Scudder Variable Life
Investment Fund
Semiannual Report
June 30, 1996
An open-end management investment company that offers shares of beneficial
interest in seven types of diversified portfolios.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Contents
Letter from the Fund's President 2
Money Market Portfolio Management Discussion 3
Bond Portfolio Management Discussion 4
Bond Portfolio Summary 5
Balanced Portfolio Management Discussion 6
Balanced Portfolio Summary 7
Capital Growth Portfolio Management Discussion 8
Capital Growth Portfolio Summary 9
International Portfolio Management Discussion 10
International Portfolio Summary 11
Investment Portfolios, Financial Statements, and Financial
Highlights
Money Market Portfolio 12
Bond Portfolio 18
Balanced Portfolio 25
Capital Growth Portfolio 35
International Portfolio 43
Notes to Financial Statements 53
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
We are pleased to present the semiannual report for the Scudder Variable
Life Investment Fund for the six months ended June 30, 1996. After extended bull
markets in both stocks and bonds, the performance of the U.S. equity and
fixed-income markets diverged over the first half of 1996. Stocks overall
returned 10.10% as gauged by the unmanaged S&P 500 Index while bonds provided a
total return of -1.21% as measured by the unmanaged Lehman Brothers Aggregate
Bond Index. International stocks provided a modest positive return of 4.70% as
reflected by the unmanaged MSCI EAFE plus Canada Index.
While domestic equity returns were positive over the first half of 1996,
stock prices have become much more volatile in the last few months. Bond prices
generally fell over this same period, as interest rates rose sharply on all but
the shortest-maturity fixed-income instruments. Investors have reacted strongly
to any sign that the U.S. business cycle may break form by failing to wind down
following an extended period of economic expansion. However, although the stock
and bond markets may vacillate with each conflicting economic indicator, it is
inflation, not growth, that investors fear. We do not believe that inflation
will accelerate to any meaningful degree.
Although we expect the U.S. economy to slow over the second half of 1996,
we believe that any recession is likely to be modest and short lived. While a
pause in the U.S. stock market rally or even a correction would not be a
surprise, the long-term outlook for investors in our view is constructive.
International equity markets may in some cases be more attractive from a current
valuation standpoint than our own, highlighting the importance of taking a
global approach to investing.
Long-term trends that favor the investment climate, including the
technological revolution and the globalization of business activity, remain in
place. We remain dedicated to meeting the challenges presented by the rapidly
changing world economy, and we thank you for your continued investment in
Scudder Variable Life Investment Fund.
Sincerely,
/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
2
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Declining interest rates generally translate into lower yields for money
fund investors, while rising interest rates help boost money fund yields. During
the past six months, short-term rates rose only slightly. Money Market Portfolio
provided a 4.93% 7-day net annualized yield on June 30th, compared with 5.04%
for the three-month Treasury bill. The Portfolio also returned 2.49% for the
period, compared with 2.05% for the 440 funds tracked by Lipper Analytical
Services.
We structured the Portfolio's investments to maintain stability and provide
flexibility over the six months. At the close of the period, 77% of the
Portfolio was invested in very short-term corporate commercial paper, which
provided the most attractive yields. The remainder of the portfolio was made up
of one repurchase agreement (12% of the Portfolio), and short-term notes (11%).
Due to increased volatility and the potential for increasing interest
rates, we gradually shortened the Portfolio's average maturity to 46 days from
57 days six months earlier. In the current low interest rate environment, this
shorter maturity is designed to provide the Portfolio with the flexibility to
take advantage of opportunities to capture higher yields should they become
available.
Money market funds seek price stability and a competitive yield. Investing
in high-quality, short-term securities helps Money Market Portfolio achieve both
objectives. While no money market fund can guarantee to maintain a $1.00 share
price, Money Market Portfolio has always done so.
While we believe the likelihood of interest rate increases is small in the
near future, we expect economic growth to continue at its current pace or slow
slightly in the second half of the year. Regardless of the economic climate, we
will continue to seek high quality money market securities to provide you with
competitive yields and ensure that Money Market Portfolio remains an appropriate
vehicle for your short-term investment needs.
Sincerely,
Your Portfolio Management Team
/s/Stephen L. Akers /s/Debra A. Hanson
Stephen L. Akers Debra A. Hanson
Lead Portfolio Manager
/s/Nicca B. Alantara
Nicca B. Alcantara
3
<PAGE>
BOND PORTFOLIO BOND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Reflecting a weak bond market, Bond Portfolio provided a total return of
- -2.17% for the six months ended June 30, 1996. This performance, while negative,
compared favorably with the -2.51% return of the average of the 126 A-rated
corporate bond funds tracked by Lipper Analytical Services. The bond market as a
whole returned -1.21% for the period as gauged by the unmanaged Lehman Brothers
Aggregate Bond Index. For the trailing twelve months, the Portfolio's 4.71%
return exceeded the Lipper average's return of 3.66% while modestly lagging the
Index's 5.02% performance.
In the face of conflicting signals concerning the direction of the economy
and interest rates, the bond market beat a retreat over the first half of 1996.
There was no place on the yield curve to hide. To illustrate, rates on
Treasuries with maturities ranging from two to 30 years ended June in the
neighborhood of a full percentage point higher than their levels at the end of
1995 (for example, the two-year treasury yield went from 5.15% to 6.11%). In
general, corporate and mortgage-backed debt issues outperformed Treasuries
during the period.
In the face of any such dramatic move in interest rates, duration -- which
measures sensitivity to changes in rates -- will normally be the key determinant
of a fixed-income portfolio's performance. In view of the uncertain outlook for
rates, the Portfolio assumed an increasingly defensive stance over the period,
lowering duration from 5.15 to 4.99 years. This strategy limited to a degree the
impact of the bear market in bonds and proved beneficial to the Portfolio's
performance. In keeping with a more cautious approach to interest rate exposure,
the Portfolio's position in Treasury securities -- which are a pure play on
rates -- was lowered over the period from 56% to 24%. Corporate and
mortgage-backed issues represented 28% and 29% of assets, respectively, at the
end of the period.
The Portfolio is presently maintaining its relatively neutral stance with
respect to the direction of interest rates, with duration roughly in keeping
with that of the overall market. Nonetheless, we are on the whole more bullish
than bearish on the bond market. Inflation has remained remarkably under control
during this extended period of growth. We view the expansion as having matured
and we expect the economy to slow during the second half of the year. Moreover,
with long-term rates over 7%, investors are fairly compensated by the current
level of fixed-income yields.
While we believe a cautious stance towards interest rate exposure is
warranted over the near-term, the Portfolio will seek to benefit from any bond
market strength that emerges after the market has absorbed the latest spate of
strong economic data, and as the economy begins to slow. In keeping with the
Portfolio's prudent investment approach, the average quality of Portfolio
holdings remains a high "AA."
Sincerely,
Your Portfolio Management Team
/s/William M. Hutchinson /s/Ruth Heisler
William M. Hutchinson Ruth Heisler
Lead Portfolio Manager
4
<PAGE>
BOND PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BOND PORTFOLIO
- -------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,471 4.71% 4.71%
5 Year $14,944 49.44% 8.37%
10 Year $21,030 110.30% 7.72%
LB AGGREGATE BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,502 5.02% 5.02%
5 Year $14,871 48.71% 8.25%
10 Year $22,718 127.18% 8.54%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED JUNE 30
Bond Portfolio
Year Amount
- ----------------------
'86 $10,000
'87 $10,385
'88 $11,013
'89 $12,023
'90 $12,791
'91 $14,072
'92 $16,162
'93 $18,450
'94 $18,024
'95 $20,083
'96 $21,030
LB Aggregate Bond Index
Year Amount
- ----------------------
'86 $10,000
'87 $10,552
'88 $11,402
'89 $12,795
'90 $13,800
'91 $15,277
'92 $17,422
'93 $19,475
'94 $19,221
'95 $21,633
'96 $22,718
The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged
market value-weighted measure of treasury issues, agency issues,
corporate bond issues and mortgage securities. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some periods
were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Bond Portfolio.
- ---------------------------------------------------------------------------
ASSET QUALITY
- ---------------------------------------------------------------------------
By Quality
- -----------------------
AAA 62% In keeping with a cautious
AA 6% approach to interest rate
A 22% risk, the portfolio's exposure
BBB 10% to U.S. Treasury securities
---- has been reduced to 24%.
100%
====
- -----------------------
Average Quality: AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- ---------------------------- -------------------------------
EFFECTIVE MATURITY DIVERSIFICATION
- ---------------------------- -------------------------------
- ---------------------------- -------------------------------
Less than 1 year 6% Corporate Bonds 28%
1-3 years 12% U.S. Government Agency
3-7 years 38% Pass-Thrus 26%
7-12 years 23% U.S. Treasury Obligations 24%
12 years or greater 21% Asset-Backed Securities 8%
---- Repurchase Agreement 6%
100% Foreign Bonds 5%
==== U.S. Government Guaranteed
- ---------------------------- Mortgages 3%
Weighted average effective ----
maturity: 9 years 100%
====
-------------------------------
5
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Balanced Portfolio provided a total return of 6.05% for the six months
ended June 30, 1996, comparing favorably with the 3.73% return of the average of
the 133 balanced funds tracked by Lipper Analytical Services. For the trailing
twelve months, the Portfolio's 16.58% return also exceeded that of the Lipper
average, which was 13.16%.
Performance of the equity and fixed-income markets diverged over the first
half of 1996. The U.S. stock market on the whole continued its rally, providing
a total return of 10.10% for the period as gauged by the unmanaged S&P 500
Index. At the same time, bond prices generally fell, as reflected in the -1.21%
return for the unmanaged Lehman Brothers Aggregate Bond Index. As of June 30,
1996, the Portfolio's assets were allocated 60% in equities and 40% in
fixed-income securities (including an 11% cash position).
The relatively impressive total return for the S&P 500 since the beginning
of the year masks the greatly increased volatility displayed by stocks over the
past few months. Market leadership, which had rotated towards cyclicals
following an unexpectedly strong February employment report, shifted back to
more "consumer-defensive" sectors near the end of the period, including consumer
staples and healthcare/pharmaceutical stocks. In this environment, the
Portfolio's equity holdings continued to focus on large, high-quality companies
with the ability to grow earnings under a range of economic conditions. Several
consumer-oriented holdings reflect the Portfolio's attempt to capture the value
of a company's global franchise before it is fully reflected in its stock price.
In this vein, the Portfolio initiated a substantial position in Anheuser-Busch.
The company owns one of the world's strongest brand names -- Budweiser -- and
has started to go global. For similar reasons, the Portfolio has significant
holdings in McDonald's and Black & Decker. Health and technology stocks are also
well represented in the Portfolio.
In the face of conflicting signals concerning the direction of the economy
and interest rates, the bond market suffered a series of setbacks over the first
half of 1996. The fixed-income portion of the Portfolio assumed an increasingly
defensive stance over the period, lowering portfolio duration from 5.26 to 5.01
years. This strategy limited to a degree the impact of the bear market in bonds
and proved beneficial to the Portfolio's performance. In keeping with a more
cautious approach to interest rate exposure, the Portfolio's position in
Treasury securities --which are a pure play on rates -- was lowered over the
period from 19% to 9%. Corporate and mortgage-backed issues represented 9% and
8% of assets, respectively, at the end of the period. The Portfolio is presently
maintaining its relatively neutral stance with respect to the direction of
interest rates, with duration roughly in keeping with that of the overall
market.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter /s/Michael K. Shields
Valerie F. Malter Michael K. Shields
Lead Portfolio Manager
/s/William M. Hutchinson /s/Ruth Heisler
William M. Hutchinson Ruth Heisler
6
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BALANCED PORTFOLIO
- -------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,658 16.58% 16.58%
5 Year $17,993 79.93% 12.47%
10 Year $25,382 153.82% 9.76%
S&P 500 INDEX (60%)
AND LBAB INDEX (40%)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,902 19.02% 19.02%
5 Year $18,599 85.99% 13.20%
10 Year $30,975 209.75% 11.96%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED JUNE 30
Balanced Portfolio
Year Amount
- ----------------------
'86 $10,000
'87 $11,063
'88 $11,089
'89 $12,874
'90 $13,795
'91 $14,107
'92 $16,506
'93 $18,337
'94 $18,282
'95 $21,773
'96 $25,382
S&P 500 Index
Year Amount
- ----------------------
'86 $10,000
'87 $12,516
'88 $11,653
'89 $14,047
'90 $16,363
'91 $17,573
'92 $19,930
'93 $22,646
'94 $22,965
'95 $28,952
'96 $36,480
LBAB Index
Year Amount
- ----------------------
'86 $10,000
'87 $10,552
'88 $11,402
'89 $12,795
'90 $13,800
'91 $15,277
'92 $17,422
'93 $19,475
'94 $19,221
'95 $21,663
'96 $22,718
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market and
The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate bond
issues and mortgage securities. Index returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some periods
were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Balanced Portfolio. The Balanced Portfolio, with its
current name and investment objective, commenced operations on May 1, 1993.
Performance figures include the performance of its predecessor, the Managed
Diversified Portfolio. Since adopting its current objectives, the cumulative
and average annual returns are 40.99% and 11.45%, respectively.
- ------------------------------------------------------------------------------
EQUITY HOLDINGS
- ------------------------------------------------------------------------------
Sector breakdown of the Five Largest Equity Holdings
Portfolio's equity holdings -------------------------------------------
- --------------------------- 1. PHILIP MORRIS COMPANIES INC.
Consumer Staples 18% Tobacco, food products and brewing
Health 17% 2. GENERAL ELECTRIC CO.
Manufacturing 13% Leading producer of electrical equipment
Technology 12% 3. PROCTER & GAMBLE CO.
Consumer Discretionary 11% Diversified manufacturer of consumer
Service Industries 10% products
Financial 7% 4. PEPSICO. INC.
Media 5% Soft drinks, snack foods and food
Energy 3% services
Other 4% 5. MCDONALD'S CORP.
