52,938 529,104
-------------- --------------
Increase (decrease) in net assets ............................... 172,075,622 235,836,274
Net assets at beginning of period ............................... 676,317,582 440,481,308
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $1,940,727 and $1,414,095,
respectively) ................................................ $ 848,393,204 $ 676,317,582
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ....................... 32,750,652 26,691,077
-------------- --------------
Shares sold ..................................................... 5,624,067 11,288,114
Shares issued to shareholders in reinvestment of distributions .. 1,886,512 2,340,808
Shares redeemed ................................................. (2,787,827) (7,569,347)
-------------- --------------
Net increase (decrease) in Portfolio shares ..................... 4,722,752 6,059,575
-------------- --------------
Shares outstanding at end of period ............................. 37,473,404 32,750,652
============== ==============
Class B*
Shares outstanding at beginning of period ....................... 26,545 --
-------------- --------------
Shares sold ..................................................... 1,264 26,593
Shares issued to shareholders in reinvestment of distributions .. 1,545 80
Shares redeemed ................................................. (346) (128)
-------------- --------------
Net increase (decrease) in Portfolio shares ..................... 2,463 26,545
-------------- --------------
Shares outstanding at end of period ............................. 29,008 26,545
============== ==============
</TABLE>
* Prior period Class B activity is for the period from May 12, 1997
(commencement of sale of Class B shares) to December 31, 1997.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class A (b) Six Months Ended Years Ended December 31,
- -------------------------- June 30, 1998 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.63 $ 16.50 $ 15.08 $ 12.23 $ 14.95 $ 12.71
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .............. .09 .18 .19 .14 .06 .06
Net realized and unrealized gain
(loss) on investment transactions 3.11 5.39 2.68 3.25 (1.42) 2.52
------- ------- ------- ------- ------- -------
Total from investment operations ... 3.20 5.57 2.87 3.39 (1.36) 2.58
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income .............. (.08) (.19) (.19) (.11) (.05) (.07)
Net realized gains on investment
transactions ..................... (1.13) (1.25) (1.26) (.43) (1.31) (.27)
------- ------- ------- ------- ------- -------
Total distributions ................ (1.21) (1.44) (1.45) (.54) (1.36) (.34)
------- ------- ------- ------- ------- -------
Net asset value, end of period ..... $ 22.62 $ 20.63 $ 16.50 $ 15.08 $ 12.23 $ 14.95
======= ======= ======= ======= ======= =======
Total Return (%) ................... 15.85** 35.76 20.13 28.65 (9.67) 20.88
Ratios and Supplemental Data
Net assets, end of period
($ millions) ..................... 848 676 440 338 257 257
Ratio of operating expenses to
average daily net assets (%) ..... .50* .51 .53 .57 .58 .60
Ratio of net investment income to
average daily net assets (%) ..... .82* .96 1.27 1.06 .47 .46
Portfolio turnover rate (%) ........ 49.27* 41.77 65.56 119.41 66.44 95.31
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 12, 1997 existing shares were designated as Class A shares.
* Annualized
** Not annualized
59
<PAGE>
CAPITAL GROWTH PORTFOLIO
The following table includes selected data for a share outstanding (a)
throughout the period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class B
- -----------------------
For the Period
May 12, 1997
(commencement of
Six Months Ended sale of Class B
June 30, 1998 shares) to
(Unaudited) December 31, 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period ...................................... $20.61 $17.54
------ ------
Income from investment operations:
Net investment income ..................................................... .06 .08
Net realized and unrealized gain (loss) on investment transactions ........ 3.11 3.08
------ ------
Total from investment operations .......................................... 3.17 3.16
------ ------
Less distributions from:
Net investment income ..................................................... (.06) (.09)
Net realized gains on investment transactions ............................. (1.13) --
------ ------
Total distributions ....................................................... (1.19) (.09)
------ ------
Net asset value, end of period ............................................ $22.59 $20.61
====== ======
Total Return (%) .......................................................... 15.75** 18.00**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................................... .66 .55
Ratio of operating expenses to average daily net assets (%) ............... .75* .75*
Ratio of net investment income to average daily net assets (%) ............ .57* .64*
Portfolio turnover rate (%) ............................................... 49.27* 41.77
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
60
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 9.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75% to be
repurchased at $2,518,402 on 7/1/1998, collateralized by a $2,497,000 U.S. Treasury Note,
6.5%, 4/30/1999 (Cost $2,518,000) ................................................................. 2,518,000 2,518,000
----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 90.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Australia 0.1%
CI Technologies Group, Ltd. (Developer of process monitoring and industrial automation
software) ......................................................................................... 13,700 21,261
TAB Limited* (Gaming and wagering company) ........................................................... 12,800 18,911
----------
40,172
----------
Austria 1.2%
Eybl International* (Producer of textiles for automobiles sold worldwide) ............................ 1,100 56,788
Schoeller Bleckmann Oilfield Equipment AG (Manufacturer of components for oil and gas
drilling equipment) ............................................................................... 1,100 134,384
Topcall International AG (Manufacturer of electronic messaging systems) .............................. 500 124,138
----------
315,310
----------
Canada 0.5%
Canadian 88 Energy Corp.* (Oil and natural gas exploration and production) ........................... 25,500 105,705
StressGen Biotechnologies Corp. "A"* (Developer of products for treatment of cancer and
certain infectious diseases) ...................................................................... 13,600 24,122
----------
129,827
----------
Chile 0.1%
Linea Aerea Nacional de Chile SP (ADR) (Provider of domestic and international passenger
and cargo air services) ........................................................................... 3,000 24,375
----------
Croatia 0.6%
Pliva D.D. (GDR) (Pharmaceutical company) (a) ........................................................ 10,800 175,500
----------
Czech Republic 1.3%
Central European Media Enterprises Ltd. "A"* (Owner and operator of national and regional
private commercial television stations in central Europe and Germany) ............................. 16,100 348,163
----------
Finland 0.2%
Kone Oy "B" (Manufacturer of elevators) .............................................................. 630 31,957
Sponda Oyj* (Owner and manager of commercial rental properties) ...................................... 1,900 13,313
----------
45,270
----------
France 3.7%
Alliance et Gestion Commerciale (Manufacturer and retailer of modular buildings) ..................... 305 30,269
Altran Technologies, SA (Engineering and consulting services for aerospace,
telecommunications and electronics fields) ........................................................ 2,588 587,744
Dassault Systemes SA (Developer of computer aided design, manufacturing and
engineering software) ............................................................................. 2,863 134,965
Leon de Bruxelles SA (Operator of low cost family restaurants) ....................................... 239 24,510
Penauille Polyservices (Industrial cleaning and security services) ................................... 91 26,266
Transiciel SA* (Developer of software for public services, finance and industry) ..................... 1,940 204,727
----------
1,008,481
----------
Germany 3.9%
Beta Systems Software AG* (Developer of processing automation software) .............................. 1,749 115,911
Hawesko Holding AG* (Marketer of wines and liqueurs and related products) ............................ 2,463 120,203
Kamps AG* (Producer and distributor of baked goods) .................................................. 1,184 35,130
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marschollek Lautenschlaeger und Partner AG (pfd) (Leading independent life insurance
company) .......................................................................................... 1,310 639,326
Pfeifer Vacuum Technology AG* (Manufacturer of various pumps and vacuum systems) ..................... 2,000 142,750
----------
1,053,320
----------
Greece 0.6%
STET Hellas Telecommunications SA* (Provider of mobile telecommunication services) ................... 4,200 174,300
----------
Hungary 1.2%
OTP National Savings and Commercial Bank Rt (GDR) (Commercial and savings bank) ...................... 1,600 78,560
Richter Gedeon Rt (Pharmaceutical company) ........................................................... 1,800 144,922
Richter Gedeon Rt (GDR) (a) .......................................................................... 1,300 104,000
----------
327,482
----------
Ireland 8.5%
Bank of Ireland PLC* (Bank) .......................................................................... 41,100 841,034
ESAT Telecom Group PLC* (ADR) (Provider of telecommunication services) ............................... 7,400 281,200
