<PAGE>
ANNUAL REPORT
PHOENIX
THE PHOENIX EDGE SERIES FUND
DECEMBER 31, 1998
[LOGO] PHOENIX
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Phoenix Money Market Series............................................... 2
Phoenix Growth Series..................................................... 7
Phoenix Multi-Sector Fixed Income Series.................................. 12
Phoenix Strategic Allocation Series....................................... 19
Phoenix International Series.............................................. 26
Phoenix Balanced Series................................................... 34
Phoenix Real Estate Securities Series..................................... 42
Phoenix Strategic Theme Series............................................ 47
Phoenix Aberdeen New Asia Series.......................................... 52
Phoenix Research Enhanced Index Series.................................... 59
Engemann Nifty Fifty Series............................................... 67
Seneca Mid-Cap Growth Series.............................................. 72
Phoenix Growth and Income Series.......................................... 76
Phoenix Value Equity Series............................................... 83
Schafer Mid-Cap Value Series.............................................. 88
Notes to Financial Statements............................................. 92
</TABLE>
Not FDIC Insured No Bank Guarantee May Lose Value
<PAGE>
MONEY MARKET SERIES
INVESTOR PROFILE
Phoenix Money Market Series is appropriate for investors seeking competitive
money market yields with minimal risk to principal. Investors should note that
an investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investor's investment at $10.00 per share, it is
possible to lose money by investing in the Fund.
INVESTMENT ADVISER'S REPORT
The Phoenix Money Market Series seven-day current yield was 4.05%(1). The
primary factors that affected performance were the growing global economic
crises and unstable markets. Safety and liquidity concerns caused an inflow of
cash into the Fund. A very evident liquidity crisis prompted the Federal Reserve
to lower rates on September 29, 1998 and then twice more on October 15 and
November 17, resulting in a total decrease of 75 basis points within a very
short time.
The Fund's weighted average maturity at the time of this writing is 42 days.
At the November, 1998 meeting of the Federal Reserve Board, a neutral bias was
adopted due to stable financial markets and above-trend growth. The Fund is
continuously monitored and adjusted to reflect current market conditions.
OUTLOOK
The domestic fundamentals in the economy remain moderately strong, with
historically low inflation. The breadth of the liquidity crisis and its impact
on the financial markets will be a focus going forward, in our opinion. The
market will continue to question the real strength in the domestic economy and
whether we will see further deterioration in the financial markets, which could
prompt the Federal Reserve to lower rates once again.
MONTHLY YIELD COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IBC MONEY
MONEY MARKET MARKET
DATE SERIES INDEX *
<S> <C> <C>
30-Jan-98 5.09% 5.03%
27-Feb-98 5.01% 4.96%
31-Mar-98 4.91% 4.93%
30-Apr-98 4.86% 4.91%
29-May-98 4.76% 4.91%
30-Jun-98 4.93% 4.92%
31-Jul-98 4.98% 4.92%
31-Aug-98 5.06% 4.91%
30-Sep-98 5.05% 4.90%
30-Oct-98 5.13% 4.72%
30-Nov-98 5.09% 4.60%
31-Dec-98 4.88% 4.53%
7 day yield as of 12/31/98: 4.05%
</TABLE>
The above graph covers the period from January 1, 1998 to December 31, 1998. The
results are not indicative of the rate of return which may be realized from an
investment made in the Money Market Series today.
* Average monthly yield of First Tier Money Market Funds as reported by IBC's
Money Market Insight.
(1) Current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven days preceding the date
of calculation by the average daily net asset value per share for the same
period multiplied by 365.
2
<PAGE>
MONEY MARKET SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE
VALUE INTEREST RESET
(000) DESCRIPTION RATE DATE VALUE
- ------- --------------------------------------------- -------- -------- ------------
<C> <S> <C> <C> <C>
FEDERAL AGENCY SECURITIES--VARIABLE(B)--14.4%
$ 3,500 FFCB (final maturity 4/1/99)................. 4.81% 1/4/99 $ 3,500,000
4,500 FFCB (final maturity 7/24/00)................ 5.04 1/4/99 4,500,857
2,000 FHLB (final maturity 1/22/99)................ 4.90 1/22/99 1,994,283
2,500 FHLB (final maturity 11/17/99)............... 5.12 2/17/99 2,500,387
2,000 FNMA (final maturity 4/9/99)................. 5.10 1/9/99 1,999,732
3,500 FNMA (final maturity 9/17/99)................ 5.04 3/17/99 3,498,510
217 SBA (final maturity 1/25/21)................. 5.25 1/1/99 217,014
241 SBA (final maturity 5/25/21)................. 5.75 1/1/99 241,021
1,871 SBA (final maturity 10/25/22)................ 5.75 1/1/99 1,872,189
2,206 SBA (final maturity 2/25/23)................. 5.75 1/1/99 2,206,442
1,976 SBA (final maturity 2/25/23)................. 5.75 1/1/99 1,976,085
2,951 SBA (final maturity 9/25/23)................. 5.63 1/1/99 2,949,263
1,000 SLMA (final maturity 2/22/99)................ 4.84 1/5/99 1,000,000
------------
TOTAL FEDERAL AGENCY SECURITIES--VARIABLE.................................... 28,455,783
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING MATURITY
(000) DESCRIPTION (UNAUDITED) DATE VALUE
- ------- ------------------------------------- ----------- -------- ------------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--80.3%
1,350 Greenwich Funding Corp............... A-1+ 5.50 1/4/99 1,349,381
6,030 Receivables Capital Corp............. A-1+ 5.50 1/4/99 6,027,236
955 Marsh & McLennan Cos., Inc........... A-1+ 6.00 1/6/99 954,204
2,450 SBC Communications, Inc.............. A-1+ 5.95 1/6/99 2,447,975
2,000 Coca-Cola Co......................... A-1+ 5.50 1/7/99 1,998,167
1,450 Sara Lee Corp........................ A-1+ 5.50 1/7/99 1,448,671
1,702 General Electric Capital Corp........ A-1+ 5.45 1/8/99 1,700,196
Preferred Receivables Funding
1,580 Corp................................. A-1 5.25 1/8/99 1,578,387
2,500 Corporate Asset Funding Co., Inc..... A-1+ 5.33 1/11/99 2,496,299
739 Greenwich Funding Corp............... A-1+ 5.55 1/11/99 737,861
2,500 Corporate Asset Funding Co., Inc..... A-1+ 5.15 1/12/99 2,496,066
2,790 Potomac Electric Power Co............ A-1 5.23 1/12/99 2,785,541
4,290 Citigroup, Inc....................... A-1+ 5.20 1/14/99 4,281,944
1,329 Greenwich Funding Corp............... A-1+ 5.25 1/14/99 1,326,480
1,650 Greenwich Funding Corp............... A-1+ 5.36 1/14/99 1,646,806
1,105 Pitney Bowes, Inc.................... A-1+ 4.95 1/14/99 1,103,025
458 Receivables Capital Corp............. A-1+ 5.45 1/14/99 457,099
2,057 Receivables Capital Corp............. A-1+ 5.40 1/19/99 2,051,446
2,500 Potomac Electric Power Co............ A-1 5.30 1/20/99 2,493,007
3,500 Corporate Receivables Corp........... A-1+ 5.22 1/21/99 3,489,850
3,000 Lexington Parker Capital Co. LLC..... A-1 5.26 1/22/99 2,990,795
935 Potomac Electric Power Co............ A-1 5.50 1/26/99 931,429
3,000 AlliedSignal, Inc.................... A-1 5.50 1/27/99 2,988,083
2,500 Lexington Parker Capital Co. LLC..... A-1 5.42 1/27/99 2,490,214
705 Vermont American Corp................ A-1+ 5.45 1/27/99 702,225
2,000 CXC, Inc............................. A-1+ 5.44 1/28/99 1,991,840
1,685 Wisconsin Electric Power Co.......... A-1+ 5.40 1/28/99 1,678,176
Associates Corporation of North
3,000 America.............................. A-1+ 5.04 1/29/99 2,988,240
2,500 Merrill Lynch & Co................... A-1+ 5.10 1/29/99 2,490,083
3,200 Wisconsin Electric Power Co.......... A-1+ 5.50 1/29/99 3,186,311
940 General Electric Capital Corp........ A-1+ 5.43 2/1/99 935,605
2,760 Greenwich Asset Funding Corp......... A-1+ 5.55 2/1/99 2,746,810
Preferred Receivables Funding
2,500 Corp................................. A-1 5.32 2/1/99 2,488,547
Preferred Receivables Funding
1,370 Corp................................. A-1 5.40 2/2/99 1,363,424
Preferred Receivables Funding
465 Corp................................. A-1 5.40 2/2/99 462,768
2,500 Vermont American Corp................ A-1+ 5.27 2/3/99 2,487,923
Preferred Receivables Funding
570 Corp................................. A-1 5.33 2/4/99 567,131
1,295 Coca-Cola Co......................... A-1+ 5.12 2/5/99 1,288,554
3,500 Ford Motor Credit Co................. A-1+ 5.15 2/5/99 3,482,476
1,000 Wisconsin Electric Power Co.......... A-1+ 5.25 2/5/99 994,896
2,000 Marsh & McLennan Cos., Inc........... A-1+ 5.50 2/8/99 1,988,389
2,500 Corporate Receivables Corp........... A-1+ 5.15 2/10/99 2,485,695
1,000 Merrill Lynch & Co................... A-1+ 5.20 2/10/99 994,222
3,700 Heinz (H.J.) Co...................... A-1 5.22 2/12/99 3,677,467
</TABLE>
See Notes to Financial Statements
3
<PAGE>
MONEY MARKET SERIES
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING INTEREST MATURITY
(000) DESCRIPTION (UNAUDITED) RATE DATE VALUE
- ------- ------------------------------------- ----------- ------ -------- ------------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--CONTINUED
$ 2,500 Lexington Parker Capital Co. LLC..... A-1 5.35% 2/12/99 $ 2,484,396
Preferred Receivables Funding
3,000 Corp................................. A-1 5.35 2/16/99 2,979,492
2,500 Beta Finance, Inc.................... A-1+ 5.27 2/18/99 2,482,433
2,500 Goldman Sachs & Co................... A-1+ 5.08 2/24/99 2,480,950
2,000 Goldman Sachs & Co................... A-1+ 5.18 2/24/99 1,984,460
2,500 Marsh & McLennan Cos., Inc........... A-1+ 5.23 2/25/99 2,480,024
3,000 Goldman Sachs & Co................... A-1+ 5.24 2/26/99 2,975,547
1,700 Marsh & McLennan Cos., Inc........... A-1+ 5.30 2/26/99 1,685,984
1,000 Coca-Cola Co......................... A-1+ 5.02 3/1/99 991,773
2,500 General Electric Capital Corp........ A-1+ 5.13 3/4/99 2,500,000
2,000 Deutsche Bank Financial Corp......... A-1+ 5.70 3/5/99 1,999,457
3,000 Dupont (E.I) de Nemours & Co......... A-1+ 5.05 3/9/99 2,971,804
2,500 Colgate-Palmolive Co................. A-1 5.05 3/12/99 2,475,451
1,250 Enterprise Funding Corp.............. A-1 5.22 3/15/99 1,236,769
2,500 Beta Finance, Inc.................... A-1+ 5.73 3/16/99 2,500,123
2,500 Schering Corp........................ A-1+ 5.02 3/16/99 2,474,203
788 Enterprise Funding Corp.............. A-1 5.12 3/19/99 779,371
3,000 Chase Manhattan Bank................. A-1+ 5.22 3/22/99 3,000,235
1,500 Coca-Cola Co......................... A-1+ 5.00 3/22/99 1,483,333
4,070 Greenwich Funding Corp............... A-1+ 5.15 3/25/99 4,021,674
2,500 Marsh & McLennan Cos., Inc........... A-1+ 5.19 3/25/99 2,470,085
2,500 Colgate-Palmolive Co................. A-1 5.00 4/5/99 2,467,361
2,500 Beta Finance, Inc.................... A-1+ 5.00 4/6/99 2,467,014
1,300 Corporate Asset Funding Co., Inc..... A-1+ 5.45 4/15/99 1,279,532
2,500 Asset Securitization Cooperative..... A-1+ 5.08 4/16/99 2,462,958
3,000 Chase Manhattan Bank................. A-1+ 4.86 4/21/99 3,000,000
2,500 Private Export Funding Corp.......... A-1+ 4.68 5/6/99 2,459,375
1,360 Beta Finance, Inc.................... A-1+ 5.01 5/17/99 1,334,260
2,845 Greenwich Asset Funding Corp......... A-1+ 5.10 5/18/99 2,789,783
------------
TOTAL COMMERCIAL PAPER.......................................................... 157,988,791
------------
MEDIUM-TERM NOTES--4.4%
575 General Electric Capital Corp........ A-1+ 8.10 1/26/99 575,855
Associates Corporation of North
2,000 America.............................. A-1+ 6.25 3/15/99 2,002,175
1,500 General Electric Capital Corp........ A-1+ 5.98 3/19/99 1,500,768
2,500 General Electric Capital Corp.(b).... A-1+ 5.14 6/4/99 2,505,525
Associates Corporation of North
1,500 America.............................. A-1+ 5.65 6/15/99 1,498,891
Associates Corporation of North
600 America.............................. A-1+ 6.75 10/15/99 608,296
------------
TOTAL MEDIUM-TERM NOTES......................................................... 8,691,510
------------
TOTAL INVESTMENTS--99.1%
(Identified cost $195,136,084)................................................ 195,136,084(a)
Cash and receivables, less liabilities--0.9%.................................. 1,675,137
------------
NET ASSETS--100.0%.............................................................. $196,811,221
------------
------------
</TABLE>
(a) Federal Income Tax information: At December 31, 1998, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rates
currently in effect.
See Notes to Financial Statements
4
<PAGE>
MONEY MARKET SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$195,136,084)............................................. $ 195,136,084
Cash........................................................ 27,357
Receivables
Fund shares sold.......................................... 2,426,087
Interest.................................................. 549,742
Prepaid expenses............................................ 3,418
-------------
Total assets............................................ 198,142,688
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 1,161,522
Investment advisory fee................................... 74,750
Financial agent fee....................................... 16,912
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 73,223
-------------
Total liabilities....................................... 1,331,467
-------------
NET ASSETS.................................................. $ 196,811,221
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 196,811,221
-------------
NET ASSETS.................................................. $ 196,811,221
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 19,681,144
-------------
-------------
Net asset value and offering price per share................ $ 10.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 7,835,760
-------------
Total investment income................................. 7,835,760
-------------
EXPENSES
Investment advisory fee................................... 564,665
Financial agent fee....................................... 123,865
Custodian................................................. 30,083
Printing.................................................. 22,780
Professional.............................................. 20,755
Trustees.................................................. 12,172
Miscellaneous............................................. 6,246
-------------
Total expenses.......................................... 780,566
-------------
NET INVESTMENT INCOME....................................... 7,055,194
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 7,055,194
-------------
-------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................................. $ 7,055,194 $ 6,261,529
----------------- ------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... 7,055,194 6,261,529
----------------- ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.................................................... (7,055,197) (6,261,529)
----------------- ------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................ (7,055,197) (6,261,529)
----------------- ------------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (47,209,211 and 35,987,251 shares,
respectively).......................................................... 472,092,185 359,872,496
Net asset value of shares issued from reinvestment of distributions
(705,519 and 626,153 shares, respectively)............................. 7,055,197 6,261,528
Cost of shares repurchased (40,894,255 and 37,088,873 shares,
respectively).......................................................... (408,942,852) (370,888,736)
----------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS................ 70,204,530 (4,754,712)
----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS.................................... 70,204,527 (4,754,712)
NET ASSETS
Beginning of period...................................................... 126,606,694 131,361,406
----------------- ------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $0
AND $3, RESPECTIVELY).................................................. $ 196,811,221 $ 126,606,694
----------------- ------------------
----------------- ------------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.50 0.50 0.50 0.56 0.38(1)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 0.50 0.50 0.50 0.56 0.38
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.50) (0.50) (0.50) (0.56) (0.38)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.50) (0.50) (0.50) (0.56) (0.38)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 5.09% 4.99% 4.98% 5.55% 3.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $196,811 $126,607 $131,361 $102,943 $94,586
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.55% 0.55% 0.55% 0.53%(2) 0.55%
Net investment income............. 4.99% 5.07% 4.89% 5.57% 3.85%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
6
<PAGE>
GROWTH SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in common stocks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 30.01%,
outperforming the 28.76% return of the S&P 500 Index.(1) All performance figures
assume reinvestment of distributions and are net of sales charges.
While 1998 turned out to be an excellent year for the U.S. stock market, it
was marked with exceptional volatility. Last year was also marked by a large
disparity in returns between asset classes. Small-capitalization stocks
continued to underperform and profitability at many cyclical companies came
under pressure due to weakness in the international markets and falling
commodity prices. Recognizing these trends, we focused our stock selection on
large-capitalization companies with predictable revenue streams and a domestic
focus. The portfolio's heavy bias towards large-cap names and its overweighting
in the health-care, consumer staples and technology sectors were the primary
drivers for our strong performance last year.
Specific to the fourth quarter, positive contributors to the portfolio's
above-average results included our top-down strategy of overweighting
technology, communication services and consumer staples as well as strong stock
selection in each of these sectors. Despite the obvious temptation to raise cash
during this summer's sell-off, our decision to remain fully invested in stocks
also paid off handsomely as the market has rebounded dramatically from its early
October lows. On the other side of the equation, the most notable factor that
held back performance over this latest reporting period was the portfolio's
underweighted position in the strongly performing consumer cyclical group during
the final quarter. While we were not expecting a recession anytime soon, we were
somewhat surprised by the strength of the U.S consumer over this latest quarter.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the market. While we expect
corporate profits to remain under pressure, this current environment of benign
inflation and historically low interest rates should continue to be a positive
catalyst for financial assets. After four straight years of double-digit gains,
it is also likely that we will see more normalized (single-digit) returns for
U.S. equities in 1999. Lastly, we believe that the financial markets will remain
volatile over the near term, as there are still many crosscurrents at work in
the global financial systems.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH SERIES S&P 500 INDEX(1)
<S> <C> <C>
12/31/1988 $10,000.00 $10,000.00
12/31/1989 $13,605.95 $13,143.49
12/31/1990 $14,162.17 $12,723.63
12/31/1991 $20,352.54 $16,609.89
12/31/1992 $22,446.69 $17,887.30
12/31/1993 $26,867.26 $19,676.05
12/31/1994 $27,264.69 $19,936.37
12/31/1995 $35,674.71 $27,413.96
12/31/1996 $40,162.38 $33,787.07
12/31/1997 $48,625.91 $45,063.71
12/31/1998 $63,220 $58,022
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Growth Series 30.01% 18.67% 20.25%
- ---------------------------------------------------------------------
S&P 500 Index 28.76% 24.15% 19.22%
- ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of total return
stock market performance. The Index is not available for direct investment.
7
<PAGE>
GROWTH SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
COMMON STOCKS--98.3%
BANKS (MAJOR REGIONAL)--3.7%
Bank One Corp........................................... 324,852 $ 16,587,755
Mellon Bank Corp........................................ 203,800 14,011,250
U.S. Bancorp............................................ 261,800 9,293,900
Wells Fargo & Co........................................ 730,000 29,154,375
----------------
69,047,280
----------------
BANKS (MONEY CENTER)--1.3%
BankAmerica Corp........................................ 411,887 24,764,706
----------------
BEVERAGES (ALCOHOLIC)--1.0%
Anheuser-Busch Companies, Inc........................... 285,800 18,755,625
----------------
BEVERAGES (NON-ALCOHOLIC)--1.5%
PepsiCo, Inc............................................ 706,700 28,930,531
----------------
BROADCASTING (TELEVISION, RADIO & CABLE)--4.9%
CBS Corp................................................ 283,400 9,281,350
Chancellor Media Corp. (b).............................. 228,200 10,925,075
Clear Channel Communications, Inc. (b).................. 175,800 9,581,100
Fox Entertainment Group, Inc. Class A (b)............... 228,800 5,762,900
Liberty Media Group Class A (b)......................... 502,100 23,127,981
Tele-Communications, Inc. Class A (b)................... 594,200 32,866,687
----------------
91,545,093
----------------
COMMUNICATIONS EQUIPMENT--0.8%
Tellabs, Inc. (b)....................................... 212,000 14,535,250
----------------
COMPUTERS (HARDWARE)--3.5%
International Business Machines Corp.................... 354,900 65,567,775
----------------
COMPUTERS (NETWORKING)--1.5%
Cisco Systems, Inc. (b)................................. 312,375 28,992,305
----------------
COMPUTERS (PERIPHERALS)--1.6%
EMC Corp. (b)........................................... 356,000 30,260,000
----------------
COMPUTERS (SOFTWARE & SERVICES)--11.8%
America Online, Inc. (b)................................ 119,500 19,120,000
BMC Software, Inc. (b).................................. 649,600 28,947,800
Compuware Corp. (b)..................................... 584,000 45,625,000
Edwards (J.D.) & Co. (b)................................ 227,600 6,458,150
HBO & Co................................................ 1,072,100 30,755,869
Microsoft Corp. (b)..................................... 450,500 62,478,719
Oracle Corp. (b)........................................ 401,100 17,297,437
Sterling Commerce, Inc. (b)............................. 241,601 10,872,045
----------------
221,555,020
----------------
CONSUMER FINANCE--1.2%
Capital One Financial Corp.............................. 203,600 23,414,000
----------------
DISTRIBUTORS (FOOD & HEALTH)--1.5%
Cardinal Health, Inc.................................... 365,400 27,724,725
----------------
ELECTRICAL EQUIPMENT--2.6%
General Electric Co..................................... 474,300 48,408,244
----------------
ELECTRONICS (SEMICONDUCTORS)--4.8%
Intel Corp.............................................. 656,000 77,777,000
Micron Technology, Inc.................................. 257,100 12,999,619
----------------
90,776,619
----------------
FINANCIAL (DIVERSIFIED)--4.9%
Citigroup, Inc.......................................... 542,150 26,836,425
Freddie Mac............................................. 660,100 42,535,194
Morgan Stanley, Dean Witter & Co. (b)................... 309,500 21,974,500
----------------
91,346,119
----------------
HEALTH CARE (DIVERSIFIED)--5.8%
Bristol-Myers Squibb Co. (b)............................ 383,400 51,303,712
Mylan Laboratories, Inc................................. 367,600 11,579,400
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
HEALTH CARE (DIVERSIFIED)--CONTINUED
Warner-Lambert Co....................................... 609,200 $ 45,804,225
----------------
108,687,337
----------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--6.7%
Pfizer, Inc............................................. 494,800 62,066,475
Schering-Plough Corp.................................... 751,800 41,536,950
Watson Pharmaceuticals, Inc. (b)........................ 357,700 22,490,387
----------------
126,093,812
----------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--3.7%
Baxter International, Inc. (b).......................... 351,600 22,612,275
Becton, Dickinson and Co................................ 175,700 7,500,194
Genzyme Corp............................................ 184,900 9,198,775
Medtronic, Inc.......................................... 403,400 29,952,450
----------------
69,263,694
----------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.1%
Clorox Co. (The)........................................ 59,200 6,915,300
Colgate-Palmolive Co.................................... 90,700 8,423,762
Procter & Gamble Co. (The) (b).......................... 269,800 24,636,112
----------------
39,975,174
----------------
INSURANCE (LIFE/HEALTH)--0.6%
UNUM Corp............................................... 193,600 11,301,400
----------------
INSURANCE (MULTI-LINE)--1.9%
American International Group, Inc....................... 241,850 23,368,756
ReliaStar Financial Corp................................ 246,700 11,379,037
----------------
34,747,793
----------------
LODGING--HOTELS--0.5%
Carnival Corp........................................... 204,500 9,816,000
----------------
MANUFACTURING (DIVERSIFIED)--2.1%
Tyco International Ltd.................................. 532,500 40,170,469
----------------
OIL & GAS (DRILLING & EQUIPMENT)--0.6%
Halliburton Co.......................................... 122,400 3,626,100
Schlumberger Ltd........................................ 79,400 3,662,325
Transocean Offshore, Inc................................ 120,500 3,230,906
----------------
10,519,331
----------------
OIL (DOMESTIC INTEGRATED)--1.8%
USX-Marathon Group...................................... 1,129,800 34,035,225
----------------
OIL (INTERNATIONAL INTEGRATED)--2.1%
Amoco Corp.............................................. 543,200 32,048,800
Conoco, Inc. Class A (b)................................ 320,200 6,684,175
----------------
38,732,975
----------------
RETAIL (BUILDING SUPPLIES)--1.8%
Home Depot, Inc. (The).................................. 558,500 34,173,219
----------------
RETAIL (COMPUTERS & ELECTRONICS)--0.4%
Tandy Corp. (b)......................................... 172,900 7,121,319
----------------
RETAIL (DRUG STORES)--4.0%
CVS Corp................................................ 655,500 36,052,500
Rite Aid Corp........................................... 779,200 38,619,100
----------------
74,671,600
----------------
RETAIL (FOOD CHAINS)--4.3%
Meyer (Fred), Inc. (b).................................. 548,590 33,052,548
Safeway, Inc. (b)....................................... 788,300 48,037,031
----------------
81,089,579
----------------
RETAIL (GENERAL MERCHANDISE)--0.8%
Wal-Mart Stores, Inc.................................... 173,500 14,129,406
----------------
RETAIL (SPECIALTY)--1.7%
Borders Group, Inc...................................... 379,500 9,463,781
</TABLE>
See Notes to Financial Statements
8
<PAGE>
GROWTH SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
RETAIL (SPECIALTY)--CONTINUED
Staples, Inc. (b)....................................... 531,550 $ 23,222,091
----------------
32,685,872
----------------
SERVICES (COMMERCIAL & CONSUMER)--0.5%
ServiceMaster Co. (The)................................. 450,000 9,928,125
----------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--3.4%
AirTouch Communications, Inc. (b)....................... 879,100 63,405,088
----------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.2%
AT&T Corp............................................... 359,400 27,044,850
MCI WorldCom, Inc. (b).................................. 455,794 32,703,220
----------------
59,748,070
----------------
TELEPHONE--2.0%
BellSouth Corp.......................................... 436,600 21,775,425
SBC Communications, Inc................................. 295,500 15,846,188
----------------
37,621,613
----------------
WASTE MANAGEMENT--1.7%
Waste Management, Inc................................... 678,300 31,625,738
----------------
TOTAL COMMON STOCKS
(Identified cost $1,331,834,475)...................................... 1,845,166,131
----------------
FOREIGN COMMON STOCKS--0.8%
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--0.8%
Elan Corp. PLC Sponsored ADR (Ireland) (b).............. 211,000 14,677,687
----------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $12,319,521)......................................... 14,677,687
----------------
TOTAL LONG-TERM INVESTMENTS--99.1%
(Identified cost $1,344,153,996)...................................... 1,859,843,818
----------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--1.6%
COMMERCIAL PAPER--0.8%
Greenwich Funding Corp. 5.20%,
1/4/99........................................ A-1+ $ 3,000 $ 2,997,964
SBC. Communications Inc. 5.95%,
1/6/99........................................ A-1+ 3,770 3,766,885
Freddie Mac 5%, 1/8/99.......................... A-1+ 2,000 1,998,024
Pitney Bowes Credit Corp. 4.95%,
1/14/99....................................... A-1+ 5,945 5,934,373
Vermont American Corp. 5.45%,
1/27/99....................................... A-1+ 1,115 1,110,611
---------------
15,807,857
---------------
FEDERAL AGENCY SECURITIES--0.7%
FHLB 4.50%, 1/4/99.............................. 13,770 13,764,836
---------------
MEDIUM-TERM NOTES--0.1%
General Electric Capital Corp. 5.14%, 3/4/99
(c)........................................... A-1+ 1,000 999,900
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $30,575,635)................................................ 30,572,593
---------------
TOTAL INVESTMENTS--100.7%
(Identified cost $1,374,729,631)............................................. 1,890,416,411(a)
Cash and receivables, less liabilities--(0.7%)............................... (14,120,110)
---------------
NET ASSETS--100.0%............................................................. $ 1,876,296,301
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $532,916,550 and gross
depreciation of $15,547,346 for federal income tax purposes. At December
31, 1998, the aggregate cost of securities for federal income tax purposes
was $1,373,047,207.
(b) Non-income producing.
(c) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
9
<PAGE>
GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$1,374,729,631)........................................... $ 1,890,416,411
Receivables
Investment securities sold................................ 12,648,491
Fund shares sold.......................................... 1,205,089
Dividends and interest.................................... 1,002,798
Prepaid expenses............................................ 32,273
---------------
Total assets............................................ 1,905,305,062
---------------
LIABILITIES
Payables
Custodian................................................. 25,163
Investment securities purchased........................... 26,232,303
Fund shares repurchased................................... 1,447,850
Investment advisory fee................................... 928,585
Financial agent fee....................................... 60,789
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 309,011
---------------
Total liabilities....................................... 29,008,761
---------------
NET ASSETS.................................................. $ 1,876,296,301
---------------
---------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 1,331,914,616
Undistributed net investment income....................... 1,285,201
Accumulated net realized gain............................. 27,409,704
Net unrealized appreciation............................... 515,686,780
---------------
NET ASSETS.................................................. $ 1,876,296,301
---------------
---------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 78,409,721
---------------
---------------
Net asset value and offering price per share................ $ 23.93
-------
-------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 11,511,581
Interest.................................................. 2,338,299
Foreign taxes withheld.................................... (83,354)
-------------
Total investment income................................. 13,766,526
-------------
EXPENSES
Investment advisory fee................................... 10,143,250
Financial agent fee....................................... 706,724
Custodian................................................. 174,982
Printing.................................................. 98,816
Professional.............................................. 44,009
Trustees.................................................. 13,431
Miscellaneous............................................. 83,231
-------------
Total expenses.......................................... 11,264,443
-------------
NET INVESTMENT INCOME....................................... 2,502,083
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 45,867,063
Net change in unrealized appreciation (depreciation) on
investments............................................. 390,908,702
-------------
NET GAIN ON INVESTMENTS..................................... 436,775,765
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 439,277,848
-------------
-------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................................................... $ 2,502,083 $ 8,821,110
Net realized gain (loss)........................................................... 45,867,063 208,505,196
Net change in unrealized appreciation (depreciation)............................... 390,908,702 44,027,962
-------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... 439,277,848 261,354,268
-------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.............................................................. (2,092,243) (8,665,448)
Net realized gains................................................................. (67,564,709) (236,146,906)
-------------- ---------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.......................... (69,656,952) (244,812,354)
-------------- ---------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (14,661,827 and 12,502,677 shares, respectively)..... 306,260,617 253,355,592
Net asset value of shares issued from reinvestment of distributions (3,143,060 and
12,750,840 shares, respectively)................................................. 69,656,952 244,812,354
Cost of shares repurchased (17,964,177 and 12,075,426 shares, respectively)........ (374,810,017) (244,536,540)
-------------- ---------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS..................................... 1,107,552 253,631,406
-------------- ---------------
NET INCREASE IN NET ASSETS......................................................... 370,728,448 270,173,320
NET ASSETS
Beginning of period................................................................ 1,505,567,853 1,235,394,533
-------------- ---------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $1,285,201 AND
$875,361, RESPECTIVELY).......................................................... $1,876,296,301 $1,505,567,853
-------------- ---------------
-------------- ---------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 19.16 $ 18.89 $ 18.13 $ 15.69 $ 16.59
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.03 0.13 0.19 0.20 0.23(1)(3)
Net realized and unrealized gain
(loss).......................... 5.65 3.70 2.10 4.60 0.02
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 5.68 3.83 2.29 4.80 0.25
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.03) (0.13) (0.18) (0.17) (0.23)
Dividends from net realized
gains........................... (0.88) (3.43) (1.35) (2.19) (0.92)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.91) (3.56) (1.53) (2.36) (1.15)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... 4.77 0.27 0.76 2.44 (0.90)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 23.93 $ 19.16 $ 18.89 $ 18.13 $ 15.69
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 30.01% 21.07% 12.58% 30.85% 1.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $1,876,296 $1,505,568 $1,235,395 $985,389 $616,221
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.69% 0.74% 0.72% 0.75%(2) 0.80%
Net investment income............. 0.15% 0.64% 1.03% 1.12% 1.38%
Portfolio turnover rate............. 102% 284% 167% 173% 185%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
See Notes to Financial Statements
11
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking high current income. Investors
should note that the Fund may invest in emerging-markets debt and high-yield
securities. Foreign investments pose added risks, such as currency fluctuation,
less public disclosure, and political and economic uncertainty. High-yielding
fixed-income securities generally are subject to greater market fluctuations and
risk of loss of income and principal than are investments in lower-yielding
fixed-income securities.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned (4.02)%
compared with a return of 8.69% for the Lehman Brothers Aggregate Index.(1) In
contrast, the J.P. Morgan Emerging Market Bond Index Plus was down (14.35)% for
the same period.(2) All performance figures assume reinvestment of distributions
and are net of sales charges.
The disappointing performance was due to our exposure to more
credit-sensitive sectors of the bond market. During 1998, the world financial
markets have been experiencing a global "flight to quality" that has been driven
by the financial crises in Asia and Russia. U.S. Treasuries have been the sole
benefactor, while the biggest losers have been higher-yielding sectors, such as
emerging-markets and domestic high-yield, two of our largest portfolio
positions.
The two biggest risks in fixed income investing are interest rate risk and
credit risk. Our investment approach does not try to anticipate the direction of
interest rates. Instead, we seek to add value by identifying undervalued sectors
of the bond market. This contrarian approach is one that requires discipline and
conviction, but has served us well in the past. Of course, past performance is
no guarantee of future results.
We will continue to follow our value-oriented investment approach,
overweighting those sectors where we find the best values. Despite recent
weakness, our long-term outlook remains constructive. We feel the market has
overreacted to global events, resulting in extraordinary values for long-term
investors. We will continue to maintain well-diversified portfolios (investing
across 12 market sectors), with exposure to more credit-sensitive sectors, which
we perceive to be considerably undervalued.
OUTLOOK
It is important at times like this to keep a long-term perspective as
extreme market moves like the one we are currently experiencing generally
reverse themselves over time. We have seen a number of market events like this
over the last decade. Two that most resemble the current situation were the
"junk" bond panic of 1990-91 and the Mexican peso devaluation in 1994-95.
Although both of these events triggered dips in the market, long-term investors
were rewarded for their patience and conviction. Of course, past performance is
no guarantee of future performance, and there can be no assurance that there
will be a similar turnaround in emerging markets.
(1) The Lehman Brothers Aggregate Index is an unmanaged, commonly used measure
of broad bond market total return performance. The Index is not available
for direct investment.
(2) The J.P. Morgan Emerging Market Bond Index Plus is an unmanaged, commonly
used measure of emerging-market debt total return performance. The Index is
not available for direct investment.
12
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME LEHMAN BROTHERS AGGREGATE BOND
SERIES INDEX*
<S> <C> <C>
12/31/1988 $10,000.00 $10,000.00
12/31/1989 $10,817.36 $11,453.45
12/31/1990 $11,385.31 $12,479.63
12/31/1991 $13,595.70 $14,476.73
12/31/1992 $14,959.31 $15,548.07
12/31/1993 $17,337.56 $17,064.12
12/31/1994 $16,388.58 $16,566.46
12/31/1995 $20,246.12 $19,627.75
12/31/1996 $22,760.36 $20,340.30
12/31/1997 $25,247.92 $22,303.70
12/31/1998 $24,234.00 $24,241.18
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Multi-Sector Fixed Income Series (4.02)% 6.93% 9.26%
- -----------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index* 8.69% 7.27% 9.26%
- -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. High yield fixed income securities
generally are subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower-yielding fixed income securities.
Foreign investing involves special risks such as currency fluctuation and less
public disclosure, as well as economic and political risks.
