SCUDDER (logo)
Scudder Variable Life
Investment Fund
Annual Report
December 31, 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 ............................................. 51
Global Discovery Portfolio ........................................... 60
International Portfolio .............................................. 69
Notes to Financial Statements .............................................. 78
Report of Independent Accountants .......................................... 83
Tax Information ............................................................ 84
Shareholder Meeting Results ................................................ 85
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SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Despite a market correction in the third quarter, the stock and bond
markets closed 1998 with another year of generally positive returns. Investors
should take some comfort from the good performance reported by the Portfolios in
this environment. In fact, five of the seven portfolios outperformed the median
fund in their respective category for the 12-month period according to Lipper
Analytical Services. We are pleased with this strong performance, which
continues to build on each Portfolio's solid long-term track record and
Scudder's history of below-average expenses.
With nearly a decade of above-average returns for the domestic equity
markets behind us, deciding where to invest has only become more complicated.
Will the same investments that have performed so well be the same ones to carry
us through to the new century? We think common sense tells us that a repeat
should not be expected. However, we believe there are opportunities for
investors to diversify into areas that have not experienced dramatic price
increases, such as small-cap or international stocks, or areas that offer the
potential for more stability than the increasingly volatile equity markets, such
as fixed income securities.
Scudder Variable Life Investment Fund offers seven portfolios that provide
the flexibility to reallocate assets based on recent market conditions and
individual investment goals. You have the ability to invest or revise
allocations to each Portfolio based on your particular situation. Reallocating
your holdings is easy and can help keep your investment on track in these
changing times.
Thank you for your continued investment in Scudder Variable Life
Investment Fund. On the following pages you will find summaries of each
Portfolio's performance and investment strategy over the year. We hope you 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 provided shareholders with a stable $1.00 share
price and a competitive yield during the most recent 12-month period ended
December 31, 1998. The Portfolio's 30-day net annualized yield was 4.92% as of
December 31. For the 12 months ended December 31, 1998, the Portfolio provided a
5.29% total return. This performance surpassed the 5.10% average return for
funds in the Variable Life Money Market Category for the same period, according
to Lipper Analytical Services, Inc.
During the summer and fall of 1998, many investors sought safe havens in
the form of U.S. Treasury bonds and money market investments as a series of
dramatic financial crises rocked the global markets. The Federal Reserve lowered
short-term interest rates by one quarter of a percentage point three times
between September and November -- taking the unexpected step of adjusting
interest rates between Federal Open Market Committee meetings -- in an attempt
to restore confidence to worldwide financial markets. Though the Fed had
reportedly changed to a "neutral" stance on interest rate adjustments by late in
1998, the more than 60 interest rate reductions by central banks around the
world during this period seemed to ease fears of rampant deflation and gave
encouragement to U. S. equity investors. For the 12-month period ended December
31, we refrained from extending the Portfolio's average maturity significantly
because we felt that money market yields at the longer end of our acceptable
maturity range did not offer attractive value. The Portfolio's average maturity
stood at 28 days as of December 31, 1998, versus 25 days as of June 30, 1998.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
We continue to pursue a
cautious strategy,
lengthening the Portfolio's
average maturity only
when we are adequately
compensated for taking on
additional risk.
Over the period, the Money Market Portfolio maintained investments in a
variety of short-term instruments, including commercial paper, variable- and
floating-rate securities, U.S. government agency obligations, certificates of
deposit, and repurchase agreements. We continued to overweight commercial paper
during the period because it offered the most attractive value and some of the
highest money market yields available. At the close of the period, commercial
paper represented 62% of the Portfolio's assets. Our second largest sector,
variable- and floating-rate securities (38% of assets), was attractive because
of these securities' longer maturities, their high correlation with short-term
interest rates, and their indexing features.
With the Federal Reserve "on hold" at present, we will pursue a cautious
strategy, and will lengthen the Portfolio's average maturity only when we are
adequately compensated for taking on additional risk. In addition, the Portfolio
will carefully select among the range of maturities it can invest in, choosing
short-term securities that we feel represent the best value.
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,
Rates generally declined and bond prices rose over the year with long-term
U.S. Treasury securities providing the best performance, especially in the third
quarter. In this environment, the Bond Portfolio provided a total return of
6.57% for the 12 months ended December 31, 1998, which compares to the 8.67%
return of the unmanaged Lehman Aggregate Bond Index for the same period.
The economic environment was generally favorable for bond investors over
the year with economic growth healthy, inflation low, and interest rates
declining. However, in the third quarter the devaluation of the Russian currency
and collapse of the hedge fund Long Term Capital Management shocked the markets,
sending investors in search of the highest quality and most liquid investments,
specifically U.S. Treasury securities. The benchmark 30-year Treasury bond yield
dropped from 5.9% at the beginning of the year to a low of 4.7% in the third
quarter, but rebounded to close the period at 5.1%. The rate declines
contributed to the strong performance of Treasury securities for the year.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
The Portfolio's
underweighting in
relatively volatile
Treasuries -- the strongest
performing sector -- held
back performance in 1998.
The Portfolio underperformed the Lehman Aggregate Bond Index primarily
because we had overweighted corporate bonds while Treasury securities (which
constitute 46% of the index) turned in top performance for the year. We have
continued to overweight the corporate sector because it offers higher yields
than Treasuries and we believe it is significantly undervalued. As Treasury
prices retreated in the fourth quarter, corporates outperformed for the first
time in 1998. In the mortgage sector, we remained substantially underweighted
over the year.
Overall, we did not make any large bets on the direction of interest
rates, but took an incremental approach to managing duration, or the portfolio's
sensitivity to rate changes. During the first six months, duration was increased
from 4.9 to 5.5 years based on our expectations for a declining rate
environment. By the end of the third quarter, duration had been reduced to about
5.15 years, but closed the year at 5.3 years as a result of adding
intermediate-term corporate bonds to the Portfolio.
While a slow-down is likely in the first half of 1999, we expect to
continue to emphasize defensive issues in the corporate sector, while remaining
underweighted in Treasuries. In particular, we think the cable, media, and
non-durables sectors are attractive, and the portfolio's heavy weightings in
these areas should be resistant to downside risk.
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 December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
Bond Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,657 6.57% 6.57%
5 Year $ 13,450 34.50% 6.11%
10 Year $ 22,950 129.50% 8.66%
LBAB Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,867 8.67% 8.67%
5 Year $ 14,204 42.04% 7.27%
10 Year $ 24,232 142.32% 9.25%
A chart in the form of a line graph appears here,
illustrating the following data points:
Yearly periods ended December 31
Bond Portfolio
Year Amount
- -----------------
'88 10000
'89 11165
'90 12065
'91 14189
'92 15184
'93 17063
'94 16247
'95 19199
'96 19740
'97 21535
'98 22950
LBAB Index
Year Amount
- -----------------
'88 10000
'89 11453
'90 12476
'91 14472
'92 15544
'93 17060
'94 16562
'95 19622
'96 20331
'97 22298
'98 24232
The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market
valueweighted 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 during the 10 year period were higher
due to maintenance of the Portfolio's expenses.
ASSET QUALITY
- -------------
U.S. Government & Agencies 28%
AAA* 7%
AA 10%
A 22%
BBB 15%
BB 13%
B 5%
----
100%
====
Average Quality: A
*Category includes cash equivalents
A chart in the form of a pie chart appears here,
illustrating the exact data points in the above table.
In comparison to
Treasuries, the corporate
sector continues to offer
high yields and
reasonable valuations.
EFFECTIVE MATURITY
- --------------------------------
Less than 1 year 2%
1 - 3 years 13%
3 - 7 years 46%
7 - 12 years 16%
12 years or greater 23%
----
100%
====
Weighted average effective maturity: 9.2 years
DIVERSIFICATION
- ----------------------------------------------------
Corporate Bonds 62%
U.S. Treasuries 23%
Asset-Backed Securities 6%
U.S. Government Agency Pass-Thrus 3%
Foreign Bonds - U.S. Dollar Denominated 2%
Government National Mortgage Assoc. 2%
Collateralized Mortgage Obligations 1%
Short Term Investments 1%
----
100%
====
5
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BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Portfolio produced strong returns as its equity holdings benefited
from the rally in large-cap growth stocks and interest rate declines buoyed its
bond holdings. In this environment, the Balanced Portfolio provided a total
return of 23.19% for the 12 months ended December 31, 1998. At the end of the
period, the Portfolio's assets were allocated 60% in equities and 40% in fixed
income securities (including cash), essentially unchanged from a year ago.
While technology stocks and particularly Internet stocks seemed to garner
most of the attention towards the end of the year, the consumer discretionary
sector was the biggest contributor to performance in the equity portion of the
Portfolio. Expectations that Christmas sales would benefit from strong consumer
confidence, a robust stock market, and continued economic strength propelled the
performance of Home Depot, Costco, Dayton Hudson, Wal-Mart, and Rite Aid.
Technology was also a strong sector, and we continued to focus on leading
companies (e.g. America Online) that are dominating their market. The finance
sector held back performance as our insurance holdings reported earnings at the
low end of expectations. Performance was also held back by a number of large
pharmaceutical stocks.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Strong performance of the
Portfolio's large-cap growth
stock holdings was a
significant contributor to
performance.
In the fixed income portion of the Portfolio, we increased our exposure to
changes in interest rates by lengthening the duration over the first half of the
year. In the third quarter duration was reduced, but it crept up in the fourth
quarter as we added intermediate-term (3-7 year) corporate bonds, a sector that
appeared attractively valued. At the end of the year, duration stood at 5.3
years and our average quality was AA -- the second highest rating.
Last year was marked by unnerving volatility that sorely tested investor
resolve to stick with investment processes and individual names. However, by the
end of the year, the S&P 500 had rung up another gain of more than 20%, the
fourth in a row, rewarding those investors who stuck to their disciplines.
Looking ahead, we continue to believe that superior equity returns will come
from those companies that deliver the growth expected of them. Given the Fund's
diversified approach to investing in quality growth stocks and investment grade
bonds, we believe the Portfolio is well suited to weather the slower growth
environment we expect in 1999.
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 December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
Balanced Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,319 23.19% 23.19%
5 Year $ 21,240 112.40% 16.26%
10 Year $ 36,316 263.16% 13.77%
S&P 500 Index (60%)
and LBAB Index (40%)
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,957 19.57% 19.57%
5 Year $ 22,223 122.23% 17.31%
10 Year $ 41,675 316.75% 15.33%
A chart in the form of a line graph appears here,
illustrating the following data points:
Yearly periods ended December 31
Balanced Portfolio
Year Amount
- -----------------
'88 10000
'89 11950
'90 11720
'91 14876
'92 15912
'93 17098
'94 16747
'95 21213
'96 23735
'97 29480
'98 36316
S&P 500 Index
Year Amount
- -----------------
'88 10000
'89 13167
'90 12759
'91 16640
'92 17920
'93 19724
'94 19984
'95 27493
'96 33804
'97 45087
'98 57974
LBAB Index
Year Amount
- -----------------
'88 10000
'89 11453
'90 12476
'91 14472
'92 15544
'93 17060
'94 16562
'95 19622
'96 20331
'97 22298
'98 24232
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
and American Stock Exchange, and traded on the 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 during the 10 Year period were higher
due to maintenance of the Portfolio's expenses.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 127.61% and 15.61%, respectively.
EQUITY HOLDINGS
- -----------------------------------
Sector breakdown of the
Portfolio's equity holdings
- -----------------------------------
Technology 23%
Health 19%
Consumer Staples 14%
Consumer Discretionary 13%
Media 9%
Manufacturing 7%
Financial 6%
Durables 5%
Service Industries 2%
Communications 2%
----
100%
====
Five Largest Equity Holdings
- ----------------------------------------------------
1.Microsoft Corp. Developer and manufacturer of
software
2.Intel Corp. Manufacturer and distributor of
microprocessors
3.General Electric Co. Leading producer of
electrical equipment
4.Pfizer, Inc. Leading international pharmaceutical
company
5.Home Depot, Inc. Building supply/home improvement
stores
FIXED INCOME HOLDINGS
- --------------------------------------------
By Asset Type
- --------------------------------------------
Corporate Bonds 55%
U.S. Government & Agencies 22%
U.S. Gov't Agency Pass-Thrus 11%
Asset-Backed Securities 6%
Foreign - U.S. Dollar Denominated 3%
Collateralized Mortgage Obligations 2%
Gov't National Mortgage Assoc. 1%
----
100%
====
By Quality
- --------------------------------------------
U.S. Government & Agencies 33%
AAA* 13%
AA 10%
A 26%
BBB 11%
BB 7%
----
100%
====
*Category includes cash equivalents
7
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
With corporate profit growth decelerating over the year, investors
preferred a handful of large-cap growth stocks, which provided the best
performance in 1998. This environment created a strong headwind for the
Portfolio's relative dividend yield strategy, which typically emphasizes value
stocks. Class A shares returned 7.18%, which compares to the 28.58% return of
the S&P 500 Index for the 12 months ended December 31, 1998.
Valuations on many companies that fall into our investment universe of
stocks with above-average dividend yields were trading at low levels usually
associated with a recession. Yet, the U.S. economy remained healthy, and
inflation and interest rates reached record lows. In 1998, many investors seemed
to have adopted a strategy of "growth at any price." This mentality resulted in
unusually high price-to-earnings (p/e) ratios for a number of stocks, especially
growth stocks with the largest market-caps. For the year, investors favored
companies with the best growth rates, even if that growth was less than the
previous year or decelerating.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Our strategy of investing in
stocks with above-average
yields has resulted in
outperformance during
market declines.
Many of our top portfolio holdings were significant contributors to
performance including Ford, Xerox, American Home Products, Unilever, and Chase
Manhattan Bank. Philips Electronics NV and TRW were sold at prices higher than
their year-end close due to deteriorating fundamental business prospects. In
addition, an overweighting in telecommunications, some new additions in energy,
and careful stock selection in the consumer staples area also added to
performance.
Our overweight position in industrial cyclicals was perhaps one of the
most significant detractors from performance. Over the year we gradually
increased our holdings in industrial cyclicals, which had been trading at
recession level valuations for more than a year. We underestimated not only the
impact of contracting Asian economies on the supply/demand balance, and
consequently the pricing of the underlying commodities (e.g. ethylene, copper,
pulp), but more importantly, the negative perception that continued to depress
these stocks.
When, you may ask, will the Portfolio's relative dividend yield strategy
return to favor? The timing of this change is difficult to predict, but value
stocks have come back into favor after every period of strong performance by
growth stocks. While there is no assurance that value stocks will return to
favor soon, we are optimistic about the very attractive valuations of stocks we
hold in the portfolio, as well as the prospects for our strategy going forward.
Sincerely,
Your Portfolio Management Team
/s/Robert T. Hoffman /s/Lori J. Ensinger
Robert T. Hoffman Lori J. Ensinger
Lead Portfolio Manager
/s/Benjamin W. Thorndike /s/Kathleen T. Millard
Benjamin W. Thorndike Kathleen T. Millard
8
<PAGE>
GROWTH AND INCOME PORTFOLIO
PERFORMANCE UPDATE as of December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
- -------
CLASS A
- -------
Growth and Income Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,718 7.18% 7.18%
Life of
Fund* $ 23,611 136.11% 20.20%
S&P 500 Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,858 28.58% 28.58%
Life of
Fund* $ 30,164 201.64% 26.64%
A chart in the form of a line graph appears here,
illustrating the following data points:
Semiannual Periods from May, 1994 to December, 1998
Growth and Income Portfolio
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 23650
12/98 23035
S&P 500 Index+
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
12/98 30164
* The Fund commenced operations on May 2, 1994. On May 1, 1997,
existing shares were designated as Class A shares.
- -------
CLASS B
- -------
Growth and Income Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,695 6.95% 6.95%
Life of
Fund** $ 13,143 31.43% 17.80%
S&P 500 Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,858 28.58% 28.58%
Life of
Fund** $ 15,762 57.62% 31.29%
A chart in the form of a line graph appears here,
illustrating the following data points:
Quarterly periods from May, 1997 to December, 1998
Growth and Income Portfolio
Year Amount
- -----------------
5/1/97** 10000
6/97 10540
9/97 11498
12/97 11601
3/98 13076
6/98 12745
9/98 11134
12/98 12407
S&P 500 Index+
Year Amount
- -----------------
5/1/97** 10000
6/97 11085
9/97 11916
12/97 12258
3/98 13968
6/98 14430
9/98 12993
12/98 15762
** The Fund commenced selling Class
B shares on May 1, 1997.
+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
and American Stock Exchange, and traded on the 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 for the life of the Fund for Class A
were higher due to maintenance of the Portfolio's expenses. See Financial
Highlights for the Growth and Income Class A Portfolio.
9
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1998
DIVERSIFICATION
- ---------------
Equity Securities 97%
Cash Equivalents 3%
----
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 20%
Manufacturing 18%
Communications 12%
Energy 10%
Durables 9%
Health 8%
Consumer Staples 7%
Utilities 6%
Construction 3%
Other 7%
------
100%
======
Performance was helped by an
overweighting in
telecommunications, careful
stock selection in consumer
staples, and new additions in
energy.
TEN LARGEST EQUITY HOLDINGS (25% of Portfolio)
- ---------------------------------------------------------------------
1.Xerox Corp. Leading manufacturer of copiers and duplicators
2.Corning Inc. Specialty glass manufacturer
3.American Home Products Corp. Major diversified pharmaceutical company
4.Bell Atlantic Corp. Provider of telecommunication services
5.EXEL Ltd. Provider of liability insurance
6.Bristol-Myers Squibb Co. Diversified pharmaceutical and consumer
products company
7.H.J. Heinz Co. Major manufacturer of processed foods
8.GTE Corp. Nationwide telecommunications company
9.Sprint Corp. Diversified local and long distance telecommunication
services
10.CSX Corp. Railroad, integrated transportation systems and shipping
container company
10
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Large-cap equities once again dominated the market in 1998, with the top
fifteen stocks in the S&P 500 Index accounting for over 50% of its total return.
In a period characterized by economic turmoil abroad and slowing earnings growth
here in the United States, investors favored companies that offered the best
relative earnings growth. Stocks that failed to meet expectations, on the other
hand, were punished severely. For the twelve months ended December 31, the
Capital Growth Portfolio - Class A returned 23.23%, which compares to the 28.58%
return of the S&P 500 for the same period.
Although the volatility in the markets proved to be a nerve-racking
experience for most investors, it gave us the opportunity to purchase
high-growth stocks at prices we believed to be unjustifiably low. In the first
half of the year, for example, we were impressed by the earnings growth of Cisco
Systems and EMC, but did not establish positions because of their high price-to-
earnings multiples. When the global market correction of the early fall caused
their valuations to fall to 25 times 1999 earnings, a level that represented a
discount to our five-year growth estimates, we bought shares of both stocks and
were well positioned for their subsequent rebound.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Fund management focused
on companies that have the
ability to maintain strong
growth rates even in
periods of economic
weakness.