---- Worldwide fast food restaurant franchiser
100%
====
- ---------------------------
- ------------------------------------------------------------------------------
FIXED INCOME HOLDINGS
- ------------------------------------------------------------------------------
By Asset Type By Quality
- --------------------------------- -------------------------------
Cash Equivalents 27% AAA 71%
U.S. Treasury Obligations 23% AA 4%
Corporate Bonds 21% A 14%
U.S. Government Agency BBB 11%
Pass-Thrus 17% ----
Asset-Backed Securities 6% 100%
U.S. Gov't Guaranteed ====
Mortgages 4% -------------------------------
Foreign Bonds 2%
----
100%
====
- ---------------------------------
7
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Capital Growth Portfolio provided a total return of 9.09% for the six
months ended June 30, 1996, compared with 9.81% for the average of the 477
growth funds tracked by Lipper Analytical Services and 10.10% for the unmanaged
S&P 500 Index. For the trailing twelve months through the end of June, the
Portfolio returned 20.48% versus 22.70% for the Lipper average and 26.00% for
the Index.
As 1996 began, indicators on balance appeared to point towards an impending
recession, falling long-term interest rates, and Fed easing. The semiannual
period ended with growing fears of economic strength and Fed tightening. In the
absence of any clear indication as to the direction of the U.S. economy, the
stock market was highly volatile for the bulk of the period, and sector
leadership vacillated between traditional growth stocks and economically
sensitive cyclicals.
In this choppy and highly rotational environment for equities, the
Portfolio continued to focus on those areas of the market that combine the
potential for earnings growth with reasonable valuations. Finance, technology,
and healthcare remain sectors of emphasis. Financial stocks such as Fannie Mae,
American Express, and Citicorp should benefit as the economy slows and interest
rates fall over the second half of the year. The Portfolio's approach with
respect to the technology sector is to hold industry leaders such as Intel, Sun
Microsystems, and Applied Materials. Our healthcare holdings are
well-diversified, and the sector as a whole stands to benefit as the business
cycle winds down and the market begins to place a premium on dependable
earnings. Finally, the Portfolio's energy position has been increased to 10% of
assets. We view the fears surrounding Iraq's reentry into the market as
overblown in view of tight inventories and improving global demand for oil, and
are also attracted to the sector's relatively favorable valuations.
Going forward, we anticipate continued volatility in stock prices and that
selectivity in stock selection will be crucial as economic growth tapers and
earnings disappointments mount. Capital Growth Portfolio will continue to seek
to provide a prudent and relatively conservative way to participate in the
potential of growth stocks.
Sincerely,
Your Portfolio Management Team
/s/William F. Gadsden /s/Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Lead Portfolio Manager
8
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO
- -------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,048 20.48% 20.48%
5 Year $20,107 101.07% 14.99%
10 Year $31,039 210.39% 11.99%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,600 26.00% 26.00%
5 Year $20,759 107.59% 15.71%
10 Year $36,480 264.80% 13.80%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED JUNE 30
Capital Growth Portfolio
Year Amount
- ----------------------
'86 $10,000
'87 $12,537
'88 $11,893
'89 $13,904
'90 $15,024
'91 $15,437
'92 $18,288
'93 $21,604
'94 $21,414
'95 $25,762
'96 $31,039
S&P 500 Index
Year Amount
- ----------------------
'86 $10,000
'87 $12,516
'88 $11,653
'89 $14,047
'90 $16,363
'91 $17,573
'92 $19,930
'93 $22,646
'94 $22,965
'95 $28,952
'96 $36,480
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-The-Counter market.
Index returns assume reinvestment of dividends and, unlike Fund returns,
do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some
periods were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the Capital Growth Portfolio.
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
- -----------------------
Equity Securities 98% Sector breakdown of the
Cash Equivalents 2% Portfolio's equity holdings
---- ---------------------------
100% Financial 16%
==== Technology 16%
- ----------------------- Health 12%
Manufacturing 11%
A graph in the form of Energy 10%
a pie chart appears here, Consumer Staples 7%
illustrating the exact Consumer Discretionary 6%
data points in the above Transportation 5%
table. Durables 4%
Other 11%
----
98%
----
Finance, technology, and healthcare remain areas of
emphasis for the portfolio.
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (25% of Portfolio)
- ---------------------------------------------------------------------------
1. HEWLETT-PACKARD CO.
Measurement and test instruments, computer systems
2. COLUMBIA/HCA HEALTHCARE CORP.
Leading hospital management company
3. FEDERAL NATIONAL MORTGAGE ASSOCIATION
Insurer and holder of mortgage loans
4. AMR CORP.
Leading airline
5. AMERICAN EXPRESS CREDIT CORP.
Travel and investment services, insurance, and banking
6. ROYAL DUTCH PETROLEUM CO.
International energy company
7. AMERICAN INTERNATIONAL GROUP, INC.
Major international insurance holding company
8. FRANKLIN RESOURCES INC.
Mutual fund investment advisor
9. MCDONALD'S CORP.
Worldwide fast food restaurant franchiser
10. SUN MICROSYSTEMS, INC.
Producer of high-performance workstations, servers and networking
software
9
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
A positive investment environment, together with strong performance of
several portfolio holdings, contributed to a 9.24% total return for the
International Portfolio in the six months ending June 30, 1996. The Portfolio's
return compares favorably with the 4.70% return of the unmanaged MSCI Europe,
Australia, the Far East plus Canada Index, as well as with the 9.02% return of
the average for the 322 international funds tracked by Lipper Analytical
Services. For the trailing twelve months ended June 30, the Portfolio's return
of 16.43% was also in excess of the returns for the Index and the Lipper average
of 292 funds, which were 13.35% and 15.64%, respectively.
In Europe, deregulation, corporate restructuring, and industry
consolidation are themes dominating the portfolio's strategy. Efforts to
deregulate European economies are underway with recent introductions such as
longer hours in the German retail sector and more favorable tax laws for Spanish
investors. Faced with increasing international competition, European managements
are selling off unprofitable assets and focusing on core businesses. Hoechst, a
large German manufacturer of chemicals and pharmaceuticals; and Paribas, a
French holding company present in investment and retail banking with an
important industrial portfolio, reflect the restructuring theme. The healthcare
industry has been a particular beneficiary of consolidation, as the need for
healthcare companies to cut costs and focus business activities has prompted a
number of alliances. The recent merger between Ciba-Geigy and Sandoz, both
long-standing holdings, was recognized by the market as an important step
forward. Also in this vein, the Portfolio holds a number of pharmaceutical
companies such as Astra (Sweden), Schering (Germany), Zeneca (U.K.) and
SmithKline Beecham (U.K.).
In Japan, the long recession is over and economic recovery is underway.
Corporate profitability is enjoying a strong rebound on the back of a weaker
yen, an easing of deflationary pressures, and cost streamlining. Our Japanese
strategy continues to focus on beneficiaries of global competition, the domestic
recovery, and a weakening yen. Bridgestone, with 50% of the Japanese tire
market; and Kajima, a company positioned in the construction sector, are prime
beneficiaries of a recovery in demand, as is Jusco, a major supermarket
operator. Blue-chip global competitors that benefit from a weaker yen, such as
Canon, continue to be core holdings in the Portfolio.
The long-term growth prospects for emerging markets remain intact. Over the
period, we increased our weighting in the Philippines, a country that has moved
to a cycle of more sustainable growth. Our patience with Brazil has been
rewarded as stock prices appreciated substantially in response to positive news
on the privatization front. The International Portfolio continues to provide
broad-based exposure to the many exciting developments unfolding in overseas
economies and stock markets.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
Lead Portfolio Manager
/s/Joan R. Gregory
Joan R. Gregory
10
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO
- -------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,643 16.43% 16.43%
5 Year $17,191 71.91% 11.44%
Life of
Fund* $23,780 137.80% 9.91%
MSCI EAFE & CANADA INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,335 13.35% 13.35%
5 Year $15,971 59.71% 9.81%
Life of
Fund* $16,238 62.38% 5.48%
* The Fund commenced operations on
May 1, 1987. Index comparisons begin
May 31, 1987.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED JUNE 30
International Portfolio
Year Amount
- ----------------------
5/31/87* $10,000
'87 $10,688
'88 $ 9,972
'89 $11,921
'90 $15,492
'91 $13,925
'92 $15,162
'93 $16,537
'94 $20,036
'95 $20,561
'96 $23,939
MSCI EAFE & CANADA INDEX
Year Amount
- ----------------------
5/31/87* $10,000
'87 $ 9,706
'88 $10,092
'89 $11,065
'90 $11,413
'91 $10,167
'92 $10,088
'93 $12,057
'94 $14,007
'95 $14,325
'96 $16,238
The Morgan Stanley Capital International (MSCI) Europe, Australia,
the Far East (EAFE) & Canada Index is an unmanaged capitalization-
weighted measure of stock markets in Europe, Australia, the Far East
and Canada. Index returns assume dividends reinvested net of withholding
tax and, unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. Total returns in some periods
were higher due to maintenance of the Fund's expenses. See Financial
Highlights for the International Portfolio.
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
By Region By Sector
(Excluding Cash Equivalents) (Equity Holdings)
- ---------------------------- -----------------------------
Europe 51% Manufacturing 19%
Japan 27% Financial 11%
Pacific Basin 15% Metals & Minerals 10%
Latin America 4% Technology 7%
Canada 3% Durables 7%
---- Service Industries 7%
100% Communications 6%
==== Utilities 6%
- ---------------------------- Consumer Staples 5%
Other 22%
Graphs in the form of pie charts ----
appears here, illustrating the exact 100%
data points in the above tables. ====
-----------------------------
- ---------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (14% of Portfolio)
- ---------------------------------------------------------------------------
1. CANNON INC.
Leading producer of visual image and information equipment in Japan
2. SAP AG
German computer software manufacturer
3. MATSUSHITA ELECTRICAL INDUSTRIAL CO., LTD.
Leading manufacturer of consumer electronic products in Japan
4. TELECOM ITALIA MOBILE SPA
Cellular telecommunication services in Italy
5. HEINEKEN HOLDINGS N.V.
Brewery in the Netherlands
6. HOECHST AG
Chemical producer in Germany
7. REUTERS HOLDINGS PLC
International news agency in the United Kingdom
8. PORTUGAL TELECOM SA
Telecommunication services in Portugal
9. CARREFOUR
Hypermarket operator and food retailer in France
10. L.M. ERICSSON TELEPHONE CO.
Leading manufacturer of cellular telephone equipment in Sweden
11
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12.4% REPURCHASE AGREEMENT
9,862,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/28/96 at 5.45%, to be repurchased
at $9,866,479 on 7/1/96, collateralized by a $9,261,000
U.S. Treasury Note, 8%, 8/15/99 (Cost $9,862,000)............ 9,862,000
----------
76.6% COMMERCIAL PAPER
CONSUMER STAPLES 1.9%
Food & Beverage
1,500,000 Unilever Capital Corp., 4.8%, 10/15/96......................... 1,478,800
----------
COMMUNICATIONS 3.8%
Telephone/
Communications
3,000,000 BellSouth Capital Funding Corp., 5.32%, 7/16/96................ 2,993,350
----------
DURABLES 3.7%
Construction/
Agricultural Equipment
3,000,000 John Deere Capital Corp., 5.34%, 8/9/96........................ 2,982,645
----------
FINANCIAL 58.1%
Banks 5.6% 1,500,000 Deutsche Bank Financial Inc., 5.18%, 7/23/96................... 1,495,252
3,000,000 Prudential Funding Corp., 5.38%, 8/26/96....................... 2,974,893
----------
4,470,145
----------
Business Finance 10.0% 2,000,000 CIT Holdings Group, 5.25%, 9/10/96............................. 1,979,292
3,000,000 New Center Asset Trust, 5.32%, 9/24/96......................... 2,962,317
3,000,000 Xerox Credit Corp., 5.37%, 8/21/96............................. 2,977,199
----------
7,918,808
----------
Consumer Finance 20.7% 3,000,000 American Express Credit Corp., 5.35%, 7/10/96.................. 3,000,000
3,000,000 AT&T Capital Corp, 5.09%, 7/17/96.............................. 2,993,213
2,000,000 Beneficial Corp., 5.26%, 7/26/96............................... 1,992,694
3,000,000 Ford Motor Credit Corp., 5.29%, 7/9/96......................... 2,996,473
2,500,000 General Electric Capital Corp., 5.29%, 9/25/96................. 2,468,407
3,000,000 Household Finance Corp., 5.37%, 7/8/96......................... 2,996,868
----------
16,447,655
----------
Other Financial
Companies 21.8% 2,500,000 American General Finance Corp., 5.18%, 7/23/96................. 2,492,086
3,000,000 Associates Corp. of North America, 5.4%, 9/26/96............... 2,960,850
3,000,000 Dean Witter, Discover & Co., 5.28%, 7/2/96..................... 2,999,560
3,000,000 Dresdner U.S. Finance, 5.17%, 10/2/96.......................... 2,959,933
3,000,000 PACCAR Financial Corp., 5.29%, 11/15/96........................ 2,939,606
3,000,000 Transamerica Finance Corp., 5.3%, 7/11/96...................... 2,995,583
----------
17,347,618
----------
MANUFACTURING 5.4%
Chemicals 2.5%
2,000,000 E.I. du Pont de Nemours & Co., 5.3%, 7/10/96................... 1,997,350
----------
Machinery/
Components/Controls 2.9%
2,300,000 Pitney Bowes Credit Corp., 5.32%, 7/24/96...................... 2,292,183
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
12
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDIA 3.7%
Broadcasting &
Entertainment
3,000,000 Walt Disney Co., 5.32%, 7/25/96................................. 2,989,360
----------
TOTAL COMMERCIAL PAPER (Cost $60,917,914)....................... 60,917,914
----------
11.0% SHORT-TERM NOTES
1,000,000 Bank of America Illinois, 5.7 5/28/97........................... 999,027
1,000,000 FCC National Bank Note, 5.8%, 10/10/96.......................... 1,000,000
3,000,000 Fifth Third Bank, 5.39%, 8/16/96................................ 3,000,000
750,000 General Electric Capital Corp., 5.29%, 1/13/97.................. 749,720
3,000,000 Harris Trust & Savings Bank, 5.44%, 9/9/96...................... 3,000,000
----------
TOTAL SHORT-TERM NOTES (Cost $8,748,747)........................ 8,748,747
----------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $79,528,661) (a).................. 79,528,661
==========
- -------------------------------------------------------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is $79,528,661.
