Registration Nos. 33-11182
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811-4969
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 16 [ X ]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19 [ X ]
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VARIABLE INVESTORS SERIES TRUST (Exact Name of Registrant as
specified in charter )
10 Post Office Square - 12th Floor
Boston, Massachusetts
02109
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 457-6700
Arnold R. Bergman
Secretary
Variable Investors Series Trust
10 Post Office Square - 12th Floor
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a) (1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to the Investment Company
Act Rule 24f-2 and the Rule 24f-2 Notice for Registrant's fiscal year 1995 was
filed on February 26, 1996.
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VARIABLE INVESTORS SERIES TRUST
CROSS REFERENCE SHEET
(as required by Rule 404(c))
<TABLE>
<CAPTION>
Item No. in
Form N-1A Location
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PART A
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<S> <C> <C>
Item 1. Cover Page.................................Cover Page
Item 2. Synopsis ..................................Summary
Item 3. Condensed Financial Information............The Trust's Financial History; Financial
...........................................Highlights
Item 4. General Description of Registrant..........Cover Page; The Trust; Investment
...........................................Objectives and Policies of the
...........................................Portfolios; Policies and Techniques
...........................................Applicable to All Portfolios;
...........................................Additional Information
Item 5. Management of the Fund.....................Management of the Trust;
...........................................Additional Information
Item 6. Capital Stock and Other Securities.........Sales and Redemptions; Net
...........................................Asset Value; Tax Status, Dividends
...........................................and Distributions; Additional
...........................................Information
Item 7. Purchase of Securities Being Offered.......The Trust; Net Asset Value; Sales
and ...........................................Redemptions
Item 8. Redemption or Repurchase...................Sales and Redemptions; Net Asset
...........................................Value
Item 9. Pending Legal Proceedings..................Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B
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<S> <C> <C>
Item 10. Cover Page..........................................Cover Page
Item 11. Table of Contents...................................Cover Page
Item 12. General Information and History.....................Not Applicable
Item 13. Investment Objectives and Policies..................Investment Objectives and Policies
....................................................of the Trust; Investment Restrictions;
....................................................Portfolio Turnover
Item 14. Management of the Fund..............................Management of the Trust
Item 15. Control Persons and Principal Holders of Securities.Management of the Trust
Item 16. Investment Advisory and Other Services..............Management of the Trust;
....................................................Independent Auditors; Custodian
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PART B
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Item 17. Brokerage Allocation................................Management of the Trust
(Brokerage and Research Services)
Item 18. Capital Stock and Other Securities..................Sales and Redemptions; Net Asset Value;
....................................................Tax Status, Dividends and
....................................................Distributions; Organization and
....................................................Capitalization; Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered......................Determination of Net Asset
....................................................Value; Sales and Redemptions
Item 20. Tax Status..........................................Taxes; Dividends and Distributions
Item 21. Underwriters........................................Not Applicable
Item 22. Calculations of Yield Quotations of Money Market Performance Information
Funds
Item 23. Financial Statements................................Financial Statements
</TABLE>
PART C
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Information required to included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PART A
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VARIABLE INVESTORS SERIES TRUST
PROSPECTUS
May 1,1996
Table of Contents
Summary
The Trust
The Trust's Financial History
Investment Objectives and Policies of the Portfolios
Policies and Techniques Applicable to All Portfolios
Management of the Trust
Sales and Redemptions
Net Asset Value
Performance Information
Tax Status, Dividends, and Distributions
Additional Information
Variable Investors Series Trust (the "Trust") is an open-end, series
management investment company which currently offers shares of beneficial
interest of nine series (the "Portfolios"), each of which represents the entire
interest in a separate portfolio of investments. The Portfolios are: the Cash
Management Portfolio, the U.S. Government Bond Portfolio, the High Income Bond
Portfolio, the Multiple Strategies Portfolio, the Tilt Utility Portfolio
(formerly the Equity Income Portfolio), the Common Stock Portfolio, the World
Equity Portfolio, the Small Cap Portfolio and the Growth & Income Portfolio.
This Prospectus sets forth concisely the information about the Trust
that a prospective investor should know before purchasing shares of the Trust
through certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. Please read it carefully and
retain it for future reference. A Statement of Additional Information dated May
1, 1996 is available without charge upon request and may be obtained by calling
First Variable Advisory Services Corp. at (800) 228-1035. The Statement of
Additional Information, which is incorporated by reference into this Prospectus,
has been filed with the Securities and Exchange Commission. The mailing address
of the Trust is 10 Post Office Square, Boston, Massachusetts 02109.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
An investment in the Cash Management Portfolio is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the Cash
Management Portfolio will be able to maintain a stable net asset value of $1.00
per share. The High Income Bond Portfolio invests primarily in high yield,
higher-risk securities and therefore may not be suitable for all investors.
SHARES OF THE PORTFOLIOS ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING VARIABLE LIFE
INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.
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SUMMARY
The Trust
The Trust is an open-end series management investment company which is
currently offering shares of nine Portfolios, each of which has distinct
investment objectives and policies. See Investment Objectives and Policies of
the Portfolios. Additional Portfolios may be added to the Trust in the future.
This Prospectus will be supplemented to reflect the addition of new Portfolios.
The investment objectives and policies of each Portfolio may, unless otherwise
specifically stated, be changed by the Board of Trustees of the Trust without a
vote of the shareholders.
Investment Adviser and Sub-Advisers
Subject to the authority of the Board of Trustees of the Trust, First
Variable Advisory Services Corp. ("Adviser") serves as the Trust's investment
adviser and has responsibility for the overall management of the investment
strategies and policies of the Portfolios. Adviser has engaged Sub-Advisers for
each Portfolio to make investment decisions and place orders. The Sub-Advisers
for the Portfolios are:
Portfolio Sub-Adviser
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Cash Management Portfolio Federated Investment Counseling
High Income Bond Portfolio Federated Investment Counseling
Multiple Strategies Portfolio Value Line, Inc.
Common Stock Portfolio Value Line, Inc.
U.S Government Bond Portfolio Strong Capital Management, Inc.
Tilt Utility Portfolio State Street Global Advisors, a division of
State Street Bank and Trust Company
World Equity Portfolio Keystone Investment Management Co.
Small Cap Portfolio Pilgrim Baxter & Associates, Ltd.
Growth & Income Portfolio Warburg, Pincus Counsellors, Inc.
Prior to April 1, 1994, INVESCO Capital Management, Inc. had acted as
investment adviser to all Portfolios of the Trust.
For additional information concerning the Adviser and the Sub-Advisers,
including a description of advisory and sub-advisory fees, see Management of the
Trust.
The Portfolios
Cash Management Portfolio. The Cash Management Portfolio seeks to preserve
shareholder capital, to maintain liquidity, and to achieve maximum income
consistent with the foregoing objectives by investing exclusively in a
diversified portfolio of short-term money market securities. Although the
Portfolio seeks to maintain a net asset value of $1.00 per share for purposes of
purchases and redemptions, there can be no assurance that the net asset value
will not vary.
U.S. Government Bond Portfolio. The U.S. Government Bond Portfolio
seeks current income and preservation of capital through investment primarily in
securities issued or guaranteed as to principal and interest by the U.S.
Government or by its agencies, authorities, or instrumentalities.
High Income Bond Portfolio. The High Income Bond Portfolio seeks to obtain as
high a level of current income as is believed to be consistent with prudent
investment management. As a secondary objective, the High Income Bond Portfolio
seeks capital appreciation when consistent with its primary objective. The
Portfolio seeks to achieve its investment objectives by investing primarily in
fixed-income securities rated lower than A. Many of the high yield securities in
which the Portfolio may invest are commonly referred to as "junk bonds". For
special risks involved with investing in such securities (including, among
others, risks of default and illiquidity) see Investment Objectives and Policies
of the Portfolios-High Income Bond Portfolio.
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Multiple Strategies Portfolio. The Multiple Strategies Portfolio seeks to
achieve as high a level of total return over an extended period of time as the
Adviser and Sub-Adviser consider consistent with prudent investment risk. Total
return consists of current income including dividends, interest, and discount
accruals, plus capital appreciation, less capital depreciation. The Multiple
Strategies Portfolio will invest in equity securities, bonds, and money market
instruments in varying proportions, depending upon the Sub-Adviser's assessment
of prevailing economic conditions and conditions in the financial markets.
Tilt Utility Portfolio. The investment objective of the Tilt Utility
Portfolio is capital appreciation and current income. The Portfolio will seek to
achieve its investment objective by investing in a diversified portfolio of
common stock and income securities issued by companies engaged in the utilities
industry ("Utility Securities"). Companies engaged in the utilities industry
include those engaged in the production, transmission, or distribution of
electric energy, gas, telecommunications services or the provision of other
utility or utility related goods or services. Under normal market conditions, at
least 80% of the Portfolio's assets will be invested in Utility Securities and
up to 20% of its assets may be invested in other than Utility Securities,
including common stock and income securities of issuers not engaged in the
utilities industry, cash and money market instruments. (Until April 1, 1994, the
Tilt Utility Portfolio was known as the Equity Income Portfolio and had a
different investment objective).
Common Stock Portfolio. The Common Stock Portfolio seeks capital growth by
investing primarily in a diversified portfolio of common stocks and securities
convertible into or exchangeable for common stock, including convertible
preferred stock, convertible debentures, warrants, and options. As a secondary
objective, the Common Stock Portfolio may seek current income when consistent
with its primary investment objective.
World Equity Portfolio. The World Equity Portfolio seeks maximum long-term
total return by investing primarily in common stocks, and securities convertible
into common stocks, traded in securities markets located around the world,
including the United States. Total return consists of current income, including
dividends, interest, and discount accruals, plus capital appreciation less
capital depreciation, and includes return from changes in the value of the U.S.
dollar compared to the value of the foreign currency in which a security is
denominated, as well as return from the security itself.
Growth & Income Portfolio. The Growth & Income Portfolio's investment
objectives are to provide growth of capital and income. The Portfolio seeks to
achieve its objectives by investing in equity securities, fixed income
securities and money market instruments. The portion of the Portfolio invested
at any given time in each of these asset classes will vary depending on market
conditions, and there may be extended periods when the Portfolio is primarily
invested in one of them. In addition, the amount of income derived from the
Portfolio will fluctuate depending on the composition of the Portfolio's
holdings and will tend to be lower when a higher portion of the Portfolio is
invested in equity securities. The Portfolio may also purchase without
limitation dollar-denominated American Depository Receipts ("ADRs"). ADRs are
issued by domestic banks and evidence ownership of underlying foreign
securities.
Small Cap Portfolio. The Small Cap Portfolio seeks capital appreciation. The
Portfolio will invest, under normal conditions, at least 65% of its total assets
in securities of companies with small capitalizations (market capitalizations or
annual revenues under $1 billion at the time of purchase).
All of the Portfolios may invest in types of securities or use
investment techniques that may involve certain special considerations and risks,
as described below under Investment Objectives and Policies of the Portfolios
and Policies and Techniques Applicable to All Portfolios. In particular, the
High Income Bond Portfolio and the Tilt Utility Portfolio may invest in
securities which are considered to be of poor standing and are predominantly
speculative. Such securities may be subject to greater market fluctuations and
risk of loss of income and principal than lower yielding, higher rated
fixed-income securities.
Investments by the World Equity Portfolio and certain of the other
Portfolios in foreign securities may be affected by adverse political,
diplomatic, and economic developments, changes in
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foreign currency exchange rates, taxes or other assessments imposed on
distributions with respect to those investments, and other factors affecting
foreign investments generally.
The Small Cap Portfolio, the World Equity Portfolio, and certain of the
other Portfolios may invest in stocks and convertible securities that are traded
in the over-the-counter market, which may not be as liquid as exchange-listed
stocks. In addition, the Small Cap Portfolio, the World Equity Portfolio, and
certain of the other Portfolios may invest in securities of small capitalization
companies and, therefore, may experience greater price volatility than
investment companies that invest in more established, larger capitalized
companies.
Additional risks may include risks relating to the creditworthiness of
the parties with whom the Trust enters into certain transactions and the risk
that use of the Trust's investment policies and techniques in certain cases may
not be successful. Use by a Portfolio of the options and futures strategies and
the foreign currency exchange transactions described in this Prospectus and the
Statement of Additional Information involves risks relating to the liquidity of
the options, futures, and currency markets, and to market risks generally.
Sales and Redemptions
The Trust sells shares only to the separate accounts of certain life
insurance companies as a funding vehicle for the variable annuity contracts and
variable life insurance contracts offered by those companies. No fee is charged
upon the sale or redemption of the Trust's shares. See Sales and Redemptions.
THE TRUST
The Trust is intended to be the funding vehicle for variable
annuity contracts ("VA contracts") and variable life insurance policies ("VLI
policies") to be offered by the separate accounts of certain life insurance
companies ("Participating Insurance Companies"). The Trust currently does not
foresee any disadvantages to the holders of VA contracts and VLI policies
arising from the fact that the interests of the holders of such contracts and
policies may differ. Nevertheless, the Board of Trustees of the Trust intends to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto. As of the date of this Prospectus, the Participating Insurance
Companies are First Variable Life Insurance Company ("First Variable Life") and
Monarch Life Insurance Company ("Monarch Life"). The Trust may make its shares
available to additional Participating Insurance Companies from time to time. The
VA contracts and the VLI policies are described in the separate prospectuses
issued by the Participating Insurance Companies. The Trust assumes no
responsibility for such prospectuses.
THE TRUST'S FINANCIAL HISTORY
The following tables present financial highlights for the life of each
of the Portfolios, except that the information relating to the Common Stock
Portfolio is presented only for the Portfolio's ten most recent fiscal years.
Ernst & Young LLP, whose report appears in the Statement of Additional
Information, has audited the financial highlights for the Trust for the year
ended December 31, 1995. Price Waterhouse LLP, whose report appears in the
Statement of Additional Information, has audited the financial highlights for
the Trust for the four years ended December 31, 1994.
Further information about the performance of the Trust is contained in
the Trust's December 31, 1995 Annual Report which may be obtained without charge
by calling the Adviser at (800) 228-1035.
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VARIABLE INVESTORS SERIES TRUST
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
<TABLE>
<CAPTION>
CASH MANAGEMENT PORTFOLIO
Year or Period Ended December 31,
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1995 1994 1993 1992 1991 1990 1989 1988 1987 (6)
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
of Period
Income From Investment Operations:
Net Investment Income 0.052 0.036 0.024 0.032 0.055 0.075 0.085 0.069 0.038
Net Realized and Unrealized
Gain (Loss) on Investments 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Total From Investment Operations 0.052 0.036 0.024 0.032 0.055 0.075 0.085 0.069 0.038
Less Distributions:
From Net Investment Income (0.052) (0.036) (0.024) (0.032) (0.055) (0.075) (0.085) (0.069) (0.038)
From Net Realized Capital Gains (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Total Distributions (0.052) (0.036) (0.024) (0.032) (0.055) (0.075) (0.085) (0.069) (0.038)
Net Asset Value at End of $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Period
Total Return (2) (3) 5.43% 3.68% 2.46% 3.22% 5.64% 7.98% 9.06% 7.10% 3.80%
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Ratios & Supplemental Data
Net Assets at End of Period (000's) $10,096 $8,198 $9,081 $18,405 $21,594 $38,514 $8,904 $7,697 $4,601
Ratio of Net Operating Expenses
to Average Net Assets (4) 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.76% 0.75%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 0.75% - - - - - - - -
Ratio of Net Investment Income
to Average Net Assets 5.30% 3.64% 2.46% 3.20% 5.59% 7.47% 8.52% 6.91% 6.36%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates. (3) The performance of the Portfolio
shown on this page does not reflect expenses and charges of the
applicable separate accounts and variable products, all of which vary
to a considerable extent and are described in your product's
prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987. (See Note C to the
Trust's financial statements.) Had affiliates not undertaken to waive
their fees and/or pay or reimburse expenses related to the Portfolio,
the Ratio of Operating Expenses to Average Net Assets would have been
as follows: 1995 - 1.72%; 1994 - 1.46%; 1993 - 1.46%; 1992 - 1.13%;
1991 - 0.85%: 1990 - 1.03%; 1989 - 1.07%; 1988 - 1.19%; 1987 - 1.17%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on May 27,1987.
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<TABLE>
<CAPTION>
COMMON STOCK PORTFOLIO
Year or Period Ended December 31,
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1995 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $20.056 $20.390 $20.454 $26.290 $21.250 $22.910
Income From Investment Operations:
Net Investment Income 0.007 0.173 0.468 0.254 0.571 0.595
Net Realized and Unrealized
Gain (Loss) on Investments 7.419 (0.335) 1.401 (2.256) 6.727 (1.333)
Total From Investment Operations 7.426 (0.162) 1.869 (2.002) 7.298 (0.738)
Less Distributions:
From Net Investment Income (0.173) (0.086) (0.436) (0.254) (0.571) (0.596)
In Excess of Net Investment Income (0.000) (0.000) (0.373) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (1.443) (0.086) (1.124) (3.580) (1.687) (0.326)
Total Distributions (1.616) (0.172) (1.933) (3.834) (2.258) (0.922)
Net Asset Value at End of Period $25.866 $20.056 $20.390 $20.454 $26.290 $21.250
Total Return (2) (3) 37.12% (0.79)% 9.09% (7.59)% 34.37% (3.20)%
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Ratios & Supplemental Data
Net Assets at End of Period (000's) $42,919 $30,815 $42,530 $52,538 $54,877 $39,902
Ratio of Net Operating Expenses to
Average Net Assets (4) 1.17% 1.20% 1.20% 1.16% 0.99% 0.95%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 1.17% - - - - -
Ratio of Net Investment Income
to Average Net Assets 0.01% 0.78% 1.74% 1.06% 2.12% 3.03%
Portfolio Turnover Rate 166.87% 155.12% 6.05% 133.30% 69.04% 98.22%
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</TABLE>
<TABLE>
<CAPTION>
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1989 1988 (6) 1987 1986
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<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $17.923 $15.657 $19.790 $23.030
Income From Investment Operations:
Net Investment Income 1.172 0.341 0.737 0.690
Net Realized and Unrealized
Gain (Loss) on Investments 5.038 2.282 (0.127) 0.450
Total From Investment Operations 6.210 2.623 0.610 1.140
Less Distributions:
From Net Investment Income (1.223) (0.357) (0.814) (0.680)
In Excess of Net Investment Income (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (0.000) (0.000) (3.929) (3.700)
Total Distributions (1.223) (0.357) (4.743) (4.380)
Net Asset Value at End of Period $22.910 $17.923 $15.657 $19.790
Total Return (2) (3) 34.73% 16.72% 2.85% 3.73%
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Ratios & Supplemental Data
Net Assets at End of Period (000's) $33,598 $23,327 $22,432 $41,061
Ratio of Net Operating Expenses to
Average Net Assets (4) 0.97% 1.02% 0.99% 1.00%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) - - - -
Ratio of Net Investment Income
to Average Net Assets 5.69% 1.86% 2.66% 2.90%
Portfolio Turnover Rate 91.29% 95.01% 161.00% 61.00%
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</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986. (See Note C to
the Trust's financial statements.) Had affiliates not undertaken to
waive their fees and/or pay or reimburse expenses related to the
Portfolio, the Ratio of Operating Expenses to Average Net Assets would
have been as follows: 1995 - 1.19%; 1994 - 1.33%; 1993 - 1.21%; 1992 -
1.16%; 1991 - 1.00%: 1990 - 1.13%; 1989 - 1.18%; 1988 - 1.23%; 1987 -
1.10%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on June 16,1988.