In selecting individual stocks, we have been concentrating in non-cyclical
sectors that are capable of sustaining earnings growth even in the face of a
slowdown overseas. Specifically, we have focused on the technology,
pharmaceutical, and consumer discretionary sectors, where we feel that earnings
will continue to grow at an above average rate. At the same time, we are
underweight in consumer staples, manufacturing, and energy stocks, which are
being adversely impacted by the weakness of the global economy.
With steady growth and low inflation as a backdrop, the outlook for
equities remains generally favorable. However, it is reasonable to assume that
the recent heightened volatility of the stock market will remain in force over
the near term. We hope to use these fluctuations to our advantage, as we have
been able to do with our recent purchases in the technology sector.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Co-Lead Portfolio Manager Co-Lead Portfolio Manager
11
<PAGE>
CAPITAL GROWTH PORTFOLIO
PERFORMANCE UPDATE as of December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
- -------
CLASS A
- -------
Capital Growth Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,323 23.23% 23.23%
5 Year $ 23,354 133.54% 18.49%
10 Year $ 47,618 376.18% 16.89%
S&P 500 Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,858 28.58% 28.58%
5 Year $ 29,393 193.93% 24.05%
10 Year $ 57,974 479.74% 19.20%
A chart in the form of a line graph appears here,
illustrating the following data points:
Yearly periods ended December 31
Capital Growth Portfolio
Year Amount
- -----------------
'88 10000
'89 12275
'90 11357
'91 15580
'92 16868
'93 20390
'94 18418
'95 23695
'96 28465
'97* 38643
'98 47618
S&P 500 Index+
Year Amount
- -----------------
'88 10000
'89 13167
'90 12759
'91 16646
'92 17920
'93 19724
'94 19984
'95 27493
'96 33804
'97* 45087
'98 57974
* On May 12, 1997, existing shares were designated as Class A shares.
- -------
CLASS B
- -------
Capital Growth Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,294 22.94% 22.94%
Life of
Fund** $ 14,506 45.06% 25.49%
S&P 500 Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 12,858 28.58% 28.58%
Life of
Fund** $ 14,857 48.57% 28.35%
Quarterly periods from May, 1997 to December, 1998
Capital Growth Portfolio
Year Amount
- -----------------
5/97** 10000
6/97 10581
9/97 11739
12/97 11569
3/98 13079
6/98 13391
9/98 11310
12/98 14222
S&P 500 Index+
Year Amount
- -----------------
5/97** 10000
6/97 10449
9/97 11232
12/97 11554
3/98 13166
6/98 13601
9/98 12247
12/98 14857
** The Fund commenced selling Class
B shares on May 12, 1997. Index
comparisons began on May 31,
1997.
+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
and American Stock Exchange, and traded on the 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 for the 10 year period for Class A
were higher due to maintenance of the Portfolio's expenses.
12
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1998
DIVERSIFICATION
- ---------------
Equity Securities 96%
Cash Equivalents 4%
----
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
-----------------------------------
Technology 18%
Health 15%
Financial 14%
Consumer Discretionary 14%
Media 7%
Energy 7%
Consumer Staples 7%
Manufacturing 7%
Durables 5%
Other 6%
------
100%
======
Volatility in the stock market
provided opportunities to
purchase fast-growing
technology stocks at favorable
valuations.
TEN LARGEST EQUITY HOLDINGS (27% of Portfolio)
- -------------------------------------------------------------------------------
1.MCI WorldCom, Inc. Provider of local, long distance, international, and
Internet services
2.Home Depot, Inc. Building supply/home improvement stores
3.Schering-Plough Corp. Pharmaceutical and consumer products
4.Sun Microsystems, Inc. Producer of high-performance workstations, servers
and networking software
5.Procter & Gamble Co. Diversified manufacturer of consumer products
6.Pfizer, Inc. Leading international pharmaceutical company
7.Intel Corp. Semiconductor memory circuits
8.Dayton-Hudson Corp. Owner and operator of department and specialty stores
9.American International Group, Inc. Major international insurance holding
company
10.Omnicom Group, Inc. Leading advertising company
13
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Our emphasis on European and U.S. small- and mid-sized companies was
rewarding as the Portfolio's return exceeded our benchmark by a wide margin. For
the 12-month period ended December 31, 1998, Class A shares returned 16.44%,
which compares to the 5.93% return of the unmanaged Salomon Brothers World
Extended Market Index.
Geographically, returns were evenly split between European and U.S.
holdings, with Europe carrying the first nine months of the year and U.S.
technology stocks powering a recovery in the fourth quarter. We again focused on
maintaining meaningful positions in our best ideas. Both Network Appliance
(dedicated, superfast file servers for networks) and Vitesse (superfast gallium
arsenide chips for communications devices) had outstanding performance. We
believe both companies are well positioned to benefit from the information and
communications revolution, and neither is dependent on winning the battle for
consumers.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
While large-cap growth
stocks garnered much of
the attention over the
period, the Portfolio o
utperformed its small-cap
benchmark and rivaled the
returns of the broader,
large-cap indices.
At the end of the year we eliminated long-time holding Bank of Ireland
under our "kick-out" rule. The bank has been a stalwart of the Portfolio, making
an important contribution to performance over our five-year holding period. Bank
of Ireland is now a large-cap stock and graduates magna cum laude. Our kick out
rule has a two-year lag, which is designed to maximize the potential for capital
appreciation while preserving the Portfolio's small-cap profile.
Strategically, we continue to position the Portfolio to benefit from
change and growth in Europe while looking to the U.S. for opportunities in
technology and health care. One example of the latter is Visx, the leader in
LASIK surgery -- a booming industry. We first added Visx to the Portfolio last
summer, and now the stock is among our top ten holdings.
As the investment markets have become increasingly global, we believe that
investors will become more interested in the attractive valuations of global
small-cap stocks. As we survey the overseas markets in particular, we do not see
the unsustainable valuation levels of many larger-cap U.S. stocks. In addition,
we believe that there is room for the niche products produced by many small-cap
companies alongside their larger competitors.
Sincerely,
Your Portfolio Management Team
/s/Gerald J. Moran /s/Sewall F. Hodges
Gerald J. Moran Sewall F. Hodges
Co-Lead Portfolio Manager Co-Lead Portfolio Manager
14
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PERFORMANCE UPDATE as of December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
- -------
CLASS A
- -------
Global Discovery Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,644 16.44% 16.44%
Life of
Fund* $ 13,806 38.06% 12.85%
Salomon Brothers World Equity
EMI Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,593 5.93% 5.93%
Life of
Fund* $ 11,708 17.08% 6.08%
A chart in the form of a line graph appears here,
illustrating the following data points:
Semiannual Periods from May, 1996 to December, 1998
Global Discovery Portfolio
Year Amount
- -----------------
5/96* 10000
6/96 10200
12/96 10550
6/97 11605
12/97 11857
6/98 13841
12/98 13806
Salomon Brothers World Equity EMI Index+
Year Amount
- -----------------
5/96* 10000
6/96 9946
12/96 10197
6/97 11010
12/97 11052
6/98 12202
12/98 11708
* The Fund commenced operations on
May 1, 1996. On May 2, 1997,
existing shares were designated
as Class A shares.
- -------
CLASS B
- -------
Global Discovery Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,618 16.18% 16.18%
Life of
Fund** $ 13,248 32.48% 18.39%
Salomon Brothers World Equity
EMI Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 10,593 5.93% 5.93%
Life of
Fund** $ 11,861 18.61% 10.75%
A chart in the form of a line graph appears here,
illustrating the following data points:
Quarterly periods from May, 1997 to December, 1998
Global Discovery Portfolio
Year Amount
- -----------------
5/2/97** 10000
6/97 11177
9/97 11790
12/97 11403
3/98 13380
6/98 13298
9/98 10999
12/98 13248
Salomon Brothers World Equity EMI Index+
Year Amount
- -----------------
5/2/97** 10000
6/97 11153
9/97 11853
12/97 11196
3/98 12656
6/98 12361
9/98 10232
12/98 11861
** The Fund commenced selling Class
B shares on May 2, 1997.
+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 during all periods 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 December 31, 1998
DIVERSIFICATION
- ---------------
By Region
(Excluding 9% Cash Equivalents)
-------------------------------------
U.S. & Canada 50%
Europe 46%
Japan 2%
Other 2%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
We positioned the Portfolio to capitalize on
the opportunities in the technology
and health care sectors in the U.S., as
well as the positive changes taking place
in Europe.
By Sector
(Excluding 9% Cash Equivalents)
----------------------------------
Technology 23%
Service Industries 20%
Health 13%
Consumer Discretionary 9%
Financial 9%
Communications 8%
Consumer Staples 4%
Transportation 3%
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.
TEN LARGEST EQUITY HOLDINGS (34% of Portfolio)
- -------------------------------------------------------------------------------
1.Network Appliance, Inc. Designer and manufacturer of network data storage
devices in the United States
2.S&P Mid-Cap 400 Depository Receipts U.S. security that represents ownership
in the Mid-Cap SPDR Trust
3.Vitesse Semiconductor Corp. Manufacturer of digital integrated circuits in
the United States
4.Sterling Commerce, Inc. Producer of electronic data interchange products
and services in the United States
5.Serco Group PLC Facilities management company in the United Kingdom
6.VISX Inc. Developer of laser technologies and systems for vision correction
in the United States
7.Fiserv Inc. Data processing services in the United States
8.Telecel-Comunicacoes Pessoais, SA Cellular communication services in
Portugal
9.Altran Technologies, SA Engineering and consulting services for
aerospace, telecommunications and electronics fields in France
10.Provident Financial PLC Personal finance group in the United Kingdom
16
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Strong performance from the European equity markets helped to propel the
International Portfolio - Class A to a total return of 18.49% for the period,
which slightly underperformed the 18.76% return of the unmanaged Morgan Stanley
Capital International Europe, Australia, Far East, and Canada Index for the same
period. Although the Portfolio was ahead of its benchmark for much of the year,
the outperformance of areas in which it was underweighted -- such as European
financial stocks and the Japanese yen -- caused its total return to fall behind
the index in the fourth quarter.
Despite significant market volatility, the fundamental investment strategy
of the Portfolio remained in place. Our stock picks continued to emphasize
companies that stand to benefit from the processes of secular change taking
place around the world -- specifically, corporate restructuring, cost cutting,
and consolidation. We focus on stocks whose strong competitive positions and
reliable revenue streams will allow them to grow earnings despite an environment
where price pressures, slower growth, and uncertain capital markets are
threatening corporate profits. We overweighted defensive sectors such as
telecommunications, utilities, media, and retail, which proved to be fertile
ground for stocks with reasonable valuations and strong cash flows. At the same
time, we gradually trimmed holdings subject to the forces of global competition
and slowing economic growth, such as European cyclicals and Japanese blue chips.
CALLOUT NEXT TO PRECEDING PARAGRAPH:
Our approach emphasized
stocks that are positioned
to increase earnings even
when the macroeconomic
environment is
unfavorable.
This strategy led us to invest three-quarters of the portfolio in core
Europe, with an emphasis on the eleven participants in the European Monetary
Union. We are optimistic that the corporate sector will continue to take the
lead in bringing greater market integration to the European landscape. The
Portfolio remains underweighted in Japan and the emerging markets, where the
fate of individual companies is more closely tied to the processes of government
reform and economic recovery. So far, both have been very slow to evolve.
The global economy remains burdened by numerous question marks that are
unlikely to be resolved quickly. Although these issues may result in further
volatility for equities, we will continue to manage risk by investing in
companies with a demonstrated ability to post strong earnings growth in any
economic environment.
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 December 31, 1998
GROWTH OF A $10,000 INVESTMENT
- ------------------------------
- -------
CLASS A
- -------
International Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,849 18.49% 18.49%
5 Year $ 16,342 63.42% 10.32%
10 Year $ 30,953 209.53% 11.96%
MSCI EAFE & Candada Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,876 18.76% 18.76%
5 Year $ 15,527 55.27% 9.19%
10 Year $ 17,224 72.24% 5.58%
A chart in the form of a line graph appears here,
illustrating the following data points:
Yearly periods ended December 31
International Portfolio
Year Amount
- -----------------
'88 10000
'89 13779
'90 12724
'91 14181
'92 13744
'93 18941
'94 18780
'95 20868
'96 23952
'97* 26124
'98 30953
MSCI EAFE & Canada Index+
Year Amount
- -----------------
'88 10000
'89 11100
'90 8543
'91 9574
'92 8408
'93 11093
'94 11908
'95 13272
'96 14182
'97* 14503
'98 17224
* On May 8, 1997, existing shares
were designated as Class A shares.
- -------
CLASS B
- -------
International Portfolio
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,828 18.28% 18.28%
Life of
Fund** $ 12,103 21.03% 12.27%
MSCI EAFE & Canada Index
--------------------------------------
Total Return
Period ----------------
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------
1 Year $ 11,876 18.76% 18.76%
Life of
Fund** $ 11,503 15.03% 9.23%
Quarterly periods from May, 1997 to December, 1998
International Portfolio
Year Amount
- -----------------
5/97** 10000
6/97 10719
9/97 10858
12/97 10233
3/98 11652
6/98 12344
9/98 10518
12/98 12103
MSCI EAFE & Canada Index+
Year Amount
- -----------------
5/97** 10000
6/97 10534
9/97 10495
12/97 9686
3/98 11109
6/98 11196
9/98 9549
12/98 11503
** The Fund commenced selling Class
B shares on May 8, 1997. Index
comparisons began on May 31,
1997.
+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 during the 10 year period of Class A
were higher due to maintenance of the Portfolio's expenses.
18
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1998
DIVERSIFICATION
- ---------------
By Region
(Excluding 5% Cash Equivalents)
------------------------------------
Europe 78%
Japan 12%
Pacific Basin 8%
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.
The telecommunications, utilities, media,
and retail sectors proved to be fertile ground
for stocks with reasonable valuations and
strong cash flows.
By Sector
(Excluding 5% Cash Equivalents)
----------------------------------
Manufacturing 21%
Financial 16%
Communications 8%
Health 7%
Consumer Staples 7%
Technology 7%
Energy 6%
Service Industries 6%
Durables 5%
Other 17%
----
100%
====
A graph in the form of a pie chart appears here, illustrating the exact data
points in the above table.
TEN LARGEST EQUITY HOLDINGS (34% of Portfolio)
- -------------------------------------------------------------------------------
1.Deutsche Telekom AG Telecommunication services in Germany
2.Nokia Corp. Manufacturer of telecommunication systems and equipment in
Finland
3.Mannesmann AG Diversified construction and technology company in
Germany
4.Reuters Group PLC International news agency in the United Kingdom
5.Novartis AG Pharmaceutical company in Switzerland
6.Hoechst AG Chemical producer in Germany
7.Telecom Italia SpA Telecommunications, electronics and network construction
in Italy
8.Nestle SA Food manufacturer in Switzerland
9.Orange PLC Operator of digital mobile telephone network in the United
Kingdom
10.Suez Lyonnaise des Eaux SA Water utility in France
19
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER 61.6%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banque National de Paris, 5.18%, 1/5/1999* ..................................... 7,500,000 7,495,683
Barton Capital Corp., 5.25%, 2/19/1999* ........................................ 6,171,000 6,126,903
Baxter International Inc., 5.42%, 1/15/1999* ................................... 8,000,000 7,983,138
CSW Credit, Inc., 5.1%, 2/12/1999* ............................................. 5,000,000 4,970,250
Fairway Finance Corp., 5.36%, 3/25/1999* ....................................... 7,000,000 6,913,496
General Electric Capital Corp., 5.32%, 1/19/1999* .............................. 7,000,000 6,981,380
International Securitization Corp., 5.32%, 2/11/1999* .......................... 4,465,000 4,437,947
Moat Funding LLC, 5.33%, 1/13/1999* ............................................ 5,700,000 5,689,873
Morgan Stanley, Dean Witter Discover Co., 5.15%, 2/11/1999* .................... 7,000,000 6,958,943
Norwest Financial Inc., 5.25%, 3/1/1999* ....................................... 7,500,000 7,435,469
Pitney Bowes Credit Corp., 5.25%, 1/4/1999* .................................... 6,145,000 6,142,312
Societe Generale North America, 5.43%, 1/7/1999* ............................... 5,000,000 4,995,475
Sony Capital Corp., 5.33%, 1/12/1999* .......................................... 8,000,000 7,986,971
Windmill Funding Corp., 5.25%, 1/29/1999* ...................................... 6,500,000 6,473,458
-----------
Total Commercial Paper (Cost $90,591,298) ...................................... 90,591,298
-----------
SHORT-TERM NOTES 38.4%
- -------------------------------------------------------------------------------------------------------------------
American Honda Finance Corp., 5.604%, 5/26/1999** .............................. 5,000,000 4,999,801
Bankers Trust Co. 4.86%, 3/19/1999** ........................................... 4,000,000 3,999,669
Comerica Bank, 5.445%, 7/23/1999** ............................................. 7,500,000 7,496,725
Countrywide Home Loan, 5.598%, 10/15/1999** .................................... 8,000,000 8,000,000
Goldman Sachs & Co., 5.25%, 3/26/1999** ........................................ 5,000,000 5,000,000
Household Finance Corp., 5.189%, 3/9/1999** .................................... 5,000,000 5,000,000
Merrill Lynch & Co., 5.494%, 4/14/1999** ....................................... 5,000,000 5,000,000
NationsBank Corp., 4.83%, 7/21/1999** .......................................... 5,000,000 4,998,919
Sigma Finance Corp., 4.88%, 4/26/1999** ........................................ 5,000,000 5,000,000
Toronto-Dominion Bank, 5.414%, 8/13/1999** ..................................... 7,000,000 6,996,602
-----------
Total Short-Term Notes (Cost $56,491,716) ...................................... 56,491,716
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $147,083,014) (a) ................... 147,083,014
===========
- -------------------------------------------------------------------------------------------------------------------
</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 December 31, 1998.