Green Property PLC (Conducts operations in property development, investment and trading) ............. 25,570 185,720
Irish Continental Group PLC (Transporter of passengers, freight and containers) ...................... 14,410 231,471
Irish Life PLC (Provider of life and disability insurance and pensions) .............................. 29,530 272,234
Irish Permanent PLC (Retail financial services group) ................................................ 12,087 142,662
Jury's Hotel Group PLC (Hotel operator) .............................................................. 33,300 279,081
Ryan Hotels PLC (Owner and operator of hotel chain) .................................................. 80,600 95,695
----------
2,329,097
----------
Israel 0.9%
Check Point Software Technologies Ltd.* (Developer of network security software) ..................... 4,300 140,825
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of benign
vascular lesions) ................................................................................. 2,900 97,875
----------
238,700
----------
Italy 3.8%
Aeroporti di Roma SpA (Management of Fiumicino and Ciampino airports) ................................ 37,200 234,286
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and perfumes) ................. 29,500 154,743
Saes Getters SpA di Risparmio (Manufacturer of getters, refined chemicals used in
cathode-ray tubes and other monitors) ............................................................. 13,800 126,563
Safilo SpA (Manufacturer of frames for glasses) ...................................................... 35,500 258,345
Saipem SpA (International contractor in oil and gas exploration and drilling, construction of
refineries and pipelines) ......................................................................... 49,700 255,388
----------
1,029,325
----------
Japan 0.7%
Riso Kagaku Corp. (Manufacturer of copying machines) ................................................. 3,400 201,607
----------
Luxembourg 2.5%
Millicom International Cellular SA* (Developer and operator of cellular telephone networks) .......... 15,900 695,625
----------
Netherlands 2.2%
De Telegraaf Holding NV (Leading publisher of newspapers, magazines and books) ....................... 4,600 110,909
IHC Caland NV (Dredging and offshore services) ....................................................... 8,600 484,525
----------
595,434
----------
Philippines 0.3%
International Container Terminal Services, Inc.* (Containerized cargo handling firm) ................. 701,100 79,862
----------
Portugal 5.3%
Jeronimo Martins SA (Food producer and retailer) ..................................................... 19,471 936,000
Telecel-Comunicacoes Pessoais, SA (Cellular communication services) .................................. 2,900 515,276
----------
1,451,276
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Spain 1.4%
Aldeasa SA (Operator of airport duty-free shops) ..................................................... 3,300 118,357
TelePizza, SA* (Operator of fast food restaurants) ................................................... 26,000 275,514
----------
393,871
----------
Sweden 1.6%
Kinnevik AB "B" (Diversified holding company) ........................................................ 3,600 117,185
OM Gruppen AB (Operator of exchanges and clearing organizations for options, futures, and
stock loans) ...................................................................................... 15,300 318,590
TV 4 AB (Broadcaster of news, sports, documentaries, and entertainment; program producer) ............ 200 3,688
----------
439,463
----------
Switzerland 3.2%
Gretag Imaging Group* (Manufacturer of image processing equipment and systems) ....................... 1,700 163,343
Kuoni Reisen AG (Registered) (Travel agency) ......................................................... 114 566,876
Lindt & Spruengli AG (Manufacturer of chocolate and confectionary products) .......................... 3 7,746
Phoenix Mecano AG (Bearer) (Manufacturer of housings and components for computers) ................... 206 133,316
----------
871,281
----------
United Kingdom 12.1%
ARM Holdings PLC* (Producer of RISC microprocessors, technology and software) ........................ 2,020 38,787
Aegis Group PLC* (Leading independent media services group) .......................................... 35,373 57,290
Avis Europe PLC (Car rental services) ................................................................ 7,300 33,072
Computacenter PLC* (Information technology services) ................................................. 4,036 50,744
Corporate Services Group PLC (Employment services and training) ...................................... 113,875 454,428
Expro International Group PLC (Provider of oilfield services) ........................................ 29,100 241,484
Games Workshop Group PLC (Manufacturer of table top war game systems and miniatures) ................. 10,800 105,492
ITNET PLC* (Supplier of business process management services) ........................................ 7,099 51,206
Matalan PLC* (Clothing retailer) ..................................................................... 11,533 56,615
New Look Group PLC* (Retailer of womenswear) ......................................................... 50,358 126,124
Provident Financial PLC* (Personal finance group) .................................................... 37,350 586,215
RM PLC (Supplier of integrated information technology solutions to educational markets) .............. 45,000 278,005
Regent Inns PLC (Owner and operator of hotels and restaurants) ....................................... 42,045 135,491
Serco Group PLC* (Facilities management company) ..................................................... 46,700 1,077,605
----------
3,292,558
----------
United States 34.9%
Access Health, Inc.* (Personal health management services) ........................................... 3,200 81,600
Aptargroup, Inc. (Manufacturer of packaging equipment components) .................................... 3,900 242,531
Axogen Ltd. Units* (Future development of therapeutic products for treatment of neurological
disorders) ........................................................................................ 7,000 441,000
BE Aerospace* (Airline audio/video control systems) .................................................. 5,600 163,100
Barrett Resources Corp.* (Oil and gas exploration and production) .................................... 4,300 160,981
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) .......................... 12,900 137,063
Billing Concepts* (Billing and information management services) ...................................... 31,900 494,450
Black Box Corp.* (Manufacturer of wide area networking products, direct marketer of
computer products) ................................................................................ 2,700 89,606
CNF Transportation, Inc. (Trucking, air freight) ..................................................... 4,800 204,000
Cintas Corp. (Uniform rentals) ....................................................................... 4,100 209,100
Computer Motion, Inc.* (Develops and markets proprietary robotic and computerized surgical
systems) .......................................................................................... 2,500 32,500
Concentra Managed Care, Inc.* (Provider of integrated nonrisk-bearing workers'
compensation managed care) ........................................................................ 9,800 254,800
Dallas Semiconductor Corp. (Manufacturer of silicon integrated circuits and subsystems) .............. 2,400 74,400
Eagle USA Airfreight, Inc.* (Airfreight forwarding services) ......................................... 1,000 34,688
Fiserv Inc.* (Data processing services) .............................................................. 12,000 509,625
G & K Services, Inc. "A" (Uniform rentals) ........................................................... 3,500 152,688
General Communication, Inc. "A"* (Telecommunication services) ........................................ 18,000 109,125
Harveys Casino Resorts (Owner and operator of hotel/casino properties) ............................... 7,700 208,863
Healthcare Recoveries, Inc.* (Provider of recovery services for private healthcare payors) ........... 1,100 21,725
</TABLE>
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IDX Systems Corp.* (Provider of health care information systems to physician groups and
academic medical centers) ......................................................................... 7,266 334,690
JLK Direct Distribution Inc. "A"* (Manufacturer of metalworking tools) ............................... 1,400 30,625
MBIA, Inc. (Insurer of municipal bonds) .............................................................. 2,924 218,935
Network Appliance, Inc.* (Designer and manufacturer of network data storage devices) ................. 27,800 1,082,463
North Fork Bancorporation, Inc. (Commercial and savings bank holding company) ........................ 1,050 25,659
Samsonite Corp.* (Luggage manufacturer) .............................................................. 2,765 29,897
Security Dynamics Technologies, Inc.* (Designer, developer and supporter of a family of
security products used to manage access to computer-based information resources) .................. 3,500 64,750
Sepracor, Inc.* (Developer of enhanced forms of existing pharmaceuticals) ............................ 4,300 178,450
Sola International, Inc.* (Manufacturer of plastic eyeglass lenses) .................................. 14,500 473,969
Sterling Commerce, Inc.* (Producer of electronic data interchange products and services) ............. 20,425 990,613
Suiza Foods Corp.* (Food distributor) ................................................................ 4,700 280,531
Symbol Technologies Inc. (Manufacturer of bar code laser scanners) ................................... 7,450 281,238