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<TABLE>
<CAPTION>
HIGH INCOME BOND PORTFOLIO
Year or Period Ended December 31,
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1995 1994 1993 1992 1991 1990 1989 1988 1987(6)
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $7.914 $9.704 $9.492 $9.187 $7.911 $9.179 $9.674 $9.568 $10.119
Income From Investment Operations:
Net Investment Income 0.779 1.018 0.848 0.972 0.878 0.959 1.414 1.042 0.530
Net Realized and Unrealized
Gain (Loss) on Investments 0.717 (1.711) 0.567 0.481 1.258 (1.253) (0.491) 0.106 (0.455)
Total From Investment Operations 1.496 (0.693) 1.415 1.453 2.136 (0.294) 0.923 1.148 0.075
Less Distributions:
From Net Investment Income (0.779) (1.005) (0.849) (0.975) (0.860) (0.974) (1.418) (1.042) (0.602)
In Excess of Net Investment Income (0.042) (0.006) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (0.000) (0.075) (0.354) (0.173) (0.000) (0.000) (0.000) (0.000) (0.024)
In Excess of Realized Capital Gains (0.000) (0.011) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Total Distributions (0.821) (1.097) (1.203) (1.148) (0.860) (0.974) (1.418) (1.042) (0.626)
Net Asset Value at End of Period $8.589 $7.914 $9.704 $9.492 $9.187 $7.911 $9.179 $9.674 $9.568
Total Return (2) (3) 18.98% (7.08)% 14.91% 15.77% 27.01% (3.13)% 9.47% 11.96% 0.74%
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Ratios & Supplemental Data
Net Assets at End of Period (000's) $8,764 $7,771 $14,496 $12,448 $8,386 $4,396 $3,124 $2,912 $2,279
Ratio of Net Operating Expenses to
Average Net Assets (4) 1.20% 1.20% 1.20% 1.20% 1.13% 0.95% 1.01% 1.04% 1.03%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 1.21% - - - - - - - -
Ratio of Net Investment Income
to Average Net Assets 8.62% 8.70% 8.04% 9.70% 10.54% 11.92% 11.14% 10.20% 10.50%
Portfolio Turnover Rate 82.15% 200.19% 90.82% 166.27% 41.14% 47.87% 78.64% 29.91% 37.15%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987. (See Note C to the
Trust's financial statements.) Had affiliates not undertaken to waive
their fees and/or pay or reimburse expenses related to the Portfolio,
the Ratio of Operating Expenses to Average Net Assets would have been
as follows: 1995 - 2.04%; 1994 - 2.03%; 1993 - 1.59%; 1992 - 1.68%;
1991 - 2.15%: 1990 - 2.46%; 1989 - 1.49%; 1988 - 1.59%; 1987 - 1.57%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on June 1,1987.
12
<PAGE>
<TABLE>
<CAPTION>
MULTIPLE STRATEGIES PORTFOLIO
Year or Period Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $10.022 $12.182 $11.785 $12.515 $10.790 $10.888 $9.481 $9.220 $10.042
Income From Investment Operations:
Net Investment Income 0.137 0.236 0.424 0.499 0.536 0.506 0.643 0.475 0.192
Net Realized and Unrealized
Gain (Loss) on Investments 3.086 (0.711) 0.835 (0.060) 1.989 (0.089) 1.421 0.259 (0.808)
Total From Investment Operations 3.223 (0.475) 1.259 0.439 2.525 0.417 2.064 0.734 (0.616)
Less Distributions:
From Net Investment Income (0.136) (0.235) (0.424) (0.506) (0.526) (0.515) (0.657) (0.473) (0.206)
In Excess of Net Investment Income (0.000) (0.008) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (1.066) (1.418) (0.438) (0.663) (0.274) (0.000) (0.000) (0.000) (0.000)
In Excess of Net Realized Capital Gains (0.000) (0.024) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Total Distributions (1.202) (1.685) (0.862) (1.169) (0.800) (0.515) (0.657) (0.473) (0.206)
Net Asset Value at End of Period $12.043 $10.022 $12.182 $11.785 $12.515 $10.790 $10.888 $9.481 $9.220
Total Return (2) (3) 32.24% (3.91)% 10.52% 3.62% 23.43% 3.86% 21.80% 7.97% (6.13)%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios & Supplemental Data
Net Assets at End of Period (000's) $26,380 $21,150 $24,522 $26,012 $26,916 $20,994 $12,475 $8,511 $9,840
Ratio of Net Operating Expenses to
Average Net Assets (4) 1.20% 1.20% 1.20% 1.20% 1.11% 0.95% 0.95% 0.98% 0.97%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 1.20% - - - - - - - -
Ratio of Net Investment Income
to Average Net Assets 1.14% 1.74% 3.20% 3.73% 4.49% 5.87% 6.74% 4.41% 4.69%
Portfolio Turnover Rate 161.10% 153.64% 25.57% 52.11% 61.17% 66.25% 93.19% 95.21% 43.73%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987. (See Note C to the
Trust's financial statements.) Had affiliates not undertaken to waive
their fees and/or pay or reimburse expenses related to the Portfolio,
the Ratio of Operating Expenses to Average Net Assets would have been
as follows: 1995 - 1.33%; 1994 - 1.48%; 1993 - 1.35%; 1992 - 1.24%;
1991 - 1.22%: 1990 - 1.41%; 1989 - 1.03%; 1988 - 1.28%; 1987 - 1.27%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on May 5,1987.
13
<PAGE>
<TABLE>
<CAPTION>
TILT UTILITY PORTFOLIO
Year or Period Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 (6)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $12.372 $14.650 $13.891 $14.057 $12.183 $12.948 $10.66 $10.522
Income From Investment Operations:
Net Investment Income 0.559 0.521 0.314 0.326 0.477 0.349 0.420 0.276
Net Realized and Unrealized Gain
(Loss) on Investments 3.560 (0.651) 2.171 (0.168) 3.140 (0.689) 2.424 0.201
Total From Investment Operations 4.119 (0.130) 2.485 0.158 3.617 (0.340) 2.844 0.477
Less Distributions:
From Net Investment Income (0.494) (0.521) (0.296) (0.324) (0.475) (0.352) (0.492) (0.248)
In Excess of Net Investment Income (0.00) (0.000) (0.170) (0.000) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (0.293) (1.627) (1.260) (0.000) (1.268) (0.073) (0.064) (0.091)
Total Distributions (0.787) (2.148) (1.726) (0.324) (1.743) (0.425) (0.556) (0.339)
Net Asset Value at End of Period $15.704 $12.372 $14.650 $13.891 $14.057 $12.183 $12.948 $10.660
Total Return (2) (3) 33.45% (1.05)% 17.87% 1.12% 29.79% (2.61)% 26.73% 4.53%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios & Supplemental Data
Net Assets at End of Period (000's) $16,018 $12,312 $15,251 $12,693 $11,156 $7,865 $1,410 $675
Ratio of Net Operating Expenses to
Average Net Assets (4) 1.15% 1.16% 1.20% 1.20% 1.12% 0.95% 1.12% 1.10%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 1.17% - - - - - - -
Ratio of Net Investment Income
to Average Net Assets 3.89% 3.16% 1.85% 2.49% 3.54% 4.80% 4.37% 5.36%
Portfolio Turnover Rate 48.20% 193.40% 109.57% 308.39% 113.97% 47.58% 49.18% 24.58%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989 and 1988. (See Note C to the Trust's
financial statements.) Had affiliates not undertaken to waive their
fees and/or pay or reimburse expenses related to the Portfolio, the
Ratio of Operating Expenses to Average Net Assets would have been as
follows: 1995 - 1.51%; 1994 - 1.60%; 1993 - 1.59%; 1992 - 1.64%; 1991 -
1.74%: 1990 - 2.78%; 1989 - 1.97%; 1988 - 6.10%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on June 16,1988.
14
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND PORTFOLIO
Year or Period Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $9.718 $10.923 $10.659 $11.372 $10.610 $10.474 $9.863 $9.859 $9.839
Income From Investment Operations:
Net Investment Income 0.765 0.690 0.674 0.886 0.628 0.623 0.771 0.604 0.397
Net Realized and Unrealized
Gain (Loss) on Investments 1.191 (0.986) 0.328 (0.187) 0.929 0.174 0.611 0.008 0.070
Total From Investment Operations 1.956 (0.296) 1.002 0.699 1.557 0.797 1.382 0.612 0.467
Less Distributions:
From Net Investment Income (0.765) (0.690) (0.673) (0.887) (0.614) (0.636) (0.771) (0.605) (0.447)
In Excess of Net Investment Income (0.045) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (0.354) (0.105) (0.062) (0.525) (0.181) (0.025) (0.000) (0.003) (0.000)
In Excess of Net Realized
Capital Gains (0.000) (0.112) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Tax Return of Capital (0.000) (0.002) (0.003) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Total Distributions (1.164) (0.909) (0.738) (1.412) (0.795) (0.661) (0.771) (0.608) (0.447)
Net Asset Value at End of Period $10.510 $9.718 $10.923 $10.659 $11.372 $10.610 $10.474 $9.863 $9.859
Total Return (2) (3) 20.18% (2.72)% 9.38% 6.13% 14.70% 7.66% 13.99% 6.20% 4.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios & Supplemental Data
Net Assets at End of Period (000's) $11,618 $14,444 $20,710 $24,280 $35,544 $18,922 $10,999 $6,996 $3,336
Ratio of Net Operating Expenses to
Average Net Assets (4) 0.85% 0.85% 0.85% 0.85% 0.85% 0.85% 0.87% 0.89% 0.85%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 0.85% - - - - - - - -
Ratio of Net Investment Income
to Average Net Assets 6.18% 5.65% 5.20% 6.41% 7.15% 7.91% 8.24% 7.78% 7.94%
Portfolio Turnover Rate 252.94% 289.71% 27.84% 133.86% 125.90% 70.39% 103.34% 62.12% 11.56%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987. (See Note C to the
Trust's financial statements.) Had affiliates not undertaken to waive
their fees and/or pay or reimburse expenses related to the Portfolio,
the Ratio of Operating Expenses to Average Net Assets would have been
as follows: 1995 - 1.59%; 1994 - 1.45%; 1993 - 1.30%; 1992 - 1.17%;
1991 - 1.04%: 1990 - 1.29%; 1989 - 1.17%; 1988 - 1.23%; 1987 - 1.26%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on May 27,1987.
15
<PAGE>
<TABLE>
<CAPTION>
WORLD EQUITY PORTFOLIO
Year or Period Ended December 31,
----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988(6)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $11.752 $11.348 $10.177 $10.377 $9.734 $11.031 $10.044 $10.388
Income From Investment Operations:
Net Investment Income 0.014 0.013 0.086 0.128 0.154 0.375 0.312 (0.421)
Net Realized and Unrealized
Gain (Loss) on Investments 2.872 1.119 1.679 (0.319) 0.645 (1.533) 1.399 0.077
Total From Investment Operations 2.886 1.132 1.765 (0.191) 0.799 (1.158) 1.711 (0.344)
Less Distributions:
From Net Investment Income (0.000) (0.023) (0.091) (0.009) (0.156) (0.139) (0.179) (0.000)
In Excess of Net Investment Income (0.000) (0.000) (0.007) (0.000) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains (0.815) (0.698) (0.496) (0.000) (0.000) (0.000) (0.545) (0.000)
In Excess of Net Realized Capital Gains (0.000) (0.007) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)
Total Distributions (0.815) (0.728) (0.594) (0.009) (0.156) (0.139) (0.724) (0.000)
Net Asset Value at End of Period $13.823 $11.752 $11.348 $10.177 $10.377 $9.734 $11.031 $10.044
Total Return (2) (3) 24.32% 10.02% 17.32% (1.83)% 8.22% (10.51)% 17.06% (3.31)%
----------------------------------------------------------------------------------------------------------------------------
Ratios & Supplemental Data
Net Assets at End of Period (000's) $18,191 $11,500 $12,230 $9,280 $8,304 $7,255 $2,408 $1,259
Ratio of Net Operating Expenses to
Average Net Assets (4) 1.20% 1.20% 1.20% 1.20% 1.11% 0.95% 1.28% 11.84%
Ratio of Operating Expenses to
Average Net Assets before
Expense Reductions (5) 1.20% - - - - - - -
Ratio of Net Investment Income to
Average Net Assets 0.12% 0.16% 0.92% 1.34% 1.40% 2.15% 1.38% (8.84)%
Portfolio Turnover Rate 97.85% 110.12% 78.50% 103.43% 79.97% 62.06% 61.13% 27.14%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates in 1995 and waiver of business management fee
and payment or reimbursement of certain other expenses by affiliates in
1994, 1993, 1992, 1991, 1990, 1989 and 1988. (See Note C to the Trust's
financial statements.) Had affiliates not undertaken to waive their
fees and/or pay or reimburse expenses related to the Portfolio, the
Ratio of Operating Expenses to Average Net Assets would have been as
follows: 1995 - 1.67%; 1994 - 2.22%; 1993 - 1.79%; 1992 - 2.26%; 1991 -
2.93%: 1990 - 4.25%; 1989 - 2.56%; 1988 - 11.84%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
(6) Commenced investment operations on June 10,1988.
16
<PAGE>
SMALL CAP AND GROWTH & INCOME PORTFOLIOS
<TABLE>
<CAPTION>
Small Cap Portfolio Growth & Income
Period Ended Portfolio Period Ended
December 31, 1995 (1) December 31, 1995 (2)
--------------------- ------------------------
<S> <C> <C>
Net Asset Value at Beginning of $10.000 $10.000
Period
Income From Investment Operations:
Net Investment Income (Loss) (0.042) 0.045
Net Realized and Unrealized Gain
(Loss) 3.047 1.266
----- -----
on Investments
Total From Investment Operations 3.005 1.311
----- -----
Less Distributions:
From Net Investment Income (0.000) (0.045)
From Net Realized Capital Gains (0.367) (0.095)
------- -------
Total Distributions (0.367) (0.140)
------- -------
Net Asset Value at End of Period $12.638 $11.171
------- -------
Total Return (3) (4) 30.08%(5) 13.09%(5)
- ----------------------------------------------------------------------------------------
Ratios & Supplemental Data
Net Assets at End of Period (000's) $3,813 $3,335
Ratio of Net Operating Expenses to
Average Net Assets (6) 1.35%(7) 1.25%(7)
Ratio of Operating Expenses to
Average Net Asssets before
Expense Reductions (8) 1.38%(7) 1.49%(7)
Ratio of Net Investment Income
(Loss) (0.79%)(7) 1.17%(7)
to Average Net Assets
Portfolio Turnover Rate 73.76%(5) 33.49%(5)
- ---------------------------------------------------------------------------------------
</TABLE>
(1) From commencement of operations May 4, 1995.
(2) From commencement of operations May 31, 1995.
(3) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(4) The performance of the Portfolios shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described
in your product's prospectus.
(5) Not annualized.
(6) Net Investment Income is after payment or reimbursement of certain
expenses by affiliates. (See Note C to the Trust's financial
statements.) Had affiliates not undertaken to pay or reimburse expenses
related to the Portfolios, the Ratio of Operating Expenses to Average
Net Assets would have been reduced as follows: Small Cap Portfolio -
9.00%; Growth & Income Portfolio - 7.27%, respectively.
(7) Annualized.
(8) For fiscal years ending after September 1, 1995, the Portfolio is
required to calculate an expense ratio without expense reductions.
17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each Portfolio of the Trust has a different investment objective or
objectives which it pursues through separate investment policies as described
below. The differences in objectives and policies among the Portfolios can be
expected to affect the return of each Portfolio and the degree of market and
financial risk to which each Portfolio is subject. The investment objective(s)
and policies of each Portfolio may, unless otherwise specifically stated, be
changed by the Trustees of the Trust without a vote of the shareholders. Such
changes may result in a Portfolio having an investment objective(s) which
differs from that which an investor may have considered at the time of
investment. There is no assurance that any Portfolio will achieve its
objective(s). United States Treasury Regulations applicable to portfolios that
serve as the funding vehicles for variable annuity and variable life insurance
contracts generally require that such portfolios invest no more than 55% of
the value of their assets in one investment, no more than 70% in two
investments, no more than 80% in three investments, and no more than 90% in
four investments. The Portfolios intend to comply with the requirements of
these Regulations.
In order to comply with regulations which may be issued by the U.S.
Treasury, the Trust may be required to limit the availability or change the
investment policies of one or more Portfolios or to take steps to liquidate
one or more Portfolios. The Trust will not change any fundamental investment
policy of a Portfolio without a vote of shareholders of that Portfolio.
If the securities rating of a debt security held by a Portfolio
declines below the minimum rating for securities in which the Portfolio may
invest, the Portfolio will not be required to dispose of the security, but the
Portfolio's Sub-Adviser will consider whether continued investment in the
security is consistent with the Portfolio's investment objective.
Each of the Portfolios is subject to certain additional investment
policies and may engage in additional investment techniques. See Policies and
Techniques Applicable to All Portfolios for a description of those policies
and techniques and the Portfolios to which they apply.
Cash Management Portfolio
The investment objectives of the Cash Management Portfolio are to
preserve shareholder capital, to maintain liquidity, and to achieve maximum
current income consistent with the foregoing objectives by investing
exclusively in a diversified portfolio of short-term money market securities.
Although the Portfolio seeks to maintain a net asset value of $1.00 per share
for purposes of purchases and redemptions, there can be no assurance that the
net asset value will not vary. The values of the securities held by the
Portfolio will change in response to general changes in interest rates and can
be expected to vary inversely to changes in prevailing interest rates. Thus,
if interest rates have increased from the time a security was purchased, that
security, if sold, might be sold at a price less than its purchase price.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase price. In either instance, if the security were held to maturity, no
such loss or gain would normally be realized as a result of these
fluctuations. Redemptions of shares could require the sale of investments at a
time when such a sale might not otherwise be desirable.