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
13
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (including repurchase agreements
of $9,862,000) (amortized cost $79,528,661) (Note A)............. $79,528,661
Cash............................................................... 779
Receivables:
Investments sold................................................. 2,575,000
Interest......................................................... 89,061
-----------
Total assets................................................... 82,193,501
LIABILITIES
Payables:
Accrued management fee (Note B)......................... $24,378
Other accrued expenses (Note B)......................... 4,077
Total liabilities.............................................. 28,455
-----------
Net assets, at value............................................... $82,165,046
===========
NET ASSETS
Net assets consist of:
Paid-in capital.................................................. 82,165,046
-----------
Net assets, at value............................................... $82,165,046
===========
NET ASSET VALUE, offering and redemption price per share
($82,165,046 : 82,165,046 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.
- ---
14
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest........................................... $2,200,289
Expenses (Note A):
Management fee (Note B)......................... $149,819
Accounting fees (Note B)........................ 14,987
Trustees' fees (Note B)......................... 9,680
Custodian fees.................................. 6,443
Legal........................................... 2,626
Auditing........................................ 5,541
Other........................................... 6,325 195,421
-------- ----------
Net investment income.............................. 2,004,868
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $2,004,868
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
15
<PAGE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income and net increase in net assets
resulting from operations..................................................... $ 2,004,868 $ 4,571,604
------------ -------------
Distributions to shareholders from net investment income
($.025 and $.055 per share, respectively)..................................... (2,004,868) (4,571,604)
------------ -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold..................................................... 87,640,292 148,542,887
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment income................... 2,004,868 4,571,604
Cost of shares redeemed....................................................... (87,228,005) (163,864,512)
------------ -------------
Net increase (decrease) in net assets from Portfolio share transactions.... 2,417,155 (10,750,021)
------------ -------------
INCREASE (DECREASE) IN NET ASSETS................................................ 2,417,155 (10,750,021)
Net assets at beginning of period................................................ 79,747,891 90,497,912
------------ -------------
NET ASSETS AT END OF PERIOD...................................................... $ 82,165,046 $ 79,747,891
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
16
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1996 ------------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income (a)............ .025 .055 .037 .025 .033 .057 .076 .088 .068 .060
Less distributions from
net investment
income................... (.025) (.055) (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period............ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%)............ 2.49 (d) 5.65 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95
Ratios and
Supplemental Data
Net assets, end of
period ($ millions)...... 82 80 90 49 34 28 32 15 11 8
Ratio of operating
expenses, net to
average daily net
assets (%) (a)........... .48 (c) .50 .56 .66 .64 .67 .69 .72 .75 .75
Ratio of net
investment income
to average daily
net assets (%)........... 4.95 (c) 5.51 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06
(a) Portion of expenses
reimbursed
(Note B)............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .001 $ .003 $ .006
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
<TABLE>
<CAPTION>
For the Period
Six Months July 16, 1985
Ended (commencement
December of operations)
31, to June 30,
1986(e) 1986
---------- --------------
<S> <C> <C>
Net asset value,
beginning of
period................... $1.000 $1.000 (b)
------ ------
Income from
investment operations:
Net investment
income (a)............ .026 .064
Less distributions from
net investment
income................... (.026) (.064)
------ ------
Net asset value,
end of period............ $1.000 $1.000
====== ======
Total Return (%)............ 2.59 (d) 6.59 (d)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions)...... 3 --
Ratio of operating
expenses, net to
average daily net
assets (%) (a)........... .75 (c) .60 (c)
Ratio of net
investment income
to average daily
net assets (%)........... 5.10 (c) 6.75 (c)
(a) Portion of expenses
reimbursed
(Note B)............. $ .022 $ .133
(b) Original capital
(c) Annualized
(d) Not annualized
(e) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
---
17
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5.6% REPURCHASE AGREEMENT
3,359,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/28/96 at 5.45%, to be repurchased at $3,360,526
on 7/1/96, collateralized by a $3,306,000 U.S. Treasury
Note, 7.25%, 8/31/96 (Cost $3,359,000).......................... 3,359,000
----------
23.8% U.S. TREASURY OBLIGATIONS
1,250,000 U.S. Treasury Bond, 7.25%, 5/15/16................................ 1,279,300
1,000,000 U.S. Treasury Bond, 6.25%, 8/15/23................................ 906,560
12,500,000 U.S. Treasury Note, 5.625%, 11/30/00.............................. 12,107,375
----------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $14,923,974)................ 14,293,235
----------
3.1% U.S. GOV'T GUARANTEED MORTGAGES
1,705,910 Government National Mortgage Association, 10%,
8/15/20* (Cost $1,835,986)...................................... 1,858,896
----------
25.7% U.S. GOVERNMENT AGENCY PASS-THRUS
731,243 Federal Home Loan Mortgage Corp., 8%, 4/1/08*..................... 746,687
1,865,929 Federal National Mortgage Association, 8%, 12/1/09*............... 1,907,316
2,000,000 Federal National Mortgage Association, 6.5%, 8/1/25*.............. 1,870,620
3,000,000 Federal National Mortgage Association, 7%, 8/1/25*................ 2,885,610
1,435,869 Federal National Mortgage Association, 6.5%, 10/1/25*............. 1,342,983
1,992,705 Federal National Mortgage Association, 6.5%, 2/1/26*.............. 1,863,797
5,034,455 Federal National Mortgage Association, 7%, 4/1/26*................ 4,842,491
----------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $15,669,233).............................................. 15,459,504
----------
0.1% COLLATERALIZED MORTGAGE OBLIGATIONS
85,943 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18* (Cost $81,592)....................................... 86,480
----------
5.4% FOREIGN BONDS-U.S. $ DENOMINATED
1,000,000 J. Seagram & Sons Inc., 9%, 8/15/21............................. 1,119,530
1,000,000 Korea Development Bank, 9.6%, 12/1/00........................... 1,097,550
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98............... 1,056,250
----------
Total Foreign Bonds-U.S. $ Denominated
(Cost $3,110,129)............................................. 3,273,330
----------
8.4% ASSET-BACKED SECURITIES
Automobile Receivables 1.7% 1,000,000 Premier Auto Trust Series 1996-3A4, 6.75%, 11/6/00.............. 1,005,313
----------
Credit Card
Receivables 1.7% 1,000,000 Standard Credit Card Trust, Series 1990-3B, 9.85%,
7/10/97....................................................... 1,032,810
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
18
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home Equity Loans 3.1% 1,499,989 Contimortgage Home Equity Loan Trust, Series 1996-1 A2,
5.58%, 1/15/11*.............................................. 1,473,738
374,862 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14*............................. 363,850
----------
1,837,588
----------
Manufactured Housing
Receivables 1.9% 1,138,540 Green Tree Financial Corp., Securitized NIM Series
1994B, 7.85%, 7/15/04* ....................................... 1,142,453
----------
TOTAL ASSET-BACKED SECURITIES (Cost $5,134,672)................. 5,018,164
----------
27.9% CORPORATE BONDS
Communications 1.7% 1,000,000 TCI Communications, Inc., 8.65%, 9/15/04........................ 1,019,250
----------
Financial 9.0% 2,000,000 Associates Corp. of North America, 6.625%, 5/15/01.............. 1,976,800
1,000,000 Banc One Corp., 8.74%, 9/15/03.................................. 1,080,960
1,000,000 BankAmerica Corp., 7.125%, 5/1/06............................... 981,030
1,500,000 Midland Bank PLC, 6.95%, 3/15/11................................ 1,407,015
----------
5,445,805
----------
Media 1.7% 1,000,000 Time Warner Inc., 9.125%, 1/15/13............................... 1,044,380
----------
Durables 1.9% 1,000,000 Lockheed Martin Corp., 9%, 1/15/22.............................. 1,129,590
----------
Manufacturing 6.1% 1,000,000 ARCO Chemical Co., 9.375%, 12/15/05............................. 1,134,520
1,000,000 ITT Corp., 6.25%, 11/15/00...................................... 970,610
500,000 ITT Corp., 6.75%, 11/15/05...................................... 472,845
1,000,000 Monsanto Co., 8.7%, 10/15/21.................................... 1,118,950
----------
3,696,925
----------
Technology 1.8% 1,000,000 Loral Corp., 8.375%, 6/15/24.................................... 1,062,770
----------
Energy 3.7% 1,000,000 Atlantic Richfield Co., 9.125%, 8/1/31.......................... 1,170,880
1,000,000 Enron Corp., 10%, 6/1/98........................................ 1,055,660
----------
2,226,540
----------
Transportation 2.0% 600,000 American Airlines, 8.8%, 9/16/15................................ 632,598
575,000 American Airlines, 8.39%, 1/2/17................................ 587,018
----------
1,219,616
----------
TOTAL CORPORATE BONDS (Cost $16,243,090)........................ 16,844,876
----------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $60,357,676) (a)........................................ 60,193,485
==========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
19
<PAGE>
BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C>
* Effective maturities will be shorter due to prepayments.
(a) At June 30, 1996, the net unrealized depreciation on investments
based on cost for federal income tax purposes of $60,369,981 was
as follows:
Aggregate gross unrealized appreciation for all investments in
which there is an excess of market value over tax cost................ $ 904,888
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over market value................ (1,081,384)
-----------
Net unrealized depreciation............................................. $ (176,496)
===========
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1995, the Bond Portfolio had a net tax basis capital loss
carryforward of approximately $428,367, which may be applied against any
realized net taxable capital gains of each succeeding year until fully
utilized or until December 31, 2003, whichever occurs first.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1996, aggregated $24,257,115 and $12,413,976, respectively. Purchases
and sales of U.S. Government securities for the six months ended June 30,
1996, aggregated $10,638,327 and $52,804,503, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1996, for the Bond Portfolio, was $80,207,605.
The accompanying notes are an integral part of the financial statements.