TCI Satellite Entertainment, Inc.* (Television programming via digital satellite) .................... 37,800 222,075
Tiffany & Co. (Retailer of jewelry and gift items) ................................................... 8,300 398,400
Total Renal Care Holdings, Inc.* (Dialysis services for treatment of chronic kidney failure) ......... 8,566 295,527
Tower Realty Trust, Inc. (REIT) (Developer and manager of office properties) ......................... 3,700 82,788
Vincam Group, Inc.* (Provider of solutions to complexities and costs of employment and
personnel) ........................................................................................ 1,950 38,269
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) ........................... 21,100 651,463
Wackenhut Corrections Corp.* (Manager of privatized correctional and detention facilities) ........... 6,000 140,250
Wesley Jessen VisionCare, Inc.* (Manufacturer of soft contact lenses) ................................ 3,500 80,938
----------
9,523,375
----------
Total Common Stocks (Cost $19,094,413) ............................................................... 24,783,674
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $21,612,413) (b) .......................................... 27,301,674
==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $279,500 (1% of net assets). The value
has been estimated by the Board of Trustees in the absence of readily
ascertainable market values. However, because of the inherent uncertainty
of valuation, the estimated values may differ significantly from the
values that would have been used had a ready market for the securities
existed, and the difference could be material. The cost of these
securities at June 30, 1998 aggregated $283,760. The security may also
have certain restrictions as to resale.
(b) At June 30, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $21,787,131 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ................................................... $ 6,593,699
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ................................................... 1,079,156
------------
Net unrealized appreciation ............................................................... $ 5,514,543
============
</TABLE>
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1998, aggregated
$8,153,842 and $5,246,794, respectively.
- --------------------------------------------------------------------------------
From November 1, 1997 through December 31, 1997, the Global Discovery
Portfolio incurred approximately $110,514 of net realized capital losses
which the Portfolio intends to elect to defer and treat as arising in the
fiscal year ended December 31, 1998.
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at market (identified cost $21,612,413) ....................... $ 27,301,674
Foreign currency, at market (cost $50,353) ................................. 50,286
Receivable for investments sold ............................................ 175,611
Foreign taxes recoverable .................................................. 4,685
Dividends and interest receivable .......................................... 26,640
Other assets ............................................................... 263
---------------
Total assets ............................................................... 27,559,159
Liabilities
Accrued management fee ..................................................... 21,902
Payable for investments purchased .......................................... 136,608
Other payables and accrued expenses ........................................ 25,880
---------------
Total liabilities .......................................................... 184,390
---------------
Net assets, at market value ................................................ $ 27,374,769
===============
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................................. 11,678
Net unrealized appreciation (depreciation) on:
Investments ................................................................ 5,689,261
Foreign currency related transactions ...................................... (1,821)
Accumulated net realized gain (loss) ....................................... (279,262)
Paid-in capital ............................................................ 21,954,913
---------------
Net assets, at market value ................................................ $ 27,374,769
===============
Class A
Net asset value, offering and redemption price per share ($23,476,314 /
2,913,244 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) .................... $8.06
=====
Class B
Net asset value, offering and redemption price per share ($3,898,455 /
484,801 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) .................... $8.04
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $14,479) ................ $ 151,257
Interest ............................................................ 54,244
-----------
205,501
Expenses:
Management fee ...................................................... 116,125
Trustees' fees and expenses ......................................... 11,376
Accounting fees ..................................................... 33,496
Distribution fees (Class B) ......................................... 3,723
Custodian fees ...................................................... 34,358
Auditing ............................................................ 1,527
Legal ............................................................... 3,607
-----------
Total expenses before reductions .................................... 204,212
Expense reductions .................................................. (16,484)
-----------
Expenses, net ....................................................... 187,728
-----------
Net investment income ............................................... 17,773
-----------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ......................................................... 163,949
Foreign currency related transactions ............................... (924)
-----------
163,025
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 3,224,317
Foreign currency related transactions ............................... (3,125)
-----------
Net gain (loss) on investment transactions .......................... 3,221,192
-----------
3,384,217
-----------
Net increase (decrease) in net assets resulting from operations ..... $ 3,401,990
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................................... $ 17,773 $ (84,494)
Net realized gain (loss) from investment transactions ............. 163,025 255,396
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................. 3,221,192 1,789,460
------------ ------------
Net increase (decrease) in net assets resulting from operations ... 3,401,990 1,960,362
------------ ------------
Distributions to shareholders from:
Net investment income (Class A) ................................... (312,453) (56,210)
------------ ------------
Net investment income (Class B) ................................... (41,745) --
------------ ------------
Net realized gains from investment transactions (Class A) ......... (182,265) (28,105)
------------ ------------
Net realized gains from investment transactions (Class B) ......... (24,351) --
------------ ------------
Portfolio share transactions:
Class A
Proceeds from shares sold ......................................... 8,631,031 8,909,818
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................. 494,718 84,315
Cost of shares redeemed ........................................... (6,054,820) (9,691,134)
------------ ------------
Net increase (decrease) in net assets from Class A share
transactions ................................................... 3,070,929 (697,001)
------------ ------------
Class B*
Proceeds from shares sold ......................................... 1,469,640 2,500,974
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................. 66,096 --
Cost of shares redeemed ........................................... (188,213) (322,143)
------------ ------------
Net increase (decrease) in net assets from Class B share
transactions ................................................... 1,347,523 2,178,831
------------ ------------
Increase (decrease) in net assets ................................. 7,259,628 3,357,877
Net assets at beginning of period ................................. 20,115,141 16,757,264
------------ ------------
Net assets at end of period (including undistributed net
investment income of $11,678 and $348,103, respectively) ....... $ 27,374,769 $ 20,115,141
============ ============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ......................... 2,526,754 2,647,089
------------ ------------
Shares sold ....................................................... 1,095,209 1,316,648
Shares issued to shareholders in reinvestment of distributions .... 66,139 13,469
Shares redeemed ................................................... (774,858) (1,450,452)
------------ ------------
Net increase (decrease) in Portfolio shares ....................... 386,490 (120,335)
------------ ------------
Shares outstanding at end of period ............................... 2,913,244 2,526,754
============ ============
Class B*
Shares outstanding at beginning of period ......................... 314,140 --
------------ ------------
Shares sold ....................................................... 185,947 358,842
Shares issued to shareholders in reinvestment of distributions .... 8,848 --
Shares redeemed ................................................... (24,134) (44,702)
------------ ------------
Net increase (decrease) in Portfolio shares ....................... 170,661 314,140
------------ ------------
Shares outstanding at end of period ............................... 484,801 314,140
============ ============
</TABLE>
* Prior period information for Class B is from May 2, 1997 (commencement of
sale of Class B shares) to December 31, 1997.