(a) Cost for federal income tax purposes is $147,083,014.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investment securities (cost $147,083,014) ................................. $ 147,083,014
Cash ...................................................................... 4,312
Interest receivable ....................................................... 263,599
Receivable for Portfolio shares sold ...................................... 1,115,683
Other assets .............................................................. 696
----------------
Total assets .............................................................. 148,467,304
Liabilities
Payable for Portfolio shares redeemed ..................................... 257,031
Accrued management fee .................................................... 44,053
Other payables and accrued expenses ....................................... 13,791
----------------
Total liabilities ......................................................... 314,875
----------------
Net assets, at value ...................................................... $ 148,152,429
================
Net Assets
Net assets consist of:
Paid-in capital ........................................................... 148,152,429
----------------
Net assets, at value ...................................................... $ 148,152,429
================
Net asset value offering and redemption price per share
($148,152,429 / 148,152,429 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
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Investment Income
Interest .................................................. $ 7,380,286
Expenses:
Management fee ............................................ 486,458
Custodian fees ............................................ 11,734
Accounting fees ........................................... 32,018
Trustees' fees and expenses ............................... 18,720
Legal ..................................................... 2,550
Auditing .................................................. 11,996
Shareholder reports and other ............................. 17,330
-----------------
Expenses .................................................. 580,806
-----------------
Net investment income ..................................... 6,799,480
-----------------
Net increase in net assets resulting from operations ...... $ 6,799,480
=================
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 6,799,480 $ 5,351,284
Net realized gain (loss) from investment transactions ................... -- (1,835)
-------------- --------------
Net increase in net assets resulting from operations .................... 6,799,480 5,349,449
-------------- --------------
Distributions to shareholders from net investment income ................ (6,799,480) (5,351,284)
-------------- --------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ............................................... 376,936,553 258,430,588
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................................ 6,799,315 5,348,533
Cost of shares redeemed ................................................. (338,159,816) (258,986,535)
-------------- --------------
Net increase (decrease) in net assets from Portfolio share
transactions ......................................................... 45,576,052 4,792,586
-------------- --------------
Increase (decrease) in net assets ....................................... 45,576,052 4,790,751
Net assets at beginning of period ....................................... 102,576,377 97,785,626
-------------- --------------
Net assets at end of period ............................................. $ 148,152,429 $ 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>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ................................ .052 .051 .050 .055 .037
Less distributions from net investment income ........ (.052) (.051) (.050) (.055) (.037)
------- ------- ------- ------- -------
Net asset value, end of period ....................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return (%) ..................................... 5.29 5.25 5.09 5.65 3.72
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............... 148 103 98 80 90
Ratio of operating expenses to average daily net
assets (%) ......................................... .44 .46 .46 .50 .56
Ratio of net investment income to average daily net
assets (%) ......................................... 5.17 5.15 4.98 5.51 3.80
</TABLE>
24
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 0.3%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 12/31/98 at
4.85% to be repurchased at $297,160 on 1/4/1999, collateralized by a $290,000
U.S. Treasury Note, 5.50%, 2/28/2003 (Cost $297,000) ............................ 297,000 297,000
----------
COMMERCIAL PAPER 1.0%
- -------------------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.71%, 1/4/1999 (Cost $1,000,000) ................... 1,000,000 1,000,000
----------
U.S. TREASURIES 22.5%
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.875%,11/30/2001 .............................................. 500,000 516,875
U.S. Treasury Note, 5.625%,12/31/2002 .............................................. 3,250,000 3,358,160
U.S. Treasury Bond, 10.75%, 8/15/2005 .............................................. 7,250,000 9,669,688
U.S. Treasury Bond, 9.375%, 2/15/2006 .............................................. 2,500,000 3,186,725
U.S. Treasury Bond, 7.25%, 5/15/2016 ............................................... 4,000,000 4,845,640
U.S. Treasury Bond, 3.659%, 4/15/2028 .............................................. 2,000,000 1,987,858
----------
Total U.S. Treasuries (Cost $23,600,144) ........................................... 23,564,946
----------
GOVERNMENT NATIONAL MORTGAGE ASSOC. 1.8%
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 7.50%,7/15/2026 (a)
(Cost $1,847,945) ............................................................... 1,810,047 1,866,032
----------
U.S. GOVERNMENT AGENCY PASS-THRUS 3.4%
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8.0%, 4/1/2008 (a) ............................... 346,171 354,039
Federal National Mortgage Association, 8.0% with various maturities to
12/1/2012 (a) ................................................................... 3,165,222 3,256,386
----------
Total U.S. Government Agency Pass-Thrus (Cost $3,627,453) .......................... 3,610,425
----------
COLLATERALIZED MORTGAGE OBLIGATIONS 1.4%
- -------------------------------------------------------------------------------------------------------------------
Residential Asset Securitization Trust Series 1997-A6, 7.25%, 9/25/2012
(Cost $1,522,734) ............................................................... 1,500,000 1,516,875
----------
FOREIGN BONDS -- U.S. DOLLAR DENOMINATED 2.4%
- -------------------------------------------------------------------------------------------------------------------
Hutchison Whampoa, Ltd., 7.5%, 8/1/2027 ............................................ 1,000,000 808,950
Norsk Hydro AS, 7.75%, 6/15/2023 ................................................... 1,500,000 1,655,610
----------
Total Foreign Bonds -- U.S. Dollar Denominated (Cost $2,604,070) ................... 2,464,560
----------
ASSET BACKED 5.7%
- -------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.0%
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 .... 1,000,000 1,009,680
----------
Credit Card Receivables 1.4%
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 .................................... 1,500,000 1,524,609
----------
Equipment Lease Receivables 1.7%
PBG Equipment Trust Series 1A, 6.27%, 1/20/2012 .................................... 1,747,477 1,762,558
----------
Home Equity Loans 0.1%
United Companies Financial Corp., Home Equity Loan Series 1993-B1, 6.075%,
7/25/2014 ....................................................................... 127,450 128,326
----------
Manufactured Housing Receivables 1.5%
Green Tree Financial Corp. Series 1997-1 B2, 7.76%, 3/15/2028 ...................... 650,000 564,992
Green Tree Financial Corp., Series 1997-2 B1, 7.56%, 6/15/2028 ..................... 1,000,000 967,695
----------
1,532,687
----------
Total Asset Backed (Cost $6,028,169) ............................................... 5,957,860
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS 61.5%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.0%
Tricon Global Restaurants, 7.65%, 5/15/2008 .................................... 1,000,000 1,040,000
----------
Consumer Staples 6.9%
Bass America Inc., 6.625%, 3/1/2003 ............................................ 1,000,000 1,008,630
J. Seagram & Sons Inc., 6.625%, 12/15/2005 ..................................... 2,000,000 1,991,600
J. Seagram & Sons Inc., 9%, 8/15/2021 .......................................... 1,000,000 1,144,940
Kellogg Co., 5.75%, 2/2/2001 ................................................... 1,000,000 1,010,000
Safeway Inc., 6.05%, 11/15/2003 ................................................ 1,000,000 1,006,860
Westpoint Stevens, Inc., 7.875%, 6/15/2005 ..................................... 1,000,000 1,015,000
----------
7,177,030
----------
Communications 6.9%
MCI Communications Corp., 6.125%, 4/15/2002 .................................... 1,000,000 1,015,220
Qwest Communications International, 7.5%, 11/1/2008 ............................ 2,000,000 2,080,000
Sprint Corp., 5.7%, 11/15/2003 ................................................. 2,000,000 2,007,140
Worldcom, Inc., 6.4%, 8/15/2005 ................................................ 2,000,000 2,078,640
----------
7,181,000
----------
Financial 14.0%
Associates Corp. of North America, 6.625%, 5/15/2001 ........................... 2,000,000 2,052,920
BankAmerica Corp., 7.125%, 5/1/2006 ............................................ 1,000,000 1,080,680
First USA Bank, 5.85%, 2/22/2001 ............................................... 1,500,000 1,513,905
First Union Institutional Capital II, 7.85%, 1/1/2027 .......................... 1,750,000 1,910,388
Ford Motor Credit Co., 6.125%, 4/28/2003 ....................................... 1,500,000 1,535,400
GS Escrow Corp., 7.125%, 8/1/2005 .............................................. 1,000,000 984,300
General Electric Capital Corp., 6.02%, 5/4/2001 ................................ 1,500,000 1,510,800
Home Savings of America, 6%, 11/1/2000 ......................................... 1,250,000 1,257,788
ICI Investments, 6.75%, 8/7/2002 ............................................... 1,500,000 1,511,250
Prudential Insurance Co., 6.375%, 7/23/2006 .................................... 1,250,000 1,271,875
----------
14,629,306
----------
Media 9.2%
Cablevision Systems Corp., 7.875%, 2/15/2018 ................................... 1,000,000 1,018,030
Chancellor Media 144A, 8%, 11/1/2008 ........................................... 1,000,000 1,020,000
Cox Communications, Inc., 6.85%, 1/15/2018 ..................................... 1,000,000 1,055,000
News America, Inc., 7.25%, 5/18/2018 ........................................... 1,000,000 1,021,680
Outdoor Systems, Inc., 8.875%, 6/15/2007 ....................................... 1,000,000 1,065,000
TCA Cable TV, Inc., 6.53%, 2/1/2028 ............................................ 1,000,000 1,018,320
TCI-Communications, Inc., 8%, 8/1/2005 ......................................... 1,250,000 1,407,238
Time Warner Inc., 9.125%, 1/15/2013 ............................................ 1,000,000 1,265,960
Time Warner Inc., 6.875%, 6/15/2018 ............................................ 750,000 785,670
----------
9,656,898
----------
Service Industries 0.5%
Allied Waste North America, 7.375%, 1/1/2004 ................................... 500,000 502,500
----------
Durables 2.8%
BE Aerospace, Inc., 8%, 3/1/2008 ............................................... 850,000 833,000
Martin Marietta Corp., 6.5%, 4/15/2003 ......................................... 1,000,000 1,026,700
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ........... 1,000,000 1,043,370
----------
2,903,070
----------
Manufacturing 2.6%
Argo-Tech Corp., 8.625%, 10/1/2007 ............................................. 500,000 472,500
</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>
Fort James Corp., 6.625%, 9/15/2004 ............................................ 1,500,000 1,527,630
Graham Packaging Co., 8.75%, 1/15/2008 ......................................... 750,000 753,750
-----------
2,753,880
-----------
Technology 2.9%
Loral Corp., 8.375%, 6/15/2024 ................................................. 1,250,000 1,517,288
Xerox Corp, 5.5%, 11/15/2003 ................................................... 1,500,000 1,509,408
-----------
3,026,696
-----------
Energy 6.5%
Anadarko Petroleum Corp., 7%, 11/15/2027 ....................................... 2,000,000 1,929,780
Barrett Resources Corp., 7.55%, 2/1/2007 ....................................... 750,000 708,750
Chesapeake Energy Corp., 8.5%, 3/15/2012 ....................................... 1,000,000 674,000
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ............................. 1,250,000 1,315,763
Pioneer Natural Resources Co., 7.2%, 1/15/2028 ................................. 1,500,000 1,042,500
Texas Eastern Transmission Corp., 10%, 8/15/2001 ............................... 1,000,000 1,106,260
-----------
6,777,053
-----------
Construction 0.5%
Nortek, Inc., 9.125%, 9/1/2007 ................................................. 500,000 513,750
-----------
Transportation 2.8%
Allied Holdings Inc., 8.625%, 10/1/2007 ........................................ 700,000 710,500
Atlantic Express, Inc., 10.75%, 2/1/2004 ....................................... 675,000 681,750
Continental Airlines Inc., Series 1997-1A, 7.461%, 4/1/2015 .................... 987,173 1,034,457
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ............................... 500,000 528,125
-----------
2,954,832
-----------
Utilities 4.9%
Houston Light & Power Capital Corp., 8.257%, 2/1/2037 .......................... 500,000 540,000
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ................................... 2,500,000 2,540,625
PacifiCorp, 6.15%, 1/15/2008 ................................................... 1,000,000 1,019,400
Public Service Co. of Colorado, 6%, 4/15/2003 .................................. 1,000,000 1,012,590
-----------
5,112,615
-----------
Total Corporate Bonds (Cost $63,327,839) ....................................... 64,228,630
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $103,855,354) (b) ................... 104,506,328
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective maturities will be shorter due to prepayments.
(b) At December 31, 1998, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $103,864,104 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an
excess of market value over tax cost .................... $ 2,296,886
Aggregate gross unrealized depreciation for all
investments in which there is an
excess of tax cost over market value .................... 1,654,662
------------
Net unrealized appreciation ............................... $ 642,224
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the year ended
December 31, 1998, aggregated $71,902,008 and $35,801,276, respectively.
Purchases and sales of direct U.S. Government obligations for the year
ended December 31, 1998 aggregated $65,565,070 and $63,911,562,
respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
year ended December 31, 1998 was $235,167,718.
- --------------------------------------------------------------------------------
From November 1 through December 31, 1998, the Bond Portfolio incurred
approximately $170,000 of net realized capital losses. As permitted by tax
regulations, the portfolio intends to elect to defer these losses and
treat them as arising in the fiscal year ended December 31, 1999.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $103,855,354) ...................... $ 104,506,328
Interest receivable ........................................................ 1,758,624
Receivable for Portfolio shares sold ....................................... 286,427
Other assets ............................................................... 653
-----------------
Total assets ............................................................... 106,552,032
Liabilities
Payable for Portfolio shares redeemed ...................................... 71,838
Accrued management fee ..................................................... 42,062
Other payables and accrued expenses ........................................ 13,541
-----------------
Total liabilities .......................................................... 127,441
-----------------
Net assets, at market value ................................................ $ 106,424,591
=================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................................. 1,781,274
Net unrealized appreciation (depreciation) on investments .................. 650,974
Accumulated net realized gain (loss) ....................................... 1,400,014
Paid-in capital ............................................................ 102,592,329
-----------------
Net assets, at market value ................................................ $ 106,424,591
=================
Net asset value offering and redemption price per share
($106,424,591 B 15,463,236 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .......... $6.88
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BOND PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Interest .................................................................... $ 6,399,646
Expenses:
Management fee .............................................................. 439,858
Custodian fees .............................................................. 3,451
Accounting fees ............................................................. 45,089
Trustees' fees and expenses ................................................. 18,720
Auditing .................................................................... 11,537
Legal ....................................................................... 1,782
Shareholder reports and other ............................................... 6,360
----------------
526,797
----------------
Net investment income ....................................................... 5,872,849
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................. 1,593,347
Futures ..................................................................... (43,989)
Foreign currency related transactions ....................................... (8)
----------------
1,549,350
----------------
Net unrealized appreciation (depreciation) during the period on
investments .............................................................. (1,599,146)
----------------
Net gain (loss) on investment transactions .................................. (49,796)
----------------
Net increase (decrease) in net assets resulting from operations ............. $ 5,823,053
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 5,872,849 $ 4,441,580
Net realized gain (loss) from investment transactions ............ 1,549,350 194,189
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................ (1,599,146) 1,334,379
-------------- --------------
Net increase (decrease) in net assets resulting from operations .. 5,823,053 5,970,148
-------------- --------------
Distributions to shareholders from:
Net investment income ............................................ (5,348,241) (4,208,036)
-------------- --------------
Net realized gains from investment transactions .................. (295,455) (189,814)
-------------- --------------
Portfolio share transactions:
Proceeds from shares sold ........................................ 51,946,542 27,517,062
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 5,643,696 4,397,850
Cost of shares redeemed .......................................... (32,732,036) (17,869,599)
-------------- --------------
Net increase (decrease) in net assets from Portfolio share
transactions .................................................. 24,858,202 14,045,313
-------------- --------------
Increase (decrease) in net assets ................................ 25,037,559 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 $1,781,274 and $1,252,060,
respectively) ................................................. $106,424,591 $ 81,387,032
============ ==============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ........................ 11,852,430 9,775,320
-------------- --------------
Shares sold ...................................................... 7,558,444 4,073,136
Shares issued to shareholders in reinvestment of distributions ... 831,464 661,744
Shares redeemed .................................................. (4,779,102) (2,657,770)
-------------- --------------
Net increase (decrease) in Portfolio shares ...................... 3,610,806 2,077,110
-------------- --------------
Shares outstanding at end of period .............................. 15,463,236 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>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 6.87 $ 6.73 $ 7.16 $ 6.48 $ 7.42
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .................................... .43 .44 .41 .44 .43
Net realized and unrealized gain (loss) on investment
transactions ........................................... .01 .15 (.22) .69 (.77)
------- ------- ------- ------- -------
Total from investment operations ......................... .44 .59 .19 1.13 (.34)
------- ------- ------- ------- -------
Less distributions from:
Net investment income .................................... (.40) (.43) (.62) (.45) (.43)
Net realized gains on investment transactions ............ (.03) (.02) -- -- (.17)
------- ------- ------- ------- -------
Total distributions ...................................... (.43) (.45) (.62) (.45) (.60)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $ 6.88 $ 6.87 $ 6.73 $ 7.16 $ 6.48
======= ======= ======= ======= =======
Total Return (%) ......................................... 6.57 9.10 2.82 18.17 (4.79)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 106 81 66 73 142
Ratio of operating expenses to average daily net
assets (%) ............................................. .57 .62 .61 .56 .58
Ratio of net investment income to average daily net
assets (%) ............................................. 6.34 6.55 6.20 6.29 6.43
Portfolio turnover rate (%) .............................. 115.14 56.07 85.11 177.21 96.55
</TABLE>
(a) Based on monthly average shares outstanding during the period.