- ---
20
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $60,357,676) (Note A) .............. $60,193,485
Cash ....................................................................... 371
Receivables:
Interest ................................................................ 603,813
Portfolio shares sold ................................................... 6,611,690
-----------
Total assets ......................................................... 67,409,359
LIABILITIES
Payables:
Investments purchased ................................................... $4,761,250
Portfolio shares redeemed ............................................... 40,606
Accrued management fee (Note B) ......................................... 21,658
Other accrued expenses (Note B) ......................................... 21,002
----------
Total liabilities .................................................... 4,844,516
-----------
Net assets, at market value ................................................ $62,564,843
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income ..................................... $ 833,645
Net unrealized depreciation on investments .............................. (164,191)
Accumulated net realized gain ........................................... 165,339
Paid-in capital ......................................................... 61,730,050
-----------
Net assets, at market value ................................................ $62,564,843
===========
NET ASSET VALUE, offering and redemption price per share
($62,564,843 divided by 9,478,974 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) .......... $6.60
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
21
<PAGE>
BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ......................................................... $ 1,923,317
Expenses (Note A):
Management fee (Note B) ....................................... $ 137,643
Accounting fees (Note B) ...................................... 18,823
Trustees' fees (Note B) ....................................... 9,277
Custodian fees ................................................ 7,333
Auditing ...................................................... 3,169
Legal ......................................................... 4,672
Other ......................................................... 5,569 186,486
----------- -----------
Net investment income ............................................ 1,736,831
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain from:
Investments ................................................... 348,035
Futures ....................................................... 129,317
Foreign currency related transactions ......................... 110,719 588,071
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................... (3,614,378)
Foreign currency related transactions ......................... 20,098 (3,594,280)
----------- -----------
Net loss on investment transactions .............................. (3,006,209)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $(1,269,378)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
22
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 1,736,831 $ 8,707,166
Net realized gain from investment transactions ................... 588,071 5,636,324
Net unrealized appreciation (depreciation) on investment
transactions during the period ................................ (3,594,280) 8,197,950
------------ -------------
Net increase (decrease) in net assets resulting from operations ..... (1,269,378) 22,541,440
------------ -------------
Distributions to shareholders from net investment income
($.42 and $.45 per share, respectively) .......................... (3,490,390) (9,011,114)
------------ -------------
Portfolio share transactions:
Proceeds from shares sold ........................................ 17,321,659 57,366,869
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................. 3,490,390 9,011,114
Cost of shares redeemed .......................................... (26,001,895) (149,798,464)
------------ -------------
Net decrease in net assets from Portfolio share transactions ........ (5,189,846) (83,420,481)
------------ -------------
DECREASE IN NET ASSETS .............................................. (9,949,614) (69,890,155)
Net assets at beginning of period ................................... 72,514,457 142,404,612
------------ -------------
NET ASSETS AT END OF PERIOD (including undistributed net investment
income of $833,645 and $2,587,204, respectively) ................. $ 62,564,843 $ 72,514,457
============ =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ........................... 10,126,562 21,973,579
------------ -------------
Shares sold ...................................................... 2,578,513 8,433,349
Shares issued to shareholders in reinvestment of distributions ... 515,113 1,343,624
Shares redeemed .................................................. (3,741,214) (21,623,990)
------------ -------------
Net decrease in Portfolio shares ................................. (647,588) (11,847,017)
------------ -------------
Shares outstanding at end of period ................................. 9,478,974 10,126,562
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
23
<PAGE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31, (e)
1996(e) -----------------------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ------- ------ ------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ................ $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67
------- ------- ------ ------- ------ ------- ------ ------- ------- -------
Income from
investment
operations:
Net investment
income (a) ...... .19 .44 .43 .48 .49 .52 .53 .54 .54 .49
Net realized and
unrealized gain
(loss) on
investment
transactions .... (.33) .69 (.77) .38 (.02) .61 (.02) .18 (.19) (.40)
------- ------- ------ ------- ------ ------- ------ ------- ------- -------
Total from investment
operations ............ (.14) 1.13 (.34) .86 .47 1.13 .51 .72 .35 .09
------- ------- ------ ------- ------ ------- ------ ------- ------- -------
Less distributions from:
Net investment
income .......... (.42) (.45) (.43) (.48) (.46) (.47) (.50) (.39) (.43) (.29)
Net realized gains
on investment
transactions .... -- -- (.17) (.15) (.19) (.02) -- -- -- --
------- ------- ------ ------- ------ ------- ------ ------- ------- -------
Total distributions ...... (.42) (.45) (.60) (.63) (.65) (.49) (.50) (.39) (.43) (.29)
------- ------- ------ ------- ------ ------- ------ ------- ------- -------
Net asset value,
end of period ......... $ 6.60 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47
======= ======= ====== ======= ====== ======= ====== ======= ======= =======
TOTAL RETURN (%) ......... (2.17)(d) 18.17 (4.79) 12.38 7.01 17.61 8.06 11.65 5.46 1.22
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ... 63 73 142 129 113 74 42 22 3 3
Ratio of operating
expenses, net to
average net
assets (%) (a) ........ .64(c) .56 .58 .61 .63 .69 .73 .75 .75 .75
Ratio of net investment
income to average
net assets (%) ........ 5.99(c) 6.29 6.43 6.59 6.89 7.51 8.05 8.04 7.86 7.53
Portfolio turnover
rate (%) .............. 119.65(c) 177.21 96.55 125.15 87.00 115.86 71.02 103.41 245.23 186.05
(a) Portion of
expenses
reimbursed
(Note B) ............. $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .01 $ .04 $ .08
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
<TABLE>
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
December of operations)
31, to June 30,
1986(e)(f) 1986
----------- --------------
<S> <C> <C>
Net asset value,
beginning of
period ................ $ 6.56 $ 6.00(b)
------ ------
Income from
investment
operations:
Net investment
income (a) ...... .23 .45
Net realized and
unrealized gain
(loss) on
investment
transactions .... .08 .44
------ ------
Total from investment
operations ............ .31 .89
------ ------
Less distributions from:
Net investment
income .......... (.17) (.33)
Net realized gains
on investment
transactions .... (.03) --
------ ------
Total distributions ...... (.20) (.33)
------ ------
Net asset value,
end of period ......... $ 6.67 $ 6.56
====== ======
TOTAL RETURN (%) ......... 4.90(d) 15.11(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ... 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ........ .75(c) .60(c)
Ratio of net investment
income to average
net assets (%) ........ 6.88(c) 7.48(c)
Portfolio turnover
rate (%) .............. 23.82(c) 6.27(c)
(a) Portion of
expenses
reimbursed
(Note B) ............. $ .21 $ .80
(b) Original capital
(c) Annualized
(d) Not annualized
(e) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
24
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11.1% REPURCHASE AGREEMENT
8,775,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/28/96 at 5.45%, to be repurchased at $8,778,985
on 7/1/96, collateralized by a $8,790,000 U.S. Treasury
Note, 5.5%, 9/30/97 (Cost $8,775,000).......................... 8,775,000
---------
9.4% U.S. TREASURY OBLIGATIONS
1,200,000 U.S. Treasury Bond, 7.25%, 5/15/16............................... 1,228,128
300,000 U.S. Treasury Bond, 8.125%, 5/15/21.............................. 337,875
1,350,000 U.S. Treasury Bond, 6.25%, 8/15/23............................... 1,223,856
275,000 U.S. Treasury Note, 4.375%, 11/15/96............................. 273,884
550,000 U.S. Treasury Note, 4.75%, 2/15/97............................... 546,733
250,000 U.S. Treasury Note, 6.125%, 5/31/97.............................. 250,780
1,000,000 U.S. Treasury Note, 5.25%, 7/31/98............................... 982,660
2,400,000 U.S. Treasury Note, 5.625%, 11/30/00............................. 2,324,616
800,000 U.S. Treasury Separate Trading Registered Interest
and Principal Securities, 11/15/10 (7.07**).................... 294,520
---------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $7,647,759)................ 7,463,052
---------
1.6% U.S. GOV'T GUARANTEED MORTGAGES
632,088 Government National Mortgage Association, 10%, 8/15/20 (a)....... 688,774
530,280 Government National Mortgage Association, 8.75%, 12/15/24 (a).... 542,540
---------
TOTAL U.S. GOV'T GUARANTEED MORTGAGES (Cost $1,183,388).......... 1,231,314
---------
6.7% U.S. GOVERNMENT AGENCY PASS-THRUS
1,218,738 Federal Home Loan Mortgage Corp., 8%, 4/1/08 (a)................. 1,244,478
971,430 Federal National Mortgage Association, 6.5%, 10/1/25 (a)......... 908,588
806,923 Federal National Mortgage Association, 6.5%, 2/1/26 (a).......... 754,723
2,516,227 Federal National Mortgage Association, 7%, 4/1/26 (a)............ 2,420,283
---------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $5,422,322).............................................. 5,328,072
---------
0.1% COLLATERALIZED MORTGAGE OBLIGATIONS
85,943 Federal National Mortgage Association, REMIC,
8.5%, 4/25/18 (Cost $82,559) (a)............................... 86,480
---------
0.6% FOREIGN BONDS - U.S. $ DENOMINATED
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23................................. 250,634
250,000 Seagram Co., Ltd., 6.875%, 9/1/23................................ 223,108
---------
TOTAL FOREIGN BONDS - U.S. $ DENOMINATED
(Cost $461,469)................................................ 473,742
---------
2.4% ASSET-BACKED SECURITIES
AUTOMOBILE RECEIVABLES 0.8%
134,589 Premier Auto Trust Series 1994-3, 6.8%, 12/2/99.................. 135,262
500,000 Premier Auto Trust Series 1996-3, 6.5%, 3/6/00................... 501,563
---------
636,825
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
25
<PAGE>
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CREDIT CARD RECEIVABLES 0.5%
125,000 First Chicago Master Trust, Series 1991-D, 8.4%,
6/15/98........................................................ 125,546
250,000 Standard Credit Card Trust, Series 1990-6B, 9.625%,
9/10/97........................................................ 258,593
---------
384,139
---------
HOME EQUITY LOANS 0.7%
499,996 Contimortgage Home Equity Loan Trust, Series 1996-1 A2,
5.58%, 1/15/11 (a)............................................. 491,246
93,715 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 (a)............................ 90,963
---------
582,209
---------
MANUFACTURED HOUSING
RECEIVABLES 0.4%
282,311 Green Tree Financial Corp. Series 1995-7 A1, 6%,
10/15/26 (a)................................................... 282,398
---------
TOTAL ASSET-BACKED SECURITIES (Cost $1,908,558).................. 1,885,571
---------
8.6% CORPORATE BONDS
CONSUMER DISCRETIONARY 0.3%
250,000 Price/Costco Inc., 7.125%, 6/15/05............................... 243,195
---------
CONSUMER STAPLES 0.3%
270,000 J. Seagram & Sons Inc., 7%, 4/15/08.............................. 260,169
---------
COMMUNICATIONS 0.7%
500,000 TCI Communications, Inc., 8.65%, 9/15/04......................... 509,625
---------
FINANCIAL 2.4%
750,000 Associates Corp. of North America, 6.625%, 5/15/01............... 741,300
500,000 Midland Bank PLC, 6.95%, 3/15/11................................. 469,005
250,000 NationsBank Corp., 7.25%, 10/15/25............................... 232,963
500,000 Wells Fargo & Co., 6.875%, 4/1/06................................ 481,670
---------
1,924,938
---------
MEDIA 1.3%
1,000,000 Time Warner Inc., 9.125%, 1/15/13................................ 1,044,380
---------
DURABLES 0.4%
250,000 Lockheed Martin Corp., 9%, 1/15/22............................... 282,398
---------
MANUFACTURING 0.9%
250,000 Corning Inc., 8.75%, 7/15/99..................................... 260,995
200,000 ITT Corp., 6.25%, 11/15/00....................................... 194,122
300,000 ITT Corp., 6.75%, 11/15/05....................................... 283,707
---------
738,824
---------
TECHNOLOGY 0.7%
500,000 Loral Corp., 8.375%, 6/15/24..................................... 531,385
---------
ENERGY 1.0%
500,000 Atlantic Richfield Co., 8.25%, 2/1/22............................ 534,760
250,000 Enron Corp., 10%, 6/1/98......................................... 263,915
---------
798,675
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
26
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION 0.3%
100,000 American Airlines, 8.8%, 9/16/15.................................. 105,433
100,000 American Airlines, 8.39%, 1/2/17.................................. 102,090
---------
207,523
---------
UTILITIES 0.3%
250,000 Commonwealth Edison Co., 9.05%, 10/15/99.......................... 258,518
---------
Total Corporate Bonds (Cost $6,716,251)......................... 6,799,630
---------
<CAPTION>
59.5% COMMON STOCKS
Shares
------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 6.7%
Department & Chain
Stores 2.6% 16,200 Nordstrom, Inc.................................................... 720,900
17,400 Price/Costco Inc.*................................................ 376,275
36,000 Wal-Mart Stores Inc............................................... 913,500
---------
2,010,675
---------
Hotels & Casinos 1.0% 12,800 Grand Casinos Inc.*............................................... 329,600
37,600 Host Marriott Corp.*.............................................. 493,500
---------
823,100
---------
Restaurants 1.4% 24,200 McDonald's Corp................................................... 1,131,350
---------
Specialty Retail 1.7% 17,000 Corporate Express, Inc.*.......................................... 680,000
28,600 Intimate Brands, Inc.............................................. 654,225
---------
1,334,225
---------
CONSUMER STAPLES 11.0%
Alcohol & Tobacco 3.2% 13,000 Anheuser-Busch Companies, Inc..................................... 975,000
15,100 Philip Morris Companies Inc....................................... 1,570,400
---------
2,545,400
---------
Consumer Electronic &
Photographic Products 0.5%
8,600 Duracell International Inc........................................ 370,875
---------
Food & Beverage 4.5% 23,000 Albertson's Inc................................................... 951,625
16,900 Coca-Cola Co., Inc................................................ 825,988
11,400 Dole Food Co...................................................... 490,200
36,800 PepsiCo Inc....................................................... 1,301,800
---------
3,569,613
---------
Package Goods/
Cosmetics 2.8% 4,200 Clorox Co......................................................... 372,225
8,600 Gillette Co....................................................... 536,425
14,800 Procter & Gamble Co............................................... 1,341,250
---------
2,249,900
---------
HEALTH 10.0%
Biotechnology 1.3% 11,500 Amgen Inc.*....................................................... 621,000
8,839 Guidant Corp...................................................... 435,321
---------
1,056,321
---------
Medical Supply &
Specialty 0.8% 11,300 Medtronic Inc..................................................... 632,800
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
27
<PAGE>
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 7.9% 9,500 American Home Products Corp....................................... 571,188
16,100 Baxter International Inc.......................................... 760,725
15,470 Eli Lilly & Co.................................................... 1,005,550
21,800 Johnson & Johnson................................................. 1,079,100
17,200 Merck & Co. Inc................................................... 1,111,550
7,000 Pfizer, Inc....................................................... 499,625
9,600 Sandoz Ltd. AG (ADR).............................................. 547,800
12,200 SmithKline Beecham PLC (ADR)...................................... 663,375
---------
6,238,913
---------
COMMUNICATIONS 0.9%
Telephone/
Communications 11,900 American Telephone & Telegraph Co................................. 737,800
---------
FINANCIAL 4.3%
Banks 1.0% 16,100 State Street Boston Corp.......................................... 821,100
---------
Insurance 2.2% 11,150 American International Group, Inc................................. 1,099,669
8,100 MBIA Inc.......................................................... 630,788
---------
1,730,457
---------
Consumer Finance 0.5% 9,200 Associates First Capital Corp.*................................... 346,150
---------
Other Financial
Companies 0.6% 14,200 Federal National Mortgage Association............................. 475,700
---------
MEDIA 3.1%
Advertising 0.6% 10,000 Interpublic Group of Companies Inc................................ 468,750
---------
Broadcasting &
Entertainment 2.5% 7,300 Clear Channel Communications, Inc.*............................... 601,338
17,200 Time Warner Inc................................................... 675,100
11,500 Walt Disney Co.................................................... 723,063
---------
1,999,501
---------
SERVICE INDUSTRIES 5.9%
EDP Services 2.2% 17,400 Electronic Data Systems Corp...................................... 935,250
9,700 First Data Corp................................................... 772,363
---------
1,707,613
---------
Investment 0.9% 28,400 Charles Schwab Corp............................................... 695,800
---------
Miscellaneous
Commercial
Services 0.5% 23,900 Sensormatic Electronics Corp...................................... 391,363
---------
Miscellaneous
Consumer
Services 1.5% 14,600 CUC International Inc.*........................................... 518,300
11,600 Service Corp. International....................................... 667,000
---------
1,185,300
---------
Printing/Publishing 0.8% 8,500 Reuters Holdings PLC "B" (ADR).................................... 616,250
---------
DURABLES 1.4%
Telecommunications
Equipment 10,800 Ascend Communications, Inc.*...................................... 607,500
5,700 U.S. Robotics Corp.*.............................................. 487,350
---------
1,094,850
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
28
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING 7.6%
Chemicals 1.5% 12,000 Praxair Inc....................................................... 507,000
12,800 Sigma-Aldrich Corp................................................ 684,800
----------
1,191,800
----------
Diversified
Manufacturing 3.0% 17,400 General Electric Co............................................... 1,505,100
8,300 Honeywell, Inc.................................................... 452,350
9,675 Thermo Electron Corp.............................................. 402,722
----------
2,360,172
----------
Electrical Products 2.5% 4,300 ASEA AB (ADR)..................................................... 452,575
11,600 Emerson Electric Co............................................... 1,048,350
14,400 FORE Systems, Inc.*............................................... 520,200
----------
2,021,125
----------
Hand Tools 0.6% 11,700 Black & Decker Corp............................................... 451,913
----------
TECHNOLOGY 7.0%
Computer Software 2.3% 7,500 Computer Associates International, Inc............................ 534,375
7,600 Microsoft Corp.*.................................................. 912,950
9,800 Oracle Systems Corp.*............................................. 386,488
----------
1,833,813
----------
Electronic Components/
Distributors 0.6% 12,400 Altera Corp.*..................................................... 471,200
----------
Electronic Data
Processing 1.0% 8,200 Hewlett-Packard Co................................................ 816,925
----------
Office/Plant
Automation 2.1% 20,600 3Com Corp.*....................................................... 942,450
12,600 Cisco Systems, Inc.*.............................................. 713,475
----------
1,655,925
----------
Semiconductors 1.0% 26,200 Atmel Corp.*...................................................... 789,275
----------
ENERGY 1.6%
Engineering 0.7% 8,700 Fluor Corp........................................................ 568,763
----------
Oil/Gas Transmission 0.9% 17,200 Enron Corp........................................................ 703,050
----------
TOTAL COMMON STOCKS (Cost $38,036,996)............................ 47,097,767
----------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $70,234,302) (b).......................................... 79,140,628
==========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
---
29
<PAGE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
* Non-income producing security.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) Effective maturities will be shorter due to prepayments.