* The Lehman Brothers Aggregate Bond Index is an unmanaged but commonly used
measure of bond performance. The Index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--2.0%
U.S. Treasury Notes 4.75%, 11/15/08.................. Aaa $ 1,250 $ 1,258,942
U.S. Treasury Notes 5.25%, 11/15/28.................. Aaa 2,400 2,456,955
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $3,691,391)................................................. 3,715,897
-------------
AGENCY MORTGAGE-BACKED SECURITIES--0.8%
GNMA 8%, 9/15/06..................................... Aaa 8 8,500
GNMA 8%, 10/15/06.................................... Aaa 129 134,825
GNMA 6.50%, '24-'26.................................. Aaa 1,305 1,325,406
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $1,427,614)................................................. 1,468,731
-------------
MUNICIPAL BONDS--11.9%
CALIFORNIA--1.6%
Orange County Pension Revenue Series A Taxable 7.67%,
9/1/09............................................. Aaa 2,620 2,990,075
-------------
COLORADO--1.2%
Denver City and County School District 01 Pension
Taxable 6.76%, 12/15/07............................ Aaa 2,000 2,140,000
-------------
FLORIDA--1.1%
Palm Beach County Solid Waste Industrial Development
Project B Revenue Taxable 10.50%, 1/1/11 (e)(f).... NR 1,500 750,000
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
FLORIDA--CONTINUED
University of Miami Exchangeable Revenue Series A
Taxable 7.65%, 4/1/20.............................. Aaa $ 1,290 $ 1,381,912
-------------
2,131,912
-------------
ILLINOIS--1.6%
Illinois Educational Facilities Authority-- Loyola
University Revenue Series A 5.70%, 7/1/24.......... Aaa 1,200 1,293,000
Illinois Educational Facilities Authority-- Loyola
University Revenue Series A Taxable 7.84%,
7/1/24............................................. Aaa 1,600 1,734,000
-------------
3,027,000
-------------
MASSACHUSETTS--3.3%
Massachusetts State Port Authority Revenue Series C
Taxable 6.35%, 7/1/06.............................. Aa 1,500 1,569,375
Massachusetts State Turnpike Authority Series A
Revenue 5%, 1/1/27................................. Aaa 2,125 2,095,781
Massachusetts State Water Resources Authority Revenue
Series D 5%,
8/1/24............................................. Aaa 2,500 2,468,750
-------------
6,133,906
-------------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
PENNSYLVANIA--1.1%
Pittsburgh Series B Pension General Obligation
Taxable 6.35%, 3/1/13.............................. Aaa $ 2,000 $ 2,100,000
-------------
TEXAS--0.8%
Texas State University System Revenue 6.16%,
3/15/06............................................ Aaa 1,495 1,534,244
-------------
VIRGINIA--0.4%
Newport News Series B Taxable 7.05%, 1/15/25......... Aa 750 774,375
-------------
WASHINGTON--0.8%
Snohomish County Washington School District 5.65%,
12/1/09............................................ Aaa 1,400 1,547,000
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $21,832,860)................................................ 22,378,512
-------------
ASSET-BACKED SECURITIES--5.0%
Continental Airlines, Series 97-2D 7.522%, 6/30/01... Ba 2,004 2,001,291
Green Tree Financial Corp. 94-1, B2 7.85%, 4/15/19... Baa(c) 3,000 2,895,000
Green Tree Financial Corp. 97-4, M1 7.22%, 2/15/29... Aa 2,500 2,514,062
Team Fleet Financing Corp. 96-1, B 144A 7.10%,
12/15/02 (b)....................................... BBB(c) 1,975 1,955,250
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $9,579,253)................................................. 9,365,603
-------------
CORPORATE BONDS--18.4%
AIRLINES--1.0%
U.S. Airways 6.85%, 01/30/18......................... A 1,860 1,861,581
-------------
AUTO PARTS & EQUIPMENT--1.3%
Titan Tire Corp. 7%, 2/11/00......................... NR 2,500 2,475,000
-------------
BROADCASTING (TELEVISION, RADIO & CABLE)--1.0%
Poland Communications, Inc. Series B 9.875%,
11/1/03............................................ B 2,200 1,944,250
-------------
COMPUTERS (SOFTWARE & SERVICES)--0.3%
PSINet, Inc. 144A 11.50%, 11/1/08 (b)................ B 600 624,000
-------------
ENTERTAINMENT--0.8%
SFX Entertainment, Inc. 144A 9.125%, 12/1/08 (b)..... B 1,500 1,496,250
-------------
FINANCIAL (DIVERSIFIED)--1.3%
BNP U.S. Funding LLC Series A 144A, 7.738%, 12/31/49
(b)(d)............................................. A 2,500 2,412,435
-------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES--3.9%
Majestic Star Casino LLC Series B 12.75%, 5/15/03.... B 1,500 1,567,500
Mashantucket Pequot 144A 6.57%, 9/1/13 (b)........... Aaa 2,140 2,153,375
Mashantucket Pequot 144A 6.91%, 9/1/12 (b)........... Aaa 1,100 1,138,500
Station Casinos, Inc. 10.125%, 3/15/06............... B 2,250 2,356,875
-------------
7,216,250
-------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--0.9%
Schein Pharmaceutical, Inc. 8.762%, 12/15/04 (d)..... B 2,055 1,767,300
-------------
MANUFACTURING (SPECIALIZED)--0.6%
Collins & Aikman Products 11.50%, 4/15/06............ B 1,000 1,042,500
-------------
OIL & GAS (EXPLORATION & PRODUCTION)--3.1%
Benton Oil & Gas Co. 9.375%, 11/1/07................. B 1,500 930,000
Benton Oil & Gas Co. 144A 11.625%, 5/1/03 (b)........ B 1,000 660,000
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)--CONTINUED
Forcenergy, Inc. Series B 8.50%, 2/15/07............. B $ 4,325 $ 2,595,000
Lomak Petroleum, Inc. 8.75%, 1/15/07................. B 1,750 1,627,500
-------------
5,812,500
-------------
PERSONAL CARE--0.9%
Bally Total Fitness Holding Corp. Series B 9.875%,
10/15/07........................................... B 1,750 1,715,000
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.6%
ARA Services, Inc. 10.625%, 8/1/00................... Baa 54 56,970
Fisher Scientific International, Inc. 144A 9%, 2/1/08
(b)................................................ B 1,000 1,000,000
-------------
1,056,970
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--0.6%
RCN Corp. Series B 0%, 2/15/08 (d)................... B 2,000 1,080,000
-------------
TELEPHONE--1.7%
ICG Holdings, Inc. 0%, 9/15/05 (d)................... NR 900 747,000
Interamericas Co. 144A 14%, 10/27/07 (b)............. NR 1,830 960,750
Intermedia Communications, Inc. Series B 0%, 7/15/07
(d)................................................ B 1,100 770,000
Pathnet, Inc. 12.25%, 4/15/08........................ NR 1,000 700,000
-------------
3,177,750
-------------
TRUCKERS & MARINE--0.4%
Hvide Marine, Inc. 8.375%, 2/15/08................... B 1,000 811,250
-------------
TOTAL CORPORATE BONDS
(Identified cost $38,992,188)................................................ 34,493,036
-------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--24.4%
BTC Mortgage Investors Trust 97-S1, D 144A 6.95%,
12/31/09 (b)....................................... BBB(c) 1,750 1,750,000
CS First Boston Corp. 97-SPCE, D 144A 7.332%, 4/20/08
(b)................................................ BBB(c) 1,800 1,763,437
CS First Boston Mortgage Securities 97-1R, 1M4 144A
7.312%, 2/28/22 (b)................................ Baa 2,697 2,496,175
ContiMortgage Home Equity Loan Trust 98-1, B 7.86%,
4/15/29............................................ Baa 4,000 3,937,500
DLJ Mortgage Acceptance Corp. 97-CF2, B1 144A 7.14%,
11/15/08 (b)....................................... Baa 2,200 2,042,562
First Chicago/Lennar Trust 97-CHL1, D 144A 8.11%,
5/29/08 (b)........................................ BB(c) 2,000 1,715,625
First Union Lehman Brothers Bank of America 98-C2, D
6.778%, 3/18/13.................................... Baa 3,000 2,834,063
GE Capital Mortgage Securities, Inc. 98-26, M 6.25%,
2/25/14............................................ AAA(c) 1,217 1,197,153
GE Capital Mortgage Services, Inc. 96-8, 2A5 7.50%,
5/25/26............................................ AAA(c) 972 981,486
General Growth Properties 97-1, D2 144A 6.992%,
11/15/07 (b)....................................... Baa 2,000 1,935,625
IMC Home Equity Loan Trust 98-1, B 7.87% 6/20/29..... Baa 2,000 1,930,938
IMPAC CMB Trust 98-2, M3 7.25%, 4/25/28.............. A(c) 957 959,139
LB Commercial Conduit Mortgage Trust 98-C4, A1B
6.21%, 10/15/08.................................... Aaa 2,250 2,294,297
Merrill Lynch Mortgage Investors, Inc. 96-C2, A3
6.96%, 11/21/28.................................... A(c) 3,607 3,715,210
Morgan Stanley Capital I 98-WF2, C 6.77%, 6/15/08.... A(c) 1,700 1,734,000
Residential Asset Securitization Trust 96-A4, A13
7.50%, 9/25/26..................................... AAA(c) 1,000 1,014,375
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26........................................... AAA(c) 273 273,052
Residential Funding Mortgage Securities I 94-57, M3
6.50%, 3/25/24..................................... BBB(c) 4,012 3,799,398
Ryland Mortgage Securities Corp. III 92-A, 1A 8.258%,
3/29/30............................................ A-(c) 750 748,887
</TABLE>
See Notes to Financial Statements
14
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Securitized Asset Sales, Inc. 95-6, B3 144A 7%,
12/25/10 (b)....................................... NR $ 1,266 $ 1,180,091
Securitized Asset Sales, Inc. 95-A, M 7.53%,
3/25/24............................................ Aa 1,771 1,782,754
Structured Asset Securities Corp. 95-C1, D 7.375%,
9/25/24............................................ BBB(c) 2,000 2,008,750
Structured Asset Securities Corp. 93-C1, B 6.60%,
10/25/24........................................... A+(c) 2,250 2,257,031
Wilshire Funding Corp. 97-WFC1, M3 7.25%, 8/25/27.... Baa 1,541 1,404,422
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $46,266,182)................................................ 45,755,970
-------------
FOREIGN GOVERNMENT SECURITIES--18.3%
ARGENTINA--3.4%
Republic of Argentina 11%, 12/4/05................... Ba 3,050 3,042,375
Republic of Argentina BGL5 11.375%, 1/30/17.......... Ba 1,500 1,503,750
Republic of Argentina RegS 11.75%, 2/12/07........... Ba 2,250 1,915,312
-------------
6,461,437
-------------
BRAZIL--1.6%
Republic of Brazil C Bond, PIK interest
capitalization, 8%, 4/15/14 (d).................... B 2,555 1,539,629
Republic of Brazil NMB-L Bearer 6.188%, 4/15/09
(d)................................................ B 2,500 1,382,812
-------------
2,922,441
-------------
BULGARIA--1.8%
Republic of Bulgaria FLIRB Series A Bearer 2.50%,
7/28/12 (d)........................................ B 4,430 2,547,250
Republic of Bulgaria IAB Series PDI Euro 6.688%,
7/28/11 (d)........................................ B 1,250 845,313
-------------
3,392,563
-------------
COLOMBIA--1.8%
Republic of Colombia 7.625%, 2/15/07................. Baa 1,500 1,248,750
Republic of Colombia Global Bond 8.375%, 2/15/27..... Baa 2,750 2,048,750
-------------
3,297,500
-------------
CROATIA--1.6%
Croatia Series A 6.563%, 7/31/10 (d)................. Baa 2,000 1,600,000
Croatia Series B 6.563%, 7/31/06 (d)................. Baa 1,810 1,465,744
-------------
3,065,744
-------------
DOMINICAN REPUBLIC--0.2%
Dominican Republic PDI Bearer 6.625%, 8/30/09 (d).... B(c) 485 339,500
-------------
MEXICO--3.0%
United Mexican States Global Bond 11.50%, 5/15/26.... Ba 5,350 5,700,425
-------------
PANAMA--1.1%
Republic of Panama 8.875%, 9/30/27................... Ba 2,215 2,093,175
-------------
PERU--1.0%
Peru PDI 4%, 3/7/17 (d).............................. BB(c) 2,950 1,865,875
-------------
POLAND--1.9%
Poland PDI Bearer 5%, 10/27/14 (d)................... Baa 3,750 3,513,281
-------------
SOUTH AFRICA--0.9%
Republic of South Africa 8.50%, 6/23/17.............. Baa 2,080 1,600,768
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $34,928,431)................................................
34,252,709
-------------
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
FOREIGN CORPORATE BONDS--15.8%
ARGENTINA--3.3%
Compania de Radiocomunicaciones Moviles SA 144A
9.25%, 5/8/08 (b).................................. Ba $ 3,200 $ 2,960,000
Mastellone Hermanos S.A. 11.75%, 04/01/08............ B 1,000 807,500
Telefonica de Argentina 144A 9.125%, 5/7/08 (b)...... Ba 2,500 2,312,500
-------------
6,080,000
-------------
BRAZIL--1.4%
Globo Communicacoes Co. 144A 10.625%, 12/5/08 (b).... B 3,500 2,292,500
MRS Logistica SA RegS Series B 10.625%, 8/15/05...... B(c) 750 388,125
-------------
2,680,625
-------------
CAYMAN ISLANDS--1.1%
Centaur Funding Corp. 144A, 9.08%, 4/21/20 (b)....... Baa 2,000 2,075,000
-------------
CHILE--1.7%
Compania Sud Americana de Vapores SA 7.375%,
12/8/03............................................ BBB(c) 2,000 1,810,000
Empresa Nacional de Electricidad SA 7.75%, 7/15/08... Baa 1,500 1,416,300
-------------
3,226,300
-------------
CHINA--0.5%
AES China Generating Co. Yankee 10.125%, 12/15/06.... Ba 1,235 852,150
-------------
GREECE--0.9%
Fage Dairy Industries SA 9%, 2/1/07.................. B 2,000 1,710,000
-------------
INDONESIA--0.3%
APP Finance II Mauritius, Ltd. 12%, 12/29/49 (d)..... Caa 1,090 624,025
-------------
JAPAN--1.9%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(b)(d)............................................. Baa 330 284,314
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (b)(d)...... Baa 3,500 3,331,073
-------------
3,615,387
-------------
NETHERLANDS--2.4%
PTC International Finance BV 0%, 7/1/07 (d).......... NR 6,500 4,420,000
-------------
POLAND--0.9%
TPSA Finance 144A 7.75%, 12/10/08 (b)................ Baa 1,625 1,602,656
-------------
VENEZUELA--1.4%
PDVSA Finance Ltd. 144A 7.50%, 11/15/28 (b).......... A 3,250 2,591,875
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $31,983,669)................................................
29,478,018
-------------
FOREIGN CONVERTIBLE BONDS--0.7%
CANADA--0.1%
PLD Telekom Cv. 144A 9%, 6/1/06 (b).................. NR 600 222,750
-------------
RUSSIA--0.6%
Lukinter Finance Cv. 3.50%, 5/6/02................... CC(c) 3,200 1,168,000
-------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $4,705,775).................................................
1,390,750
-------------
</TABLE>
See Notes to Financial Statements
15
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
PREFERRED STOCKS--0.5%
PAPER & FOREST PRODUCTS--0.5%
SD Warren Co. Series B Pfd. PIK 14%.......................
30,000 $ 987,010
------------
TOTAL PREFERRED STOCKS
(Identified cost $607,500).........................................
987,010
------------
WARRANTS--0.1%
COMPUTERS (NETWORKING)--0.0%
Orion Network Systems, Inc. Warrants (e)..................
1,000 6,000
------------
FOREIGN GOVERNMENT--0.0%
Republic of Argentina Warrants (e)........................
3,050 14,640
------------
TELEPHONE--0.1%
FirstCom, Corp. 144A Warrants (b)(e)......................
64,050 80,063
Pathnet, Inc.144A Warrants (b)(e).........................
1,000 10,000
------------
90,063
------------
TOTAL WARRANTS
(Identified cost $0)...............................................
110,703
------------
TOTAL LONG-TERM INVESTMENTS--97.9%
(Identified cost $194,014,863).....................................
183,396,939
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--1.2%
COMMERCIAL PAPER--1.2%
Receivables Capital Corp. 5.15%, 1/4/99.............. A-1 $ 2,195 $ 2,194,058
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,194,058).................................................
2,194,058
-------------
TOTAL INVESTMENTS--99.1%
(Identified cost $196,208,921)...............................................
185,590,997(a)
Cash and receivables, less liabilities--0.9%.................................
1,772,413
-------------
NET ASSETS--100.0%.............................................................
$ 187,363,410
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $4,447,049 and gross
depreciation of $16,717,148 for federal income tax purposes. At December
31, 1998, the aggregate cost of securities for federal income tax purposes
was $197,861,096.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $43,046,806 or 23% of net
assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(d) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(e) Non-income producing.
(f) Security in default.
See Notes to Financial Statements
16
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$196,208,921)............................................. $ 185,590,997
Cash........................................................ 1,915,361
Receivables
Interest and dividends.................................... 3,953,211
Investment securities sold................................ 1,022,849
Fund shares sold.......................................... 95,283
Prepaid expenses............................................ 3,801
-------------
Total assets............................................ 192,581,502
-------------
LIABILITIES
Payables
Investment securities purchased........................... 4,887,703
Fund shares repurchased................................... 140,937
Investment advisory fee................................... 80,643
Financial agent fee....................................... 15,562
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 88,187
-------------
Total liabilities....................................... 5,218,092
-------------
NET ASSETS.................................................. $ 187,363,410
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 205,143,488
Undistributed net investment income....................... 896,193
Accumulated net realized loss............................. (8,058,347)
Net unrealized depreciation............................... (10,617,924)
-------------
NET ASSETS.................................................. $ 187,363,410
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 20,401,284
-------------
-------------
Net asset value and offering price per share................ $ 9.18
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 16,242,598
Dividends................................................. 167,510
------------
Total investment income................................. 16,410,108
------------
EXPENSES
Investment advisory fee................................... 993,926
Financial agent fee....................................... 162,234
Custodian................................................. 39,526
Professional.............................................. 25,102
Printing.................................................. 24,431
Trustees.................................................. 12,789
Miscellaneous............................................. 23,460
------------
Total expenses.......................................... 1,281,468
------------
NET INVESTMENT INCOME....................................... 15,128,640
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (8,037,422)
Net change in unrealized appreciation (depreciation) on
investments............................................. (15,423,527)
------------
NET LOSS ON INVESTMENTS..................................... (23,460,949)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (8,332,309)
------------
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 15,128,640 $ 11,667,589
Net realized gain (loss).................................. (8,037,422) 4,695,405
Net change in unrealized appreciation (depreciation)...... (15,423,527) 390,571
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. (8,332,309) 16,753,565
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (14,753,888) (11,945,923)
Net realized gains........................................ (1,233,525) (4,694,394)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (15,987,413) (16,640,317)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (8,615,846 and 8,085,010
shares, respectively)................................... 85,699,046 84,607,552
Net asset value of shares issued from reinvestment of
distributions (1,648,116 and 1,609,511 shares,
respectively)........................................... 15,987,413 16,640,317
Cost of shares repurchased (8,318,291 and 5,265,201
shares, respectively)................................... (81,629,911) (54,778,943)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 20,056,548 46,468,926
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS..................... (4,263,174) 46,582,174
NET ASSETS
Beginning of period....................................... 191,626,584 145,044,410
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $896,193 AND $336,142, RESPECTIVELY).......... $ 187,363,410 $ 191,626,584
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.38 $ 10.34 $ 10.22 $ 8.98 $ 10.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.77 0.75(1) 0.79(1) 0.83(1)(2) 0.72(1)(2)
Net realized and unrealized gain
(loss).......................... (1.17) 0.34 0.43 1.22 (1.28)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... (0.40) 1.09 1.22 2.05 (0.56)
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.74) (0.77) (0.78) (0.81) (0.73)
Dividends from net realized
gains........................... (0.06) (0.28) (0.32) -- --
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.80) (1.05) (1.10) (0.81) (0.73)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... (1.20) 0.04 0.12 1.24 (1.29)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 9.18 $ 10.38 $ 10.34 $ 10.22 $ 8.98
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ (4.02)% 10.93% 12.42% 23.54% (5.47)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $187,363 $191,627 $145,044 $109,046 $74,686
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.64% 0.65% 0.65% 0.65%(3) 0.66%
Net investment income............. 7.61% 7.25% 7.80% 8.55% 7.62%
Portfolio turnover rate............. 160% 151% 191% 147% 181%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007, and $0.006 per share, respectively.
(2) Computed using average shares outstanding
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees: if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
18
<PAGE>
STRATEGIC ALLOCATION SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in common stocks and fixed-income securities, including foreign and
high-yield debt issues. Investors should note that foreign investing involves
special risks, such as currency fluctuations, less public disclosure, and
economic and political risks, and high-yield fixed income securities generally
are subject to greater market fluctuations and risk of loss of income and
principal than are investments in lower-yielding fixed income securities.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 20.79% compared
with a return of 19.67% for a composite benchmark index comprised of 55% of the
return for the S&P 500 Index(1), 35% of the return for the Lehman Aggregate Bond
Index(2) and 10% of the return of the 90-day T-bill.(3) The S&P 500 Index
returned 28.76% for the same period. All performance figures assume reinvestment
of distributions and are net of sales charges.
The 1998 calendar year proved to be one of the more difficult investment
years in recent memory given the extreme volatility in the global equity and
fixed income markets. In fact, U.S. equities by many measures had not seen this
level of volatility since the 1987 market crash. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. Government
securities.
While 1998 turned out to be an excellent year for large-cap stocks,
small-capitalization stocks continued to underperform and profitability at many
cyclical companies came under pressure due to weakness in the international
markets and falling commodity prices. Recognizing these trends, we focused our
stock selection on large-capitalization companies with predictable revenue
streams and a domestic focus. The Fund's heavy bias towards large-cap names and
its overweighting in the health-care, consumer staples and technology sectors
were the primary drivers for our strong equity performance last year.
Despite the obvious temptation to raise cash during this summer's sell-off,
our decision to remain fully invested in stocks also paid off handsomely as the
market has rebounded dramatically from its early October lows. On the other side
of the equation, the most notable factor that held back performance over this
latest reporting period was the Fund's underweighted position in the strongly
performing consumer cyclical group during the final quarter. While we were not
expecting a recession anytime soon, we were somewhat surprised by the strength
of the U.S consumer over this latest quarter.
With respect to the fixed-income portion of the Fund, the interest rate
roller coaster ride of 1997 (with rates starting out at 6.64%, peaking at 7.15%,
and ending at 5.92%) turned into a "yield ride" in 1998, as many fixed-income
investors began the year reaching for yield in both domestic high-yield
securities and lower quality foreign bonds. Despite the favorable backdrop of a
moderate, stable U.S. economy and historically low rates, this strategy began to
lose favor as global uncertainty caused investor sentiment to shift in the
second half of the year toward a preference for the safety and liquidity of U.S.
Treasuries. With the benefit of three swift rate cuts by the Federal Reserve
Board, the markets began to calm in the fourth quarter, and the 30-year U.S.
Treasury bond closed out the year at 5.09%. While the most recent CPI figures
indicate that U.S. inflation remains benign at a modest 1.6% annualized rate--a
slight slowdown from 1997's 1.7% rate--the mood in the bond market remains
tenuous.
While we are not pleased with our results, they can be explained by a
"flight to quality" of unprecedented magnitude. As stated earlier, the US
Treasury sector was the best performing sector in 1998. While market
environments such as this happen relatively infrequently, they penalize managers
such as ourselves that have a significant underweighting to U.S. Treasuries. It
is noteworthy that since 1980 there was only one occurrence where U.S.
Treasuries were the best performing bond market sector two years in a row.
During this difficult time, we remained true to our discipline and remained
fully allocated to those non-core sectors we believed were the most attractive
from a risk-reward perspective. We believe that this is the most prudent manner
in which to manage assets particularly during extreme market moves.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
(2) The Lehman Aggregate Bond Index is an unmanaged, commonly used measure of
bond market total return performance. The Index is not available for direct
investment.
(3) The 90-day T-bill is a commonly used measure of money market total return
performance.
19
<PAGE>
STRATEGIC ALLOCATION SERIES
Overall, we remain cautiously optimistic on the market. While we expect
corporate profits to remain under pressure, this current environment of benign
inflation and historically low interest rates should continue to be a positive
catalyst for financial assets. After four straight years of double-digit gains,
it is also likely that we will see more normalized (single-digit) returns for
U.S. equities in 1999. Lastly, we believe that the financial markets will remain
volatile over the near term, as there are still many crosscurrents at work in
the global financial systems.
Although we anticipate a slowdown in the U.S. economy, we do not expect the
recession that seems to be factored into the domestic high-yield market
currently. We do expect that this sector's defaults will pick up in 1999;
however, the level being priced into the market is extremely high. Our holdings
in this area represent a diversified group of securities in industries with good
fundamentals, and solid underlying businesses. In addition, we have significant
exposure to U.S. dollar-denominated below investment-grade foreign holdings.
This sector remains among the most attractive from a risk-reward perspective. We
own debt securities of countries that have good fundamentals and more stable
political situations, such as Mexico, Argentina, Panama, Bulgaria, and Peru.
We believe the fixed-income portion of the Fund is well structured to take
advantage of current market conditions, and we will continue to emphasize the
credit-sensitive sectors given their very favorable valuations. The market is
paying investors a large yield premium or yield advantage as compensation for
taking risk. Priced into this premium is much bad news. For those investors
willing and able to be patient and discerning, we believe these factors present
outstanding opportunities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LIPPER ANALYTICAL SERVICES FLEXIBLE PORTFOLIO INDEX**
STRATEGIC ALLOCATION SERIES BALANCED BENCHMARK *
<S> <C> <C> <C>
12/31/1988 $10,000.00 $10,000.00 $10,000.00
12/31/1989 $11,977.55 $12,312.04 $11,725.08
12/31/1990 $12,666.26 $12,595.30 $11,834.86
12/31/1991 $16,369.75 $15,488.25 $15,027.78
12/31/1992 $18,116.24 $16,608.63 $15,880.20
12/31/1993 $20,113.57 $18,144.34 $17,903.98
12/31/1994 $19,822.66 $18,179.16 $17,426.38
12/31/1995 $23,434.68 $23,129.04 $21,537.75
12/31/1996 $25,554.68 $26,444.46 $24,564.00
12/31/1997 $30,851.56 $32,249.49 $29,177.75
12/31/1998 $37,266.79 $38,592.09 $34,006.77
<CAPTION>
S & P 500 INDEX ***
<S> <C>
12/31/1988 $10,000.00
12/31/1989 $13,143.49
12/31/1990 $12,723.63
12/31/1991 $16,609.89
12/31/1992 $17,887.30
12/31/1993 $19,676.05
12/31/1994 $19,936.37
12/31/1995 $27,413.96
12/31/1996 $33,787.07
12/31/1997 $45,063.71
12/31/1998 $58,022.45
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Strategic Allocation Series 20.79% 13.13% 14.06%
- ---------------------------------------------------------------------
Balanced Benchmark* 19.67% 16.29% 14.46%
- ---------------------------------------------------------------------
Lipper Analytical Services Flexible
Portfolio Index** 16.55% 13.69% 13.02%
- ---------------------------------------------------------------------
S&P 500 Index*** 28.76% 24.15% 19.22%
- ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares when redeemed, may be
worth more or less than the original cost. High yield fixed income securities
generally are subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower-yielding fixed income securities.
Foreign investing involves special risks such as currency fluctuation and less
public disclosure, as well as economic and political risks.
* The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10%
90-day Treasury Bills and is produced by Frank Russell Company.
** The Lipper Analytical Services Flexible Portfolio Index is an average of the
largest mutual funds within the flexible portfolio category.
*** The S&P 500 Stock Index is an unmanaged, commonly used measure of stock
total return performance. The index is not available for direct investment.
20
<PAGE>
STRATEGIC ALLOCATION SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--12.5%
U.S. TREASURY BONDS--0.5%
U.S. Treasury Bonds 6.125%, 11/15/27............ AAA $ 2,300 $ 2,569,923
------------
U.S. TREASURY NOTES--12.0%
U.S. Treasury Notes 5.625%, 10/31/99............ AAA 800 806,149
U.S. Treasury Notes 5.50%, 2/29/00.............. AAA 15,000 15,143,763
U.S. Treasury Notes 4.50%, 9/30/00.............. AAA 2,025 2,021,528
U.S. Treasury Notes 5.75%, 11/15/00............. AAA 4,950 5,048,388
U.S. Treasury Notes 5.75%, 11/30/02............. AAA 1,630 1,690,903
U.S. Treasury Notes 5.50%, 1/31/03.............. AAA 11,960 12,307,426
U.S. Treasury Notes 5.50%, 2/28/03.............. AAA 7,000 7,206,790
U.S. Treasury Notes 5.75%, 4/30/03.............. AAA 3,725 3,875,178
U.S. Treasury Notes 5.50%, 2/15/08.............. AAA 2,550 2,701,957
U.S. Treasury Notes 5.625%, 5/15/08............. AAA 3,359 3,584,569
U.S. Treasury Notes 5.25%, 8/15/03.............. AAA 3,053 3,130,024
------------
57,516,675
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $58,880,939).......................................... 60,086,598
------------
MUNICIPAL BONDS--3.2%
CALIFORNIA--1.5%
California State Department Water Resources
Revenue Series S 5%, 12/1/29.................. AA 415 410,331
Kern County Pension Obligation Revenue Taxable
7.26%, 8/15/14................................ AAA 1,500 1,657,500
Long Beach Pension Obligation Taxable 6.87%,
9/1/06........................................ AAA 840 901,950
Los Angeles County Public Works PJ V-B 5.125%,
12/1/29....................................... AAA 630 633,937
San Bernardino County Pension Obligation Revenue
Taxable 6.87%, 8/1/08......................... AAA 410 441,262
San Bernardino County Pension Obligation Revenue
Taxable 6.94%, 8/1/09......................... AAA 1,110 1,202,963
Sonoma County Pension Obligation 6.625%,
6/1/13........................................ AAA 925 967,781
Ventura County Pension Obligation Taxable 6.54%,
11/1/05....................................... AAA 975 1,024,969
------------
7,240,693
------------
FLORIDA--1.0%
Florida State Department of Transportation
Series A 5%, 7/1/27........................... AA+ 500 496,875
Miami Beach Special Obligation Revenue Taxable
8.60%, 9/1/21................................. AAA 3,210 3,667,425
University of Miami Revenue Taxable Series A
7.65%, 4/1/20................................. AAA 540 578,475
------------
4,742,775
------------
MASSACHUSETTS--0.2%
Massachusetts State Port Authority Revenue
Taxable Series C 6.05%, 7/1/02................ AA- 835 851,700
Massachusetts State Water Resources Authority
Revenue Series D 5%, 8/1/24................... AAA 500 493,750
------------
1,345,450
------------
NEW YORK--0.3%
New York State Dormitory Authority Pension
Obligation Revenue Taxable 6.90%,4/1/03....... BBB+ 725 755,813
New York State Environmental Facilities Corp.
Revenue Taxable 6.70%, 3/15/08................ AAA 670 711,875
------------
1,467,688
------------
TEXAS--0.2%
Houston Water & Sewer System Revenue Refunding,
Jr. Lien, Series D 5%, 12/1/25................ AAA 630 617,400
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
TEXAS--CONTINUED
Texas State General Obligation Series B 5.25%,
10/1/08....................................... AA $ 255 $ 276,038
------------
893,438
------------
TOTAL MUNICIPAL BONDS
(Identified cost $14,965,478).......................................... 15,690,044
------------
ASSET-BACKED SECURITIES--1.2%
AESOP Funding II LLC 97-1, A2 144A 6.40%,
10/20/03 (d).................................. AAA 2,000 2,045,000
Capita Equipment Receivables Trust 97-1, B
6.45%, 8/15/02................................ A+ 720 727,200
Copelco Capital Funding Corp., 98-A, A3 5.78%,
2/15/01....................................... AAA 1,250 1,251,563
Fleetwood Credit Corp. Grantor Trust 96-B, A
6.90%, 3/15/12................................ AAA 514 521,205
Green Tree Financial Corp. 96-2, M1 7.60%,
4/15/27....................................... AA- 1,075 1,115,648
------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $5,559,752)........................................... 5,660,616
------------
CORPORATE BONDS--0.9%
COMPUTERS (SOFTWARE & SERVICES)--0.1%
Computer Associates International Series B
6.375%, 4/15/05............................... A- 635 625,475
------------
HEALTH CARE (DIVERSIFIED)--0.2%
Tenet Healthcare Corp 144A 8.125%, 12/1/08
(d)........................................... BB- 1,200 1,243,500
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.2%
Boston Scientific Corp. 6.625%, 3/15/05......... BBB 900 849,375
------------
MANUFACTURING (DIVERSIFIED)--0.1%
Tyco International Group SA 6.375%, 6/15/05..... A- 500 508,125
------------
PAPER & FOREST PRODUCTS--0.1%
Buckeye Cellulose Corp. 9.25%, 9/15/08.......... BB- 350 363,562
------------
RETAIL (FOOD CHAINS)--0.1%
Meyer (Fred), Inc. 7.45%, 3/1/08................ BB+ 650 703,625
------------
TRUCKS & PARTS--0.1%
Cummins Engine Inc. 6.45%, 3/1/05............... BBB+ 320 312,400
------------
TOTAL CORPORATE BONDS
(Identified cost $4,540,977)........................................... 4,606,062
------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--3.1%
CS First Boston Mortgage Securities Corp.
95-AEW1, B 7.182%, 11/25/27................... AA- 1,346 1,343,903
First Union-Lehman Brothers 97-C1, B 7.43%,
4/18/07....................................... Aa(c) 850 918,797
G.E. Capital Mortgage Services, Inc. 96-8, 1M
7.25%, 5/25/26................................ AA 243 246,078
Lehman Large Loan 97-LLI, B 6.95%, 3/12/07...... AA 645 678,862
Mortgage Capital Funding, Inc. 96-MC2, A3,
7.008%, 9/20/06............................... Aaa(c) 1,800 1,892,812
Nationslink Funding Corp. 96-1, B 7.69%,
12/20/05...................................... AA 450 479,672
Norwest Asset Securities Corp. 96-9, A15 7.75%
1/25/27....................................... Aaa(c) 900 913,500
Residential Asset Securitization Trust 96-A8, A1
8%, 12/25/26.................................. AAA 136 136,526
Residential Funding Mortgage Securities I 96-S1,
A11 7.10%, 1/25/26............................ AAA 1,500 1,509,375
Residential Funding Mortgage Securities I 96-S4,
M1 7.25%, 2/25/26............................. AA 969 974,034
Securitized Asset Sales 93-J, 2B 6.81%,
11/28/23...................................... AA(c) 949 948,830
</TABLE>
See Notes to Financial Statements
21
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Structured Asset Securities Corp. 93-C1, 6.60%,
10/25/24...................................... A+ $ 1,150 $ 1,153,689
Structured Asset Securities Corp. 95-C4, B
7.00%, 6/25/26................................ AA 1,650 1,665,469
Triangle Funding Ltd. 98-2A, 3, 144A 7.163%,
10/15/04 (d).................................. BBB 2,000 1,992,500
------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $14,591,989).......................................... 14,854,047
------------
FOREIGN GOVERNMENT SECURITIES--1.9%
ARGENTINA--0.3%
Republic of Argentina 9.75%, 9/19/27............ BBB- 490 438,795
Republic of Argentina Bearer FRB 6.188%, 3/31/05
(e)........................................... BBB- 1,025 876,033
------------
1,314,828
------------
BRAZIL--0.1%
Republic of Brazil NMB-L Bearer 6.188%, 4/15/09
(e)........................................... BB- 1,185 655,453
------------
BULGARIA--0.1%
Republic of Bulgaria FLIRB Series A Bearer
2.50%, 7/28/12 (e)............................ B(c) 810 465,750
------------
COLOMBIA--0.2%
Republic of Colombia 7.25%, 2/23/04............. BBB- 1,000 852,500
------------
CROATIA--0.2%
Croatia Series A 6.563%, 7/31/10 (e)............ BBB- 550 440,000
Croatia Series B 6.563%, 7/31/06 (e)............ BBB- 475 384,758
------------
824,758
------------
KOREA--0.2%
Republic of Korea 8.875%, 4/15/08............... BB+ 1,095 1,127,850
------------
MEXICO--0.2%
United Mexican States Global Bond 11.50%,
5/15/26....................................... BB 1,175 1,251,962
------------
PANAMA--0.2%
Republic of Panama 8.875%, 9/30/27.............. BB+ 965 911,925
------------
PERU--0.1%
Peru PDI 4%, 3/7/17 (e)......................... BB 730 461,725
------------
POLAND--0.3%
Poland Bearer PDI 5%, 10/27/14 (e).............. BBB- 1,475 1,381,891
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $9,809,809)........................................... 9,248,642
------------
FOREIGN CORPORATE BONDS--0.6%
ARGENTINA--0.1%
Compania de Radiocomunicaciones Moviles SA 144A
9.25%, 5/8/08 (d)............................. BBB 450 416,250
------------
CHILE--0.1%
Compania Sud Americana de Vapores SA 7.375%,
12/8/03....................................... BBB 140 126,700
Petropower I Funding Trust 144A, 7.36%, 2/15/14
(d)........................................... BBB 500 421,875
------------
548,575
------------
JAPAN--0.3%
IBJ Preferred Capital Co. LLC 144A 8.79%,
12/29/49 (d).................................. Baa 830 715,094
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (d).... BB+ 830 789,940
------------
1,505,034
------------
POLAND--0.1%
TPSA Finance 144A 7.75%, 12/10/08 (d)........... BBB- 355 350,119
------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $3,093,960)........................................... 2,819,978
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
COMMON STOCKS--72.0%
BANKS (MAJOR REGIONAL)--2.7%
Bank One Corp.................................................... 59,902 $ 3,058,746
Mellon Bank Corp................................................. 38,900 2,674,375
U.S. Bancorp..................................................... 50,000 1,775,000
Wells Fargo & Co................................................. 134,600 5,375,587
------------
12,883,708
------------
BANKS (MONEY CENTER)--0.9%
BankAmerica Corp................................................. 74,774 4,495,787
------------
BEVERAGES (ALCOHOLIC)--0.7%
Anheuser-Busch Companies, Inc.................................... 54,400 3,570,000
------------
BEVERAGES (NON-ALCOHOLIC)--1.2%
PepsiCo, Inc..................................................... 141,000 5,772,187
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.6%
CBS Corp......................................................... 53,500 1,752,125
Chancellor Media Corp. (b)....................................... 47,300 2,264,487
Clear Channel Communications, Inc. (b)........................... 33,200 1,809,400
Fox Entertainment Group, Inc. Class A (b)........................ 43,000 1,083,062
Liberty Media Group Class A (b).................................. 90,400 4,164,050
Tele-Communications, Inc. Class A (b)............................ 111,900 6,189,469
------------
17,262,593
------------
COMMUNICATIONS EQUIPMENT--0.6%
Tellabs, Inc. (b)................................................ 40,200 2,756,212
------------
COMPUTERS (HARDWARE)--2.6%
International Business Machines Corp............................. 66,900 12,359,775
------------
COMPUTERS (NETWORKING)--1.2%
Cisco Systems, Inc. (b).......................................... 59,975 5,566,430
------------
COMPUTERS (PERIPHERALS)--1.2%
EMC Corp. (b).................................................... 65,600 5,576,000
------------
COMPUTERS (SOFTWARE & SERVICES)--8.5%
America Online, Inc. (b)......................................... 21,600 3,456,000
BMC Software, Inc. (b)........................................... 119,800 5,338,587
Compuware Corp. (b).............................................. 111,000 8,671,875
Edwards (J.D.) & Co. (b)......................................... 43,700 1,239,987
HBO & Co......................................................... 192,900 5,533,819
Microsoft Corp. (b).............................................. 83,100 11,524,931
Oracle Corp. (b)................................................. 74,000 3,191,250
Sterling Commerce, Inc. (b)...................................... 46,000 2,070,000
------------
41,026,449
------------
CONSUMER FINANCE--0.9%
Capital One Financial Corp....................................... 38,600 4,439,000
------------
DISTRIBUTORS (FOOD & HEALTH)--1.1%
Cardinal Health, Inc............................................. 69,600 5,280,900
------------
ELECTRICAL EQUIPMENT--1.9%
General Electric Co.............................................. 91,900 9,379,544
------------
ELECTRONICS (SEMICONDUCTORS)--3.5%
Intel Corp....................................................... 120,100 14,239,356
Micron Technology, Inc. (b)...................................... 47,400 2,396,662
------------
16,636,018
------------
FINANCIAL (DIVERSIFIED)--3.5%
Citigroup, Inc................................................... 100,050 4,952,475
Freddie Mac...................................................... 120,900 7,790,494
Morgan Stanley Dean Witter & Co.................................. 57,600 4,089,600
------------
16,832,569
------------
HEALTH CARE (DIVERSIFIED)--4.1%
Bristol-Myers Squibb Co.......................................... 70,400 9,420,400
Mylan Laboratories, Inc.......................................... 67,000 2,110,500
Warner-Lambert Co................................................ 110,400 8,300,700
------------
19,831,600
------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.8%
Pfizer, Inc...................................................... 88,900 11,151,394
Schering-Plough Corp............................................. 141,600 7,823,400
</TABLE>
See Notes to Financial Statements
22
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--CONTINUED
Watson Pharmaceuticals, Inc. (b)................................. 64,400 $ 4,049,150
------------
23,023,944
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--2.8%
Baxter International, Inc........................................ 66,200 4,257,487
Becton, Dickinson and Co......................................... 34,500 1,472,719
Genzyme Corp. (b)................................................ 35,200 1,751,200
Medtronic, Inc................................................... 78,300 5,813,775
------------
13,295,181
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.7%
Clorox Co. (The)................................................. 12,200 1,425,112
Colgate-Palmolive Co............................................. 19,000 1,764,625
Procter & Gamble Co. (The)....................................... 53,500 4,885,219
------------
8,074,956
------------
INSURANCE (LIFE/HEALTH)--0.5%
UNUM Corp........................................................ 40,300 2,352,512
------------
INSURANCE (MULTI-LINE)--1.3%
American International Group, Inc................................ 45,250 4,372,281
ReliaStar Financial Corp......................................... 45,500 2,098,687
------------
6,470,968
------------
LODGING--HOTELS--0.4%
Carnival Corp.................................................... 36,900 1,771,200
------------
MANUFACTURING (DIVERSIFIED)--1.5%
Tyco International Ltd........................................... 98,800 7,453,225
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.4%
Halliburton Co................................................... 22,500 666,562
Schlumberger Ltd................................................. 14,600 673,425
Transocean Offshore, Inc......................................... 22,700 608,644
------------
1,948,631
------------
OIL (DOMESTIC INTEGRATED)--1.3%
USX-Marathon Group............................................... 203,300 6,124,412
------------
OIL (INTERNATIONAL INTEGRATED)--1.5%
Amoco Corp....................................................... 100,000 6,037,500
Conoco, Inc. (b)................................................. 65,700 1,371,488
------------
7,408,988
------------
RETAIL (BUILDING SUPPLIES)--1.4%
Home Depot, Inc. (The)........................................... 108,300 6,626,606
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.3%
Tandy Corp....................................................... 33,300 1,371,544
------------
RETAIL (DRUG STORES)--3.1%
CVS Corp......................................................... 134,000 7,370,000
Rite Aid Corp.................................................... 147,800 7,325,338
------------
14,695,338
------------
RETAIL (FOOD CHAINS)--3.1%
Meyer (Fred), Inc. (b)........................................... 98,750 5,949,688
Safeway, Inc. (b)................................................ 147,600 8,994,375
------------
14,944,063
------------
RETAIL (GENERAL MERCHANDISE)--0.6%
Wal-Mart Stores, Inc............................................. 33,000 2,687,438
------------
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
RETAIL (SPECIALTY)--1.3%
Borders Group, Inc. (b).......................................... 74,000 $ 1,845,375
Staples, Inc. (b)................................................ 103,000 4,499,813
------------
6,345,188
------------
SERVICES (COMMERCIAL & CONSUMER)--0.4%
ServiceMaster Co. (The).......................................... 85,000 1,875,313
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.4%
AirTouch Communications, Inc. (b)................................ 160,400 11,568,850
------------
TELECOMMUNICATIONS (LONG DISTANCE)--2.3%
AT&T Corp........................................................ 67,700 5,094,425
MCI WorldCom, Inc. (b)........................................... 84,838 6,087,127
------------
11,181,552
------------
TELEPHONE--1.5%
BellSouth Corp. (b).............................................. 84,800 4,229,400
SBC Communications, Inc. (b)..................................... 58,100 3,115,613
------------
7,345,013
------------
WASTE MANAGEMENT--1.2%
Waste Management, Inc............................................ 125,100 5,832,788
------------
TOTAL COMMON STOCKS
(Identified cost $269,913,855)..................................................... 346,066,482
------------
FOREIGN COMMON STOCKS--0.6%
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--0.6%
Elan Corp. PLC Sponsored ADR (Ireland) (b)....................... 39,100 2,719,894
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $2,413,495)....................................................... 2,719,894
------------
TOTAL LONG-TERM INVESTMENTS--96.0%
(Identified cost $383,770,254)..................................................... 461,752,363
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.2%
COMMERCIAL PAPER--2.0%
SBC Communications, Inc. 5.95%, 1/6/99.......... A-1+ $ 3,390 3,387,198
Preferred Receivables Funding Corp. 5.17%,
1/7/99........................................ A-1 1,000 998,602
Corporate Receivables Corp.5.22%, 1/21/99....... A-1+ 1,000 997,265
Vermont American Corp. 5.45%, 1/27/99........... A-1+ 4,105 4,088,842
---------------
9,471,907
---------------
FEDERAL AGENCY SECURITIES--2.2%
FHLB 4.50%, 1/4/99.............................. 5,825 5,822,816
FMC 4.90%, 1/15/99.............................. 4,955 4,945,558
---------------
10,768,374
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $20,240,594).................................................. 20,240,281
---------------
TOTAL INVESTMENTS--100.2%
(Identified cost $404,010,848)................................................. 481,992,644(a)
Cash and receivables, less liabilities--(0.2%)................................. (1,095,967)
---------------
NET ASSET--100.0%................................................................ $ 480,896,677
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $82,815,955 and gross
depreciation of $5,901,655 for income tax purposes. At December 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$405,078,344.
(b) Non-income producing.