31
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 2.8%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5.0%
to be repurchased at $4,424,457 on 1/4/1999, collateralized by a $4,279,000
U.S. Treasury Note, 6.875%, 3/31/2000 (Cost $4,422,000) ...................... 4,422,000 4,422,000
-----------
COMMERCIAL PAPER 0.6%
- -------------------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.71%, 1/4/1999 (Cost $1,000,000) ................ 1,000,000 1,000,000
-----------
U.S. GOVERNMENT & AGENCIES 8.2%
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.875%, 11/30/2001 .......................................... 1,000,000 1,033,750
U.S. Treasury Bond, 10.75%, 8/15/2005 ........................................... 3,750,000 5,001,554
U.S. Treasury Bond, 9.38%, 2/15/2006 ............................................ 750,000 956,018
U.S. Treasury Bond, 7.25%, 5/15/2016 ............................................ 4,000,000 4,845,640
U.S. Treasury Bond, 3.659%, 4/15/2028 ........................................... 1,250,000 1,242,411
-----------
Total U.S. Government & Agencies (Cost $13,089,546) ............................. 13,079,373
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.3%
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 8.75% with various
maturities to 12/15/2024 (a) (Cost $492,655) ................................. 519,061 547,770
-----------
U.S. GOVERNMENT AGENCY PASS-THRUS 4.0%
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.75% with various maturities to
7/15/2003 (a) ................................................................ 2,500,000 2,564,450
Federal Home Loan Mortgage Corp., 8.0% with various maturities to 4/1/2008 (a) .. 576,951 590,065
Federal National Mortgage Association, 8.0% with various maturities to
2/1/2013 (a) ................................................................. 1,071,242 1,102,888
Federal National Mortgage Association, 6.5% with various maturities to
2/1/2026 (a) ................................................................. 2,079,115 2,093,399
-----------
Total U.S. Government Agency Pass-thrus (Cost $6,265,503) ....................... 6,350,802
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 0.6%
- -------------------------------------------------------------------------------------------------------------------
General Electric Capital Mortgage Services, Inc., Series 1992-2F, 7%,
6/25/2007 .................................................................... 119,914 120,664
Prudential Home Mortgage Securities Co., Series 1993-43-A1, 5.4%, 10/25/2023 .... 353,195 351,097
Residential Asset Securitization Trust, Series 1997-A6, 7.25%, 9/25/2012 ........ 500,000 505,625
-----------
Total Collateralized Mortgage Obligations (Cost $977,153) 977,386
-----------
FOREIGN BONDS -- U.S. DOLLAR DENOMINATED 0.8%
- -------------------------------------------------------------------------------------------------------------------
Norsk Hydro AS, 7.75%, 6/15/2023 ................................................ 1,000,000 1,103,740
Seagram Co., Ltd., 6.875%, 9/1/2023 ............................................. 250,000 232,735
-----------
Total Foreign Bonds -- U.S. Dollar Denominated (Cost $1,288,538) ................ 1,336,475
-----------
ASSET BACKED 2.3%
- -------------------------------------------------------------------------------------------------------------------
Automobile Receivables 0.1%
Premier Auto Trust Asset Backed Certificate Series 1996-A3, 6.5%, 3/6/2000 ...... 139,814 140,119
-----------
Credit Card Receivables 1.0%
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ................................. 1,000,000 1,016,406
Proffitt's, Inc. Credit Card Master Trust, 6%, 9/15/2004 ........................ 500,000 508,688
Sears Credit Account Master Trust, Series 1995-A4, 6.25%, 1/15/2003 ............. 141,667 141,711
-----------
1,666,805
-----------
Equipment Lease Receivables 0.6%
PBG Equipment Trust, Series 1A, 6.27%, 1/20/2012 ................................ 873,739 881,279
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Equity Loans 0.6%
First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/2016 ..................... 1,000,000 990,000
United Companies Financial Corp., Home Equity Loan, Series 1993-B1, 6.075%,
7/25/2014 ................................................................... 31,863 32,082
-----------
1,022,082
-----------
Total Asset Backed (Cost $3,683,965) ........................................... 3,710,285
-----------
CORPORATE BONDS 20.2%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.3%
Tricon Global Restaurants, 7.65%, 5/15/2008 .................................... 500,000 520,000
-----------
Consumer Staples 1.9%
Bass America Inc., 6.625%, 3/1/2003 ............................................ 750,000 756,473
J. Seagram & Sons Inc., 6.625%, 12/15/2005 ..................................... 500,000 497,900
J. Seagram & Sons Inc., 7%, 4/15/2008 .......................................... 270,000 272,714
Kellogg Co., 5.75%, 2/2/2001 ................................................... 1,000,000 1,010,000
Westpoint Stevens, Inc., 7.875%, 6/15/2005 ..................................... 500,000 507,500
-----------
3,044,587
-----------
Communications 0.8%
Lucent Technologies Inc., 6.9%, 7/15/2001 ...................................... 750,000 781,755
Worldcom, Inc., 6.4%, 8/15/2005 ................................................ 500,000 519,660
-----------
1,301,415
-----------
Financial 5.5%
Associates Corp. of North America, 6.625%, 5/15/2001 ........................... 750,000 769,845
First USA Bank, 5.85%, 2/22/2001 ............................................... 1,000,000 1,009,270
First Union Corp., 8.125%, 6/24/2002 ........................................... 500,000 541,975
Fleet Financial Group, 6.875%, 1/15/2028 ....................................... 1,000,000 1,054,070
Ford Motor Credit Co., 6.125%, 4/28/2003 ....................................... 750,000 767,700
General Electric Capital Corp., 6.02%, 5/4/2001 ................................ 500,000 503,600
Home Savings of America, 6%, 11/1/2000 ......................................... 750,000 754,673
ICI Investments, 6.75%, 8/7/2002 ............................................... 500,000 503,750
Lehman Brothers Holding Corp., Medium Term Note, 6.33%, 8/1/2000 ............... 500,000 503,415
Prudential Insurance Co., 6.375%, 7/23/2006 .................................... 750,000 763,125
Southern National Corp., 7.05%, 5/23/2003 ...................................... 1,000,000 1,044,400
Wells Fargo & Co., 6.875%, 4/1/2006 ............................................ 500,000 532,045
-----------
8,747,868
-----------
Media 3.2%
Cablevision Systems Corp., 7.875%, 2/15/2018 ................................... 500,000 509,015
Cox Communications, Inc., 6.85%, 1/15/2018 ..................................... 750,000 791,250
News America, Inc., 7.25%, 5/18/2018 ........................................... 500,000 510,840
PRIMEDIA, Inc., 7.625%, 4/1/2008 ............................................... 500,000 500,625
TCA Cable TV, Inc., 6.53%, 2/1/2028 ............................................ 500,000 509,160
TCI-Communications, Inc., 8%, 8/1/2005 ......................................... 500,000 562,895
Time Warner Inc., 9.125%, 1/15/2013 ............................................ 1,000,000 1,265,960
Time Warner Inc., 6.875%, 6/15/2018 ............................................ 500,000 523,780
-----------
5,173,525
-----------
Durables 0.6%
Martin Marietta Corp., 6.5%, 4/15/2003 ......................................... 400,000 410,680
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 ........... 500,000 521,685
-----------
932,365
-----------
Manufacturing 0.5%
Corning Inc., 8.75%, 7/15/1999 ................................................. 250,000 254,415
Fort James Corp., 6.625%, 9/15/2004 ............................................ 500,000 509,210
-----------
763,625
-----------
</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>
Technology 1.2%
IBM Corp., 5.1%, 11/10/2003 .................................................... 1,000,000 990,600
Loral Corp., 8.375%, 6/15/2024 ................................................. 750,000 910,373
-----------
1,900,973
-----------
Energy 2.6%
Anadarko Petroleum Corp., 5.875%, 10/15/2003 ................................... 1,000,000 989,350
Atlantic Richfield Co., 8.25%, 2/1/2022 ........................................ 500,000 613,940
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 ............................. 1,000,000 1,052,610
Petroleum Geo-Services, 6.625%, 3/30/2008 ...................................... 1,000,000 976,210
Transocean Offshore, Inc., 8%, 4/15/2027 ....................................... 400,000 433,636
-----------
4,065,746
-----------
Transportation 1.2%
Continental Airlines Inc., Series 1997-1A, 7.461%, 4/1/2015 .................... 987,173 1,034,459
Newport News Shipbuilding Co., 8.625%, 12/1/2006 ............................... 375,000 396,094
Northwest Airlines Corp., 7.875%, 3/15/2008 .................................... 500,000 466,710
-----------
1,897,263
-----------
Utilities 2.4%
Commonwealth Edison Co., 9.05%, 10/15/1999 ..................................... 250,000 256,808
Niagara Mohawk Power Corp., 7.375%, 7/1/2003 ................................... 1,500,000 1,524,375
PacifiCorp, 6.15%, 1/15/2008 ................................................... 1,500,000 1,529,100
Public Service Co. of Colorado, 6%, 4/15/2003 .................................. 500,000 506,295
-----------
3,816,578
-----------
Total Corporate Bonds (Cost $31,331,137) ....................................... 32,163,945
-----------
COMMON STOCKS 60.2%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 8.2%
Department & Chain Stores 7.5%
Consolidated Stores Corp.* ..................................................... 54,800 1,106,275
Costco Companies, Inc.* ........................................................ 18,400 1,328,250
Dayton Hudson Corp. ............................................................ 35,100 1,904,175
Home Depot, Inc. ............................................................... 57,100 3,493,806
Rite Aid Corp. ................................................................. 34,000 1,685,125
Wal-Mart Stores Inc. ........................................................... 28,900 2,353,544
-----------
11,871,175
-----------
Hotels & Casinos 0.7%
Royal Caribbean Cruises Ltd. ................................................... 29,400 1,087,800
-----------
Consumer Staples 8.4%
Alcohol & Tobacco 1.5%
Philip Morris Companies, Inc. .................................................. 46,000 2,461,000
-----------
Food & Beverage 3.4%
Coca-Cola Co., Inc. ............................................................ 31,800 2,126,625
H.J. Heinz Co. ................................................................. 32,500 1,840,313
Kroger Co.* .................................................................... 23,100 1,397,550
-----------
5,364,488
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Package Goods/Cosmetics 3.5%
Colgate-Palmolive Co. .......................................................... 20,600 1,913,225
Estee Lauder Companies "A" ..................................................... 20,000 1,710,000
Procter & Gamble Co. ........................................................... 20,800 1,899,300
-----------
5,522,525
-----------
Health 11.5%
Health Industry Services 0.7%
Total Renal Care Holdings, Inc.* ............................................... 38,400 1,135,200
-----------
Medical Supply & Specialty 2.3%
Arterial Vascular Engineering, Inc.* ........................................... 24,600 1,291,500
Medtronic Inc. ................................................................. 32,400 2,405,700
-----------
3,697,200
-----------
Pharmaceuticals 8.5%
Bristol-Myers Squibb Co. ....................................................... 15,700 2,100,856
Eli Lilly & Co. ................................................................ 19,916 1,770,035
Johnson & Johnson .............................................................. 11,700 981,338
Merck & Co., Inc. .............................................................. 15,800 2,333,463
Pfizer, Inc. ................................................................... 28,600 3,587,513
Schering-Plough Corp. .......................................................... 20,300 1,121,575
Warner-Lambert Co. ............................................................. 20,900 1,571,419
-----------
13,466,199
-----------
Communications 1.1%
Telephone/Communications
MCI WorldCom, Inc. ............................................................. 24,300 1,743,525
-----------
Financial 3.8%
Banks 0.6%
First Union Corp. .............................................................. 14,200 863,538
-----------
Insurance 3.2%
Allstate Corp. ................................................................. 26,600 1,027,425
American International Group, Inc. ............................................. 20,112 1,943,343
MBIA, Inc. ..................................................................... 13,300 871,981
UNUM Corp. ..................................................................... 22,700 1,325,113
-----------
5,167,862
-----------
Media 5.5%
Advertising 2.3%
Omnicom Group, Inc. ............................................................ 26,000 1,508,000
Outdoor Systems, Inc.* ......................................................... 71,725 2,151,750
-----------
3,659,750
-----------
Broadcasting & Entertainment 3.2%
Clear Channel Communications, Inc. * ........................................... 45,300 2,468,850
Infinity Broadcasting Corp.* ................................................... 34,000 930,750
Univision Communication Inc.* .................................................. 48,800 1,765,950
-----------
5,165,550
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 1.2%
Miscellaneous Commercial Services 0.5%
Modis Professional Services, Inc.* ............................................. 54,900 796,050
-----------
Miscellaneous Consumer Services 0.7%
Service Corp. International .................................................... 27,500 1,046,719
-----------
Durables 2.7%
Telecommunications Equipment
Ascend Communications, Inc.* ................................................... 17,500 1,150,625
Lucent Technologies Inc. ....................................................... 29,000 3,190,000
-----------
4,340,625
-----------
Manufacturing 4.1%
Chemicals 0.6%
Monsanto Co. ................................................................... 19,000 902,500
-----------
Diversified Manufacturing 3.5%
General Electric Co. ........................................................... 38,100 3,888,581
Textron, Inc. .................................................................. 23,200 1,761,750
Tyco International Ltd. (New) .................................................. 15 1,132
-----------
5,651,463
-----------
Technology 13.7%
Computer Software 5.2%
America Online Inc. ............................................................ 11,700 1,693,575
Computer Associates International, Inc. ........................................ 21,925 934,553
Microsoft Corp.* ............................................................... 35,500 4,923,406
PeopleSoft Inc.* ............................................................... 34,200 647,663
-----------
8,199,197
-----------
Diverse Electronic Products 1.2%
Dell Computer Corp.* ........................................................... 27,100 1,983,381
-----------
EDP Peripherals 0.8%
EMC Corp.* ..................................................................... 14,800 1,258,000
-----------
Electronic Data Processing 0.9%
Sun Microsystems, Inc.* ........................................................ 17,000 1,455,625
-----------
Office/Plant Automation 2.1%
Cisco Systems, Inc.* ........................................................... 36,750 3,410,859
-----------
Semiconductors 3.5%
Intel Corp. .................................................................... 35,500 4,208,969
Linear Technology Corp. ........................................................ 14,700 1,316,569
-----------
5,525,538
-----------
Total Common Stocks (Cost $61,011,044) ......................................... 95,775,769
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $123,561,541) (b) ................... 159,363,805
===========
- -------------------------------------------------------------------------------------------------------------------
</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.
(b) At December 31, 1998, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $123,563,209 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost ................................... $ 37,587,297
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over market value ................................ 1,786,701
------------
Net unrealized appreciation .............................. $ 35,800,596
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and direct U.S. Government obligations), for the year ended
December 31, 1998, aggregated $87,802,037 and $67,210,395, respectively.
Purchases and sales of direct U.S. Government obligations for the year
ended December 31, 1998, aggregated $26,364,622 and $27,422,008,
respectively.
The aggregate face value of futures contracts opened and closed for the
year ended December, 1998 was $157,950,825.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $123,561,541) ....................... $ 159,363,805
Receivable for investments sold ............................................. 1,028,375
Dividends and interest receivable ........................................... 1,048,993
Receivable for Portfolio shares sold ........................................ 365,028
Other assets ................................................................ 732
----------------
Total assets ................................................................ 161,806,933
Liabilities
Due to custodian bank ....................................................... 48,892
Payable for Portfolio shares redeemed ....................................... 50,127
Accrued management fee ...................................................... 61,059
Other payables and accrued expenses ......................................... 14,906
----------------
Total liabilities ........................................................... 174,984
----------------
Net assets, at market value ................................................. $ 161,631,949
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) .................................. 1,005,263
Net unrealized appreciation (depreciation) on investments ................... 35,802,264
Accumulated net realized gain ............................................... 12,798,487
Paid-in capital ............................................................. 112,025,935
----------------
Net assets, at market value ................................................. $ 161,631,949
================
Net asset value, offering and redemption price per share
($161,631,949 B 10,629,925 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ........... $15.21
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
BALANCED PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Dividends (net of foreign taxes withheld of $2,492) .......................... $ 703,676
Interest ..................................................................... 3,762,804
----------------
4,466,480
Expenses:
Management fee ............................................................... 648,870
Custodian fees ............................................................... 14,520
Accounting fees .............................................................. 60,893
Trustees' fees and expenses .................................................. 17,180
Auditing ..................................................................... 12,596
Legal ........................................................................ 2,751
Shareholder reports and other ................................................ 3,457
----------------
760,267
----------------
Net investment income ........................................................ 3,706,213
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments .................................................................. 12,908,331
Futures ...................................................................... (25,577)
Foreign currency related transactions ........................................ (6)
----------------
12,882,748
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................................. 12,183,259
Foreign currency related transactions ........................................ 9
----------------
12,183,268
----------------
Net gain (loss) on investment transactions ................................... 25,066,016
----------------
Net increase (decrease) in net assets resulting from operations .............. $ 28,772,229
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
BALANCED PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 3,706,213 $ 2,817,310
Net realized gain (loss) from investment transactions .......... 12,882,748 6,087,508
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. 12,183,268 13,062,144
-------------- --------------
Net increase in net assets resulting from operations ........... 28,772,229 21,966,962
-------------- --------------
Distributions to shareholders from:
Net investment income .......................................... (3,532,592) (2,678,045)
-------------- --------------
Net realized gains from investment transactions ................ (6,021,605) (4,951,322)
-------------- --------------
Portfolio share transactions:
Proceeds from shares sold ...................................... 36,814,365 24,546,671
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 9,554,198 7,629,367
Cost of shares redeemed ........................................ (22,327,861) (16,483,255)
-------------- --------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................ 24,040,702 15,692,783
-------------- --------------
Increase (decrease) in net assets .............................. 43,258,734 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 $1,005,263 and $811,442,
respectively) ............................................... $ 161,631,949 $ 118,373,215
============== ==============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ...................... 8,902,042 7,608,722
-------------- --------------
Shares sold .................................................... 2,658,358 2,001,001
Shares issued to shareholders in reinvestment of
distributions ............................................... 711,195 651,149
Shares redeemed ................................................ (1,641,670) (1,358,830)
-------------- --------------
Net increase (decrease) in Portfolio shares .................... 1,727,883 1,293,320
-------------- --------------
Shares outstanding at end of period ............................ 10,629,925 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>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 13.30 $ 11.61 $ 10.95 $ 8.97 $ 10.23
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................................... .37 .34 .31 .30 .29
Net realized and unrealized gain (loss) on investment
transactions .............................................. 2.56 2.32 .95 2.04 (.48)
------- ------- ------- ------- -------
Total from investment operations ............................ 2.93 2.66 1.26 2.34 (.19)
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................................... (.36) (.33) (.30) (.30) (.30)
Net realized gains on investment transactions ............... (.66) (.64) (.30) (.06) (.77)
------- ------- ------- ------- -------
Total distributions ......................................... (1.02) (.97) (.60) (.36) (1.07)
------- ------- ------- ------- -------
Net asset value, end of period .............................. $ 15.21 $ 13.30 $ 11.61 $ 10.95 $ 8.97
======= ======= ======= ======= =======
Total Return (%) ............................................ 23.19 24.21 11.89 26.67 (2.05)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...................... 162 118 88 68 46
Ratio of operating expenses to average daily net
assets (%) ................................................ .56 .57 .60 .65 .75
Ratio of net investment income to average daily net
assets (%) ................................................ 2.71 2.73 2.82 3.01 3.19
Portfolio turnover rate (%) ................................. 74.08 43.10 67.56 87.98 101.64
</TABLE>
(a) Based on monthly average shares outstanding during the period.