(b) At June 30, 1996, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $70,263,758 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost..................................... 9,880,098
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value..................................... (1,003,228)
-----------
Net unrealized appreciation...................................................... $ 8,876,870
===========
- ---------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1996, aggregated $29,942,488 and $22,457,379, respectively. Purchases
and sales of U.S. Government securities for the six months ended June 30,
1996, aggregated $2,514,695 and $7,002,863, respectively.
The accompanying notes are an integral part of the financial statements.
- ---
30
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Investments, at market (identified cost $70,234,302) (Note A) ... $79,140,628
Cash ............................................................ 489
Receivables:
Investments sold ........................................ 111,555
Dividends and interest .................................. 363,138
Portfolio shares sold ................................... 82,904
-----------
Total assets ........................................... 79,698,714
LIABILITIES
Payables:
Investments purchased ................................... $138,481
Portfolio shares redeemed ............................... 39,098
Accrued management fee (Note B) ......................... 30,529
Other accrued expenses (Note B) ......................... 28,336
--------
Total liabilities ............................... 236,444
-----------
Net assets, at market value ..................................... $79,462,270
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income ..................... $ 504,407
Net unrealized appreciation on investments .............. 8,906,326
Accumulated net realized gain ........................... 3,236,316
Paid-in capital ......................................... 66,815,221
-----------
Net assets, at market value ..................................... $79,462,270
===========
NET ASSET VALUE, offering and redemption price per share
($79,462,270 divided by 7,123,484 outstanding shares of
beneficial interest, no par value, unlimited number of
shares authorized)........................................... $11.15
======
</TABLE>
The accompanying notes are an integral part of the financial statement.
--
31
<PAGE>
.
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 (Unaudited)
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest ................................................ $ 935,332
Dividends (net of foreign taxes withheld of $3,971) ..... 293,962
----------
1,229,294
Expenses (Note A):
Management fee (Note B) ................................. $ 173,914
Accounting fees (Note B) ................................ 20,654
Trustees' fees (Note B) ................................. 9,440
Custodian fees .......................................... 9,465
Auditing ................................................ 5,312
Legal ................................................... 333
Other ................................................... 10,733 229,851
---------- ----------
Net investment income ........................................... 999,443
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain from:
Investments .............................................. 3,297,678
Foreign currency related transactions .................... 32,727 3,330,405
----------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................. (20,820)
Foreign currency related transactions ................... 5,965 (14,855)
---------- ----------
Net gain on investment transactions ............................. 3,315,550
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $4,314,993
==========
</TABLE>
The accompanying notes are an integral part of the financial statement.
- --
32
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1996 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 999,443 $ 1,709,893
Net realized gain from investment transactions ................... 3,330,405 2,307,029
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................... (14,855) 9,159,100
------------ ------------
Net increase in net assets resulting from operations ..................... 4,314,993 13,176,022
------------ ------------
Distributions to shareholders from:
Net investment income ($.15 and $.30 per share, respectively)..... (978,873) (1,673,390)
------------ ------------
Net realized gains from investment transactions
($.30 and $.06 per share, respectively) .................. (1,925,657) (316,977)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ........................................ 14,413,628 16,676,142
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 2,904,530 1,990,367
Cost of shares redeemed .......................................... (7,192,140) (7,450,950)
------------ ------------
Net increase in net assets from Portfolio share transactions ............. 10,126,018 11,215,559
------------ ------------
INCREASE IN NET ASSETS ................................................... 11,536,481 22,401,214
Net assets at beginning of period ........................................ 67,925,789 45,524,575
------------ ------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $504,407 and $483,837, respectively) ........ $ 79,462,270 $ 67,925,789
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ................................ 6,206,064 5,076,236
------------ ------------
Shares sold ...................................................... 1,310,479 1,667,336
Shares issued to shareholders in reinvestment of distributions.... 264,827 204,454
Shares redeemed .................................................. (657,886) (741,962)
------------ ------------
Net increase in Portfolio shares ................................. 917,420 1,129,828
------------ ------------
Shares outstanding at end of period ...................................... 7,123,484 6,206,064
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
33
<PAGE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31, (e)
1996(e) --------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989
----------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period .............. $10.95 $ 8.97 $ 10.23 $ 10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62
------ ------ ------- ------- ------ ------- ------ ------
Income from
investment
operations:
Net investment
income (a) ........ .15 .30 .29 .30 .29 .35 .42 .40
Net realized and
unrealized
gain (loss) on
investment
transactions ...... .50 2.04 (.48) .42 .36 1.77 (.59) 1.06
------ ------ ------- ------- ------ ------- ------ ------
Total from investment
operations .......... .65 2.34 (.19) .72 .65 2.12 (.17) 1.46
------ ------ ------- ------- ------ ------- ------ ------
Less distributions
from:
Net investment
income ............ (.15) (.30) (.30) (.28) (.29) (.37) (.43) (.33)
Net realized gains
on investment
transactions ...... (.30) (.06) (.77) (.23) (.19) - (.05) -
------ ------ ------- ------- ------ ------- ------ ------
Total distributions ... (.45) (.36) (1.07) (.51) (.48) (.37) (.48) (.33)
------ ------ ------- ------- ------ ------- ------ ------
Net asset value,
end of period ..... $11.15 $10.95 $ 8.97 $ 10.23 $10.02 $ 9.85 $ 8.10 $ 8.75
====== ====== ======= ======= ====== ======= ====== ======
TOTAL RETURN (%) ...... 6.05(d) 26.67 (2.05) 7.45 6.96 26.93 (1.91) 19.50
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions).. 79 68 46 45 37 25 16 18
Ratio of operating
expenses, net to
average net
assets (%) (a) ...... .63(c) .65 .75 .75 .75 .75 .75 .75
Ratio of net
investment income
average
net assets (%) ...... 2.74(c) 3.01 3.19 3.01 3.01 4.00 5.15 4.74
Portfolio turnover
rate (%) ............ 87.10(c) 87.98 101.64 133.95* 51.66 62.03 49.03 77.98
Average commission
rate paid (g) ....... $.0515 $ - $ - $ - $ - $ - $ - $ -
(a)Portion of
expenses
reimbursed
(Note B) ........... $ - $ - $ - $ - $ - $ .01 $ - $ .01
(b)Original capital
(c)Annualized
(d)Not annualized
(e)Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f)On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
(g)Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
<TABLE>
Six For the Period
Months July 16, 1985
Years Ended Ended (commencement
December 31, (e) December of operations)
----------------- 31, to June 30,
1988 1987 1986(e)(f) 1986
----------------- ---------- ---------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period ............... $ 6.88 $ 7.35 $ 7.58 $ 6.00(b)
------- ------- ------ ------
Income from
investment
operations:
Net investment
income (a) ........ .33 .34 .15 .31
Net realized and
unrealized
gain (loss) on
investment
transactions ...... .64 (.45) (.11) 1.50
------- ------- ------ ------
Total from investment
operations .......... .97 (.11) .04 1.81
------- ------- ------ ------
Less distributions
from:
Net investment
income ............ (.23) (.23) (.18) (.23)
Net realized gains
on investment
transactions ...... - (.13) (.09) -
------- ------- ------ ------
Total distributions ... (.23) (.36) (.27) (.23)
------- ------- ------ ------
Net asset value,
end of period ..... $ 7.62 $ 6.88 $ 7.35 $ 7.58
======= ======= ====== ======
TOTAL RETURN (%) ...... 14.21 (1.68) .46(d) 30.60(d)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions).. 11 12 1 -
Ratio of operating
expenses, net to
average net
assets (%) (a) ...... .75 .75 .75(c) .60(c)
Ratio of net
investment income
average
net assets (%) ...... 4.48 4.42 4.20(c) 4.87(c)
Portfolio turnover
rate (%) ............ 109.95 111.00 28.86(c) 64.12(c)
Average commission
rate paid (g) ....... $ - $ - $ - $ -
(a)Portion of
expenses
reimbursed
(Note B) ........... $ .03 $ .03 $ .17 $ .80
(b)Original capital
(c)Annualized
(d)Not annualized
(e)Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(f)On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
(g)Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
</TABLE>
* On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income from a diversified
portfolio of equity and fixed income securities. Prior to that date, the
Portfolio was known as the Managed Diversified Portfolio and its investment
objective was to realize a high level of long-term total rate of return
consistent with prudent investment risk. The portfolio turnover rate
increased due to implementing the present investment objective. Financial
highlights for the nine periods ended December 31, 1993 should not be
considered representative of the present Portfolio.
- --
34
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2.5% REPURCHASE AGREEMENT
9,631,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 6/28/96 at 5.45%, to
be repurchased at $9,635,374 on 7/1/96,
collateralized by a $9,881,000 U.S. Treasury
Note, 6.5%, 5/15/97 (Cost $9,631,000) ....... 9,631,000
---------
97.5% COMMON STOCKS
Shares
------------------------------------------------------------------------
CONSUMER DISCRETIONARY 6.2%
Department &
Chain Stores 2.2% 100,000 May Department Stores ....................... 4,375,000
120,000 Walgreen Co. ................................ 4,020,000
----------
8,395,000
----------
Hotels & Casinos 0.8% 117,000 Grand Casinos Inc.* ........................ 3,012,750
----------
Restaurants 1.9% 160,000 McDonald's Corp. ........................... 7,480,000
----------
Specialty Retail 1.3% 24,000 Gucci Group (New York Shares)* ............. 1,548,000
150,600 Intimate Brands, Inc. ...................... 3,444,975
----------
4,992,975
----------
CONSUMER STAPLES 7.0%
Alcohol & Tobacco 1.6% 85,000 Anheuser-Busch Companies, Inc. .............. 6,375,000
----------
Food & Beverage 2.1% 90,000 Albertson's Inc. ............................ 3,723,750
100,000 ConAgra Inc. ................................ 4,537,500
----------
8,261,250
----------
Package Goods/
Cosmetics 3.3% 70,000 Clorox Co. .................................. 6,203,750
56,000 Estee Lauder Companies "A" .................. 2,366,000
45,000 Procter & Gamble Co. ........................ 4,078,125
----------
12,647,875
----------
HEALTH 11.6%
Health Industry Services 1.0% 137,000 Bergen Brunswig Corp. "A" ................... 3,801,750
----------
Hospital Management 3.0% 220,000 Columbia/HCA Healthcare Corp. ............... 11,742,500
----------
Medical Supply &
Specialty 1.7% 81,000 Becton, Dickinson & Co. ..................... 6,500,250
----------
Pharmaceuticals 5.9% 90,000 American Home Products Corp. ................ 5,411,250
95,050 Astra AB "B" (Free) ......................... 4,149,464
90,000 Johnson & Johnson ........................... 4,455,000
75,000 Merck & Co. Inc. ............................ 4,846,875
64,000 Schering-Plough Corp. ....................... 4,016,000
----------
22,878,589
----------
FINANCIAL 16.4%
Banks 4.2% 80,000 Citicorp ........................................ 6,610,000
37,000 J.P. Morgan & Co., Inc. ......................... 3,131,125
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
35
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
95,000 Norwest Corp. ........................... 3,313,125
80,000 Wachovia Corp. .......................... 3,500,000
----------
16,554,250
----------
Insurance 5.8% 88,500 American International Group, Inc. ...... 8,728,313
23,600 Chubb Corp. ............................. 1,177,050
90,000 EXEL, Ltd. .............................. 6,345,000
80,000 MBIA Inc. ............................... 6,230,000
----------
22,480,363
----------
Consumer Finance 1.0% 100,100 Associates First Capital Corp* .......... 3,766,263
----------
Other Financial
Companies 5.4% 205,000 American Express Credit Corp. ........... 9,148,125
350,000 Federal National Mortgage Association ... 11,725,000
----------
20,873,125
----------
MEDIA 3.2%
Broadcasting &
Entertainment 1.3% 81,000 Walt Disney Co. ......................... 5,092,875
----------
Cable Television 0.8% 54,750 Comcast Corp. "A" ....................... 1,012,875
84,576 Tele-Comm Liberty Media Group "A"* ...... 2,241,264
----------
3,254,139
----------
Print Media 1.1% 58,000 Gannett Co., Inc. ....................... 4,103,500
----------
SERVICE INDUSTRIES 2.2%
Environmental Services 0.2% 69,900 Destec Energy Inc.* ..................... 891,225
----------
Investment 2.0% 127,400 Franklin Resources Inc. ................. 7,771,400
----------
DURABLES 4.4%
Aerospace 50,000 Lockheed Martin Corp. ................... 4,200,000
110,000 Rockwell International Corp. ............ 6,297,500
55,000 United Technologies Corp. ............... 6,325,000
----------
16,822,500
----------
MANUFACTURING 11.3%
Chemicals 3.4% 65,000 E.I. du Pont de Nemours & Co. ........... 5,143,125
98,900 Praxair Inc. ............................ 4,178,525
73,000 Sigma-Aldrich Corp. ..................... 3,905,500
----------
13,227,150
----------
Diversified
Manufacturing 2.6% 60,000 TRW Inc. ................................ 5,392,500
60,000 Textron, Inc. ........................... 4,792,500
----------
10,185,000
----------
Electrical Products 2.6% 37,500 ASEA AB (ADR) ........................... 3,946,875
40,000 Emerson Electric Co. .................... 3,615,000
71,600 Philips NV (New York shares) ............ 2,335,950
----------
9,897,825
----------
Machinery/Components/
Controls 2.7% 100,000 Ingersoll-Rand Co. ...................... 4,375,000
145,000 Parker-Hannifin Group ................... 6,144,375
----------
10,519,375
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
36
<PAGE>
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TECHNOLOGY 16.2%
Diverse Electronic
Products 1.7% 110,000 General Motors Corp. "H" .............. 6,613,750
----------
Electronic Data
Processing 5.9% 130,000 Hewlett-Packard Co. ................... 12,951,250
25,000 International Business Machines Corp... 2,475,000
125,000 Sun Microsystems, Inc.* ............... 7,359,375
----------
22,785,625
----------
Office/Plant
Automation 3.6% 77,000 3Com Corp.* ........................... 3,522,750
50,000 Cabletron Systems Inc.* ............... 3,431,250
125,000 Cisco Systems, Inc.* .................. 7,078,125
----------
14,032,125
----------
Semiconductors 5.0% 225,000 Applied Materials, Inc.* .............. 6,862,500
174,800 Atmel Corp.* .......................... 5,265,850
100,000 Intel Corp. ........................... 7,343,750
----------
19,472,100
----------
ENERGY 9.9%
Engineering 0.9% 50,000 Fluor Corp. ........................... 3,268,750
----------
Oil & Gas Production 1.0% 78,800 Triton Energy Ltd.* ................... 3,831,650
----------
Oil Companies 6.4% 99,800 Amoco Corp. ........................... 7,223,025
40,000 Mobil Corp. ........................... 4,485,000
125,000 Repsol SA (ADR) ....................... 4,343,750
58,000 Royal Dutch Petroleum Co.