(c) As rated by Moody's, Fitch or Duff & Phelps.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $7,974,278 or 1.7% of net
assets.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
23
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$404,010,848)............................................. $ 481,992,644
Receivables
Investment securities sold................................ 2,396,556
Interest and dividends.................................... 1,875,664
Fund shares sold.......................................... 165,442
Prepaid expenses............................................ 8,563
-------------
Total assets............................................ 486,438,869
-------------
LIABILITIES
Payables
Investment securities purchased........................... 3,921,065
Custodian................................................. 877,094
Fund shares repurchased................................... 367,452
Investment advisory fee................................... 218,702
Financial agent fee....................................... 27,905
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 124,914
-------------
Total liabilities....................................... 5,542,192
-------------
NET ASSETS.................................................. $ 480,896,677
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 398,925,687
Undistributed net investment income....................... 487,041
Accumulated net realized gain............................. 3,502,153
Net unrealized appreciation............................... 77,981,796
-------------
NET ASSETS.................................................. $ 480,896,677
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 30,737,105
-------------
-------------
Net asset value and offering price per share................ $ 15.65
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 9,774,394
Dividends................................................. 2,079,791
-------------
Total investment income................................. 11,854,185
-------------
EXPENSES
Investment advisory fee................................... 2,567,526
Financial agent fee....................................... 290,435
Custodian................................................. 64,938
Professional.............................................. 38,169
Printing.................................................. 28,553
Trustees.................................................. 12,684
Miscellaneous............................................. 29,192
-------------
Total expenses.......................................... 3,031,497
-------------
NET INVESTMENT INCOME....................................... 8,822,688
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 19,330,598
Net change in unrealized appreciation (depreciation) on
investments............................................. 57,110,856
-------------
NET GAIN ON INVESTMENTS..................................... 76,441,454
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 85,264,142
-------------
-------------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 8,822,688 $ 8,442,610
Net realized gain (loss).................................. 19,330,598 63,639,021
Net change in unrealized appreciation (depreciation)...... 57,110,856 3,449,569
------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 85,264,142 75,531,200
------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (8,371,532) (8,832,503)
Net realized gains........................................ (31,140,159) (52,948,379)
------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (39,511,691) (61,780,882)
------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (3,651,580 and 3,408,140
shares, respectively)................................... 52,916,356 50,911,029
Net asset value of shares issued from reinvestment of
distributions (2,607,238 and 4,363,884 shares,
respectively)........................................... 39,511,691 61,780,882
Cost of shares repurchased (5,904,172 and 4,807,163
shares, respectively)................................... (86,285,937) (71,683,788)
------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 6,142,110 41,008,123
------------- -----------------
NET INCREASE IN NET ASSETS................................ 51,894,561 54,758,441
NET ASSETS
Beginning of period....................................... 429,002,116 374,243,675
------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $487,041 AND $32,496, RESPECTIVELY)........... $480,896,677 $429,002,116
------------- -----------------
------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 14.12 $ 13.65 $ 13.63 $ 12.68 $ 13.71
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)..... 0.29 0.32 0.32 0.45 0.36(1)(3)
Net realized and unrealized gain
(loss)......................... 2.57 2.46 0.91 1.84 (0.56)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS................... 2.86 2.78 1.23 2.29 (0.20)
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income......................... (0.28) (0.33) (0.31) (0.45) (0.37)
Dividends from net realized
gains.......................... (1.05) (1.98) (0.90) (0.89) (0.46)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............ (1.33) (2.31) (1.21) (1.34) (0.83)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE.......... 1.53 0.47 0.02 0.95 (1.03)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD..... $ 15.65 $ 14.12 $ 13.65 $ 13.63 $ 12.68
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return....................... 20.79% 20.73% 9.05% 18.22% (1.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)...................... $480,897 $429,002 $374,244 $353,838 $289,083
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses............... 0.68% 0.71% 0.70% 0.67%(2) 0.74%
Net investment income............ 1.97% 2.09% 2.26% 3.28% 2.71%
Portfolio turnover rate............ 139% 368% 287% 170% 220%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
See Notes to Financial Statements
25
<PAGE>
INTERNATIONAL SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital appreciation
by investing primarily in an internationally diversified portfolio of equity
securities. The Fund essentially focuses on quality companies with strong
management, solid growth prospects and attractive relative valuations. Investors
should note that foreign investments pose added risks such as currency
fluctuation, less public disclosure, as well as economic and political risks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 27.92% compared
with 20.33% for the Morgan Stanley Capital International (MSCI) EAFE Index(1).
All performance figures assume reinvestment of distributions and are net of
sales charges.
For the first half of the year, the portfolio benefited from its overweight
exposure in Europe and its lack of exposure to Asia. The advent of the euro has
given European institutions access to a much greater pool of domestic currency
investments. Also, European markets attracted significant levels of foreign
investment enamored by a region with growing economies. This, coupled with the
need for corporations to restructure in order to be prepared for a more
competitive pan-European market and an emerging trend of improving shareholder
returns, enabled the European equity markets to post particularly strong
returns.
Meanwhile, the currency-led collapse in the Pacific Basin left the region's
markets in tatters with investors nursing heavy losses. Only a determined effort
by the International Monetary Fund and the U.S. to establish credible recovery
plans contained the crisis mostly within the region, allowing a selective market
recovery in the first quarter of 1998. Even this, however, petered out as
investors' relief that the worst was over gave way to the realization that there
was still much deeper economic pain to endure. Even Hong Kong and Singapore saw
their stock markets fall heavily.
The second half of the calendar year was a period of amazing volatility for
global stock markets. After European and U.S. markets had reached their peak in
early July, markets worldwide tumbled on a flood of bad news. The initial
catalyst for the dramatic downturn was the financial crisis in Russia where the
ruble collapsed. Nervousness spread to other markets, particularly Latin America
where it was feared that Brazil was the next in line to devalue. All of the
region's currencies came under intense pressure, interest rates soared, and
equity markets plunged more the 50% in less than two months. Confirmation that
Japan was suffering its worst economic slump since 1945 added to international
market worries. The crash of the Russian ruble and the severe downturn in
worldwide markets also put many hedge funds in severe financial difficulties and
the announcement that U.S. hedge fund manager Long-Term Capital Management LP
had been bailed out to the extent of $3.5 billion sent shockwaves through the
financial community.
All this bad news completely wiped out the year-to-date gains for many
markets, and by early October markets had fallen to a one-year low. However,
concerted worldwide action since that time has resulted in a dramatic recovery
in worldwide markets as stocks rose on expectations that corporate profits would
benefit from lower interest rates. Much of the credit must be given to the U.S.
Federal Reserve, which cut interest rates three times in seven weeks to ensure
that the U.S economy did not slide into recession. We have also seen cuts in
European interest rates, and the Japanese government announced a major package
to stimulate its failing economy. Markets in Southeast Asia also showed signs of
recovery with the perception being that the worst is now over for that region.
The successful completion of an IMF rescue package for Brazil also helped
bolster world markets with a strong rebound for emerging markets that had been
particularly badly affected by the late summer downturn.
In the second half of the year we reduced our large overweighting to
European equities. This area had resulted in substantial outperformance for the
portfolio, but we were concerned that valuations had advanced too quickly in
many instances. We decided that it would be opportune to take profits in Europe
and reinvest the proceeds in Japan where the Fund had previously no holdings.
This strategy has proved successful to date. Although both the European and
Japanese markets have fallen since July, the Japanese yen has strengthened
significantly, resulting in net dollar gains for our Japanese investments.
OUTLOOK
While the manufacturing sector continues under pressure in most countries,
consumer confidence is rebounding once again in a number of economies,
suggesting still relatively buoyant consumer spending. The rally in the UK has
returned it to a level that is above most revised expectations for this year and
only around 10-12% below the more optimistic forecasts for next year. However,
in our opinion, it is the excellent technical position that provides the
strongest support together with the
- ------------------------
(1) The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged,
commonly used measure of foreign stock total return performance. The Index
is not available for direct investment.
26
<PAGE>
INTERNATIONAL SERIES
prospect of further monetary easing a certainty in the UK. Economic growth
forecasts meanwhile remain under pressure and will clearly impact further on
earnings expectations. As with the UK, Continental Europe appears less at risk
than the U.S. from a valuation perspective even given the degree to which
perceptions surrounding Europe's economic growth and earnings prospects have
deteriorated since the tremendous rally earlier in the year. We believe
additional rate cuts are on the agenda for early next year and should offset any
concerns over the launch of the euro.
In the Far East, sentiment towards Japan is improving, with fund managers
becoming increasingly nervous of their generally underweight positions in the
stock market and currency. There is growing optimism about the economy and
banking system following the government's recent measures, but possibly this is
due more to the hope that this will prevent imminent free-fall than belief that
the plans solve Japan's structural problems. Further short-term support for the
stock market may emerge from an eventual deal between the LDP and Liberals to
suspend the sales tax. Elsewhere in Asia, currencies have stabilized and
interest rates have fallen. A protracted recovery is likely provided that there
is no worsening of the U.S. and Japanese economies.
The emerging markets outside Asia have also bounced strongly, and a pause
now seems probable. In Latin America, the IMF restructure package has presented
Brazil with the opportunity to resolve structural issues that have held the
country back for some time.
Overall, the scale of recent rallies suggests a period of consolidation is
due. But, we believe liquidity-driven rallies tend to be stronger and continue
longer than most people expect, and it would be no surprise to see markets
squeezed higher over the short term. The U.S. will set the trends for other
equity markets and a soft landing, very low inflation, falling interest rates
and steady earnings growth scenario is a possibility. Add in excess liquidity,
continuing merger and acquisition activity, and valuations could go even higher,
in our opinion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL SERIES MSCI EAFE INDEX *
<S> <C> <C>
05/01/1990 $10,000.00 $10,000.00
12/31/1990 $9,190.11 $9,639.77
12/31/1991 $10,997.45 $10,844.29
12/31/1992 $9,588.82 $9,559.06
12/31/1993 $13,274.32 $12,708.10
12/31/1994 $13,277.86 $13,732.16
12/31/1995 $14,551.69 $15,318.21
12/31/1996 $17,264.92 $16,292.86
12/31/1997 $19,344.17 $16,627.90
12/31/1998 $24,746 $20,907
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
FROM
INCEPTION
5/1/90
TO
1 YEAR 5 YEARS 12/31/98
<S> <C> <C> <C>
- ---------------------------------------------------------------------
International Series 27.92% 13.27% 11.01%
- ---------------------------------------------------------------------
MSCI EAFE Index* 20.33% 9.50% 8.32%
- ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/90
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
* The Morgan Stanley Capital International EAFE Index is an unmanaged, commonly
used measure of foreign stock fund performance which includes net dividends
reinvested. Total return figures are net of foreign withholding taxes. The
EAFE index is an aggregate of 19 individual country indexes in Europe,
Australia, New Zealand and the Far East.
27
<PAGE>
INTERNATIONAL SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
FOREIGN COMMON STOCKS--95.2%
ARGENTINA--0.4%
Banco Frances SA Sponsored ADR (Banks (Major
Regional)).................................... 20,000 $ 415,000
Telecom Argentina Sponsored ADR (Telephone)..... 20,000 550,000
-------------
965,000
-------------
AUSTRALIA--1.0%
Australian Gas Light Co., Ltd. (Oil
(International Integrated))................... 175,000 1,261,654
QBE Insurance Group Ltd. (Insurance (Property-
Casualty)).................................... 300,000 1,242,057
-------------
2,503,711
-------------
BRAZIL--0.5%
Telecomunicacoes Brasileiras SA Sponsored ADR
(Telephone)................................... 17,900 1,301,106
-------------
DENMARK--0.5%
Tele Danmark A/S (Telecommunications (Cellular/
Wireless)).................................... 9,300 1,255,226
-------------
FINLAND--1.9%
Nokia Oyj Class A (Telecommunications (Cellular/
Wireless)).................................... 23,000 2,816,351
Raisio Group PLC (Foods)........................ 162,300 1,795,038
-------------
4,611,389
-------------
FRANCE--8.9%
Alcatel (Telecommunications
(Cellular/Wireless)).......................... 15,600 1,910,201
Alstom (Machinery (Diversified))................ 73,500 1,723,681
AXA-UAP (Insurance (Multi-Line))................ 23,369 3,388,624
Castorama Dubois (Retail (Building Supplies))... 4,000 912,995
Coflexip SA (Oil & Gas (Drilling &
Equipment))................................... 13,800 936,303
Compagnie Financiere de Paribas (Investment
Banking/Brokerage)............................ 24,500 2,130,259
Elf Aquitaine SA (Oil (International
Integrated)).................................. 14,250 1,647,956
Galeries Lafayette (Retail (Department
Stores))...................................... 1,730 1,858,214
Groupe Danone (Foods)........................... 7,350 2,105,259
Pechiney SA Class A (Aluminum).................. 24,300 793,903
Pinault-Printemps-Redoute SA (Retail (Department
Stores))...................................... 7,800 1,491,297
Rhodia SA (Chemicals (Specialty))(b)............ 73,000 1,110,811
Total SA Class B (Oil (International
Integrated)).................................. 14,900 1,509,736
-------------
21,519,239
-------------
GERMANY--8.6%
Adidas-Salomon AG (Textiles (Apparel)).......... 10,150 1,103,049
Bayerische Motoren Werke AG (Automobiles)....... 2,100 1,630,302
Bayerische Motoren Werke AG New
(Automobiles)(b).............................. 630 467,151
Bayerische Vereinsbank AG (Banks (Major
Regional)).................................... 25,600 2,005,860
DaimlerChrysler AG (Automobiles)................ 21,105 2,084,498
Hoechst AG (Chemicals).......................... 29,500 1,223,912
Mannesmann AG (Machinery (Diversified))......... 30,000 3,440,367
Metro AG (Retail (Department Stores))........... 40,920 3,267,664
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance (Reinsurance))..................... 5,720 2,771,531
RWE AG (Oil (International Integrated))......... 30,400 1,665,546
SAP AG (Computers (Software & Services))........ 2,300 1,098,132
-------------
20,758,012
-------------
GREECE--0.3%
Alpha Credit Bank (Banks (Major Regional))...... 6,150 641,701
-------------
HONG KONG--1.2%
Hongkong Electric Holdings Ltd. (Electric
Companies).................................... 500,000 1,516,712
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
HONG KONG--CONTINUED
Swire Pacific Ltd. Class B (Diversified
Miscellaneous)(b)............................. 2,000,000 $ 1,329,544
-------------
2,846,256
-------------
HUNGARY--0.6%
Magyar Tavkozlesi Rt Sponsored ADR
(Telecommunications (Long Distance)).......... 50,200 1,496,588
-------------
INDIA--0.3%
Mahanagar Telephone Nigam Ltd. GDR (Telephone).. 60,000 742,500
-------------
INDONESIA--0.4%
PT Indosat (Telecommunications
(Cellular/Wireless)).......................... 229,000 300,301
PT Indosat ADR (Telecommunications (Cellular/
Wireless)).................................... 50,000 609,375
-------------
909,676
-------------
ISRAEL--0.2%
Koor Industries Ltd. (Telephone)................ 6,110 533,156
-------------
ITALY--5.3%
Istituto Bancario San Paolo di Torino SPA (Banks
(Money Center))............................... 187,159 3,314,372
Mediolanum SPA (Insurance (Life/Health))........ 420,000 3,120,276
Telecom Italia Mobile SPA (Telecommunications
(Cellular/Wireless)).......................... 460,000 3,403,497
Telecom Italia SPA (Communications Equipment)... 356,000 3,044,225
-------------
12,882,370
-------------
JAPAN--16.5%
77 Bank Ltd. (The) (Banks (Major Regional))..... 190,000 1,903,426
Canon, Inc. (Office Equipment & Supplies)....... 90,000 1,926,920
Dai Nippon Printing Co., Ltd. (Specialty
Printing)..................................... 126,000 2,012,933
Fuji Photo Film Co. (Photography/Imaging)....... 45,000 1,675,582
Hitachi Credit Corp. (Consumer Finance)......... 100,000 2,225,244
Ito-Yokado Co., Ltd. (Retail (General
Merchandise))................................. 45,000 3,151,690
Kao Corp. (Personal Care)....................... 105,000 2,373,742
Kawasumi Laboratories, Inc. (Health Care
(Medical Products & Supplies))................ 98,000 1,928,781
Kirin Beverage Corp. (Beverages
(Non-Alcoholic)).............................. 83,000 1,640,918
Mabuchi Motor Co., Ltd. (Electronics (Component
Distributors))................................ 30,000 2,300,601
Nippon COMSYS Corp. (Communications
Equipment).................................... 148,000 2,019,316
Nippon Telegraph & Telephone Corp.
(Telephone)................................... 1,800 1,391,531
Rinnai Corp. (Building Materials)............... 107,000 1,874,454
Rohm Co., Ltd (Electronics (Semiconductors)).... 22,000 2,006,975
Sanwa Bank Ltd. (The) (Banks (Money Center)).... 279,000 2,154,400
Secom Co., Ltd. (Services (Commercial &
Consumer)).................................... 30,000 2,489,437
Shin-Etsu Chemical Co., Ltd. (Chemicals)........ 100,000 2,411,420
Suzuki Motor Corp. (Automobiles)................ 175,000 2,078,963
Takeda Chemical Industries Ltd. (Health Care
(Drugs-Major Pharmaceuticals))................ 60,000 2,313,899
-------------
39,880,232
-------------
MALAYSIA--0.2%
Carlsberg Brewery Malaysia Berhad (Beverages
(Alcoholic))(c)............................... 150,000 358,553
Malaysian Oxygen Berhad (Chemicals)(c).......... 104,000 164,211
-------------
522,764
-------------
MEXICO--1.7%
Cemex SA de C.V. Class B (Building Materials)... 185,000 457,369
Cemex SA de C.V. CPO (Building Materials)....... 5,550 11,869
Coca-Cola Femsa SA Sponsored ADR (Beverages
(Non-Alcoholic)).............................. 59,800 792,350
</TABLE>
See Notes to Financial Statements
28
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
MEXICO--CONTINUED
Telefonos de Mexico SA Sponsored ADR Class L
(Telephone)................................... 56,700 $ 2,760,581
-------------
4,022,169
-------------
NETHERLANDS--7.1%
AKZO Nobel NV (Chemicals)....................... 48,450 2,207,354
ASM Lithography Holding NV (Electronics
(Semiconductors))(b).......................... 54,400 1,663,883
Fortis Amev NV (Insurance (Multi-Line))......... 22,700 1,882,121
Getronics NV (Computers (Software &
Services)).................................... 49,000 2,428,237
Koninklijke Ahold NV (Foods).................... 65,900 2,437,008
Koninklijke KPN NV (Telecommunications
(Cellular/ Wireless))......................... 31,100 1,557,759
Royal Dutch Petroleum Co. NV (Oil (International
Integrated)).................................. 50,500 2,516,026
Verenigde Nederlandse Uitgerersbedrijven NV
(Publishing).................................. 66,800 2,520,123
-------------
17,212,511
-------------
NEW ZEALAND--0.2%
Telecom Corporation of New Zealand Ltd.
(Telecommunications (Cellular/Wireless))...... 100,000 435,812
-------------
PHILIPPINES--0.4%
Ayala Land, Inc. (Real Estate Development)...... 1,500,000 424,177
Philippine Long Distance Telephone Co. Sponsored
ADR (Telephone)............................... 23,000 596,563
-------------
1,020,740
-------------
POLAND--0.3%
Elektrim Spolka Akcyjna SA (Electrical
Equipment).................................... 65,000 703,720
-------------
SINGAPORE--0.8%
Rothmans Industries Ltd. (Tobacco).............. 175,000 1,050,025
United Overseas Bank Ltd. (Banks (Money
Center))...................................... 140,000 899,416
-------------
1,949,441
-------------
SOUTH AFRICA--0.3%
Liberty Life Association of Africa (Insurance
(Life/ Health))............................... 35,000 481,928
South African Breweries Ltd. (Beverages
(Alcoholic)).................................. 19,000 320,079
-------------
802,007
-------------
SOUTH KOREA--0.2%
Pohang Iron & Steel Co. Ltd. (Iron & Steel)..... 6,000 382,989
-------------
SPAIN--3.7%
Argentaria, Caja Postal y Banco Hipotecario de
Espana SA (Banks (Major Regional))............ 89,300 2,316,144
Banco Popular Espanol SA (Banks (Major
Regional)).................................... 29,900 2,257,937
Banco Santander SA (Banks (Money Center))....... 2,387 47,507
Iberdrola SA (Electric Companies)............... 65,100 1,219,838
Telefonica de Espana SA (Telephone)............. 68,854 3,066,305
-------------
8,907,731
-------------
SWEDEN--4.5%
AssiDoman AB (Paper & Forest Products).......... 70,000 1,105,417
Astra AB Class A (Health Care (Drugs-Major
Pharmaceuticals))............................. 91,100 1,860,092
Forenings Sparbanken AB (Banks (Major
Regional)).................................... 40,400 1,046,692
Mandamus AB (Real Estate Development)(b)........ 2,020 11,339
Skandia Forsakrings AB (Insurance
(Multi-Line))................................. 159,700 2,443,119
Svenska Handlesbanken Class A (Banks (Major
Regional)).................................... 37,300 1,573,813
Telefonaktiebolaget LM Ericsson Class B
(Telecommunications (Cellular/Wireless))...... 44,500 1,059,584
Volvo AB Class B (Automobiles).................. 76,000 1,743,992
-------------
10,844,048
-------------
SWITZERLAND--7.9%
Nestle AG (Foods)............................... 490 1,066,706
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
SWITZERLAND--CONTINUED
Novartis AG Registered Shares (Health Care
(Drugs-Major Pharmaceuticals))................ 3,110 $ 6,113,668
Roche Holding AG (Health Care (Drugs-Major
Pharmaceuticals))............................. 270 3,294,697
Schweizerische Lebensversicherungs-und
Rentenanstalt Bearer (Insurance
(Life/Health))................................ 2,530 1,878,877
Schweizerische Rueckersicherungs-Gesellschaft
Registered Shares (Insurance (Reinsurance))... 500 1,303,623
UBS AG (Banks (Money Center))................... 6,700 2,058,567
Zurich Allied AG Registered Shares (Insurance
(Multi-Line))................................. 4,470 3,309,833
-------------
19,025,971
-------------
TAIWAN--0.1%
Standard Foods Taiwan Ltd. GDR (Foods).......... 35,000 345,625
-------------
UNITED KINGDOM--21.2%
3i Group PLC (Investment Banking/Brokerage)..... 110,800 1,069,231
BG PLC (Oil & Gas (Exploration & Production))... 141,000 889,710
Bank of Scotland (Banks (Money Center))......... 126,000 1,503,120
Barclays PLC (Banks (Money Center))............. 57,000 1,229,090
Bass PLC (Beverages (Alcoholic))................ 57,000 829,825
Berkeley Group PLC (The)
(Real Estate Development)..................... 70,000 511,289
British Aerospace PLC (Aerospace/Defense)....... 146,300 1,240,202
British Petroleum Co. PLC (Oil (International
Integrated)).................................. 160,000 2,389,232
British Telecommunications PLC
(Telecommunications (Cellular/Wireless))...... 190,000 2,862,503
Cable & Wireless PLC (Telecommunications
(Cellular/ Wireless))......................... 170,000 2,090,245
Compass Group PLC (Foods)....................... 166,000 1,901,586
FirstGroup PLC (Transportation-Services)........ 128,000 848,676
GKN PLC (Auto Parts & Equipment)................ 81,000 1,074,780
Glaxo Wellcome PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 105,000 3,612,798
Granada Group PLC (Leisure Time (Products))..... 69,000 1,219,781
HSBC Holdings PLC (Banks (Money Center))........ 51,600 1,399,398
Kingfisher PLC (Retail (Department Stores))..... 133,600 1,445,964
Ladbroke Group PLC (Gaming, Lottery & Parimutuel
Companies).................................... 180,000 723,258
Legal & General Group PLC (Insurance
(Life/Health))................................ 122,000 1,584,297
Lloyds TSB Group PLC (Banks (Money Center))..... 194,000 2,759,762
Logica PLC (Computers (Software & Services)).... 169,000 1,469,186
National Westminster Bank PLC (Banks (Money
Center))...................................... 83,000 1,600,536
Norwich Union PLC (Insurance (Life/Health))..... 133,000 966,470
RMC Group PLC (Building Materials).............. 69,000 941,384
Reuters Group PLC (Services (Commercial &
Consumer)).................................... 96,000 1,007,870
Safeway PLC (Foods)............................. 138,500 695,922
Schroders PLC (Banks (Money Center))............ 51,000 930,852
Siebe PLC (Electrical Equipment)................ 262,000 1,033,126
SmithKline Beecham PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 139,000 1,942,665
Southern Electric PLC (Electric Companies)...... 112,000 1,266,226
Tesco PLC (Foods)............................... 390,000 1,111,217
Thames Water PLC (Water Utilities).............. 43,000 822,754
Unilever PLC (Consumer Products
(Miscellaneous)).............................. 100,000 1,121,408
Vodafone Group PLC (Telecommunications
(Cellular/ Wireless))......................... 137,000 2,224,714
Woolwich PLC (Banks (Major Regional))........... 240,000 1,445,519
Zeneca Group PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 36,000 1,567,509
-------------
51,332,105
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $199,294,439)............................... 230,353,795
-------------
</TABLE>
See Notes to Financial Statements
29
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
RIGHTS--0.0%
<S> <C> <C> <C>
SPAIN--0.0%
Telefonica SA Rights (Telephone)(b)............. 68,854 $ 61,229
-------------
TOTAL RIGHTS
(Identified cost $0)......................................... 61,229
-------------
WARRANTS--0.0%
GERMANY--0.0%
Muenchener Rueckversicherungs-Gesellschaft AG
Warrants (Insurance (Reinsurance))(b)......... 220 10,039
-------------
TOTAL WARRANTS
(Identified cost $0)......................................... 10,039
-------------
TOTAL LONG-TERM INVESTMENTS--95.2%
(Identified cost $199,294,439)............................... 230,425,063
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.8%
COMMERCIAL PAPER--4.8%
American Home Products Corp. 5.25%, 1/4/99...... A-1+ $ 5,015 $ 5,012,806
Exxon Imperial U.S., Inc. 6%, 1/5/99............ A-1+ 2,541 2,539,306
Corporate Receivables Corp. 5.58%, 1/19/99...... A-1+ 1,635 1,630,438
Preferred Receivables Funding Corp. 5.40%,
2/2/99........................................ A-1 2,430 2,418,336
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $11,600,886)................................................ 11,600,886
---------------
TOTAL INVESTMENTS--100.0%
(Identified cost $210,895,325)............................................... 242,025,949(a)
Cash and receivables, less liabilities--(0.0%)............................... (111,000)
---------------
NET ASSETS--100.0%............................................................. $ 241,914,949
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $38,516,079 and gross
depreciation of $9,591,888 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$213,101,758.
(b) Non-income producing.
(c) Security valued at fair value as determined in good faith by or under the
direction of the Trustees.
See Notes to Financial Statements
30
<PAGE>
INTERNATIONAL SERIES
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF
TOTAL LONG-TERM INVESTMENTS
(UNAUDITED)
<TABLE>
<S> <C>
Aerospace/Defense.................................. 0.5%
Aluminum........................................... 0.3
Auto Parts & Equipment............................. 0.5
Automobiles........................................ 3.5
Banks (Major Regional)............................. 5.9
Banks (Money Center)............................... 7.8
Beverages (Alcoholic).............................. 0.6
Beverages (Non-Alcoholic).......................... 1.1
Building Materials................................. 1.4
Chemicals.......................................... 2.6
Chemicals (Specialty).............................. 0.5
Communications Equipment........................... 2.3
Computers (Software & Services).................... 2.2
Consumer Finance................................... 1.0
Consumer Products (Miscellaneous).................. 0.5
Diversified Miscellaneous.......................... 0.6
Electric Companies................................. 1.7
Electrical Equipment............................... 0.7
Electronics (Component Distributors)............... 1.0
Electronics (Semiconductors)....................... 1.6
Foods.............................................. 5.0
Gaming, Lottery & Parimutuel Companies............. 0.3
Health Care (Drugs-Major Pharmaceuticals).......... 9.0
Health Care (Medical Products & Supplies).......... 0.8
Insurance (Life/Health)............................ 3.5
Insurance (Multi-Line)............................. 4.8
Insurance (Property-Casualty)...................... 0.5
Insurance (Reinsurance)............................ 1.8
Investment Banking/Brokerage....................... 1.4
Iron & Steel....................................... 0.2
Leisure Time (Products)............................ 0.5
Machinery (Diversified)............................ 2.2
Office Equipment & Supplies........................ 0.8
Oil & Gas (Drilling & Equipment)................... 0.4
Oil & Gas (Exploration & Production)............... 0.4
Oil (International Integrated)..................... 4.7
Paper & Forest Products............................ 0.5
Personal Care...................................... 1.0
Photography/Imaging................................ 0.7
Publishing......................................... 1.1
Real Estate Development............................ 0.4
Retail (Building Supplies)......................... 0.4
Retail (Department Stores)......................... 3.5
Retail (General Merchandise)....................... 1.4
Services (Commercial & Consumer)................... 1.5
Specialty Printing................................. 0.9
Telecommunications (Cellular/Wireless)............. 8.8
Telecommunications (Long Distance)................. 0.6
Telephone.......................................... 4.8
Textiles (Apparel)................................. 0.5
Tobacco............................................ 0.5
Transportation-Services............................ 0.4
Water Utilities.................................... 0.4
------
100.0%
------
------
</TABLE>
See Notes to Financial Statements
31
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$210,895,325)............................................. $ 242,025,949
Cash........................................................ 74,722
Foreign currency at value (Identified cost $592,039)........ 592,040
Receivables
Dividends and interest.................................... 176,861
Investment securities sold................................ 27,193
Tax reclaim............................................... 172,304
Prepaid expenses............................................ 4,511
-------------
Total assets............................................ 243,073,580
-------------
LIABILITIES
Payables
Investment securities purchased........................... 611,879
Fund shares repurchased................................... 135,829
Investment advisory fee................................... 147,538
Financial agent fee....................................... 16,913
Trustees' fee............................................. 7,155
Accrued expenses.......................................... 239,317
-------------
Total liabilities....................................... 1,158,631
-------------
NET ASSETS.................................................. $ 241,914,949
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 199,365,963
Undistributed net investment income....................... 1,208,686
Accumulated net realized gain............................. 10,224,917
Net unrealized appreciation............................... 31,115,383
-------------
NET ASSETS.................................................. $ 241,914,949
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 15,651,855
-------------
-------------
Net asset value and offering price per share................ $ 15.46
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 3,482,925
Interest.................................................. 511,349
Foreign taxes withheld.................................... (129,367)
-------------
Total investment income................................. 3,864,907
-------------
EXPENSES
Investment advisory fee................................... 1,704,109
Financial agent fee....................................... 178,882
Custodian................................................. 211,366
Printing.................................................. 69,483
Professional.............................................. 27,179
Trustees.................................................. 21,583
Miscellaneous............................................. 20,501
-------------
Total expenses.......................................... 2,233,103
-------------
NET INVESTMENT INCOME....................................... 1,631,804
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 50,178,449
Net realized gain on foreign currency transactions........ 864,638
Net change in unrealized appreciation (depreciation) on
investments............................................. 562,170
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency transactions...... (411,356)
-------------
NET GAIN ON INVESTMENTS..................................... 51,193,901
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 52,825,705
-------------
-------------
</TABLE>
See Notes to Financial Statements
32
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 1,631,804 $ 1,372,460
Net realized gain (loss).................................. 51,043,087 13,881,538
Net change in unrealized appreciation (depreciation)...... 150,814 5,898,443
----------------- -----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 52,825,705 21,152,441
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... -- (2,638,818)
Net realized gains........................................ (41,161,214) (18,496,435)
In excess of accumulated net realized gains............... -- (204,295)
----------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (41,161,214) (21,339,548)
----------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (3,647,895 and 3,308,827
shares, respectively)................................... 63,751,174 50,646,953
Net asset value of shares issued from reinvestment of
distributions
(2,641,331 and 1,433,541 shares, respectively).......... 41,161,214 21,339,548
Cost of shares repurchased (3,994,250 and 3,280,469
shares, respectively)................................... (68,770,405) (50,358,574)
----------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 36,141,983 21,627,927
----------------- -----------------
NET INCREASE IN NET ASSETS................................ 47,806,474 21,440,820
NET ASSETS
Beginning of period....................................... 194,108,475 172,667,655
----------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME AND DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $1,208,686 AND ($1,443,875), RESPECTIVELY).... $241,914,949 $194,108,475
----------------- -----------------
----------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 14.53 $ 14.52 $ 12.70 $ 11.85 $ 12.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.12(1) 0.12(1) 0.11(1) 0.12(1) 0.08(1)
Net realized and unrealized gain
(loss).......................... 3.94 1.61 2.25 1.02 (0.07)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 4.06 1.73 2.36 1.14 0.01
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... -- (0.22) (0.19) (0.04) (0.03)
Dividends from net realized
gains........................... (3.13) (1.50) (0.33) (0.25) (0.34)
In excess of net investment
income.......................... -- -- (0.02) -- --
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (3.13) (1.72) (0.54) (0.29) (0.37)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... 0.93 0.01 1.82 0.85 (0.36)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 15.46 $ 14.53 $ 14.52 $ 12.70 $ 11.85
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 27.92% 12.04% 18.65% 9.59% 0.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $241,915 $194,108 $172,668 $134,455 $134,627
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.98% 1.01% 1.04% 1.07% 1.10%
Net investment income............. 0.72% 0.72% 0.80% 0.95% 0.64%
Portfolio turnover rate............. 93% 184% 142% 249% 172%
</TABLE>
(1) Computed using average shares outstanding.
See Notes to Financial Statements
33
<PAGE>
BALANCED SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in a combination of common stocks and fixed-income securities,
including foreign and high-yield debt issues. Investors should note that foreign
investing involves special risks, such as currency fluctuations, less public
disclosure, and economic and political risks, and high-yield securities have
more risk than higher quality, lower-yielding issues.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 19.01% compared
with 19.67% for a composite benchmark(1). All performance figures assume
reinvestment of distributions and are net of sales charges.
The 1998 calendar year proved to be one of the more difficult investment
years in recent memory given the extreme volatility in the global equity and
fixed income markets. In fact, U.S. equities by many measures had not seen this
level of volatility since the 1987 market crash. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. Government
securities.
While 1998 turned out to be an excellent year for large-cap stocks,
small-capitalization stocks continued to underperform and profitability at many
cyclical companies came under pressure due to weakness in the international
markets and falling commodity prices. Recognizing these trends, we focused our
stock selection on large-capitalization companies with predictable revenue
streams and a domestic focus. The Fund's heavy bias towards large-cap names and
its overweighting in the health-care, consumer staples and technology sectors
were the primary drivers for our strong equity performance last year.
Despite the obvious temptation to raise cash during this summer's sell-off,
our decision to remain fully invested in stocks also paid off handsomely as the
market has rebounded dramatically from its early October lows. On the other side
of the equation, the most notable factor that held back performance over this
latest reporting period was the Fund's underweighted position in the strongly
performing consumer cyclical group during the final quarter. While we were not
expecting a recession anytime soon, we were somewhat surprised by the strength
of the U.S consumer over this latest quarter.
With respect to the fixed-income portion of the Fund, the interest rate
roller coaster ride of 1997 (with rates starting out at 6.64%, peaking at 7.15%,
and ending at 5.92%) turned into a "yield ride" in 1998, as many fixed-income
investors began the year reaching for yield in both domestic high-yield
securities and lower quality foreign bonds. Despite the favorable backdrop of a
moderate, stable U.S. economy and historically low rates, this strategy began to
lose favor as global uncertainty caused investor sentiment to shift in the
second half of the year toward a preference for the safety and liquidity of U.S.
Treasuries. With the benefit of three swift rate cuts by the Federal Reserve
Board, the markets began to calm in the fourth quarter, and the 30-year U.S.
Treasury bond closed out the year at 5.09%. While the most recent CPI figures
indicate that U.S. inflation remains benign at a modest 1.6% annualized rate--a
slight slowdown from 1997's 1.7% rate--the mood in the bond market remains
tenuous.
While we are not pleased with our fixed-income results, they can be
explained by a "flight to quality" of unprecedented magnitude. As stated
earlier, the US Treasury sector was the best performing sector in 1998. While
market environments such as this happen relatively infrequently, they penalize
managers such as ourselves that have a significant underweighting to U.S.
Treasuries. It is noteworthy that since 1980 there was only one occurrence where
U.S. Treasuries were the best performing bond market sector two years in a row.
During this difficult time, we remained true to our discipline and remained
fully allocated to those non-core sectors we believed were the most attractive
from a risk-reward perspective. We believe that this is the most prudent manner
in which to manage assets particularly during extreme market moves.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the stock market. While we
expect corporate profits to remain under pressure, this current environment of
benign inflation and historically low interest rates should continue to be a
positive catalyst for
(1) The benchmark is calculated based upon the performance of the following
indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10% 90-day
Treasury bills and is produced by Frank Russell Company. It is not available
for direct investment.
34
<PAGE>
BALANCED SERIES
financial assets. After four straight years of double-digit gains, it is also
likely that we will see more normalized (single-digit) returns for U.S. equities
in 1999. Lastly, we believe that the financial markets will remain volatile over
the near term, as there are still many cross currents at work in the global
financial systems.
Although we anticipate a slowdown in the U.S. economy, we do not expect the
recession that seems to be factored into the domestic high-yield market
currently. We do expect that this sector's defaults will pick up in 1999;
however, the level being priced into the market is extremely high. Our holdings
in this area represent a diversified group of securities in industries with good
fundamentals, and solid underlying businesses. In addition, we have significant
exposure to U.S. dollar-denominated below investment-grade foreign holdings.
This sector remains among the most attractive from a risk-reward perspective. We
own debt securities of countries that have good fundamentals and more stable
political situations, such as Mexico, Argentina, Panama, Bulgaria, Peru, and the
Philippines.
We believe the fixed-income portion of the Fund is well structured to take
advantage of current market conditions, and we will continue to emphasize the
credit-sensitive sectors given their very favorable valuations. The market is
paying investors a large yield premium or yield advantage as compensation for
taking risk. Priced into this premium is much bad news. For those investors
willing and able to be patient and discerning, we believe these factors present
outstanding opportunities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BALANCED SERIES BALANCED BENCHMARK*
<S> <C> <C>
5/1/92 $10,000.00 $10,000.00
12/31/92 $10,971.78 $10,712.00
12/31/93 $11,912.44 $11,702.48
12/31/94 $11,578.97 $11,724.94
12/31/95 $14,274.25 $14,917.45
12/31/96 $15,781.89 $17,055.78
12/31/97 $18,611.77 $20,799.83
12/31/98 $22,150.60 $24,890.59
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
FROM
INCEPTION
5/1/92
TO
1 YEAR 5 YEARS 12/31/98
<S> <C> <C> <C>
- ---------------------------------------------------------------------
Balanced Series 19.01% 13.21% 12.66%
- ---------------------------------------------------------------------
Balanced Benchmark* 19.67% 16.29% 14.65%
- ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/92
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost. Foreign investing involves special risks such as currency fluctuation
and less public disclosure, as well as economic and political risks.
* The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond
Index/10% 90-day Treasury Bills and is produced by Frank Russell Company.
The index is not available for direct investment.