41
<PAGE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 3.2%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5.0%
to be repurchased at $6,354,528 on 1/4/1999, collateralized by a $6,301,000
U.S. Treasury Bill, 5.875%, 6/30/2000 (Cost $6,351,000) ..................... 6,351,000 6,351,000
-----------
CONVERTIBLE PREFERRED STOCKS 0.6%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health
Biotechnology
Monsanto Co., 6.5%, Adjustable Conversion Rate Equity* (Cost $1,049,852) ....... 25,700 1,259,300
-----------
COMMON STOCKS 96.2%
- -------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 1.8%
Department & Chain Stores 1.7%
May Department Stores .......................................................... 30,900 1,865,588
Sears, Roebuck & Co. ........................................................... 38,400 1,632,000
-----------
3,497,588
-----------
Hotels & Casinos 0.1%
Homestead Village, Inc.* ....................................................... 3,562 16,029
-----------
Consumer Staples 6.8%
Alcohol & Tobacco 2.1%
Philip Morris Companies, Inc. .................................................. 63,900 3,418,650
RJR Nabisco Holdings Corp. ..................................................... 24,780 735,656
-----------
4,154,306
-----------
Food & Beverage 3.1%
H.J. Heinz Co. ................................................................. 76,800 4,348,800
Unilever NV (New York shares) .................................................. 21,800 1,808,038
-----------
6,156,838
-----------
Package Goods/Cosmetics 1.6%
Avon Products Inc. ............................................................. 73,400 3,247,950
-----------
Health 6.7%
Pharmaceuticals
American Home Products Corp. ................................................... 99,500 5,603,094
Bristol-Myers Squibb Co. ....................................................... 34,000 4,549,625
SmithKline Beecham PLC (ADR) ................................................... 30,200 2,098,900
Zeneca Group PLC (ADR) ......................................................... 21,700 973,788
-----------
13,225,407
-----------
Communications 12.0%
Telephone/Communications
Alltel Corp. ................................................................... 51,100 3,056,419
Bell Atlantic Corp. ............................................................ 93,250 5,297,766
BellSouth Corp. ................................................................ 77,000 3,840,375
Frontier Corp. ................................................................. 64,300 2,186,200
GTE Corp. ...................................................................... 59,400 4,005,788
</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>
Sprint Corp. ................................................................... 46,600 3,920,225
Telesp Participacoes S.A. (ADR)* ............................................... 67,400 1,491,225
-----------
23,797,998
-----------
Financial 19.2%
Banks 8.9%
Bank One Corp. ................................................................. 36,900 1,884,206
BankAmerica Corp. (New) ........................................................ 55,400 3,330,925
Bankers Trust New York Corp. ................................................... 13,100 1,119,231
Chase Manhattan Corp. .......................................................... 41,300 2,810,981
First Union Corp. .............................................................. 61,008 3,710,049
Fleet Financial Group Inc. ..................................................... 34,800 1,555,125
KeyCorp ........................................................................ 55,100 1,763,200
US Bancorp ..................................................................... 41,600 1,476,800
-----------
17,650,517
-----------
Insurance 3.8%
EXEL Ltd. ...................................................................... 68,742 5,155,650
Lincoln National Corp. ......................................................... 13,900 1,137,194
Safeco Corp. ................................................................... 27,500 1,180,781
-----------
7,473,625
-----------
Other Financial Companies 1.5%
Federal National Mortgage Association .......................................... 39,100 2,893,400
-----------
Real Estate 5.0%
Archstone Communities Trust (REIT) ............................................. 91,887 1,860,712
Arden Realty Group, Inc. ....................................................... 31,800 737,363
Boston Properties, Inc. (REIT) ................................................. 38,300 1,168,150
Equity Office Properties Trust (REIT) .......................................... 54,400 1,305,600
Equity Residential Properties Trust (REIT) ..................................... 23,400 946,238
General Growth Properties, Inc. (REIT) ......................................... 10,200 386,325
Health Care Property Investment Inc. (REIT) .................................... 27,100 833,325
Nationwide Health Properties Inc. (REIT) ....................................... 50,900 1,097,531
ProLogis Trust (REIT) .......................................................... 80,944 1,679,588
-----------
10,014,832
-----------
Service Industries 0.2%
Environmental Services
Browning Ferris Industries ..................................................... 16,700 474,906
-----------
Durables 8.7%
Aerospace 3.6%
Lockheed Martin Corp. .......................................................... 33,388 2,829,633
Northrop Grumman Corp. ......................................................... 27,600 2,018,250
Rockwell International Corp. (New) ............................................. 48,200 2,340,713
-----------
7,188,596
-----------
Automobiles 3.3%
Dana Corp. ..................................................................... 49,120 2,007,780
Ford Motor Co. ................................................................. 58,300 3,421,481
Meritor Automotive, Inc. ....................................................... 49,033 1,038,887
-----------
6,468,148
-----------
Construction/Agricultural Equipment 1.2%
Caterpillar Inc. ............................................................... 23,300 1,071,800
PACCAR, Inc. ................................................................... 30,700 1,262,538
-----------
2,334,338
-----------
</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>
Tires 0.6%
Goodyear Tire & Rubber Co. ..................................................... 24,200 1,220,588
-----------
Manufacturing 17.0%
Chemicals 5.5%
Akzo Nobel N.V. (ADR) .......................................................... 45,400 2,025,975
Dow Chemical Co. ............................................................... 19,100 1,736,906
E.I. du Pont de Nemours & Co. .................................................. 26,600 1,411,463
Eastman Chemical Co. ........................................................... 32,000 1,432,000
Imperial Chemical Industries PLC ............................................... 50,000 433,627
Imperial Chemical Industries PLC (ADR) (New) ................................... 71,600 2,501,525
Lyondell Chemical Co. .......................................................... 76,168 1,371,024
-----------
10,912,520
-----------
Containers & Paper 1.6%
Boise Cascade Corp. ............................................................ 31,231 968,161
Temple-Inland Inc. ............................................................. 38,100 2,259,806
-----------
3,227,967
-----------
Diversified Manufacturing 1.1%
Canadian Pacific Ltd. (Ord.) ................................................... 63,500 1,189,744
Olin Corp. ..................................................................... 33,500 948,469
-----------
2,138,213
-----------
Electrical Products 1.4%
Emerson Electric Co. ........................................................... 23,000 1,391,500
Thomas & Betts Corp. ........................................................... 32,000 1,386,000
-----------
2,777,500
-----------
Industrial Specialty 3.1%
Corning Inc. ................................................................... 135,800 6,110,991
-----------
Machinery/Components/Controls 0.7%
Parker-Hannifin Corp. .......................................................... 43,100 1,411,525
-----------
Office Equipment/Supplies 3.4%
Xerox Corp. .................................................................... 56,900 6,714,200
-----------
Specialty Chemicals 0.2%
Witco Corp. .................................................................... 33,000 525,938
-----------
Energy 9.2%
Oil & Gas Production 0.7%
Conoco Inc. "A"* ............................................................... 68,900 1,438,288
-----------
Oil Companies 7.0%
British Petroleum PLC (ADR) .................................................... 24,311 2,178,873
Mobil Corp. .................................................................... 22,200 1,934,175
Royal Dutch Petroleum Co. (New York shares) .................................... 21,000 1,005,375
Societe Nationale Elf Aquitaine (ADR) .......................................... 44,156 2,500,334
Texaco Inc. .................................................................... 52,600 2,781,225
Total SA (ADR) ................................................................. 36,066 1,794,284
YPF S.A. "D" (ADR) ............................................................. 62,400 1,743,300
-----------
13,937,566
-----------
Oil/Gas Transmission 1.5%
Williams Cos., Inc. ............................................................ 96,600 3,012,713
-----------
</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>
Metals & Minerals 2.0%
Steel & Metals
Allegheny Teledyne Inc. ........................................................ 126,252 2,580,275
Freeport McMoRan Copper & Gold, Inc. "A" ....................................... 37,100 359,406
Oregon Steel Mills, Inc. ....................................................... 13,500 160,313
Phelps Dodge Corp. ............................................................. 7,200 366,300
Reynolds Metals Co. ............................................................ 11,300 595,369
-----------
4,061,663
-----------
Construction 3.4%
Building Products 1.3%
Georgia Pacific Group .......................................................... 43,700 2,559,181
-----------
Forest Products 2.1%
Georgia Pacific Timber Group ................................................... 27,200 647,700
Westvaco Corp. ................................................................. 32,400 868,725
Weyerhaeuser Co. ............................................................... 52,600 2,672,738
-----------
4,189,163
-----------
Transportation 2.9%
Railroads
CSX Corp. ...................................................................... 92,900 3,855,350
Norfolk Southern Corp. ......................................................... 57,400 1,818,863
-----------
5,674,213
-----------
Utilities 6.3%
Electric Utilities
CINergy Corp. .................................................................. 60,900 2,093,438
Duke Energy Corp. .............................................................. 41,736 2,673,713
PacifiCorp ..................................................................... 104,500 2,201,031
Southern Company ............................................................... 65,600 1,906,500
Unicom Corp. ................................................................... 69,800 2,691,663
Wisconsin Energy Corp. ......................................................... 30,000 943,125
-----------
12,509,470
-----------
Total Common Stocks (Cost $165,889,639) ........................................ 191,016,177
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $173,290,491) (a) ................... 198,626,477
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized appreciation on investments based
on cost for (a) federal income tax purposes of $173,199,612 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost .................................... $ 34,984,191
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over market value ................................. 9,557,326
------------
Net unrealized appreciation .............................. $ 25,426,865
============
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1998, aggregated
$95,076,417 and $68,623,061, respectively.
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $173,290,491) ...................... $ 198,626,477
Receivable for investments sold ............................................ 16,874
Dividends and interest receivable .......................................... 374,147
Foreign taxes recoverable .................................................. 41,673
Receivable for Portfolio shares sold ....................................... 197,333
Other assets ............................................................... 534
-----------------
Total assets ............................................................... 199,257,038
Liabilities
Payable for investments purchased .......................................... 148,440
Payable for Portfolio shares redeemed ...................................... 250,275
Accrued management fee ..................................................... 77,417
Other payables and accrued expenses ........................................ 52,908
-----------------
Total liabilities .......................................................... 529,040
-----------------
Net assets, at market value ................................................ $ 198,727,998
=================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................................. 1,276,374
Net unrealized appreciation (depreciation) on:
Investments ................................................................ 25,335,986
Foreign currency related transactions ...................................... 66
Accumulated net realized gain .............................................. 14,163,871
Paid-in capital ............................................................ 157,951,701
-----------------
Net assets, at market value ................................................ $ 198,727,998
=================
Class A
Net asset value, offering and redemption price per share
($184,488,069 / 16,394,977 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .......... $11.25
======
Class B
Net asset value, offering and redemption price per share
($14,239,929 / 1,267,444 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .......... $11.24
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $27,724) ........................ $ 5,128,483
Interest .................................................................... 342,362
----------------
5,470,845
Expenses:
Management fee .............................................................. 874,193
Accounting fees ............................................................. 89,604
Trustees' fees and expenses ................................................. 16,887
Distribution fees (Class B) ................................................. 27,209
Custodian fees .............................................................. 24,964
Auditing .................................................................... 16,899
Legal ....................................................................... 4,993
Shareholder reports and other ............................................... 7,204
----------------
1,061,953
----------------
Net investment income ....................................................... 4,408,892
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................. 14,144,361
Foreign currency related transactions ....................................... (4,635)
----------------
14,139,726
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................. (7,231,922)
Foreign currency related transactions ....................................... 213
----------------
(7,231,709)
----------------
Net gain (loss) on investment transactions .................................. 6,908,017
----------------
Net increase (decrease) in net assets resulting from operations ............. $ 11,316,909
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
GROWTH AND INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................... $ 4,408,892 $ 3,168,725
Net realized gain (loss) from investment transactions ............... 14,139,726 11,499,153
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................... (7,231,709) 16,941,421
-------------- --------------
Net increase (decrease) in net assets resulting from operations ..... 11,316,909 31,609,299
-------------- --------------
Distributions to shareholders from:
Net investment income (Class A) ..................................... (3,753,510) (2,910,650)
-------------- --------------
Net investment income (Class B) ..................................... (233,817) (36,879)
-------------- --------------
Net realized gains from investment transactions (Class A) ........... (10,931,939) (3,884,391)
-------------- --------------
Net realized gains from investment transactions (Class B) ........... (570,394) --
-------------- --------------
Portfolio share transactions:
Class A
Proceeds from shares sold ........................................... 75,991,394 62,828,541
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................... 14,685,449 6,795,041
Cost of shares redeemed ............................................. (59,210,902) (28,405,112)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions ..................................................... 31,465,941 41,218,470
-------------- --------------
Class B*
Proceeds from shares sold ........................................... 9,860,282 6,839,326
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................... 804,210 36,879
Cost of shares redeemed ............................................. (2,833,290) (359,995)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions ..................................................... 7,831,202 6,516,210
-------------- --------------
Increase (decrease) in net assets ................................... 35,124,392 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 $1,276,374 and $927,946, respectively) ...... $ 198,727,998 $ 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 ......................................................... 6,776,744 6,010,142
Shares issued to shareholders in reinvestment of distributions ...... 1,299,618 689,859
Shares redeemed ..................................................... (5,337,997) (2,768,123)
-------------- --------------
Net increase (decrease) in Portfolio shares ......................... 2,738,365 3,931,878
-------------- --------------
Shares outstanding at end of period ................................. 16,394,977 13,656,612
============== ==============
Class B*
Shares outstanding at beginning of period ........................... 593,475 --
-------------- --------------
Shares sold ......................................................... 859,390 622,208
Shares issued to shareholders in reinvestment of distributions ...... 71,382 3,342
Shares redeemed ..................................................... (256,803) (32,075)
-------------- --------------
Net increase (decrease) in Portfolio shares ......................... 673,969 593,475
-------------- --------------
Shares outstanding at end of period ................................. 1,267,444 593,475
============== ==============
</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.
48
<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.
Class A (c)
- -----------------
<TABLE>
<CAPTION>
For the Period
May 2, 1994
(commencement
Years Ended December 31, of operations) to
----------------------------------------------- December 31,
1998 1997 1996 1995 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 .......................... .27 .27 .27 .23 .13
Net realized and unrealized gain (loss) on
investment transactions ...................... .54 2.47 1.46 1.72 .17
------- ------- ------- ------- ------
Total from investment operations ............... .81 2.74 1.73 1.95 .30
------- ------- ------- ------- ------
Less distributions from:
Net investment income .......................... (.25) (.26) (.23) (.19) (.04)
Net realized gains on investment transactions .. (.79) (.37) (.11) (.04) --
------- ------- ------- ------- ------
Total distributions ............................ (1.04) (.63) (.34) (.23) (.04)
------- ------- ------- ------- ------
Net asset value, end of period ................. $ 11.25 $ 11.48 $ 9.37 $ 7.98 $ 6.26
======= ======= ======= ======= ======
Total Return (%) ............................... 7.18 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 (%) ......................... .56 .58 .66 .75 .75*
Ratio of operating expenses, before reductions,
to average daily net assets (%) .............. .56 .58 .66 .75 1.62*
Ratio of net investment income to average
daily net assets (%) ......................... 2.41 2.54 3.14 3.18 3.63*
Portfolio turnover rate (%) .................... 38.70 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
49
<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.
Class B
- --------------
<TABLE>
<CAPTION>
For the Period
May 1, 1997
(commencement
of sale of Class B
Year Ended shares) to
December 31, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period .......................................... $11.47 $ 9.44
------ ------
Income from investment operations:
Net investment income ......................................................... .25 .14
Net realized and unrealized gain (loss) on investment transactions ............ .54 2.02
------ ------
Total from investment operations .............................................. .79 2.16
------ ------
Less distributions from:
Net investment income ......................................................... (.23) (.13)
Net realized gains on investment transactions ................................. (.79) --
------ ------
(1.02) (.13)
------ ------
Net asset value, end of period ................................................ $11.24 $11.47
====== ======
Total Return (%) .............................................................. 6.95 22.89**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 14 7
Ratio of operating expenses to average daily net assets (%) ................... .79 .80*
Ratio of net investment income to average daily net assets (%) ................ 2.20 2.13*
Portfolio turnover rate (%) ................................................... 38.70 28.41
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
50
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 3.8%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5.0%
to be repurchased at $33,898,822 on 1/4/1999, collateralized by a $31,820,000
U.S. Treasury Note, 5.875%, 11/15/2005 (Cost $33,880,000) ...................... 33,880,000 33,880,000
------------
COMMON STOCKS 96.2%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 13.5%
Department & Chain Stores 9.5%
Dayton Hudson Corp. ............................................................... 396,100 21,488,425
Home Depot, Inc. .................................................................. 454,500 27,809,719
Rite Aid Corp. .................................................................... 297,800 14,759,713
Wal-Mart Stores Inc. .............................................................. 153,700 12,516,944
Walgreen Co. ...................................................................... 150,600 8,819,513
------------
85,394,314
------------
Hotels & Casinos 1.3%
Carnival Corp. "A" ................................................................ 248,000 11,904,000
------------
Specialty Retail 2.7%
AutoZone, Inc.* ................................................................... 203,850 6,714,309
Office Depot Inc.* ................................................................ 480,000 17,730,000
------------
24,444,309
------------
Consumer Staples 6.6%
Alcohol & Tobacco 3.0%
Anheuser-Busch Companies, Inc. .................................................... 173,700 11,399,063
Philip Morris Companies, Inc. ..................................................... 297,800 15,932,300
------------
27,331,363
------------
Food & Beverage 1.0%
Albertson's Inc. .................................................................. 137,900 8,782,506
------------
Package Goods/Cosmetics 2.6%
Procter & Gamble Co. .............................................................. 256,700 23,439,919
------------
Health 13.9%
Biotechnology 0.9%
Amgen Inc.* ....................................................................... 77,900 8,145,419
------------
Medical Supply & Specialty 1.9%
Becton, Dickinson & Co. ........................................................... 405,400 17,305,513
------------
Pharmaceuticals 11.1%
American Home Products Corp. ...................................................... 207,500 11,684,844
Baxter International Inc. ......................................................... 200,800 12,913,950
Bristol-Myers Squibb Co. .......................................................... 146,100 19,550,006
Pfizer, Inc. ...................................................................... 174,500 21,888,844
Schering-Plough Corp. ............................................................. 447,400 24,718,850
Warner-Lambert Co. ................................................................ 123,900 9,315,731
------------
100,072,225
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 3.5%
Telephone/Communications
MCI WorldCom, Inc. ................................................................ 438,000 31,426,493
------------
Financial 13.5%
Banks 1.3%
BankAmerica Corp. (New) ........................................................... 199,682 12,005,880
------------
Insurance 6.4%
Allstate Corp. .................................................................... 197,700 7,636,163
American International Group, Inc. ................................................ 220,775 21,332,384
EXEL Ltd. ......................................................................... 232,800 17,460,000
MBIA, Inc. ........................................................................ 169,900 11,139,069
------------
57,567,616
------------
Consumer Finance 3.7%
American Express Company .......................................................... 107,000 10,940,750
Associates First Capital Corp. .................................................... 241,500 10,233,563
CitiGroup Inc. .................................................................... 249,950 12,372,525
------------
33,546,838
------------
Other Financial Companies 2.1%
Federal National Mortgage Association ............................................. 261,500 19,351,000
------------
Media 7.0%
Advertising 2.3%
Omnicom Group, Inc. ............................................................... 357,700 20,746,600
------------
Broadcasting & Entertainment 1.1%
Infinity Broadcasting Corp. (New)* ................................................ 178,400 4,883,700
Viacom Inc. "B"* .................................................................. 63,400 4,691,600
------------
9,575,300
------------
Cable Television 2.2%
Tele-Communications Inc. (New) "A"* ............................................... 421,050 19,394,616
------------
Print Media 1.4%
Tribune Co. (New) ................................................................. 197,500 13,035,000
------------
Service Industries 2.2%
Investment 0.6%
Franklin Resources, Inc. .......................................................... 174,000 5,568,000
------------
Miscellaneous Consumer Services 1.6%
Service Corp. International ....................................................... 382,650 14,564,616
------------
Durables 4.6%
Aerospace 2.6%
Lockheed Martin Corp. ............................................................. 82,100 6,957,975
United Technologies Corp. ......................................................... 147,300 16,018,875
------------
22,976,850
------------
Automobiles 0.8%
Magna International, Inc. "A" ..................................................... 122,500 7,595,000
------------
Telecommunications Equipment 1.2%
Nokia Corp. "A" (ADR) ............................................................. 86,100 10,369,669
------------
</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>
Manufacturing 6.3%
Chemicals 0.5%
Sigma-Aldrich Corp. ............................................................... 161,800 4,752,875
------------
Diversified Manufacturing 3.0%
General Electric Co. .............................................................. 142,000 14,492,875
Textron, Inc. ..................................................................... 159,300 12,096,844
------------
26,589,719
------------
Electrical Products 1.0%
Emerson Electric Co. .............................................................. 156,050 9,441,025
------------
Machinery/Components/Controls 1.8%
Parker-Hannifin Corp. ............................................................. 489,250 16,022,938
------------
Technology 17.8%
Computer Software 3.3%
Computer Associates International, Inc. ........................................... 276,300 11,777,288
Microsoft Corp.* .................................................................. 53,100 7,364,306
Sterling Commerce, Inc.* .......................................................... 237,600 10,692,000
------------
29,833,594
------------
Diverse Electronic Products 0.6%
Applied Materials, Inc.* .......................................................... 136,100 5,809,769
------------
EDP Peripherals 1.2%
EMC Corp. MASS* ................................................................... 126,800 10,778,000
------------
Electronic Data Processing 7.9%
Compaq Computer Corp. ............................................................. 492,800 20,666,800
Hewlett-Packard Co. ............................................................... 171,500 11,715,594
International Business Machines Corp. ............................................. 76,300 14,096,425
Sun Microsystems, Inc.* ........................................................... 286,500 24,531,563
------------
71,010,382
------------
Office/Plant Automation 1.5%
Cisco Systems, Inc.* .............................................................. 143,600 13,327,875
------------
Semiconductors 3.3%
Intel Corp. ....................................................................... 205,600 24,376,450
Linear Technology Corp. ........................................................... 55,900 5,006,544
------------
29,382,994
------------
Energy 6.8%
Oil & Gas Production 1.8%
Royal Dutch Petroleum Co. (New York shares) ....................................... 330,000 15,798,750
------------
Oil Companies 2.8%
Exxon Corp. ....................................................................... 173,200 12,665,250
Mobil Corp. ....................................................................... 139,300 12,136,513
------------
24,801,763
------------
Oil/Gas Transmission 1.0%
Williams Cos., Inc. ............................................................... 304,300 9,490,356
------------
Oilfield Services/Equipment 1.2%
Schlumberger Ltd. ................................................................. 236,400 10,903,950
------------
</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>
Transportation 0.5%
Railroads
Wisconsin Central Transportation Co.* ............................................. 270,100 4,642,344
-----------
Total Common Stocks (Cost $616,026,616) ........................................... 867,129,380
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $649,906,616) (a) ...................... 901,009,380
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $649,978,917 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost .................................... $266,183,362
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over market value ................................. 15,152,899
------------
Net unrealized appreciation .............................. $251,030,463
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1998, aggregated
$469,880,825 and $406,409,056, respectively.