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class A (c)
- --------------------------------- For the Period
May 1, 1996
Six Months Ended (commencement of
June 30, 1998 Year Ended operations) to
(Unaudited) December 31, 1997 December 31, 1996
-----------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 7.08 $ 6.33 $ 6.00(b)
------ ------ ------
Income from investment operations:
Net investment income (loss) ................................... .01 (.03) (.01)
Net realized and unrealized gain (loss) on investment
transactions ................................................. 1.16 .81 .34
------ ------ ------
Total from investment operations ............................... 1.17 .78 .33
------ ------ ------
Less distributions from:
Net investment income .......................................... (.12) (.02) --
Net realized gains on investment transactions .................. (.07) (.01) --
------ ------ ------
Total distributions ............................................ (.19) (.03) --
------ ------ ------
Net asset value, end of period ................................. $ 8.06 $ 7.08 $ 6.33
====== ====== ======
Total Return (%) (d) ........................................... 16.68** 12.38 5.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 23 18 17
Ratio of operating expenses, net to average daily net assets
(%) .......................................................... 1.55* 1.50 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ................................. 1.68* 1.79 2.32*
Ratio of net investment income (loss) to average daily net
assets (%) ................................................... .18* (.44) (.13)*
Portfolio turnover rate (%) .................................... 47.71* 83.16 50.31*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Original capital.
(c) On May 2, 1997 existing shares were designated as Class A shares.
(d) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
68
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class B
- ----------------------------------- For the Period
May 2, 1997
(commencement of
Six Months Ended sale of Class B
June 30, 1998 shares) to
(Unaudited) December 31, 1997
--------------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................................... $ 7.07 $ 6.20
------ ------
Income from investment operations:
Net investment loss ............................................................ --*** (.04)
Net realized and unrealized gain (loss) on investment transactions ............. 1.16 .91
------ ------
Total from investment operations ............................................... 1.16 .87
------ ------
Less distributions from:
Net investment income .......................................................... (.12) --
Net realized gains on investment transactions .................................. (.07) --
------ ------
Total distributions ............................................................ (.19) --
------ ------
Net asset value, end of period ................................................. $ 8.04 $ 7.07
====== ======
Total Return (%) (b) ........................................................... 16.56** 14.03**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................................... 4 2
Ratio of operating expenses, net to average daily net assets (%) ............... 1.80* 1.75
Ratio of operating expenses, before reductions, to average daily net
assets (%) ................................................................... 1.93* 2.00*
Ratio of net investment loss to average daily net assets (%) ................... (.05)* (.89)*
Portfolio turnover rate (%) .................................................... 47.71* 83.16
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
*** Less than .005
69
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 4.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 6/30/1998 at 5.75% to be
repurchased at $22,840,648 on 7/1/1998, collateralized by a $22,986,000 U.S. Treasury Note,
5.625%, 12/31/2002 (Cost $22,837,000) ........................................................... 22,837,000 22,837,000
------------
BONDS 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Japan 0.2%
Sumitomo Bank, Variable Rate Bond, 9.4%, 12/29/2049** .............................................. 878,000 873,610
------------
United States 0.1%
IBJ Preferred Capital Co., 8.912%, 12/29/2049 ...................................................... 754,000 668,233
------------
Total Bonds (Cost $1,632,000) ...................................................................... 1,541,843
------------
CONVERTIBLE BONDS 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Japan
Softbank Corp., 0.5%, 3/29/2002 (Cost $2,136,453) .................................................. JPY 212,000,000 1,415,175
------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 95.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina 0.5%
YPF S.A. "D" (ADR) (Petroleum company) ............................................................. 90,100 2,708,631
------------
Australia 0.5%
AMP Ltd.* (Life insurance, annuities, pensions, other financial services) .......................... 87,800 1,030,085
Woodside Petroleum Ltd. (Major oil and gas producer) ............................................... 298,500 1,493,469
------------
2,523,554
------------
Brazil 0.5%
Companhia Vale do Rio Doce (pfd.) "A" (Diverse mining and industrial complex) ...................... 140,180 2,860,445
------------
Canada 1.2%
Canadian National Railway Co. (Railroad operator) .................................................. 120,800 6,419,462
------------
China 0.5%
Anhui Expressway Co., Ltd. "H" (Developer and manager of toll highways in Anhui province) .......... 3,340,900 336,332
China Telecommunications* (Telecommunication services) ............................................. 265,500 462,603
GZI Transport Ltd. (Developer and operator of toll highways in Guangdong Province) ................. 757,400 171,070
Jiangsu Expressway Co., Ltd. "H" (Builder and manager of the Shanghai-Nanjing expressway) .......... 2,452,300 462,101
Shenzhen Expressway Co. "H" (Highway developer) .................................................... 2,596,400 475,850
Sichuan Expressway Co. (Developer of toll roads, bridges and tunnels) .............................. 3,027,000 289,104
Zhejiang Expressway Co., Ltd. "H" (Road construction and management) ............................... 2,668,700 447,768
------------
2,644,828
------------
Finland 2.7%
Nokia AB Oy "A" (Manufacturer of telecommunication systems and equipment) .......................... 118,200 8,702,357
Pohjola Insurance Co., Ltd. "B" (Insurance company) ................................................ 102,000 5,080,877
------------
13,783,234
------------
France 19.1%
AXA-UAP S.A. (Insurance group providing insurance, finance and real estate services) ............... 49,036 5,515,404
Accor S.A. (Catering, hotels and travel services) .................................................. 24,917 6,973,479
Alcatel Alsthom (Manufacturer of transportation, telecommunication and energy equipment) ........... 52,161 10,620,803
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bouygues SA (Conglomerate: public works; real estate and industrial development;
engineering services; television and motion pictures) ................................. 16,378 2,974,518