35
<PAGE>
BALANCED SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--8.7%
U.S. TREASURY NOTES--8.7%
U.S. Treasury Notes 6.375%, 5/15/99....................... AAA $ 1,775 $ 1,786,215
U.S. Treasury Notes 5.375%, 1/31/00....................... AAA 4,075 4,106,708
U.S. Treasury Notes 5.50%, 3/31/00........................ AAA 750 757,695
U.S. Treasury Notes 6.875%, 3/31/00....................... AAA 3,100 3,181,639
U.S Treasury Notes 6.00%, 8/15/00......................... AAA 1,700 1,735,722
U.S. Treasury Notes 4.50%, 9/30/00........................ AAA 355 354,391
U.S. Treasury Notes 4.625%, 11/30/00...................... AAA 500 500,295
U.S. Treasury Notes 5.25%, 8/15/03........................ AAA 3,105 3,183,336
U.S. Treasury Notes 5.625%, 5/15/08....................... AAA 8,284 8,840,301
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $24,749,800)................................................. 24,446,302
-------------
AGENCY MORTGAGE-BACKED SECURITIES--3.0%
GNMA 6.50%, 11/15/23...................................... AAA 1,481 1,505,842
GNMA 6.50%, 2/15/24....................................... AAA 2,448 2,488,792
GNMA 6.50%, 12/15/23...................................... AAA 520 528,984
GNMA 6.50%, 6/15/28....................................... AAA 3,956 3,997,132
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $8,291,401).................................................. 8,520,750
-------------
MUNICIPAL BONDS--6.7%
CALIFORNIA--1.7%
California State Department Water Resources Revenue Series
S 5%, 12/1/29........................................... AA 450 444,937
Fresno County Pension Obligation Taxable 6.21%, 8/15/06... AAA 1,000 1,033,750
Kern County Pension Obligation Revenue Taxable 7.26%,
8/15/14................................................. AAA 420 464,100
Long Beach Pension Obligation Taxable 6.87%, 9/1/06....... AAA 230 246,962
Los Angeles County Public Works PJ V-B 5.125%, 12/1/29.... AAA 685 689,281
Orange County Pension Obligation Revenue Taxable Series A
7.62%, 9/1/08........................................... AAA 650 735,312
San Bernardino County Pension Obligation Revenue Taxable
6.87%, 8/1/08........................................... AAA 110 118,387
San Bernardino County Pension Obligation Revenue Taxable
6.94%, 8/1/09........................................... AAA 300 325,125
Sonoma County Pension Obligation 6.625%, 6/1/13........... AAA 495 517,894
Ventura County Pension Obligation Taxable 6.54%,
11/1/05................................................. AAA 260 273,325
-------------
4,849,073
-------------
FLORIDA--0.7%
Florida State Department of Transportation Series A 5%,
7/1/27.................................................. AA+ 545 541,594
Miami Beach Special Obligation Revenue Taxable 8.60%,
9/1/21.................................................. AAA 875 999,688
University of Miami Revenue Taxable Series A 7.65%,
4/1/20.................................................. AAA 270 289,238
-------------
1,830,520
-------------
ILLINOIS--0.6%
Illinois Educational Facilities Authority-Loyola
University Revenue Taxable Series A 7.84%, 7/1/24....... AAA 1,500 1,625,625
-------------
MASSACHUSETTS--0.4%
Massachusetts State Port Authority Revenue Taxable Series
C 6.05%, 7/1/02......................................... AA- 450 459,000
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
MASSACHUSETTS--CONTINUED
Massachusetts State Water Resources Authority Revenue
Series D 5%, 8/1/24..................................... AAA $ 545 $ 538,188
-------------
997,188
-------------
NEW YORK--1.1%
Metropolitan Transportation Authority Series A 5%,
4/1/23.................................................. AAA 760 756,200
New York State Dormitory Authority
Pension Obligation Revenue Taxable
6.90%, 4/1/03........................................... BBB+ 650 677,625
New York State Taxable Series C 6.35%, 3/1/07............. AAA 1,500 1,558,125
-------------
2,991,950
-------------
PENNSYLVANIA--0.7%
Pittsburgh Pension Taxable 6.50%, 3/1/17.................. AAA 1,250 1,303,125
Pittsburgh Water & Sewer Authority Series A 5.05%,
9/1/25.................................................. AAA 760 758,100
-------------
2,061,225
-------------
TEXAS--1.1%
Dallas-Fort Worth Taxable 6.40%, 11/1/07.................. AAA 1,000 1,045,000
Houston Water & Sewer System
Revenue Refunding, Jr. Lien,
Series D 5%, 12/1/25.................................... AAA 685 671,300
Texas State General Obligation Series B 5.25%, 10/1/08.... AA 275 297,688
Texas State Taxable Veterans Limited Series B 6.10%,
12/1/03................................................. AA 1,000 1,026,250
-------------
3,040,238
-------------
VIRGINIA--0.4%
Newport News Taxable Series B 7.05%, 1/15/25.............. AA 1,000 1,032,500
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $17,715,922)................................................. 18,428,319
-------------
ASSET-BACKED SECURITIES--1.1%
AESOP Funding II LLC 97-1, A2 144A 6.40%, 10/20/03 (c).... AAA 1,200 1,227,000
Capita Equipment Receivables Trust 97-1, B 6.45%,
8/15/02................................................. A+ 770 777,700
Fleetwood Credit Corp. Grantor Trust 96-B, A 6.90%,
3/15/12................................................. AAA 411 416,964
Green Tree Financial Corp. 96-2, M1 7.60%, 4/15/27........ AA- 675 700,523
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $3,056,773).................................................. 3,122,187
-------------
CORPORATE BONDS--4.4%
COMPUTERS (SOFTWARE & SERVICES)--0.5%
CSC Holdings Inc. 7.625%, 7/15/18......................... BB+ 1,000 1,003,750
Computer Associates International Series B 6.375%,
4/15/05................................................. A- 535 526,975
-------------
1,530,725
-------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES--0.2%
Station Casinos, Inc. 10.125%, 3/15/06.................... B+ 500 522,500
-------------
HEALTH CARE (DIVERSIFIED)--0.4%
Tenet Healthcare Corp 144A 8.125%, 12/1/08 (c)............ BB- 1,000 1,036,250
-------------
</TABLE>
See Notes to Financial Statements
36
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.3%
Boston Scientific Corp. 6.625%, 3/15/05................... BBB $ 975 $ 920,156
-------------
LEASING/RENTAL--0.1%
United Rentals, Inc. 9.50%, 6/01/08....................... BB- 250 252,500
-------------
MANUFACTURING (DIVERSIFIED)--0.2%
Tyco International Group SA 6.375%, 6/15/05............... A- 600 609,750
-------------
PAPER & FOREST PRODUCTS--0.3%
Buckeye Cellulose Corp. 8.50%, 12/15/05................... BB 700 726,250
-------------
PERSONAL CARE--0.2%
Revlon Consumer Products 144A 9%, 11/1/06 (c)............. B 500 495,000
-------------
PUBLISHING--0.2%
Hollinger International Publishing, Inc. 9.25%, 3/15/07... B 625 660,937
-------------
RETAIL (FOOD CHAINS)--0.4%
Meyer (Fred), Inc. 7.45%, 3/1/08.......................... BB+ 1,000 1,082,500
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.1%
United Rentals, Inc. 144A 8.80%, 8/15/08 (c).............. BB- 250 244,375
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.4%
Comcast Cellular Holdings, Inc. Series B 9.50%, 5/1/07.... BB+ 1,000 1,065,000
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--0.4%
Quest Communications International Inc. 144A 7.50%,
11/1/08 (c)............................................. BB+ 1,100 1,148,125
-------------
TELEPHONE--0.1%
Nextlink Communications, Inc. 144A 10.75%, 11/15/08 (c)... B 370 379,250
-------------
TEXTILES (HOME FURNISHINGS)--0.4%
Westpoint Stevens, Inc. 7.875%, 6/15/05................... BB 1,000 1,025,000
-------------
TRUCKERS & MARINE--0.1%
Teekay Shipping Corp. 8.32%, 2/1/08....................... BB+ 230 228,563
-------------
TRUCKS & PARTS--0.1%
Cummins Engine Inc. 6.45%, 3/1/05......................... BBB+ 400 390,500
-------------
TOTAL CORPORATE BONDS
(Identified cost $11,921,026)................................................. 12,317,381
-------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--6.1%
CS First Boston Mortgage Securities Corp. 95-AEW1, B
7.182%, 11/25/27........................................ AA- 424 423,081
CS First Boston Mortgage Securities Corp. 97-C2, B 6.72%,
11/17/07................................................ Aa(d) 2,000 2,067,500
Case Equipment Loan Trust 98-A, A4, 5.83%, 2/15/05........ AAA 1,750 1,769,985
DLJ Mortgage Acceptance Corp. 144A 96-CF1, A1B 7.58%,
2/12/06 (c)(f).......................................... AAA 1,400 1,479,187
First Union-Lehman Brothers 97-C1, B 7.43%, 4/18/07....... Aa(d) 930 1,005,272
G.E. Capital Mortgage Services, Inc. 96-8, 1M 7.25%,
5/25/26................................................. AA 243 246,078
Lehman Large Loan 97-LLI, B 6.95%, 3/12/07................ AA 825 868,312
Mortgage Capital Funding, Inc. 96-MC2, A3, 7.008%,
9/20/06................................................. Aaa(d) 2,000 2,103,125
Nationslink Funding Corp. 96-1, B 7.69%, 12/20/05......... AA 450 479,672
Norwest Asset Securities Corp. 96-9, A15 7.75% 1/25/27.... Aaa(d) 2,000 2,030,000
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26................................................ AAA 96 95,568
Residential Funding Mortgage Securities I 96-S8, A4 6.75%,
3/25/11................................................. AAA 618 624,380
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Residential Funding Mortgage Securities I 96-S1, A11
7.10%, 1/25/26.......................................... AAA $ 1,000 $ 1,006,250
Residential Funding Mortgage Securities I 96-S4, M1 7.25%,
2/25/26................................................. AA 969 974,034
Structured Asset Securities Corp. 93-C1, 6.60%,
10/25/24................................................ A+ 525 526,684
Triangle Funding Ltd. 98-2A, 3, 144A 7.163%, 10/15/04
(c)..................................................... BBB 1,500 1,494,375
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $16,952,519)................................................. 17,193,503
-------------
FOREIGN GOVERNMENT SECURITIES--1.5%
COLOMBIA--0.4%
Republic of Colombia 7.70% 7/14/03........................ NR 610 530,700
Republic of Colombia 7.25%, 2/23/04....................... BBB- 825 703,312
-------------
1,234,012
-------------
CROATIA--0.4%
Croatia Series B 6.563%, 7/31/06 (e)...................... BBB- 679 549,654
Croatia Series A 6.563%, 7/31/10 (e)...................... BBB- 775 620,000
-------------
1,169,654
-------------
POLAND--0.7%
Poland Bearer PDI 5%, 10/27/14............................ BBB- 1,450 1,358,469
Poland Discount Euro 6.78%, 10/27/24...................... BBB- 600 595,500
-------------
1,953,969
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $4,525,825).................................................. 4,357,635
-------------
FOREIGN CORPORATE BONDS--0.9%
ARGENTINA--0.2%
Compania de Radiocomunicaciones Moviles SA 144A 9.25%,
5/8/08 (c).............................................. BBB 300 277,500
Telefonica de Argentina 144A 9.125%, 5/7/08 (c)........... BBB- 290 268,250
-------------
545,750
-------------
CHILE--0.1%
Compania Sud Americana de Vapores SA 7.375%, 12/8/03...... BBB 120 108,600
Petropower I Funding Trust 144A, 7.36%, 2/15/14 (c)....... BBB 350 295,312
-------------
403,912
-------------
JAPAN--0.6%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(c)(e).................................................. Baa(d) 910 784,019
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (c)(e)........... BB+ 910 866,079
-------------
1,650,098
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $2,871,089).................................................. 2,599,760
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------
<S> <C> <C> <C>
COMMON STOCKS--61.0%
BANKS (MAJOR REGIONAL)--2.2%
Bank One Corp....................................................... 29,850 1,524,216
Mellon Bank Corp.................................................... 17,200 1,182,500
U.S. Bancorp........................................................ 24,400 866,200
Wells Fargo & Co.................................................... 67,000 2,675,812
-------------
6,248,728
-------------
</TABLE>
See Notes to Financial Statements
37
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C> <C>
BANKS (MONEY CENTER)--0.8%
BankAmerica Corp................................ 36,882 $ 2,217,530
-------------
BEVERAGES (ALCOHOLIC)--0.6%
Anheuser-Busch Companies, Inc................... 26,600 1,745,625
-------------
BEVERAGES (NON-ALCOHOLIC)--0.9%
PepsiCo, Inc.................................... 64,500 2,640,469
-------------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.0%
CBS Corp........................................ 26,200 858,050
Chancellor Media Corp. (b)...................... 21,400 1,024,525
Clear Channel Communications, Inc. (b).......... 16,300 888,350
Fox Entertainment Group, Inc. Class A (b)....... 21,200 533,975
Liberty Media Group ClassA (b).................. 44,600 2,054,387
Tele-Communications, Inc. Class A (b)........... 55,200 3,053,250
-------------
8,412,537
-------------
COMMUNICATIONS EQUIPMENT--0.5%
Tellabs, Inc. (b)............................... 19,600 1,343,825
-------------
COMPUTERS (HARDWARE)--2.2%
International Business Machines Corp............ 33,000 6,096,750
-------------
COMPUTERS (NETWORKING)--1.0%
Cisco Systems, Inc. (b)......................... 29,125 2,703,164
-------------
COMPUTERS (PERIPHERALS)--1.0%
EMC Corp. (b)................................... 32,500 2,762,500
-------------
COMPUTERS (SOFTWARE & SERVICES)--7.3%
America Online, Inc. (b)........................ 10,700 1,712,000
BMC Software, Inc. (b).......................... 59,600 2,655,925
Compuware Corp. (b)............................. 54,500 4,257,812
Edwards (J.D.) & Co. (b)........................ 21,200 601,550
HBO & Co........................................ 95,300 2,733,919
Microsoft Corp. (b)............................. 41,300 5,727,794
Oracle Corp. (b)................................ 36,800 1,587,000
Sterling Commerce, Inc. (b)..................... 22,600 1,017,000
-------------
20,293,000
-------------
CONSUMER FINANCE--0.8%
Capital One Financial Corp...................... 18,900 2,173,500
-------------
DISTRIBUTORS (FOOD & HEALTH)--1.0%
Cardinal Health, Inc............................ 37,650 2,856,694
-------------
ELECTRICAL EQUIPMENT--1.7%
General Electric Co............................. 45,200 4,613,225
-------------
ELECTRONICS (SEMICONDUCTORS)--3.1%
Intel Corp...................................... 63,800 7,564,287
Micron Technology, Inc. (b)..................... 23,600 1,193,275
-------------
8,757,562
-------------
FINANCIAL (DIVERSIFIED)--3.0%
Citigroup, Inc.................................. 49,700 2,460,150
Freddie Mac..................................... 59,200 3,814,700
Morgan Stanley Dean Witter & Co. (b)............ 28,500 2,023,500
-------------
8,298,350
-------------
HEALTH CARE (DIVERSIFIED)--3.6%
Bristol-Myers Squibb Co. (b).................... 36,600 4,897,537
Mylan Laboratories, Inc......................... 33,300 1,048,950
Warner-Lambert Co............................... 56,300 4,233,056
-------------
10,179,543
-------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.1%
Pfizer, Inc..................................... 43,800 5,494,162
Schering-Plough Corp............................ 70,000 3,867,500
Watson Pharmaceuticals, Inc. (b)................ 31,800 1,999,425
-------------
11,361,087
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--2.3%
Baxter International, Inc. (b).................. 32,700 2,103,019
Becton, Dickinson and Co........................ 16,900 721,419
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--CONTINUED
Genzyme Corp. (b)............................... 17,200 $ 855,700
Medtronic, Inc.................................. 38,600 2,866,050
-------------
6,546,188
-------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.3%
Clorox Co. (The)................................ 5,600 654,150
Colgate-Palmolive Co............................ 8,600 798,725
Procter & Gamble Co. (The)...................... 24,600 2,246,287
-------------
3,699,162
-------------
INSURANCE (LIFE/HEALTH)--0.4%
UNUM Corp....................................... 19,000 1,109,125
-------------
INSURANCE (MULTI-LINE)--1.1%
American International Group, Inc............... 22,200 2,145,075
ReliaStar Financial Corp........................ 22,600 1,042,425
-------------
3,187,500
-------------
LODGING--HOTELS--0.3%
Carnival Corp................................... 18,300 878,400
-------------
MANUFACTURING (DIVERSIFIED)--1.3%
Tyco International Ltd.......................... 48,600 3,666,262
-------------
OIL & GAS (DRILLING & EQUIPMENT)--0.3%
Halliburton Co.................................. 11,100 328,838
Schlumberger Ltd................................ 7,200 332,100
Transocean Offshore, Inc........................ 11,200 300,300
-------------
961,238
-------------
OIL (DOMESTIC INTEGRATED)--1.1%
USX-Marathon Group.............................. 100,500 3,027,563
-------------
OIL (INTERNATIONAL INTEGRATED)--1.3%
Amoco Corp...................................... 49,400 2,982,525
Conoco, Inc. Class A (b)........................ 30,200 630,425
-------------
3,612,950
-------------
RETAIL (BUILDING SUPPLIES)--1.2%
Home Depot, Inc................................. 53,300 3,261,294
-------------
RETAIL (COMPUTERS & ELECTRONICS)--0.2%
Tandy Corp. (b)................................. 15,800 650,763
-------------
RETAIL (DRUG STORES)--2.5%
CVS Corp........................................ 61,500 3,382,500
Rite Aid Corp................................... 72,200 3,578,413
-------------
6,960,913
-------------
RETAIL (FOOD CHAINS)--2.6%
Meyer (Fred), Inc. (b).......................... 48,770 2,938,393
Safeway, Inc. (b)............................... 72,400 4,411,875
-------------
7,350,268
-------------
RETAIL (GENERAL MERCHANDISE)--0.5%
Wal-Mart Stores, Inc............................ 16,100 1,311,144
-------------
RETAIL (SPECIALTY)--1.1%
Borders Group, Inc. (b)......................... 33,600 837,900
Staples, Inc. (b)............................... 50,650 2,212,772
-------------
3,050,672
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.3%
ServiceMaster Co. (The)......................... 40,000 882,500
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.1%
AirTouch Communications, Inc. (b)............... 80,800 5,827,700
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--2.0%
AT&T Corp....................................... 33,400 2,513,350
MCI WorldCom, Inc. (b).......................... 41,975 3,011,706
-------------
5,525,056
-------------
</TABLE>
See Notes to Financial Statements
38
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
TELEPHONE--1.3%
<S> <C> <C> <C>
BellSouth Corp.................................. 41,600 $ 2,074,800
SBC Communications, Inc......................... 28,600 1,533,675
-------------
3,608,475
-------------
WASTE MANAGEMENT--1.0%
Waste Management, Inc........................... 62,000 2,890,750
-------------
TOTAL COMMON STOCKS
(Identified cost $123,662,416).............................. 170,712,012
-------------
FOREIGN COMMON STOCKS--0.5%
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--0.5%
Elan Corp. PLC Sponsored ADR (Ireland) (b)...... 19,300 1,342,546
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,125,896)................................ 1,342,546
-------------
TOTAL LONG-TERM INVESTMENTS--93.9%
(Identified cost $214,872,667).............................. 263,040,395
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--6.1%
COMMERCIAL PAPER--5.4%
Coca-Cola Co. 4.90%, 1/4/99............................... A-1+ $ 2,735 $ 2,733,883
Potomac Electric Power Co. 4.95%, 1/4/99.................. A-1 1,845 1,844,239
SBC Communications Inc. 5.95%, 1/6/99..................... A-1+ 2,485 2,482,946
Corporate Asset Funding Co., Inc. 5.65%, 1/14/99.......... A-1+ 450 449,082
Shell Oil Co. 4.75%, 1/25/99.............................. A-1+ 2,495 2,487,099
Potomac Electric Power 5.50%, 1/26/99..................... A-1 1,930 1,922,629
Vermont American Corp. 4.45%, 1/27/99..................... A-1+ 2,270 2,261,065
Wisconsin Electric Power Co. 5.40%,
1/28/99................................................. A-1+ 915 911,294
-------------
15,092,237
-------------
FEDERAL AGENCY SECURITIES--0.7%
FHLB 4.50%, 1/4/99........................................ 2,025 2,024,241
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $17,116,478)................................................. 17,116,478
-------------
TOTAL INVESTMENTS--100.0%
(Identified cost $231,989,146)................................................ 280,156,873(a)
Cash and receivables, less liabilities--(0.0%)................................ (101,230)
-------------
NET ASSETS--100.0%.............................................................. $ 280,055,643
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $50,810,642 and gross
depreciation of $2,828,720 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$232,174,951.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $9,994,722 or 3.6% of net
assets.
(d) As rated by Moody's, Fitch or Duff & Phelps.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(f) All or a portion segregated as collateral.
See Notes to Financial Statements
39
<PAGE>
BALANCED SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$231,989,146)............................................. $ 280,156,873
Receivables
Interest and dividends.................................... 1,258,856
Investment securities sold................................ 1,168,691
Fund shares sold.......................................... 204,568
Prepaid expenses............................................ 5,008
-------------
Total assets............................................ 282,793,996
-------------
LIABILITIES
Payables
Custodian................................................. 11,312
Investment securities purchased........................... 2,113,929
Fund shares repurchased................................... 368,637
Investment advisory fee................................... 127,253
Financial agent fee....................................... 21,208
Trustees' fee............................................. 5,060
Accrued expenses............................................ 90,954
-------------
Total liabilities....................................... 2,738,353
-------------
NET ASSETS.................................................. $ 280,055,643
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of benefical interest........... $ 229,861,876
Undistributed net investment income....................... 244,131
Accumulated net realized gain............................. 1,781,909
Net unrealized appreciation............................... 48,167,727
-------------
NET ASSETS.................................................. $ 280,055,643
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 20,386,789
-------------
-------------
Net asset value and offering price per share................ $ 13.74
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 7,135,692
Dividends................................................. 1,052,674
Foreign taxes withheld.................................... (3,350)
-------------
Total investment income................................. 8,185,016
-------------
EXPENSES
Investment advisory fee................................... 1,378,437
Financial agent fee....................................... 191,836
Custodian................................................. 45,357
Printing.................................................. 29,325
Professional.............................................. 26,438
Trustees.................................................. 14,329
Miscellaneous............................................. 15,084
-------------
Total expenses.......................................... 1,700,806
-------------
NET INVESTMENT INCOME....................................... 6,484,210
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 1,823,127
Net change in unrealized appreciation (depreciation) on
investments............................................. 36,386,238
-------------
NET GAIN ON INVESTMENTS..................................... 38,209,365
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 44,693,575
-------------
-------------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
BALANCED SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 6,484,210 $ 6,313,137
Net realized gain (loss).................................. 1,823,127 28,928,777
Net change in unrealized appreciation (depreciation)...... 36,386,238 398,108
----------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 44,693,575 35,640,022
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (6,299,939) (6,626,999)
Net realized gains........................................ (9,082,295) (25,653,795)
----------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (15,382,234) (32,280,794)
----------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (4,750,917 and 2,522,290
shares, respectively)................................... 60,237,782 32,463,957
Net asset value of shares issued from reinvestment of
distributions
(1,187,415 and 2,611,513 shares, respectively).......... 15,382,234 32,280,794
Cost of shares repurchased (4,412,737 and 3,214,459
shares, respectively)................................... (56,055,533) (41,209,392)
----------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 19,564,483 23,535,359
----------------- -----------------
NET INCREASE IN NET ASSETS................................ 48,875,824 26,894,587
NET ASSETS
Beginning of period....................................... 231,179,819 204,285,232
----------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $244,131 AND
$52,552, RESPECTIVELY).................................. $280,055,643 $231,179,819
----------------- -----------------
----------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 12.26 $ 12.06 $ 12.30 $ 10.53 $ 11.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).......... 0.33 0.38 0.36 0.40(2) 0.38(1)(2)
Net realized and unrealized gain
(loss).............................. 1.94 1.73 0.89 2.02 (0.70)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS.... 2.27 2.11 1.25 2.42 (0.32)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. (0.32) (0.40) (0.35) (0.40) (0.36)
Dividends from net realized gains..... (0.47) (1.51) (1.14) (0.25) (0.10)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS................. (0.79) (1.91) (1.49) (0.65) (0.46)
--------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE............... 1.48 0.20 (0.24) 1.77 (0.78)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD.......... $ 13.74 $ 12.26 $ 12.06 $ 12.30 $ 10.53
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return............................ 19.01% 17.93% 10.56% 23.28% (2.80)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)... $280,056 $231,180 $204,285 $193,302 $161,105
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses.................... 0.68% 0.71% 0.68% 0.65%(3) 0.69%
Net investment income................. 2.58% 2.92% 2.93% 3.44% 3.44%
Portfolio turnover rate................. 110% 181% 229% 223% 171%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
41
<PAGE>
REAL ESTATE SECURITIES SERIES
INVESTOR PROFILE
The Fund emphasizes capital appreciation and current yield equally. It is
appropriate for investors seeking investment in a diversified portfolio of real
estate investment trusts and real estate operating companies. Investors should
note that real estate investing involves certain risks, including refinancing,
economic impact on the industry, changes in the value of owned properties,
dependency on management skills and risks similar to those linked to small
company investing.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Real Estate Equity Securities
Series provided a return of (21.19)% compared with a return of (17.50)% for the
NAREIT Equity Total Return Index.(1) All performance figures assume reinvestment
of distributions and are net of sales charges.
The year has clearly been disappointing from a stock price performance
perspective. However, growth expectations in funds from operations (FFO)--the
proxy for earnings--that a year ago we indicated should be 9% to 12% per share,
have been met to date. Despite the negative press and broad-brush strokes of
criticism, the bottom-line earnings were delivered overall. In fact, FFO per
share grew by over 12% in the second and third quarters. This compares to flat
to negative earnings growth for the broader market for the same two quarters.
Earnings growth for equity REITs peaked this year as we have moved closer to
equilibrium in the real estate cycle. This was not a surprise, but the level of
erosion of investor confidence in the sector was. Some of the concerns that
surfaced in 1998 were valid, while others were exaggerated and were frequently
used to critique all equity REITs (over 170 companies in 14 sectors). The
concerns included the threats of overbuilding, legislative action, and a
softening economy. They also included legitimate questions about a lack of
demonstrated discipline by some equity REITs in issuing additional common shares
and debt.
More than a few management teams did not recognize when their cost of
capital was greater than the return available in the market for acquisitions,
development or redevelopment. The capital markets ultimately disciplined them
and private developers appropriately. However, discipline was meted out
throughout the sector with very little distinction between offending REITs and
REITs with demonstrated fiscal responsibility.
Larger, more liquid equity REITs underperformed their peers overall this
past year as investors were net sellers. Last year's "growth" REITs, with
significant imbedded internal growth, were nevertheless abandoned by investors
who no longer saw growth and momentum in those names. As we favor visible
earnings, particularly from internal growth, we were overweight in those
companies. We were also overweight in the two sectors that experienced the most
multiple contraction, office and hotels. The office and hotel sectors had the
highest earnings growth per share this year and traded at the deepest discount
to net asset value, but they were also subject to the largest swings on changes
of sentiment or fundamentals. These reasons caused us to underperform our
benchmark for the year.
OUTLOOK
Conservative growth estimates of funds from operations per share range from
5% to 7% in 1999, assuming no external growth, and 7% to 9%, assuming modest
external growth. Equity REIT earnings fundamentals will continue to beat the
broader market, in our opinion. In addition, the dividend payout ratio as a
percentage of cash flow is at its lowest in the history of equity REITs, thus
allowing companies to retain cash flow in capital-constrained times.
Based on this information, we believe the broader market is expensive
relative to REITs. Last year we could not make the claim that real estate was
cheaper on Wall Street than Main Street. This year we can. Whether one is
looking at office or industrial property values per square foot, apartment
values per unit, hotel values per key, health care property values per bed,
discounts to net asset value, or FFO yield versus cap rates, equity REITs are
cheaper today than private market real estate. Given the earnings expectation
for the broader market, combined with its record high multiple and a return to a
rational level of investor sentiment, equity REITs should offer an attractive
alternative to the broader market with continued attractive yields.
(1) The NAREIT (National Association of Real Estate Investment Trusts) Equity
Total Return Index is an unmanaged, commonly used measure of real estate
equity market total return performance. The Index is not available for
direct investment.
42
<PAGE>
REAL ESTATE SECURITIES SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES
SERIES NAREIT*
<S> <C> <C>
05/01/1995 $10,000.00 $10,000.00
12/31/1995 $11,779.19 $11,547.95
12/31/1996 $15,677.21 $15,618.28
12/31/1997 $19,133.73 $18,787.22
12/31/1998 $15,078.60 $15,498.99
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
5/1/95 TO
1 YEAR 12/31/98
<S> <C> <C>
- ----------------------------------------------------------------------
Real Estate Securities Series (21.19)% 11.84%
- ----------------------------------------------------------------------
NAREIT Equity Index(*) (17.50)% 12.68%
- ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/95
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate, so that your
shares, when redeemed, may be worth more or less than the original cost.
* The National Association of Real Estate Investment Trusts (NAREIT) Equity
Index is a commonly used, unmanaged indicator of REIT performance.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
COMMON STOCKS--95.5%
REAL ESTATE INVESTMENT TRUSTS--95.1%
COMMERCIAL--39.9%
OFFICE/INDUSTRIAL--37.6%
Alexandria Real Estate Equities, Inc......................... 10,000 $ 309,375
Boston Properties, Inc....................................... 95,500 2,912,750
Duke Realty Investments, Inc................................. 31,600 734,700
Equity Office Properties Trust............................... 34,173 820,152
First Industrial Realty Trust, Inc........................... 52,600 1,410,337
Highwoods Properties, Inc.................................... 59,900 1,542,425
Mack-Cali Realty Corp........................................ 47,200 1,457,300
Reckson Associates Realty Corp............................... 57,200 1,269,125
Spieker Properties, Inc...................................... 68,200 2,361,425
Weeks Corp................................................... 30,500 859,719
---------------
13,677,308
---------------
STORAGE--2.3%
Storage USA, Inc............................................. 25,900 836,894
---------------
TOTAL COMMERCIAL............................................................... 14,514,202
---------------
DIVERSIFIED--13.5%
Colonial Properties Trust.................................... 36,700 977,137
Crescent Real Estate Equities Co............................. 79,900 1,837,700
Vornado Realty Trust......................................... 62,200 2,099,250
---------------
4,914,087
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
HEALTH CARE--4.5%
Health Care Property Investors, Inc.......................... 5,650 $ 173,738
Nationwide Health Properties, Inc............................ 47,900 1,032,844
OMEGA Healthcare Investors, Inc.............................. 14,000 422,625
---------------
1,629,207
---------------
HOTELS--2.7%
Patriot American Hospitality, Inc............................ 55,800 334,800
Starwood Hotel & Resorts combined certificate................ 29,900 678,356
---------------
1,013,156
---------------
NET LEASE--5.0%
TriNet Corporate Realty Trust, Inc........................... 68,000 1,819,000
---------------
RESIDENTIAL--17.4%
APARTMENTS--13.0%
Avalon Bay Communities, Inc.................................. 33,900 1,161,075
Equity Residential Properties Trust.......................... 65,600 2,652,700
Essex Property Trust, Inc.................................... 30,700 913,325
---------------
4,727,100
---------------
MANUFACTURED HOMES--4.4%
Manufactured Home Communities, Inc........................... 33,800 847,113
Sun Communities, Inc......................................... 21,300 741,506
---------------
1,588,619
---------------
TOTAL RESIDENTIAL.............................................................. 6,315,719
---------------
</TABLE>
See Notes to Financial Statements
43
<PAGE>
REAL ESTATE SECURITIES SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
RETAIL--12.1%
FACTORY OUTLET--3.7%
Chelsea GCA Realty, Inc...................................... 37,600 $ 1,339,500
---------------
REGIONAL MALLS--6.5%
Macerich Co. (The)........................................... 44,300 1,135,188
Simon Property Group, Inc.................................... 17,796 507,186
Urban Shopping Centers, Inc.................................. 21,700 710,675
---------------
2,353,049
---------------
STRIP CENTERS--1.9%
Developers Diversified Realty Corp........................... 40,000 710,000
---------------
TOTAL RETAIL................................................................... 4,402,549
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $38,306,940)................................................ 34,607,920
---------------
REAL ESTATE OPERATING COMPANIES--0.4%
COMMERCIAL--0.3%
OFFICE/INDUSTRIAL--0.3%
Reckson Services Industries, Inc. (b)........................ 27,456 113,256
---------------
DIVERSIFIED--0.1%
Vornado Operating, Inc. (b).................................. 3,110 25,074
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
HEALTH CARE--0.0%
OMEGA Worldwide Inc. (b)..................................... 4,641 $ 20,304
---------------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $111,859)................................................... 158,634
---------------
TOTAL COMMON STOCKS
(Identified cost $38,418,799)................................................ 34,766,554
---------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
------------ --------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--3.9%
COMMERCIAL PAPER--3.9%
Coca-Cola Co. 4.90%, 1/14/99......................... A-1+ $ 1,425 1,424,418
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,424,418).................................................. 1,424,418
---------------
TOTAL INVESTMENTS--99.4%
(Identified cost $39,843,217)................................................. 36,190,972(a)
Cash and receivables, less liabilities--0.6%.................................. 216,820
---------------
NET ASSETS--100.0%.............................................................. $ 36,407,792
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $1,980,603 and gross
depreciation of $5,632,848 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$39,843,217.
(b) Non-income producing.
See Notes to Financial Statements
44
<PAGE>
REAL ESTATE SECURITIES SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$39,843,217).............................................. $ 36,190,972
Cash........................................................ 56
Receivables
Dividends and interest.................................... 280,315
Fund shares sold.......................................... 20,808
Prepaid expenses............................................ 720
------------
Total assets............................................ 36,492,871
------------
LIABILITIES
Payables
Fund shares repurchased................................... 22,659
Investment advisory fee................................... 2,242
Financial agent fee....................................... 5,109
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 50,009
------------
Total liabilities....................................... 85,079
------------
NET ASSETS.................................................. $ 36,407,792
------------
------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 40,173,537
Accumulated net realized loss............................. (113,500)
Net unrealized depreciation............................... (3,652,245)
------------
NET ASSETS.................................................. $ 36,407,792
------------
------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 2,965,496
------------
------------
Net asset value and offering price per share................ $ 12.28
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 2,301,791
Interest.................................................. 63,275
------------
Total investment income................................. 2,365,066
------------
EXPENSES
Investment advisory fee................................... 350,294
Financial agent fee....................................... 53,733
Printing.................................................. 29,630
Professional.............................................. 17,761
Trustees.................................................. 12,954
Custodian................................................. 4,221
Miscellaneous............................................. 4,227
------------
Total expenses.......................................... 472,820
Less expenses borne by investment adviser............... (5,762)
------------
Net expenses............................................ 467,058
------------
NET INVESTMENT INCOME....................................... 1,898,008
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (109,430)
Net change in unrealized appreciation (depreciation) on
investments............................................. (13,109,206)
------------
NET LOSS ON INVESTMENTS..................................... (13,218,636)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(11,320,628)
------------
------------
</TABLE>
See Notes to Financial Statements
45
<PAGE>
REAL ESTATE SECURITIES SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 1,898,008 $ 1,402,058
Net realized gain (loss).................................. (109,430) 1,766,075
Net change in unrealized appreciation (depreciation)...... (13,109,206) 5,041,754
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. (11,320,628) 8,209,887
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (1,978,391) (1,330,417)
Net realized gains........................................ (49,416) (1,843,915)
Tax return of capital..................................... (45,581) --
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (2,073,388) (3,174,332)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,369,232 and 2,796,827
shares, respectively)................................... 20,540,759 42,663,506
Net asset value of shares issued from reinvestment of
distributions (154,542 and 196,112 shares,
respectively)........................................... 2,073,388 3,174,332
Cost of shares repurchased (1,894,769 and 1,242,092
shares, respectively)................................... (27,471,348) (18,924,144)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE
TRANSACTIONS............................................ (4,857,201) 26,913,694
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS..................... (18,251,217) 31,949,249
NET ASSETS
Beginning of period....................................... 54,659,009 22,709,760
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $80,383, RESPECTIVELY)................. $ 36,407,792 $ 54,659,009
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
YEAR ENDED INCEPTION
DECEMBER 31, 5/1/95 TO
1998 1997 1996 12/31/95
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.38 $ 14.32 $ 11.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).......... 0.78(3) 0.50(3) 0.50(3) 0.33(3)
Net realized and unrealized gain
(loss).............................. (4.20) 2.62 3.14 1.42
----------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS.... (3.42) 3.12 3.64 1.75
----------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. (0.65) (0.48) (0.50) (0.33)
Dividends from net realized gains..... (0.02) (0.58) (0.15) (0.06)
Tax return of capital................. (0.01) -- -- (0.03)
----------- --------- --------- ---------
TOTAL DISTRIBUTIONS................. (0.68) (1.06) (0.65) (0.42)
----------- --------- --------- ---------
CHANGE IN NET ASSET VALUE............... (4.10) 2.06 2.99 1.33
----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD.......... $ 12.28 $ 16.38 $ 14.32 $ 11.33
----------- --------- --------- ---------
----------- --------- --------- ---------
Total return............................ (21.19)% 22.05% 33.09% 17.79%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)... $36,408 $54,659 $22,710 $8,473
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses.................... 1.00% 1.00% 1.00% 1.00%(1)
Net investment income................. 5.07% 3.59% 4.36% 4.80%(1)
Portfolio turnover rate................. 18% 41% 21% 10%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.002, $0.01, $0.05 and $0.07 per share, respectively.
See Notes to Financial Statements
46
<PAGE>
STRATEGIC THEME SERIES
INVESTOR PROFILE
This Fund is appropriate for investors seeking long-term capital
appreciation. Investors should note that small company investing involves added
risks, including greater price volatility, less liquidity and increased
competitive threat.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 44.69% compared
with 28.76% for the S&P 500 Index.(1) All performance figures assume
reinvestment of distributions and are net of sales charges.
While 1998 turned out to be an excellent year for the U.S. stock market, it
was marked with exceptional volatility. Last year was also marked by large
disparity in returns between asset classes. Small-capitalization stocks
continued to be underperformers, and profitability at many cyclical companies
was under pressure due to weakness in international markets and falling
commodity prices. Recognizing these trends, we made a concerted shift last
spring to focus on large-capitalization stocks with predictable revenue streams
and domestic focus. Overweighting large-capitalization stocks was one of the key
reasons for the outperformance of the Fund.
The other major factor influencing performance was the thematic selection of
the Fund. The theme INTERNET ECONOMY represented a sizable portion of the
portfolio as we believe that the Internet is the next major technology wave that
will affect the way the world works, communicates, shops, and plays. Internet
stocks have been exceptionally powerful over the last year, as well as stocks of
companies that are considered beneficiaries of the Internet. Another important
theme, 21ST CENTURY MEDICINE, has benefited from the remarkable advance of new
drugs like Viagra, implant devices, and non-invasive surgical techniques.
Breakthroughs in health-care are continuing to have important changes in the way
medicine is practiced, enhancing the quality of life.
As a result of the Fed easing, small- and mid-cap stocks have been
performing better. Concurrent with the Fed rate cuts, we began to add to smaller
capitalization stocks in semiconductor, financial, energy, and
telecommunications industries. Primarily our new additions have been niche
companies. We believe that we were able to invest in some great franchises that
were being given away at outstanding values.
OUTLOOK
Our current outlook is for economic growth to be slightly better than
consensus. Recent rises in long-term interest rates and strong economic data
seem to indicate that the Fed's efforts to inject liquidity into the system
through Fed rate cuts in the fall have worked. It is also our expectation that
the financial markets will remain volatile in 1999, as there are still many
cross-currents at work in the global financial systems. We believe that our
timely themes, however, will prove to be resilient in the face of continued
uncertainty.
(1) The S&P 500 Index is an unmanaged, commonly used measure of total return
stock market performance. The Index is not available for direct investment.
47
<PAGE>
STRATEGIC THEME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STRATEGIC THEME
SERIES S & P MIDCAP 400 INDEX* S & P 500 INDEX**
<S> <C> <C> <C>
1/29/1996 $10,000.00 $10,000.00 $10,000.00
12/31/1996 $11,032.96 $11,959.38 $12,144.20
12/31/1997 $12,926.73 $15,818.21 $16,197.39
12/31/1998 $18,704 $18,841 $20,855
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS
ENDING 12/31/98
FROM
INCEPTION
1/29/96 TO
1 YEAR 12/31/98
<S> <C> <C>
- ---------------------------------------------------------
Strategic Theme Series 44.69% 23.89%
- ---------------------------------------------------------
S&P MidCap 400 Index* 19.11% 24.20%
- ---------------------------------------------------------
S&P 500 Stock Index** 28.76% 28.59%
- ---------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 1/29/96
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
* The S&P MidCap 400 is an unmanaged index composed of companies with market
capitalizations between $300 million and $5 billion.
** The S&P 500 Index is an unmanaged, commonly used measure of stock total
return performance. The Index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
COMMON STOCKS--96.2%
BANKS-MONEY CENTER--0.9%
BankAmerica Corp...................................................... 11,239 $ 675,745
-------------
BANKS-SUPER REGIONAL--2.0%
BankBoston Corp....................................................... 17,300 673,619
Firstar Corp.......................................................... 8,700 811,275
-------------
1,484,894
-------------
COMMERCIAL SERVICES-MISCELLANEOUS--0.4%
ServiceMaster Co. (The)............................................... 13,000 286,812
-------------
COMPUTER-LOCAL NETWORKS--4.3%
Cisco Systems, Inc. (b)............................................... 25,700 2,385,281
Newbridge Networks Corp. (b).......................................... 27,300 829,237
-------------
3,214,518
-------------
COMPUTER-MEMORY DEVICES--2.0%
EMC Corp. (b)......................................................... 18,000 1,530,000
-------------
COMPUTER-SERVICES--7.3%
America Online, Inc. (b).............................................. 14,500 2,320,000
At Home Corp. (b)..................................................... 10,000 742,500
Mastech Corp. (b)..................................................... 21,100 603,987
Usweb Corp. (b)....................................................... 34,500 909,937
Yahoo!, Inc. (b)...................................................... 3,900 916,744
-------------
5,493,168
-------------
COMPUTER-SOFTWARE--14.5%
Apple Computer, Inc. (b).............................................. 18,600 761,437
BMC Software, Inc. (b)................................................ 22,200 989,288
Compuware Corp. (b)................................................... 17,000 1,328,125
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
COMPUTER-SOFTWARE--CONTINUED
Edwards (J.D.) & Co. (b).............................................. 22,900 $ 649,788
Inktomi Corp. (b)..................................................... 2,700 349,313
International Business Machines Corp.................................. 12,800 2,364,800
Microsoft Corp. (b)................................................... 20,100 2,787,619
Oracle Corp. (b)...................................................... 18,700 806,438
Sapient Corp. (b)..................................................... 14,700 823,200
-------------
10,860,008
-------------
CONSUMER PRODUCTS-MISCELLANEOUS--3.9%
Clorox Co. (The)...................................................... 8,000 934,500
Colgate-Palmolive Co.................................................. 6,800 631,550
Procter & Gamble Co. (The)............................................ 14,500 1,324,031
-------------
2,890,081
-------------
COSMETICS/PERSONAL CARE--1.0%
Gillette Co........................................................... 14,900 719,856
-------------
ELECTRIC-SEMICONDUCTOR EQUIPMENT--4.3%
Cymer, Inc. (b)....................................................... 54,400 795,600
Rambus, Inc........................................................... 8,600 827,750
Uniphase Corp. (b).................................................... 22,800 1,581,750
-------------
3,205,100
-------------
ELECTRIC-SEMICONDUCTOR MANUFACTURING--1.7%
Novellus Systems, Inc. (b)............................................ 25,500 1,262,250
-------------
ELECTRICAL-EQUIPMENT--2.5%
General Electric Co................................................... 18,700 1,908,569
-------------
FINANCE-INVESTMENT BANKERS--0.9%
Merrill Lynch & Co., Inc.............................................. 10,100 674,175
-------------
</TABLE>
48
<PAGE>
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
FINANCIAL SERVICES-MISCELLANEOUS--9.4%
American Express Co................................................... 6,100 $ 623,725
Capital One Financial Corp............................................ 10,600 1,219,000
Citigroup, Inc........................................................ 27,100 1,341,450
Equitable Companies, Inc. (The)....................................... 16,100 931,788
Freddie Mac........................................................... 21,500 1,385,406
Morgan Stanley Dean Witter & Co....................................... 8,600 610,600
SunAmerica, Inc....................................................... 12,000 973,500
-------------
7,085,469
-------------
LEISURE-SERVICES--1.2%
Carnival Corp......................................................... 18,000 864,000
-------------
MEDIA-RADIO/TV--2.6%
Clear Channel Communications, Inc. (b)................................ 21,400 1,166,300
Tele-Communications, Inc. Class A (b)................................. 13,700 757,781
-------------
1,924,081
-------------
MEDICAL-BIOMED/GENETICS--0.9%
Chiron Corp. (b)...................................................... 27,000 707,063
-------------
MEDICAL-GENERIC DRUGS--1.2%
Mylan Laboratories, Inc............................................... 29,400 926,100
-------------
MEDICAL-PRODUCTS--11.6%
Becton, Dickinson and Co.............................................. 28,600 1,220,862
Genzyme Corp. (b)..................................................... 20,800 1,034,800
Medtronic, Inc........................................................ 15,600 1,158,300
Pfizer, Inc........................................................... 14,400 1,806,300
Schering-Plough Corp.................................................. 25,200 1,392,300
Warner-Lambert Co..................................................... 15,900 1,195,481
Watson Pharmaceuticals, Inc. (b)...................................... 15,200 955,700
-------------
8,763,743
-------------
MEDICAL-WHOLESALE DRUG/SUNDRY--1.8%
Cardinal Health, Inc.................................................. 18,000 1,365,750
-------------
POLLUTION CONTROL-SERVICES--0.9%
Allied Waste Industries, Inc.......................................... 28,500 673,313
-------------
RETAIL-DEPARTMENT STORES--2.7%
Kohl's Corp. (b)...................................................... 32,700 2,009,006
-------------
RETAIL-DISCOUNT & VARIETY--2.5%
Wal-Mart Stores, Inc.................................................. 23,100 1,881,206
-------------
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
RETAIL-MAJOR DISCOUNT CHAINS--1.1%
Costco Companies, Inc. (b)............................................ 11,400 $ 822,938
-------------
RETAIL-SPECIALTY--1.6%
Amazon.com, Inc. (b).................................................. 3,700 1,188,625
-------------
RETAIL-SUPERMARKETS--2.2%
Safeway, Inc. (b)..................................................... 27,500 1,675,781
-------------
RETAIL/WHOLESALE-BUILDING PRODUCTS--2.4%
Home Depot, Inc. (The)................................................ 29,900 1,829,506
-------------
TELECOMMUNICATIONS-EQUIPMENT--0.9%
Tellabs, Inc. (b)..................................................... 10,100 692,481
-------------
TELECOMMUNICATIONS-SERVICES--7.5%
AT&T Corp............................................................. 12,200 918,050
AirTouch Communications, Inc. (b)..................................... 32,600 2,351,275
BellSouth Corp. (b)................................................... 22,800 1,137,150
MCI WorldCom, Inc. (b)................................................ 16,900 1,212,575
-------------
5,619,050
-------------
TOTAL COMMON STOCKS
(Identified cost $57,165,211)........................................................ 72,233,288
-------------
FOREIGN COMMON STOCKS--1.7%
MEDICAL-ETHICAL DRUGS--1.7%
Elan Corp. PLC Sponsored ADR (Ireland) (b)............................ 18,200 1,266,037
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,278,008)......................................................... 1,266,037
-------------
TOTAL LONG-TERM INVESTMENTS --97.9%
(Identified cost $58,443,219)........................................................ 73,499,325
-------------
SHORT-TERM OBLIGATIONS--2.8%
FEDERAL AGENCY SECURITIES--2.8%
FHLB 4.50%, 1/4/99%................................................... 2,105 2,104,211
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,104,211)......................................................... 2,104,211
-------------
TOTAL INVESTMENTS --100.7%
(Identified cost $60,547,430)........................................................ 75,603,536(a)
Cash and receivables, less liabilities--(0.7%)....................................... (505,820)
-------------
NET ASSETS--100.0%..................................................................... $ 75,097,716
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $16,055,847 and gross
depreciation of $1,202,766 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$60,750,455.