The Portfolio is a diversified portfolio investing in obligations
denominated in U.S. dollars with remaining maturities of not greater than 397
calendar days, including: (i) commercial paper or loan participation
agreements rated at least A-1 by Standard & Poor's Corporation ("Standard &
Poors" or "S&P") or Prime-1 by Moody's Investors Service, Inc. ("Moody's") at
the time of investment, or if not rated, as determined by the Portfolio's
Sub-Adviser to be of comparable quality; (ii) thrift institutions, U.S.
commercial banks (including foreign branches of such banks), and U.S. and
London branches of foreign banks, provided that such institutions (or, in the
case of a branch, the parent institution) have total assets of $100 million or
more as shown on their last published financial statements at the time of
investment; (iii) short-term corporate obligations rated at least AA by
Standard & Poor's or Aa by Moody's at the time of investment, or, if not
rated, determined by the Portfolio's Sub-Adviser to be of comparable quality;
(iv) short-term obligations issued or guaranteed as to principal and interest
by the U.S. Government or the agencies or instrumentalities thereof; and (v)
repurchase agreements and reverse repurchase agreements with respect to any of
the foregoing and with respect to securities issued or guaranteed as to
principal and interest by the U.S. Government or by its agencies, authorities,
or instrumentalities("U.S. Government Securities").
18
<PAGE>
It is the present expectation that the obligations of commercial banks or
savings and loan and trust institutions which the Trust may buy on behalf of
the Portfolio will be certificates of deposit, time deposits, and bankers'
acceptances, but the Portfolio reserves the right without a vote of its
shareholders to invest in other marketable obligations (if they should become
available in the future) of banks or savings and loan and trust institutions
meeting the standards set forth above. The Portfolio will not invest in time
deposits maturing in more than seven days.
The remaining maturity of each investment held by the Cash Management
Portfolio must be 397 days or less, and the weighted average maturity of
investments must be 90 days or less.
Other Instruments. Certain obligations purchased by the Cash Management
Portfolio may be variable or floating rate instruments, may involve a demand
feature, and may include variable amount master demand notes. Variable or
floating rate instruments bear interest at a rate which varies with changes in
market rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par value prior to maturity.
U.S. Government Bond Portfolio
The investment objective of the U.S. Government Bond Portfolio is to
seek current income and preservation of capital, through investment primarily
in U.S. Government Securities. The Portfolio is a diversified portfolio. Under
normal circumstances, at least 80% of the Portfolio's assets will be invested
in U.S. Government Securities. The remainder of the Portfolio's assets may be
invested in other securities rated at least BBB by Standard & Poor's or Baa by
Moody's or, if not rated, determined by the Portfolio's Sub-Adviser to be of
comparable quality, and in cash and money market instruments. (The investment
objective of this Portfolio was modified as of September 22, 1994. Prior to
this date, the investment objective provided that, under normal circumstances,
at least 65% of the Portfolio's assets was to be invested in U.S. Government
Securities, while the remainder of the Portfolio's assets could be invested in
other securities rated at least AA by Standard & Poor's or Aa by Moody's or
determined to be of comparable quality thereto.)
Certain U.S. Government Securities, such as U.S. Treasury bills, notes,
and bonds, and mortgage participation certificates guaranteed by the
Government National Mortgage Association ("Ginnie Mae") and Federal Housing
Administration debentures, are supported by the full faith and credit of the
United States. Other U.S. Government Securities are supported by the
discretionary authority of the U.S. Government to purchase the issuer's
obligations (such as obligations of Federal Home Loan Banks); while still
others are supported only by the credit of the agency, authority, or
instrumentality itself (such as obligations of the Tennessee Valley Authority
and the Bank For Cooperatives). Tax considerations limit the amount of the
Portfolio's assets which may be invested in the obligations of a single issuer
(including the U.S. Treasury) of U.S. Government Securities.
The securities purchased by the Portfolio generally will be
intermediate-term bonds with remaining terms to maturity of five to ten years.
A significant portion of the securities held by the Portfolio may
consist of mortgage-backed certificates and other securities representing
ownership interests in mortgage pools, including collateralized mortgage
obligations, some of which may be backed by agencies or instrumentalities of
the U.S. Government. Interest and principal payments on the mortgages
underlying mortgage-backed securities are passed through to the holder of the
mortgage-backed security.
Prepayments of principal and interest on mortgages underlying
mortgage-backed securities may shorten the effective maturity of certain of
such obligations. High interest rate mortgages are more likely to be prepaid
than lower rate mortgages. Consequently, the effective maturity of certain
mortgage-backed securities which pass through payments on or are secured by
high rate mortgages is likely to be shorter than that of obligations which
pass through payments on or are secured by lower rate mortgages. The rate of
occurrence of prepayment and of nonpayment on the underlying mortgages also is
affected by other factors including social and demographic conditions.
Mortgage-backed securities currently offer yields higher than those
available from other types of U.S. Government Securities, but because of their
prepayment aspect are less effective than other types of securities as a means
of "locking in" attractive long-term interest rates. This is caused by the
need to reinvest prepayments of principal generally and the possibility of
significant unscheduled prepayments resulting from declines in mortgage
interest rates. These prepayments would have to be reinvested at the lower
rates. As a result, the Portfolio's mortgage-backed securities may have less
potential for capital appreciation during periods of declining interest rates
than other U.S.
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Government Securities of comparable maturities, although such obligations may
have a comparable risk of decline in market value during periods of rising
interest rates.
U.S. Government Securities and other high-quality bonds do not involve
the credit risks associated with investments in lower quality fixed-income
securities, although, as a result, the yields available from U.S. Government
Securities and other high-quality bonds are generally lower than the yields
available from many other fixed-income securities. Like other fixed-income
securities, however, the values of U.S. Government Securities and other
high-quality bonds change as interest rates fluctuate. Fluctuations in the
value of the Portfolio's securities will not affect interest income on
securities already held by the Portfolio, but will be reflected in the
Portfolio's net asset value. Since the magnitude of these fluctuations will
generally be greater at times when the Portfolio's average maturity is longer,
under certain market conditions the Portfolio may invest in short-term
investments yielding lower current income rather than investing in higher
yielding intermediate-term securities.
As described above, the Portfolio may invest in fixed income (i.e.,
debt) securities rated Baa by Moody's or BBB by Standard & Poor's and
comparable unrated securities. Debt rated in the fourth highest rating
category by an NRSRO is generally regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories. Such debt
lacks outstanding investment characteristics and has speculative
characteristics as well. (For a description of risks involved in investment in
lower-rated securities, see High Income Bond Portfolio, below, and the
Statement of Additional Information.)
Multiple Strategies Portfolio
The investment objective of the Multiple Strategies Portfolio is to
achieve as high a level of total return over an extended period of time as the
Adviser and Sub-Adviser consider consistent with prudent investment risk.
Total return consists of current income, including dividends, interest, and
discount accruals, plus capital appreciation less capital depreciation.
The Multiple Strategies Portfolio is a diversified portfolio investing
in equity securities, bonds, and money market instruments in varying
proportions, depending upon the Portfolio's Sub-Adviser's assessment of
prevailing economic conditions and conditions in the financial markets. The
Portfolio's Sub-Adviser will from time to time adjust the mix of investments
among the three market sectors to attempt to capitalize on perceived
variations in return potential produced by changing financial markets and
economic conditions. Major changes in investment mix may occur over several
years or during a single year depending upon market and economic conditions.
The Multiple Strategies Portfolio's investment policies for the stock,
bond, and money market sectors are substantially identical to those which have
been established for the Common Stock Portfolio, U.S. Government Bond
Portfolio, and Cash Management Portfolio, except that, with respect to bonds,
it may invest in bonds rated at least BBB by Standard & Poor's or Baa by
Moody's or unrated bonds judged by the Portfolio's Sub- Adviser to be of
comparable quality. Debt rated in the fourth highest rating category by an
NRSRO is generally regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Such debt lacks outstanding
investment characteristics and has speculative characteristics as well. (For a
description of risks involved in investment in lower-rated securities, see
High Income Bond Portfolio, below, and the Statement of Additional
Information.) The specific securities held in the various sectors of the
Multiple Strategies Portfolio will, nevertheless, likely differ from the
securities owned by those Portfolios. The Portfolio may invest up to 25% of
its assets in foreign securities. in securities traded in foreign securities
markets, see Foreign Investments under Policies and Techniques Applicable to
All Portfolios.
High Income Bond Portfolio
The primary investment objective of the High Income Bond Portfolio is
to obtain as high a level of current income as is believed to be consistent
with prudent investment management. As a secondary objective, the High Income
Bond Portfolio seeks capital appreciation when consistent with its primary
objective. The Portfolio is a
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diversified portfolio that seeks to achieve its investment objectives by
investing primarily in fixed-income securities, including corporate bonds and
notes, discount bonds, zero-coupon bonds, convertible securities, and preferred
stocks and bonds issued with warrants, which are rated Baa or below by Moody's
or BBB or below by Standard & Poor's, or in unrated securities determined by
the Portfolio's Sub-Adviser to be of comparable quality. The High Income Bond
Portfolio invests primarily in high yield, higher-risk securities and therefore
may not be suitable for all investors. Many of the high yield securities in
which the Portfolio may invest are commonly referred to as "junk bonds". The
Portfolio will not invest in securities rated below Caa or CCC. Securities in
the rating categories below Baa as determined by Moody's and BBB as determined
by Standard & Poor's are considered to be distinctly or predominantly
speculative. Consequently, although the securities in which the Portfolio will
invest can be expected to provide higher yields, such securities may be subject
to greater market fluctuations and risk of loss of income and principal than
lower yielding, higher-rated fixed-income securities. Because investment in
high yield securities entails relatively greater risk of loss of income or
principal, an investment in the Portfolio will not likely constitute a complete
investment program and may not be appropriate for all investors. For special
risks involved with investing in such securities (including, among others,
risks of default and illiquidity) see Special risks relating to high income
bonds below. Additional information regarding various bond ratings is set forth
in the Statement of Additional Information.
The High Income Bond Portfolio anticipates that under normal
circumstances more than 80% of its assets will be invested in fixed-income
securities, including convertible and non-convertible debt securities and, to
a lesser extent, preferred stock. The remaining assets of the Portfolio may be
held in cash or cash equivalents. The Portfolio does not intend to invest in
common stocks, rights, or other equity securities, but may acquire or hold
such securities (if consistent with its objectives) when they are acquired in
unit offerings with fixed-income securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities.
The Sub-Adviser's selection and supervision of the High Income Bond
Portfolio's investments in lower-rated fixed-income securities involves
continuous analysis of individual issuers, general business conditions, and
other factors which may be too time consuming or too costly for the average
investor. The furnishing of these services does not, of course, guarantee
successful results. The analysis of issuers may include, among other things,
historic and current financial conditions, current and anticipated cash flow
and borrowing requirements, value of assets in relation to historical cost,
strength of management, responsiveness to business conditions, credit
standing, and current and anticipated results of operations. Analysis of
general business conditions and other factors may include anticipated changes
in economic activity and interest rates, the availability of new investment
opportunities, and the economic outlook for specific industries. The
Sub-Adviser will not rely solely on the ratings assigned by the rating
services, and the Portfolio may invest, without limit, in unrated securities
if such securities offer, in the opinion of the Sub-Adviser, a relatively high
yield without undue risk.
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the High
Income Bond Portfolio may purchase higher-rated securities if the Sub-Adviser
believes that the risk of loss of income and principal may be substantially
reduced with only a relatively small reduction in yield. In addition, under
unusual market or economic conditions, the High Income Bond Portfolio may for
temporary defensive purposes hold up to 100% of its assets in cash or cash
equivalents or in other high quality investments which the Sub-Adviser
believes are consistent with a defensive posture. The yields on such
investments in the short term will generally be lower than the yields on
lower-rated fixed-income securities.
Special risks relating to high income bonds. Investors should carefully
consider their ability to assume the risks of owning shares of a portfolio
which invests in lower-rated securities before making an investment in the
Portfolio. The lower ratings of certain securities held by the Portfolio
reflect a greater possibility that adverse changes in the financial condition
of the issuer, or in general economic conditions, or both, or an unanticipated
rise in interest rates, may impair the ability of the issuer to make payments
of interest and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely make the values
of securities held by the Portfolio more volatile and could limit the
Portfolio's ability to sell its securities at prices approximating the values
the Portfolio has placed on such securities. The rating assigned to a security
by Moody's or Standard & Poor's does not reflect an assessment of the
volatility of the security's market value or of the liquidity of an investment
in the security.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase in the value
of the Portfolio's assets. Conversely, during periods of rising interest
rates, the value of the Portfolio's assets will generally decline. The
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values of such securities are also affected by changes in general economic
conditions and business conditions affecting the specific industries of their
issuers. Changes by recognized rating services in their ratings of any
fixed-income security and changes in the ability of an issuer to make payments
of interest and principal may also affect the value of these investments.
Changes in the value of Portfolio securities generally will not affect cash
income derived from such securities, but will affect the Portfolio's net asset
value.
The table below shows the percentages of the Portfolio's average
monthly assets invested during 1995 in securities assigned to the various
rating categories by Moody's and Standard & Poor's.
Related securities
as percentage of
Rating Portfolio's assets
"AAA/Aaa" ...............................................2.6%
"BBB/Baa"................................................0.0%
"BB/B"...................................................21.1%
"B"......................................................73.5%
"CCC/Caa"................................................2.8%
Certain of the lower-rated securities in which the Portfolio invests
are issued to raise funds in connection with the acquisition of a company, in
so-called "leveraged buy-out" transactions. The highly leveraged capital
structure of such issuers may make them especially vulnerable to adverse
changes in economic conditions.
The Portfolio may at times invest in so-called "zero-coupon" bonds and
"payment-in-kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make current
interest payments on the bonds either in cash or in additional bonds. Because
zero-coupon bonds do not pay current interest, their value is subject to
greater fluctuation in response to changes in market interest rates than bonds
which pay interest currently. Both zero-coupon and payment-in-kind bonds allow
an issuer to avoid the need to generate cash to meet current interest
payments. Accordingly, such bonds may involve greater credit risks than bonds
paying interest currently.
Certain securities held by the Portfolio may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were to redeem
securities held by the Portfolio during a time of declining interest rates,
the Portfolio may not be able to reinvest the proceeds in securities providing
the same investment return as the securities redeemed.
Tilt Utility Portfolio
The investment objective of the Tilt Utility Portfolio is capital
appreciation and current income. The Portfolio will seek to achieve its
investment objective by investing in a diversified portfolio of common stock
and income securities issued by companies engaged in the utilities industry
("Utility Securities"). Companies engaged in the utilities industry include
those engaged in the production, transmission, or distribution of electric
energy, gas, telecommunications services or the provision of other utility or
utility related goods or services. Under normal market conditions, at least
80% of the Portfolio's assets will be invested in Utility Securities and up to
20% of its assets may be invested in other than Utility Securities, including
common stock and income securities of issuers not engaged in the utilities
industry, cash and money market instruments. Income securities include
preferred stock and debt securities of various maturities. The Portfolio's
investments in income securities will be rated, at the time of investment, at
least BBB by Standard & Poor's, or at least Baa by Moody's, or comparably
rated by any other nationally recognized statistical rating organization;
provided, however, the Portfolio may invest up to 20% of its assets in income
securities that are rated BB or B by Standard & Poor's or Ba or B by Moody's
(or comparably rated by any other nationally recognized statistical rating
service) or unrated income securities determined by the Sub-Adviser to be of
comparable or higher quality. Such lower rated or unrated income securities
are commonly referred to as "junk bonds" and are regarded by the rating
agencies, on balance, as predominantly speculative with respect to their
capacity to pay interest and repay principal in accordance with the terms of
the obligation; assurance of interest and principal payments or maintenance of
other terms of the securities over any long period of time may be small. While
offering opportunities for higher yields, lower-grade securities are
considered below "investment grade" and involve a greater degree of credit
risk than investment grade income securities; although the lower-grade income
securities of an issuer generally involve
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a lower degree of credit risk than its common stock. The Portfolio may invest
up to 35% of its assets in securities issued by non-U.S. issuers. There can be
no assurance that the Portfolio will achieve its investment objective.
The Portfolio is intended to achieve investment returns that are higher
than the Standard & Poor's Utilities Index with equivalent risk,
diversification and price volatility. There is no guarantee that the Portfolio
will actually outperform the Standard & Poor's Utilities Index.
State Street Global Advisors, the investment management division of
State Street Bank and Trust Company, acts as the Sub-Adviser to the Portfolio.
The Adviser and State Street Global Advisors believe that the historical
performance of Utility Securities, together with ongoing developments in the
utilities industry, indicate the potential for achieving both capital
appreciation and current income from investment in a diversified portfolio of
Utility Securities and further that the historical characteristics of Utility
Securities which are common stocks indicate potential for capital
appreciation. Adviser and State Street Global Advisors also believe that many
companies engaged in the utilities industry have established a reputation for
paying regular quarterly dividends and for increasing their common stock
dividends over time, despite fluctuations in interest rates over time. Adviser
and State Street Global Advisors believe that the historical characteristics
of Utility Securities which are income securities indicate the potential for
current income.
Utility Securities. Utility Securities are common stocks and income
securities of companies engaged in the utilities industry. Companies engaged
in the utilities industry include a variety of entities involved in (i) the
production, transmission or distribution of electric energy, (ii) the
provision of natural gas, (iii) the provision of telephone, mobile
communication and other telecommunications services or (iv) the provision of
other utility or utility related goods or services, including entities engaged
in cogeneration, waste disposal system provision, solid waste electric
generation, independent power producers and non-utility generators.
The public utilities industry has experienced significant changes in
recent years. Many issuers of Utility Securities have been favorably affected
by lower fuel and financing costs, deregulation, the full or near completion
of major construction programs and an increasing customer base. In addition,
many utility companies have generated cash flows in excess of current
operating expenses and construction expenditures, permitting some degree of
diversification into unregulated businesses. Some electric utilities have also
taken advantage of the right to sell power outside of their historical
territories.
The rates of return of issuers of Utility Securities generally
are subject to review and limitation by state public utilities commissions and
tend to fluctuate with marginal financing costs. Rate changes generally lag
changes in financing costs, and thus can favorably or unfavorably affect the
earnings or dividend payments on Utility Securities depending upon whether
such rates and costs are declining or rising.
Companies engaged in the public utilities industry historically have been
subject to a variety of risks depending, in part, on such factors as the type
of utility company involved and its geographic location. Such risks include
increases in fuel and other operating costs, high interest expenses for
capital construction programs, costs associated with compliance with
environmental regulations, service interruption due to environmental,
operational or other mishaps, the effects of economic slowdowns, surplus
capacity, competition and changes in the overall regulatory climate. In
particular, regulatory changes with respect to generating facilities could
increase costs or impair the ability of utility companies to operate such
facilities, thus reducing utility companies' earnings or resulting in losses.
There can be no assurance that regulatory policies or accounting standard
changes will not negatively affect utility companies' earnings or dividends.