Canal Plus (Leading pay television network) .............................................. 20,216 3,778,567
Carrefour (Hypermarket operator and food retailer) ....................................... 8,284 5,241,130
Christian Dior (Leading fashion house) ................................................... 14,151 1,781,251
Compagnie de Saint-Gobain (Glass manufacturer) ........................................... 26,823 4,973,549
Credit Commercial de France (Bank) ....................................................... 35,926 3,024,684
France Telecom S.A. (Telecommunication services) ......................................... 85,966 5,929,474
Groupe Danone (Producer of packaged foods and beverages) ................................. 10,124 2,791,523
LVMH Louis Vuitton Moet-Hennessy SA (Producer of wines, spirits and luxury products) ..... 18,607 3,724,047
Lagardere S.C.A. (Holding company with interests in publishing, defense, audiovisual
production and services, telecommunications and media) ................................ 80,201 3,339,000
Rhodia SA* (Drug manufacturer and chemicals specialist) .................................. 39,053 1,089,094
Rhone-Poulenc S.A. "A" (Medical, agricultural and consumer chemicals) .................... 111,322 6,278,975
Schneider S.A. (Manufacturer of electronic components and automated manufacturing
systems) .............................................................................. 62,716 5,001,139
Societe Lyonnaise des Eaux SA (Water utility) ............................................ 45,838 7,544,008
Societe Nationale Elf Aquitaine (Petroleum company) ...................................... 51,276 7,209,190
Television Francaise (Television broadcasting) ........................................... 22,631 3,507,492
Thomson CSF (Manufacturer of aerospace systems and industrial electronics products) ...... 108,424 4,124,836
Usinor Sacilor (Producer of flat steel and stainless steel) .............................. 187,791 2,901,183
-----------
98,323,346
-----------
Germany 20.7%
Allianz AG (Multi-line insurance company) ................................................ 23,687 7,901,578
Allianz AG* (New) ........................................................................ 664 219,658
BASF AG (Leading international chemical producer) ........................................ 131,699 6,263,034
BHF-Bank AG (Universal banking services) ................................................. 86,872 3,309,822
Bayerische Vereinsbank AG (Commercial bank) .............................................. 118,042 10,016,042
Deutsche Telekom AG (Telecommunication services) ......................................... 207,554 5,686,253
Deutsche Telekom AG (ADR) ................................................................ 25,300 695,750
Dresdner Bank AG (Universal bank) ........................................................ 108,647 5,874,765
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing presses) ............. 16,771 1,390,491
Hoechst AG (Chemical producer) ........................................................... 211,410 10,639,968
Mannesmann AG (Diversified construction and technology company) .......................... 90,141 9,273,303
Muenchener Rueckversicherungs-Gesellschaft AG (Registered) (Insurance company) ........... 17,382 8,637,258
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) ................. 113,400 6,716,646
SAP AG (pfd.) (Computer software manufacturer) ........................................... 13,404 9,106,231
Schering AG (Pharmaceutical and chemical producer) ....................................... 47,441 5,590,890
Siemens AG (Leading electrical engineering and electronics company) ...................... 40,609 2,480,704
VEBA AG (Electric utility, distributor of oil and chemicals) ............................. 72,386 4,871,498
VIAG AG (Provider of electrical power and natural gas services, aluminum products,
chemicals, ceramics and glass) ........................................................ 11,581 7,976,930
-----------
106,650,821
-----------
Hong Kong 3.2%
Cheung Kong Holdings Ltd. (Real estate company) .......................................... 510,700 2,517,907
Citic Pacific Ltd. (Diversified holding company) ......................................... 1,009,200 1,804,004
Cosco Pacific Ltd. (Investment holding company) .......................................... 1,297,400 460,487
HSBC Holdings Ltd. (Bank) ................................................................ 196,490 4,818,418
Hong Kong & China Gas Co., Ltd. (Gas utility) ............................................ 591 671
Hong Kong & China Gas Co., Ltd. Warrant* (expire 9/30/99) ................................ 26 2
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ..................... 391,200 2,060,010
Kerry Properties, Ltd. (Real estate company) ............................................. 1,066,900 784,890
New World Development Co., Ltd. (Property investment and development, construction
and engineering, hotels and restaurants, telecommunications) .......................... 987,392 1,911,575
New World Infrastructure Ltd.* (Investment and operation of infrastructure projects) ..... 764,800 883,449
Sun Hung Kai Properties Ltd. (Real estate developer and finance company) ................. 261,000 1,115,010
-----------
16,356,423
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Italy 4.6%
Banca Commerciale Italiana SpA (Commercial bank) ................................................... 424,100 2,537,320
Banca di Roma SpA* (Commercial and savings bank) ................................................... 1,251,700 2,606,608
Banco Intesa SpA (Bank) ............................................................................ 266,500 1,491,680
Credito Italiano SpA (Commercial bank) ............................................................. 388,900 2,036,704
Fiat SpA (Manufacturer of automobiles, commercial vehicles, farm and construction
equipment) ...................................................................................... 226,300 990,918
Istituto Bancario San Paolo di Torino (Commercial bank) ............................................ 119,300 1,722,271
Istituto Nazionale delle Assicurazione (Insurance company) ......................................... 1,568,100 4,456,961
Telecom Italia Mobile SpA (Cellular telecommunication services) .................................... 501,000 3,065,074
Telecom Italia SpA (Telecommunications, electronics and network construction) ...................... 687,500 5,063,142
------------
23,970,678
------------
Japan 8.2%
Bridgestone Corp. (Leading automobile tire manufacturer) ........................................... 149,000 3,538,372
Canon Inc. (Leading producer of visual image and information equipment) ............................ 163,000 3,717,420
Daiwa Securities Co., Ltd. (Brokerage and other financial services) ................................ 537,000 2,321,090
Fujitsu Ltd. (Leading manufacturer of computers) ................................................... 314,000 3,319,143
Keyence Corp. (Specialized manufacturer of sensors) ................................................ 17,400 1,902,259
Minebea Co., Ltd. (Manufacturer of bearings, electronic equipment, machinery parts) ................ 213,000 2,129,692
Nichiei Co., Ltd. (Finance company for small- and medium-sized firms) .............................. 41,200 2,815,870