- --------------------------------------------------------------------------------
From November 1, 1998 through December 31, 1998, the Capital Growth
Portfolio incurred approximately $1,300,000 of net realized capital
losses. As permitted by tax regulations, the portfolio intends to elect to
defer and treat as arising in the fiscal year ended December 31, 1999.
The accompanying notes are an integral part of the financial statements.
54
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $649,906,616) ....................... $ 901,009,380
Cash ........................................................................ 246
Foreign taxes recoverable ................................................... 10,794
Dividends and interest receivable ........................................... 562,552
Receivable for Portfolio shares sold ........................................ 454,870
Other assets ................................................................ 2,883
----------------
Total assets ................................................................ 902,040,725
Liabilities
Payable for investments purchased ........................................... 154,442
Payable for Portfolio shares redeemed ....................................... 189,186
Accrued management fee ...................................................... 333,728
Other payables and accrued expenses ......................................... 24,862
----------------
Total liabilities ........................................................... 702,218
----------------
Net assets, at market value ................................................. $ 901,338,507
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) .................................. 1,303,149
Net unrealized appreciation (depreciation) on:
Investments ................................................................. 251,102,764
Foreign currency related transactions ....................................... 288
Accumulated net realized gain (loss) ........................................ 93,971,208
Paid-in capital ............................................................. 554,961,098
----------------
Net assets, at market value ................................................. $ 901,338,507
================
Class A
Net asset value, offering and redemption price per share ($900,510,448
/ 37,591,894 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ........... $23.95
======
Class B
Net asset value, offering and redemption price per share ($828,059 /
34,617 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ..................... $23.92
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
CAPITAL GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $143,486) ...................... $ 7,784,320
Interest ................................................................... 1,956,948
----------------
9,741,268
Expenses:
Management fee ............................................................. 3,628,132
Custodian fees ............................................................. 34,641
Accounting fees ............................................................ 134,186
Trustees' fees and expenses ................................................ 17,330
Distribution fees (Class B) ................................................ 1,748
Auditing ................................................................... 57,729
Legal ...................................................................... 28,278
Shareholder reports and other .............................................. 11,688
----------------
3,913,732
----------------
Net investment income ...................................................... 5,827,536
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................ 94,147,944
Foreign currency related transactions ...................................... (519)
----------------
94,147,425
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ 60,345,147
Foreign currency related transactions ...................................... 314
----------------
60,345,461
----------------
Net gain (loss) on investment transactions ................................. 154,492,886
----------------
Net increase (decrease) in net assets resulting from operations ............ $ 160,320,422
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
CAPITAL GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................... $ 5,827,536 $ 5,491,160
Net realized gain (loss) from investment transactions ............... 94,147,425 37,539,012
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................... 60,345,461 119,146,257
-------------- --------------
Net increase (decrease) in net assets resulting from operations ..... 160,320,422 162,176,429
-------------- --------------
Distributions to shareholders from:
Net investment income (Class A) ..................................... (5,931,987) (5,641,454)
-------------- --------------
Net investment income (Class B) ..................................... (3,769) (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 ........................................... 221,448,528 214,983,317
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................... 43,428,896 39,591,458
Cost of shares redeemed ............................................. (156,849,029) (141,850,976)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions ..................................................... 108,028,395 112,723,799
-------------- --------------
Class B*
Proceeds from shares sold ........................................... 449,018 530,116
Net asset value of shares issued to shareholders in
reinvestment of distributions .................................... 35,017 1,600
Cost of shares redeemed ............................................. (348,013) (2,612)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions ..................................................... 136,022 529,104
-------------- --------------
Increase (decrease) in net assets ................................... 225,020,925 235,836,274
Net assets at beginning of period ................................... 676,317,582 440,481,308
-------------- --------------
Net assets at end of period (including undistributed net
investment income of $1,303,149 and $1,414,095, respectively) .... $ 901,338,507 $ 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 ......................................................... 10,227,932 11,288,114
Shares issued to shareholders in reinvestment of distributions ...... 2,045,403 2,340,808
Shares redeemed ..................................................... (7,432,093) (7,569,347)
-------------- --------------
Net increase (decrease) in Portfolio shares ......................... 4,841,242 6,059,575
-------------- --------------
Shares outstanding at end of period ................................. 37,591,894 32,750,652
============== ==============
Class B*
Shares outstanding at beginning of period ........................... 26,545 --
-------------- --------------
Shares sold ......................................................... 22,532 26,593
Shares issued to shareholders in reinvestment of distributions ...... 1,651 80
Shares redeemed ..................................................... (16,111) (128)
-------------- --------------
Net increase (decrease) in Portfolio shares ......................... 8,072 26,545
-------------- --------------
Shares outstanding at end of period ................................. 34,617 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.
57
<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.
Class A (b)
- --------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 20.63 $ 16.50 $ 15.08 $ 12.23 $ 14.95
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ..................................... .16 .18 .19 .14 .06
Net realized and unrealized gain (loss) on investment
transactions ............................................ 4.46 5.39 2.68 3.25 (1.42)
------- ------- ------- ------- -------
Total from investment operations .......................... 4.62 5.57 2.87 3.39 (1.36)
------- ------- ------- ------- -------
Less distributions from:
Net investment income ..................................... (.17) (.19) (.19) (.11) (.05)
Net realized gains on investment transactions ............. (1.13) (1.25) (1.26) (.43) (1.31)
------- ------- ------- ------- -------
Total distributions ....................................... (1.30) (1.44) (1.45) (.54) (1.36)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $ 23.95 $ 20.63 $ 16.50 $ 15.08 $ 12.23
======= ======= ======= ======= =======
Total Return (%) .......................................... 23.23 35.76 20.13 28.65 (9.67)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .................... 901 676 440 338 257
Ratio of operating expenses to average daily net
assets (%) .............................................. .50 .51 .53 .57 .58
Ratio of net investment income to average daily net
assets (%) .............................................. .75 .96 1.27 1.06 .47
Portfolio turnover rate (%) ............................... 54.73 41.77 65.56 119.41 66.44
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 12, 1997 existing shares were designated as Class A shares.
58
<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.
Class B
- --------------
<TABLE>
<CAPTION>
For the Period
May 12, 1997
(commencement
of sale of Class B
Year Ended shares) to
December 31, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................................ $20.61 $17.54
------ ------
Income from investment operations:
Net investment income ....................................................... .11 .08
Net realized and unrealized gain (loss) on investment transactions .......... 4.45 3.08
------ ------
Total from investment operations ............................................ 4.56 3.16
------ ------
Less distributions from:
Net investment income ....................................................... (.12) (.09)
Net realized gains on investment transactions ............................... (1.13) --
------ ------
Total distributions ......................................................... (1.25) (.09)
------ ------
Net asset value, end of period .............................................. $23.92 $20.61
====== ======
Total Return (%) ............................................................ 22.94 18.00**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...................................... .83 .55
Ratio of operating expenses to average daily net assets (%) ................. .75 .75*
Ratio of net investment income to average daily net assets (%) .............. .49 .64*
Portfolio turnover rate (%) ................................................. 54.73 41.77
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
59
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 9.4%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5% to
be repurchased at $2,815,563 on 1/4/1999, collateralized by a $2,803,000 U.S.
Treasury Note, 6.75%, 5/31/1999 (Cost $2,814,000) ............................... 2,814,000 2,814,000
----------
COMMON STOCKS 90.6%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia 0.0%
CI Technologies Group, Ltd. (Developer of process monitoring and industrial
automation software) ............................................................ 4,900 12,311
----------
Austria 0.7%
Eybl International* (Producer of textiles for automobiles sold worldwide) .......... 1,100 28,618
Schoeller Bleckmann Oilfield Equipment AG (Manufacturer of components for oil
and gas drilling equipment) ..................................................... 1,226 59,086
Topcall International AG (Manufacturer of electronic messaging systems) ............ 438 126,653
----------
214,357
----------
Canada 0.1%
StressGen Biotechnologies Corp. "A"* (Developer of products for treatment of
cancer and certain infectious diseases) ......................................... 21,500 23,019
----------
Croatia 0.7%
Pliva D.D. (GDR) (Pharmaceutical company) .......................................... 12,420 206,172
----------
Finland 0.7%
JOT Automation Group Oyj* (Developer and manufacturer of high technology
production automation systems and equipment) .................................... 3,000 124,143
Kone Oyj "B" (Manufacturer of elevators) ........................................... 1,704 76,863
Sponda Oyj* (Owner and manager of commercial rental properties) .................... 2,083 12,133
----------
213,139
----------
France 3.4%
Altran Technologies, SA (Engineering and consulting services for aerospace,
telecommunications and electronics fields) ...................................... 2,839 684,488
Dassault Systemes SA (Computer aided design, manufacturing and engineering
software) ........................................................................ 3,208 150,732
Leon de Bruxelles SA (Operator of low cost family restaurants) 2,018 151,594
Penauille Polyservices SA (Industrial cleaning and security services) .............. 113 31,529
----------
1,018,343
----------
Germany 3.6%
Hawesko Holding AG* (Marketer of wines and liqueurs and related products) .......... 3,261 181,960
Kamps AG* (Producer and distributor of baked goods) ................................ 1,294 83,850
Marscholflek Lautenschlaeger (pfd) (Leading independent life insurance company) .... 751 428,061
MobilCom AG (Provider of mobile telephone services) ................................ 865 275,324
Pfeifer Vacuum Technology AG (ADR)* (Manufacturer of various pumps and vacuum
systems) ........................................................................ 3,172 121,329
----------
1,090,524
----------
Greece 1.7%
Panafon Hellenic Telecommunications Co.* (Provider of mobile telephone services) ... 13,452 360,476
STET Hellas Telecom SA (ADR)* (Mobile telecommunication services) .................. 4,500 145,688
----------
506,164
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hungary 0.8%
Gedeon Richter Rt. (Pharmaceutical company) ........................................ 2,200 93,759
Gedeon Richter Rt. (GDR) (Pharmaceutical company) .................................. 1,400 59,850
OTP Bank Rt (Savings and commercial bank) .......................................... 100 5,012
OTP Bank Rt (GDR) (Savings and commercial bank) .................................... 1,750 86,275
----------
244,896
----------
Ireland 6.2%
Anglo Irish Bank Corp. PLC (Provider of financial services for business and
private sectors) ................................................................ 104,370 301,145
ESAT Telecom Group PLC* (ADR) (Provider of telecommunication services) ............. 8,700 334,950
Green Property PLC (Conducts operations in property development, investment and
trading) ........................................................................ 26,683 156,418
Irish Continental Group PLC (Transporter of passengers, freight and containers
between Ireland the U.K. and the continent) ..................................... 15,951 188,605
Irish Life PLC (Provider of life and disability insurance and pensions) ............ 32,926 309,496
Irish Permanent PLC (Retail financial services group) .............................. 13,732 206,278
Jury's Hotel Group PLC (Hotel operator) ............................................ 37,736 286,236
Ryan Hotels PLC (Owner and operator of hotel chain) ................................ 91,261 80,082
----------
1,863,210
----------
Israel 1.3%
Check Point Software Technologies Ltd.* (Developer, marketer, and supporter of
management solutions for active networks) ....................................... 7,800 357,338
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of
benign vascular lesions) ........................................................ 3,400 35,700
----------
393,038
----------
Italy 1.7%
Aeroporti di Roma SpA (Manager of Fiumicino and Ciampino airports) ................. 11,400 99,280
Bulgari SpA (Manufacturer and retailer of fine jewelry, luxury watches and
perfumes) ....................................................................... 33,466 199,359
Safilo SpA (Manufacturer of frames for glasses) .................................... 38,943 206,785
----------
505,424
----------
Japan 1.4%
Fujitsu Support and Service Inc. (Provider of information services and support
for computer network systems) ................................................... 4,000 288,674
Riso Kagaku Corp. (Manufacturer of copying machines) ............................... 2,400 119,012
----------
407,686
----------
Luxembourg 1.2%
Millicom International Cellular SA* (Developer and operator of cellular
telephone networks) ............................................................. 9,900 345,263
----------
Netherlands 2.2%
De Telegraaf Holding NV (Leading publisher of newspapers, magazines and books) ..... 5,218 140,284
IHC Caland NV (Dredging and offshore services) ..................................... 9,700 402,790
Tas Groep NV* (Software developer) ................................................. 26,030 123,332
----------
666,406
----------
Philippines 0.3%
International Container Terminal Services, Inc.* (Containerized cargo handling
firm) ........................................................................... 1,161,335 97,027
----------
Portugal 4.4%
Jeronimo Martins SA (Food producer and retailer) ................................... 11,391 623,433
Telecel-Comunicacoes Pessoais, SA (Cellular communication services) ................ 3,500 715,772
----------
1,339,205
----------
Spain 1.6%
Aldeasa SA (Operator of airport duty-free shops) ................................... 3,750 147,235
TelePizza, SA* (Operator of fast food restaurants) ................................. 33,612 319,281
----------
466,516
----------
</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>
Sweden 0.6%
Kinnevik AB "B" (Diversified holding company) ...................................... 4,135 97,011
OM Gruppen AB (Free) (Operator of financial exchanges and clearing organizations) .. 5,457 68,730
----------
165,741
----------
Switzerland 2.2%
Gretag Imaging Group* (Manufacturer of image processing equipment and systems) ..... 2,000 171,974
Kuoni Reisen AG (Registered) (Travel agency) ....................................... 81 321,686
Lindt & Spruengli AG (Manufacturer of chocolate and confectionary products) ........ 3 7,870
Phoenix Mecano AG (Bearer) (Manufacturer of housings and components for
computers) ...................................................................... 275 165,325
----------
666,855
----------
United Kingdom 10.5%
ARM Holdings PLC* (Producer of RISC microprocessors, technology and software) ...... 2,402 51,929
Aegis Group PLC (Leading independent media services group) ......................... 41,366 59,849
Central European Media Enterprises Ltd. "A"* (Owner and operator of national and
regional private commercial television stations in central Europe and
Germany) ........................................................................ 18,900 124,031
Computacenter PLC* (Information technology services) ............................... 4,422 32,357
Expro International Group PLC (Provider of oilfield services) ...................... 33,041 151,105
Games Workshop Group PLC (Manufacturer of table top war game systems and
miniatures) ..................................................................... 12,651 109,401
ICON PLC (ADR)* (Pharmaceutical and biotechnological research and development
services) ....................................................................... 3,500 117,250
ITNET PLC* (Supplier of business process management services) ...................... 7,099 55,634
Matalan PLC* (Clothing retailer) ................................................... 19,912 118,216
New Look Group PLC (Retailer of womenswear) ........................................ 54,456 143,085
Provident Financial PLC* (Personal finance group) .................................. 43,957 645,477
RM PLC (Information technology solutions to educational markets) ................... 52,642 405,765
Regent Inns PLC (Owner and operator of hotels and restaurants) ..................... 44,499 75,482
Serco Group PLC (Facilities management company) .................................... 54,731 1,048,978
Taylor Nelson Sofres PLC (Market research company) ................................. 23,332 29,683
----------
3,168,242
----------
United States 45.4%
Advent Software, Inc.* (Provider of stand-alone and client/server software
products) ....................................................................... 700 32,988
Aptargroup, Inc. (Manufacturer of packaging equipment components) .................. 9,200 258,175
Axogen Ltd. Units* (Future development of therapeutic products for treatment of
neurological disorders) ......................................................... 8,200 533,000
Barrett Resources Corp.* (Oil and gas exploration and production) .................. 5,000 120,000
Billing Concepts Corp.* (Billing and information management services) .............. 41,900 460,900
Black Box Corp.* (Manufacturer of wide area networking products, direct marketer
of computer products) ........................................................... 3,000 113,625
CNF Transportation, Inc. (Trucking and air freight operator) ....................... 7,400 277,963
Concentra Managed Care, Inc.* (Provider of integrated nonrisk-bearing workers'
compensation managed care) ...................................................... 11,500 122,906
Concord EFS, Inc.* (Electronic transaction authorization, processing, settlement
and transfer services) .......................................................... 9,800 415,275
Dallas Semiconductor Corp. (Manufacturer of silicon integrated circuits and
subsystems) ..................................................................... 3,100 126,325
Eagle USA Airfreight, Inc.* (Airfreight forwarding services) ....................... 1,100 26,950
Fiserv Inc.* (Data processing services) ............................................ 14,500 745,844
G & K Services, Inc. "A" (Uniform rentals) ......................................... 4,000 213,000
Harveys Casino Resorts (Owner and operator of hotel/casino properties) ............. 9,000 249,188
Healthcare Recoveries, Inc.* (Provider of recovery services for private
healthcare payors) .............................................................. 1,300 22,100
IDX Systems Corp.* (Provider of health care information systems to physician
groups and academic medical centers) ............................................ 8,466 372,504
Mercury Computer Systems, Inc.* (Manufacturer of digital signal processing
computer systems) ............................................................... 5,700 160,313
Network Appliance, Inc.* (Designer and manufacturer of network data storage
devices) ........................................................................ 44,200 1,988,995
North Fork Bancorporation, Inc. (Commercial and savings bank holding company) ...... 1,150 27,528
S & P Mid-Cap 400 Depository Receipts (Security that represents ownership in the
Mid-Cap SPDR Trust) ............................................................. 17,700 1,290,994
Sepracor, Inc.* (Developer of enhanced forms of existing pharmaceuticals) .......... 5,000 437,813
</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>
Sola International, Inc.* (Manufacturer of plastic eyeglass lenses) ................ 16,300 281,175
Sterling Commerce, Inc.* (Producer of electronic data interchange products and
services) ....................................................................... 23,925 1,076,625
Symbol Technologies Inc. (Manufacturer of bar code laser scanners) ................. 8,650 553,059
Tiffany & Co. (Retailer of jewelry and gift items) ................................. 11,900 617,313
Total Renal Care Holdings, Inc.* (Dialysis services for treatment of chronic
kidney failure) ................................................................. 15,666 463,126
VISX Inc.* (Developer of laser technologies and systems for vision correction) ..... 9,200 804,425
Vincam Group Inc.* (Provider of solutions to complexities and costs of
employment and personnel) ....................................................... 2,350 41,272
Vitesse Semiconductor Corp.* (Manufacturer of digital integrated circuits) ......... 25,600 1,168,000
Wackenhut Corrections Corp.* (Manager of privatized correctional and detention
facilities) ..................................................................... 7,000 200,375
Wesley Jessen VisionCare, Inc.* (Manufacturer of soft contact lenses) .............. 6,600 183,150
Wisconsin Central Transportation Co.* (Operator of regional freight railroad) ...... 15,700 269,844
----------
13,654,750
----------
Total Common Stocks (Cost $21,522,696) ............................................. 27,268,288
----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $24,336,696) (a) ........................ 30,082,288
==========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $24,555,732 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost ................................... $ 7,719,421
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax
cost over market value ................................ 2,192,865
------------
Net unrealized appreciation ............................. $ 5,526,556
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1998, aggregated $16,913,018
and $11,931,278, respectively.