Companies engaged in the public utilities industry are subject to regulation
by various authorities and may be affected by the imposition of special
tariffs and changes in tax laws. To the extent that rates are established or
reviewed by governmental authorities, companies engaged in the public
utilities industry are subject to the risk that such authority will not
authorize increased rates. In addition, because of the Portfolio's policy of
concentrating its investments in Utility Securities, the Portfolio may be more
susceptible than an investment company without such a policy to any single
economic, political or regulatory occurrence affecting the public utilities
industry. Under market conditions that are unfavorable to the utilities
industry, State Street Global Advisors may significantly reduce the
Portfolio's investment in that industry. (See Defensive Strategies.)
Gas and Telecommunications Utilities. Gas transmission companies, gas
distribution companies and telecommunications companies are undergoing
significant changes. Gas utilities have been adversely affected by
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declines in the prices of alternative fuels, oversupply conditions and
competition. Telephone utilities are still experiencing the effects of the
break-up of American Telephone & Telegraph Company, including increased
competition and rapidly developing technologies with which traditional
telephone companies now compete. Potential sources of competition and new
products are able television systems, shared tenant services and other
noncarrier systems which are capable of by-passing traditional telephone
services providers' local plants, either completely or partially, through
substitutions of special access for switched access or through concentration of
telecommunications traffic on fewer of the traditional telephone services
providers' lines. Although there can be no assurance that increased competition
and other structural changes will not adversely affect the profitability of
such utilities, or that other negative factors will not develop in the future,
in the opinion of State Street Global Advisors, competition and technological
advances may over time result in providing better-positioned utility companies
with opportunities for enhanced profitability.
Electric Utilities. Electric utility companies in general have been favorably
affected by lower fuel costs, the full or near completion of major
construction programs and lower financing costs. Some electric utilities have
also taken advantage of the right to sell power outside of their historical
territories. At this time, there are certain institutional impediments to the
wide-scale deregulation of electric utilities including among other things,
limitations on the redistribution of power.
Other Utilities. Other issuers of Utility Securities are emerging as new
technologies develop and as old technologies are refined. Such issuers include
entities engaged in cogeneration, waste disposal system provision, solid waste
electric generation, independent power producers and non-utility generators.
Common Stock. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
after making required payments to holders of such entity's preferred stock and
other senior equity. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so. In selecting common stocks for
investment, the Portfolio will focus both on the security's potential for
appreciation and on its dividend paying capacity.
The average dividend yield of Utility Securities which are common
stocks historically has exceeded the average dividend yield of common stocks
of industrial issuers by a significant amount. However, the Portfolio will not
necessarily reflect the securities which comprise the Standard & Poor's
Utilities Index and there can be no assurance that the historical investment
performance for any industry (including the public utilities industry) is
indicative of future performance.
Income Securities and Risks of Lower Grade Income Securities. The portfolio
may invest its assets in income securities, which include preferred stocks,
debt securities of various maturities and securities convertible into, or
ultimately exchangeable for, Utility Securities. The Portfolio's investments
in income securities will be rated, at the time of investment, at least BBB by
S&P, or at least Baa by Moody's or comparably rated by any other nationally
recognized statistical rating organization; provided, however, the Portfolio
may invest up to 20% of its assets in income securities that are rated BB or B
by S&P or Ba or B by Moody's (or comparably rated by any other nationally
recognized statistical rating service) or unrated income securities determined
by State Street Global Advisors to be of comparable or higher quality. Under
normal circumstances, the Portfolio may invest up to 20% of its assets in
lower grade income securities (including downgraded securities) or in unrated
income securities considered by State Street Global Advisors to be of
comparable or higher quality to such lower grade securities or of comparable
quality to investment grade securities. Lower grade income securities in which
the Portfolio may invest are rated between BB and B by S&P or between Ba and B
by Moody's. Income securities with such ratings from S&P and Moody's are
commonly referred to as "junk bonds" and are regarded by S&P and Moody's as
predominantly speculative with respect to the capacity to pay interest and/or
repay principal in accordance with their terms. Investment in lower grade
securities involves special risks as compared with investment in higher grade
securities. The market for lower grade securities is considered to be less
liquid than the market for investment grade securities which may adversely
affect the ability of the Portfolio to dispose of such securities in a timely
manner at a price which reflects the value of such security in the judgment of
State Street Global Advisors. Because issuers of lower grade securities
frequently choose not to seek a rating of their securities, the Portfolio will
rely more heavily on the ability of State Street Global Advisors to determine
the relative investment quality of such securities than if the Portfolio
invested exclusively in higher grade securities.
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The net asset value of the Portfolio will change with changes in the
value of its portfolio securities. The values of income securities may change
as interest rate levels fluctuate. To the extent that the Portfolio invests in
income securities, the net asset value of the Portfolio can be expected to
change as general levels of interest rates fluctuate. When interest rates
decline, the value of a portfolio invested in income securities generally can
be expected to rise. Conversely, when interest rates rise, the value of a
portfolio invested in income securities generally can be expected to decline.
Volatility may be greater during periods of general economic uncertainty.
Foreign Securities. The Portfolio may invest up to 35% of its assets in
securities issued by non-U.S. issuers of similar quality as the securities
described above as determined by State Street Global Advisors. State Street
Global Advisors believes that many foreign issuers of Utility Securities have
yet to experience the growth that certain issuers of Utility Securities
located in the United States have experienced and that as such foreign issuers
develop their domestic markets, they may become attractive investments. In
addition, State Street Global Advisors believes that certain foreign
governments may engage in programs of privatization of issuers of Utility
Securities and that the Utility Securities issued by privatized companies may
offer attractive investment opportunities with the potential for long-term
growth. However it is not possible to predict the terms of offerings by
privatized companies or the effect of privatizations in the domestic
securities market of such privatized companies. There can be no assurance that
securities of privatized companies will be offered to the public or to foreign
companies such as the Portfolio. For additional information relating to
investments in securities traded in foreign securities markets, including
special risk factors relating thereto, see Foreign Investments under Policies
and Techniques Applicable to All Portfolios.
Defensive Strategies. At times, conditions in the markets for Utility
Securities may, in the judgment of State Street Global Advisors, make pursuing
the Portfolio's basic investment strategy inconsistent with the best interests
of its shareholders. At such times, State Street Global Advisors may use
alternative strategies primarily designed to reduce fluctuations in the value
of the Portfolio's assets. In implementing these "defensive" strategies, the
Portfolio may invest up to 100% of its net assets in high-quality, short-term
obligations. Such taxable obligations may include: obligations of the U.S.
Government, its agencies or instrumentalities; other debt securities rated
within the four highest grades by either S&P or Moody's (or comparably rated
by any other nationally recognized statistical rating organization);
commercial paper rated in the highest grade by either rating service (or
comparably rated by any other nationally recognized statistical rating
organization); certificates of deposit and bankers' acceptances; repurchase
agreements with respect to any of the foregoing investments; or any other
fixed-income securities that State Street Global Advisors considers consistent
with such strategy.
The Portfolio may engage in Strategic Transactions, enter currency
transactions, purchase and sell securities on a "when issued" and "delayed
delivery" basis, enter into repurchase and reverse repurchase agreements, lend
its portfolio securities and purchase restricted securities.
Strategic Transactions. The Portfolio may purchase and sell exchange-listed
and over-the-counter put and call options on securities, financial futures,
fixed-income indices and other financial instruments and purchase and sell
financial futures contracts. The Portfolio may also enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures.
Collectively, all of the above are referred to as "Strategic Transactions."
Strategic Transactions are transactions which may be used to attempt to
protect against possible changes in the market value of securities held in or
to be purchased for the Portfolio, to protect the Portfolio's unrealized gains
in the value of its portfolio securities, to manage the effective interest
rate exposure of the Portfolio, or to protect against changes in currency
exchange rates. Any or all of these hedging techniques may be used at any time
and there is no particular strategy that dictates the use of one technique
rather than another, as use of any Strategic Transaction is a function of
numerous variables including market conditions. The ability of the Portfolio
to utilize these Strategic Transactions successfully will depend on the
ability of State Street Global Advisors to predict pertinent market movements,
which cannot be assured. The Portfolio will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments.
Strategic Transactions have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to
the extent the view of State Street Global Advisors as to certain market
movements is incorrect, the risk that the use of such Strategic Transactions
could result in losses greater than if they had not been used. Use of put and
call options may result in losses to the Portfolio, force the sale of
portfolio securities at inopportune times or for prices other than at current
market values, limit the amount of appreciation the Portfolio can realize on
its investments or cause the Portfolio to hold a security it might otherwise
sell. The use of currency
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transactions can result in the Portfolio incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to
limit any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if
the Strategic Transactions had not been utilized. For a further discussion of
these transactions, see Policies and Techniques Applicable to All Portfolios.
Common Stock Portfolio
The Common Stock Portfolio seeks capital growth by investing primarily
in a diversified portfolio of common stocks and securities convertible into or
exchangeable for common stock, including convertible preferred stock,
convertible debentures, warrants, and options. As a secondary objective, the
Common Stock Portfolio may seek current income when consistent with its
primary investment objective. Securities are selected on the basis of their
issuers' long-term potential for expanding their earnings, profitability, and
size and on the basis of potential increases in market recognition of their
securities. The Portfolio attempts to achieve its primary objective by
focusing on the long-range view of a company's prospects through analysis of
its management, financial structure, product development, marketing ability,
and other relevant factors. Types of securities held by the Portfolio will
vary depending on the Sub-Adviser's analysis of those industries offering the
best possibilities for long-term growth. In addition, the Sub-Adviser will
consider general economic factors to determine whether under present business
conditions a portfolio of common stocks with capital growth potential or a
more conservative portfolio including preferred stocks and defensive common
stocks would be more appropriate.
The Portfolio may invest up to 10% of its assets in equity securities
of foreign issuers. For additional information relating to investments in
securities traded in foreign securities markets, see Foreign Investments under
Policies and Techniques Applicable to All Portfolios.
The investment emphasis of the Common Stock Portfolio is on equities,
primarily common stocks and, to a lesser extent, securities convertible into
common stocks, and rights to subscribe for common stocks. Under normal
circumstances, the Common Stock Portfolio will maintain at least 80% of its
net assets in equity securities except during defensive periods. The Common
Stock Portfolio may, as a temporary defensive measure and to provide for
redemptions, hold other types of securities including non-convertible
preferred stocks and debt securities, government and money market securities
including loan participation agreements, or cash.
World Equity Portfolio
The investment objective of the World Equity Portfolio is to seek
maximum long-term total return by investing primarily in common stocks, and
securities convertible into common stocks, traded in securities markets
located around the world, including the United States.
The World Equity Portfolio may at times invest up to 100% of its assets
in securities principally traded in markets outside the United States. In
unusual market circumstances where the Sub-Adviser believes that foreign
investing may involve undue risks, 100% of the Portfolio's assets may be
invested in the United States. The World Equity Portfolio is a diversified
portfolio.
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Under normal circumstances, the Portfolio will invest at least 65% of
its total assets in common stocks, convertible securities, and warrants to
purchase common stocks and convertible securities. The Portfolio may invest
the remainder of its assets in securities of the U.S. Government or of any
foreign government or any supranational entity, in debt securities of any
issuer rated A or better at the time of purchase by Standard & Poor's or
Moody's or of comparable quality as determined by the Sub-Adviser, and in cash
and money market instruments. Examples of supranational entities include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Steel and Coal Community, the Asian Development Bank, and the
InterAmerican Development Bank.
At times the common stock portion of the Portfolio will be invested
primarily in securities of issuers with small market capitalizations (market
capitalizations or annual revenues under $1 billion at time of purchase).
While the Sub-Adviser intends to invest Portfolio assets in small
capitalization companies that have strong balance sheets and that the
Sub-Adviser's research indicates should exceed informed consensus of earnings
expectations, any investment in small capitalization companies involves
greater risk than that customarily associated with investments in larger, more
established companies. This increased risk may be due to the greater business
risks of small size, limited markets and financial resources, narrow product
lines and frequent lack of management depth. The securities of small companies
are often traded in the over-the-counter market and may not be traded in
volumes typical on a national securities exchange. Thus, the securities of
smaller companies are likely to be less liquid, and subject to more abrupt or
erratic market movements, than securities of larger, more established
companies. Many of the small capitalization companies in which the Portfolio
will invest are traded in the over-the-counter market. In contrast to the
securities exchanges, the over-the-counter market is not a centralized
facility which limits trading activity to securities of companies which
initially satisfy certain defined standards. Any security can be traded in the
over-the-counter market as long as an individual or firm is willing to make a
market in the security. Since there are no minimum requirements for a
company's assets or earnings or the number of its shareholders in order for
its stock to be traded over-the-counter, there is a great diversity in the
size and profitability of companies whose stocks trade in this market, ranging
from relatively small little-known companies to well-established corporations.
Generally, the volume of trading in an unlisted common stock is less than the
volume of trading in a listed stock. This means that the degree of market
liquidity of some stocks in which the Portfolio invests may be relatively
limited. When the Portfolio disposes of such a stock it may have to offer the
shares at a discount from recent prices or sell the shares in small lots over
an extended period of time.
Based on its analysis of the prevailing global economic and investment
environment, the Sub-Adviser will seek to identify those countries and
industrial sectors it expects to benefit in that environment. Within those
countries and industrial sectors, the Sub-Adviser will seek to invest the
Portfolio's assets in securities of companies likely to show earnings growth
from improving profit margins, new products, and/or increased market shares
and in securities of companies whose potential for growth is not fully
reflected in the prices of the companies' stock. Under normal circumstances,
the Portfolio will seek to have represented among its investments issuers
located in at least five different countries (one of which may be the United
States).
For additional information relating to investments in securities traded
in foreign securities markets, see Foreign Investments under Policies and
Techniques Applicable to All Portfolios.
The Portfolio may engage in a variety of foreign currency exchange
transactions to protect against uncertainty in the levels of future currency
exchange rates. These transactions may include the purchase and sale of
foreign currencies and options on foreign currencies and the purchase and sale
of currency forward contracts and currency futures contracts and related
options. The Portfolio's use of such transactions may be limited by tax
considerations. For a discussion of these transactions, see Policies and
Techniques Applicable to All Portfolios, below.
Growth & Income Portfolio
The Growth & Income Portfolio's investment objectives are to
provide growth of capital and income. The Growth & Income Portfolio seeks to
achieve its growth objective by investing in equity securities. Equity
securities include common stocks, securities which are convertible into common
stocks and readily marketable securities, such as rights and warrants, which
derive their value from common stock. Investments in common stocks in general
are subject to market risks that may cause their prices to fluctuate over
time. The Growth & Income Portfolio seeks to achieve its income objective by
investing in various income producing securities including fixed income
securities and money market instruments. Interest rates will affect the market
value of certain fixed-income security investments made by the Growth & Income
Portfolio. During periods of falling interest rates, the values of
fixed-income securities
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generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. The portion of the Portfolio invested
from time to time in equity securities, fixed income securities and money
market securities will vary depending on market conditions and there may be
extended periods when the Portfolio is primarily invested in one of them. In
addition, the amount of income generated from the Portfolio will fluctuate
depending, among other things, on the composition of the Portfolio's holdings
and the level of interest and dividend income paid on those holdings. The
Growth & Income Portfolio may also purchase without limitation
dollar-denominated ADRs. ADRs are issued by domestic banks and evidence
ownership of underlying foreign securities. The Portfolio may also invest in
Global Depository Receipts ("GDRs"). (See Foreign Investments under Policies
and Techniques Applicable to All Portfolios.)
The Growth & Income Portfolio may invest up to 10% of its total assets
in securities of foreign issuers. (See Foreign Investments under Policies and
Techniques Applicable to all Portfolios).
The Growth & Income Portfolio will not invest more than 15% of its net
assets in illiquid securities, including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not deemed illiquid for
purposes of this limitation. The Portfolio's Sub-Adviser will monitor the
liquidity of such restricted securities under the supervision of the Adviser
and the Board of Trustees. See Investment Objectives and Policies of the Trust
Illiquid Securities in the Statement of Additional Information.
The Growth & Income Portfolio may write covered call options, buy
put options, buy call options and write put options, without limitation except
as noted in this paragraph. Such options may relate to particular securities
or currencies or to various indexes and may or may not be listed on a national
securities exchange and issued by the Options Clearing Corporation. The Growth
& Income Portfolio may also invest in futures contracts and options on futures
contracts (index futures contracts, currency futures contracts, or interest
rate futures contracts, as applicable) for hedging purposes without limitation
so long as aggregate initial margins and premiums required do not exceed 5% of
its net assets, after taking into account any unrealized profits and losses on
any such contracts it has entered into. However, the Growth & Income Portfolio
may not write put options or purchase or sell futures contracts or options on
futures contracts to hedge more than its total assets unless immediately after
any such transaction the aggregate amount of premiums paid for put options and
the amount of margin deposits on its existing futures positions do not exceed
5% of its total assets.
The Growth & Income Portfolio will engage in unlisted over-the-counter
options only with broker/dealers deemed creditworthy by the Sub-Adviser.
Closing transactions in certain options are usually effected directly with the
same broker/dealer that effected the original option transaction. The
Portfolio bears the risk that the broker/dealer will fail to meet its
obligations. There is no assurance that the Portfolio will be able to close an
unlisted option position. Furthermore, unlisted options are not subject to the
protections afforded purchasers of listed options by the Options Clearing
Corporation, which performs the obligations of its members who fail to do so
in connection with the purchase or sale of options. Over-the-counter options
and assets used to cover written over-the-counter options are deemed to be
illiquid and, therefore, together with other illiquid securities, cannot
exceed the Portfolio's 15% limitation on illiquid securities described above.
For a further discussion of options and futures, including special risk
factors relating thereto, see Policies and Techniques Applicable to all
Portfolios in this Prospectus and Investment Objectives and Policies of the
Trust in the Statement of Additional Information.
The Growth & Income Portfolio reserves the right, as a temporary
defensive measure, to invest without limit in cash and eligible, U.S.
dollar-denominated money market instruments, as well as securities subject to
repurchase agreements. The Portfolio's Sub-Adviser will determine when market
conditions warrant temporary defensive measures.
Small Cap Portfolio
The Small Cap Portfolio seeks capital appreciation. The Portfolio will
invest, under normal conditions, at least 65% of its total assets in
securities of companies with small capitalizations (market capitalizations or
annual revenues under $1 billion at time of purchase). The Portfolio will
normally be as fully invested as practicable in common stocks,
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but also may invest up to 5% of its assets in warrants and rights to purchase
common stocks. In the opinion of the Sub-Adviser, there may be times when the
shareholders' interests are best served and the investment objective is more
likely to be achieved by having varying amounts of the Portfolio's assets
invested in convertible securities. The Sub-Adviser believes that the Portfolio
generally will have at least 50% of its assets invested in common stocks and
convertible securities traded in the over-the-counter market and that at
certain times that percentage may be substantially higher. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying
common stock. As a result, the Portfolio's selection of convertible securities
is based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and
any call provisions.