(New York shares) .................. 8,917,500
----------
24,969,275
----------
Oil/Gas Transmission 1.6% 150,000 Enron Corp. ........................... 6,131,250
----------
CONSTRUCTION 0.9%
Forest Products 165,000 Louisiana-Pacific Corp. ............... 3,650,625
----------
TRANSPORTATION 5.2%
Airlines 2.9% 125,000 AMR Corp.* ............................ 11,375,000
----------
Railroads 2.3% 120,000 Canadian Pacific Ltd. ................. 2,640,000
47,000 Consolidated Rail Corp. ............... 3,119,625
90,000 Wisconsin Central Transportation Co.*.. 2,925,000
----------
8,684,625
----------
UTILITIES 3.0%
Electric Utilities 20,000 CILCORP, Inc. ......................... 855,000
20,000 CMS Energy Corp. ...................... 617,500
43,700 Centrais Eletricas Brasileiras S/A (ADR) 614,531
50,000 Eastern Utilities Association ......... 981,250
126,750 Iberdrola SA .......................... 1,302,107
30,000 Illinova Corp. ........................ 862,500
50,000 National Power PLC .................... 403,780
155,000 PowerGen PLC .......................... 1,128,953
79,000 Public Service Co. of New Mexico ...... 1,619,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
37
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
30,000 TNP Enterprises Inc. ................ 851,250
60,140 Tucson Electric Power Co. ........... 811,890
60,000 Unicom Corp. ........................ 1,672,500
-----------
11,720,761
-----------
TOTAL COMMON STOCKS
(Cost $327,423,397) ........... 378,062,465
-----------
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $337,054,397) (a) 387,693,465
===========
- ----------------------------------------------------------------------------------------------------
* Non-income producing security.
(a) At June 30, 1996, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $337,054,397 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ..................................... $ 56,953,204
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value ..................................... (6,314,136)
-----------
Net unrealized appreciation .................................................... $ 50,639,068
============
- ----------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1996, aggregated
$154,607,336 and $121,641,579, respectively.
The accompanying notes are an integral part of the financial statements.
--
38
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $337,054,397)
(Note A) ..................................................... $ 387,693,465
Cash ......................................................... 650
Receivables:
Investments sold ..................................... 2,269,983
Portfolio shares sold ................................ 1,004,750
Dividends and interest ............................... 311,709
-------------
Total assets ................................. 391,280,557
LIABILITIES
Payables:
Investments purchased ................................ $ 975,543
Portfolio shares redeemed ............................ 27,852
Accrued management fee (Note B) ...................... 151,007
Other accrued expenses (Note B) ...................... 61,143
-------------
Total liabilities ............................ 1,215,545
-------------
Net assets, at market value .................................. $ 390,065,012
=============
NET ASSETS
Net assets consist of:
Undistributed net investment income .................. $ 1,369,506
Net unrealized appreciation (depreciation) on:
Investments .................................. 50,639,068
Foreign currency related transactions ........ (178)
Accumulated net realized gain ........................ 16,616,750
Paid-in capital ...................................... 321,439,866
-------------
Net assets, at market value .................................. $ 390,065,012
=============
NET ASSET VALUE, offering and redemption price per share
($390,065,012 (divided by) 25,874,748 outstanding
shares of beneficial interest, no par value, unlimited
number of shares authorized) ......................... $ 15.08
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
39
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $95,803) ...... $ 2,874,060
Interest .................................................. 366,804
-----------
3,240,864
Expenses (Note A):
Management fee (Note B) ................................... $ 872,000
Accounting fees (Note B) .................................. 34,594
Trustees' fees (Note B) ................................... 10,511
Custodian fees ............................................ 22,434
Auditing .................................................. 20,152
Legal ..................................................... 1,768
Other ..................................................... 25,785 987,244
------------ -----------
Net investment income ............................................. 2,253,620
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ............................................... 16,725,909
Foreign currency related transactions ..................... (3,308) 16,722,601
------------ -----------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................... 12,056,572
Foreign currency related transactions ..................... (199) 12,056,373
------------ -----------
Net gain on investment transactions ............................... 28,778,974
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $31,032,594
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
40
<PAGE>
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................... $ 2,253,620 $ 3,089,532
Net realized gain from investment transactions .................. 16,722,601 28,439,406
Net unrealized appreciation on investment
transactions during the period .......................... 12,056,373 40,615,497
------------- -------------
Net increase in net assets resulting from operations .................... 31,032,594 72,144,435
------------- -------------
Distributions to shareholders from:
Net investment income ($.09 and $.11 per share, respectively) ... (2,134,964) (2,245,727)
------------- -------------
Net realized gain from investment transactions
($1.26 and $.43 per share, respectively) ............... (28,547,850) (8,804,833)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ....................................... 75,429,747 125,834,281
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 30,682,814 11,050,560
Cost of shares redeemed ......................................... (54,065,809) (116,840,991)
------------- -------------
Net increase in net assets from Portfolio share transactions ............ 52,046,752 20,043,850
------------- -------------
INCREASE IN NET ASSETS .................................................. 52,396,532 81,137,725
Net assets at beginning of period ....................................... 337,668,480 256,530,755
------------- -------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $1,369,506 and $1,250,850, respectively) ... $ 390,065,012 $ 337,668,480
============= =============
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ............................... 22,392,030 20,979,934
------------- -------------
Shares sold ..................................................... 5,028,948 9,213,682
Shares issued to shareholders in reinvestment of distributions... 2,062,011 896,773
Shares redeemed ................................................. (3,608,241) (8,698,359)
------------- -------------
Net increase in Portfolio shares ................................ 3,482,718 1,412,096
------------- -------------
Shares outstanding at end of period ..................................... 25,874,748 22,392,030
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
41
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31, (f)
1996(f) -------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ...... $15.08 $ 12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67
------ ------- ------ ------ ------ ------ ------ ------ ------- -------
Income from
investment operations:
Net investment
income (a) ............. .09 .14 .06 .06 .11 .16 .25 .35 .16 .15
Net realized and
unrealized gain
(loss) on
investment
transactions ........... 1.26 3.25 (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28)
------ ------- ------ ------ ------ ------ ------ ------ ------- -------
Total from investment
operations ............. 1.35 3.39 (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13)
------ ------- ------ ------ ------ ------ ------ ------ ------- -------
Less distributions from:
Net investment
income ................. (.09) (.11) (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09)
Net realized gains
on investment
transactions ........... (1.26) (.43) (1.31) (.27) (.23) -- (.23) -- -- (.39)
------ ------- ------ ------ ------ ------ ------ ------ ------- -------
Total distributions ........ (1.35) (.54) (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48)
------ ------- ------ ------ ------ ------ ------ ------ ------- -------
Net asset value,
end of period ............ $15.08 $ 15.08 $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06
====== ======= ====== ====== ====== ====== ====== ====== ======= =======
TOTAL RETURN (%) ........... 9.09(e) 28.65 (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ...... 390 338 257 257 167 108 45 45 17 10
Ratio of operating
expenses, net to
average net
assets (%) (a) ........... .54(d) .57 .58 .60 .63 .71 .72 .75 .75 .75
Ratio of net
investment income
to average
net assets (%) ........... 1.23(d) 1.06 .47 .46 .95 1.49 2.71 3.51 2.17 1.68
Portfolio turnover
rate (%) ................. 68.45(d) 119.41 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34
Average commission
rate paid (b) ............ $.0593 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
(a) Portion of
expenses
reimbursed
(Note B) ............... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .01 $ .01 $ .04
<CAPTION>
Six For the Period
Months July 16, 1985
Ended (commencement
December of operations)
31, to June 30,
1986(f)(g) 1986
--------- --------------
<S> <C> <C>
Net asset value,
beginning of period ...... $ 7.93 $ 6.00(c)
------ ------
Income from
investment operations:
Net investment
income (a) ............. .09 .19
Net realized and
unrealized gain
(loss) on
investment
transactions ........... (.07) 1.87
------ ------
Total from investment
operations ............. .02 2.06
------ ------
Less distributions from:
Net investment
income ................. (.07) (.13)
Net realized gains
on investment
transactions ........... (.21) --
------ ------
Total distributions ........ (.28) (.13)
------ ------
Net asset value,
end of period ............ $ 7.67 $ 7.93
====== ======
TOTAL RETURN (%) ........... .26(e) 34.66(e)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) ...... 1 --
Ratio of operating
expenses, net to
average net
assets (%) (a) ........... .75(d) .60(d)
Ratio of net
investment income
to average
net assets (%) ........... 2.21(d) 2.95(d)
Portfolio turnover
rate (%) ................. 38.78(d) 86.22(d)
Average commission
rate paid (b) ............ $ -- $ --
(a) Portion of
expenses
reimbursed
(Note B) ............... $ .20 $ .81
</TABLE>
(b) Average commission rate paid per share of common and preferred securities is
calculated for fiscal years beginning on or after September 1, 1995.
(c) Original capital
(d) Annualized
(e) Not annualized
(f) Per share amounts, for each of the periods identified, have been calculated
using the monthly average shares outstanding during the period method.
(g) On August 22, 1986, the Trustees voted to change the year end of the Fund
from June 30 to December 31.
--
42
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
4.5% REPURCHASE AGREEMENT
U.S.$ 29,458,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/28/96 at 5.45%, to be repurchased
at $29,471,379 on 7/1/96, collateralized by a
$29,382,000 U.S. Treasury Note, 7.25%, 11/30/96
(Cost $29,458,000) ................................... 29,458,000
----------
1.3% CONVERTIBLE BONDS
GHANA 0.6%
U.S.$ 4,035,000 Ashanti Capital Corp., 5.5%, 3/15/03 .................. 3,762,637
----------
JAPAN 0.7%
JPY 400,000,000 Softbank Corp., 0.5%, 3/29/02 ......................... 4,718,146
----------
MALAYSIA 0.0%
MYR 420,000 Renong Bhd. (ICULS), 4%, 5/21/01 ...................... 158,268
----------
TOTAL CONVERTIBLE BONDS (Cost $8,187,237) ............. 8,639,051
----------
2.4% PREFERRED STOCKS
Shares
--------------------------------------------------------------------------------------
GERMANY
185,000 RWE AG (Producer and marketer of petroleum and
chemical products) ................................... 5,692,682
67,500 SAP AG (Computer software manufacturer) ............... 10,016,931
----------
TOTAL PREFERRED STOCKS (Cost $6,293,073) .............. 15,709,613
----------
91.8% COMMON STOCKS
ARGENTINA 0.6%
170,000 YPF S.A. "D" (ADR) (Petroleum company) ................ 3,825,000
----------
AUSTRALIA 0.9%
330,000 National Australia Bank, Ltd. (Commercial bank) ....... 3,047,135
1,162,000 Poseidon Gold Ltd. (Growing Tier III gold producer) ... 2,858,185
----------
5,905,320
----------
BRAZIL 3.1%
8,578,870 Centrais Eletricas Brasileiras S/A "B" (pfd.)
(Electric utility) ................................... 2,451,960
5,086,206 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) ............................ 3,034,046
110,000,000 Companhia Energetica de Minas Gerais (pfd.)
(Electric power utility) ............................. 2,924,862
124,880 Companhia Vale do Rio Doce (pfd.) (Diverse mining
and industrial complex) .............................. 2,425,096
22,000,000 Petroleo Brasileiro S/A (pfd.) (Petroleum company) .... 2,705,771
65,040,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) ......................... 4,540,461
1,800,000,000 Usinas Siderurgicas de Minas Gerais S/A (pfd.)