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $24,336,696) ........................ $ 30,082,288
Foreign currency, at market (cost $194,210) ................................. 194,132
Foreign taxes recoverable ................................................... 2,366
Dividends and interest receivable ........................................... 34,335
Receivable for Portfolio shares sold ........................................ 16,642
Other assets ................................................................ 125
----------------
Total assets ................................................................ 30,329,888
Liabilities
Accrued management fee ...................................................... 23,894
Payable for investments purchased ........................................... 694,480
Payable for Portfolio shares redeemed ....................................... 69,724
Other payables and accrued expenses ......................................... 38,761
----------------
Total liabilities ........................................................... 826,859
----------------
Net assets, at market value ................................................. $ 29,503,029
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) .................................. 899
Net unrealized appreciation (depreciation) on:
Investments ................................................................. 5,745,592
Foreign currency related transactions ....................................... 534
Accumulated net realized gain (loss) ........................................ 121,099
Paid-in capital ............................................................. 23,634,905
----------------
Net assets, at market value ................................................. $ 29,503,029
================
Class A
Netasset value, offering and redemption price per share
($25,494,878 / 3,172,540 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ..................... $8.04
=====
Class B
Netasset value, offering and redemption price per share
($4,008,151 / 500,409 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) ..................... $8.01
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $18,605) ....................... $ 215,047
Interest ................................................................... 107,564
----------------
322,611
Expenses:
Management fee ............................................................. 237,980
Trustees' fees and expenses ................................................ 17,066
Accounting fees ............................................................ 67,811
Custodian fees ............................................................. 109,539
Distribution fees (Class B) ................................................ 8,226
Registration fees .......................................................... 230
Auditing ................................................................... 3,368
Shareholder reports and other .............................................. 886
----------------
Total expenses before reductions ........................................... 445,106
Expense reductions ......................................................... (16,484)
----------------
Expenses, net .............................................................. 428,622
----------------
Net investment income ...................................................... (106,011)
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................ 517,540
Foreign currency related transactions ...................................... (2,774)
----------------
514,766
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ 3,280,648
Foreign currency related transactions ...................................... (770)
----------------
3,279,878
----------------
Net gain (loss) on investment transactions ................................. 3,794,644
----------------
Net increase (decrease) in net assets resulting from operations ............ $ 3,688,633
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ..................................... $ (106,011) $ (84,494)
Net realized gain (loss) from investment transactions ............ 514,766 255,396
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................ 3,279,878 1,789,460
-------------- --------------
Net increase (decrease) in net assets resulting from operations .. 3,688,633 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 ........................................ 18,978,160 8,909,818
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 494,718 84,315
Cost of shares redeemed .......................................... (14,676,750) (9,691,134)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions .................................................. 4,796,128 (697,001)
-------------- --------------
Class B*
Proceeds from shares sold ........................................ 2,431,156 2,500,974
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 66,096 --
Cost of shares redeemed .......................................... (1,033,311) (322,143)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions .................................................. 1,463,941 2,178,831
-------------- --------------
Increase (decrease) in net assets ................................ 9,387,888 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 $899 and $348,103,
respectively) ................................................. $ 29,503,029 $ 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 ...................................................... 2,524,146 1,316,648
Shares issued to shareholders in reinvestment of distributions ... 66,139 13,469
Shares redeemed .................................................. (1,944,499) (1,450,452)
-------------- --------------
Net increase (decrease) in Portfolio shares ...................... 645,786 (120,335)
-------------- --------------
Shares outstanding at end of period .............................. 3,172,540 2,526,754
============== ==============
Class B*
Shares outstanding at beginning of period ........................ 314,140 --
-------------- --------------
Shares sold ...................................................... 312,746 358,842
Shares issued to shareholders in reinvestment of distributions ... 8,848 --
Shares redeemed .................................................. (135,325) (44,702)
-------------- --------------
Net increase (decrease) in Portfolio shares ...................... 186,269 314,140
-------------- --------------
Shares outstanding at end of period .............................. 500,409 314,140
============== ==============
</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.
66
<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.
Class A (c)
- -------------------
<TABLE>
<CAPTION>
For the Period
May 1, 1996
(commencement
Years Ended December 31, of operations) to
December 31,
1998 1997 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) ................................... (.03) (.03) (.01)
Net realized and unrealized gain (loss) on investment
transactions ................................................. 1.18 .81 .34
------ ------ -----
Total from investment operations ............................... 1.15 .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 ................................. $ 8.04 $ 7.08 $ 6.33
====== ====== ======
Total Return (%) (d) ........................................... 16.44 12.38 5.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................... 25 18 17
Ratio of operating expenses, net to average daily net
assets (%) ................................................... 1.72 1.50 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ................................. 1.79 1.79 2.32*
Ratio of net investment income (loss) to average daily net
assets (%) ................................................... (.40) (.44) (.13)*
Portfolio turnover rate (%) .................................... 54.37 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
67
<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.
Class B
- ---------------
<TABLE>
<CAPTION>
For the Period
May 2, 1997
(commencement
of sale of Class B
Year Ended shares) to
December 31, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period ........................................... $ 7.07 $ 6.20
------ ------
Income from investment operations:
Net investment loss ............................................................ (.05) (.04)
Net realized and unrealized gain (loss) on investment transactions ............. 1.18 .91
------ ------
Total from investment operations ............................................... 1.13 .87
------ ------
Less distributions from:
Net investment income .......................................................... (.12) --
Net realized gains on investment transactions .................................. (.07) --
------ ------
Total distributions ............................................................ (.19) --
------ ------
Net asset value, end of period ................................................. $ 8.01 $ 7.07
====== ======
Total Return (%) (b) ........................................................... 16.18 14.03**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ......................................... 4 2
Ratio of operating expenses, net to average daily net assets (%) ............... 1.98 1.75
Ratio of operating expenses, before reductions, to average daily
net assets (%) ............................................................... 2.04 2.00*
Ratio of net investment loss to average daily net assets (%) ................... (.69) (.89)*
Portfolio turnover rate (%) .................................................... 54.37 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
68
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT 5.1%
- -------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/1998 at 5% to
be repurchased at $26,041,459 on 1/4/1999, collateralized by a $25,830,000
U.S. Treasury Note, 3.625%, 1/15/2008 (Cost $26,027,000) ........................ 26,027,000 26,027,000
-----------
COMMON STOCKS 94.9%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina 0.7%
YPF SA "D" (ADR) (Petroleum company) ............................................... 120,800 3,374,850
-----------
Australia 1.5%
AMP Ltd.* (Life insurance, annuities, pensions, other financial services) .......... 87,800 1,112,394
Broken Hill Proprietary Co. Ltd. (Petroleum, minerals and steel) ................... 396,300 2,918,846
WMC Ltd. (Mineral exploration and production) ...................................... 813,583 2,452,933
Woodside Petroleum Ltd. (Major oil and gas producer) ............................... 298,500 1,335,322
-----------
7,819,495
-----------
Canada 1.2%
Canadian National Railway Co. (Railroad operator) .................................. 120,800 6,289,202
-----------
China 0.6%
Anhui Expressway Co., Ltd. "H" (Developer and manager of toll highways in Anhui
province) ....................................................................... 3,340,900 379,471
China Telecommunications Ltd.* (Telecommunication services) ........................ 265,500 459,200
GZI Transport Ltd. (Developer and operator of toll highways in Guangdong
Province) ....................................................................... 757,400 148,594
Jiangsu Expressway Co., Ltd. "H" (Builder and manager of the Shanghai-Nanjing
expressway) ..................................................................... 2,452,300 538,091
Shenzhen Expressway Co. "H" (Highway developer) .................................... 2,596,400 603,222
Sichuan Expressway Co. "H" (Developer of toll roads, bridges and tunnels) .......... 3,027,000 265,677
Zhejiang Expressway Co., Ltd. "H" (Road construction and management) ............... 2,668,700 540,794
-----------
2,935,049
-----------
Denmark 0.3%
Unidanmark A/S "A" (Registered) (Bank holding company) ............................. 17,000 1,535,923
-----------
Finland 3.6%
Fortum Corp.* (Provider of a full range of energy related services) ................ 340,200 2,068,308
Nokia Corp. "A" (Manufacturer of telecommunication systems and equipment) .......... 88,900 10,809,681
Pohjola Insurance Co., Ltd. "B" (Insurance company) ................................ 102,000 5,561,145
-----------
18,439,134
-----------
France 16.1%
AXA SA (Insurance group providing insurance, finance and real estate services) ..... 43,668 6,326,432
Accor SA (Catering, hotels, travel services) ....................................... 34,264 7,415,389
Carrefour SA (Hypermarket operator and food retailer) .............................. 3,128 2,360,406
Christian Dior (Leading fashion house) ............................................. 28,741 3,176,880
Compagnie Generale des Etablissements Michelin "B" (Registered) (Leading tire
manufacturer) ................................................................... 79,972 3,196,877
Credit Commercial de France (Bank) ................................................. 35,926 3,334,930
Etablissements Economiques du Casino Guichard-Perrachon SA (pfd.) (Operator of
supermarkets and convenience stores) ............................................ 71,350 4,581,408
France Telecom SA (Telecommunication services) ..................................... 409 32,480
Groupe Danone (Producer of packaged foods and beverages) ........................... 13,285 3,801,824
L'Air Liquide (Leading producer of industrial gases) ............................... 14,734 2,701,189
LVMH (Louis Vuitton Moet Hennessy) SA (Producer of wines, spirits and luxury
products) ....................................................................... 22,861 4,522,316
Lagardere S.C.A. (Holding company with interests in publishing, defense,
audiovisual production and services, telecommunications and media) .............. 148,595 6,312,165
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pernod Ricard (Manufacturer of spirits, whiskey, wines, and fruit juices) .......... 24,548 1,593,798
Rhone-Poulenc SA "A" (Medical, agricultural and consumer chemicals) ................ 95,683 4,921,916
STMicroelectronics* (Designer, developer, manufacturer and marketer of
semiconductor integrated circuits) .............................................. 41,214 3,243,456
Societe BIC SA (Manufacturer of office supplies) ................................... 40,872 2,266,199
Societe Nationale Elf Aquitaine (Petroleum company) ................................ 51,276 5,924,574
Suez Lyonnaise des Eaux SA (Water utility) ......................................... 39,143 8,037,232
Thomson CSF (Manufacturer of aerospace systems and industrial electronics
products) ....................................................................... 130,575 5,605,080
Valeo SA (Automobile and truck components manufacturer) ............................ 39,966 3,148,100
-----------
82,502,651
-----------
Germany 18.7%
Allianz AG (Registered) (Multi-line insurance company) ............................. 21,505 7,883,575
BASF AG (Leading international chemical producer) .................................. 138,445 5,282,956
Bayerische Vereinsbank AG (Commercial bank) ........................................ 72,583 5,683,135
Deutsche Telekom AG (Telecommunication services) ................................... 278,938 9,171,298
Deutsche Telekom AG (ADR) .......................................................... 25,300 828,575
Heidelberger Druckmaschinen AG (Manufacturer of commercial printing presses) ....... 16,771 1,242,706
Hoechst AG (Chemical producer) ..................................................... 220,939 9,159,948
Mannesmann AG (Diversified construction and technology company) .................... 83,154 9,529,258
Metro AG (Operator of building, clothing and food stores and supermarkets) ......... 93,556 7,465,619
Muenchener Rueckversicherungs-Gesellschaft AG (Registered) ......................... 15,457 7,484,130
Muenchener Rueckversicherungs-Gesellschaft AG Warrants* (expire 6/3/2002) .......... 695 32,317
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) ........... 67,870 3,715,808
SAP AG (pfd.) (Computer software manufacturer) ..................................... 11,574 5,522,076
Schering AG (Pharmaceutical and chemical producer) ................................. 60,843 7,638,686
Siemens AG (Leading electrical engineering and electronics company) ................ 59,230 3,820,259
VEBA AG (Electric utility, distributor of oil and chemicals) ....................... 120,102 7,184,358
VIAG AG (Provider of electrical power and natural gas services, aluminum
products, chemicals, ceramics and glass) ........................................ 7,239 4,243,417
-----------
95,888,121
-----------
Hong Kong 3.5%
Cheung Kong Holdings Ltd. (Real estate company) .................................... 531,700 3,825,995
Citic Pacific Ltd. (Diversified holding company) ................................... 1,428,200 3,078,494
Cosco Pacific Ltd. (Investment holding company) .................................... 1,297,400 535,867
Hong Kong & China Gas Co., Ltd. (Gas utility) ...................................... 591 751
Hong Kong & China Gas Co., Ltd. Warrants* (expire 9/30/1999) ....................... 26 2
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ............... 409,200 2,891,695
Kerry Properties, Ltd. (Real estate company) ....................................... 1,129,251 925,544
New World Development Co., Ltd. (Property investment and development,
construction and engineering, hotels and restaurants, telecommunications) ....... 1,368,392 3,444,117
New World Infrastructure Ltd.* (Investment and operation of infrastructure
projects) ....................................................................... 1,106,800 1,628,571
Sun Hung Kai Properties Ltd. (Real estate developer and finance company) ........... 194,000 1,414,761
-----------
17,745,797
-----------
Italy 7.4%
Arnoldo Mondadori Editore SpA (Book publisher) ..................................... 125,000 1,651,799
Banca Commerciale Italiana SpA (Commercial bank) ................................... 508,900 3,508,594
Banca Nazionale del Lavoro* (Universal bank) ....................................... 979,800 2,930,215
Banca di Roma SpA* (Commercial and savings bank) ................................... 942,800 1,596,516
Finmeccanica SpA (Designer and developer of commercial aircraft, space systems
and air defense systems) ........................................................ 3,565,200 3,650,368
Gruppo Editoriale L'Espresso (Publisher) ........................................... 180,000 1,578,470
Istituto Bancario San Paolo di Torino (Commercial bank) ............................ 107,100 1,891,334
Istituto Nazionale delle Assicurazione (Insurance company) ......................... 1,004,500 2,651,734
La Rinascente SpA (Department store chain) ......................................... 158,200 1,626,011
Olivetti SpA (Manufacturer of office and computer equipment and office
furnishings) .................................................................... 1,127,700 3,921,545
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Seat Pagine Gialle SpA (Publisher of telecommunications directories and provider
of advertising services) ........................................................ 4,611,000 3,541,560
Telecom Italia SpA (Telecommunications, electronics and network construction) ...... 1,016,000 8,663,804
Unione Immobiliare SpA* (Owner of a portfolio of real estate) ...................... 892,600 465,329
-----------
37,677,279
-----------
Japan 11.6%
Canon Inc. (Leading producer of visual image and information equipment) ............ 78,000 1,668,024
Chugoku Electric Power Co., Inc. (Distributes and sells electricity) ............... 63,000 1,151,997
Daiwa Securities Co., Ltd. (Brokerage and other financial services) ................ 596,000 2,037,156
Fujitsu Ltd. (Leading manufacturer of computers) ................................... 314,000 4,184,628
Kyushu Electric Power Co. (Provider of electricity) ................................ 62,000 1,180,377
Matsushita Electric Industrial Co., Ltd. (Leading manufacturer of consumer
electronic products) ............................................................ 209,000 3,699,557
Minebea Co., Ltd. (Manufacturer of bearings, electronic equipment, machinery
parts) .......................................................................... 213,000 2,440,645
Murata Manufacturing Co., Ltd. (Leading maker of ceramic capacitors and filters) ... 75,000 3,114,761
NTT Mobile Communication Network, Inc. (Provider of various telecommunication
services and equipment) ......................................................... 105 4,323,475
Nichiei Co., Ltd. (Finance company for small and medium-sized firms) ............... 22,900 1,825,024
Nikko Securities Co., Ltd. (Leading securities broker and dealer) .................. 660,000 1,840,963
Nintendo Co., Ltd. (Game equipment manufacturer) ................................... 25,700 2,491,942
Nippon Telegraph & Telephone Corp. (Leading telecommunications company) ............ 256 1,976,729
Sony Corp. (Consumer electronic products manufacturer) ............................. 22,000 1,603,294
Sumitomo Electric Industries, Ltd. (Leading manufacturer of electric wires and
cables) ......................................................................... 144,000 1,620,685
TDK Corp. (Manufacturer of magnetic tapes and floppy discs) ........................ 45,000 4,116,267
Taisho Pharmaceutical Co., Ltd. (Pharmaceutical company) ........................... 105,000 2,891,614
Teijin Ltd. (Manufacturer of polyester products) ................................... 629,000 2,317,046
Tokyo Electric Power Co. (Electric utility) ........................................ 104,400 2,579,261
Tokyo Electron Ltd. (Leading semiconductor production equipment manufacturer) ...... 87,000 3,304,968
Toshiba Corp. (General electronics manufacturer) ................................... 902,000 5,375,418
Yamanouchi Pharmaceutical Co., Ltd. (Leading manufacturer of ethical drugs) ........ 119,000 3,835,650
-----------
59,579,481
-----------
Netherlands 5.0%
AEGON Insurance Group NV (Insurance company) ....................................... 42,112 5,169,840
Akzo Nobel N.V. (Producer and marketer of healthcare products, coatings,
chemicals and fibers) ........................................................... 90,320 4,111,137
Elsevier NV (International publisher of scientific, professional, business, and
consumer information books) ..................................................... 282,990 3,962,222
Heineken Holding NV "A" (Producer and distributor of beers, spirits, wines, soft
drinks) ......................................................................... 154,387 7,397,162
Koninklijke Ahold NV (International food retailer) ................................. 74,080 2,736,985
Royal Dutch Petroleum Co. (Owner of 60% of Royal Dutch/Shell Group) ................ 41,500 2,065,721
-----------
25,443,067
-----------
Sweden 0.3%
AGA AB "B" (Free) (Producer and distributor of industrial and medical gases) ....... 122,700 1,613,567
-----------
Switzerland 5.2%
Clariant AG (Registered) (Manufacturer of color chemicals) ......................... 3,770 1,763,711
Nestle SA (Registered) (Food manufacturer) ......................................... 3,825 8,334,001
Novartis AG (Registered) (Pharmaceutical company) .................................. 4,718 9,282,664
Swisscom AG* (Operator of telecommunication networks and network application
services) ....................................................................... 16,650 6,976,426
-----------
26,356,802
-----------
Taiwan 2.1%
Asustek Computer Inc. (Manufacturer of computer mainboards, audio/video cards