The Portfolio will seek to achieve its objective by investing in
companies believed by the Sub-Adviser to have an outlook for strong growth in
earnings and the potential for significant capital appreciation. Securities
will be sold when the Sub-Adviser believes that anticipated appreciation is no
longer probable, alternative investments offer superior appreciation
prospects, or the risk of a decline in market price is too great. Because of
its policy with respect to the sales of investments, the Portfolio may from
time to time realize short-term gains or losses. The Portfolio will likely
have somewhat greater volatility than the stock market in general, as measured
by the S&P 500 Index. Because the investment techniques employed by the
Sub-Adviser are responsive to near-term earnings trends of the companies whose
securities are owned by the Portfolio, trading activity can be expected to be
fairly high.
The Portfolio may hold up to five percent of its assets (exclusive of
convertible bonds) in investment grade corporate or government bonds (i.e.,
bonds rated in one of the top four rating categories by a nationally
recognized statistical rating organization ("NRSRO") or deemed to be of
comparable quality by the Portfolio's Sub-Adviser).
The Portfolio may invest up to 15% of its total assets in foreign
issuers. The Portfolio may invest in ADRs and GDRs. Investing in securities of
foreign issuers involves considerations not typically associated with
investing in securities of companies organized and operated in the U.S.
Foreign securities generally are denominated and pay dividends or interest in
foreign currencies. The Small Cap Portfolio may hold from time to time various
foreign currencies pending their investment in foreign securities or their
conversion into U.S. dollars. The value of the assets of the Small Cap
Portfolio as measured in U.S. dollars may therefore be affected favorably or
unfavorably by changes in exchange rates. There may be less publicly available
information concerning foreign issuers than is available with respect to U.S.
issuers. Foreign securities may not be registered with the U.S. Securities and
Exchange Commission, and generally, foreign companies are not subject to
uniform accounting, auditing and financial reporting requirements comparable
to those applicable to U.S. issuers. (See Foreign Investments under Policies
and Techniques Applicable to all Portfolios).
The Portfolio may invest up to 10% of its net assets in illiquid
securities, including securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual restrictions on resale.
Securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid for purposes of this
limitation. The Portfolio's Sub-Adviser will monitor the liquidity of such
restricted securities under the supervision of the Adviser and the Board of
Trustees. See Investment Objectives and Policies of the Trust-Illiquid
Securities in the Statement of Additional Information.
The Small Cap Portfolio may write covered call options, buy put
options, buy call options and write put options, without limitation except as
noted in this paragraph. Such options may relate to particular securities or
to various indexes and may or may not be listed on a national securities
exchange and issued by the Options Clearing Corporation. The Small Cap
Portfolio may also invest in futures contracts and options on futures
contracts (index futures contracts or interest rate futures contracts, as
applicable) for hedging purposes so long as aggregate initial margins and
premiums required do not exceed 5% of its net assets, after taking into
account any unrealized profits and losses on any such contracts it has entered
into. However, the Small Cap Portfolio may not write put options or purchase
or sell futures contracts or options on futures contracts to hedge more than
its total assets unless immediately after any such transaction the aggregate
amount of premiums paid for put options and the amount of margin deposits on
its existing futures positions do not exceed 5% of its total assets.
The Small Cap Portfolio will engage in unlisted over-the-counter options only
with broker/dealers deemed creditworthy by the Sub-Adviser. Closing
transactions in certain options are usually effected directly with the same
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broker/dealer that effected the original option transaction. The Portfolio
bears the risk that the broker/dealer will fail to meet its obligations. There
is no assurance that the Portfolio will be able to close an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation,
which performs the obligations of its members who fail to do so in connection
with the purchase or sale of options. Over-the-counter options and assets used
to cover written over-the-counter options are deemed to be illiquid and,
therefore, together with other illiquid securities, cannot exceed the
Portfolio's 10% limitation on illiquid securities described above.
For a further discussion of options and futures, including special risk
factors relating thereto, see Policies and Techniques Applicable to all
Portfolios in this Prospectus and Investment Objectives and Policies of the
Trust in the Statement of Additional Information.
For temporary defensive purposes, when the Sub-Adviser deter-mines that
market conditions warrant, the Portfolio may invest up to 100% of its assets
in cash and money market instruments (consisting of securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities;
certificates of deposit, time deposits and bankers acceptances issued by banks
or savings and loan associations having net assets of at least $500 million as
stated on their most recently published financial statements; commercial paper
rated in one of the two highest rating categories by at least one NRSRO;
repurchase agreements evidencing such securities; and, to the extent permitted
by applicable law, and the Portfolio's investment restrictions, shares of
other investment companies investing solely in money market securities). To
the extent the Portfolio is invested in temporary defensive instruments, it
will not be pursuing its investment objective. See Policies and Techniques
Applicable to All Portfolios and the Statement of Additional Information.
Common Stocks. Investments in common stocks in general are subject to market
risks that may cause their prices to fluctuate over time. Therefore, an
investment in the Small Cap Portfolio may be more suitable for long-term
investors who can bear the risk of these fluctuations. The Portfolio invests
primarily in securities of issuers with small market capitalizations. While
the Sub-Adviser intends to invest Portfolio assets in small capitalization
companies that have strong balance sheets and that the Sub-Adviser's research
indicates should exceed informed consensus of earnings expectations, any
investment in small capitalization companies involves greater risk than that
customarily associated with investments in larger, more established companies.
This increased risk may be due to the greater business risks of small size,
limited markets and financial resources, narrow product lines and frequent
lack of management depth. The securities of small companies are often traded
in the over-the-counter market and may not be traded in volumes typical on a
national securities exchange. Thus, the securities of smaller companies are
likely to be less liquid, and subject to more abrupt or erratic market
movements, than securities of larger, more established companies.
Over-the-Counter Market. The Small Cap Portfolio invests primarily in
over-the-counter stocks. In contrast to the securities exchanges, the
over-the-counter market is not a centralized facility which limits trading
activity to securities of companies which initially satisfy certain defined
standards. Any security can be traded in the over-the-counter market as long
as an individual or firm is willing to make a market in the security. Since
there are no minimum requirements for a company's assets or earnings or the
number of its shareholders in order for its stock to be traded
over-the-counter, there is a great diversity in the size and profitability of
companies whose stocks trade in this market, ranging from relatively small
little-known companies to well-established corporations. Generally, the volume
of trading in an unlisted common stock is less than the volume of trading in a
listed stock. This means that the degree of market liquidity of some stocks in
which the Small Cap Portfolio invests may be relatively limited. When the
Portfolio disposes of such a stock it may have to offer the shares at a
discount from recent prices or sell the shares in small lots over an extended
period of time.
Fixed Income Securities. Interest rates will affect the market value of
certain fixed-income security investments made by the Small Cap Portfolio.
During periods of falling interest rates, the values of fixed-income
securities generally rise. Conversely, during periods of rising interest
rates, the values of such securities generally decline. The Small Cap
Portfolio may invest in debt rated in the fourth highest rating category by an
NRSRO. Changes by an NRSRO in the ratings of any fixed-income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities, but will
affect the Portfolio's net asset value.
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Debt rated in the fourth highest rating category by an NRSRO is
generally regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Such debt lacks outstanding
investment characteristics and has speculative characteristics as well.
POLICIES AND TECHNIQUES APPLICABLE TO ALL PORTFOLIOS
Except as otherwise noted below, the following descriptions of
additional investment policies and techniques are applicable to all of the
Portfolios.
Foreign Investments
The Cash Management Portfolio, High Income Bond Portfolio, and U.S.
Government Bond Portfolio may invest without limit, except as applicable to
securities generally, in securities principally traded in foreign markets
which meet the criteria applicable to the Portfolio's domestic investments,
and in certificates of deposit issued by United States branches of foreign
banks and foreign branches of United States banks (except that, under normal
market conditions, at least 80% of the assets of the U.S. Government Bond
Portfolio will be invested in U.S. Government Securities). Investment by the
Common Stock Portfolio, the Multiple Strategies Portfolio, the Tilt Utility
Portfolio, the Growth & Income Portfolio and the Small Cap Portfolio in
foreign securities is subject to the limitations set forth above under
Investment Objectives and Policies of the Portfolios. The World Equity
Portfolio may invest without limitation in securities of foreign issuers. In
the case of the Cash Management Portfolio, foreign debt securities must be
United States dollar-denominated.
The Portfolios may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"). ADRs are securities,
typically issued by a U.S. financial institution (a "depositary"), that
evidence ownership interests in a security or a pool of securities issued by a
foreign issuer and deposited with the depositary. ADRs include American
Depositary Shares and New York Shares.
The Growth & Income Portfolio, Small Cap Portfolio and World
Equity Portfolio may also invest in Global Depositary Receipts ("GDRs"). GDRs
which are sometimes referred to as Continental Depositary Receipts ("CDRs")
are securities, typically issued by a non-U.S. financial institution, that
evidence ownership interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established
by a depositary without participation by the issuer of the receipt's
underlying security. Holders of an unsponsored depositary receipt generally
bear all the costs of the unsponsored facility. The depositary of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security
or to pass through to the holders of the receipts voting rights with respect
to the deposited securities.
Investments in the securities of foreign entities and securities
denominated in foreign currencies involve risks not typically involved in
domestic investment, including fluctuations in foreign exchange rates, future
foreign political and economic developments, and the possible imposition of
exchange controls or other foreign or United States governmental laws or
restrictions applicable to such investments. Where a Portfolio invests in
securities denominated or quoted in currencies other than the United States
dollar, changes in foreign currency exchange rates may affect the value of
investments in a Portfolio and the accrued income and unrealized appreciation
or depreciation of investments. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of a Portfolio's
assets denominated in that currency and a Portfolio's yield on such assets.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investment in those
countries. There may be less publicly available information about a foreign
security than about a United States security, and foreign entities may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition,
certain foreign investments made by a Portfolio may be subject to foreign
withholding taxes, which would reduce a Portfolio's total return on such
investments and the amounts available for distribution by a Portfolio to its
shareholders. Foreign financial markets, while growing in volume, have, for
the most part, substantially less volume than United States markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of
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comparable domestic companies. The foreign markets also have different
clearance and settlement procedures and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of a
Portfolio are not invested and no return is earned thereon. The inability of a
Portfolio to make intended security purchases due to settlement problems could
cause a Portfolio to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result either
in losses to a Portfolio due to subsequent declines in value of the portfolio
security or, if a Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser. Costs associated with
transactions in foreign securities, including custodial costs and foreign
brokerage commissions, are generally higher than with transactions in United
States securities. In addition, a Portfolio will incur costs in connection
with conversions between various currencies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States.
Each Portfolio may engage in foreign currency exchange transactions in
connection with its foreign investments.
A more detailed explanation of foreign investments, and the risks
associated with them, is included in the Statement of Additional Information.
Securities Loans, Repurchase Agreements and Forward Commitments
The Trust may lend portfolio securities of any Portfolio other than the
Cash Management Portfolio to broker-dealers and may enter into repurchase
agreements. These transactions must be fully collateralized at all times, but
involve some risk to a Portfolio if the other party should default on its
obligation and the Portfolio is delayed or prevented from recovering the
collateral. Each Portfolio may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
The Trust may, on behalf of each of the Portfolios, enter into reverse
repurchase agreements, which involve the sale by the Portfolio of securities
held by it with an agreement to repurchase the securities at an agreed upon
price, date, and interest payment. The Portfolios will use the proceeds of the
reverse repurchase agreements to purchase securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. A Portfolio will use reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the
reverse repurchase transaction.
Foreign Currency Exchange Transactions
Each Portfolio which invests in foreign securities may engage in
foreign currency exchange transactions to protect against uncertainty in the
level of future currency exchange rates. The Portfolios may engage in foreign
currency exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect against changes in
the value of specific portfolio positions ("position hedging").
A Portfolio may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which the
Portfolio contracts to purchase or sell a security and the settlement date, or
to "lock in" the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. The Portfolio may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in a foreign
currency.
If conditions warrant, a Portfolio may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts"),
and may purchase and sell foreign currency futures contracts, as a hedge
against changes in foreign currency exchange rates between the trade and
settlement dates on particular transactions and not for speculation. A foreign
currency forward contract is a negotiated agreement to exchange currency at a
future time at a rate or rates that may be higher or lower than the spot rate.
Foreign currency futures contracts are standardized exchange-traded contracts
and have margin requirements. For transaction hedging purposes, these
Portfolios may also purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
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A Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which their
portfolio securities are denominated or quoted (or an increase in value of a
currency in which securities the Portfolio expects to buy are denominated).
For position hedging purposes, a Portfolio may purchase or sell foreign
currency futures contracts and foreign currency forward contracts, and may
purchase and sell put and call options on foreign currency futures contracts
and on foreign currencies. In connection with position hedging, a Portfolio
may also purchase or sell foreign currency on a spot basis. Hedging
transactions involve costs and may result in losses. A Portfolio may also
engage in foreign currency exchange transactions not involving the receipt or
delivery of U.S. dollars.
The currencies of certain Eastern European countries are not widely
traded, and the foreign currency exchange transactions described above may not
be available with respect to those currencies.
Options
For hedging purposes only, each Portfolio other than the Cash
Management Portfolio may write covered call options and covered put options on
securities it owns or in which it may invest. In addition, for hedging
purposes only, the Growth & Income Portfolio and the Small Cap Portfolio may
buy put options, buy call options and write put options. When a Portfolio
writes a call option, it gives up the opportunity to profit from any increase
in the price of a security above the exercise price of the option; when it
writes a put option, a Portfolio takes the risk that it will be required to
purchase a security from the option holder at a price above the current market
price of the security. A Portfolio may terminate an option that it has written
prior to its expiration by entering into a closing purchase transaction in
which it purchases an option having the same terms as the option written. A
Portfolio may also from time to time buy and sell combinations of put and call
options on the same underlying security. The Portfolios' use of these
strategies may be limited by applicable law.
Futures Contracts
To hedge against the effects of adverse market changes, each Portfolio
other than the Cash Management Portfolio may buy and sell futures contracts on
debt securities and securities indexes. In addition, each Portfolio may, for
hedging purposes, purchase and sell call and put options on such futures or on
securities indices themselves, and engage in closing sale and purchase
transactions with respect to such options.
When interest rates are rising or stock prices are falling, futures
contracts and related options can offset a decline in the value of a
Portfolio's securities. When rates are falling or stock prices are rising,
futures contracts and related options can secure better rates or prices for
the Portfolio than might later be available in the market when it makes
anticipated purchases.
Initial margin deposits for futures contracts and premiums paid for
outstanding options on futures contracts may not be more than 5% of any
Portfolio's total assets. These transactions involve brokerage costs and
require the Portfolio to segregate assets to cover its futures contracts and
related options positions. The use of futures contracts may involve certain
special risks. Futures transactions involve costs and may result in losses.
For example, a Portfolio may lose the expected benefit of the transactions if
interest rates or stock prices move in an unanticipated manner. Such
unanticipated changes in interest rates or stock prices may also result in
poorer overall performance by a Portfolio than if the Portfolio had not
entered into any futures and options transactions. For more information, see
Futures Contracts in the Statement of Additional Information.
Portfolio Turnover
It is expected that each Portfolio may have relatively high portfolio
turnover, which would involve brokerage and transactions costs. Portfolio
turnover generally involves some expense to a Portfolio, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities. Portfolio turnover rates for
each of the Portfolios (except the Growth & Income Portfolio and the Small Cap
Portfolio) are shown in the section The Trust's Financial History.
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The Growth & Income Portfolio will effect portfolio transactions
without regard to holding period, if, in its judgment, such transactions are
advisable in light of general market, economic or financial conditions. As a
result, the Portfolio may engage in a substantial number of portfolio
transactions which could cause the portfolio turnover rate to exceed 100%,
although under normal conditions the Portfolio does not anticipate that its
annual portfolio turnover rate will exceed 100%. However, it is impossible to
predict portfolio turnover rates.
It is anticipated that the annual turnover rate for the Small Cap
Portfolio will exceed 100%. A portfolio turnover rate in excess of 100%
increases brokerage and transaction costs and may result in a possible
increase in short-term capital gains (or losses).
Borrowing
Each of the Portfolios may borrow money to the extent permitted by each
Portfolio's Investment Restrictions contained in the SAI. For purposes of such
Restrictions, short sales, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financing (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.
MANAGEMENT OF THE TRUST
Investment Adviser
Under an Investment Advisory Agreement dated September 22, 1994, First
Variable Advisory Services Corp. ("Adviser") manages the business and affairs
of the Portfolios and the Trust, subject to the control of the Board of
Trustees of the Trust. Adviser has served as investment adviser to all
Portfolios of the Trust since April 1, 1994. Adviser has had no previous
experience in advising a mutual fund.
Prior to April 1, 1994, INVESCO Capital Management, Inc. ("INVESCO")
had acted as investment adviser to all Portfolios of the Trust.
Adviser is a Massachusetts corporation which was incorporated on
October 8, 1993 and which is registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940
("Advisers Act"). Adviser is a wholly-owned subsidiary of First Variable Life,
which is a wholly-owned subsidiary of Irish Life of North America, Inc., a
Delaware corporation ("ILoNA"). ILoNA is a wholly-owned subsidiary of Irish
Life plc ("Irish Life"). Irish Life was formed in 1939 through a consolidation
of a number of Irish and British Life offices transacting business in Ireland.
As of the end of 1994, the Irish Life consolidated group had in excess of $9
billion in assets.
Under the Investment Advisory Agreement, the Adviser is obligated to
formulate a continuing program for the investment of the assets of each
Portfolio of the Trust in a manner consistent with each Portfolio's investment
objectives, policies and restrictions and to determine from time to time
securities to be purchased, sold, retained or lent by the Trust and implement
those decisions. The Investment Advisory Agreement also provides that Adviser
shall manage the Trust's business and affairs and shall provide such services
required for effective administration of the Trust as are not provided by
employees or other agents engaged by the Trust. The Investment Advisory
Agreement further provides that Adviser shall furnish the Trust with office
space and necessary personnel, pay ordinary office expenses, pay all executive
salaries of the Trust and furnish, without expense to the Trust, the services
of such members of its organization as may be duly elected officers or
Trustees of the Trust. The Investment Advisory Agreement provides that Adviser
may retain sub-advisers, at Adviser's own cost and expense, for the purpose of
making investment recommendations and research information available to the
Trust.
As full compensation for its services under the Investment Advisory
Agreement, the Trust pays Adviser a monthly fee at the annual rates shown in
the table below based on the average daily net assets of each Portfolio.