(Non-coated flat products and electrolytic galvanized
products) ........................................... 1,900,114
----------
19,982,310
----------
CANADA 2.4%
160,000 Barrick Gold Corp. (Gold exploration and production
in North and South America) .......................... 4,342,062
206,500 Canadian National Railway Co. (Operator of one of
Canada's two principal railroads) .................... 3,794,437
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
43
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
254,623 Canadian Pacific Ltd. (Ord.) (Transportation and
natural resource conglomerate) ........................... 5,576,440
200,000 Hemlo Gold Mines, Inc. (Large gold producer, with
single mine in Ontario; active exploration company) ...... 2,138,802
----------
15,851,741
----------
CHINA 0.6%
191,837 Guangshen Railway Co. Ltd. (ADR) (Operator of only
railroad in the Pearl River delta)* ...................... 3,668,883
----------
DENMARK 0.6%
85,000 Unidanmark A/S "A" (Bank holding company) ................. 3,946,403
----------
FINLAND 1.3%
116,000 Nokia AB Oy "A" (Leading manufacturer of
cellular telephones) ..................................... 4,282,799
247,000 Outokumpu Oy "A" (Metals and minerals) .................... 4,159,731
----------
8,442,530
----------
FRANCE 7.2%
78,857 AXA SA (Insurance group providing insurance,
finance and real estate services) ........................ 4,316,690
126,700 Assurances Generales de France (Health, life, fire,
accident and special risk insurance)* .................... 3,433,344
13,950 Carrefour (Hypermarket operator and food retailer) ........ 7,820,732
57,453 Compagnie Financiere de Paribas (Finance and investment
company)* ................................................ 3,395,191
12,000 LVMH Moet-Hennessy Louis Vuitton SA (Producer of
wines, spirits and luxury products) ...................... 2,848,229
88,000 Michelin "B" (Leading tire manufacturer) .................. 4,303,990
13,128 Pinault-Printemps, SA (Distributor of consumer goods)* .... 4,596,108
130,000 Schneider SA (Manufacturer of electronic components
and automated manufacturing systems)* .................... 6,823,152
20,000 Societe Generale (Bank) ................................... 2,200,515
15,996 Societe Nationale Elf Aquitaine (ADR)
(Petroleum company) ...................................... 587,853
72,508 Total SA "B" (International oil and gas exploration,
development and production) .............................. 5,381,456
26,195 Valeo SA (Automobile and truck components manufacturer) ... 1,402,872
----------
47,110,132
----------
GERMANY 6.8%
190,000 Bayer AG (Leading chemical producer) ...................... 6,714,774
10,100 Daimler-Benz AG (Automobile and truck manufacturer) ....... 5,408,935
10,100 Daimler-Benz AG (Rights)* ................................. 1,395
257,000 Hoechst AG (Chemical producer) ............................ 8,719,311
20,360 Mannesmann AG (Bearer) (Diversified construction
and technology company) .................................. 7,041,462
69,000 Schering AG (Pharmaceutical and chemical producer) ........ 5,022,224
101,270 Siemens AG (Leading electrical engineering and
electronics company) ..................................... 5,413,407
116,200 VEBA AG (Electric utility, distributor of oil
and chemicals) ........................................... 6,178,640
----------
44,500,148
----------
HONG KONG 4.3%
4,341,545 First Pacific Co., Ltd. (International management and
investment company) ...................................... 6,702,382
214,570 HSBC Holdings Ltd. (Bank) ................................. 3,243,186
3,240,181 Hong Kong & China Gas Co., Ltd. (Gas utility) ............. 5,169,555
270,015 Hong Kong & China Gas Co., Ltd. Warrants* ................. 70,637
1,182,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company) .......................................... 7,436,411
1,510,000 Television Broadcasts, Ltd. (Television broadcasting) ..... 5,666,828
----------
28,288,999
----------
INDONESIA 1.7%
54,740 Asia Pulp & Paper Co., Ltd. (ADR) (Producer of pulp
and paper)* .............................................. 670,565
370,000 HM Sampoerna (Foreign registered) (Tobacco company) ....... 4,212,675
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
44
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1,250,000 Indah Kiat Pulp & Paper (Foreign registered) (Producer
of pulp and paper)* ...................................... 1,221,805
150,000 Indah Kiat Pulp & Paper Warrants* ......................... 75,725
200,000 Indocement Tunggal (Foreign registered)
(Cement producer) ........................................ 687,433
75,400 Indonesia Satellite Corp. (ADR) (International
telecommunication services) .............................. 2,525,900
402,000 Kalbe Farma (Foreign registered) (Pharmaceutical
producer and distributor) ................................ 898,131
463,500 Pabrik Kertas Tjiwi Kimia (Operator of pulp and
paper factory)* .......................................... 472,959
----------
10,765,193
----------
ITALY 2.2%
65,000 Luxottica Group SpA (ADR) (Manufacturer and marketer
of eyeglasses) ........................................... 4,769,375
4,210,000 Telecom Italia Mobile SpA (Cellular
telecommunication services) .............................. 9,411,890
----------
14,181,265
----------
JAPAN 24.7%
330,000 Bridgestone Corp. (Leading automobile tire manufacturer)... 6,306,405
508,000 Canon Inc. (Leading producer of visual image and
information equipment) ................................... 10,590,591
640 DDI Corp. (Long distance telephone and cellular
operator) ................................................ 5,594,477
825 East Japan Railway Co. (Railroad operator) ................ 4,337,539
205,000 Fujitsu Ltd. (Leading manufacturer of computers) .......... 1,874,457
190,000 Hitachi Construction Machinery Co., Ltd.
(Leading maker of hydraulic shovels) ..................... 2,414,849
697,000 Hitachi Ltd. (General electronics manufacturer) ........... 6,500,617
465,000 Hitachi Metals, Ltd. (Major producer of high-quality
specialty steels) ........................................ 5,357,290
88,000 Horipro Inc. (Growing entertainment production company) ... 1,263,293
625,000 Ishikawajima-Harima Heavy Industries Co., Ltd.
(Comprehensive heavy machinery manufacturer in
aerospace and defense fields)* .......................... 3,057,422
95,000 Ito-Yokado Co., Ltd. (Leading supermarket operator) ....... 5,741,782
465,000 Itochu Corp. (Leading general trading company) ............ 3,256,892
28,000 Japan Associated Finance Co. (Venture capital
company) ................................................. 3,277,100
125,000 Jusco Co., Ltd. (Major supermarket operator) .............. 4,103,232
250,000 Kajima Corp. (Leading contractor engaged in large-scale
civil engineering projects) .............................. 2,583,093
1,130,000 Kawasaki Steel Corp. (Major integrated steelmaker) ........ 4,081,287
53,000 Keyence Corp. (Specialized manufacturer of sensors) ....... 7,220,774
115,000 Kokuyo (Leading manufacturer of paper stationery)* ........ 3,186,120
103,000 Kyocera Corp. (Leading ceramic package manufacturer) ...... 7,298,953
37,000 Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) ....... 2,361,450
280,000 Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment) ............... 3,046,679
520,000 Matsushita Electrical Industrial Co., Ltd. (Leading
manufacturer of consumer electronic products) ............ 9,699,630
620,000 Mitsubishi Heavy Industries, Ltd. (Diversified heavy
machinery manufacturer and leading shipbuilder) .......... 5,402,643
540,000 NSK Ltd. (Leading manufacturer of bearings and other
machinery parts) ......................................... 4,093,266
47,000 Nichiei Co., Ltd. (Finance company for small and
medium-sized firms) ...................................... 3,137,201
50,000 Nippon Electric Glass Co., Ltd. (Leading producer of
cathode-ray tube glass) .................................. 854,935
909,000 Nisshin Steel Co., Ltd. (Blast furnace steelmaker) ........ 3,532,437
200,000 Pioneer Electronics Corp. (Leading manufacturer of
audio equipment) ......................................... 4,773,008
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
45
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
390,000 Ricoh Co., Ltd. (Leading maker of copiers and
information equipment) .................................... 4,136,607
81,500 SMC Corp. (Leading maker of pneumatic equipment) ........... 6,319,389
50,000 Secom Co., Ltd. (Electronic security system operator) ...... 3,310,017
48,400 Seven-Eleven Japan Co., Ltd. (Leading convenience
store operator) ........................................... 3,093,458
250,000 ShinMaywa Industries, Ltd. (Leading maker of dump
trucks and other specialty vehicles) ...................... 2,560,234
265,000 Sumitomo Corp. (Leading general trading company) ........... 2,360,079
1,710,000 Sumitomo Metal Industries, Ltd. (Leading integrated
crude steel producer) ..................................... 5,253,600
560,000 Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel
and copper mining company) ................................ 4,859,324
155,000 THK Co., Ltd. (Manufacturer of linear motion systems
for industrial machinery) ................................. 3,755,772
----------
160,595,902
-----------
KOREA 1.1%
186,000 Korea Electric Power Corp. (ADR) (Electric utility) ........ 4,510,500
7,870 Pohang Iron & Steel Co., Ltd. (Leading steel
producer) (a) ............................................. 646,898
93,400 Pohang Iron & Steel Co., Ltd. (ADR) ........................ 2,276,625
1 Samsung Electronics Co., Ltd. (GDS)
(Major electronics manufacturer)* ......................... 45
----------
7,434,068
----------
MALAYSIA 0.9%
275,000 Malayan Banking Bhd. (Leading banking and financial
services group) ........................................... 2,645,821
2,100,000 Renong Bhd. (Holding company involved in engineering,
construction, financial services, telecommunication
and information technology) ............................... 3,350,571
49,300 Renong Bhd. Warrants* ...................................... 22,333
----------
6,018,725
----------
NETHERLANDS 4.9%
130,000 AEGON Insurance Group NV (Insurance company) ............... 5,991,205
24,000 Akzo-Nobel N.V. (Chemical producer) ........................ 2,877,749
204,870 Elsevier N.V. (International publisher of scientific,
professional, business, and consumer information books) ... 3,111,189
186,304 Getronics NV (Provider of computer maintenance and
installation services) .................................... 4,129,165
43,750 Heineken Holdings N.V. "A" (Brewery) ....................... 8,844,913
114,000 Philips Electronics N.V. (Leading manufacturer of
electrical equipment) .................................... 3,709,763
26,935 Wolters Kluwer CVA (Publisher) ............................. 3,062,267
----------
31,726,251
----------
NEW ZEALAND 0.8%
1,200,000 Telecom Corp. of New Zealand (Telecommunication
services) ................................................. 5,052,673
----------
NORWAY 0.6%
271,889 Saga Petroleum AS "A" (Oil and gas
exploration and production) ............................... 4,001,726
----------
PHILIPPINES 3.1%
1,800,000 Ayala Land, Inc. "B" (Real estate and land developer) ...... 3,229,008
6,208,000 C&P Homes, Inc. (Home construction company) ................ 5,390,535
549,990 Manila Electric Co. "B" (Electric utility) ................. 5,772,796
100,000 Metropolitan Bank and Trust Company (Commercial
bank and trust company) ................................... 2,805,344
175,000 Philippine National Bank (Full-service commercial bank)* ... 2,922,233
----------
20,119,916
----------
PORTUGAL 1.6%
30,192 Jeronimo Martins (Food producer and retailer) .............. 2,720,174
301,000 Portugal Telecom SA (Telecommunication services) ........... 7,872,160
----------
10,592,334
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
46
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
SPAIN 3.6%
51,140 Acerinox, S.A. (Stainless steel producer) .................. 5,333,534
22,000 Banco Popular Espanol, S.A. (Retail bank) .................. 3,925,472
280,000 Compania Telefonica Nacional de Espana S.A.
(Telecommunication services) .............................. 5,162,298
430,000 Iberdrola SA (Electric utility) ............................ 4,417,405
133,000 Repsol SA (Integrated oil company) ......................... 4,628,843
----------
23,467,552
----------
SWEDEN 4.4%
99,000 Astra AB "A" (Free) (Pharmaceutical company) ............... 4,381,722
600 Astra AB "B" (Free) ........................................ 26,193
202,000 Autoliv AB (Manufacturer of automobile safety bags) ........ 6,163,746
356,400 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment) ............. 7,662,600
144,000 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ..... 3,425,982
270,000 Skandia Foersaekrings AB (Free) (Financial conglomerate) ... 7,157,855
----------
28,818,098
----------
SWITZERLAND 4.8%
5,180 Brown, Boveri & Cie. AG (Bearer) (Manufacturer of
electrical equipment) ..................................... 6,414,142
5 Brown, Boveri & Cie. AG (Registered) ....................... 1,220
4,700 Ciba-Geigy AG (Bearer) (Pharmaceutical company) ............ 5,706,995
5,400 Holderbank Financiere Glaris AG (Bearer)
(Cement producer) ......................................... 4,319,482
2,514 Nestle SA (Registered) (Food manufacturer) ................. 2,873,660
2,610 SGS Holdings SA (Bearer) (Trade inspection company) ........ 6,252,810
5,000 Sandoz Ltd. AG (Registered) (Pharmaceutical company) ....... 5,723,313
----------
31,291,622
----------
TAIWAN 0.2%
655,200 Taiwan Semiconductor Manufacturing Co.
(Manufacturer of integrated circuits and other
semiconductor devices)* .................................. 1,368,968
----------
THAILAND 1.3%
175,000 Bangkok Bank Ltd. (Foreign registered)
(Leading commercial bank) ................................. 2,371,479
525,220 Thai Farmers Bank (Foreign registered) (Commercial bank) ... 5,751,868
----------
8,123,347
----------
UNITED KINGDOM 8.1%
279,900 BOC Group PLC (Producer of industrial gases) ............... 4,014,313
611,092 British Petroleum PLC (Major integrated world
oil company) .............................................. 5,361,996
890,000 Carlton Communications PLC (Television post
production products and services) ......................... 7,159,640
636,110 PowerGen PLC (Electric utility) ............................ 4,633,152
440,059 RTZ Corp. PLC (Mining and finance company) ................. 6,512,913
654,200 Reuters Holdings PLC (International news agency) ........... 7,914,426
613,672 SmithKline Beecham PLC (Manufacturer of ethical drugs
and healthcare products) .................................. 6,561,629
130,000 Thorn EMI PLC (Amusement and recreational services) ........ 3,621,907
300,000 Zeneca Group PLC (Holding company: manufacturing and
marketing of pharmaceutical and agrochemical products
and specialty chemicals) .................................. 6,634,416
----------
52,414,392
----------
TOTAL COMMON STOCKS (Cost $495,665,989) 597,493,498
-----------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $539,604,299) (b) 651,300,162
===========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---
47
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) Securities valued in good faith by the Valuation Committee of the Trustees.
The cost and market value of these securities at June 30, 1996 aggregated
$736,139 and $646,898 (.10% of net assets), respectively.