(b) Non-income producing.
49
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$60,547,430).............................................. $ 75,603,536
Cash........................................................ 2,131
Receivables
Investment securities sold................................ 1,172,342
Fund shares sold.......................................... 164,418
Interest and dividends.................................... 23,171
Prepaid expenses............................................ 1,283
-------------
Total assets............................................ 76,966,881
-------------
LIABILITIES
Payables
Investment securities purchased........................... 1,759,577
Investment advisory fee................................... 47,509
Financial agent fee....................................... 8,066
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 48,953
-------------
Total liabilities....................................... 1,869,165
-------------
NET ASSETS.................................................. $ 75,097,716
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 55,673,321
Accumulated net realized gain............................. 4,368,289
Net unrealized appreciation............................... 15,056,106
-------------
NET ASSETS.................................................. $ 75,097,716
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 4,876,534
-------------
-------------
Net asset value and offering price per share................ $ 15.40
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 276,875
Dividends................................................. 261,437
Foreign taxes withheld.................................... (90)
-------------
Total investment income................................. 538,222
-------------
EXPENSES
Investment advisory fee................................... 426,848
Financial agent fee....................................... 61,586
Professional.............................................. 15,350
Trustees.................................................. 13,743
Printing.................................................. 12,381
Custodian................................................. 10,881
Miscellaneous............................................. 2,778
-------------
Total expenses.......................................... 543,567
-------------
NET INVESTMENT LOSS......................................... (5,345)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 10,385,680
Net change in unrealized appreciation (depreciation) on
investments............................................. 12,160,802
-------------
NET GAIN ON INVESTMENTS..................................... 22,546,482
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 22,541,137
-------------
-------------
</TABLE>
See Notes to Financial Statements
50
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ (5,345) $ 161,027
Net realized gain (loss).................................. 10,385,680 4,293,916
Net change in unrealized appreciation (depreciation)...... 12,160,802 1,374,168
-------------- --------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 22,541,137 5,829,111
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... -- (161,027)
Net realized gains........................................ (4,406,657) (5,484,196)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (4,406,657) (5,645,223)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,899,576 and 2,325,529
shares, respectively)................................... 24,310,681 27,902,960
Net asset value of shares issued from reinvestment of
distributions (289,988 and 504,343 shares,
respectively)........................................... 4,406,657 5,645,223
Cost of shares repurchased (1,521,202 and 987,193 shares,
respectively)........................................... (19,373,613) (12,084,569)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 9,343,725 21,463,614
-------------- --------------
NET INCREASE IN NET ASSETS................................ 27,478,205 21,647,502
NET ASSETS
Beginning of period....................................... 47,619,511 25,972,009
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $0, RESPECTIVELY)...................... $ 75,097,716 $ 47,619,511
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR YEAR 1/29/96
ENDED ENDED TO
12/31/98 12/31/97 12/31/96
----------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 11.32 $ 10.98 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.01 0.05(3) 0.04(3)
Net realized and unrealized gain (loss).... 5.03 1.82 0.99
----------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS......... 5.04 1.87 1.03
----------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.01) (0.05) (0.04)
Dividends from net realized gains.......... (0.95) (1.16) --
In excess of net realized gains............ -- (0.31) --
Tax return of capital...................... -- (0.01) (0.01)
----------- --------- ---------
TOTAL DISTRIBUTIONS...................... (0.96) (1.53) (0.05)
----------- --------- ---------
CHANGE IN NET ASSET VALUE.................... 4.08 0.34 0.98
----------- --------- ---------
NET ASSET VALUE, END OF PERIOD............... $ 15.40 $ 11.32 $ 10.98
----------- --------- ---------
----------- --------- ---------
Total return................................. 44.69% 17.16% 10.33%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $75,098 $47,620 $25,972
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.99% 1.00% 1.00%(1)
Net investment income...................... (0.01)% 0.42% 0.64%(1)
Portfolio turnover rate...................... 364% 642% 391%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.02
and $0.02 per share, respectively.
See Notes to Financial Statements
51
<PAGE>
ABERDEEN NEW ASIA SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital appreciation
by investing primarily in a diversified portfolio of equity securities in
countries throughout Asia, with the exception of Japan. The Fund essentially
focuses on quality companies with strong management, solid growth prospects and
attractive relative valuations. Investors should note that foreign investments
pose added risks such as currency fluctuation, less public disclosure, as well
as economic and political risks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned (4.44)%
compared with a return of (5.21)% for the Morgan Stanley Capital International
(MSCI) All Country (AC) Asia Pacific ex Japan Index.(1) All performance figures
assume reinvestment of all distributions and are net of sales charges.
In 1998 it became steadily clear that Asia as a whole was entering a sharp
downward trend after what had been a decade or so of tremendous growth. The
domino effect across the region, which started with Thailand, spread to China
and India. While both escaped the early vicissitudes of the currency crisis due
to the non-convertibility of their currencies, they had limited scope to avoid
the wider economic fallout.
Across the region, attention was focused on the International Monetary Fund
(IMF), whose initial recommendation was primarily aimed at stabilizing
currencies in the crisis hit countries by following tight monetary and fiscal
policies. This led to a severe contraction in output and growing social unrest
in many countries. After being widely criticized for its prescriptions, the IMF
is now stressing the prevention of output contraction and is therefore
recommending a combination of loose monetary and fiscal policies.
Meanwhile, the policy response of governments around the region has been
varied. Korea and Thailand, two of the worst affected economies, have, under
newly elected democratic governments, been following policies set out by the
IMF. The solutions are obvious; i.e., the enforcement of a "clearing" mechanism,
such as an effective bankruptcy law and openness towards overseas capital for
takeovers, etc. The implementation of such "simple" solutions is, however,
impeded by cultural constraints--either unwillingness to break up cozy ties
between business and politics or a touch of xenophobia. Even China, which has
been relatively insulated from the effects of the regional financial crisis, has
moved to strengthen its financial sector. In a landmark move, the government
shut two trust and investment companies, GITIC and GZTIC, that were unable to
pay off their debts.
In contrast, the Malaysian government tried its best to stick its head in
the sand, imposing draconian capital controls. In Taiwan, the government
introduced new securities regulatory measures after the benchmark stock index
tumbled, and set up a NT$200 billion stabilization fund to help prop up the
stock market. And in a surprise move, the Hong Kong government abandoned its
hands off policy as it bought stocks and futures contracts in a defensive move
against speculators.
Over the past few months, exchange rates have stabilized leading to lower
interest rates across Asia. The IMF has declared that the regional economies
have bottomed out and should stage a recovery in late 1999. This has sparked off
a rally in the equity and bond markets. But is this relative steadiness
sustainable? Exchange rate stabilization, which has been partly achieved by
accumulating current account surpluses, in effect came about on the back of
import compression not export growth (exports in most countries have actually
fallen in U.S. dollar terms). In addition the IMF's initial policy mix of tight
monetary and fiscal policy has killed off domestic economic activity. The
priority now is to kick start domestic demand, as Asia can no longer rely on
exports to pull itself out of its mire.
Japan is in no position to absorb Asia's produce, while the U.S. has
predicted its trade deficit to reach a massive US$300 billion in 1999,
re-igniting fears of protectionism. Lower interest rates and higher government
spending alone will not spur growth. What the region needs is to get banks to
lend again. But this will not happen until the capital structures of both banks
and corporations are improved and, encouragingly, governments are taking steps
to recapitalize banks in countries, such as Korea, Japan and Thailand.
Clearing mechanisms are also being put in place. The Korean Asset Management
Company, which buys assets from banks and finance companies, will hold the
country's first asset-backed securities sales; Thailand's Financial Sector
Restructuring Authority's property auction has been well received; the majority
of Malaysian banks have finally cut a deal with regulators to sell their bad
debt; and even in well-managed Singapore, companies are planning to sell off
assets to strengthen their balance sheets. However, across Asia, a lot more
needs to be done--debt needs restructuring and corporations still need to
conduct major refocusing exercises. A good example is Korea, where conglomerates
are still resisting the government's call to downsize their bloated empires. In
addition, mergers and restructurings have not led to the closure of excess
capacity nor
52
<PAGE>
ABERDEEN NEW ASIA SERIES
the laying-off of workers. All this is being postponed as evidenced by news that
Korea Exchange Bank and Cho Hung Bank rehired almost all of their workers.
OUTLOOK
Restructuring and the closure of excess capacity should gradually lay the
foundation for an economic recovery. However, the socio-political aspect needs
to be handled with care. The bulk of the workforce in these crisis-hit
countries, with virtually non-existent safety nets, has never before seen
economic contraction, unemployment and the resulting deterioration in living
standards. Long used to rising incomes and virtually full employment these
people have excused corrupt leadership and cronyism. Indonesia has shown us that
they are not willing to do the same now. The Suharto family's wealth accumulated
through kickbacks, monopolies and preferential treatment is much resented, and
attacks on the minority Chinese are symptomatic of popular frustration at income
inequality. Many of the bankrupt conglomerates, which have all but collapsed the
banking system, are linked to leading government members and the ex-president's
clan. We believe that even a year into the financial crisis, Indonesia remains a
flash point, as ethnic violence continues to rack the nation. But hopefully, the
result of this post-crisis, will be the emergence of effective, transparent and
accountable governance in these countries, which will benefit the high quality
professional companies that survive the donwturn.
We believe that China is another country that holds the key to the region's
stability. Although recent GDP growth figures showed the economy expanding at
7%, below the targeted growth of 8%, anecdotal evidence suggests that the real
economy is slowing at a more alarming pace. It is important for China to grow at
about 8% to be able to absorb the cost of restructuring the state-owned sector
and recapitalize the banking sector. In an attempt to maintain the growth level,
the government has ordered state-owned enterprises and local governments to
increase expenditure to boost demand. The risk is that the spending carried out
will contribute to the structural problems that the government is attempting to
tackle. It has also become apparent that the government's commitment to reform
in the state owned enterprises is wavering. Senior leaders have called for a
more cautious approach to unemployment as well as pushing commercial banks to
resume lending to the moribund state-owned enterprises. But directed lending,
where banks are forced to make commercially non-viable investments, lies at the
heart of the problem banks face. Banking problems in China, and a possible
devaluation of the renminbi, would result in another round of volatility in
regional currencies.
The safest and strongest country in which to invest in, we believe, is
Singapore, where the government has tremendous financial flexibility. The wild
card, in our opinion, is Indonesia, where, if the country survives, amazing
value can be found. We can see little sign that China will look after the
underlying shareholder, and, as for Taiwan, which has some well-run companies,
we think it simply too expensive. In between, one has the whole range--from
India offering solid relatively cheap companies, albeit with a rather stifling
bureaucratic environment, to Korea and Thailand, which have made all the right
political moves but where substance is still somewhat wanting. As stock pickers,
nothing in the environment beats "kicking the tires" and identifying value and
"survivability" at the company level. And, it is at this level, spread broadly
across the region, that we are finding some great value.
What we have seen over recent weeks, however, is a clear sign that there is
light at the end of the tunnel, and we believe that Asian stock markets,
generally, have seen their lows. The economic recovery, however, is unlikely to
be smooth and sharp--and indeed we would say that a sharp recovery would
actually be a bad thing, as it would lead to the postponement of necessary
reforms. Investors, therefore, should be cautiously optimistic.
(1) The Morgan Stanley Capital International (MSCI) All Country (AC) Asia
Pacific ex Japan Index is an unmanaged, commonly used measure of total
return performance for Pacific Basin countries, with the exception of Japan.
The Index is not available for direct investment.
53
<PAGE>
ABERDEEN NEW ASIA SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA MSCI AC ASIA PACIFIC EX JAPAN
SERIES INDEX*
<S> <C> <C>
9/17/96 $10,000.00 $10,000.00
12/31/96 $10,010.49 $10,456.78
12/31/97 $6,768.08 $6,994.88
12/31/98 $6,467.28 $6,630.69
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
9/17/96 TO
1 YEAR 12/31/98
<S> <C> <C>
- ------------------------------------------------------------------------
Aberdeen New Asia Series (4.44)% (17.33)%
- ------------------------------------------------------------------------
MSCI AC Asia Pacific Ex Japan Index* (5.21)% (16.44)%
- ------------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 9/17/96
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
* Morgan Stanley Capital International All Country Asia Pacific (excluding
Japan) Index is a market-value weighted average of the performance of
securities listed on the stock exchanges of 14 countries in Asia and the
Pacific Basin. Performance is calculated on a total return basis, as reported
by Frank Russell Company.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
FOREIGN COMMON STOCKS--97.5%
AUSTRALIA--17.1%
Australian Gas Light Co., Ltd. (Oil (International Integrated))......................
30,000 $ 216,284
BRL Hardy Ltd. (Beverages (Alcoholic))............................................... 85,000 287,789
Commonwealth Bank of Australia (Banks (Major Regional))..............................
10,000 142,073
Leighton Holdings Ltd. (Engineering & Construction).................................. 50,000 214,676
Pacifica Group Ltd. (Manufacturing (Diversified)).................................... 65,000 183,714
QBE Insurance Group Ltd. (Insurance (Property-Casualty)).............................
85,000 351,916
Telstra Corp. Ltd. (Communications Equipment)........................................ 50,000 233,997
---------------
1,630,449
---------------
HONG KONG--19.1%
CDL Hotels International Ltd. (Lodging-Hotels)....................................... 850,000 218,342
Citybus Group Ltd. (Services (Commercial & Consumer))................................
750,000 156,834
Giordano International Ltd. (Retail (General Merchandise))...........................
1,000,000 187,169
Hongkong Electric Holdings Ltd. (Electric Companies)................................. 95,000 288,175
Johnson Electric Holdings Ltd. (Electronics (Component Distributors))................
80,000 205,498
National Mutual Asia Ltd. (Insurance (Multi-Line))................................... 450,000 336,904
Smartone Telecommunications (Telecommunications (Cellular/Wireless)).................
80,000 222,021
Swire Pacific Ltd. Class B (Diversified Miscellaneous)(b)............................ 300,000 199,432
---------------
1,814,375
---------------
INDIA--8.7%
BSES Ltd. GDR (Diversified Miscellaneous)............................................ 17,000 216,750
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
INDIA--CONTINUED
Industrial Credit & Investment Corporation of India Ltd. Sponsored GDR (Financial
(Diversified))..................................................................... 30,000 $ 199,500
Mahanagar Telephone Nigam Ltd. Sponsored GDR (Telephone).............................
20,000 244,000
Ranbaxy Laboratories Ltd. GDR (Health Care (Drugs-Major Pharmaceuticals))............
18,000 164,700
---------------
824,950
---------------
INDONESIA--3.0%
PT Indosat (Telecommunications (Cellular/Wireless)).................................. 100,000 131,136
PT Indosat ADR (Telecommunications (Cellular/ Wireless)).............................
12,500 153,906
---------------
285,042
---------------
MALAYSIA--5.8%
Carlsberg Brewery Malaysia Berhad (Beverages (Alcoholic))(c).........................
70,000 167,325
Malaysian Oxygen Berhad (Chemicals)(c)............................................... 100,000 157,895
Muhibbah Engineering Berhad (Engineering & Construction)(c)..........................
88,000 24,316
Sime UEP Properties Berhad (Real Estate Development)(c)..............................
250,000 197,368
---------------
546,904
---------------
NEW ZEALAND--2.7%
Telecom Corporation of New Zealand Ltd. (Telecommunications (Cellular/Wireless)).....
60,000 261,487
---------------
PHILIPPINES--9.4%
Ayala Land, Inc. (Real Estate Development)........................................... 900,000 254,506
Bank of The Philippine Islands (Banks (Major Regional)).............................. 90,000 190,880
</TABLE>
See Notes to Financial Statements
54
<PAGE>
ABERDEEN NEW ASIA SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
PHILIPPINES--CONTINUED
La Tondena Distillers, Inc. (Beverages (Alcoholic)).................................. 175,000 $ 139,464
Philippine Long Distance Telephone Co. Sponsored ADR (Telephone).....................
12,000 311,250
---------------
896,100
---------------
SINGAPORE--14.8%
Chemical Industries (Far East) Ltd. (Chemicals)...................................... 100,000 103,033
Clipsal Industries (Holdings) Ltd. (Electrical Equipment)............................ 175,000 175,000
Robinson & Co. Ltd. (Retail (Department Stores))..................................... 80,000 179,398
Rothmans Industries Ltd. (Tobacco)................................................... 75,000 450,011
Singapore Press Holdings Ltd. (Publishing (Newspapers))..............................
25,600 279,279
United Overseas Bank Ltd. (Banks (Money Center))..................................... 35,000 224,854
---------------
1,411,575
---------------
SOUTH KOREA--3.4%
Pohang Iron & Steel Co. Ltd. (Iron & Steel).......................................... 5,000 319,157
---------------
SRI LANKA--2.8%
John Keells Holdings Ltd. (Diversified Miscellaneous)(b)............................. 35,000 114,062
National Development Bank Ltd. (Banks (Major Regional))(b)...........................
79,000 147,776
---------------
261,838
---------------
TAIWAN--2.5%
Standard Foods Taiwan Ltd. GDR (Foods)(b)............................................ 25,000 240,625
---------------
THAILAND--3.5%
Phatra Insurance Public Company, Ltd. Foreign (Insurance (Multi-Line))...............
71,600 167,502
Ruam Pattana Fund II (Financial (Diversified))(b).................................... 1,250,000 165,135
---------------
332,637
---------------
UNITED KINGDOM--4.7%
HSBC Holdings PLC (Banks (Money Center))............................................. 10,000 271,201
Rowe Evans Investments Group PLC (Agricultural Products).............................
200,000 178,028
---------------
449,229
---------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $11,305,888)....................................................................... 9,274,368
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
RIGHTS--0.2%
MALAYSIA--0.2%
Muhibbah Engineering Berhad Rights (Engineering &
Construction)(b)(c)................................................................ 225,000 $ 12,829
---------------
TOTAL RIGHTS
(Identified cost $68,335)........................................................................... 12,829
---------------
TOTAL LONG-TERM INVESTMENTS--97.7%
(Identified cost $11,374,223)....................................................................... 9,287,197
---------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
-------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--2.1%
REPURCHASE AGREEMENT--2.1%
Credit Suisse repurchase agreement, 4.75%, dated 12/31/98 due 1/4/99, repurchase
price $204,104, collateralized by U.S. Treasury Note 5.50%, 4/15/00, market value
$202,188............................................................................. $ 200 200,000
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $200,000).......................................................................... 200,000
---------------
TOTAL INVESTMENTS--99.8%
(Identified cost $11,574,223)....................................................................... 9,487,197(a)
Cash and receivables, less liabilities--0.2%........................................................ 23,243
---------------
NET ASSETS--100.0%.................................................................................... $ 9,510,440
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $992,718 and gross
depreciation of $3,114,197 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purpose was
$11,608,676.
(b) Non-income producing.
(c) Security valued at fair value as determined in good faith by or under the
direction of the Trustees.
See Notes to Financial Statements
55
<PAGE>
ABERDEEN NEW ASIA SERIES
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF
TOTAL LONG-TERM INVESTMENTS
(UNAUDITED)
<TABLE>
<S> <C>
Agricultural Products.............................. 1.9%
Banks (Major Regional)............................. 5.2
Banks (Money Center)............................... 5.3
Beverages (Alcoholic).............................. 6.4
Chemicals.......................................... 2.8
Communications Equipment........................... 2.5
Diversified Miscellaneous.......................... 5.7
Electric Companies................................. 3.1
Electrical Equipment............................... 1.9
Electronics (Component Distributors)............... 2.2
Engineering & Construction......................... 2.7
Financial (Diversified)............................ 3.9
Foods.............................................. 2.6
Health Care (Drugs-Major Pharmaceuticals).......... 1.8
Insurance (Multi-Line)............................. 5.4
Insurance (Property-Casualty)...................... 3.8
Iron & Steel....................................... 3.4
Lodging-Hotels..................................... 2.4
Manufacturing (Diversified)........................ 2.0
Oil (International Integrated)..................... 2.3
Publishing (Newspapers)............................ 3.0
Real Estate Development............................ 4.9
Retail (Department Stores)......................... 1.9
Retail (General Merchandise)....................... 2.0
Services (Commercial & Consumer)................... 1.7
Telecommunications (Cellular/Wireless)............. 8.3
Telephone.......................................... 6.0
Tobacco............................................ 4.9
------
100.0%
------
------
</TABLE>
See Notes to Financial Statements
56
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$11,574,223).............................................. $ 9,487,197
Cash........................................................ 30,157
Foreign currency at value (Identified cost $48)............. 44
Receivables
Investment securities sold................................ 86,167
Dividends and interest.................................... 24,633
Fund shares sold.......................................... 2,619
Tax reclaim............................................... 104
Prepaid expenses............................................ 192
-------------
Total assets............................................ 9,631,113
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 21,240
Investment advisory fee................................... 11,914
Trustees' fee............................................. 7,155
Financial agent fee....................................... 3,642
Accrued expenses.......................................... 76,722
-------------
Total liabilities....................................... 120,673
-------------
NET ASSETS.................................................. $ 9,510,440
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 14,914,668
Undistributed net investment income....................... 94,548
Accumulated net realized loss............................. (3,411,454)
Net unrealized depreciation............................... (2,087,322)
-------------
NET ASSETS.................................................. $ 9,510,440
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 1,552,096
-------------
-------------
Net asset value and offering price per share................ $ 6.13
-----
-----
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 274,732
Interest.................................................. 46,532
Foreign taxes withheld.................................... (8,630)
-------------
Total investment income................................. 312,634
-------------
EXPENSES
Investment advisory fee................................... 93,715
Financial agent fee....................................... 27,570
Custodian................................................. 37,445
Professional.............................................. 29,874
Printing.................................................. 22,344
Trustees.................................................. 19,179
Miscellaneous............................................. 3,657
-------------
Total expenses.......................................... 233,784
Less expenses borne by investment adviser............... (117,074)
-------------
Net expenses............................................ 116,710
-------------
NET INVESTMENT INCOME....................................... 195,924
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (2,782,700)
Net realized loss on foreign currency transactions........ (16,142)
Net change in unrealized appreciation (depreciation) on
investments............................................. 2,312,994
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency transactions...... 4,137
-------------
NET LOSS ON INVESTMENTS..................................... (481,711)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (285,787)
-------------
-------------
</TABLE>
See Notes to Financial Statements
57
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 195,924 $ 211,171
Net realized gain (loss).................................. (2,798,842) (526,096)
Net change in unrealized appreciation (depreciation)...... 2,317,131 (4,381,851)
------------------ -----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... (285,787) (4,696,776)
------------------ -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (36,125) (211,171)
Net realized gain......................................... -- (6,760)
In excess of net investment income........................ (4,147) (143,676)
Tax return of capital..................................... -- (76,927)
------------------ -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (40,272) (438,534)
------------------ -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (2,726,957 and 1,188,914
shares, respectively)................................... 16,221,934 10,623,009
Net asset value of shares issued from reinvestment of
distributions (6,603 and 66,703 shares, respectively)... 40,272 438,534
Cost of shares repurchased (2,736,922 and 862,809 shares,
respectively)........................................... (16,442,409) (7,494,737)
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE
TRANSACTIONS............................................ (180,203) 3,566,806
------------------ -----------------
NET DECREASE IN NET ASSETS................................ (506,262) (1,568,504)
NET ASSETS
Beginning of period....................................... 10,016,702 11,585,206
------------------ -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME AND DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $94,548 AND ($159,799), RESPECTIVELY)......... $ 9,510,440 $10,016,702
------------------ -----------------
------------------ -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED YEAR ENDED 9/17/96 TO
12/31/98 12/31/97 12/31/96
----------- ---------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 6.44 $ 9.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.13(1)(4) 0.15(1) 0.05(1)
Net realized and unrealized gain (loss).... (0.41) (3.36) (0.04)
----------- ---------- -------
TOTAL FROM INVESTMENT OPERATIONS......... (0.28) (3.21) 0.01
----------- ---------- -------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.03) (0.15) (0.05)
Dividends from net realized gains.......... -- (0.01) --
In excess of net investment income......... -- (0.10) --
Tax return of capital...................... -- (0.05) --
----------- ---------- -------
TOTAL DISTRIBUTIONS...................... (0.03) (0.31) (0.05)
----------- ---------- -------
CHANGE IN NET ASSET VALUE.................... (0.31) (3.52) (0.04)
----------- ---------- -------
NET ASSET VALUE, END OF PERIOD............... $ 6.13 $ 6.44 $ 9.96
----------- ---------- -------
----------- ---------- -------
Total return................................. (4.44)% (32.39)% 0.16%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $9,510 $10,017 $11,585
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 1.25% 1.25% 1.25%(2)
Net investment income...................... 2.09% 1.63% 2.40%(2)
Portfolio turnover rate...................... 46% 27% 2%(3)
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.08,
$0.07 and $0.03 per share, respectively.
(2) Annualized.
(3) Not annualized.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
58
<PAGE>
RESEARCH ENHANCED INDEX SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital
appreciation.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 31.68% compared
with a return of 28.76% for the S&P 500 Index.(1) All performance figures assume
reinvestment of distributions and are net of sales charges.
The U.S. stock market ended a very volatile year in a rally driven by size
and growth. U.S. stocks staged an impressive rise during the fourth quarter,
driving results for the full year and extending the S&P 500 Index's streak of
20% plus returns to an unprecedented four years. Liquidity flooded financial
markets as the Federal Reserve cut interest rates three times in the space of
seven weeks in September, October and November. As such, early fourth-quarter
stock market advances were fairly broad based. However, gains that elevated the
S&P 500 became increasingly more narrow as analysts lowered earnings
expectations and as interest rates stagnated.
While 1998 was difficult for most active managers, stock selection and risk
control were the main contributors to the Fund's outperformance. In particular,
the Fund's holding in drug stock WARNER LAMBERT benefited as sales of its
cholesterol-reducing drug Lipitor surpassed the $1 billion mark. Favorable stock
selection in the consumer cyclical and telephone sectors also enhanced
performance. The Fund's overweight position in WORLDCOM enhanced returns on news
of an approved merger with MCI. In the latter part of the year, our decision to
underweight money center banks and brokerage stocks within the finance sector
had a positive impact on the Fund's performance. Stocks in these sectors traded
sharply lower due to the financial and economic meltdown in emerging markets,
the declining U.S. stock market and the large potential losses from exposure to
the hedge fund Long-Term Capital Management. Conversely, the Fund's holding in
MONSANTO held back performance in the last quarter as the company announced its
decision to end merger talks with AMERICAN HOME PRODUCTS. MONSANTO will now be
forced to issue equity, since its balance sheet has been weakened by $8 billion
dollars of seed acquisitions.
OUTLOOK
For 1999, we expect moderation with respect to earnings, economic growth and
share price appreciation. Positive seasonal trends and monetary conditions
should support the market as we enter the new year. However, any one of a
plethora of macro uncertainties has the potential to deflect stocks from
extending their recent gains: the impact of the euro, the year 2000 problem or
further international financial turmoil or international hostilities.
INVESTMENT REVIEW
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RESEARCH ENHANCED INDEX SERIES S&P 500 INDEX(1)
<S> <C> <C>
07/15/1997 $10,000.00 $10,000.00
12/31/1997 $10,582.49 $10,566.54
12/31/1998 $13,934.65 $13,605.10
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDING 12/31/98
FROM
INCEPTION
7/15/97 TO
1 YEAR 12/31/98
<S> <C> <C>
- -----------------------------------------------------------------------
Research Enhanced Index Series 31.68% 25.40%
- -----------------------------------------------------------------------
S&P 500 Index(1) 28.76% 23.42%
- -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 7/15/97
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares when redeemed, may be worth more or less than the original cost.
(1)The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The index is not available for direct investment.