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Advisory Fee (Annual Rate based on average
Portfolio daily net assets of each Portfolio)
Cash Management .50% of first $70 million
.45% of average net assets over and above
$70 million
Common Stock .70% of average net assets
High Income Bond .70% of first $40 million
.65% of next $20 million
.55% of next $15 million
.50% of average net assets over and above
$75 million
World Equity .70% of first $200 million
.625% of next $300 million
.50% of average net assets in excess of
$500 million
Multiple Strategies .70% of average net assets
Tilt Utility .65% of first $100 million
.55% of average net assets over and above
$100 million
U.S. Government .60% of first $200 million
Bond .50% of average net assets over and above
$200 million
Growth & Income .75% of average net assets
Small Cap .85% of average net assets
The Adviser and First Variable Life have agreed that they will, if
necessary, pay the expenses of each Portfolio of the Trust until April 1, 1997
to the extent that expenses of a Portfolio, other than Adviser's compensation,
exceed the annual rate of 0.50% of a Portfolio's average net assets (0.25% in
the case of the Cash Management Portfolio and the U.S. Government Bond
Portfolio). Monarch Life, First Variable Life and Adviser have entered into an
Expense Sharing Agreement under the terms of which Monarch Life will reimburse
First Variable Life for Monarch Life's share of the expense reimbursement, on
a pro-rata basis based on the percentage of the total dollar value of the
assets of each of the Portfolios of the Trust held by Monarch Life.
First Variable Life and the Adviser have entered into an Investment
Advisory Services Agreement, dated April 1, 1994, the purpose of which is to
ensure that the Adviser, which is minimally capitalized, has adequate
facilities and financing for the carrying on of its business. Under the terms
of the Agreement, First Variable Life is obligated to provide the Adviser with
adequate capitalization in order for the Adviser to meet any minimum capital
requirements. First Variable Life is further obligated to reimburse the
Adviser or assume payment for any obligation incurred by the Adviser and to
provide the Adviser with facilities and personnel sufficient for the Adviser
to perform its obligations under the Investment Advisory Agreement.
For the period from January 1, 1994 through March 31, 1994, the
Portfolios paid fees to INVESCO, the former investment adviser to the Trust,
under the then existing Investment Advisory and Business Management
Agreements, amounting to the following percentages of their net assets: Cash
Management Portfolio -.50%; U.S. Government Bond Portfolio -.60%; High Income
Bond Portfolio -.70%; Common Stock Portfolio -.70%; Multiple Strategies
Portfolio -.70%; Equity Income Portfolio (now known as the Tilt Utility
Portfolio) -.70%; and World Equity Portfolio - .70%. For the period from April
1, 1994 through December 31, 1994, the Portfolios paid investment advisory
fees to the Adviser under the Investment Advisory Agreement, amounting to the
following percentages of their net assets: Cash Management Portfolio -.75%;
U.S. Government Bond Portfolio -.85%; High Income Bond Portfolio -1.20%;
Common Stock Portfolio -1.20%; Multiple Strategies Portfolio -1.20%; Equity
Income Portfolio (now known as the Tilt Utility Portfolio) -1.15%; and World
Equity Portfolio -1.20%.
During fiscal 1995, total expenses, including investment advisory fees,
of each of the Portfolios amounted to the following percentages of average net
assets, reflecting an expense limitation in effect during the period: Cash
Management Portfolio -.75%; Common Stock Portfolio -1.17%; High Income Bond
Portfolio - 1.20%; Multiple
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Strategies Portfolio -1.20%; U.S. Government Bond Portfolio -.85%; Tilt
Utility Portfolio (formerly known as the Equity Income Portfolio) -1.15%;
World Equity Portfolio 1.20%; Small Cap Portfolio - 1.35%; and Growth & Income
Portfolio - 1.25%. The expense limitation currently in effect is described
above.
Sub-Advisers
In accordance with each Portfolio's investment objective and policies
and under the supervision of Adviser and the Trust's Board of Trustees, each
Portfolio's Sub-Adviser is responsible for the day to day investment
management of the Portfolio, makes investment decisions for the Portfolio and
places orders on behalf of the Portfolio to effect the investment decisions
made. The following organizations act as Sub-Advisers to the Portfolios:
Federated Investment Counseling ("Federated"), Federated Investors Tower,
Pittsburgh, PA 15222, is the Sub-Adviser for the Cash Management Portfolio and
the High Income Bond Portfolio. Federated, organized as a Delaware business
trust on April 11, 1989, is registered as an investment adviser under the
Advisers Act. Federated acts as investment adviser to corporate clients, as
well as sub-adviser to separate accounts of variable annuity and life
insurance products. As of December 31, 1994, Federated had $1.3 billion in
assets under management.
Federated is a wholly-owned subsidiary of FII Holdings, Inc., which is a
wholly-owned subsidiary of Federated Investors, Inc., which in turn is a
wholly-owned subsidiary of Federated Investors.
Ms. Deborah A. Cunningham is the portfolio manager for Federated for
the Cash Management Portfolio. Ms. Cunningham joined Federated Investors in
1981, and has been a Vice President of other advisory affiliates of Federated
since 1993. Ms. Cunningham served as an Assistant Vice President of other
advisory affiliates of Federated from 1989 until 1992, and from 1986 until
1989 she acted as an investment analyst. Ms. Cunningham is a Chartered
Financial Analyst and received her MSBA in Finance from Robert Morris College.
Mr. Mark E. Durbiano is the portfolio manager for Federated for the
High Income Bond Portfolio. Mr. Durbiano joined Federated Investors in 1982
and has been a Vice President of advisory affiliates of Federated since 1990.
Mr. Durbiano is a Chartered Financial Analyst and received his MBA in Finance
from the University of Pittsburgh.
Under the terms of the Sub-Advisory Agreement, Adviser pays to
Federated, as full compensation for services rendered under the Agreement with
respect to the Cash Management Portfolio, an annual fee equal to:
.25 of 1% on an annualized basis of the first $70 million
of net assets under management; and .20 of 1% on an annualized basis of any
net assets under management over and above $70 million and with respect to the
High Income Bond Portfolio, an annual fee equal to:
.45 of 1% on an annualized basis of the first $40 million
of net assets under management; and .40 of 1% on an annualized basis of any
net assets under management over and above $40 million but not exceeding $60
million; and .30 of 1% on an annualized basis of any net assets under
management over and above $60 million but not exceeding $75 million; and .25
of 1% on an annualized basis of any net assets under management over and above
$75 million.
Value Line, Inc. ("Value Line"), 220 East 42nd Street, New York, NY
10017-5891, is the Sub-Adviser for the Common Stock Portfolio and the Multiple
Strategies Portfolio.
Value Line was organized in 1982 and is the successor to substantially
all of the operations of Arnold Bernhard & Co., Inc. ("AB&Co."). Value Line
was formed as part of a reorganization of AB&Co., a sole proprietorship formed
in 1931 which became a New York corporation in 1946. AB&Co. currently owns
approximately 81% of the outstanding shares of Value Line's common stock. Jean
Bernhard Buttner, Chairman, Chief Executive Officer and President of Value
Line, owns a majority of the voting stock of AB&Co. All of the non-voting
stock is owned by or for the benefit of the Bernhard family and employees and
former employees of AB&Co. or Value Line. Value Line currently acts as
investment adviser to the other Value Line mutual funds and furnishes
investment counseling services to private and institutional accounts with
combined assets in excess of $4 billion.
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The day to day portfolio management of the Common Stock Portfolio and
the Multiple Strategies Portfolio is the responsibility of a committee
composed of persons who are officers or employees of Value Line.
For the services provided by Value Line, pursuant to the terms of the
Sub-Advisory Agreement, Adviser pays an annual gross sub-advisory fee equal to
.45% of the average daily net assets of each of the Common Stock and Multiple
Strategies Portfolios.
Strong Capital Management, Inc. ("Strong"), One Hundred Heritage Reserve, P.O.
Box 2936, Milwaukee, WI 53201-2936, is the Sub-Adviser for the U.S. Government
Bond Portfolio.
Strong began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for mutual
funds, individuals, and institutional accounts, such as pension funds and
profit-sharing plans. As of March 31, 1995, Strong had over $12 billion under
management. Mr. Richard S. Strong is the controlling shareholder of Strong.
Strong also acts as investment adviser for each of the mutual funds comprising
the Strong Family of Funds.
Mr. Bradley C. Tank is the portfolio manager for Strong for the U.S.
Government Bond Portfolio. Before joining Strong in June, 1990, Mr. Tank spent
eight years at Salomon Brothers, Inc., where he was a fixed income specialist
and, for the last six years, a vice president. He has managed or co-managed
the Strong Advantage Fund, the Strong Short-Term Bond Fund, the Strong
Government Securities Fund, the Strong Corporate Bond Fund and the Strong
Asset Allocation Fund since he joined Strong. Mr. Tank received his B.A. in
1980 from the University of Wisconsin-Eau Claire and his M.B.A. in 1982 from
the University of Wisconsin-Madison, where he also completed the Applied
Securities Analysis Program.
For the services provided by Strong, pursuant to the terms of the
Sub-Advisory Agreement, Adviser pays an annual fee to Strong as follows:
[bullet] an annual rate of .35 of 1% of the Portfolio's average daily net
asset value of the first $200 million of the Portfolio's net assets
under management; and
[bullet] an annual rate of .25 of 1% of the Portfolio's average daily net
asset value of any assets of the Portfolio under management over and
above $200 million.
State Street Bank and Trust Company ("State Street"), Two International Place,
Boston, MA 02110, is the Sub-Adviser for the Tilt Utility Portfolio.
State Street has over $142 billion under management. State Street
Global Advisors provides the investment management for the Portfolio. State
Street Global Advisors is the investment management division of State Street
and had over $132 billion under management as of March 31, 1994.
The Portfolio managers of State Street Global Advisors use a team
approach in managing the Portfolio. The team of managers responsible for the
Portfolio includes: Douglas T. Holmes, Anthony W. Ryan, Ben J. Salm, Jeffrey
P. Adams, Leigh Sneddon and Catherine Ryan.
For the services provided by State Street, Adviser pays State Street
monthly a fee at the annual rate of .40% of the average daily net assets of
the Portfolio on the first $100 million of net assets under management and
.30% of the average daily net assets of the Portfolio on any net assets under
management over and above $100 million.
Keystone Investment Management Company ("Keystone") (formerly Keystone
Custodian Funds, Inc.), 200 Berkeley Street, Boston, MA 02116-5034, is the
Sub-Adviser for the World Equity Portfolio.
Keystone was organized in 1932 as a Delaware corporation. Keystone is a
wholly-owned subsidiary of Keystone Group, Inc. ("Keystone Group"). Keystone
Group is a corporation privately owned by members of management of Keystone
and its affiliates. The shares of Keystone Group common stock beneficially
owned by management are held in a number of voting trusts, the trustees of
which are executive officers of Keystone Group.
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Keystone and its affiliates engage principally in providing various
financial services, including investment advisory, management and/or
administrative services to 31 mutual funds, as well as private and
institutional accounts, with combined assets of approximately $9.8 billion.
Mr. Gilman C. Gunn, III is the portfolio manager for Keystone for the
foreign equity component of the World Equity Portfolio. Mr. Gunn has been
Senior Vice President, Senior Portfolio Manager for Keystone and head of
Keystone's international group for three years. Prior to that he headed a
global investment department at Citibank in London. Mr. Gunn received a BA
from Florida State University and an MBA from New York University.
Christopher R. Ely is the portfolio manager for Keystone for the U.S.
equity component of the World Equity Portfolio. Mr. Ely is a Vice President
and Senior Portfolio Manager of Keystone. Prior to joining Keystone in 1986,
Mr. Ely was an analyst for SunLife of Canada and a technology analyst with
Fleet National Bank. Mr. Ely is a Chartered Financial Analyst. Mr. Ely
received his B.A. from Brown University and his MBA from Babson College.
For the services provided by Keystone, Adviser pays Keystone monthly an annual
fee as follows:
.45 of 1% on an annualized basis of the first $200 million
of net assets under management;
.375 of 1% on an annualized basis of any net assets under
management over and above $200 million but not exceeding $500 million; and
.25 of 1% on an annualized basis of any net assets under
management over and above $500 million.
Warburg, Pincus Counsellors, Inc. ( WPC ), 466 Lexington Avenue, New York, New
York 10017-3147, is the Sub-Adviser for the Growth & Income Portfolio. WPC is
a wholly-owned subsidiary of Warburg, Pincus Counsellors G.P. WPC, organized
in 1970, is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowment
funds, foundations and other institutions and individuals. WPC currently
manages over $9.0 billion in assets, of which approximately $4.0 billion are
investment companies.
Anthony G. Orphanos, a Managing Director of WPC who has been with WPC
for the last sixteen years, is Chief Investment Officer and is responsible for
the day-to-day management of the Growth & Income Portfolio's investments.
For the services provided by WPC, Adviser pays WPC monthly an annual
fee equal to .50% of the average daily net assets of the Portfolio.
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"), 1255 Drummers Lane,
Wayne, Pennsylvania 19087, is the Sub-Adviser for the Small Cap Portfolio.
Pilgrim Baxter is a professional investment management firm and registered
investment adviser that, along with its predecessor, Pilgrim Baxter Greig &
Associates, Ltd., has been in business since 1982. On April 28, 1995, Pilgrim
Baxter became affiliated with United Asset Management, a public company which
currently manages over $104 billion through 42 investment management
affiliates. This change has no effect on Pilgrim Baxter's operating structure,
fee structure or investment disciplines. As of May 1, 1995, Pilgrim Baxter had
discretionary management authority with respect to approximately $5 billion in
assets. In addition to advising the Portfolio, Pilgrim Baxter provides
advisory services to pension plans, corporations, 401(k) plans, profit sharing
plans, individual investors, trusts and estates, and other investment
companies.
Gary L. Pilgrim, CFA, and Michael D. Jones are responsible for the
day-to-day management of the Small Cap Portfolio's investments. Mr. Pilgrim
has been the Chief Investment Officer of Pilgrim Baxter for the past five
years and its President since 1993. Mr. Jones has been a portfolio manager
with Pilgrim Baxter since February, 1995. From June, 1990 until February,
1995, Mr. Jones was a portfolio manager with The Bank of New York. Prior
thereto, from July, 1985 to June, 1990, Mr. Jones was an investment analyst at
Fifth Third Bank of Toledo.
For the services provided by Pilgrim Baxter, Adviser pays Pilgrim
Baxter monthly an annual fee equal to .60% of the average daily net assets of
the Portfolio.
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SALES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of each Portfolio based on, among other
things, the amount of premium payments to be invested and surrender and
transfer requests to be effected on that day pursuant to VA contracts and VLI
policies. Orders received by the Trust are effected on days on which the New
York Stock Exchange is open for trading, at the net asset value per share next
determined after receipt of the order, except that, in the case of the Cash
Management Portfolio, purchases will not be effected until the next
determination of net asset value after federal funds have been made available
to the Trust. For orders received before 4:00 p.m. New York time, such
purchases and redemptions of shares of each Portfolio are effected at the
respective net asset values per share determined as of 4:00 p.m. New York time
on that day. See Net Asset Value, below and Determination of Net Asset Value
in the Trust's Statement of Additional Information. Payment for redemptions
will be made within seven days after receipt of a redemption request in good
order. No fee is charged to the separate accounts of the Participating
Insurance Companies when they redeem Portfolio shares. The Trust may suspend
the sale of shares at any time and may refuse any order to purchase shares.
The Trust may suspend the right of redemption of shares of any
Portfolio and may postpone payment for any period: (i) during which the New
York Stock Exchange is closed other than for customary weekend and holiday
closings or during which trading on the New York Stock Exchange is restricted;
(ii) when the Securities and Exchange Commission determines that a state of
emergency exists which makes the sale of portfolio securities or the
determination of net asset value not reasonably practicable; (iii) as the
Securities and Exchange Commission may by order permit for the protection of
the security holders of the Trust; or (iv) at any time when the Trust may,
under applicable laws and regulations, suspend payment on the redemption of
its shares.
Should any conflict between VA contract and VLI policy holders arise
which would require that a substantial amount of net assets be withdrawn from
the Trust, orderly portfolio management could be disrupted to the potential
detriment of such contract and policy holders.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing
the total value of its assets, less liabilities, by the number of shares
outstanding. Shares are valued as of 4:00 p.m. on each day the New York Stock
Exchange is open.
The Cash Management Portfolio values its portfolio investments at
amortized cost according to Securities and Exchange Commission Rule 2a-7. The
amortized cost of an instrument is determined by valuing it at cost originally
and thereafter amortizing any discount or premium from its face value at a
constant rate until maturity.
Because foreign securities are quoted in foreign currencies which will
be translated into U.S. dollars at the New York cable transfer rates or at
such other value rates as the Trustees may determine in computing net asset
value, fluctuations in the value of such currencies in relation to the U.S.
dollar will affect the net asset value of shares of a Portfolio investing in
foreign securities even though there has not been any change in the values of
such securities.
PERFORMANCE INFORMATION
Cash Management Portfolio: From time to time, the Cash Management
Portfolio's annualized "yield" and "effective yield" may be presented in
advertisements and sales literature. The Portfolio's "yield" represents an
annualization of the increase in value of an account (excluding any capital
changes) invested in the Portfolio for a specific seven-day period. The
Portfolio's "effective yield" compounds such yield for a year and thus is
greater than the Portfolio's yield.
Other Portfolios: Performance information for each of the other
Portfolios may also be presented from time to time in advertisements and sales
literature. A Portfolio's "yield" is calculated by dividing the Portfolio's
annualized net investment income per share during a recent 30-day period by
the Portfolio's net asset value per share on the last day of the period. A
Portfolio's total return is quoted both for the life of the Portfolio and for
the one-year period and, where applicable, the five-year period through the
most recent calendar quarter and is determined by calculating the change in
value of a hypothetical $1,000 investment in the Portfolio for each of those
periods. (In the case of the Common Stock
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Portfolio, total return calculations are presented for the one-, five-, and
ten-year periods through the most recent calendar quarter.) Total return
calculations assume reinvestment of all Portfolio distributions from net
investment income and net realized gains.
All performance information presented for the Portfolios is based on
past performance and does not predict future performance. Any Portfolio
performance information presented will also include or be accompanied by
performance information for the insurance company separate accounts investing
in the Trust which will take into account insurance-related charges and
expenses under such insurance policies and contracts.
Advertisements concerning the Trust may from time to time compare the
performance of one or more Portfolios to various indices. Advertisements may
also contain the performance rankings assigned certain Portfolios or their
advisers by various publications and statistical services, including, for
example, SEI, Lipper Analytical Services Mutual Funds Survey, Lipper Variable
Insurance Products Performance Analysis Service, Morningstar, Intersec
Research Survey of Non-U.S. Equity Fund Returns, Frank Russell International
Universe, Sylvia Porter Personal Finance, and Financial Services Week. Any
such comparisons or rankings are based on past performance and the statistical
computation performed by publications and services, and are not necessarily
indications of future performance. Because the Portfolios are managed
investment vehicles investing in a wide variety of securities, the securities
owned by a Portfolio will not match those making up an index.