Nintendo Co., Ltd. (Game equipment manufacturer) ................................................... 40,400 3,758,616
Nippon Telegraph & Telephone Corp. (Leading telecommunications company) ............................ 256 2,131,480
Nomura Securities Co., Ltd. (Financial advisor, securities broker and underwriter) ................. 237,000 2,771,177
SMC Corp. (Leading maker of pneumatic equipment) ................................................... 29,400 2,245,656
Sony Corp. (Consumer electronic products manufacturer) ............................................. 41,700 3,607,841
Sumitomo Electric Industries, Ltd. (Leading manufacturer of electric wires and cables) ............. 144,000 1,462,728
Teijin Ltd. (Manufacturer of polyester products) ................................................... 617,000 1,876,195
Tokyo Electron Ltd. (Leading semiconductor production equipment manufacturer) ...................... 87,000 2,677,020
Yamanouchi Pharmaceutical Co., Ltd. (Leading manufacturer of ethical drugs) ........................ 97,000 2,029,612
------------
42,304,171
------------
Netherlands 4.6%
AEGON Insurance Group NV (Insurance company) ....................................................... 115,892 10,093,433
Akzo-Nobel NV (Chemical producer) .................................................................. 12,700 2,825,833
Elsevier NV (International publisher of scientific, professional, business, and consumer
information books) .............................................................................. 248,570 3,754,908
Heineken Holding NV "A" (Producer and distributor of beers, spirits, wines, soft drinks) 148,787 4,905,146
Royal Dutch Petroleum Co. (Owner of 60% of Royal Dutch/Shell Group) ................................ 41,500 2,303,400
------------
23,882,720
------------
Portugal 1.5%
Jeronimo Martins S.A. (Food producer and retailer) ................................................. 83,610 4,019,259
Portugal Telecom S.A. (Telecommunication services) ................................................. 66,950 3,550,599
------------
7,569,858
------------
Singapore 0.2%
City Developments Ltd. (Developer of residential, industrial, retail and investment properties,
owner and operator of hotels) ................................................................... 346,000 969,786
------------
Sweden 3.8%
AGA AB "B" (Free) (Producer and distributor of industrial and medical gases) ....................... 135,000 2,065,981
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of cellular
telephone equipment) ............................................................................ 288,024 8,244,687
Skandia Forsakrings AB (Insurance, savings, pension and banking services) .......................... 639,500 9,144,880
------------
19,455,548
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland 8.5%
Ciba Specialty Chemical (Registered) (Manufacturer of chemical products for plastics,
coatings, fibers and fabrics) ............................................................. 37,437 4,814,671
Clariant AG (Registered) (Manufacturer of color chemicals) ................................... 12,042 7,944,237
Credit Suisse Group (Registered) (Provider of bank services, management services and
life insurance) ........................................................................... 39,600 8,825,860
Nestle S.A. (Registered) (Food manufacturer) ................................................. 3,575 7,663,244
Novartis AG (Bearer) (Pharmaceutical company) ................................................ 2,657 4,432,135
Novartis AG (Registered) ..................................................................... 3,339 5,565,368
UBS AG (Registered) (Provider of banking and management services) ............................ 12,225 4,553,193
------------
43,798,708
------------
United Kingdom 14.7%
BOC Group PLC (Producer of industrial gases) ................................................. 270,448 3,687,045
British Airways PLC (Provider of passenger and cargo airline services) ....................... 235,919 2,554,532
British Petroleum PLC (Major integrated world oil company) ................................... 45 657
Carlton Communications PLC (Television post production products and services) ................ 423,774 3,785,529
General Electric Co., PLC (Manufacturer of power, communications and defense
equipment and other various electrical components) ........................................ 795,771 6,862,729
Glaxo Wellcome PLC (Pharmaceutical company) .................................................. 199,088 5,980,186
Imperial Chemical Industries PLC (Leading international chemical producer) ................... 137,858 2,214,346
Orange PLC* (Operator of digital mobile telephone network) ................................... 716,208 7,593,663
Pearson PLC (Diversified media and entertainment holding company) ............................ 318,320 5,835,858
Pilkington PLC (Manufacturer of glass for building and transport markets) .................... 1,003,979 1,852,360
PowerGen PLC (Electric utility) .............................................................. 168,490 2,329,394
Reuters Holdings PLC (International news agency) ............................................. 543,447 6,215,645
Rio Tinto PLC (Mining and finance company) ................................................... 166,557 1,877,176
Shell Transport & Trading PLC (Part owner of Royal Dutch Shell Co.) .......................... 431,900 3,043,225
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) ............... 373,521 4,562,131
WPP Group PLC (Advertising agency) ........................................................... 1,415,473 9,282,313
Zeneca Group PLC (Manufacturer of pharmaceutical and agrochemical products and
specialty chemicals) ...................................................................... 184,893 7,940,171
------------
75,616,960
------------
Total Common Stocks (Cost $351,348,652) ...................................................... 489,839,173
------------
====================================================================================================================================
Total Investment Portfolio-- 100.0% (Cost $377,954,105) (a) .................................. 515,633,191
============
====================================================================================================================================
</TABLE>
* Non-income producing security.
** Floating rate notes are securities whose interest rates vary with a
designated market index or market rate, such as the coupon-equivalent of
the U.S. Treasury Bill rate. These securities are shown at their rate as
of June 30, 1998.
(a) At June 30, 1998, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $378,470,815 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ................................................. $ 155,575,808
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ................................................. 18,413,432
-------------
Net unrealized appreciation ............................................................. $ 137,162,376
=============
</TABLE>
================================================================================
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1998, aggregated
$130,830,168 and $134,646,033, respectively.