59
<PAGE>
RESEARCH ENHANCED INDEX SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ----- --------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--0.2%
U.S. TREASURY NOTES--0.2%
U.S. Treasury Notes 5.875%, 11/15/99 (c)........ AAA $ 30 $ 30,314
U.S. Treasury Notes 6%, 6/30/99 (c)............. AAA 80 80,581
--------
110,895
--------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $110,655).......................................... 110,895
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------
<S> <C> <C> <C>
COMMON STOCKS--94.7%
AEROSPACE/DEFENSE--0.4%
Boeing Co. (The).......................................... 7,400 241,425
Coltec Industries, Inc. (b)............................... 1,200 23,400
Precision Castparts Corp.................................. 100 4,425
------------
269,250
------------
AGRICULTURAL PRODUCTS--0.1%
Pioneer Hi-Bred International, Inc........................ 2,100 56,700
------------
AIRLINES--0.2%
AMR Corp. (b)............................................. 1,600 95,000
Delta Air Lines, Inc...................................... 1,200 62,400
------------
157,400
------------
ALUMINUM--0.4%
Aluminum Company of America............................... 2,600 193,862
Reynolds Metals Co........................................ 1,000 52,687
------------
246,549
------------
AUTO PARTS & EQUIPMENT--0.6%
Cooper Tire & Rubber Co................................... 900 18,394
Dana Corp................................................. 2,700 110,362
Genuine Parts Co. (b)..................................... 3,000 100,312
Goodyear Tire & Rubber Co. (The).......................... 2,600 131,137
Lear Corp. (b)............................................ 1,300 50,050
------------
410,255
------------
AUTOMOBILES--1.0%
Ford Motor Co............................................. 4,700 275,831
General Motors Corp....................................... 4,400 314,875
General Motors Corp. Class H.............................. 3,000 119,062
------------
709,768
------------
BANKS (MAJOR REGIONAL)--4.5%
Associated Banc-Corp...................................... 500 17,094
Bank One Corp............................................. 8,500 434,031
BankBoston Corp........................................... 2,500 97,344
Charter One Financial, Inc................................ 1,300 36,075
Colonial BancGroup, Inc. (The)............................ 600 7,200
Compass Bancshares, Inc................................... 600 22,837
Crestar Financial Corp.................................... 2,400 172,800
First American Corp....................................... 800 35,500
First Union Corp.......................................... 8,500 516,906
First Virginia Banks, Inc................................. 400 18,800
Fleet Financial Group, Inc................................ 1,600 71,500
Glendale Federal Bank..................................... 1,000 16,625
Hibernia Corp. Class A.................................... 1,300 22,587
Huntington Bancshares, Inc................................ 1,200 36,075
KeyCorp................................................... 3,800 121,600
M & T Bank Corp........................................... 100 51,894
Marshall & Ilsley Corp.................................... 1,200 70,125
Mellon Bank Corp.......................................... 1,900 130,625
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--CONTINUED
Mercantile Bancorporation, Inc............................ 1,300 $ 59,962
North Fork Bancorporation, Inc............................ 1,200 28,725
PNC Bank Corp............................................. 2,400 129,900
Pacific Century Financial Corp............................ 700 17,062
Regions Financial Corp.................................... 1,500 60,469
Republic New York Corp.................................... 900 41,006
SouthTrust Corp........................................... 1,900 70,181
Sovereign Bancorp, Inc.................................... 2,600 37,050
U.S. Bancorp.............................................. 6,100 216,550
Union Planters Corp....................................... 1,200 54,375
Wells Fargo & Co.......................................... 13,500 539,156
Wilmington Trust Corp..................................... 200 12,325
------------
3,146,379
------------
BANKS (MONEY CENTER)--2.1%
BankAmerica Corp.......................................... 14,900 895,862
Bankers Trust Corp........................................ 800 68,350
Chase Manhattan Corp. (The)............................... 6,900 469,631
------------
1,433,843
------------
BEVERAGES (ALCOHOLIC)--0.1%
Anheuser-Busch Companies, Inc............................. 1,100 72,187
------------
BEVERAGES (NON-ALCOHOLIC)--2.3%
Coca-Cola Co. (The)....................................... 15,700 1,049,937
PepsiCo, Inc.............................................. 13,900 569,031
------------
1,618,968
------------
BIOTECHNOLOGY--0.5%
Amgen, Inc. (b)........................................... 3,300 345,056
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--1.4%
Comcast Corp. Special Class A............................. 6,300 369,731
Tele-Communications, Inc. Class A (b)..................... 3,600 199,125
Time Warner, Inc.......................................... 6,900 428,231
------------
997,087
------------
BUILDING MATERIALS--0.0%
Owens Corning............................................. 900 31,894
------------
CHEMICALS--1.3%
Dow Chemical Co. (The).................................... 3,400 309,187
Du Pont (E.I.) de Nemours & Co............................ 7,700 408,581
Praxair, Inc.............................................. 1,800 63,450
Rohm & Haas Co............................................ 3,100 93,387
Union Carbide Corp........................................ 1,200 51,000
------------
925,605
------------
CHEMICALS (DIVERSIFIED)--0.6%
Lyondell Chemical Co...................................... 800 14,400
Monsanto Co............................................... 7,800 370,500
------------
384,900
------------
CHEMICALS (SPECIALTY)--0.1%
Crompton & Knowles Corp................................... 500 10,344
Cytec Industries, Inc. (b)................................ 300 6,375
IMC Global, Inc........................................... 500 10,687
Solutia, Inc.............................................. 1,600 35,800
USEC, Inc................................................. 1,100 15,262
------------
78,468
------------
COMMUNICATIONS EQUIPMENT--2.4%
Lucent Technologies, Inc.................................. 11,900 1,309,000
Motorola, Inc............................................. 5,800 354,162
------------
1,663,162
------------
</TABLE>
See Notes to Financial Statements
60
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
COMPUTERS (HARDWARE)--4.2%
Compaq Computer Corp...................................... 16,700 $ 700,356
Dell Computer Corp. (b)................................... 3,600 263,475
Hewlett-Packard Co........................................ 1,800 122,962
International Business Machines Corp...................... 8,100 1,496,475
Sun Microsystems, Inc. (b)................................ 3,700 316,812
------------
2,900,080
------------
COMPUTERS (NETWORKING)--2.2%
3Com Corp. (b)............................................ 4,700 210,619
Cisco Systems, Inc. (b)................................... 14,300 1,327,219
------------
1,537,838
------------
COMPUTERS (PERIPHERALS)--0.7%
EMC Corp. (b)............................................. 4,900 416,500
Seagate Technology, Inc. (b).............................. 2,400 72,600
------------
489,100
------------
COMPUTERS (SOFTWARE & SERVICES)--5.3%
America Online, Inc. (b).................................. 4,200 672,000
Autodesk, Inc............................................. 400 17,075
BMC Software, Inc. (b).................................... 2,100 93,581
Computer Associates International, Inc.................... 5,200 221,650
Electronic Arts, Inc. (b)................................. 500 28,062
Microsoft Corp. (b)....................................... 15,500 2,149,656
Network Associates, Inc. (b).............................. 1,100 72,875
Oracle Corp. (b).......................................... 8,300 357,937
Parametric Technology Corp. (b)........................... 2,100 34,387
PeopleSoft, Inc. (b)...................................... 2,300 43,556
Symantec Corp. (b)........................................ 400 8,700
------------
3,699,479
------------
CONSUMER FINANCE--0.3%
Capital One Financial Corp................................ 500 57,500
Household International, Inc.............................. 4,200 166,425
Provident Financial Group, Inc............................ 300 11,325
------------
235,250
------------
CONTAINERS & PACKAGING (PAPER)--0.2%
Smurfit-Stone Container Corp. (b)......................... 3,900 61,669
Temple-Inland, Inc........................................ 700 41,519
Union Camp Corp........................................... 900 60,750
------------
163,938
------------
ELECTRIC COMPANIES--2.3%
Allegheny Energy, Inc..................................... 1,300 44,850
Baltimore Gas & Electric Co............................... 1,700 52,487
CMS Energy Corp........................................... 1,200 58,125
Central & South West Corp................................. 6,200 170,112
Cinergy Corp.............................................. 1,700 58,437
Duke Energy Corp.......................................... 1,400 89,687
Edison International...................................... 4,100 114,287
Entergy Corp.............................................. 2,800 87,150
FPL Group, Inc............................................ 500 30,812
GPU, Inc.................................................. 1,400 61,862
Illinova Corp............................................. 700 17,500
NIPSCO Industries, Inc.................................... 600 18,262
New England Electric System............................... 700 33,687
Niagara Mohawk Power Corp. (b)............................ 1,900 30,637
Northeast Utilities (b)................................... 1,400 22,400
Northern States Power Co.................................. 1,700 47,175
PG&E Corp................................................. 4,200 132,300
PP&L Resources, Inc....................................... 1,800 50,175
Pinnacle West Capital Corp................................ 900 38,137
Potomac Electric Power Co................................. 1,000 26,312
Southern Co. (The)........................................ 3,500 101,719
TECO Energy, Inc.......................................... 1,400 39,462
Texas Utilities Co........................................ 3,000 140,062
Union Electric Co......................................... 1,500 64,031
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
ELECTRIC COMPANIES--CONTINUED
Wisconsin Energy Corp..................................... 1,300 $ 40,869
------------
1,570,537
------------
ELECTRICAL EQUIPMENT--2.9%
Emerson Electric Co....................................... 500 31,281
General Electric Co....................................... 18,500 1,888,156
Rockwell International Corp............................... 2,600 126,262
------------
2,045,699
------------
ELECTRONICS (COMPONENT DISTRIBUTORS)--0.1%
Grainger (W.W.), Inc...................................... 1,400 58,275
------------
ELECTRONICS (DEFENSE)--0.4%
Raytheon Co., Class A..................................... 5,300 273,944
------------
ELECTRONICS (INSTRUMENTATION)--0.2%
Parker-Hannifin Corp...................................... 1,500 49,125
Perkin-Elmer Corp. (The).................................. 600 58,537
Sensormatic Electronics Corp.............................. 800 5,550
------------
113,212
------------
ELECTRONICS (SEMICONDUCTORS)--3.0%
Intel Corp................................................ 14,100 1,671,731
National Semiconductor Corp............................... 1,600 21,600
Texas Instruments, Inc.................................... 3,800 325,137
Xilinx, Inc. (b).......................................... 700 45,587
------------
2,064,055
------------
ENGINEERING & CONSTRUCTION--0.0%
Foster Wheeler Corp....................................... 200 2,637
------------
ENTERTAINMENT--0.1%
Walt Disney Co. (The)..................................... 3,200 96,000
------------
FINANCIAL (DIVERSIFIED)--4.3%
AMRESCO, Inc. (b)......................................... 200 1,750
American Express Co....................................... 3,800 388,550
Associates First Capital Corp............................. 5,600 237,300
Bear Stearns Companies, Inc. (The)........................ 900 33,637
CIT Group, Inc. (The)..................................... 800 25,450
Citigroup, Inc............................................ 19,600 970,200
FINOVA Group, Inc. (The).................................. 500 26,969
Fannie Mae................................................ 7,200 536,079
Greenpoint Financial Corp................................. 800 28,100
Lehman Brothers Holdings, Inc............................. 1,200 52,875
MBIA, Inc................................................. 1,200 78,675
Morgan Stanley, Dean Witter & Co. (b)..................... 5,000 355,000
National Commerce Bancorporation.......................... 1,900 35,744
TCF Financial Corp........................................ 700 16,931
Tele-Communications TCI Ventures Group Class A (b)........ 7,000 164,937
Waddell & Reed Financial, Inc. Class A.................... 100 2,369
------------
2,954,566
------------
FOODS--1.3%
Bestfoods................................................. 2,700 143,775
Campbell Soup Co.......................................... 4,000 220,000
Corn Products International, Inc.......................... 100 3,037
General Mills, Inc........................................ 1,400 108,850
Hershey Foods Corp........................................ 1,300 80,844
Nabisco Holdings Corp..................................... 400 16,600
Ralston-Ralston Purina Group.............................. 2,900 93,887
Sara Lee Corp............................................. 8,200 231,137
------------
898,130
------------
FOOTWEAR--0.2%
Nike, Inc. Class B........................................ 2,900 117,631
Nine West Group, Inc. (b)................................. 100 1,556
Reebok International Ltd.................................. 700 10,413
------------
129,600
------------
</TABLE>
See Notes to Financial Statements
61
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
GAMING, LOTTERY & PARIMUTUEL COMPANIES--0.2%
Circus Circus Enterprises, Inc. (b)....................... 1,000 $ 11,438
International Game Technology............................. 1,700 41,331
MGM Grand, Inc. (b)....................................... 300 8,138
Mirage Resorts Inc. (b)................................... 3,200 47,800
------------
108,707
------------
HEALTH CARE (DIVERSIFIED)--5.7%
Abbott Laboratories....................................... 8,300 406,700
American Home Products Corp............................... 15,100 850,319
Bristol-Myers Squibb Co. (b).............................. 9,300 1,244,456
Johnson & Johnson......................................... 9,300 780,038
Warner-Lambert Co......................................... 8,700 654,131
------------
3,935,644
------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--3.7%
Agouron Pharmaceuticals, Inc. (b)......................... 100 5,875
Biogen, Inc. (b).......................................... 900 74,700
Chiron Corp. (b).......................................... 2,200 57,613
Forest Laboratories, Inc. (b)............................. 1,000 53,188
Immunex Corp. (b)......................................... 500 62,906
Lilly (Eli) & Co.......................................... 5,300 471,038
MedImmune, Inc. (b)....................................... 300 29,831
Merck & Co., Inc.......................................... 5,600 827,050
Pfizer, Inc............................................... 5,700 714,994
Schering-Plough Corp...................................... 3,800 209,950
Watson Pharmaceuticals, Inc. (b).......................... 1,100 69,163
------------
2,576,308
------------
HEALTH CARE (HOSPITAL MANAGEMENT)--0.5%
Columbia/HCA Healthcare Corp.............................. 7,200 178,200
Health Management Associates, Inc. Class A (b)............ 2,900 62,713
Tenet Healthcare Corp. (b)................................ 3,700 97,125
------------
338,038
------------
HEALTH CARE (MANAGED CARE)--0.3%
Health Care & Retirement Corp............................. 1,400 41,125
Humana, Inc. (b).......................................... 2,500 44,531
United Healthcare Corp.................................... 2,300 99,044
Wellpoint Health Networks, Inc. (b)....................... 200 17,400
------------
202,100
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.7%
Bausch & Lomb, Inc........................................ 800 48,000
Baxter International, Inc. (b)............................ 600 38,588
Boston Scientific Corp. (b)............................... 4,500 120,656
Genzyme Corp. (b)......................................... 1,000 49,750
Medtronic, Inc............................................ 2,600 193,050
Stryker Corp.............................................. 600 33,038
------------
483,082
------------
HEALTH CARE (SPECIALIZED SERVICES)--0.2%
ALZA Corp. (b)............................................ 1,100 57,475
HEALTHSOUTH Corp. (b)..................................... 4,400 67,925
------------
125,400
------------
HOUSEHOLD FURNITURE & APPLIANCES--0.2%
Furniture Brands International, Inc. (b).................. 600 16,350
Leggett & Platt, Inc...................................... 3,200 70,400
Whirlpool Corp............................................ 1,300 71,988
------------
158,738
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.1%
Colgate-Palmolive Co...................................... 1,800 167,175
Kimberly-Clark Corp....................................... 5,200 283,400
Procter & Gamble Co. (The) (b)............................ 10,900 995,306
------------
1,445,881
------------
INSURANCE (LIFE/HEALTH)--0.7%
Aetna, Inc................................................ 1,800 141,525
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
INSURANCE (LIFE/HEALTH)--CONTINUED
Equitable Companies, Inc. (The)........................... 1,500 $ 86,813
Torchmark Corp............................................ 1,000 35,313
Transamerica Corp......................................... 800 92,400
UNUM Corp................................................. 1,700 99,238
------------
455,289
------------
INSURANCE (MULTI-LINE)--1.3%
Ambac Financial Group, Inc................................ 900 54,169
American International Group, Inc......................... 8,700 840,638
Financial Security Assurance Holdings Ltd................. 300 16,275
PMI Group, Inc. (The)..................................... 300 14,813
------------
925,895
------------
INSURANCE (PROPERTY-CASUALTY)--1.0%
Allstate Corp............................................. 9,800 378,525
Chubb Corp. (The)......................................... 1,500 97,313
Fremont General Corp...................................... 800 19,800
Mercury General Corp...................................... 600 26,288
Ohio Casualty Corp........................................ 200 8,225
SAFECO Corp............................................... 1,600 68,700
St. Paul Companies, Inc. (The)............................ 2,900 100,775
Travelers Property Casualty Corp. Class A................. 800 24,800
------------
724,426
------------
INSURANCE BROKERS--0.4%
Aon Corp.................................................. 1,800 99,675
Marsh & McLennan Companies, Inc........................... 3,100 181,156
------------
280,831
------------
INVESTMENT BANKING/BROKERAGE--0.3%
Merrill Lynch & Co., Inc.................................. 2,900 193,575
Paine Webber Group, Inc................................... 1,200 46,350
------------
239,925
------------
IRON & STEEL--0.1%
Allegheny Teledyne, Inc................................... 3,500 71,531
------------
LEISURE TIME (PRODUCTS)--0.3%
Hasbro, Inc............................................... 2,700 97,538
Mattel, Inc............................................... 5,700 130,031
------------
227,569
------------
LODGING-HOTELS--0.1%
Extended Stay America, Inc. (b)........................... 500 5,250
Hilton Hotels Corp........................................ 4,300 82,238
------------
87,488
------------
MACHINERY (DIVERSIFIED)--0.6%
Caterpillar, Inc.......................................... 4,600 211,600
Cooper Industries, Inc.................................... 1,600 76,300
Deere & Co................................................ 3,500 115,938
Ingersoll-Rand Co......................................... 500 23,469
------------
427,307
------------
MANUFACTURING (DIVERSIFIED)--2.4%
AlliedSignal, Inc......................................... 9,300 412,106
Eaton Corp................................................ 1,000 70,688
ITT Industries, Inc....................................... 1,700 67,575
Illinios Tool Works, Inc.................................. 900 52,200
Johnson Controls, Inc..................................... 1,400 82,600
Minnesota Mining & Manufacturing Co....................... 3,000 213,375
National Service Industries, Inc.......................... 500 19,000
Tenneco, Inc.............................................. 2,800 95,375
Tyco International Ltd.................................... 8,900 671,394
------------
1,684,313
------------
METALS MINING--0.0%
Freeport-McMoRan Copper & Gold, Inc....................... 3,300 31,969
------------
</TABLE>
See Notes to Financial Statements
62
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
NATURAL GAS--0.6%
Columbia Energy Group..................................... 900 $ 51,975
Consolidated Natural Gas Co............................... 1,100 59,400
El Paso Energy Corp....................................... 1,300 45,256
Enron Corp................................................ 3,800 216,838
K N Energy, Inc........................................... 400 14,550
------------
388,019
------------
OFFICE EQUIPMENT & SUPPLIES--0.1%
Harris Corp............................................... 1,500 54,938
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.2%
Cooper Cameron Corp. (b).................................. 600 14,700
Diamond Offshore Drilling, Inc............................ 1,000 23,688
ENSCO International, Inc.................................. 1,600 17,100
Global Marine, Inc. (b)................................... 1,700 15,619
Input/Output, Inc. (b).................................... 200 1,463
R&B Falcon Corp. (b)...................................... 3,700 28,213
Smith International, Inc. (b)............................. 500 12,594
------------
113,377
------------
OIL & GAS (EXPLORATION & PRODUCTION)--0.0%
Union Pacific Resources Group, Inc........................ 2,600 23,563
------------
OIL & GAS (REFINING & MARKETING)--0.1%
Sunoco, Inc............................................... 900 32,456
Tosco Corp................................................ 2,100 54,338
Valero Energy Corp........................................ 500 10,625
------------
97,419
------------
OIL (DOMESTIC INTEGRATED)--0.8%
Atlantic Richfield Co..................................... 4,200 274,050
Occidental Petroleum Corp................................. 3,900 65,813
Phillips Petroleum Co..................................... 2,800 119,350
Unocal Corp............................................... 3,200 93,400
------------
552,613
------------
OIL (INTERNATIONAL INTEGRATED)--3.5%
Chevron Corp.............................................. 1,000 82,938
Exxon Corp................................................ 15,900 1,162,688
Mobil Corp................................................ 9,500 827,688
Texaco, Inc............................................... 6,300 333,113
------------
2,406,427
------------
PAPER & FOREST PRODUCTS--0.4%
Boise Cascade Corp........................................ 700 21,700
Bowater, Inc.............................................. 700 29,006
Fort James Corp........................................... 2,500 100,000
Georgia-Pacific Group..................................... 1,200 70,275
Louisiana-Pacific Corp.................................... 1,400 25,638
Mead Corp. (The).......................................... 1,100 32,244
------------
278,863
------------
PERSONAL CARE--0.5%
Gillette Co............................................... 7,500 362,344
------------
PHOTOGRAPHY/IMAGING--0.8%
Eastman Kodak Co.......................................... 5,400 388,800
Xerox Corp................................................ 1,200 141,600
------------
530,400
------------
PUBLISHING (NEWSPAPERS)--1.0%
Gannett Co., Inc.......................................... 3,700 244,894
Knight-Ridder, Inc........................................ 1,100 56,238
New York Times Co. Class A................................ 2,800 97,125
Times Mirror Co. (The) Class A............................ 1,400 78,400
Tribune Co................................................ 2,300 151,800
Washington Post Co. (The) Class B......................... 100 57,794
------------
686,251
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
RAILROADS--0.6%
Burlington Northern Santa Fe Corp......................... 3,800 $ 128,250
CSX Corp.................................................. 2,000 83,000
Norfolk Southern Corp..................................... 3,400 107,738
Union Pacific Corp........................................ 2,400 108,150
Wisconsin Central Transportation Corp. (b)................ 200 3,438
------------
430,576
------------
RESTAURANTS--0.8%
McDonald's Corp........................................... 7,200 551,700
------------
RETAIL (BUILDING SUPPLIES)--0.7%
Home Depot, Inc. (The).................................... 4,500 275,344
Lowe's Companies, Inc..................................... 2,100 107,494
Sherwin-Williams Co....................................... 2,800 82,250
------------
465,088
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.1%
Best Buy Co., Inc. (b).................................... 200 12,275
Circuit City Stores-Circuit City Group.................... 1,500 74,906
CompUSA, Inc. (b)......................................... 1,000 13,063
------------
100,244
------------
RETAIL (DEPARTMENT STORES)--0.9%
Dillard's, Inc., Class A.................................. 1,500 42,563
Federated Department Stores, Inc. (b)..................... 3,200 139,400
May Department Stores Co. (The)........................... 3,500 211,313
Nordstrom, Inc............................................ 1,900 65,906
Penney (J.C.) Co., Inc.................................... 3,900 182,813
------------
641,995
------------
RETAIL (DRUG STORES)--0.0%
General Nutrition Companies, Inc. (b)..................... 900 14,625
------------
RETAIL (FOOD CHAINS)--1.1%
Albertson's, Inc.......................................... 1,200 76,425
American Stores Co........................................ 8,700 321,356
Hannaford Brothers Co..................................... 600 31,800
Kroger Co. (The) (b)...................................... 800 48,400
Safeway, Inc. (b)......................................... 4,100 249,844
------------
727,825
------------
RETAIL (GENERAL MERCHANDISE)--2.6%
Costco Companies, Inc. (b)................................ 3,200 231,000
Dayton Hudson Corp........................................ 6,800 368,900
Kmart Corp. (b)........................................... 7,500 114,844
Sears, Roebuck and Co..................................... 5,900 250,750
Wal-Mart Stores, Inc...................................... 10,600 863,238
------------
1,828,732
------------
RETAIL (SPECIALTY)--0.2%
Autozone, Inc............................................. 2,300 75,756
Corporate Express, Inc. (b)............................... 900 4,669
Toys 'R' Us, Inc. (b)..................................... 3,800 64,125
------------
144,550
------------
RETAIL (SPECIALTY-APPAREL)--0.8%
Gap, Inc. (The)........................................... 7,500 421,875
Limited, Inc. (The)....................................... 300 8,738
TJX Companies, Inc. (The)................................. 5,100 147,900
------------
578,513
------------
SAVINGS & LOAN COMPANIES--0.5%
Astoria Financial Corp.................................... 600 27,450
Commercial Federal Corp................................... 400 9,275
Dime Bancorp, Inc......................................... 900 23,794
Golden West Financial Corp................................ 500 45,844
Ocwen Financial Corp. (b)................................. 300 3,694
Peoples Heritage Financial Group, Inc..................... 600 12,000
Washington Federal, Inc................................... 200 5,338
</TABLE>
See Notes to Financial Statements
63
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
SAVINGS & LOAN COMPANIES--CONTINUED
Washington Mutual, Inc.................................... 5,100 $ 194,756
------------
322,151
------------
SERVICES (COMMERCIAL & CONSUMER)--0.7%
Cendant Corp. (b)......................................... 14,000 266,875
Service Corp. International............................... 4,800 182,700
Western Resources, Inc.................................... 700 23,275
------------
472,850
------------
SERVICES (DATA PROCESSING)--0.3%
Equifax, Inc.............................................. 2,700 92,306
First Data Corp........................................... 4,300 136,256
------------
228,562
------------
SPECIALTY PRINTING--0.1%
Donnelley (R.R.) & Sons Co................................ 2,200 96,388
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.6%
AirTouch Communications, Inc. (b)......................... 5,400 389,475
------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.8%
AT&T Corp................................................. 16,700 1,256,675
MCI WorldCom, Inc. (b).................................... 17,000 1,219,750
Sprint Corp............................................... 1,600 134,600
------------
2,611,025
------------
TELEPHONE--3.8%
Ameritech Corp............................................ 6,300 399,263
Bell Atlantic Corp........................................ 11,700 664,706
BellSouth Corp............................................ 5,600 279,300
Cincinnati Bell, Inc...................................... 1,200 45,249
Frontier Corp............................................. 2,200 74,800
GTE Corp.................................................. 10,300 694,606
SBC Communications, Inc................................... 8,500 455,813
------------
2,613,737
------------
TEXTILES (APPAREL)--0.0%
Fruit of The Loom, Inc. Class A (b)....................... 800 11,050
Unifi, Inc................................................ 700 13,694
------------
24,744
------------
TOBACCO--1.8%
Philip Morris Companies, Inc.............................. 22,800 1,219,800
------------
TRUCKERS--0.0%
CNF Transportation, Inc................................... 400 15,025
Ryder System, Inc......................................... 600 15,600
------------
30,625
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
TRUCKS & PARTS--0.0%
PACCAR, Inc............................................... 400 $ 16,450
------------
WASTE MANAGEMENT--0.8%
Browning-Ferris Industries, Inc........................... 2,700 76,781
Waste Management, Inc..................................... 10,400 484,900
------------
561,681
------------
TOTAL COMMON STOCKS
(Identified cost $55,387,293)...................................... 65,875,802
------------
FOREIGN COMMON STOCKS--2.8%
ALUMINUM--0.2%
Alcan Aluminum Ltd. (Canada).............................. 3,700 100,131
------------
BEVERAGES (ALCOHOLIC)--0.4%
Seagram Company Ltd. (The) (Canada)....................... 7,600 288,800
------------
OIL (INTERNATIONAL INTEGRATED)--1.5%
Royal Dutch Petroleum Co. NY Registered Shares
(Netherlands)........................................... 21,300 1,019,737
------------
PERSONAL CARE--0.7%
Unilever NV NY Registered Shares (Netherlands)............ 6,000 497,625
------------
TELEPHONE--0.0%
Northern Telecom Ltd. (Canada)............................ 500 25,063
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,870,790)....................................... 1,931,356
------------
TOTAL LONG-TERM INVESTMENTS--97.7%
(Identified cost $57,368,738)...................................... 67,918,053
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
-------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.2%
FEDERAL AGENCY SECURITIES--4.2%
FHLB 4.5%, 1/4/99......................................... $2,920 2,918,905
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,918,905)....................................... 2,918,905
------------
TOTAL INVESTMENTS--101.9%
(Identified cost $60,287,643)...................................... 70,836,958(a)
Cash and receivables, less liabilities--(1.9%)..................... (1,315,033)
------------
NET ASSETS--100.0%................................................... $ 69,521,925
------------
------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $12,979,481 and gross
depreciation of $2,474,350 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$60,331,827.
(b) Non-income producing.
(c) All or portion segregated as collateral.
See Notes to Financial Statements
64
<PAGE>
RESEARCH ENHANCED INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$60,287,643).............................................. $ 70,836,958
Receivables
Fund shares sold.......................................... 252,861
Investment securities sold................................ 169,444
Dividends and interest.................................... 71,993
Variation margin for future contracts..................... 3,424
Prepaid expenses............................................ 1,207
-------------
Total assets............................................ 71,335,887
-------------
LIABILITIES
Payables
Custodian................................................. 36,249
Investment securities purchased........................... 1,571,163
Fund shares repurchased................................... 147,283
Investment advisory fee................................... 709
Financial agent fee....................................... 7,052
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 46,446
-------------
Total liabilities....................................... 1,813,962
-------------
NET ASSETS.................................................. $ 69,521,925
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 58,737,990
Accumulated net realized gain............................. 171,670
Net unrealized appreciation............................... 10,612,265
-------------
NET ASSETS.................................................. $ 69,521,925
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 5,313,885
-------------
-------------
Net asset value and offering price per share................ $ 13.08
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 681,247
Interest.................................................. 114,175
Foreign taxes withheld.................................... (3,799)
-------------
Total investment income................................. 791,623
-------------
EXPENSES
Investment advisory fee................................... 218,150
Financial agent fee....................................... 62,025
Custodian................................................. 48,435
Professional.............................................. 21,318
Trustees.................................................. 13,949
Printing.................................................. 24,456
Miscellaneous............................................. 6,166
-------------
Total expenses.......................................... 394,499
Less expenses borne by investment adviser............... (126,575)
-------------
Net expenses............................................ 267,924
-------------
NET INVESTMENT INCOME....................................... 523,699
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 2,902,631
Net realized gain on futures contracts.................... 105,462
Net change in unrealized appreciation (depreciation) on
investments............................................. 9,780,453
-------------
NET GAIN ON INVESTMENTS..................................... 12,788,546
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 13,312,245
-------------
-------------
</TABLE>
See Notes to Financial Statements
65
<PAGE>
RESEARCH ENHANCED INDEX SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
JULY 15, 1997
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 523,699 $ 155,598
Net realized gain (loss).................................. 3,008,093 296,041
Net change in unrealized appreciation (depreciation)...... 9,780,453 831,812
-------------- --------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 13,312,245 1,283,451
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (532,936) (146,361)
Net realized gains........................................ (2,994,712) (137,752)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (3,527,648) (284,113)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (5,285,851 and 3,153,122
shares, respectively)................................... 63,644,481 31,994,673
Net asset value of shares issued from reinvestment of
distributions (271,800 and 27,107 shares,
respectively)........................................... 3,527,648 284,113
Cost of shares repurchased (3,186,084 and 237,911 shares,
respectively)........................................... (38,286,173) (2,426,752)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 28,885,956 29,852,034
-------------- --------------
NET INCREASE IN NET ASSETS................................ 38,670,553 30,851,372
NET ASSETS
Beginning of period....................................... 30,851,372 0
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $9,237, RESPECTIVELY).................. $ 69,521,925 $ 30,851,372
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
YEAR INCEPTION
ENDED 7/15/97 TO
12/31/98 12/31/97
----------- -----------
<S> <C> <C>
Net asset value, beginning of period......... $10.49 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.12(2) 0.05(2)
Net realized and unrealized gain (loss).... 3.19 0.54
----------- -----------
TOTAL FROM INVESTMENT OPERATIONS......... 3.31 0.59
----------- -----------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.12) (0.05)
Dividends from net realized gains.......... (0.60) (0.05)
----------- -----------
TOTAL DISTRIBUTIONS...................... (0.72) (0.10)
----------- -----------
CHANGE IN NET ASSET VALUE.................... 2.59 0.49
----------- -----------
NET ASSET VALUE, END OF PERIOD............... $13.08 $10.49
----------- -----------
----------- -----------
Total return................................. 31.68% 5.83%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $69,522 $30,851
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.55% 0.55%(1)
Net investment income...................... 1.08% 1.46%(1)
Portfolio turnover rate...................... 45% 9%(3)
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.03
and $0.02 per share, respectively.
(3) Not annualized.
See Notes to Financial Statements
66
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
INVESTOR PROFILE
The Fund seeks to achieve long-term capital appreciation by investing in
approximately 50 companies management considers to have the best prospects for
appreciation potential.
INVESTMENT ADVISER'S REPORT
Since the Fund's inception on March 2 through December 31, 1998, the Fund
returned 26.26% compared with a return of 18.95% for the S&P 500 Index(1) for
the same period. All performance figures assume reinvestment of distributions
and net of sales charges.
Both market trends and individual stock selections impacted absolute as well
as relative performance of the Fund. While the Fund's performance tracked
closely to the S&P 500 Index during the first half of 1998, it outperformed the
Index by 5.7% during the second half of 1998.
The Fund aggressively shifted into the technology, consumer cyclical, and
financial services sectors during the September time frame where the market
began to bottom from its summer correction. The market recovered strongly from
its lows of October, and our concentration in these groups contributed to the
outperformance of the Fund.
The sell-off or mini bear market during the summer of 1998 provided
interesting buying opportunities. We used weakness in the market to upgrade the
portfolio by concentrating on high quality growth companies that were selling at
what we felt were very depressed valuations. We took the opportunity to increase
positions and add new names in the technology and financial services sectors. We
also reduced our exposure in the consumer staples sector, which was continuing
to experience poor financial results due to weakness in their international
operations.
We remain very bullish on the outlook for the technology sector, which is
experiencing continued strong growth driven by a variety of factors. In the
communication segment, leading companies such as Lucent, Tellabs, Cisco Systems,
and MCI/WorldCom are experiencing explosive growth driven by the continued build
out of the worldwide communication infrastructure. In addition, proliferation of
the Internet and e-commerce, which allows the creation of new businesses, will
continue to be a major driver of the communication infrastructure build out. In
the semiconductor segment, the industry has begun to recover from the downturn
triggered by the aggressive capacity expansion of the mid 1990's, along with the
weakening demand in Asia.
OUTLOOK
The corporate earnings cycle of the past few years was one of the longest
and most resilient on record. However, as we enter 1999, the earnings growth
prospects for the AVERAGE S&P 500 company are expected to slow to their historic
rate in the single-digit range. This could be good news for the Nifty Fifty
Fund, which focuses on high quality growth companies whose earnings we expect to
grow much faster than those of the average company could could. The Fund had
some of its best years, both on an absolute and relative basis, when the S&P 500
Index produced negative earnings growth. Of course, past performance is no
guarantee of future results.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
67
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ENGEMANN NIFTY FIFTY
SERIES S&P 500 INDEX*
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,625.86 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- -----------------------------------------------------------------------
Engemann Nifty-Fifty Series 26.26%
- -----------------------------------------------------------------------
S&P 500 Index* 18.95%
- -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
* The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
market total return performance. The index is not available for direct
investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
COMMON STOCKS--98.7%
BANKS (MAJOR REGIONAL)--3.3%
State Street Corp..................................................... 880 $ 61,215
Wells Fargo & Co...................................................... 9,360 373,815
-----------
435,030
-----------
BEVERAGES (NON-ALCOHOLIC)--2.2%
Coca-Cola Co. (The)................................................... 3,050 203,969
PepsiCo, Inc.......................................................... 2,170 88,834
-----------
292,803
-----------
CHEMICALS (DIVERSIFIED)--0.5%
Monsanto Co........................................................... 1,380 65,550
-----------
COMMUNICATIONS EQUIPMENT--6.0%
Lucent Technologies, Inc.............................................. 4,520 497,200
Tellabs, Inc.(b)...................................................... 4,170 285,906
-----------
783,106
-----------
COMPUTERS (HARDWARE)--3.7%
Compaq Computer Corp.................................................. 6,890 288,949
Dell Computer Corp.(b)................................................ 2,770 202,729
-----------
491,678
-----------
COMPUTERS (NETWORKING)--3.6%
Cisco Systems, Inc. (b)............................................... 5,135 476,592
-----------
COMPUTERS (PERIPHERALS)--3.8%
EMC Corp. (b)......................................................... 5,910 502,350
-----------
COMPUTERS (SOFTWARE & SERVICES)--8.0%
BMC Software, Inc. (b)................................................ 6,250 278,516
Compuware Corp. (b)................................................... 1,970 153,906
Microsoft Corp. (b)................................................... 2,940 407,741
Oracle Corp. (b)...................................................... 4,780 206,137
-----------
1,046,300
-----------
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
CONSUMER FINANCE--0.5%
MBNA Corp............................................................. 2,595 $ 64,713
-----------
ELECTRICAL EQUIPMENT--3.1%
General Electric Co................................................... 3,990 407,229
-----------
ELECTRONICS (SEMICONDUCTORS)--7.0%
Intel Corp............................................................ 3,870 458,837
Texas Instruments, Inc................................................ 5,350 457,759
-----------
916,596
-----------
ENTERTAINMENT--0.9%
Walt Disney Co. (The)................................................. 3,880 116,400
-----------
FINANCIAL (DIVERSIFIED)--7.7%
American Express Co................................................... 2,300 235,175
Citigroup, Inc........................................................ 5,220 258,390
Freddie Mac........................................................... 5,830 375,671
Morgan Stanley, Dean Witter & Co...................................... 2,080 147,680
-----------
1,016,916
-----------
HEALTH CARE (DIVERSIFIED)--2.5%
American Home Products Corp........................................... 2,260 127,266
Johnson & Johnson..................................................... 2,350 197,106
-----------
324,372
-----------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--7.0%
Merck & Co., Inc...................................................... 1,960 289,467
Pfizer, Inc........................................................... 4,230 530,601
Schering-Plough Corp.................................................. 1,740 96,135
-----------
916,203
-----------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--4.2%
Medtronic, Inc........................................................ 7,520 558,360
-----------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.6%
Colgate-Palmolive Co.................................................. 2,280 211,755
-----------
</TABLE>
See Notes to Financial Statements
68
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
INSURANCE (MULTI-LINE)--2.0%
American International Group, Inc..................................... 2,665 $ 257,506
-----------
INVESTMENT BANKING/BROKERAGE--2.0%
Merrill Lynch & Co., Inc.............................................. 4,030 269,002
-----------
INVESTMENT MANAGEMENT--1.1%
Franklin Resources, Inc............................................... 3,110 99,520
Price (T. Rowe) Associates, Inc....................................... 1,400 47,950
-----------
147,470
-----------
LODGING-HOTELS--2.7%
Carnival Corp......................................................... 7,450 357,600
-----------
MANUFACTURING (DIVERSIFIED)--0.6%
United Technologies Corp.............................................. 700 76,125
-----------
PERSONAL CARE--2.4%
Gillette Co........................................................... 6,610 319,346
-----------
RESTAURANTS--2.0%
McDonald's Corp....................................................... 3,510 268,954
-----------
RETAIL (BUILDING SUPPLIES)--3.4%
Home Depot, Inc. (The)................................................ 4,520 276,568
Lowe's Companies, Inc................................................. 3,460 177,109
-----------
453,677
-----------
RETAIL (DEPARTMENT STORES)--0.6%
Kohl's Corp. (b)...................................................... 1,390 85,398
-----------
RETAIL (DRUG STORES)--1.5%
Walgreen Co........................................................... 3,300 193,256
-----------
RETAIL (GENERAL MERCHANDISE)--2.1%
Dayton Hudson Corp.................................................... 5,040 273,423
-----------
RETAIL (SPECIALTY)--1.0%
Staples, Inc. (b)..................................................... 2,880 125,820
-----------
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
SERVICES (ADVERTISING/MARKETING)--1.3%
Interpublic Group of Companies, Inc. (The)............................ 2,090 $ 166,678
-----------
SERVICES (COMMERCIAL & CONSUMER)--3.4%
Cendant Corp. (b)..................................................... 23,530 448,541
-----------
SERVICES (DATA PROCESSING)--0.5%
Automatic Data Processing, Inc........................................ 870 69,763
-----------
TELECOMMUNICATIONS (LONG DISTANCE)--4.9%
MCI WorldCom, Inc. (b)................................................ 8,890 637,858
-----------
TOBACCO--1.6%
Philip Morris Companies, Inc.......................................... 3,860 206,510
-----------
TOTAL COMMON STOCKS
(Identified cost $10,684,999)..................................................... 12,982,880
-----------
TOTAL LONG-TERM INVESTMENTS--98.7%
(Identified cost $10,684,999)..................................................... 12,982,880
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- -----------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.0%
COMMERCIAL PAPER--4.0%
Receivables Capital Corp. 5.15%, 1/4/99......... A-1+ $ 530 529,772
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $529,772)................................................. 529,772
------------
TOTAL INVESTMENTS--102.7%
(Identified cost $11,214,771).............................................. 13,512,652(a)
Cash and receivables, less liabilities--(2.7%)............................. (359,170)
------------
NET ASSETS--100.0%........................................................... $ 13,153,482
------------
------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $2,253,583 and gross
depreciation of $195,750 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$11,454,819.
(b) Non-income producing.
See Notes to Financial Statements
69
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$11,214,771).................................... $ 13,512,652
Cash.............................................. 834
Receivables
Investment securities sold...................... 43,775
Fund shares sold................................ 42,127
Dividends and interest.......................... 4,942
Prepaid expenses.................................. 201
-------------
Total assets.................................. 13,604,531
-------------
LIABILITIES
Payables
Investment securities purchased................. 401,888
Fund shares repurchased......................... 3,119
Investment advisory fee......................... 2,625
Trustees' fee................................... 5,044
Financial agent fee............................. 3,612
Accrued expenses................................ 34,761
-------------
Total liabilities............................. 451,049
-------------
NET ASSETS........................................ $ 13,153,482
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial
interest...................................... $ 11,099,730
Accumulated net realized loss................... (244,129)
Net unrealized appreciation..................... 2,297,881
-------------
NET ASSETS........................................ $ 13,153,482
-------------
-------------
Shares of beneficial interest outstanding, $1 par
value, unlimited authorization.................. 1,042,192
-------------
-------------
Net asset value and offering price per share...... $ 12.62
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 45,163
Interest.................................................. 14,709
-------------
Total investment income................................. 59,872
-------------
EXPENSES
Investment advisory fee................................... 48,195
Financial agent fee....................................... 25,042
Custodian................................................. 21,061
Professional.............................................. 13,516
Printing.................................................. 12,683
Trustees.................................................. 12,647
Miscellaneous............................................. 5,393
-------------
Total expenses.......................................... 138,537
Less expense borne by investment adviser................ (82,263)
-------------
Net expenses............................................ 56,274
-------------
NET INVESTMENT INCOME....................................... 3,598
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (244,129)
Net change in unrealized appreciation (depreciation) on
investments............................................. 2,297,881
-------------
NET GAIN ON INVESTMENTS..................................... 2,053,752
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 2,057,350
-------------
-------------
</TABLE>
See Notes to Financial Statements
70
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 3,598
Net realized gain (loss).................................. (244,129)
Net change in unrealized appreciation (depreciation)...... 2,297,881
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 2,057,350
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (3,598)
In excess of net investment income........................ (1,543)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (5,141)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,342,696 shares).......... 14,285,565
Net asset value of shares issued from reinvestment of
distributions (406 shares).............................. 5,141
Cost of shares repurchased (300,910 shares)............... (3,189,433)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 11,101,273
----------------
NET INCREASE IN NET ASSETS................................ 13,153,482
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0)........................................... $13,153,482
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.01(3)(4)
Net realized and unrealized gain (loss)................... 2.62
------------
TOTAL FROM INVESTMENT OPERATIONS........................ 2.63
------------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.01)
In excess of net investment income........................ --
------------
TOTAL DISTRIBUTIONS..................................... (0.01)
------------
CHANGE IN NET ASSET VALUE................................... 2.62
------------
NET ASSET VALUE, END OF PERIOD.............................. $12.62
------------
------------
Total return................................................ 26.26%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $13,153
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.05%(1)
Net investment income..................................... 0.07%(1)
Portfolio turnover rate..................................... 90%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
71
<PAGE>
SENECA MID-CAP GROWTH SERIES
INVESTOR PROFILE
Seneca Mid Cap Growth Series is appropriate for investors seeking long-term
capital appreciation by investing primarily in stocks of dynamic, rapidly
growing companies and focusing on strong relative earnings growth. The Fund
primarily invests in companies with small to medium size capitalizations, and
investors should note that small company investing involves added risks,
including greater price volatility, less liquidity and increased competitive
threat.
INVESTMENT ADVISER'S REPORT
Since its inception on March 2, 1998 through year-end, the Fund returned
21.75% compared with a return of 12.21% for the S&P MidCap 400 Index(1) and
(5.72)% for the Russell 2000 Growth Index(2). All performance figures assume
reinvestment of distributions and are net of sales charges.
The U.S. stock market rebounded strongly from the third quarter's economic
crisis. The S&P 500 Index was up 21.3%, the biggest quarterly gain since the
first quarter of 1987. The S&P 500 Index was up 28.8% for 1998, an unprecedented
fourth year that the market has produced a return above 20%. Corporate bonds
also recovered from their "crisis lows" as corporate profits and the interest
rate environment remained positive. During the fourth quarter, the market
broadened somewhat, and mid-capitalization stocks actually outperformed the
largest companies. However, small-capitalization stocks once again
underperformed. Technology was the real story for the quarter and the year. Huge
gains in the largest technology stocks, such as IBM and Microsoft, were eclipsed
only by the Internet craze.
Seneca's "Earnings Driven Growth" strategy performed well as we benefited
from good stock selection within the technology and financial services sectors.
Among our "best performers" in the year's fourth and best quarter were Outdoor
Systems, PMC-Sierra, and Compuware. Stocks in our portfolio continue to produce
significantly above-market earnings growth rates. Of course, past performance is
no guarantee of future results.
OUTLOOK
Though the U.S. economy is slowing, we believe earnings should continue to
grow and should produce moderate equity returns. Upside is possible via good
stock selection and potentially, equity multiple expansion if interest rates
decline further. Growth stocks should continue to excel as investors seek
companies that can deliver above-average growth in a challenging environment. We
see particular opportunity in small- and mid-capitalization stocks due to their
higher-than-market earnings growth rates and lower-than-market valuations.
However, the increased volatility we experienced in 1998 should persist into
1999, particularly if further cracks appear in the global financial structure,
and because the Y2K problem is approaching.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SENECA MID CAP GROWTH SERIES S&P 400 MIDCAP INDEX(1)
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,175.20 $11,220.92
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- ----------------------------------------------------------------------
Seneca Mid-Cap Growth Series 21.75%
- ----------------------------------------------------------------------
S&P 400 MidCap Index(1) 12.21%
- ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 400 MidCap Index is an unmanaged, commonly used measure of total
return performance of mid-capitalization companies. The Index is not
available for direct investment.
(2) The Russell 2000 Growth Index is an unmanaged, commonly used measure of
total return performance for small-capitalization companies with
above-average growth orientation. The Index is not available for direct
investment.
72
<PAGE>
SENECA MID-CAP GROWTH SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C> <C>
COMMON STOCKS--100.6%
BANKS (MAJOR REGIONAL)--8.9%
AmSouth Bancorporation.............................................. 3,950 $ 180,218
Comerica, Inc....................................................... 3,885 264,908
Northern Trust Corp................................................. 2,900 253,206
-----------
698,332
-----------
BEVERAGES (ALCOHOLIC)--2.9%
Coors (Adolph) Co. Class B.......................................... 4,050 228,572
-----------
BEVERAGES (NON-ALCOHOLIC)--2.7%
Whitman Corp........................................................ 8,270 209,851
-----------
BIOTECHNOLOGY--3.0%
Centocor, Inc. (b).................................................. 5,250 236,906
-----------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.0%
Chancellor Media Corp. (b).......................................... 5,010 239,854
-----------
COMMUNICATIONS EQUIPMENT--3.2%
Ascend Communications, Inc. (b)..................................... 3,810 250,508
-----------
COMPUTERS (SOFTWARE & SERVICES)--23.3%
America Online, Inc. (b)............................................ 1,580 252,800
BMC Software, Inc. (b).............................................. 3,320 147,948
Citrix Systems, Inc. (b)............................................ 1,750 169,859
Computer Horizons Corp. (b)......................................... 5,530 147,236
Compuware Corp. (b)................................................. 3,770 294,531
Documentum, Inc. (b)................................................ 4,270 228,178
Electronic Arts, Inc. (b)........................................... 3,080 172,865
Legato Systems. Inc. (b)............................................ 3,030 199,791
VERITAS Software Co. (b)............................................ 3,765 225,665
-----------
1,838,873
-----------
CONSUMER FINANCE--2.5%
Providian Financial Corp............................................ 2,660 199,500
-----------
ELECTRONICS (INSTRUMENTATION)--0.4%
Micron Electronics, Inc. (b)........................................ 1,620 28,046
-----------
ELECTRONICS (SEMICONDUCTORS)--8.4%
Advanced Micro Devices, Inc......................................... 6,850 198,222
Micron Technology, Inc. (b)......................................... 3,450 174,440
Xilinx, Inc. (b).................................................... 4,520 294,365
-----------
667,027
-----------
ENTERTAINMENT--3.0%
SFX Entertainment, Inc. Class A (b)................................. 4,330 237,609
-----------
HEALTH CARE (DIVERSIFIED)--6.8%
McKesson Corp....................................................... 3,130 247,466
Mylan Laboratories, Inc............................................. 9,140 287,910
-----------
535,376
-----------
HEALTH CARE (HOSPITAL MANAGMENT)--0.7%
Health Management Associates Inc. Class A (b)....................... 2,690 58,171
-----------
HEALTH CARE (LONG TERM CARE)--3.1%
Omnicare, Inc....................................................... 7,020 243,946
-----------
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C> <C>
INSURANCE (MULTI-LINE)--2.3%
Annuity and Life Re (Holdings), Ltd................................. 6,590 $ 177,930
-----------
OFFICE EQUIPMENT & SUPPLIES--3.5%
Lexmark International Group, Inc. (b)............................... 1,600 160,800
Miller (Herman), Inc................................................ 4,280 115,025
-----------
275,825
-----------
OIL (DOMESTIC INTEGRATED)--2.8%
USX-Marathon Group.................................................. 7,380 222,323
-----------
RETAIL (DISCOUNTERS)--3.4%
Dollar Tree Stores, Inc (b)......................................... 6,175 269,770
-----------
RETAIL (SPECIALTY)--3.1%
Staples, Inc. (b)................................................... 5,580 243,776
-----------
RETAIL (SPECIALTY--APPAREL)--2.8%
TJX Companies, Inc. (The)........................................... 7,710 223,590
-----------
SERVICES (ADVERTISING/MARKETING)--4.9%
Lamar Advertising Co. (b)........................................... 2,080 77,480
Outdoor Systems, Inc. (b)........................................... 10,175 305,250
-----------
382,730
-----------
SERVICES (COMPUTER SYSTEMS)--0.6%
International Network Services (b).................................. 770 51,205
-----------
SERVICES (DATA PROCESSING)--1.3%
Administaff, Inc. (b)............................................... 3,960 99,000
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--1.5%
Crown Castle International Corp. (b)................................ 5,200 122,200
-----------
WASTE MANAGEMENT--2.5%
Republic Services, Inc. Class A (b)................................. 10,850 200,047
-----------
TOTAL COMMON STOCKS
(Identified cost $6,526,227)................................................... 7,940,967
-----------
TOTAL LONG-TERM INVESTMENTS--100.6%
(Identified cost $6,526,227)................................................... 7,940,967
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--3.6%
COMMERCIAL PAPER--3.6%
Receivables Capital Corp. 5.15% 1/4/99.......... A-1+ $ 285 284,877
---------------
TOTAL SHORT-TERM OBLIGATIONS--3.6%
(Identified cost $284,877)................................................... 284,877
---------------
TOTAL INVESTMENTS--104.2%
(Identified cost $6,811,104)................................................. 8,225,844(a)
Cash and receivables, less liabilities--(4.2%)............................... (328,700)
---------------
NET ASSETS--100.0%............................................................. $ 7,897,144
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,570,230 and gross
depreciation of $163,954 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$6,819,568.
(b) Non-income producing.