and network cards) .............................................................. 108,000 1,008,939
China Development Corp. (Leading venture capital firm and investment bank) ......... 771,000 1,411,825
Compal Electronics Inc. (Manufacturer and marketer of notebook computers and
color monitors) ................................................................. 666,028 2,170,482
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Far East Textile Ltd. (Manufacturer of natural and synthetic textile products) ..... 2,596,000 2,119,019
Hon Hai Precision Industry Co., Ltd. (Manufacturer of electronic connectors,
cable assemblies and memory chips) .............................................. 318,000 1,756,797
Siliconware Precision Industries Co. (Manufacturer of packaging for integrated
circuits) ....................................................................... 1,233,000 2,181,285
-----------
10,648,347
-----------
United Kingdom 17.1%
BOC Group PLC (Producer of industrial gases) ....................................... 447,470 6,421,950
British Airways PLC (Provider of passenger and cargo airline services) ............. 235,919 1,624,260
British Petroleum PLC (Major integrated world oil company) ......................... 327,350 4,877,671
Carlton Communications PLC (Television post production products and services) ...... 294,320 2,711,576
Enterprise Oil PLC (Oil and gas exploration and production) ........................ 264,967 1,299,888
General Electric Co., PLC (Manufacturer of power, communications and defense
equipment and other various electrical components) .............................. 795,771 7,212,350
Glaxo Wellcome PLC (Pharmaceutical company) ........................................ 229,020 7,891,423
Imperial Chemical Industries PLC (Leading international chemical producer) ......... 463,762 4,021,996
Lasmo PLC (Oil production and exploration) ......................................... 887,010 1,475,097
Monument Oil and Gas PLC (Oil and gas exploration and production company) .......... 1,347,443 784,279
Orange PLC* (Operator of digital mobile telephone network) ......................... 720,045 8,262,299
Pearson PLC (Diversified media and entertainment holding company) .................. 318,320 6,335,771
Reed International PLC (Publisher of scientific, professional and business to
business materials) ............................................................. 242,024 1,923,882
Reuters Group PLC (International news agency) ...................................... 885,012 9,345,770
Rio Tinto PLC (Mining and finance company) ......................................... 581,016 6,763,606
Shell Transport & Trading PLC (Registered) (Part owner of Royal Dutch Shell Co.) ... 848,950 5,223,673
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) ..... 569,770 7,904,179
Zeneca Group PLC (Manufacturer of pharmaceutical and agrochemical products and
specialty chemicals) ............................................................ 83,418 3,637,346
-----------
87,717,016
-----------
Total Common Stocks (Cost $394,085,935) ............................................ 485,565,781
-----------
- -------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $420,112,935) (a) ....................... 511,592,781
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) At December 31, 1998, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $420,171,984 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of
market value over tax cost ........................... $ 111,585,798
Aggregate gross unrealized depreciation for all
investments in which there is an excess of
tax cost over market value ........................... 20,165,001
-------------
Net unrealized appreciation ............................. $ 91,420,797
=============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the year ended December 31, 1998, aggregated
$320,367,522 and $326,024,316, respectively.
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at market (identified cost $420,112,935) ...................... $ 511,592,781
Foreign currency, at market (cost $1,479,354) .............................. 1,480,169
Foreign taxes recoverable .................................................. 752,561
Dividend and interest receivable ........................................... 130,218
Receivable for Portfolio shares sold ....................................... 227,837
Other assets ............................................................... 4,966
----------------
Total assets ............................................................... 514,188,532
Liabilities
Due to custodian bank ...................................................... 31,220
Payable for investments purchased .......................................... 642,554
Payable for Portfolio shares redeemed ...................................... 1,483,929
Unrealized depreciation on forward currency exchange contracts ............. 2,336,560
Accrued management fee ..................................................... 370,291
Other payables and accrued expenses ........................................ 132,460
----------------
Total liabilities .......................................................... 4,997,014
----------------
Net assets, at market value ................................................ $ 509,191,518
================
Net Assets
Net assets consist of:
Undistributed net investment income (loss) ................................. 2,705,077
Net unrealized appreciation (depreciation) on:
Investments ................................................................ 91,479,846
Foreign currency related transactions ...................................... (2,284,666)
Accumulated net realized gain .............................................. 52,424,028
Paid-in capital ............................................................ 364,867,233
----------------
Net assets, at market value ................................................ $ 509,191,518
================
Class A
Net asset value, offering and redemption price per share
($508,823,849 / 34,950,563 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .......... $14.56
======
Class B
Net asset value, offering and redemption price per share
($367,669 / 25,342 outstanding shares of beneficial interest,
no par value, unlimited number of shares authorized) .................... $14.51
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income:
Dividends (net of foreign taxes withheld of $986,661) ...................... $ 7,756,698
Interest (net of foreign taxes withheld of $986) ........................... 1,575,336
----------------
9,332,034
Expenses:
Management fee ............................................................. 4,168,595
Custodian fees ............................................................. 404,917
Accounting fees ............................................................ 373,527
Distribution fees (Class B) ................................................ 899
Trustees' fees and expenses ................................................ 17,494
Auditing ................................................................... 10,486
Legal ...................................................................... 21,279
Shareholder reports and other .............................................. 17,423
----------------
5,014,620
----------------
Net investment income ...................................................... 4,317,414
----------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ................................................................ 52,271,747
Foreign currency related transactions ...................................... (353,813)
----------------
51,917,934
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................................ 27,048,495
Foreign currency related transactions ...................................... (2,261,423)
----------------
24,787,072
----------------
Net gain on investment transactions ........................................ 76,705,006
----------------
Net increase (decrease) in net assets resulting from operations ............ $ 81,022,420
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
74
<PAGE>
INTERNATIONAL PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 4,317,414 $ 7,360,580
Net realized gain (loss) from investment transactions .......... 51,917,934 125,615,265
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. 24,787,072 (70,385,972)
-------------- --------------
Net increase in net assets resulting from operations ........... 81,022,420 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 ...................................... 821,855,468 326,908,941
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 58,326,944 17,600,589
Cost of shares redeemed ........................................ (820,883,462) (688,657,725)
-------------- --------------
Net increase (decrease) in net assets from Class A share
transactions ................................................ 59,298,950 (344,148,195)
-------------- --------------
Class B*
Proceeds from shares sold ...................................... 34,594 365,304
Net asset value of shares issued to shareholders in
reinvestment of dividends ................................... 48,623 --
Cost of shares redeemed ........................................ (75,383) (7,040)
-------------- --------------
Net increase (decrease) in net assets from Class B share
transactions ................................................ 7,834 358,264
-------------- --------------
Increase (decrease) in net assets .............................. 81,953,638 (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 $2,705,077 and $7,228,444,
respectively) ............................................... $ 509,191,518 $ 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 .................................................... 59,000,919 23,224,538
Shares issued to shareholders in reinvestment of
distributions ............................................... 4,388,784 1,330,354
Shares redeemed ................................................ (58,703,710) (49,099,532)
-------------- --------------
Net increase (decrease) in Portfolio shares .................... 4,685,993 (24,544,640)
-------------- --------------
Shares outstanding at end of period ............................ 34,950,563 30,264,570
============== ==============
Class B*
Shares outstanding at beginning of period ...................... 24,670 --
-------------- --------------
Shares sold .................................................... 2,526 25,146
Shares issued to shareholders in reinvestment of
distributions ............................................... 3,664 --
Shares redeemed ................................................ (5,518) (476)
-------------- --------------
Net increase (decrease) in Portfolio shares .................... 672 24,670
-------------- --------------
Shares outstanding at end of period ............................ 25,342 24,670
============== ==============
</TABLE>
* Prior period information for Class B is from 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.
75
<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.
Class A (b)
- ---------------------
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......................... $ 14.11 $ 13.25 $ 11.82 $ 10.69 $ 10.85
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ........................................ .13 .14 .12 .11 .06
Net realized and unrealized gain (loss) on investment
transactions ............................................... 2.29 1.04 1.60 1.07 (.15)
------- ------- ------- ------- -------
Total from investment operations ............................. 2.42 1.18 1.72 1.18 (.09)
------- ------- ------- ------- -------
Less distributions:
From net investment income ................................... (.26) (.21) (.29) (.01) (.07)
From net realized gains on investment transactions ........... (1.71) (.11) -- (.04) --
------- ------- ------- ------- -------
Total distributions .......................................... (1.97) (.32) (.29) (.05) (.07)
------- ------- ------- ------- -------
Net asset value, end of period ............................... $ 14.56 $ 14.11 $ 13.25 $ 11.82 $ 10.69
======= ======= ======= ======= =======
Total Return (%) ............................................. 18.49 9.07 14.78 11.11 (.85)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 509 427 726 548 472
Ratio of operating expenses to average daily net
assets (%) ................................................. 1.04 1.00 1.05 1.08 1.08
Ratio of net investment income to average daily net
assets (%) ................................................. .90 .94 .95 .95 .57
Portfolio turnover rate (%) .................................. 70.65 61.35 32.63 45.76 33.52
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) On May 8, 1997, existing shares were designated as Class A shares.
76
<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.
Class B
- ---------------
<TABLE>
<CAPTION>
For the Period
May 8, 1997
(commencement
of sale of Class B
Year Ended shares) to
December 31, December 31,
1998 1997
-----------------------------------
<S> <C> <C>
Net asset value, beginning of period ......................................... $14.08 $13.76
------ ------
Income from investment operations:
Net investment income (loss) ................................................. .10 (.00)(b)
Net realized and unrealized gain (loss) on investment transactions ........... 2.29 .32
------ ------
Total from investment operations ............................................. 2.39 .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 ............................................... $14.51 $14.08
====== ======
Total Return (%) ............................................................. 18.28 2.33**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................................... .37 .35
Ratio of operating expenses to average daily net assets (%) .................. 1.28 1.24*
Ratio of net investment income to average daily net assets (%) ............... .69 (.00)(b)*
Portfolio turnover rate (%) .................................................. 70.65 61.35**
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Amount shown is less than one half of .005.
* Annualized
** Not annualized
77
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
A. Significant Accounting Policies
- -------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares 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
settlement by the
78
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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:
79
<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. In addition, the International Portfolio utilized forward
contracts as a hedge against changes in exchange rates relating to foreign
currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements with
certain banks and broker/dealers whereby the Portfolio, 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 is equal to at least 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
80
<PAGE>
NOTES TO FINANCIAL STATEMENTS
at a loss. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period.
Accordingly, the Portfolios may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of each
Portfolio.
The Portfolios use the specific identification method for determining realized
gain or loss on investments for both financial and federal income tax reporting
purposes.
Expenses. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.
B. 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 45% and 43%, 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 37%,
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%, 30% and 11%, respectively.
Growth and 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 66% and 14%, respectively. One Participating Insurance
Company was owner of record of 98% 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 57% and 20%, respectively. One Participating Insurance Company was
owner of record of 99% 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 75% and 14%, respectively. One Participating Insurance Company was
owner of record of 99% 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 38%, 19%, and 17%, respectively. One Participating Insurance Company
was owner of record of 98% 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% for the next
$500,000,000, and .425% over $1,000,000,000 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.
During the period ended
81
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, the Adviser reimbursed the Capital Growth Portfolio $443,472
for losses incurred in connection with equity securities trading.
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
necessary so 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 year ended December 31,
1998 are detailed in each Portfolio's statement of operations.
D. Commitments
- -------------------------------------------------------------------------------
As of December 31, 1998, the International Portfolio had entered into the
following forward currency exchange contract resulting in net unrealized
depreciation of $2,336,560.
<TABLE>
<CAPTION>
Contracts to Deliver In Exchange for Settlement Date Net Unrealized
Appreciation
(Depreciation) (U.S.$)
------------------------- ----------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
JPY 1,651,637,840 USD 12,400,000 3/4/1999 (2,336,560)
</TABLE>
E. Lines of Credit
- -------------------------------------------------------------------------------
The Fund and several other Scudder Funds (the "Participants") share in a $850
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. Each Portfolio may borrow up
to a maximum of 33 percent of its net assets under the agreement.
82
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Scudder Variable Life Investment Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Variable Life Investment
Fund (comprised of the seven Portfolios identified in Note A) at December 31,
1998, the results of its operations, the changes in its net assets, and the
financial highlights, for each of the periods indicated therein, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management, our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 1999
83
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
TAX INFORMATION
The Balanced Portfolio, Bond Portfolio, Capital Growth Portfolio, Growth and
Income Portfolio, Global Discovery Portfolio, and International Portfolio paid
distributions of $.475, $.02, $.95, $.71, $.07 and $1.43 per share,
respectively, from net long-term capital gains during the year ended December
31, 1998.
Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Bond Portfolio, Capital Growth Portfolio, Growth and Income Portfolio, Global
Discovery Portfolio, and International Portfolio designate $13,500,000,
$460,000, $100,000,000, $15,000,000, $383,000, and $52,600,000, respectively, as
capital gain dividends for the year ended December 31, 1998, of which 100%
represents 20% rate gains.
Pursuant to section 854 of the Internal Revenue Code, the percentages of income
dividends paid in calendar year 1998 which qualify for the dividends received
deduction for corporations are as follows: Balanced Portfolio 16%, Capital
Growth Portfolio 64%, and Growth and Income Portfolio 100%.
84
<PAGE>
MONEY MARKET PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
Money Market Portfolio, was held on December 16, 1998, at the offices of Scudder
Kemper Investments, Inc., Two International Place, Boston, Massachusetts 02110.
The following matters were voted upon by the shareholders and the resulting
votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
161,046,211 2,774,547 4,403,587 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
155,290,161 6,986,348 5,947,836 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
85
<PAGE>
BOND PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund, Bond
Portfolio, was held on December 16, 1998, at the offices of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. The
following matters were voted upon by the shareholders and the resulting votes
for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
13,939,671 414,853 469,643 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
13,380,431 836,172 607,564 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
86
<PAGE>
BALANCED PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
Balanced Portfolio, was held on December 16, 1998, at the offices of Scudder
Kemper Investments, Inc., Two International Place, Boston, Massachusetts 02110.
The following matters were voted upon by the shareholders and the resulting
votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
9,461,864 271,822 401,216 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
9,138,975 541,648 454,279 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
87
<PAGE>
GROWTH AND INCOME PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
Growth and Income Portfolio, was held on December 16, 1998, at the offices of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. The following matters were voted upon by the shareholders and the
resulting votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
15,525,438 474,642 661,152 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
14,737,807 902,321 1,021,104 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
88
<PAGE>
CAPITAL GROWTH PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
Capital Growth Portfolio, was held on December 16, 1998, at the offices of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. The following matters were voted upon by the shareholders and the
resulting votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
34,761,952 922,635 1,144,921 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
33,239,479 1,884,560 1,705,469 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
89
<PAGE>
GLOBAL DISCVOERY PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
Global Discovery Portfolio, was held on December 16, 1998, at the offices of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. The following matters were voted upon by the shareholders and the
resulting votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,130,046 153,965 101,728 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,063,212 196,489 126,038 0
* Broker non-votes are proxies received by the Fund from brokers or nominees
- ----------------------------------------------------------------------------
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
90
<PAGE>
INTERNATIONAL PORTFOLIO
SHAREHOLDER MEETING RESULTS
A Special Meeting of Shareholders of Scudder Variable Life Investment Fund,
International Portfolio, was held on December 16, 1998, at the offices of
Scudder Kemper Investments, Inc., Two International Place, Boston, Massachusetts
02110. The following matters were voted upon by the shareholders and the
resulting votes for each matter are presented below.
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
33,507,697 652,824 1,058,911 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
32,369,178 1,493,385 1,356,869 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
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About the Fund's Adviser
- --------------------------------------------------------------------------------
Scudder Kemper Investments, Inc., is one of the
largest and most experienced investment management
organizations worldwide, managing more than $230 billion
in assets globally for mutual fund investors, retirement
and pension plans, institutional and corporate clients,
insurance companies, and private family and individual
accounts.
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.
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