Currency Abbreviations
- -------------------------------
JPY Japanese Yen
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments, at market (identified cost $377,954,105) ....................... $ 515,633,191
Foreign currency, at market (cost $634,891) ................................. 626,379
Receivable for investments sold ............................................. 861,041
Foreign taxes recoverable ................................................... 1,086,574
Dividend and interest receivable ............................................ 839,764
Other assets ................................................................ 7,583
----------------
Total assets ................................................................ 519,054,532
Liabilities
Payable for investments purchased ........................................... 697,932
Accrued management fee ...................................................... 369,570
Other payables and accrued expenses ......................................... 396,709
----------------
Total liabilities ........................................................... 1,464,211
----------------
Net assets, at market value ................................................. $ 517,590,321
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) .................................. 3,199,305
Net unrealized appreciation (depreciation) on:
Investments ................................................................. 137,679,086
Foreign currency related transactions ....................................... (2,193)
Accumulated net realized gain ............................................... 10,452,746
Paid-in capital ............................................................. 366,261,377
----------------
Net assets, at market value ................................................. $ 517,590,321
================
Class A
Net asset value, offering and redemption price per share
($517,168,916 / 34,869,081 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ..................... $14.83
======
Class B
Net asset value, offering and redemption price per share
($421,405 / 28,481 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ..................... $14.80
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $727,530) ......................... $ 5,674,613
Interest (net of foreign taxes withheld of $1,185) ............................ 542,148
----------------
6,216,761
Expenses:
Management fee ................................................................ 2,030,828
Custodian fees ................................................................ 237,173
Accounting fees ............................................................... 190,574
Distribution fees (Class B) ................................................... 486
Trustees' fees and expenses ................................................... 8,834
Reports to shareholders ....................................................... 3,000
Auditing ...................................................................... 27,009
Legal ......................................................................... 9,536
Other ......................................................................... 34,286
----------------
2,541,726
----------------
Net investment income ......................................................... 3,675,035
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................... 11,461,986
Foreign currency related transactions ......................................... (76,909)
----------------
11,385,077
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................... 73,247,735
Foreign currency related transactions ......................................... 21,050
----------------
73,268,785
----------------
Net gain on investment transactions ........................................... 84,653,862
----------------
Net increase (decrease) in net assets resulting from operations ............... $ 88,328,897
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
75
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, 1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 3,675,035 $ 7,360,580
Net realized gain (loss) from investment transactions ........... 11,385,077 125,615,265
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................... 73,268,785 (70,385,972)
-------------- --------------
Net increase in net assets resulting from operations ............ 88,328,897 62,589,873
-------------- --------------
Distributions to shareholders from:
Net investment income (Class A) ................................. (7,697,972) (11,550,387)
-------------- --------------
Net investment income (Class B) ................................. (6,202) --
-------------- --------------
Net realized gains from investment transactions (Class A) ....... (50,628,971) (6,050,202)
-------------- --------------
Net realized gains from investment transactions (Class B) ....... (42,421) --
-------------- --------------
Portfolio share transactions:
Class A
Proceeds from shares sold ....................................... 306,836,308 326,908,941
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 58,326,943 17,600,589
Cost of shares redeemed ......................................... (304,814,201) (688,657,725)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions ................................................. 60,349,050 (344,148,195)
-------------- --------------
Class B*
Proceeds from shares sold ....................................... 10,384 365,304
Net asset value of shares issued to shareholders in reinvestment
of dividends ................................................. 48,623 --
Cost of shares redeemed ......................................... (8,947) (7,040)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions ................................................. 50,060 358,264
-------------- --------------
Increase (decrease) in net assets ............................... 90,352,441 (298,800,647)
Net assets at beginning of period ............................... 427,237,880 726,038,527
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $3,199,305 and $7,228,444,
respectively) ................................................ $ 517,590,321 $ 427,237,880
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ....................... 30,264,570 54,809,210
-------------- --------------
Shares sold ..................................................... 21,500,218 23,224,538
Shares issued to shareholders in reinvestment of distributions .. 4,388,784 1,330,354
Shares redeemed ................................................. (21,284,491) (49,099,532)
-------------- --------------
Net increase (decrease) in Portfolio shares ..................... 4,604,511 (24,544,640)
-------------- --------------
Shares outstanding at end of period ............................. 34,869,081 30,264,570
============== ==============
Class B*
Shares outstanding at beginning of period ....................... 24,670 --
-------------- --------------
Shares sold ..................................................... 775 25,146
Shares issued to shareholders in reinvestment of distributions .. 3,664 --
Shares redeemed ................................................. (628) (476)
-------------- --------------
Net increase (decrease) in Portfolio shares ..................... 3,811 24,670
-------------- --------------
Shares outstanding at end of period ............................. 28,481 24,670
============== ==============
</TABLE>
* For the period May 8, 1997 (commencement of sale of Class B shares) to
December 31, 1997.
The accompanying notes are an integral part of the financial statements.
76
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class A (b) Six Months Ended Years Ended December 31,
- -------------------------- June 30, 1998 ----------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $14.11 $ 13.25 $ 11.82 $ 10.69 $ 10.85 $ 8.12
------ ------- ------- ------- ------- -------
Income from investment operations:
Net investment income .................. .11 .14 .12 .11 .06 .09
Net realized and unrealized gain
(loss) on investment transactions .... 2.58 1.04 1.60 1.07 (.15) 2.90
------ ------- ------- ------- ------- -------
Total from investment operations ....... 2.69 1.18 1.72 1.18 (.09) 2.99
------ ------- ------- ------- ------- -------
Less distributions:
From net investment income ............. (.26) (.21) (.29) (.01) (.07) (.14)
In excess of net investment income -- -- -- -- -- (.12)
From net realized gains on
investment transactions .............. (1.71) (.11) -- (.04) -- --
------ ------- ------- ------- ------- -------
Total distributions .................... (1.97) (.32) (.29) (.05) (.07) (.26)
------ ------- ------- ------- ------- -------
Net asset value, end of period ......... $14.83 $ 14.11 $ 13.25 $ 11.82 $ 10.69 $ 10.85
====== ======= ======= ======= ======= =======
Total Return (%) ....................... 20.51** 9.07 14.78 11.11 (.85) 37.82
Ratios and Supplemental Data
Net assets, end of period
($ millions) ......................... 517 427 726 548 472 238
Ratio of operating expenses to
average daily net assets (%) ......... 1.08* 1.00 1.05 1.08 1.08 1.20
Ratio of net investment income to
average daily net assets (%) ......... 1.56* .94 .95 .95 .57 .91
Portfolio turnover rate (%) ............ 57.31* 61.35 32.63 45.76 33.52 20.36
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 8, 1997, existing shares were designated as Class A shares.
* Annualized
** Not annualized
77
<PAGE>
INTERNATIONAL PORTFOLIO
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
Class B
- ----------------------------------- For the Period
May 8, 1997
(commencement of
Six Months Ended sale of Class B
June 30, 1998 shares) to
(Unaudited) December 31, 1997
-------------------------------------
<S> <C> <C>
Net asset value, beginning of period ............................................. $14.08 $13.76
------ ------
Income from investment operations:
Net investment income (loss) ..................................................... .10 (.00)
Net realized and unrealized gain (loss) on investment transactions ............... 2.58 .32
------ ------
Total from investment operations ................................................. 2.68 .32
------ ------
Less distributions:
From net investment income ....................................................... (.25) --
From net realized gains on investment transactions ............................... (1.71) --
------ ------
Total distributions .............................................................. (1.96) --
------ ------
Net asset value, end of period ................................................... $14.80 $14.08
====== ======
Total Return (%) ................................................................. 20.47** 2.33**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................... .42 .35
Ratio of operating expenses to average daily net assets (%) ...................... 1.33* 1.24*
Ratio of net investment income to average daily net assets (%) ................... 1.27* (.00)(b)*
Portfolio turnover rate (%) ...................................................... 57.31* 61.35**
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Amount shown is less than one half of .01%.
* Annualized
** Not annualized
78
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 are divided into seven 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, Global Discovery Portfolio, and International Portfolio. 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").
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios.
Multiple Classes Of Shares Of Beneficial Interest. The Fund offers one class of
shares for the Money Market Portfolio and two classes of shares (Class A shares
and Class B shares) for the other Portfolios. Class B shares are subject to a
12b-1 fee under the Investment Company Act of 1940, equal to an annual rate of
up to 0.25% of the average daily net asset value of the Class B shares of the
applicable Portfolio. Class A shares are not subject to such fees. Expenses are
borne pro-rata on the basis of relative net assets by the holders of all classes
of shares except that each class bears expenses unique to that class (including
the applicable 12b-1 fee). In accordance with the Master Distribution Plan, the
12b-1 fees are remitted to the Participating Insurance Companies for various
costs incurred or paid by the Participating Insurance Companies in connection
with the distribution of Class B shares.