See Notes to Financial Statements
73
<PAGE>
SENECA MID-CAP GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$6,811,104)..................................... $ 8,225,844
Cash.............................................. 967
Receivables
Investment securities sold...................... 299,567
Fund shares sold................................ 23,767
Interest and dividends.......................... 10,635
Prepaid expenses.................................. 126
-------------
Total assets.................................. 8,560,906
-------------
LIABILITIES
Payables
Investment securities purchased................. 616,193
Trustees' fee................................... 5,044
Financial agent fee............................. 3,491
Investment advisory fee......................... 3,451
Accrued expenses................................ 35,583
-------------
Total liabilities............................. 663,762
-------------
NET ASSETS........................................ $ 7,897,144
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial
interest...................................... $ 6,655,698
Distributions in excess of net investment
income........................................ (697)
Accumulated net realized loss................... (172,597)
Net unrealized appreciation..................... 1,414,740
-------------
NET ASSETS........................................ $ 7,897,144
-------------
-------------
Shares of beneficial interest outstanding, $1 par
value, unlimited authorization.................. 649,208
-------------
-------------
Net asset value and offering price per share...... $ 12.16
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 24,455
Dividends................................................. 22,084
Foreign taxes withheld.................................... (15)
-------------
Total investment income................................. 46,524
-------------
EXPENSES
Investment advisory fee................................... 31,013
Financial agent fee....................................... 24,059
Professional.............................................. 13,453
Trustees.................................................. 12,647
Printing.................................................. 12,434
Custodian................................................. 11,701
Miscellaneous............................................. 4,123
-------------
Total expenses.......................................... 109,430
Less expense borne by investment adviser................ (68,689)
-------------
Net expenses............................................ 40,741
-------------
NET INVESTMENT INCOME....................................... 5,783
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (172,597)
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,414,740
-------------
NET GAIN ON INVESTMENTS..................................... 1,242,143
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 1,247,926
-------------
-------------
</TABLE>
See Notes to Financial Statements
74
<PAGE>
SENECA MID-CAP GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 5,783
Net realized gain (loss).................................. (172,597)
Net change in unrealized appreciation (depreciation)...... 1,414,740
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 1,247,926
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (5,783)
In excess of net investment income........................ (697)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (6,480)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (958,184 shares)............ 9,826,161
Net asset value of shares issued from reinvestment of
distributions (557 shares).............................. 6,480
Cost of shares repurchased (309,533 shares)............... (3,176,943)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 6,655,698
----------------
NET INCREASE IN NET ASSETS................................ 7,897,144
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($697))............................ $7,897,144
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.01(3)(4)
Net realized and unrealized gain (loss)................... 2.16
------------
TOTAL FROM INVESTMENT OPERATIONS........................ 2.17
------------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.01)
In excess of net investment income........................ --
------------
TOTAL DISTRIBUTIONS..................................... (0.01)
------------
CHANGE IN NET ASSET VALUE................................... 2.16
------------
NET ASSET VALUE, END OF PERIOD.............................. $12.16
------------
------------
Total return................................................ 21.75%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $7,897
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.05%(1)
Net investment income..................................... 0.15%(1)
Portfolio turnover rate..................................... 127%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.15
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
75
<PAGE>
GROWTH AND INCOME SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking dividend growth, current
income and capital appreciation through investments in common stocks.
INVESTMENT ADVISER'S REPORT
The period from March 2, 1998, the Fund's inception date, to December 31,
1998 was an unusually strong and tumultuous period for common stocks. The S&P
500 Index(1) returned 18.95%. A Russian currency devaluation and bond default,
and the potential demise of hedge fund manager Long-Term Capital Management
resulted in a mid-summer liquidity crisis that sent stocks into a tail-spin.
Responding to the impending crisis, the Federal Open Market Committee lowered
interest rates on three separate occasions. Several European countries followed
suit and the decline in interest rates worldwide helped stock prices to rebound
to new highs in December.
From the Fund's inception (March 2) to year-end, the Fund posted a return of
20.45%, 150 basis points ahead of the S&P 500 Index. All performance figures
assume reinvestment of distributions and are net of sales charges.
The portfolio is managed using a proprietary model that ranks the 1,500
largest stocks that trade in the U.S. based on certain valuation criteria,
earnings estimate changes, earnings surprises and other measures. The portfolio
is then structured to resemble the characteristics of the S&P 500 benchmark
index.
During the period, three of our most successful stocks were: Microsoft
Corporation, Intel Corporation and AT&T Corporation. Despite its Government
lawsuit, Microsoft traded up on the strength of its new product cycle that
includes Windows 98, a new version of Windows NT due out next year, and a new
version of its database software. Microsoft also beat earnings estimates in each
of its reporting periods in calendar 1998. Intel benefited from robust demand
for personal computers. Late in the year, the company revised its expectations
for the fourth quarter because demand was stronger-than-anticipated. This
resulted in a flurry of analyst upgrades, raising earnings estimates and target
prices. AT&T stock performed well as a result of a series of earnings reports
that exceeded analysts' estimates. Under the leadership of CEO C. Michael
Armstrong, the company has positioned itself to be a viable competitor in the
global telecommunications market through mergers and alliances. Pending
acquisitions include: cable operator Tele-Communications Inc., Vanguard Cellular
and IBM's Global Network business. An alliance with British Telecommunications
PLC is viewed positively for the company's overseas growth prospects.
OUTLOOK
A recent WALL STREET JOURNAL survey of economists predicts: moderating
economic growth, declining short-term interest rates, continued low inflation
and a slight uptick in the unemployment rate. S&P 500 earnings are expected to
grow next year at a modest pace, with the strongest performance coming from the
technology, communications and consumer cyclical sectors.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
76
<PAGE>
GROWTH AND INCOME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH AND INCOME
SERIES S&P 500 INDEX*
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,045.30 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- -----------------------------------------------------------------------
Phoenix Growth and Income Series 20.45%
- -----------------------------------------------------------------------
S&P 500 Index* 18.95%
- -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
* The S&P 500 Index is an unmanaged but commonly used measure of stock market
total return performance. The index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
COMMON STOCKS--96.9%
AEROSPACE/DEFENSE--0.8%
Boeing Co. (The).................................................... 600 $ 19,575
Cordant Technologies, Inc........................................... 2,200 82,500
Gulfstream Aerospace Corp. (b)...................................... 1,300 69,225
Sundstrand Corp..................................................... 2,800 145,250
------------
316,550
------------
AIRLINES--0.8%
AMR Corp. (b)....................................................... 3,100 184,062
Alaska Air Group, Inc. (b).......................................... 400 17,700
Comair Holdings, Inc................................................ 1,300 43,875
Delta Air Lines, Inc................................................ 1,400 72,800
US Airways Group, Inc. (b).......................................... 200 10,400
------------
328,837
------------
ALUMINUM--0.8%
Aluminum Company of America......................................... 2,400 178,950
Reynolds Metals Co.................................................. 3,300 173,869
------------
352,819
------------
AUTO PARTS & EQUIPMENT--0.1%
Arvin Industries, Inc............................................... 300 12,506
Meritor Automotive.................................................. 800 16,950
------------
29,456
------------
AUTOMOBILES--2.1%
Ford Motor Co....................................................... 14,700 862,706
------------
BANKS (MAJOR REGIONAL)--6.3%
Bank One Corp....................................................... 7,574 386,747
City National Corp.................................................. 2,600 108,225
Cullen/Frost Bankers, Inc........................................... 1,500 82,312
First Union Corp.................................................... 8,200 498,662
Fleet Financial Group, Inc.......................................... 11,000 $ 491,562
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--CONTINUED
Hibernia Corp. Class A.............................................. 6,700 116,412
Mellon Bank Corp.................................................... 1,400 96,250
PNC Bank Corp....................................................... 400 21,650
SunTrust Banks, Inc................................................. 3,900 298,350
Trustmark Corp...................................................... 500 11,312
UnionBanCal Corp.................................................... 14,400 490,500
Wells Fargo & Co.................................................... 400 15,975
------------
2,617,957
------------
BANKS (MONEY CENTER)--2.1%
BankAmerica Corp.................................................... 1,600 96,200
Chase Manhattan Corp. (The)......................................... 11,200 762,300
------------
858,500
------------
BEVERAGES (ALCOHOLIC)--1.1%
Anheuser-Busch Companies, Inc....................................... 6,000 393,750
Canandaigua Brands, Inc. Class A (b)................................ 1,100 63,594
Coors (Adolph) Co. Class B.......................................... 200 11,287
------------
468,631
------------
BIOTECHNOLOGY--0.8%
Amgen, Inc. (b)..................................................... 3,300 345,056
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--0.2%
Chris-Craft Industries, Inc. (b).................................... 1,500 72,281
------------
BUILDING MATERIALS--1.3%
Centex Construction Products, Inc................................... 600 24,375
Fleetwood Enterprises, Inc.......................................... 1,700 59,075
Johns Manville Corp................................................. 1,300 21,369
Lafarge Corp........................................................ 2,700 109,350
Lennar Corp......................................................... 500 12,625
Masco Corp.......................................................... 6,100 175,375
</TABLE>
See Notes to Financial Statements
77
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BUILDING MATERIALS--CONTINUED
Owens Corning....................................................... 200 $ 7,087
Southdown, Inc...................................................... 400 23,675
Vulcan Materials Co................................................. 700 92,094
------------
525,025
------------
CHEMICALS (DIVERSIFIED)--0.5%
Goodrich Co., B.F. (The)............................................ 5,200 186,550
Polaris Industries, Inc............................................. 300 11,756
------------
198,306
------------
CHEMICALS (SPECIALTY)--0.4%
CMP Group, Inc...................................................... 3,400 64,175
Engelhard Corp...................................................... 400 7,800
International Speciality Products, Inc. (b)......................... 3,000 40,687
NL Industries, Inc.................................................. 500 7,094
Schulman (A.), Inc.................................................. 2,700 61,256
------------
181,012
------------
COMMUNICATIONS EQUIPMENT--1.7%
ECI Telecommunications Ltd.......................................... 800 28,500
Lucent Technologies, Inc............................................ 5,300 583,000
QUALCOMM, Inc. (b).................................................. 2,000 103,625
Tekelec............................................................. 800 13,250
------------
728,375
------------
COMPUTERS (HARDWARE)--4.7%
Apple Computer, Inc. (b)............................................ 3,400 139,187
Compaq Computer Corp................................................ 4,600 192,912
Dell Computer Corp. (b)............................................. 5,500 402,531
Gateway 2000, Inc. (b).............................................. 1,700 87,019
Hewlett-Packard Co.................................................. 4,100 280,081
International Business Machines Corp................................ 4,200 775,950
Sun Microsystems, Inc. (b).......................................... 900 77,062
------------
1,954,742
------------
COMPUTERS (NETWORKING)--1.3%
3Com Corp. (b)...................................................... 500 22,406
Cisco Systems, Inc. (b)............................................. 5,000 464,062
Novell, Inc......................................................... 2,500 45,312
Xircom, Inc. (b).................................................... 100 3,400
------------
535,180
------------
COMPUTERS (PERIPHERALS)--0.4%
EMC Corp. (b)....................................................... 1,800 153,000
Seagate Technology, Inc. (b)........................................ 800 24,200
------------
177,200
------------
COMPUTERS (SOFTWARE & SERVICES)--6.7%
Affiliated Computer Services, Inc. (b).............................. 500 22,500
Autodesk, Inc....................................................... 500 21,344
BMC Software, Inc. (b).............................................. 1,300 57,931
Computer Associates International, Inc.............................. 1,300 55,412
Computer Horizons Corp. (b)......................................... 1,300 34,612
Computer Sciences Corp. (b)......................................... 1,400 90,212
Compuware Corp. (b)................................................. 800 62,500
Comverse Technology, Inc. (b)....................................... 1,100 78,100
Electronic Arts, Inc. (b)........................................... 600 33,675
HBO & Co............................................................ 6,400 183,600
Mastech Corp. (b)................................................... 600 17,175
Microsoft Corp. (b)................................................. 10,200 1,414,612
NCR Corp. (b)....................................................... 3,100 129,425
Network Associates, Inc. (b)........................................ 500 33,125
Oracle Corp. (b).................................................... 5,000 215,625
Platinum Technology, Inc. (b)....................................... 500 9,562
Rational Software Corp. (b)......................................... 100 2,650
Reynolds & Reynolds Co. Class A..................................... 1,300 29,819
Siebel Systems, Inc. (b)............................................ 800 27,150
Sterling Commerce, Inc. (b)......................................... 1,400 63,000
Sterling Software, Inc. (b)......................................... 1,500 40,594
Unisys Corp. (b).................................................... 4,200 144,637
Whittman-Hart, Inc. (b)............................................. 1,200 33,150
------------
2,800,410
------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)--0.5%
Fortune Brands, Inc................................................. 4,200 132,825
Zale Corp. (b)...................................................... 1,900 $ 61,275
------------
194,100
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
CONSUMER FINANCE--0.6%
Capital One Financial Corp.......................................... 100 11,500
Countrywide Credit Industries, Inc.................................. 4,800 240,900
------------
252,400
------------
DISTRIBUTORS (FOOD & HEALTH)--0.5%
Cardinal Health, Inc................................................ 2,700 204,862
------------
ELECTRIC COMPANIES--5.9%
Ameren Electric Corp................................................ 2,400 102,450
Baltimore Gas & Electric Co......................................... 1,400 43,225
Central & South West Corp........................................... 13,700 375,894
Dominion Resources, Inc............................................. 6,400 299,200
Duke Energy Corp.................................................... 6,000 384,375
Edison International................................................ 9,700 270,387
FPL Group, Inc...................................................... 1,300 80,112
Hawaiian Electric Industries........................................ 2,100 84,525
Houston Industries, Inc............................................. 8,300 266,637
LG&E Energy Corp.................................................... 13,700 387,881
Minnesota Power, Inc................................................ 3,600 158,400
OGE Energy Corp..................................................... 700 20,300
Puget Sound Energy, Inc............................................. 300 8,362
------------
2,481,748
------------
ELECTRICAL EQUIPMENT--2.8%
Briggs & Stratton Corp.............................................. 1,400 69,825
General Electric Co................................................. 9,600 979,800
Honeywell, Inc...................................................... 1,800 135,562
------------
1,185,187
------------
ELECTRONICS (INSTRUMENTATION)--0.4%
EG&G, Inc........................................................... 4,900 136,281
General Instrument Corp. (b)........................................ 600 20,362
Smart Modular Technologies, Inc..................................... 500 13,875
------------
170,518
------------
ELECTRONICS (SEMICONDUCTORS)--2.7%
Intel Corp.......................................................... 8,600 1,019,637
Texas Instruments, Inc.............................................. 1,200 102,675
Vitesse Semiconductor Corp. (b)..................................... 300 13,687
------------
1,135,999
------------
ENGINEERING & CONSTRUCTION--0.2%
Fluor Corp.......................................................... 2,200 93,637
------------
ENTERTAINMENT--0.3%
Royal Caribbean Cruises Ltd......................................... 1,600 59,200
Viacom, Inc. Class B (b)............................................ 900 66,600
------------
125,800
------------
FINANCIAL (DIVERSIFIED)--3.6%
American General Corp............................................... 1,100 85,800
Citigroup, Inc...................................................... 4,200 207,900
Doral Financial Corp................................................ 3,700 81,862
Fannie Mae.......................................................... 9,500 703,000
Freddie Mac......................................................... 1,100 70,881
Morgan Stanley Dean Witter & Co..................................... 4,700 333,700
Old Kent Financial Corp............................................. 400 18,600
------------
1,501,743
------------
FOODS--1.0%
Earthgrains Co. (The)............................................... 1,700 52,594
Flowers Industries, Inc............................................. 900 21,544
Quaker Oats Co...................................................... 5,800 345,100
------------
419,238
------------
HEALTH CARE (DIVERSIFIED)--3.6%
Abbott Laboratories................................................. 3,200 156,800
American Home Products Corp......................................... 300 16,894
AmeriSource Health Corp. Class A (b)................................ 200 13,000
Bristol-Myers Squibb Co............................................. 2,500 334,531
Johnson & Johnson................................................... 1,900 159,362
McKesson Corp....................................................... 2,200 173,938
Mylan Laboratories, Inc............................................. 1,500 47,250
</TABLE>
See Notes to Financial Statements
78
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
HEALTH CARE (DIVERSIFIED)--CONTINUED
Warner-Lambert Co................................................... 8,300 $ 624,056
------------
1,525,831
------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.8%
Barr Laboratories, Inc. (b)......................................... 500 24,000
Biogen, Inc. (b).................................................... 300 24,900
Genentech, Inc. (b)................................................. 3,300 262,969
Lilly (Eli) & Co.................................................... 4,300 382,163
Medicis Pharmaceutical Corp. Class A (b)............................ 400 23,850
Merck & Co., Inc.................................................... 1,800 265,838
Pfizer, Inc......................................................... 2,500 313,594
Pharmacia & Upjohn, Inc............................................. 5,100 288,788
Schering-Plough Corp................................................ 7,800 430,950
------------
2,017,052
------------
HEALTH CARE (HOSPITAL MANAGEMENT)--0.4%
Pacificare Health Systems, Inc. Class B (b)......................... 2,100 166,950
------------
HEALTH CARE (LONG TERM CARE)--0.2%
Omnicare, Inc....................................................... 2,500 86,875
------------
HEALTH CARE (MANAGED CARE)--0.4%
Humana, Inc. (b).................................................... 1,100 19,594
Trigon Healthcare, Inc. (b)......................................... 1,100 41,044
United Healthcare Corp.............................................. 300 12,919
Wellpoint Health Networks, Inc. (b)................................. 1,300 113,100
------------
186,657
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--1.1%
Allegiance Corp..................................................... 1,600 74,600
Allergan, Inc....................................................... 1,700 110,075
Bausch & Lomb, Inc.................................................. 500 30,000
Bergen Brunswig Corp. Class A....................................... 2,200 76,725
Hillenbrand Industries, Inc......................................... 1,800 102,375
Mallinckrodt, Inc................................................... 600 18,488
Visx, Inc. (b)...................................................... 400 34,975
------------
447,238
------------
HEALTH CARE (SPECIALIZED SERVICES)--0.1%
Total Renal Care Holdings, Inc. (b)................................. 1,300 38,431
------------
HOMEBUILDING--0.4%
Centex Corp......................................................... 2,400 108,150
D. R. Horton, Inc................................................... 600 13,800
Kaufman & Broad Home Corp........................................... 400 11,500
Pulte Corp.......................................................... 1,600 44,500
------------
177,950
------------
HOUSEHOLD FURNITURE & APPLIANCES--0.9%
Maytag Corp......................................................... 1,400 87,150
Premark International, Inc.......................................... 5,600 193,900
Whirlpool Corp...................................................... 1,800 99,675
------------
380,725
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.0%
Church & Dwight, Inc................................................ 300 10,781
Procter & Gamble Co. (The).......................................... 4,300 392,644
------------
403,425
------------
HOUSEWARES--0.2%
Tupperware Corp..................................................... 4,500 73,969
------------
INSURANCE (LIFE/HEALTH)--1.5%
Aetna, Inc.......................................................... 1,600 125,800
Lincoln National Corp............................................... 3,900 319,069
Transamerica Corp................................................... 1,500 173,250
------------
618,119
------------
INSURANCE (MULTI-LINE)--1.3%
Ambac Financial Group, Inc.......................................... 800 48,150
American International Group, Inc................................... 500 48,313
CIGNA Corp.......................................................... 5,500 425,219
Everest Reinsurance Holdings, Inc................................... 300 11,681
HCC Insurance Holdings.............................................. 1,200 21,150
------------
554,513
------------
INSURANCE (PROPERTY-CASUALTY)--1.9%
Allstate Corp. (The)................................................ 15,700 606,413
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
INSURANCE (PROPERTY-CASUALTY)--CONTINUED
Fidelity National Financial, Inc.................................... 1,540 $ 46,970
First American Financial Corp. (The)................................ 2,200 70,675
LandAmerica Financial Group, Inc.................................... 1,000 55,813
Reliance Group Holdings, Inc........................................ 1,500 19,313
------------
799,184
------------
INSURANCE BROKERS--1.3%
Arthur J. Gallagher & Co............................................ 2,600 114,725
Marsh & McLennan Companies, Inc..................................... 7,100 414,906
------------
529,631
------------
IRON & STEEL--0.1%
Nucor Corp.......................................................... 1,400 60,550
------------
MACHINERY (DIVERSIFIED)--0.9%
Ingersoll-Rand Co................................................... 5,400 253,463
Manitowoc Co., Inc. (The)........................................... 1,000 44,375
York International Corp............................................. 1,900 77,544
------------
375,382
------------
MANUFACTURING (DIVERSIFIED)--2.8%
AlliedSignal, Inc................................................... 300 13,294
Crane Co............................................................ 2,800 84,525
McDermott International, Inc........................................ 300 7,406
Pentair, Inc........................................................ 1,700 67,681
Tredegar Industries, Inc............................................ 1,100 24,750
Tyco International Ltd.............................................. 5,200 392,275
United Technologies Corp............................................ 5,500 598,125
------------
1,188,056
------------
METALS MINING--0.1%
Placer Dome, Inc.................................................... 2,600 29,900
------------
NATURAL GAS--3.3%
El Paso Energy Corp................................................. 1,600 55,700
Enron Corp.......................................................... 1,100 62,769
K N Energy, Inc..................................................... 200 7,275
Keyspan Corp........................................................ 9,500 294,500
Sempra Energy....................................................... 17,800 451,675
Southwest Gas Corp.................................................. 7,200 193,500
UGI Corp............................................................ 800 19,000
Utilicorp United, Inc............................................... 8,200 300,838
------------
1,385,257
------------
OFFICE EQUIPMENT & SUPPLIES--0.2%
Miller (Herman), Inc................................................ 700 18,813
United Stationers, Inc. (b)......................................... 3,100 80,600
------------
99,413
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.5%
Diamond Offshore Drilling, Inc...................................... 600 14,213
Halliburton Co...................................................... 700 20,738
Schlumberger Ltd.................................................... 500 23,063
Tidewater, Inc...................................................... 2,800 64,925
Transocean Offshore, Inc............................................ 3,500 93,844
------------
216,783
------------
OIL & GAS (EXPLORATION & PRODUCTION)--0.1%
MDU Resources Group, Inc............................................ 900 23,681
------------
OIL & GAS (REFINING & MARKETING)--0.3%
Imperial Oil Ltd.................................................... 8,900 142,956
------------
OIL (DOMESTIC INTEGRATED)--0.2%
Atlantic Richfield Co............................................... 900 58,725
Coastal Corp........................................................ 400 13,975
------------
72,700
------------
OIL (INTERNATIONAL INTEGRATED)--1.0%
Exxon Corp.......................................................... 5,700 416,813
------------
PAPER & FOREST PRODUCTS--0.2%
Chesapeake Corp..................................................... 2,200 81,125
------------
PHOTOGRAPHY/IMAGING--1.5%
Eastman Kodak Co.................................................... 7,700 554,400
Xerox Corp.......................................................... 600 70,800
------------
625,200
------------
</TABLE>
See Notes to Financial Statements
79
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
PUBLISHING (NEWSPAPERS)--0.2%
Hollinger International, Inc........................................ 1,400 $ 19,513
Knight-Ridder, Inc.................................................. 1,600 81,800
------------
101,313
------------
RETAIL (BUILDING SUPPLIES)--0.9%
Home Depot, Inc. (The).............................................. 4,300 263,106
Lowe's Companies, Inc............................................... 2,100 107,494
------------
370,600
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.3%
Best Buy Co., Inc. (b).............................................. 1,800 110,475
Tandy Corp.......................................................... 400 16,475
------------
126,950
------------
RETAIL (DEPARTMENT STORES)--0.0%
Federated Department Stores, Inc. (b)............................... 200 8,713
------------
RETAIL (FOOD CHAINS)--0.2%
Supervalu, Inc...................................................... 3,500 98,000
------------
RETAIL (GENERAL MERCHANDISE)--2.6%
Dayton Hudson Corp.................................................. 700 37,975
Kmart Corp. (b)..................................................... 4,800 73,500
Loews Corp.......................................................... 1,100 108,075
Ross Stores, Inc.................................................... 1,100 43,313
Wal-Mart Stores, Inc................................................ 10,200 830,663
------------
1,093,526
------------
RETAIL (SPECIALTY-APPAREL)--0.6%
Gap, Inc. (The)..................................................... 1,950 109,688
TJX Companies, Inc. (The)........................................... 4,500 130,500
------------
240,188
------------
SAVINGS & LOAN COMPANIES--0.2%
Dime Bancorp, Inc................................................... 1,100 29,081
Golden West Financial Corp.......................................... 500 45,844
------------
74,925
------------
SERVICES (ADVERTISING/MARKETING)--0.4%
Omnicom Group, Inc.................................................. 1,300 75,400
Snyder Communications Corp., Inc. (b)............................... 2,800 94,500
------------
169,900
------------
SERVICES (COMMERCIAL & CONSUMER)--2.1%
American Management Systems, Inc. (b)............................... 1,000 40,000
Deluxe Corp......................................................... 11,000 402,188
Hertz Corp. Class A................................................. 1,500 68,438
Interim Services, Inc. (b).......................................... 700 16,363
Ogden Corp.......................................................... 7,900 197,994
Robert Half International, Inc. (b)................................. 500 22,344
Romac International, Inc. (b)....................................... 700 15,575
Sylvan Learning Systems Inc......................................... 400 12,200
Viad Corp........................................................... 3,500 106,313
------------
881,415
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.1%
AirTouch Communications, Inc. (b)................................... 500 36,063
------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.2%
AT&T Corp........................................................... 17,200 1,294,300
MCI WorldCom, Inc. (b).............................................. 500 35,875
------------
1,330,175
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
TELEPHONE--3.6%
Ameritech Corp...................................................... 2,400 $ 152,100
Bell Atlantic Corp.................................................. 5,100 289,744
BellSouth Corp...................................................... 6,600 329,175
GTE Corp............................................................ 3,600 242,775
SBC Communications, Inc............................................. 6,200 332,475
US West, Inc........................................................ 2,700 174,488
------------
1,520,757
------------
TEXTILES (APPAREL)--0.6%
Fruit of The Loom, Inc. Class A (b)................................. 1,400 19,338
Jones Apparel Group, Inc. (b)....................................... 2,000 44,125
Tommy Hilfiger Corp. (b)............................................ 1,300 78,000
V.F. Corp........................................................... 2,500 117,188
------------
258,651
------------
TOBACCO--0.9%
Philip Morris Companies, Inc........................................ 6,100 326,350
Universal Corp...................................................... 1,800 63,225
------------
389,575
------------
TRUCKS & PARTS--0.1%
PACCAR, Inc......................................................... 800 32,900
------------
TOTAL COMMON STOCKS
(Identified cost $35,661,759)................................................ 40,576,292
------------
FOREIGN COMMON STOCKS--0.8%
PERSONAL CARE--0.4%
Unilever NV NY Registered Shares (Netherlands)...................... 1,800 149,288
------------
TELEPHONE--0.4%
Northern Telecom Ltd. (Canada)...................................... 3,600 180,450
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $304,590)................................................... 329,738
------------
UNIT INVESTMENT TRUSTS--1.5%
S&P 500 Depository Receipts......................................... 5,200 639,600
------------
TOTAL UNIT INVESTMENT TRUSTS
(Identified cost $533,589)................................................... 639,600
------------
TOTAL LONG-TERM INVESTMENTS--99.2%
(Identified cost $36,499,938)................................................ 41,545,630
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- ------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--2.4%
COMMERCIAL PAPER--2.4%
Receivables Capital Corp. 5.15%, 1/4/99......... A-1+ $ 980 979,579
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $979,579)................................................... 979,579
---------------
TOTAL INVESTMENTS--101.6%
(Identified cost $37,479,517)................................................ 42,525,209(a)
Cash and receivables, less liabilities--(1.6%)............................... (665,060)
---------------
NET ASSETS--100.0%............................................................. $ 41,860,149
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $5,759,197 and gross
depreciation of $794,280 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$37,560,292.
(b) Non-income producing.
See Notes to Financial Statements
80
<PAGE>
GROWTH AND INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$37,479,517).............................................. $ 42,525,209
Cash........................................................ 636
Receivables
Fund shares sold.......................................... 146,427
Investment securities sold................................ 82,215
Dividends and interest.................................... 53,339
Prepaid expenses............................................ 669
-------------
Total assets............................................ 42,808,495
-------------
LIABILITIES
Payables
Investment securities purchased........................... 866,058
Fund shares repurchased................................... 25,159
Investment advisory fee................................... 4,017
Financial agent fee....................................... 5,975
Trustees' fee............................................. 5,044
Accrued expenses............................................ 42,093
-------------
Total liabilities....................................... 948,346
-------------
NET ASSETS.................................................. $ 41,860,149
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... 37,248,956
Distribution in excess of net investment income........... (4,389)
Accumulated net realized loss............................. (430,110)
Net unrealized appreciation............................... 5,045,692
-------------
NET ASSETS.................................................. $ 41,860,149
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 3,490,294
-------------
-------------
Net asset value and offering price per share................ $ 11.99
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 264,843
Interest.................................................. 28,154
-------------
Total investment income................................. 292,997
-------------
EXPENSES
Investment advisory fee................................... 109,232
Financial agent fee....................................... 33,806
Custodian................................................. 38,249
Professional.............................................. 13,865
Printing.................................................. 13,069
Trustees.................................................. 12,657
Miscellaneous............................................. 8,434
-------------
Total expenses.......................................... 229,312
Less expenses borne by investment adviser............... (96,206)
-------------
Net expenses............................................ 133,106
-------------
NET INVESTMENT INCOME....................................... 159,891
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (437,760)
Net realized gains on written options..................... 7,393
Net change in unrealized appreciation (depreciation) on
investments............................................. 5,045,692
-------------
NET GAIN ON INVESTMENTS..................................... 4,615,325
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 4,775,216
-------------
-------------
</TABLE>
See Notes to Financial Statements
81
<PAGE>
GROWTH AND INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 159,891
Net realized gain (loss).................................. (430,367)
Net change in unrealized appreciation (depreciation)...... 5,045,692
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 4,775,216
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (159,891)
In excess of net investment income........................ (4,132)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (164,023)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (4,102,319 shares).......... 43,754,814
Net asset value of shares issued from reinvestment of
distributions (14,099 shares)........................... 164,023
Cost of shares repurchased (626,124 shares)............... (6,669,881)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 37,248,956
----------------
NET INCREASE IN NET ASSETS................................ 41,860,149
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($4,389)).......................... $41,860,149
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of period......... $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.05(3)
Net realized and unrealized gain (loss).... 1.99
-------
TOTAL FROM INVESTMENT OPERATIONS......... 2.04
-------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.05)
In excess of net investment income......... --
-------
TOTAL DISTRIBUTIONS...................... (0.05)
-------
CHANGE IN NET ASSET VALUE.................... 1.99
-------
NET ASSET VALUE, END OF PERIOD............... $11.99
-------
-------
Total return................................. 20.45%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $41,860
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.85%(1)
Net investment income...................... 1.02%(1)
Portfolio turnover rate...................... 81%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.05
per share.
See Notes to Financial Statements
82
<PAGE>
VALUE EQUITY SERIES
INVESTOR PROFILE
Phoenix Value Equity Series is appropriate for investors seeking long-term
capital appreciation.
INVESTMENT ADVISER'S REPORT
Since its inception on March 2 through December 31, 1998, the Fund returned
10.79% compared with a return of 18.95% for the S&P 500 Index(1) for the same
period. All performance figures assume reinvestment of distributions and are net
of sales charges.
After months of unprecedented volatility, the U.S. stock market ended 1998
with the S&P 500 Index posting double-digit gains for the fourth year in a row.
However, this broad measure of stock market performance does not reflect the
wide disparity in performance of large versus small stocks or growth versus
value. While the S&P 500 showed impressive gains, the Russell 2000 Index(2), a
measure of small stocks, was down (2.55)% for the year. And, 1998 can be
characterized as the year when value stocks were left behind as investors sought
growth and liquidity at almost any price. The S&P 500 Barra Growth Index(3) rose
42.1% for the year, but the S&P Barra Value Index(4) lagged substantially and
returned only 13.8% for the 12 months ended December 31, 1998.
Fund performance was held back as we maintained our investment discipline,
focusing on heavily discounted, low-expectation stocks that reflect our strong
value bias. For example, we continued to overweight the financial sector, which
underperformed significantly as investors reacted to events in Asia and Brazil.
Individual stocks also held back performance. Philip Morris came under pressure
once again, and Allied Signal's tender offer for UTI negatively affected the
stock's price. Some of the Fund's strong performers included Emulex, IBM,
Compaq, Dayton-Hudson and Sun Microsystems.
OUTLOOK
We will continue to follow our disciplined, classic value approach. The
Fund's primary positions will remain attractively valued holdings in technology,
banks and financial institutions with global franchises, telecommunications and
retailers that we believe possess recession-resistant characteristics.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE EQUITY SERIES S&P 500 INDEX(1)
<S> <C> <C>
03/02/1998 $10,000.00 $10,000.00
12/31/1998 $11,079.20 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- ----------------------------------------------------------------------
Phoenix Value Equity Series 10.79%
- ----------------------------------------------------------------------
S&P 500 Index(1) 18.95%
- ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
(2) The Russell 2000 Index is an unmanaged, commonly used measure of performance
of small stocks. The Index is not available for direct investment.
(3) The S&P 500 Barra Growth Index is an unmanaged, commonly used measure of
large-cap, growth-oriented companies. The Index is not available for direct
investment.
(4) The S&P 500 Barra Value Index is an unmanaged, commonly used measure of
large-cap, value-oriented stocks. The Index is not available for direct
investment.
83
<PAGE>
VALUE EQUITY SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
COMMON STOCKS--84.5%
AEROSPACE/DEFENSE--0.3%
Boeing Co. (The).................................................... 1,000 $ 32,625
-----------
BANKS (MAJOR REGIONAL)--1.9%
Bank One Corp....................................................... 2,000 102,125
Wells Fargo & Co.................................................... 2,000 79,875
-----------
182,000
-----------
BANKS (MONEY CENTER)--4.4%
BankAmerica Corp.................................................... 3,200 192,400
Chase Manhattan Corp. (The)......................................... 3,300 224,606
-----------
417,006
-----------
BEVERAGES (ALCOHOLIC)--1.4%
Anheuser-Busch Companies, Inc....................................... 2,000 131,250
-----------
BIOTECHNOLOGY--1.1%
Cell Genesys, Inc. (b).............................................. 18,000 108,000
-----------
COMMUNICATIONS EQUIPMENT--2.9%
Motorola, Inc....................................................... 3,000 183,187
Terayon Communications Systems, Inc. (b)............................ 2,500 92,500
-----------
275,687
-----------
COMPUTERS (HARDWARE)--8.8%
Compaq Computer Corp................................................ 4,800 201,300
Data General Corp. (b).............................................. 8,000 131,500
International Business Machines Corp................................ 1,100 203,225
Sun Microsystems, Inc. (b).......................................... 3,500 299,687
-----------
835,712
-----------
COMPUTERS (NETWORKING)--2.5%
Emulex Corp. (b).................................................... 6,000 240,000
-----------
COMPUTERS (PERIPHERALS)--1.2%
Hutchinson Technology, Inc. (b)..................................... 1,500 53,437
Maxtor Corp. (b).................................................... 4,000 56,000
-----------
109,437
-----------
COMPUTERS (SOFTWARE & SERVICES)--0.8%
Black Box Corp. (b)................................................. 2,000 75,750
-----------
CONSUMER FINANCE--0.6%
Countrywide Credit Industries, Inc.................................. 1,200 60,225
-----------
ELECTRICAL EQUIPMENT--1.6%
Honeywell, Inc...................................................... 2,000 150,625
-----------
ELECTRONICS (COMPONENT DISTRIBUTORS)--0.9%
CHS Electronics, Inc. (b)........................................... 5,000 84,687
-----------
ELECTRONICS (DEFENSE)--0.6%
Raytheon Co. Class B (b)............................................ 1,000 53,250
-----------
ELECTRONICS (SEMICONDUCTORS)--3.6%
Advanced Micro Devices, Inc. (b).................................... 1,500 43,406
Dallas Semiconductor Corp........................................... 3,000 122,250
Intel Corp.......................................................... 1,500 177,844
-----------
343,500
-----------
ENTERTAINMENT--2.3%
Royal Caribbean Cruises Ltd......................................... 3,300 122,100
Walt Disney Co. (The)............................................... 3,300 99,000
-----------
221,100
-----------
FINANCIAL (DIVERSIFIED)--10.9%
American Express Co................................................. 1,400 143,150
Citigroup, Inc...................................................... 4,000 198,000
Fannie Mae.......................................................... 3,000 222,000
Freddie Mac......................................................... 3,000 193,312
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
FINANCIAL (DIVERSIFIED)--CONTINUED
SLM Holding Corp.................................................... 5,800 $ 278,400
-----------
1,034,862
-----------
HEALTH CARE (DIVERSIFIED)--1.3%
Bristol-Myers Squibb Co............................................. 250 33,453
Johnson & Johnson................................................... 1,100 92,262
-----------
125,715
-----------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--1.9%
Lilly (Eli) & Co.................................................... 2,000 177,750
-----------
HEALTH CARE (MANAGED CARE)--1.2%
Foundation Health Systems, Inc Class A (b).......................... 4,200 50,137
Humana, Inc. (b).................................................... 3,500 62,344
-----------
112,481
-----------
INSURANCE (MULTI-LINE)--4.4%
Ambac Financial Group, Inc.......................................... 1,300 78,244
American International Group, Inc................................... 3,000 289,875
CIGNA Corp.......................................................... 700 54,119
-----------
422,238
-----------
INVESTMENT BANKING/BROKERAGE--1.2%
Merrill Lynch & Co., Inc............................................ 1,700 113,475
-----------
LEISURE TIME (PRODUCTS)--0.5%
Mattel, Inc......................................................... 2,200 50,187
-----------
MANUFACTURING (DIVERSIFIED)--1.3%
AlliedSignal, Inc................................................... 1,500 66,469
Illinios Tool Works, Inc............................................ 1,000 58,000
-----------
124,469
-----------
MANUFACTURING (SPECIALIZED)--2.9%
Diebold, Inc........................................................ 7,700 274,794
-----------
OFFICE EQUIPMENT & SUPPLIES--1.9%
Pitney Bowes, Inc................................................... 2,800 184,975
-----------
RAILROADS--0.7%
Union Pacific Corp.................................................. 1,500 67,594
-----------
REITS--1.8%
LaSalle Hotel Properties............................................ 7,500 77,813
Sunstone Hotel Investors, Inc....................................... 10,000 94,375
-----------
172,188
-----------
RESTAURANTS--1.8%
McDonald's Corp..................................................... 2,300 176,238
-----------
RETAIL (GENERAL MERCHANDISE)--1.3%
Dayton Hudson Corp.................................................. 2,200 119,350
-----------
RETAIL (SPECIALTY)--1.4%
Claire's Stores, Inc................................................ 4,400 90,200
Talbots, Inc. (The)................................................. 1,500 47,063
-----------
137,263
-----------
SAVINGS & LOAN COMPANIES--0.7%
Washington Mutual, Inc.............................................. 1,700 64,919
-----------
SERVICES (COMMERCIAL & CONSUMER)--0.6%
C-Cube Microsystems, Inc. (b)....................................... 2,000 54,250
-----------
SERVICES (DATA PROCESSING)--0.9%
First Data Corp..................................................... 2,700 85,556
-----------
SPECIALTY PRINTING--1.0%
World Color Press, Inc. (b)......................................... 3,000 91,313
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--1.2%
Iridium World Communications Ltd. Class A (b)....................... 3,000 118,688
-----------
</TABLE>
See Notes to Financial Statements
84
<PAGE>
VALUE EQUITY SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)--5.2%
AT&T Corp........................................................... 3,300 $ 248,325
MCI WorldCom, Inc. (b).............................................. 3,500 251,125
-----------
499,450
-----------
TELEPHONE--3.3%
BellSouth Corp...................................................... 2,600 129,675
GTE Corp............................................................ 2,000 134,875
SBC Communications, Inc............................................. 1,000 53,625
-----------
318,175
-----------
TEXTILES (APPAREL)--0.3%
Supreme International Corp. (b)..................................... 2,000 24,000
-----------
TOBACCO--1.9%
Philip Morris Companies, Inc........................................ 3,400 181,900
-----------
TOTAL COMMON STOCKS
(Identified cost $7,090,148)................................................ 8,052,684
-----------
FOREIGN COMMON STOCKS--2.4%
PERSONAL CARE--1.7%
Unilever NV NY Registered Shares (Netherlands)...................... 2,000 165,875
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.2%
Telesp Celular Participacoes SA ADR (Brazil) (b).................... 1,100 19,250
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)--0.3%
Embratel Participacoes SA ADR (Brazil) (b).......................... 1,800 $ 25,087
-----------
TELEPHONE--0.2%
Telesp Participacoes SA ADR (Brazil) (b)............................ 900 19,913
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $228,084).................................................. 230,125
-----------
UNIT INVESTMENT TRUSTS--13.4%
AMEX Consumer Staples Select Sector Depository Receipts.............
7,000 190,094
AMEX Financial Select Sector Depository Receipts.................... 12,100 283,594
AMEX Technology Select Sector Depository Receipts................... 11,600 378,450
S&P 500 Depository Receipts......................................... 3,500 430,500
-----------
1,282,638
-----------
TOTAL UNIT INVESTMENT TRUSTS
(Identified cost $1,250,626)................................................ 1,282,638
-----------
TOTAL INVESTMENTS--100.3%
(Identified cost $8,568,858)................................................ 9,565,447(a)
Cash and receivables, less liabilities--(0.3%).............................. (32,460)
-----------
NET ASSETS--100.0%............................................................ $ 9,532,987
-----------
-----------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,283,776 and gross
depreciation of $293,727 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$8,575,398.
(b) Non-income producing.