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
Each Portfolio of the Trust intends to qualify and elect to be treated
as a regulated investment company that is taxed under the rules of Subchapter
M of the Internal Revenue Code. As such an electing regulated investment
company, a Portfolio will not be subject to federal income tax on its net
ordinary income and net realized capital gains to the extent such income and
gains are distributed to the separate accounts of the Participating Insurance
Companies which hold its shares. For further information concerning federal
income tax consequences for the holders of the VA contracts and VLI policies
and the insurance companies issuing such contracts and policies, investors
should consult the prospectus used in connection with the issuance of their
particular contracts or policies.
The Cash Management Portfolio will declare a dividend of its net
ordinary income daily and distribute such dividend monthly. Distributions will
be made shortly after the first business day of each month following
declaration of the dividend. Each of the other Portfolios will declare and
distribute dividends from net ordinary income at least annually and will
distribute its net realized capital gains, if any, at least annually.
Distributions of ordinary income and capital gains will be made in shares of
such Portfolios unless an election is made on behalf of a separate account to
receive distributions in cash. Participating Insurance Companies will be
informed at least annually about the amount and character of distributions
from the Trust for federal income tax purposes.
ADDITIONAL INFORMATION
The Trust was established as a Massachusetts business trust
under the laws of Massachusetts by an Agreement and Declaration of Trust dated
December 23, 1986 (the "Declaration of Trust"). Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. The
Declaration of Trust contains an express disclaimer of shareholder liability
in connection with Trust property or the acts, obligations, or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Portfolio's property of any shareholder of that Portfolio held personally
liable for the claims and liabilities to which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio itself would be unable to meet
its obligations. A copy of the Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial
interest. Shares of the Trust are entitled to one vote per share (with
proportional voting for fractional shares) and are freely transferable, and,
in liquidation of a Portfolio, shareholders of the Portfolio are entitled to
receive pro rata the net assets of the Portfolio. Although no Portfolio is
required to hold annual meetings of its shareholders, shareholders have the
right to call a meeting to elect or remove Trustees or to take other actions
as provided in the Declaration of Trust. Shareholders have no preemptive
rights. The Trust's transfer and dividend-paying agent and custodian is State
Street Bank and Trust Company, 225
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Franklin Street, Boston, Massachusetts 02110. State Street Bank and Trust
Company also provides certain administrative services to the Trust.
All of the shares of each of the Portfolios are currently owned by First
Variable Life and Monarch Life pursuant to variable annuity contracts issued
to contract owners of First Variable Life Annuity Funds A, E, and M and
Monarch Life Separate Accounts VA and VA-3. First Variable Life and Monarch
Life have, however, agreed to vote their shares in proportion to and in the
manner instructed by contract owners. The only person known to First Variable
Life or Monarch Life to own, of record or beneficially, more than 20% of the
outstanding variable annuity accumulation units of Funds A, E or M or Separate
Accounts VA or VA-3 is the State of Arkansas which owned, on March 31, 1996, a
total of 303,392 accumulation units of Fund A, or 71% of the then outstanding
accumulation units (which is representative of 13.9% of the outstanding shares
of the Trust). The State's ownership of variable annuity contracts arises
pursuant to non-qualified deferred compensation plans sponsored by the State
for the benefit of plan participants. By virtue of the foregoing, both First
Variable Life and the State of Arkansas may be deemed to be controlling
persons of each of the Portfolios.
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PART B
42
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VARIABLE INVESTORS SERIES TRUST
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
This Statement of Additional Information contains information which may be
of interest to investors but which is not included in the Prospectus of Variable
Investors Series Trust (the "Trust"). This Statement is not a prospectus and is
only authorized for distribution when accompanied or preceded by the Prospectus
of the Trust dated May 1, 1996. This Statement should be read together with the
Prospectus. Investors may obtain a free copy of the Prospectus by calling First
Variable Advisory Services Corp., the Trust's investment adviser, at (800)
228-1035.
Table of Contents
Part I PAGE
DEFINITIONS
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
INVESTMENT RESTRICTIONS
MANAGEMENT OF THE TRUST
DETERMINATION OF NET ASSET VALUE
TAXES
DIVIDENDS AND DISTRIBUTIONS
PERFORMANCE INFORMATION
SHAREHOLDER COMMUNICATIONS
ORGANIZATION AND CAPITALIZATION
PORTFOLIO TURNOVER
CUSTODIAN
INDEPENDENT AUDITORS
SHAREHOLDER LIABILITY
FIXED-INCOME SECURITY RATINGS
FINANCIAL STATEMENTS
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VARIABLE INVESTORS SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION
DEFINITIONS
The "Trust" - Variable Investors Series Trust.
-
"Adviser" - First Variable Advisory Services
Corp., the Trust's Investment
adviser.
INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST
The Trust currently offers shares of beneficial interest of nine series
(the "Portfolios") with separate investment objectives and policies. The
investment objectives and policies of each of the Portfolios of the Trust are
described in the Prospectus. This Statement contains additional information
concerning certain investment practices and investment restrictions of the
Trust.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this Statement are
not fundamental, and the Trustees may change the investment objectives and
policies of a Portfolio without an affirmative vote of shareholders of the
Portfolio.
Except as otherwise noted below, the following descriptions of certain
investment policies and techniques are applicable to all of the Portfolios.
Options
For hedging purposes only, each Portfolio other than the Cash Management
Portfolio may write covered call options and covered put options on securities
it owns or in which it may invest. In addition, for hedging purposes only, the
Growth & Income Portfolio and the Small Cap Portfolio may buy put options, buy
call options and write put options.
Covered call options. Each Portfolio other than the Cash Management
Portfolio may write covered call options on portfolio securities and indexes as
a limited form of hedging against a decline in the price of securities owned by
the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
portfolio securities.
In return for the premium received when it writes a covered call option,
the Portfolio gives up some or all of the opportunity to profit from an increase
in the market price of the securities covering the call option during the life
of the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the underlying
security and the proceeds of sale (exercise price minus commissions) plus the
amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an
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unexpected market rise. Any profits from a closing purchase transaction may be
offset by a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Trust.
Covered put options. Each Portfolio other than the Cash Management
Portfolio may write covered put options on securities and indexes as a limited
form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, the Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. Each Portfolio other than the Cash
Management Portfolio may also purchase put options to protect portfolio holdings
against a decline in market value. This protection lasts for the life of the put
option because the Portfolio, as a holder of the option, may sell the underlying
security or unit of the index at the exercise price regardless of any decline in
its market price. In order for a put option to be profitable, the market price
of the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs that the Portfolio must pay. These costs
will reduce any profit the Portfolio might have realized had it sold the
underlying security instead of buying the put option.
Each Portfolio other than the Cash Management Portfolio may purchase call
options to hedge against an increase in the price of securities that the
Portfolio wants ultimately to buy. Such hedge protection is provided during the
life of the call option since the Portfolio, as holder of the call option, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call option
to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. These costs will reduce any profit the Portfolio might have realized had
it bought the underlying security at the time it purchased the call option.
Combined Option Positions. A Portfolio may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Portfolio may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Options on foreign securities. The Trust may, on behalf of each of the
Portfolios other than the Cash Management Portfolio, purchase and sell options
on foreign securities if in the opinion of the Sub-Adviser of the particular
Portfolio the investment characteristics of such options, including the risks of
investing in such options, are consistent with the Portfolio's investment
objectives. It is expected that risks related to such options will not differ
materially from risks related to options on U.S. securities. However, position
limits and other rules of foreign exchanges may differ from those in the U.S. In
addition, options markets in some countries, many of which are relatively new,
may be less liquid than comparable markets in the U.S.
Risks involved in the sale of options. Options transactions involve certain
risks, including the risks that a Portfolio's Sub-Adviser will not forecast
interest rate or market movements correctly, that a Portfolio may be unable at
times to close out such positions, or that hedging transactions may not
accomplish their purpose because of imperfect market correlations.
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The successful use of these strategies depends on the ability of a Portfolio's
Sub-Adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when a Portfolio's Sub-Adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause the Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Trust's use
of options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of a Sub-Adviser may be considered such a group. These position limits may
restrict the Trust's ability to purchase or sell options on particular
securities.
Options which are not traded on national securities exchanges may be closed
out only with the other party to the option transaction. For that reason, it may
be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification as
a "regulated investment company" under the Internal Revenue Code, may also
restrict the Trust's use of options.
Futures Contracts
In order to hedge against the effects of adverse market changes, the Trust
may, on behalf of each Portfolio that may invest in debt securities, other than
the Cash Management Portfolio, buy and sell futures contracts on debt securities
of the type in which the Portfolio may invest and on indexes of debt securities.
In addition, the Trust may, on behalf of each Portfolio that may invest in
equity securities, purchase and sell stock index futures to hedge against
changes in stock market prices. The Trust may also, for hedging purposes,
purchase and write options on futures contracts of the type which such
Portfolios are authorized to buy and sell and may engage in related closing
transactions. All such futures and related options will, as may be required by
applicable law, be traded on exchanges that are licensed and regulated by the
Commodity Futures Trading Commission (the "CFTC").
Futures on Debt Securities and Related Options. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- the Trust
will legally obligate itself on behalf of the Portfolios to accept the future
delivery of the underlying security and pay the agreed price. By selling futures
on debt securities -- assuming a "short" position -- it will legally obligate
itself to make the future delivery of the security against payment of the agreed
price. Open futures positions on debt securities will be valued at the most
recent settlement price, unless that price does not in the judgment of persons
acting at the direction of the Trustees as to the valuation of the Trust's
assets reflect the fair value of the contract, in which case the positions will
be valued by or under the direction of the Trustees or such persons.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures positions taken by the Trust on behalf of a
Portfolio will usually be liquidated in this manner, the Trust may instead make
or take delivery of the underlying securities whenever it appears economically
advantageous to the Portfolio to do so. A clearing corporation associated with
the exchange on which futures are traded assumes responsibility for such closing
transactions and guarantees that the Trust's sale and purchase obligations under
closed-out positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish more
certainly than would otherwise be possible the effective rate of return on
portfolio securities. A Portfolio may, for example, take a "short" position in
the futures market by selling contracts for the future delivery of debt
securities held by the Portfolio (or securities having characteristics similar
to those held by the Portfolio) in order to hedge against an anticipated rise in
interest rates that would adversely affect the value
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of the Portfolio's portfolio securities. When hedging of this character is
successful, any depreciation in the value of portfolio securities may
substantially be offset by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Trust
expects to purchase for the Portfolio particular securities when it has the
necessary cash, but expects the rate of return available in the securities
markets at that time to be less favorable than rates currently available in the
futures markets. If the anticipated rise in the price of the securities should
occur (with its concomitant reduction in yield), the increased cost to the
Portfolio of purchasing the securities may be offset, at least to some extent,
by the rise in the value of the futures position taken in anticipation of the
subsequent securities purchase.
Successful use by the Trust of futures contracts on debt securities is
subject to the ability of a Portfolio's Sub-Adviser to predict correctly
movements in the direction of interest rates and other factors affecting markets
for debt securities. For example, if a Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
market prices of debt securities held by it and the prices of such securities
increase instead, the Portfolio will lose part or all of the benefit of the
increased value of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Portfolio has insufficient cash, it may have to sell securities to meet
daily maintenance margin requirements. The Portfolio may have to sell securities
at a time when it may be disadvantageous to do so.
The Trust may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, the holder or writer of an option may
terminate his position by selling or purchasing an option of the same series.
There is no guarantee that such closing transactions can be effected. The Trust
will be required to deposit initial margin and maintenance margin with respect
to put and call options on futures contracts written by it pursuant to brokers'
requirements, and, in addition, net option premiums received will be included as
initial margin deposits. See "Margin Payments" below. Compared to the purchase
or sale of futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to the Trust because the maximum amount
at risk is the premium paid for the options plus transactions costs. However,
there may be circumstances when the purchase of call or put options on a futures
contract would result in a loss to the Trust when the purchase or sale of the
futures contracts would not, such as when there is no movement in the prices of
debt securities. The writing of a put or call option on a futures contract
involves risks similar to those risks relating to the purchase or sale of
futures contracts.
Index Futures Contracts and Options. Each Portfolio other than the Cash
Management Portfolio may invest in debt index futures contracts and stock index
futures contracts, and in related options. A debt index futures contract is a
contract to buy or sell units of a specified debt index at a specified future
date at a price agreed upon when the contract is made. A unit is the current
value of the index. Debt index futures in which the Trust presently expects to
invest are not now available, although the Trust expects such futures contracts
to become available in the future. A stock index futures contract is a contract
to buy or sell units of a stock index at a specified future date at a price
agreed upon when the contract is made. A unit is the current value of the stock
index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Portfolio enters into a futures contract to buy 100 units of
the S&P 100 Index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $184 on that future date, the Portfolio will gain $400 (100
units x gain of $4). If the Portfolio enters into a futures contract to sell 100
units of the stock index at a specified future date at a contract price of $180
and the S&P 100 Index is at $182 on that future date, the Portfolio will lose
$200 (100 units x loss of $2).
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The Trust does not presently expect to invest in debt index futures
contracts. Stock index futures contracts are currently traded with respect to
the S&P 100 Index on the Chicago Mercantile Exchange, and with respect to other
broad stock market indexes, such as the New York Stock Exchange Composite Stock
Index, which is traded on the New York Futures Exchange, and the Value Line
Composite Stock Index, which is traded on the Kansas City Board of Trade, as
well as with respect to narrower "sub-indexes" such as the S&P 100 Energy Stock
Index and the New York Stock Exchange Utilities Stock Index. A Portfolio may
purchase or sell futures contracts with respect to any stock indexes. Positions
in index futures may be closed out only on an exchange or board of trade which
provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, the Trust must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Portfolio's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Portfolios which may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an index
at a stated exercise price during the term of the option. Instead of giving the
right to take or make actual delivery of securities, the holder of an index
option has the right to receive a cash "exercise settlement amount". This amount
is equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of the exercise, multiplied by a fixed
"index multiplier".
A Portfolio may purchase or sell options on stock indices in order to close
out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on an index involves less potential risk to the Trust because the
maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
Margin Payments. When a Portfolio purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to the Trust upon termination of the contract, assuming the Trust satisfies its
contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the price of the
underlying debt security rises above the delivery price, the Portfolio's
position declines in value. The Portfolio then pays the broker a variation
margin payment equal to the difference between the delivery price of the futures
contract and the market price of the securities underlying the futures contract.
Conversely, if the price of the underlying security falls below the delivery
price of the contract, the Portfolio's futures position increases in value. The
broker then must make a variation margin payment equal to the difference between
the delivery price of the futures contract and the market price of the
securities underlying the futures contract.
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When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity risks. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, the Trust would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although the Trust generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that the Trust would have to exercise the
options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of the Trust's securities which are the subject
of the hedge. A Portfolio's Sub-Adviser will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the prices of the underlying
securities or index and the Trust's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for hedging
purposes is also subject to a Portfolio's Sub-Adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where a
Portfolio has purchased puts on futures contracts to hedge its portfolio against
a decline in the market, the securities or index on which the puts are purchased
may increase in value and the value of securities held in the portfolio may
decline. If this occurred, the Portfolio would lose money on the puts and also
experience a decline in value in its portfolio securities. In addition, the
prices of futures, for a number of reasons, may not correlate perfectly with
movements in the underlying securities or index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit requirements. Such requirements may cause investors to close futures
contracts through offsetting transactions which could distort the normal
relationship between the underlying security or index and futures markets.
Second, the margin requirements in the futures markets are less onerous than
margin requirements in the securities markets in general, and as a result the
futures markets may attract more speculators than the securities markets do.
Increased participation by speculators in the futures markets may also cause
temporary price distortions. Due to the possibility of price distortion, even a
correct forecast of general market trends by a Portfolio's Sub-Adviser may still
not result in a successful hedging transaction over a very short time period.
Other Risks. Portfolios will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.
Forward Commitments
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The Trust may, on behalf of each Portfolio, enter into contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time ("forward commitments") if the Portfolio holds, and maintains
until the settlement date in a segregated account with its custodian, cash or
high-grade debt obligations in an amount sufficient to meet the purchase price,
or if the Portfolio enters into offsetting contracts for the forward sale of
other securities it owns. Forward commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the Portfolio's other assets. Where such
purchases are made through dealers, the Portfolio relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to the
Portfolio of an advantageous yield or price.
Although a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Portfolio may dispose of a commitment
prior to settlement if a Portfolio's Sub-Adviser deems it appropriate to do so.
A Portfolio may realize short-term profits or losses upon the sale of forward
commitments.
Repurchase Agreements
On behalf of each Portfolio, the Trust may enter into repurchase
agreements. A repurchase agreement is a contract under which the Portfolio
acquires a security for a relatively short period (usually not more than one
week) subject to the obligation of the seller to repurchase and the Portfolio to
resell such security at a fixed time and price (representing the Portfolio's
cost plus interest). It is the Trust's present intention to enter into
repurchase agreements only with member banks of the Federal Reserve System and
securities dealers meeting certain criteria as to creditworthiness and financial
condition established by the Trustees of the Trust and only with respect to
obligations of the U.S. government or its agencies or instrumentalities or other
high quality short term debt obligations. Repurchase agreements may also be
viewed under the Investment Company Act of 1940, as amended ("1940 Act"), as
loans made by the Trust which are collateralized by the securities subject to
repurchase. The Sub-Advisers will monitor such transactions to ensure that the
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. If the
seller defaults, the Trust could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or insolvency
proceedings, the Trust may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Trust is treated
as an unsecured creditor and required to return the underlying collateral to the
seller's estate.
Reverse Repurchase Agreements
The Trust may, on behalf of each of the Portfolios, enter into reverse
repurchase agreements, which involve the sale by the Portfolio of securities
held by it with an agreement to repurchase the securities at an agreed upon
price, date, and interest payment. The Portfolios will use the proceeds of the
reverse repurchase agreements to purchase securities either maturing, or under
an agreement to resell, at a date simultaneous with or prior to the expiration
of the reverse repurchase agreement. A Portfolio will use reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the reverse
repurchase transaction. Reverse repurchase agreements into which the Portfolios
will enter require that the market value of the underlying security and other
collateral equal or exceed the repurchase price (including interest accrued on
the security), and require the Portfolios to provide additional collateral if
the market value of such security falls below the repurchase price at any time
during the term of the reverse repurchase agreement. The Trust's ability to
enter into reverse repurchase agreements may be limited by tax considerations.
Reverse repurchase agreements are considered to be borrowings under the
1940 Act, and may be entered into only for temporary or emergency purposes.
While reverse repurchase transactions are outstanding, a Portfolio will maintain
in a segregated account with its custodian or a qualified sub-custodian, cash,
U.S. Government securities or other liquid, high-grade debt securities of an
amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement and will monitor the account to ensure that
such value is maintained.