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 Nasdaq Stock Market, Inc. ("Nasdaq"), 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 most recent bid quotation.
Securities which are not quoted on Nasdaq 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, other than money market instruments, purchased with
original maturities greater than sixty days are valued by pricing agents
approved by the officers of the Fund, whose 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. Money market
instruments purchased with an original 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 Board of Trustees. Their values have been
estimated by the Board of Trustees in the absence of readily ascertainable
market values. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the securities existed, and the difference could be
material.
Options. The non-money market Portfolios may enter into options contracts. 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
79
<PAGE>
NOTES TO FINANCIAL STATEMENTS
settlement by the Portfolio if the option is exercised. During the period, the
Bond and Balanced Portfolios purchased put options on U.S. Treasury Bonds as a
hedge against potential adverse price movements in the value of each portfolio's
assets. In addition, during the period, the Bond and Balanced Portfolios
purchased call options on U.S. Treasury Bonds as a temporary substitute for
purchasing selected investments.
If the Portfolio writes an option and the option expires unexercised, the
Portfolio will realize income, in the form of a capital gain, to the extent of
the amount received for the option (the "premium"). If the Portfolio elects to
close out the option it would recognize a gain or loss based on the difference
between the cost of closing the option and the initial premium received. If the
Portfolio purchased an option and allows the option to expire it would realize a
loss to the extent of the premium paid. If the Portfolio elects to close out the
option it would recognize a gain or loss equal to the difference between the
cost of acquiring the option and the amount realized upon the sale of the
option.
The gain or loss recognized by the Portfolio upon the exercise of a written call
or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised, the Portfolio's cost basis of
the acquired security or currency would be the exercise price adjusted for the
amount of the option premium.
The liability representing the Portfolio'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 prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Portfolio writes a covered call option, the Portfolio foregoes, in
exchange for the premium, the opportunity to profit during the option period
from an increase in the market value of the underlying security or currency
above the exercise price. When the Portfolio writes a put option it accepts the
risk of a decline in the market value of the underlying security or currency
below the exercise price. Over-the-counter options have the risk of the
potential inability of counterparties to meet the terms of their contracts. The
Portfolio's maximum exposure to purchased options is limited to the premium
initially paid. In addition, certain risks may arise upon entering into option
contracts including the risk that an illiquid secondary market will limit the
Portfolio's ability to close out an option contract prior to the expiration date
and that a change in the value of the option contract may not correlate exactly
with changes in the value of the securities or currencies hedged.
Futures Contracts. The non-money market Portfolios may enter into futures
contracts. A futures contract is an agreement between a buyer or seller and an
established futures exchange or its clearinghouse in which the buyer or seller
agrees to take or make a delivery of a specific amount of an item at a specified
price on a specific date (settlement date). During the period, the Bond and
Balanced Portfolios sold interest rate futures to hedge against declines in the
value of portfolio securities. Also, during the period, the Bond and Balanced
Portfolios purchased interest rate futures to manage the duration of each
Portfolio.
Upon entering into a futures contract, the Portfolio is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Portfolio. When entering into a closing transaction, the Portfolio will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Portfolio's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge, the Portfolio gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
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:
80
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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
Capital Growth Portfolio, the Growth and Income Portfolio, the Global Discovery
Portfolio and the International Portfolio utilized forward contracts as a hedge
in connection with portfolio purchases and sales of securities denominated in
foreign currencies.
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.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain 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, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code, 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 Global Discovery Portfolio
and 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.
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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. Ownership of the Portfolios
- --------------------------------------------------------------------------------
At the end of the period, the beneficial ownership in the Portfolios was as
follows:
Money Market Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding shares of the Portfolio, each
owning 47% and 40%, respectively.
Bond Portfolio: Three Participating Insurance Companies were owners of record of
10% or more of the total outstanding shares of the Portfolio, each owning 41%,
27%, and 11%, respectively.
Balanced Portfolio: Three Participating Insurance Companies were owners of
record of 10% or more of the total outstanding shares of the Portfolio, each
owning 47%, 28% and 10%, respectively.
Growth & Income Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 70% and 13%, respectively. One Participating Insurance Company was
owner of record of 100% of the total outstanding Class B shares of the
Portfolio.
Capital Growth Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 60% and 20%, respectively. One Participating Insurance Company was
owner of record of 100% of the total outstanding Class B shares of the
Portfolio.
Global Discovery Portfolio: Two Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 76% and 14%, respectively. One Participating Insurance Company was
owner of record of 100% of the total outstanding Class B shares of the
Portfolio.
International Portfolio: Three Participating Insurance Companies were owners of
record of 10% or more of the total outstanding Class A shares of the Portfolio,
each owning 39%, 20%, and 16%, respectively. One Participating Insurance Company
was owner of record of 100% of the total outstanding Class B shares of the
Portfolio.
C. Related Parties
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of .370% for the
Money Market Portfolio, .475% for the Bond Portfolio, .475% for the Balanced
Portfolio, .475% for the Growth and Income Portfolio, .975% for the Global
Discovery Portfolio, .475% for the first $500,000,000, .450% over $500,000,000
for the Capital Growth Portfolio, and .875% for the first $500,000,000, .725%
over $500,000,000 for the International Portfolio, computed and accrued daily
and payable monthly. As manager of the assets of each Portfolio, the Adviser
directs the investments of the Portfolios in accordance with their investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Portfolios. In addition to portfolio management services,
the Adviser provides certain administrative services in accordance with the
Management Agreement.
82
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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.
Until April 30, 1998, the Adviser had agreed to waive all or part of its fees
for the Global Discovery Portfolio, excluding 12b-1 fees, to the extent that the
Portfolio's expenses would have been maintained at 1.50% of average annual net
assets.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. Allocated
Trustees' fees and expenses for each Portfolio for the six months ended June 30,
1998 are detailed in each Portfolio's statement of operations.
D. Lines of Credit
- --------------------------------------------------------------------------------
The International Portfolio and several other Scudder 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.
83
<PAGE>
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84
<PAGE>
(blank page)
<PAGE>
About the Fund's Adviser
-------------------------------------------------------------------------------
Scudder Kemper Investments, Inc., is one of the
largest and most experienced investment management
organizations worldwide, managing more than $200 billion
in assets globally for mutual fund investors, retirement
and pension plans, institutional and corporate clients,
insurance companies, and private family and individual
accounts. It is one of the ten largest mutual fund
companies in the U.S.
Scudder Kemper Investments has a rich heritage of
innovation, integrity, and client-focused service. In
1997, Scudder, Stevens & Clark, Inc., founded 79 years
ago as one of the nation's first investment counsel
organizations, joined the Zurich Group. As a result,
Zurich's subsidiary, Zurich Kemper Investments, Inc.,
with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in
New York, Scudder Kemper Investments offers a full range
of investment counsel and asset management capabilities,
based on a combination of proprietary research and
disciplined, long-term investment strategies. With its
global investment resources and perspective, the firm
seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset
management firm, is a member of the Zurich Group. The
Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life
insurance, reinsurance, and asset management.
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.
SCUDDER (logo)