See Notes to Financial Statements
85
<PAGE>
VALUE EQUITY SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
8,568,858)................................................ $ 9,565,447
Cash........................................................ 5,034
Receivables
Dividends and interest.................................... 10,545
Investment securities sold................................ 8,964
Prepaid expenses............................................ 155
-------------
Total assets............................................ 9,590,145
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 778
Investment advisory fee................................... 17,482
Trustees' fee............................................. 5,000
Financial agent fee....................................... 2,228
Accrued expenses............................................ 31,670
-------------
Total liabilities....................................... 57,158
-------------
NET ASSETS.................................................. $ 9,532,987
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... 8,647,424
Distribution in excess of net investment income........... (388)
Accumulated net realized loss............................. (110,638)
Net unrealized appreciation............................... 996,589
-------------
NET ASSETS.................................................. $ 9,532,987
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 864,222
-------------
-------------
Net asset value and offering price per share................ $ 11.03
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 62,512
Interest.................................................. 13,297
Foreign taxes withheld.................................... (705)
---------
Total investment income................................. 75,104
---------
EXPENSES
Investment advisory fee................................... 30,941
Financial agent fee....................................... 23,130
Professional.............................................. 13,521
Trustees.................................................. 12,602
Printing.................................................. 12,129
Custodian................................................. 11,840
Miscellaneous............................................. 4,965
---------
Total expenses.......................................... 109,128
Less expense borne by investment adviser................ (71,521)
---------
Net expenses............................................ 37,607
---------
NET INVESTMENT INCOME....................................... 37,497
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (110,638)
Net change in unrealized appreciation (depreciation) on
investments............................................. 996,589
---------
NET GAIN ON INVESTMENTS..................................... 885,951
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 923,448
---------
---------
</TABLE>
See Notes to Financial Statements
86
<PAGE>
VALUE EQUITY SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 37,497
Net realized gain (loss).................................. (110,638)
Net change in unrealized appreciation (depreciation)...... 996,589
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 923,448
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (37,497)
In excess of net investment income........................ (388)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (37,885)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (990,498 shares)............ 9,960,882
Net asset value of shares issued from reinvestment of
distributions (3,586 shares)............................ 37,885
Cost of shares repurchased (129,862 shares)............... (1,351,343)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 8,647,424
----------------
NET INCREASE IN NET ASSETS................................ 9,532,987
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($388))............................ $9,532,987
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of
period............................ $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.05(3)
Net realized and unrealized gain
(loss).......................... 1.03
-------
TOTAL FROM INVESTMENT
OPERATIONS..................... 1.08
-------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.05)
In excess of net investment
income.......................... --
-------
TOTAL DISTRIBUTIONS............. (0.05)
-------
CHANGE IN NET ASSET VALUE........... 1.03
-------
NET ASSET VALUE, END OF PERIOD...... $11.03
-------
-------
Total return........................ 10.79%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $9,533
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.85%(1)
Net investment income............. 0.85%(1)
Portfolio turnover rate............. 77%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share.
See Notes to Financial Statements
87
<PAGE>
SCHAFER MID-CAP VALUE SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital
appreciation. Investors should note that the Fund may invest in
mid-capitalization stocks, which may involve greater risks, including greater
price volatility, less liquidity and increased competition.
INVESTMENT ADVISER'S REPORT
From the Fund's inception on March 2 through December 31, 1998, the Fund
returned (11.37)% compared with a return of 18.95% for the S&P 500 Index.(1) All
performance figures assume reinvestment of distributions and are net of sales
charges.
The market's strong performance, as measured by the S&P 500's 28.76% return
for the year, masked an important split in the market. Investors pursued safety
in well-known, large-cap companies, while selling small- and mid-cap stocks as
global events raised investors' concerns. Our investment discipline led us to
continue to buy more mid-cap stocks and sell large-cap as we continued to see
their valuations rise. During the reporting period, we sold Progressive Corp.,
Northern Trust and SBC Communications. These positions were replaced with
mid-cap stocks, with price-to-earnings ratios well below market levels.
Not only do these mid-cap stocks trade more cheaply than their large-cap
counterparts, but they also typically have better near-term earnings growth
prospects coupled with less exposure to foreign economies than most large-cap
companies. Unfortunately, thus far, low valuations have not led to
outperformance. It is possible that struggling foreign economies may not worsen,
but it could be a long time before things really start improving for many of the
involved countries and the companies doing business there. For this reason, we
sold Cummins Engine and Asia Pulp & Paper, both companies with significant sales
to Asia.
OUTLOOK
Looking forward, we think the market will continue to react in a volatile
manner to economic news. We also believe the long-running neglect of mid- and
small-cap stocks by investors may soon begin to reverse. We are positioned very
well, in our opinion, to take advantage of such a change in investor sentiment
should it begin.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHAEFER MID-CAP VALUE SERIES S&P 500 INDEX(1)
<S> <C> <C>
03/02/1998 $10,000.00 $10,000.00
12/31/1998 $8,862.77 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- ----------------------------------------------------------------------
Schafer Mid-Cap Value Series (11.37 )%
- ----------------------------------------------------------------------
S&P 500 Index(1) 18.95%
- ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
88
<PAGE>
SCHAFER MID CAP VALUE SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
COMMON STOCKS--81.5%
AIR FREIGHT--3.6%
FDX Corp.(b)........................................................ 3,200 $ 284,800
-----------
AUTO PARTS & EQUIPMENT--2.7%
Borg-Warner Automotive, Inc......................................... 3,800 212,087
-----------
AUTOMOBILES--2.2%
Ford Motor Co....................................................... 3,000 176,062
-----------
BANKS (MAJOR REGIONAL)--4.9%
Mellon Bank Corp.................................................... 2,800 192,500
Summit Bancorp...................................................... 4,500 196,594
-----------
389,094
-----------
BANKS (MONEY CENTER)--5.0%
BankAmerica Corp.................................................... 2,800 168,350
Chase Manhattan Corp. (The)......................................... 3,300 224,606
-----------
392,956
-----------
BUILDING MATERIALS--9.1%
Armstrong World Industries, Inc..................................... 3,100 186,969
Lafarge Corp........................................................ 5,100 206,550
Owens Corning....................................................... 4,100 145,294
Southdown, Inc...................................................... 3,000 177,562
-----------
716,375
-----------
COMPUTERS (PERIPHERALS)--2.7%
Storage Technology Corp.(b)......................................... 5,900 209,819
-----------
ELECTRICAL EQUIPMENT--2.1%
Harman International Industries, Inc................................ 4,400 167,750
-----------
ELECTRONICS (COMPONENT DISTRIBUTORS)--6.9%
Arrow Electronics, Inc.(b).......................................... 11,100 296,231
Avnet, Inc.......................................................... 4,100 248,050
-----------
544,281
-----------
FOODS--2.6%
IBP, Inc............................................................ 7,100 206,788
-----------
HOMEBUILDING--3.1%
Champion Enterprises, Inc.(b)....................................... 9,000 246,375
-----------
INSURANCE (MULTI-LINE)--4.8%
Berkley (W.R.) Corp................................................. 5,500 187,344
Old Republic International Corp..................................... 8,500 191,250
-----------
378,594
-----------
INVESTMENT BANKING/BROKERAGE--5.9%
Merrill Lynch & Co., Inc............................................ 3,800 253,650
Paine Webber Group, Inc............................................. 5,400 208,575
-----------
462,225
-----------
IRON & STEEL--2.2%
UCAR International, Inc.(b)......................................... 9,600 171,000
-----------
METALS MINING--2.5%
Cleveland-Cliffs, Inc............................................... 4,800 193,500
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)--4.6%
Diamond Offshore Drilling, Inc...................................... 8,400 $ 198,975
R&B Falcon Corp.(b)................................................. 21,800 166,225
-----------
365,200
-----------
OIL & GAS (REFINING & MARKETING)--2.2%
Sunoco, Inc......................................................... 4,800 173,100
-----------
OIL (DOMESTIC INTEGRATED)--2.2%
Phillips Petroleum Co............................................... 4,100 174,763
-----------
RAILROADS--5.0%
Burlington Northern Santa Fe Corp................................... 5,400 182,250
Kansas City Southern Industries, Inc................................ 4,400 216,425
-----------
398,675
-----------
RETAIL (SPECIALTY)--2.4%
Jo-Ann Stores, Inc. Class A(b)...................................... 11,700 188,663
-----------
SERVICES (COMMERCIAL & CONSUMER)--2.1%
Western Resources, Inc.............................................. 5,000 166,250
-----------
TELEPHONE--2.7%
GTE Corp............................................................ 3,200 215,800
-----------
TOTAL COMMON STOCKS
(Identified cost $6,477,092)................................................ 6,434,157
-----------
FOREIGN COMMON STOCKS--18.3%
AIRLINES--2.6%
KLM Royal Dutch Airlines NV NY Registered Shares (Netherlands)......
6,900 207,000
-----------
BANKS (MAJOR REGIONAL)--2.3%
National Bank of Canada (Canada).................................... 11,400 184,110
-----------
HOUSEHOLD FURNITURE & APPLIANCES--2.5%
Koninklijke (Royal) Philips Electronics NV NY Registered Shares
(Netherlands)..................................................... 2,900 196,294
-----------
INSURANCE (MULTI-LINE)--2.2%
PartnerRe Ltd. (Bermuda)............................................ 3,800 173,850
-----------
MACHINERY (DIVERSIFIED)--2.3%
New Holland NV (Netherlands)........................................ 13,500 184,781
-----------
METALS MINING--1.5%
Inco Ltd. (Canada).................................................. 10,900 115,131
-----------
OIL & GAS (EXPLORATION & PRODUCTION)--4.9%
Petroleum Geo-Services Sponsored ADR (Norway)(b).................... 13,300 209,475
Repsol SA Sponsored ADR (Spain)..................................... 3,200 174,800
-----------
384,275
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,674,963)................................................ 1,445,441
-----------
TOTAL INVESTMENTS--99.8%
(Identified cost $8,152,055)................................................ 7,879,598(a)
Cash and receivables, less liabilities--0.2%................................ 15,994
-----------
NET ASSETS--100.0%............................................................ $ 7,895,592
-----------
-----------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $737,204 and gross
depreciation of $1,009,661 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$8,152,055.
(b) Non-income producing.
See Notes to Financial Statements
89
<PAGE>
SCHAFER MID-CAP VALUE SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$8,152,055)............................................... $7,879,598
Cash........................................................ 82,965
Receivables
Dividends and interest.................................... 8,606
Prepaid expenses............................................ 141
----------
Total assets............................................ 7,971,310
----------
LIABILITIES
Payables
Fund shares repurchased................................... 7,980
Investment advisory fee................................... 25,669
Trustees' fee............................................. 5,044
Financial agent fee....................................... 3,725
Accrued expenses.......................................... 33,300
----------
Total liabilities....................................... 75,718
----------
NET ASSETS.................................................. $7,895,592
----------
----------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $8,509,731
Distributions in excess of net investment income.......... (118)
Accumulated net realized loss............................. (341,564)
Net unrealized depreciation............................... (272,457)
----------
NET ASSETS.................................................. $7,895,592
----------
----------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 893,567
----------
----------
Net asset value and offering price per share................ $ 8.84
-----
-----
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 69,321
Interest.................................................. 8,433
Foreign taxes withheld.................................... (1,356)
----------
Total investment income................................. 76,398
----------
EXPENSES
Investment advisory fee................................... 46,644
Financial agent fee....................................... 24,098
Professional.............................................. 13,507
Trustees.................................................. 12,647
Printing.................................................. 12,041
Custodian................................................. 9,623
Miscellaneous............................................. 4,758
----------
Total expenses.......................................... 123,318
Less expenses borne by investment adviser............... (69,977)
----------
Net expenses............................................ 53,341
----------
NET INVESTMENT INCOME....................................... 23,057
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (341,564)
Net change in unrealized appreciation (depreciation) on
investments............................................. (272,457)
----------
NET LOSS ON INVESTMENTS..................................... (614,021)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (590,964)
----------
----------
</TABLE>
See Notes to Financial Statements
90
<PAGE>
SCHAFER MID-CAP VALUE SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998
TO
DECEMBER 31,
1998
--------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 23,057
Net realized gain (loss).................................. (341,564)
Net change in unrealized appreciation (depreciation)...... (272,457)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... (590,964)
--------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (23,057)
In excess of net investment income........................ (118)
--------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (23,175)
--------------
FROM SHARE TRANSACTIONS
CLASS A
Proceeds from sales of shares (1,051,036 shares).......... 9,921,823
Net asset value of shares issued from reinvestment of
distributions (2,696 shares)............................ 23,175
Cost of shares repurchased (160,165 shares)............... (1,435,267)
--------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 8,509,731
--------------
NET INCREASE IN NET ASSETS................................ 7,895,592
NET ASSETS
Beginning of period....................................... 0
--------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($118))............................ $ 7,895,592
--------------
--------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.03(3)(4)
Net realized and unrealized gain (loss)................... (1.16)
-------
TOTAL FROM INVESTMENT OPERATIONS........................ (1.13)
-------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.03)
In excess of net investment income........................ --
-------
TOTAL DISTRIBUTIONS..................................... (0.03)
-------
CHANGE IN NET ASSET VALUE................................... (1.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 8.84
-------
-------
Total return................................................ (11.37)%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $ 7,896
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.20%(1)
Net investment income..................................... 0.52%(1)
Portfolio turnover rate..................................... 21%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.11
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
91
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--ORGANIZATION
The Phoenix Edge Series 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 management investment company. The Fund is comprised
of the Money Market, Growth, Multi-Sector Fixed Income, Strategic Allocation,
International, Balanced, Real Estate Securities ("Real Estate"), Strategic
Theme, Aberdeen New Asia, Research Enhanced Index ("Enhanced Index"),
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity
and Schafer Mid-Cap Value Series. The Fund was established as part of the
December 8, 1986 reorganization of the Phoenix Home Life Variable
Accumulation Account (the "Account") from a management investment company to
a unit investment trust under the Investment Company Act of 1940. The Fund is
organized with Series which are available only to the the subaccounts of the
Phoenix Home Life Variable Accumulation Account, Phoenix Home Life Variable
Universal Life Account, PHL Variable Accumulation Account, Phoenix Life and
Annuity Variable Universal Life Account, and Phoenix Home Life Separate
Accounts B, C, and D.
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term
growth of capital, with income as a secondary consideration. The Multi-Sector
Fixed Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks to realize as high a level of total
rate of return over an extended period of time as is considered consistent
with prudent investment risk by investing in three market segments; stocks,
bonds and money market instruments. The International Series seeks as its
investment objective a high total return consistent with reasonable risk by
investing primarily in an internationally diversified portfolio of equity
securities. The Balanced Series seeks to provide reasonable income, long-term
growth and conservation of capital. The Real Estate Series seeks to achieve
capital appreciation and income with approximately equal emphasis through
investments in real estate investment trusts and companies that operate,
manage, develop or invest in real estate. The Strategic Theme Series seeks
long-term appreciation of capital by investing in securities that the adviser
believes are well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide. The Aberdeen New Asia
Series seeks to provide long-term capital appreciation by investing primarily
in diversified equity securities of issuers organized and principally
operating in Asia, excluding Japan. The Enhanced Index Series seeks high
total return by investing in a broadly diversified portfolio of equity
securities of large and medium capitalization companies within market sectors
reflected in the Standard & Poor's 500 Composite Stock Price Index. The
Engemann Nifty Fifty Series seeks to achieve long-term capital appreciation
investing in approximately 50 different securities which offer the potential
for long term growth of capital. The Seneca Mid-Cap Growth Series seeks
capital appreciation primarily through investments in equity securities of
companies that have the potential for above average market appreciation. The
Growth and Income Series seeks as its investment objective, dividend growth,
current income and capital appreciation by investing in common stocks. The
Value Equity Series seeks to achieve long-term capital appreciation and
income by investing in a diversified portfolio of common stocks which meet
certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Value
Series seeks to achieve long-term capital appreciation with current income as
the secondary investment objective by investing in common stocks of
established companies having a strong financial position and a low stock
market valuation at the time of purchase which are believed to offer the
possibility of increase in value.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
A. SECURITY VALUATION
Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the basis
of broker quotations or valuations provided by a pricing service which
utilizes information with respect to recent sales, market transactions in
comparable securities, quotations from dealers, and various relationships
between securities in determining value. Short-term investments having a
remaining maturity of 60 days or less are valued at amortized cost which
approximates market. All other securities and assets are valued at their fair
value as determined in good faith by or under the direction of the Trustees.
The Money Market Series uses the amortized cost method of security valuation
which, in the opinion of the Trustees, represents the fair value of the
particular security. The Trustees monitor the deviations between the Series'
net asset value per share as determined by using available market quotations
and its amortized cost per share. If the deviation exceeds 1/2 of 1%, the
Board of Trustees will consider what action, if any, should be initiated to
provide fair valuation. The Series attempts to maintain a constant net asset
value of $10 per share.
On September 1, 1998, the Central Bank of Malaysia, announced measures that
significantly restrict the rights of non-residents with respect to
transactions in Malaysian securities with the intention to insulate Malaysia
from the problems confronting the international financial markets.
92
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Beginning September 1, 1998 the Malaysian government fixed the exchange rate
of its currency, the Ringgit, at 3.80 Ringgit equal to US$1.00 and adopted
stringent controls over currency and stock trading which had the effect of
forcing all offshore holdings of Malaysian currency and securities back into
the country. In addition, the government suspended foreign investors' ability
to convert proceeds from the sale of Malaysian securities into foreign
currency for one year from the date of initial purchase, with repatriation of
the proceeds from the sale of all securities held at September 1, 1998
prohibited for one year. As a result of the imposition of the above
restrictions over currency and stock trading, the Fund's Board of Trustees
have deemed all holdings of the Fund in Malaysian securities as illiquid and
have fair valued holdings in such securities using an exchange rate of 4.56
Ringgit equal to US$1.00. At December 31, 1998, investments in Malaysia for
the International Series aggregating $522,764 (0.2% of net assets) and for
the Aberdeen New Asia Series aggregating $546,904 (5.75% of net assets) have
been fair valued in good faith by, or under the direction of, the Fund's
Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified. The Fund does not amortize premiums except for the Money Market
Series, but does amortize discounts using the effective interest method.
Realized gains and losses are determined on the identified cost basis.
C. INCOME TAXES
Each of the Series is treated as a separate taxable entity. It is the policy
of each Series to comply with the requirements of the Internal Revenue Code,
applicable to regulated investment companies, and to distribute all of its
taxable income to its shareholders. In addition, each Series intends to
distribute an amount sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision for federal income taxes or
excise taxes has been made.
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions are recorded by each Series on the ex-dividend date and all
distributions are reinvested into the Fund. Income and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences
include the treatment of non-taxable dividends, expiring capital loss
carryforwards, foreign currency gain/loss, partnerships, and losses deferred
due to wash sales and excise tax regulations. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid in capital.
E. FOREIGN CURRENCY TRANSLATION
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement dates of a portfolio transaction is
treated as a gain or loss on foreign currency. Likewise, the gain or loss
resulting from a change in currency exchange rates between the date income is
accrued and paid is treated as a gain or loss on foreign currency. The Fund
does not separate that portion of the results of operations arising from
changes in exchange rates and that portion arising from changes in the market
prices of securities.
F. FORWARD CURRENCY CONTRACTS
Each Series may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to
varying degrees, elements of market risk in excess of the amount recognized
in the statement of assets and liabilities. Risks arise from the possible
movements in foreign exchange rates or if the counterparty does not perform
under the contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded directly between currency traders
and their customers. The contract is marked-to-market daily and the change in
market value is recorded by the Series as an unrealized gain (or loss). When
the contract is closed or offset with the same counterparty, the Series
records a realized gain (or loss) equal to the change in the value of the
contract when it was opened and the value at the time it was closed or
offset.
G. FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Series may enter into financial
futures contracts as a hedge against anticipated changes in the market value
of their portfolio securities. Upon entering into a futures contract, the
Series is required to pledge to the broker an amount of cash and/or
securities equal to the "initial margin" requirements of the futures exchange
on which the contract is traded. Pursuant to the contract, the Series agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known
as variation margins and are recorded by the Series as unrealized gains or
losses. When the contract is closed, the Series records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The potential risk to the
Series is that the change in value of the futures contract may not correspond
to the change in value of the hedged instruments.
93
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
H. OPTIONS
The Multi-Sector Fixed Income, Money Market, Growth, Strategic Allocation,
Balanced, International, Strategic Theme, Enhanced Index, Seneca Mid-Cap
Growth, Growth and Income, Value Equity and Aberdeen New Asia Series may
write covered options or purchase options contracts for the purpose of
hedging against changes in the market value of the underlying securities or
foreign currencies.
Each Series will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported
separately in the Statement of Operations. When a written option is
exercised, the proceeds on sales or amounts paid are adjusted by the amount
of premium received. Options written are reported as a liability in the
Statement of Assets and Liabilities and subsequently marked-to-market to
reflect the current value of the option. The risk associated with written
options is that the change in value of options contracts may not correspond
to the change in value of the hedged instruments. In addition, losses may
arise from changes in the value of the underlying instruments, or if a liquid
secondary market does not exist for the contracts.
Each Series may purchase options which are included in the Series' Schedule
of Investments and subsequently marked-to-market to reflect the current value
of the option. When a purchased option is exercised, the cost of the security
is adjusted by the amount of premium paid. The risk associated with purchased
options is limited to the premium paid.
I. EXPENSES
Expenses incurred by the Fund with respect to any two or more Series are
allocated in proportion to the net assets of each Series, except where
allocation of direct expense to each Series or an alternative allocation
method can be more fairly made.
J. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Series may engage in when-issued or delayed delivery transactions. The
Series record when-issued securities on the trade date and maintain
collateral for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis begin earning interest on the
settlement date.
K. REPURCHASE AGREEMENTS
A repurchase agreement is a transaction where a Series acquires a security
for cash and obtains a simultaneous commitment from the seller to repurchase
the security at an agreed upon price and date. The Series, through its
custodian, takes possession of securities collateralizing the repurchase
agreement. The collateral is marked to market daily to ensure that the market
value of the underlying assets remains sufficient to protect the Series in
the event of default by the seller. If the seller defaults and the value of
the collateral declines or, if the seller enters insolvency proceedings,
realization of collateral may be delayed or limited.
NOTE 3--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
As compensation for advisory services to the Fund, the Advisers are entitled
to a fee, based upon the following annual rates as a percentage of the
average daily net assets of each separate Series listed below:
<TABLE>
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
SERIES $250 MILLION $250 MILLION OVER $500 MILLION
- -------------------------------------------------- -------------- ------------- ------------------
<S> <C> <C> <C>
Money Market...................................... 0.40% 0.35% 0.30%
Growth............................................ 0.70 0.65 0.60
Multi-Sector Fixed Income......................... 0.50 0.45 0.40
Strategic Allocation.............................. 0.60 0.55 0.50
International..................................... 0.75 0.70 0.65
Balanced.......................................... 0.55 0.50 0.45
Strategic Theme................................... 0.75 0.70 0.65
Aberdeen New Asia................................. 1.00 1.00 1.00
Enhanced Index.................................... 0.45 0.45 0.45
Engemann Nifty Fifty.............................. 0.90 0.85 0.80
Seneca Mid-Cap Growth............................. 0.80 0.80 0.80
Growth and Income................................. 0.70 0.65 0.60
Value Equity...................................... 0.70 0.65 0.60
Schafer Mid-Cap Value............................. 1.05 1.05 1.05
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
$1 BILLION $1 BILLION OVER $2 BILLION
-------------- ------------- ------------------
<S> <C> <C> <C>
Real Estate....................................... 0.75 0.70 0.65
</TABLE>
94
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Phoenix Investment Council ("PIC") is adviser to each Series except the Real
Estate Series and Aberdeen New Asia Series. Pursuant to a subadvisory
agreement with the Fund, PIC delegates certain investment decisions and
research functions with respect to the following series to the subadvisor
indicated, for which services each is paid a fee by PIC.
<TABLE>
<S> <C>
Enhanced Index Series.................................... J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
Engemann Nifty Fifty Series.............................. Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Growth Series............................. Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Value Series............................. Schafer Capital Management, Inc. ("Schafer")
</TABLE>
In accordance with the subadvisory agreement between the Fund and J.P.
Morgan, J.P. Morgan is paid a monthly fee at the annual rate of 0.25% of the
average aggregate daily net asset values of the Enhanced Index Series up to
$100 million; and 0.20% of such value in excess of $100 million. Pursuant to
the subadvisory agreement with the Fund and Engemann, Engemann is paid a
monthly fee at the annual rate of .45% of the average aggregate daily net
asset values of the Engemann Nifty Fifty Series up to $250,000,000, .425% of
such values between $250,000,000 and $500,000,000 and .40% of such values in
excess of $500,000.000. Pursuant to the subadvisory agreement with the Fund
and Seneca, Seneca is paid a monthly fee at the annual rate of .40% of the
average aggregate daily net asset values of the Seneca Mid-Cap Growth Series.
In accordance with the subadvisory agreement with the Fund and Schafer,
Schafer is paid a monthly fee at the annual rate of .85% of the average
aggregate daily net asset values of the Schafer Mid-Cap Value Series up to
$175 million and .80% of such value in excess of $175 million.
Effective November 24, 1998, Aberdeen Fund Managers, Inc. ("Aberdeen") was
appointed subadvisor to the International Series. For its services, Aberdeen
is paid a fee by the Advisers equal to 0.375% of the average daily net assets
of the International Series up to $250 million, 0.35% of such value between
$250 million to $500 million and 0.325% of such value in excess of $500
million. Aberdeen is a subsidiary of Aberdeen Asset Management PLC, of which
PHL owns approximately 11%.
The investment adviser for the Real Estate Series through March 2, 1998 was
Phoenix Realty Securities, Inc. ("PRS"). PRS is an indirect, wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"). For its
services, PRS was entitled to a fee at an annual rate of 0.75% of the average
daily net assets for the first $1 billion. Pursuant to a subadvisory
agreement with the Series, PRS delegates certain investment decisions and
research functions to Duff & Phelps Investment Management Co. ("DPIM"), a
subsidiary of Phoenix Investment Partners, Ltd. ("PXP"). PXP is a majority
owned subsidiary of PHL. On March 2, 1998 DPIM purchased the management
rights for the Real Estate Series from PRS and PRS' contract was assigned to
DPIM. For its services, DPIM is entitled to a fee at an annual rate of 0.75%
of the average daily net assets for the first $1 billion, 0.70% on the next
$1 billion and 0.65% thereafter.
Phoenix-Aberdeen International Advisors, LLC ("PAIA") serves as the
investment adviser to the Aberdeen New Asia Series. PAIA is a joint venture
between PM Holdings, Inc., a direct subsidiary of PHL, and Aberdeen Fund
Managers, Inc. ("Aberdeen"), a wholly-owned subsidiary of Aberdeen Asset
Management PLC. PAIA is entitled to a fee, at an annual rate of 1.00% of the
average daily net assets of the Aberdeen New Asia Series. Pursuant to
subadvisory agreements, PAIA delegates certain investment decisions and
functions to other entities. PIC receives a fee of 0.30% of the average daily
net assets of the Aberdeen New Asia Series from PAIA for providing research
and other domestic advisory services, as needed. In addition, PAIA also pays
a subadvisory fee to Aberdeen of 0.40% of the average daily net assets of the
Aberdeen New Asia Series for implementing certain portfolio transactions and
providing research and other services.
Each Series (except the International, Real Estate, Strategic Theme, Aberdeen
New Asia, Enhanced Index and Seneca Mid-Cap Series) pays a portion or all of
its other operating expenses (not including management fee, interest, taxes,
brokerage fees and commissions), up to 0.15% of its average net assets. The
International, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced
Index and Seneca Mid-Cap Series pay other operating expenses up to 0.40%,
0.25%, 0.25%, 0.25%, 0.10% and .25% respectively, of its average net assets.
Expenses above these limits are paid by the Advisers (PIC, DPIM, PAIA), PHL
and/or PHL Variable Insurance Company.
As Financial Agent to the Fund and to each Series, Phoenix Equity Planning
Corporation ("PEPCO"), an indirect majority-owned subsidiary of PHL, received
a fee at an annual rate of 0.06% of the average daily net assets of each
Series through May 31, 1998 for bookkeeping, administrative and pricing
services.
Effective June 1, 1998, PEPCO receives a financial agent fee equal to the sum
of (1) the documented cost of fund accounting and related services provided
by PFPC, Inc. (subagent to PEPCO), plus (2) the documented cost to PEPCO to
provide financial reporting, tax services and oversight of subagent's
performance. The current fee schedule of PFPC, Inc. ranges from 0.085% to
0.0125% of the average daily net asset values of the Fund. Certain minimum
fees and fee waivers may apply.
95
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
At December 31, 1998, PHL and affiliates held shares in The Phoenix Edge
Series Fund which had the following aggregate value:
<TABLE>
<S> <C>
Real Estate Series............................... $ 3,313,172
Aberdeen New Asia Series......................... 1,885,989
Engemann Nifty Fifty Series...................... 2,499,272
Seneca Mid-Cap Growth Series..................... 2,388,100
Growth and Income Series......................... 2,384,514
Value Equity Series.............................. 2,197,472
Schafer Mid-Cap Value Series..................... 1,754,054
</TABLE>
NOTE 4--PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities during the period ended December 31, 1998
(excluding U.S. Government securities, short-term securities, options written
and forward currency contracts) aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth Series.......................... $1,623,280,248 $1,619,706,351
Multi-Sector Fixed Income Series....... 233,895,415 197,086,009
Strategic Allocation Series............ 529,142,388 502,610,192
International Series................... 202,357,792 214,439,616
Balanced Series........................ 282,447,552 258,900,399
Real Estate Series..................... 7,732,285 9,846,099
Strategic Theme Series................. 195,397,197 185,996,003
Aberdeen New Asia Series............... 4,993,427 3,959,516
Research Enhanced Index Series......... 46,318,196 20,947,863
Engemann Nifty Fifty Series............ 17,010,118 6,080,962
Seneca Mid-Cap Growth Series........... 12,295,627 5,596,788
Growth and Income Series............... 53,386,812 16,444,743
Value Equity Series.................... 12,958,808 4,279,319
Schafer Mid-Cap Value Series........... 9,669,802 834,650
</TABLE>
There were no purchases or sales of such securities in the Money Market
Series.
Purchases and sales of long-term U.S. Government securities during the period
ended December 31, 1998 aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Multi-Sector Fixed Income Series..... $91,713,764 $110,151,084
Strategic Allocation Series.......... 24,650,801 51,883,816
Balanced Series...................... 59,109,060 56,841,567
</TABLE>
There were no purchases or sales of long-term U.S. Government Securities in
the Money Market, Growth, International, Real Estate, Strategic Theme,
Aberdeen New Asia, Enhanced Index, Engemann Nifty-Fifty, Seneca Mid-Cap
Growth, Growth and Income, Value Equity and Schafer Mid-Cap Value Series.
Written call option activity for the year ended December 31, 1998 aggregated
the following:
<TABLE>
<CAPTION>
GROWTH AND INCOME
SERIES
-------------------
AMOUNT
# OF OF
OPTIONS PREMIUMS
-------- --------
<S> <C> <C>
Options outstanding at December 31,
1997............................... -- $ --
Options written...................... 70 11,727
Options canceled in closing purchase
transactions....................... -- --
Options expired...................... (48) (7,393)
Options exercised.................... (22) (4,334)
--
--------
Options outstanding at December 31,
1998............................... -- --
--
--
--------
--------
</TABLE>
At December 31, 1998, the Enhanced Index Series had entered into futures
contracts as follows:
<TABLE>
<CAPTION>
VALUE OF
NUMBER CONTRACTS MARKET NET
OF WHEN VALUE OF UNREALIZED
DESCRIPTION CONTRACTS OPENED CONTRACTS APPRECIATION
----------------------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Standard & Poor's 500 Index.............. 2 $ 578,475 $ 622,750 $44,275
Standard & Poor's 500 Index.............. 1 298,575 311,375 12,800
Standard & Poor's 500 Index.............. 1 305,500 311,375 5,875
--- ---------- ---------- ------------
4 $1,182,550 $1,245,500 $62,950
--- ---------- ---------- ------------
--- ---------- ---------- ------------
</TABLE>
96
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 5--CREDIT RISK
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such
investments may be volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the market
prices of these investments and the income they generate, as well as a fund's
ability to repatriate such amounts.
NOTE 6--LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in amounts
owed by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive payments
of principal, interest and any fees to which it is entitled only from the
lender selling the loan agreement and only upon receipt by the lender of
payments from the borrower. The Fund generally has no right to enforce
compliance with the terms of the loan agreement with the borrower. As a
result, the Fund may be subject to the credit risk of both the borrower and
the lender that is selling the loan agreement. When the Fund purchases
assignments from lenders it acquires direct rights against the borrower on
the loan. Direct indebtedness of emerging countries involves a risk that the
government entities responsible for the repayment of the debt may be unable,
or unwilling to pay the principal and interest when due.
NOTE 7--CAPITAL LOSS CARRYOVERS
At December 31, 1998, the following Series have capital loss carryforwards
which may be used to offset future capital gains.
<TABLE>
<S> <C>
Multi-Sector Fixed Income Series....... $ 566,989
Real Estate Series..................... 113,500
Aberdeen New Asia Series............... 2,887,698
Engemann Nifty Fifty Series............ 4,085
Seneca Mid-Cap Growth Series........... 164,133
Growth and Income Series............... 349,419
Value Equity Series.................... 104,098
Schafer Mid-Cap Value Series........... 285,733
</TABLE>
Capital loss carryforwards expire in 2006 for all Series except for Aberdeen
New Asia Series which expires as follows: $143,419 in 2005 and $2,744,279 in
2006.
Under current tax law, capital and foreign currency losses realized after
October 31, 1998 may be deferred and treated as occurring on the first day of
the following tax year. For the calendar year ended December 31, 1998 the
Aberdeen New Asia Series, Multi-Sector Fixed Income Series, and Schafer
Mid-Cap Growth Series elected to defer losses occurring between November 1,
1998 and December 31, 1998 in the amount of $496,277, $5,850,282, and
$55,831, respectively. In addition, the International Series, Aberdeen New
Asia Series, Growth Series and Strategic Theme Series were able to utilize
losses deferred in the prior year in the amount of $761,290, $379,802, $1,144
and $1,280,577, respectively.
NOTE 8--RECLASS OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Series have recorded
several reclassifications in the capital accounts. These reclassifications
have no impact on the net asset value of the Series and are designed
generally to present undistributed net investment income and realized gains
on a tax basis which is considered to be more informative to the shareholder.
As of December 31, 1998, the Series recorded the following reclassifications
to increase (decrease) the accounts listed below:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET CAPITAL PAID IN ON
NET INVESTMENT REALIZED SHARE OF BENEFICIAL
INCOME (LOSS) GAIN (LOSS) INTEREST
-------------- ----------- -------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income Series.................. $ 185,299 $ (20,925) $(164,374)
Strategic Allocation Series....................... 3,389 (3,389) --
International Series.............................. 1,020,757 (1,020,757) --
Balanced Series................................... 7,308 (7,308) --
Strategic Theme Series............................ 5,345 (5,345) --
Aberdeen New Asia Series.......................... 98,695 (98,695) --
Engemann Nifty-Fifty Series....................... 1,543 -- (1,543)
Growth and Income Series.......................... (257) 257 --
</TABLE>
97
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For the fiscal year ended December 31, 1998, the following Series
distributed long-term capital gain dividends as follows:
<TABLE>
<CAPTION>
TOTAL LONG-TERM
DISTRIBUTIONS
---------------
<S> <C>
Growth Series..................................... $29,385,512
Multi-Sector Fixed Income Series.................. 788,837
Strategic Allocation Series....................... 562,474
International Series.............................. 22,045,574
Balanced Series................................... 3,589,015
Real Estate Securities Series..................... 26,597
Research Enhanced Index Series.................... 620,322
</TABLE>
This report is not authorized for distribution to prospective investors in The
Phoenix Edge Series Fund unless preceded or accompanied by and effective
Prospectus which includes information concerning the sales charges, Fund's
record and other
pertinent information.
98
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO]
TO THE SHAREHOLDERS AND TRUSTEES OF
THE PHOENIX EDGE SERIES FUND
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for bond ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Money Market Series, Growth Series, Multi-Sector Fixed Income Series,
Strategic Allocation Series, International Series, Balanced Series, Real Estate
Securities Series, Strategic Theme Series, Aberdeen New Asia Series, Research
Enhanced Index Series, Engemann Nifty Fifty Series, Seneca Mid-Cap Growth
Series, Growth and Income Series, Value Equity Series, and Schafer Mid-Cap Value
Series (constituting the Phoenix Edge Series Fund, hereafter referred to as the
"Fund") at December 31, 1998, and the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 1999
<PAGE>
RESULTS OF SHAREHOLDER MEETING (UNAUDITED)
MEETING 1: A special meeting of Shareholders of the Phoenix Aberdeen New Asia
Series of The Phoenix Edge Series Fund was held on October 21, 1998 to approve
the following matters:
1. Approval of an advisory agreement with Phoenix-Aberdeen International
Advisors LLC.
2. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.
3. Approval of a subadvisory agreement with Phoenix Investment Counsel, Inc.
On the record date for this meeting there were 1,542,936 shares outstanding
and 100% of the shares outstanding and entitled to vote were present by proxy.
NUMBER OF VOTES
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. Approval of investment advisory agreement 1,331,496 84,905 126,535
2. Approval of investment subadvisory agreement 1,326,736 85,559 130,641
3. Approval of investment subadvisory agreement 1,339,160 78,984 124,792
</TABLE>
MEETING 2: A special meeting of Shareholders of the Phoenix Edge Series Fund was
held on November 24, 1998 to approve the following matters:
1. Fix the number of trustees at twelve and elect such number as detailed below.
2. Ratify selection of PricewaterhouseCoopers LLP, independent accountants, as
auditors for the fiscal year ending
December 31, 1998.
3. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.
(International Series only)
On the record date for this meeting, for the Phoenix Edge Series Fund, there
were 195,708,457 shares outstanding and 100% of the shares outstanding and
entitled to vote were present by proxy. For the International Series, there were
13,164,334 shares outstanding and 100% of the shares outstanding and entitled to
vote were present by proxy.
NUMBER OF VOTES:
<TABLE>
<CAPTION>
FOR WITHHELD
------------- ----------
<S> <C> <C> <C>
1. Election of Trustees
Robert Chesek 187,977,973 7,703,484
E. Virgil Conway 187,762,694 7,945,763
Harry Dalzell-Payne 187,684,410 8,024,047
Francis E. Jeffries 187,938,831 7,769,626
Leroy Keith, Jr. 188,134,540 7,573,917
Philip R. McLoughlin 188,173,681 7,534,776
Everett L. Morris 187,938,831 7,769,626
James M. Oates 188,154,111 7,554,346
Calvin J. Pedersen 188,173,681 7,534,776
Herbert Roth, Jr. 187,860,548 7,847,909
Richard E. Segerson 188,154,111 7,554,346
Lowell P. Weicker, Jr. 187,136,427 8,572,030
FOR AGAINST ABSTAIN
------------- ---------- ----------
2. PricewaterhouseCoopers LLP 188,545,527 1,741,805 5,421,124
FOR AGAINST ABSTAIN
------------- ---------- ----------
3. Approval of investment subadvisory agreement 11,596,462 667,432 900,400
</TABLE>
<PAGE>
THE PHOENIX EDGE SERIES FUND
101 Munson Street
Greenfield, Massachusetts 01301
BOARD OF TRUSTEES
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
OFFICERS
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
John F. Sharry, Executive Vice President
J. Roger Engemann, Senior Vice President
David K. Schafer, Senior Vice President
Gail P. Seneca, Senior Vice President
James D. Wehr, Senior Vice President
Hugh Young, Senior Vice President
David L. Albrycht, Vice President
Christian C. Bertelsen, Vice President
Steven L. Colton, Vice President
Timothy Devlin, Vice President
Ron K. Jacks, Vice President
John D. Kattar, Vice President
Christopher J. Kelleher, Vice President
Richard D. Little, Vice President
James E. Mair, Vice President
William R. Moyer, Vice President
Leonard J. Saltiel, Vice President
Julie L. Sapia, Vice President
Michael Schatt, Vice President
John S. Tilson, Vice President
Pierre G. Trinque, Vice President
James Wiess, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
Duff & Phelps Investment Management Co.
(Real Estate Securities Series)
55 East Monroe Street
Chicago, Illinois 60603
Phoenix-Aberdeen International Advisors, LLC
(Aberdeen New Asia Series)
56 Prospect Street
Hartford, Connecticut 06115-0480
CUSTODIANS
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(Aberdeen New Asia Series and International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
<PAGE>
[LOGO] PRINTED ON RECYCLED PAPER USING A SOYBASED INK.
Phoenix Home Life Mutual Insurance Company
Statutory Home Office: East Greenbush, New York
http://www.phl.com
[LOGO] PHOENIX
OL2531A -C-1998 Phoenix Home Life Mutual Insurance Company
700.04
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NUMBER> 01
<NAME> MONEY MARKET SERIES
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 195136
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<RECEIVABLES> 2976
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198143
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<DISTRIBUTIONS-OF-INCOME> (7055)
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<NUMBER-OF-SHARES-SOLD> 47209
<NUMBER-OF-SHARES-REDEEMED> (40894)
<SHARES-REINVESTED> 705
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<GROSS-EXPENSE> 781
<AVERAGE-NET-ASSETS> 141345
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.50)
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<PERIOD-END> DEC-31-1998
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<NET-CHANGE-FROM-OPS> 439278
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<DISTRIBUTIONS-OF-INCOME> (2092)
<DISTRIBUTIONS-OF-GAINS> (67565)
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<NUMBER-OF-SHARES-SOLD> 14662
<NUMBER-OF-SHARES-REDEEMED> (17964)
<SHARES-REINVESTED> 3143
<NET-CHANGE-IN-ASSETS> 370728
<ACCUMULATED-NII-PRIOR> 875
<ACCUMULATED-GAINS-PRIOR> 49107
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<GROSS-EXPENSE> 11264
<AVERAGE-NET-ASSETS> 1628043
<PER-SHARE-NAV-BEGIN> 19.16
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 5.65
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.88)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.93
<EXPENSE-RATIO> .69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
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<NUMBER> 03
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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<NAME> THE PHOENIX EDGE SERIES FUND
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