(b) At June 30, 1996, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $539,604,299 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ......................................................... $ 124,169,802
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value ......................................................... (12,473,939)
-------------
Net unrealized appreciation ........................................................................ $ 111,695,863
=============
</TABLE>
- --------------------------------------------------------------------------------
At December 31, 1995, the International Portfolio had a net tax basis
capital loss carryforward of approximately $4,914,971 which may be applied
against any realized net taxable capital gains of each succeeding year
until fully utilized or until December 31, 2003, whichever occurs first.
- --------------------------------------------------------------------------------
From November 1, 1995 through December 31, 1995, the International
Portfolio incurred approximately $3,652,097 of net realized capital losses
which the Portfolio intends to elect to defer and treat as arising in the
fiscal year ending December 31, 1996.
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1996, aggregated
$168,412,185 and $94,826,296, respectively.
- --------------------------------------------------------------------------------
Sector breakdown of the International Portfolio's equity securities is
noted on the Portfolio Summary.
- --------------------------------------------------------------------------------
COMMITMENTS:
As of June 30, 1996, the International Portfolio entered into the following
forward foreign currency exchange contracts resulting in net unrealized
appreciation of $5,721,589.
<TABLE>
<CAPTION>
APPRECIATION/
SETTLEMENT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Japanese Yen 2,206,000,000 U.S. Dollars 25,723,533 7/12/96 5,523,310
Japanese Yen 2,705,000,000 U.S. Dollars 25,207,343 9/17/96 198,279
---------
5,721,589
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
48
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $539,604,299) (Note A) ................. $651,300,162
Cash ........................................................................... 1,659,584
Unrealized appreciation on forward currency exchange contracts (Note A) ........ 5,721,589
Receivables:
Investments sold ....................................................... 1,754,205
Portfolio shares sold .................................................. 1,387,317
Foreign taxes recoverable .............................................. 1,040,877
Dividends and interest ................................................. 1,594,278
------------
Total assets ................................................... 664,458,012
LIABILITIES
Payables:
Investments purchased .................................................. $1,977,492
Portfolio shares redeemed .............................................. 151,622
Accrued management fee (Note B) ........................................ 475,295
Other accrued expenses (Note B) ........................................ 238,645
----------
Total liabilities .............................................. 2,843,054
------------
Net assets, at market value .................................................... $661,614,958
============
NET ASSETS
Net assets consist of:
Accumulated distributions in excess of net investment income ........... $ (3,290,083)
Net unrealized appreciation on:
Investments .................................................... 111,695,863
Foreign currency related transactions .......................... 5,729,398
Accumulated net realized gain .......................................... 2,802,464
Paid-in capital ........................................................ 544,677,316
------------
Net assets, at market value..................................................... $661,614,958
============
NET ASSET VALUE, offering and redemption price per share
($661,614,958 divided by 52,449,949 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ......... $12.61
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
49
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $803,811) ........ $ 6,977,658
Interest (net of foreign taxes withheld of $1,020) ........... 1,288,534
-----------
8,266,192
Expenses (Note A):
Management fee (Note B) ...................................... $ 2,685,496
Accounting fees (Note B) ..................................... 161,372
Trustees' fees (Note B) ...................................... 11,423
Custodian fees ............................................... 294,815
Auditing ..................................................... 34,523
Legal ........................................................ 5,873
Other ........................................................ 59,665 3,253,167
----------- -----------
Net investment income ................................................ 5,013,025
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain from:
Investments .................................................. 5,008,555
Foreign currency related transactions ........................ 6,535,392 11,543,947
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................. 39,900,043
Foreign currency related transactions ........................ (2,034,212) 37,865,831
----------- -----------
Net gain on investment transactions .................................. 49,409,778
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $54,422,803
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
50
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 5,013,025 $ 4,713,698
Net realized gain (loss) from investment transactions ............ 11,543,947 (7,926,588)
Net unrealized appreciation on investment
transactions during the period ........................... 37,865,831 56,119,932
------------- -------------
Net increase in net assets resulting from operations ..................... 54,422,803 52,907,042
------------- -------------
Distributions to shareholders from:
Net investment income ($.29 and $.01 per share, respectively) .... (13,901,339) (572,293)
------------- -------------
Net realized gain from investment transactions ($.04 per share) .. -- (1,628,833)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ........................................ 127,528,785 383,866,201
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 13,901,339 2,201,126
Cost of shares redeemed .......................................... (68,539,123) (360,607,349)
------------- -------------
Net increase in net assets from Portfolio share transactions ............. 72,891,001 25,459,978
------------- -------------
INCREASE IN NET ASSETS ................................................... 113,412,465 76,165,894
Net assets at beginning of period ........................................ 548,202,493 472,036,599
------------- -------------
NET ASSETS AT END OF PERIOD (including accumulated distributions in
excess of net investment income of $3,290,083 and undistributed
net investment income of $5,598,231, respectively) ............... $ 661,614,958 $ 548,202,493
------------- -------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
Shares outstanding at beginning of period ................................ 46,398,169 44,139,826
------------- -------------
Shares sold ...................................................... 10,489,489 34,890,301
Shares issued to shareholders in reinvestment of distributions ... 1,166,953 216,220
Shares redeemed .................................................. (5,604,662) (32,848,178)
------------- -------------
Net increase in Portfolio shares ................................. 6,051,780 2,258,343
------------- -------------
Shares outstanding at end of period ...................................... 52,449,949 46,398,169
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --
51
<PAGE>
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>
For the Period
Six Months May 1, 1987
Ended (commencement of
June 30, Years Ended December 31, operations) to
1996(f) ---------------------------------------------------------------------- December 31,
(Unaudited) 1995(f) 1994(f) 1993(f) 1992(f) 1991(f) 1990(f) 1989(f) 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........................... $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26 $ 6.00(c)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Income from investment
operations:
Net investment
income (a) ..................... .10 .11 .06 .09 .10 .12 .25 .10 .09 --
Net realized and
unrealized gain
(loss) on investment
transactions .................. .98 1.07 (.15) 2.90 (.36) .77 (.89) 2.22(g) .79 (.64)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Total from investment
operations ....................... 1.08 1.18 (.09) 2.99 (.26) .89 (.64) 2.32 .88 (.64)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Less distributions:
From net investment
income ......................... (.29) (.01) (.07) (.14) (.09) (.20) (.04) -- -- --
In excess of net
investment income .............. -- -- -- (.12) -- -- -- -- -- --
From net realized
gains on investment
transactions ................... -- (.04) -- -- -- -- -- -- -- (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Total distributions .............. (.29) (.05) (.07) (.26) (.09) (.20) (.04) -- -- (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------- -------
Net asset value, end
of period ........................ $12.61 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
TOTAL RETURN (%) ................... 9.24(e) 11.11 (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73 (10.64)(e)
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) .............. 662 548 472 238 65 41 35 17 3 2
Ratio of operating
expenses, net to
average net assets
(%) (a) .......................... 1.06(d) 1.08 1.08 1.20 1.31 1.39 1.38 1.50 1.50 1.50(d)
Ratio of net investment
income to average
net assets (%) ............. 1.64(d) .95 .57 .91 1.23 1.43 2.89 1.30 1.59 .02(d)
Portfolio turnover
rate (%) ......................... 33.62(d) 45.76 33.52 20.36 34.42 45.01 26.67 57.69 110.42 146.08(d)
Average commission
rate paid (b) .................... $.0002 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
(a) Portion of expenses
reimbursed
(Note B) ....................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .02 $ .14 $ .07
</TABLE>
(b) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
(c) Original capital
(d) Annualized
(e) Not annualized
(f) Per share amounts, for each of the periods identified, have been
calculated using the monthly average shares outstanding during the period
method.
(g) Includes provision for federal income tax of $.03 per share.
--
52
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares are divided into seven separate diversified series, called
"Portfolios." The Portfolios are comprised of the Money Market Portfolio, Bond
Portfolio, Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio, Global Discovery Portfolio (which commenced operations on May 1,
1996), and International Portfolio. Effective May 1, 1996, the Fund offers two
classes of shares on behalf of each Portfolio, except for Money Market
Portfolio. Class A shares are offered at net asset value and are not subject to
fees imposed pursuant to a Distribution Plan. Class B shares are offered at net
asset value and are subject to fees imposed pursuant to a Distribution Plan. As
of June 30, 1996, there have been no sales of class B shares.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
June 30, 1996, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:
<TABLE>
<CAPTION>
Portfolios
---------------------------------------------------------
Participating Money Capital Interna-
Insurance Companies Market Bond Balanced Growth tional
- ------------------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. . -- % -- % -- % -- % 47.3%
AUSA Life Insurance Co. ............ -- -- -- -- 1.8
Banner Life Insurance Co. .......... 0.7 2.0 7.4 2.0 0.7
Charter National Life Insurance Co. 53.3 36.2 63.0 26.2 14.0
Companion Life Insurance Co. .......
of New York ................ 0.2 0.3 -- -- --
Fortis Benefits Insurance Co. ...... -- -- -- -- 0.4
Intramerica Life Insurance Co. ..... 4.2 3.6 4.9 2.3 1.4
Lincoln Benefit Life Co. ........... -- 4.4 5.6 -- --
Mutual of America Life Insurance Co. -- 43.5 -- 61.9 21.3
Paragon Life Insurance Co. ......... -- 0.2 0.4 0.2 0.1
Providentmutual Life and Annuity
Co. of America ............. -- 9.2 -- -- 0.4
Safeco Life Insurance Co. .......... -- -- 18.7 -- 3.2
Security First Life Insurance Co. .. -- -- -- -- 0.1
Union Central Life Insurance Co. ... 38.8 -- -- 6.0 7.7
United Companies Life Insurance Co. 2.7 -- -- -- --
United of Omaha Life Insurance Co. . 0.1 0.6 -- -- 1.6
USAA Life Insurance Co. ............ -- -- -- 1.4 --
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
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.
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.
- ---
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------
Securities in each of the remaining Portfolios are valued in the following
manner:
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees. 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.
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
Portfolio sold interest rate futures to hedge against declines in the value of
portfolio securities.
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:
(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.
---
54
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -------------------------------------------------------------------------
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
non-money market Portfolios utilized forward contracts as a hedge in connection
with portfolio purchases and sales of securities denominated in foreign
currencies and the Global Discovery Portfolio and the International Portfolio
utilized forward contracts as a hedge against changes in exchange rates relating
to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
REPURCHASE AGREEMENTS. The Fund on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign banks and broker/dealers whereby the
Fund, through its custodian, receives delivery of the underlying securities, the
amount of which at the time of purchase and each subsequent business day is
required to be maintained at such a level that the market value, depending on
the maturity of the repurchase agreement and the underlying collateral, is equal
to at least 100.5% of the resale price.
FEDERAL INCOME TAXES. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.
DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July, October
and January. All of the net investment income of the Global Discovery Portfolio
and the International Portfolio normally will be declared and distributed as a
dividend annually. During any particular year, net realized gains from
investment transactions for each Portfolio, in excess of available capital loss
carryforwards, would be taxable to the Portfolio if not distributed and,
therefore, will be distributed to the Participating Insurance Companies.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in forward contracts, passive foreign investment
companies, post October loss deferral, non-taxable distributions, and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. 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.
- ---
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
EXPENSES. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
OTHER. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.
B. RELATED PARTIES
- -----------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of 0.37% for the
Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the Balanced
Portfolio, 0.475% for the Capital Growth Portfolio, and 0.875% for the
International Portfolio.
The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder Fund
Accounting Corp., a subsidiary of the Adviser, for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund.
Related fees for such services are detailed in each Portfolio's statement of
operations.
Until May 1, 1996, for a period of five years from the date of execution of a
Participation Agreement with the Fund, and from year to year thereafter as
agreed by the Fund and the Participating Insurance Companies, each of the
Participating Insurance Companies had agreed to reimburse the Fund to the extent
that the annual operating expenses of any Portfolio of the Fund, other than the
Global Discovery Portfolio and the International Portfolio, exceeded
three-quarters of one percent (0.75 of 1%) of that Portfolio's average annual
net assets. The Participating Insurance Companies had agreed to reimburse the
Fund to the extent that such expenses of the International Portfolio exceeded
one and one-half percent (1.50 of 1%) of the Portfolio's average annual net
assets. The Trustees of the Fund approved a new form of Participation Agreement
effective May 1, 1996, which no longer requires the Participating Insurance
Companies to reimburse the Fund as described above. Until April 30, 1998, the
Adviser has agreed to waive part or all of its fees for the Global Discovery
Portfolio to the extent that the Portfolio's expenses will be maintained at
1.50% of average annual net assets.
The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $14,000 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not affiliated
with the Adviser and who is a Trustee of other Scudder affiliated funds $8,750
annually plus specified amounts for attended board and committee meetings.
Allocated Trustees' fees for each Portfolio for the six months ended June 30,
1996 are detailed in each Portfolio's statement of operations.
C. LINES OF CREDIT
- -----------------------------------------------------------------------------
The International Portfolio and several other Funds (the "Participants") share
in a $500 million revolving credit facility for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. The Participants are charged an annual
commitment fee which is allocated among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The
International Portfolio may borrow up to a maximum of 25 percent of its net
assets under the agreement. In addition, the International Portfolio also
maintains an uncommitted line of credit.
---
56
<PAGE>
Celebrating Over 75 Years of Serving Investors
------------------------------------------------------------------------------
Established in 1919 by Theodore Scudder, Sidney Stevens, and F.
Haven Clark, Scudder, Stevens & Clark was the first independent
investment counsel firm in the United States. Since its birth,
Scudder's pioneering spirit and commitment to professional long-term
investment management have helped shape the investment industry. In
1928, we introduced the nation's first no-load mutual fund. Today we
offer 39 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and
dedication to research and fundamental investment disciplines have
helped Scudder become one of the largest and most respected investment
managers in the world. Though times have changed since our beginnings,
we remain committed to our long-standing principles: managing money
with integrity and distinction; keeping the interests of our clients
first; providing access to investments and markets that may not be
easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
An investment in the Money Market Portfolio is neither insured nor guaranteed by
the United States Government and there can be no assurance that the Portfolio
will be able to maintain a stable net asset value of $1.00 per share.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