When-Issued Securities
The Trust may, on behalf of each Portfolio, from time to time purchase
securities on a "when-issued" basis. Debt securities are often issued on this
basis. The price of such securities, which may be expressed in yield terms, is
fixed at
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the time a commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. Normally, the settlement date
occurs within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income.
While the Trust may sell its right to acquire when-issued securities prior to
the settlement date, the Trust intends actually to acquire such securities
unless a sale prior to settlement appears desirable for investment reasons. At
the time a Portfolio makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the purchase
price payable at the settlement date. Each Portfolio will establish a segregated
account in which it will maintain cash and U.S. Government Securities or other
high-grade debt obligations at least equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
Loans of Portfolio Securities
The Trust may lend the portfolio securities of any Portfolio (other than
the Cash Management Portfolio), provided: (1) the loan is secured continuously
by collateral consisting of U.S. Government Securities, cash, or cash
equivalents adjusted daily to have market value at least equal to the current
market value of the securities loaned; (2) the Trust may at any time call the
loan and regain the securities loaned; (3) the Trust will receive any interest
or dividends paid on the loaned securities; and (4) the aggregate market value
of securities of any Portfolio loaned will not at any time exceed one-third of
the total assets of the Portfolio. In addition, it is anticipated that the
Portfolio may share with the borrower some of the income received on the
collateral for the loan or that it will be paid a premium for the loan. Before
the Portfolio enters into a loan, a Portfolio's Sub-Adviser considers all
relevant facts and circumstances including the creditworthiness of the borrower.
The risks in lending portfolio securities, as with other extensions of credit,
consist of possible delay in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially. Although voting
rights, or rights to consent, with respect to the loaned securities pass to the
borrower, the Trust retains the right to call the loans at any time on
reasonable notice, and it will do so in order that the securities may be voted
by the Trust if the holders of such securities are asked to vote upon or consent
to matters materially affecting the investment. The Trust will not lend
portfolio securities to borrowers affiliated with the Trust.
Foreign Securities
The Cash Management Portfolio, High Income Bond Portfolio and U.S.
Government Bond Portfolio may invest without limit, except as applicable to
securities generally, in foreign securities which meet the criteria applicable
to the Portfolio's domestic investments, and in certificates of deposit issued
by United States branches of foreign banks and foreign branches of United States
banks (except that, under normal market conditions, at least 80% of the assets
of the U.S. Government Bond Portfolio will be invested in U.S. Government
Securities). Investment by the Common Stock Portfolio, the Tilt Utility
Portfolio, the Multiple Strategies Portfolio, the Growth & Income Portfolio and
the Small Cap Portfolio in foreign securities is subject to the limitations set
forth in the Trust's Prospectus under Investment Objectives and Policies of the
Portfolios. In the case of the Cash Management Portfolio, foreign debt
securities must be United States dollar-denominated.
Except with respect to developing markets, the World Equity Portfolio may
invest without limitation in securities of foreign issuers. The World Equity
Portfolio may invest up to 5% of its assets in developing markets. The risks of
investing in foreign markets are generally intensified for investments in
developing markets. Additional risks of investing in such markets include (i)
less social, political, and economic stability; (ii) the smaller size of the
securities markets in such countries and the lower volume of trading, which may
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict the Portfolio's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interest; and (iv) less developed legal structures governing private
or foreign investment or allowing for judicial redress for injury to private
property.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other
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fees are generally higher than in the United States. It may be more difficult to
obtain and enforce a judgment against a foreign issuer.
In addition, to the extent that any Portfolio's foreign investments are not
United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates or exchange control
regulations and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment advisor of a Portfolio seeking current income will consider the
likely impact of foreign taxes on the net yield available to the Portfolio and
its shareholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to shareholders.
Foreign Currency Transactions
The Trust may engage in currency exchange transactions, on behalf of its
Portfolios which may invest in foreign securities, to protect against
uncertainty in the level of future foreign currency exchange rates. The Trust
may engage in both "transaction hedging" and "position hedging".
When it engages in transaction hedging, the Trust enters into foreign
currency transactions with respect to specific receivables or payables of a
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. The Trust will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Trust will attempt to
protect a Portfolio against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the applicable foreign currency
during the period between the date on which the security is purchased or sold or
on which the dividend or interest payment is declared, and the date on which
such payments are made or received.
The Trust may purchase or sell a foreign currency on a spot (or cash) basis
at the prevailing spot rate in connection with transaction hedging. The Trust
may also enter into contracts to purchase or sell foreign currencies at a future
date ("forward contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Trust may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Trust the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Trust the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives the Trust the right to assume
a long position in the futures contract until the expiration of the option. A
call option on currency gives the Trust the right to purchase a currency at the
exercise price until the expiration of the option. The Trust will engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of the Portfolio's investment adviser,
the pricing mechanism and liquidity are satisfactory and the participants are
responsible parties likely to meet their contractual obligations.
When it engages in position hedging,the Trust enters into foreign currency
exchange transactions to protect against a decline in the values of the foreign
currencies in which securities held by a Portfolio are denominated or are quoted
in their principle trading markets or an increase in the value of currency for
securities which a Portfolio expects to purchase. In connection with position
hedging, the Trust may purchase put or call options on foreign currency and
foreign currency futures contracts and buy or sell forward contracts and foreign
currency futures contracts. The Trust may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
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It is impossible to forecast with precision the market value of a
Portfolio's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the Trust to purchase
additional foreign currency on behalf of a Portfolio on the spot market (and
bear the expense of such purchase) if the market value of the security or
securities being hedged is less than the amount of foreign currency the Trust is
obligated to deliver and if a decision is made to sell the security or
securities and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security or securities of a Portfolio if the market
value of such security or securities exceeds the amount of foreign currency the
Trust is obligated to deliver on behalf of the Portfolio.
To offset some of the costs to a Portfolio of hedging against fluctuations
in currency exchange rates, the Trust may write covered call options on those
currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
Currency Forward and Futures Contracts. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Trust may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although the Trust intends to purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Trust would continue to be required to
make daily cash payments of variation margin on its futures positions.
Foreign Currency Options. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's Sub-Adviser believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist for
a particular option at
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any specific time. Options on foreign currencies are affected by all of those
factors which influence exchange rates and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Trust at
one rate, while offering a lesser rate of exchange should the Trust desire to
resell that currency to the dealer.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which the Tilt Utility Portfolio may enter are interest rate, currency and index
swaps and the purchase or sale of related caps, floors and collars. The
Portfolio expects to enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cashflows on a
notional amount of two or more currencies based on the relative value
differential among them. An index swap is an agreement to swap cash flows on a
notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
Sub-Adviser and the Portfolio believe such obligations do not constitute senior
securities under the Investment Company Act of 1940, as amended, and,
accordingly, will not treat them as being subject to its borrowing restrictions.
The Portfolio will not enter into any swap, cap, floor or collar transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the Counterparty, combined with any credit enhancements, is rated at
least "A" by S&P or Moody's or has an equivalent equity rating from an NRSRO or
is determined to be of equivalent credit quality by the Sub-Adviser. If there is
a default by the counterparty, the Portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
With respect to swaps, the Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate with its custodian an amount of cash or
liquid high-grade
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securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to a Portfolio's net
obligation, if any.
Zero-Coupon Securities
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest. As a result, the net asset value of shares of a
Portfolio investing in zero-coupon securities may fluctuate over a greater range
than shares of other Portfolios of the Trust and other mutual funds investing in
securities making current distributions of interest and having similar
maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Portfolio will be able to have its beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Utility Securities - Tilt Utility Portfolio
Entities that issue Utility Securities may be subject to a variety of risks
depending, in part, on such factors as the type of utility involved and its
geographic location. Such risks may include potential increases in operating
costs, increases in interest expenses for capital construction programs,
government regulation of rates charged to customers, costs associated with
compliance with environmental and other regulations, service interruption due to
environmental, operational or other mishaps, the effects of economic slowdowns,
surplus capacity and increased competition from other providers of utility
services. Issuers of Utility Securities generally have their rates determined by
state utility commissions or other governmental authorities or, depending on the
jurisdiction and the nature of the issuer, such issuers may set their own rates.
Changes in service rates generally lag changes in financing costs, and thus can
favorably or unfavorably affect the ability of issuers of Utility Securities to
maintain or increase dividend rates on such securities, depending upon whether
such rates and costs are declining or rising. To the extent that rates are
established or reviewed by governmental authorities, the utility is subject to
the risk that such authority will not authorize increased rates. Issuers of
Utility Securities are subject to regulation by various authorities and may be
affected by the imposition of special tariffs and charges. There can be no
assurance that regulatory policies or accounting standard changes will not
negatively affect the ability of issuers of Utility Securities to service
principal, interest and dividend payments. The Tilt Utility Portfolio has a
policy of investing at least 80% of its total assets in Utility Securities and
is therefore more susceptible than an investment company without such a policy
to economic, political, environmental or regulatory occurrences affecting
issuers of Utility Securities.
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Electric Utilities. Regulatory changes with respect to conventionally
fueled generating facilities could increase costs or impair the ability of
certain electric utilities ("Electric Utilities") to operate such facilities,
thus reducing their ability to service dividend payments with respect to Utility
Securities. Electric Utilities that utilize coal in connection with the
production of electric power are particularly susceptible to environmental
regulation, including the requirements of the federal Clean Air Act and of
similar state laws. Such regulation may necessitate large capital expenditures
in order for the utility to achieve compliance.
Gas Utilities. Many gas utilities ("Gas Utilities") generally have been
adversely affected by oversupply conditions, and by increased competition from
other providers of utility services. In addition, some Gas Utilities entered
into long-term contracts with respect to the purchase or sale of gas at fixed
prices, which prices have since changed significantly in the open market. In
many cases, such price changes have been to the disadvantage of the Gas Utility.
Gas Utilities are particularly susceptible to supply and demand imbalances due
to unpredictable climate conditions and other factors and are subject to
regulatory risks as well.
Telecommunications Utilities. Telecommunications regulation typically
limits rates charged, returns earned, providers of services, types of services,
ownership, areas served and terms for dealing with competitors and customers.
Telecommunications regulation generally has tended to be less stringent for
newer services, such as mobile services, than for traditional telephone service,
although there can be no assurances that such newer services will not be heavily
regulated in the future. Regulation may limit rates based on an authorized level
of earnings, a price index, or another formula. Telephone rate regulation may
include government-mandated cross-subsidies that limit the flexibility of
existing service providers to respond to competition. Regulation may also limit
the use of new technologies and hamper efficient depreciation of existing
assets. If regulation limits the use of new technologies by established carriers
or forces cross-subsidies, large private networks may emerge.
Lower Grade Securities
The Tilt Utility Portfolio may invest up to 20% of its assets in
lower-grade income securities, including lower-grade fixed-income Utility
Securities. (The High Income Bond Portfolio may invest a substantial portion of
its assets in medium and lower grade corporate debt securities entailing certain
risks. See "Special Risks Relating to High Income Bonds" in the Prospectus.)
Such lower grade securities are rated BB or B by S&P or Ba or B by Moody's and
are commonly referred to as "junk bonds." Investment in such securities involves
special risks, as described herein. Liquidity relates to the ability of the
Portfolio to sell a security in a timely manner at a price which reflects the
value of that security. As discussed below, the market for lower grade
securities is considered generally to be less liquid than the market for
investment grade securities. The relative illiquidity of some of the Portfolio's
portfolio securities may adversely affect the ability of the Portfolio to
dispose of such securities in a timely manner and at a price which reflects the
value of such security in the Sub-Adviser's judgment. The market for less liquid
securities tends to be more volatile than the market for more liquid securities
and market values of relatively illiquid securities may be more susceptible to
change as a result of adverse publicity and investor perceptions than are the
market values of higher grade, more liquid securities.
The Portfolio's net asset value will change with changes in the value of
its portfolio securities. Because the Portfolio will invest in fixed income
securities, the Portfolio's net asset value can be expected to change as general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities can be expected to decline. Net asset value and market value
may be volatile due to the Portfolio's investment in lower grade and less liquid
securities. Volatility may be greater during periods of general economic
uncertainty.
The Portfolio's investments are valued pursuant to guidelines adopted and
periodically reviewed by the Board of Trustees. To the extent that there is no
established retail market for some of the securities in which the Portfolio may
invest, there may be relatively inactive trading in such securities and the
ability of the Sub-Adviser to accurately value such securities may be adversely
affected. During periods of reduced market liquidity and in the absence of
readily available market quotations for securities held in the Portfolio's
portfolio, the responsibility of the Sub-Adviser to value the Portfolio's
securities becomes more difficult and the Sub-Adviser's judgment may play a
greater role in the valuation of the Portfolio's securities due to the reduced
availability of reliable objective data. To the extent that the Portfolio
invests in illiquid securities and securities which are restricted as to resale,
the Portfolio may incur additional risks and costs.
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Lower grade securities generally involve greater credit risk than higher
grade securities. A general economic downturn or a significant increase in
interest rates could severely disrupt the market for lower grade securities and
adversely affect the market value of such securities. In addition, in such
circumstances, the ability of issuers of lower grade securities to repay
principal and to pay interest, to meet projected financial goals and to obtain
additional financing may be adversely affected. Such consequences could lead to
an increased incidence of default for such securities and adversely affect the
value of the lower grade securities in the Portfolio's portfolio and thus the
Portfolio's net asset value. The secondary market prices of lower grade
securities are less sensitive to changes in interest rates than are those for
higher rated securities, but are more sensitive to adverse economic changes or
individual issuer developments. Adverse publicity and investor perceptions,
whether or not based on rational analysis, may also affect the value and
liquidity of lower grade securities.
Yields on the Portfolio's portfolio securities can be expected to fluctuate
over time. In addition, periods of economic uncertainty and changes in interest
rates can be expected to result in increased volatility of the market prices of
the lower grade securities in the Portfolio's portfolio and thus in the net
asset value of the Portfolio. Net asset value and market value may be volatile
due to the Portfolio's investment in lower grade and less liquid securities.
Volatility may be greater during periods of general economic uncertainty. The
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of interest or a repayment of principal
on its portfolio holdings, and the Portfolio may be unable to obtain full
recovery thereof. In the event that an issuer of securities held by the
Portfolio experiences difficulties in the timely payment of principal or
interest and such issuer seeks to restructure the terms of its borrowings, the
Portfolio may incur additional expenses and may determine to invest additional
capital with respect to such issuer or the project or projects to which the
Portfolio's portfolio securities relate.
The Portfolio will rely on the Sub-Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. In this evaluation,
the Sub-Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. The Sub-Adviser also may consider, although it does not rely primarily
on, the credit ratings of S&P and Moody's in evaluating fixed-income securities.
Such ratings evaluate only the safety of principal and interest payments, not
market value risk. Additionally, because the creditworthiness of an issuer may
change more rapidly than is able to be timely reflected in changes in credit
ratings, the Sub-Adviser continuously monitors the issuers of such securities
held in the Portfolio's portfolio. The Portfolio may, if deemed appropriate by
the Sub-Adviser, retain a security whose rating has been downgraded below B by
S&P or below B by Moody's, or whose rating has been withdrawn.
Because the Portfolio may invest up to 20% of its assets in these unrated
income securities, achievement by the Portfolio of its investment objective may
be more dependent upon the Sub-Adviser's investment analysis than would be the
case if the Portfolio were investing exclusively in rated securities.
Short Sales "Against the Box"
The Growth & Income Portfolio may engage in short sales "against the box."
In a short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for speculative purposes. The
Portfolio may, however, make a short sale as a hedge, when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Portfolio (or a security convertible or exchangeable for such
security), or when the Portfolio wants to sell the security at an attractive
current price, but also wishes to defer recognition of gain or loss for federal
income tax purposes and for purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code. In such case,
any future losses in the Portfolio's long position should be reduced by a gain
in the short position. Conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Portfolio owns. There will be certain additional
transaction costs associated with short sales against the box, but the Portfolio
will endeavor to offset these costs with the income from the investment of the
cash proceeds of short sales.
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Investment Company Shares
The Small Cap Portfolio and the Tilt Utility Portfolio may invest in shares
of money market mutual funds, except as set forth under "Investment
Restrictions" below. Since such funds pay management fees and other expenses,
shareholders of the Portfolios would indirectly pay both Portfolio expenses and
the expenses of underlying funds with respect to Portfolio assets invested
therein. Applicable regulations prohibit the Portfolios from acquiring the
securities of other investment companies if, as a result of such acquisition,
the Portfolio owns more than 3% of the total voting stock of the company; more
than 5% of the Portfolio's total assets are invested in securities of any one
investment company; or more than 10% of the total assets of the Portfolio are
invested in securities (other than treasury stock) issued by all investment
companies.
Section 4(2) Paper
The Growth & Income Portfolio may invest in commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act") ("Section 4(2) Paper"). Section 4(2) paper is restricted as to disposition
under the federal securities laws and is generally sold to institutional
investors such as the Portfolio which agree that they are purchasing the paper
for investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thereby
providing liquidity. See "Illiquid Securities" below.
Illiquid Securities
A Portfolio may not invest more than 10% (except 15% with respect to the
Growth & Income Portfolio) of its net assets in illiquid securities, including
repurchase agreements which have a maturity of longer than seven days and
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. The Portfolios'
Sub-Advisers will monitor the liquidity of such restricted securities under the
supervision of the Adviser and the Board of Trustees. Repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the 1933 Act are referred
to as private placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A mutual fund might also
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Rule 144A Securities
The SEC adopted Rule 144A which allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. The Adviser and Sub-Advisers anticipate that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this relatively new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the NASD.
58
<PAGE>
The Sub-Advisers and the Adviser will monitor the liquidity of restricted
securities in the Portfolios under the supervision of the Board of Trustees. In
reaching liquidity decisions, the Sub-Advisers and the Adviser may consider,
inter alia, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
Convertible Securities
The Common Stock, Growth & Income, Small Cap and World Equity Portfolios of
the Trust may invest in convertible securities such as bonds, notes and
preferred stocks which are convertible or exchangeable for common stocks.
Convertible securities have characteristics similar to both fixed income and
equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying common stock. As a result, a Portfolio's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer, and any call provisions.
Rights Offerings and Purchase Warrants
The Common Stock, Growth & Income, Small Cap and World Equity Portfolios of
the Trust may invest in rights offerings and purchase warrants which are
privileges issued by a corporation which enable the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. Subscription rights normally have a short
lifespan to expiration. The purchase of rights or warrants involves the risk
that a Portfolio could lose the purchase value of a right or warrant if the
right to subscribe to additional shares is not executed prior to the rights and
warrants expiration. Also, the purchase of rights and/or warrants involves the
risk that the effective price paid for the right and/or warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security.
Money Market Instruments
The Cash Management Portfolio may invest in various types of money market
instruments including those described below. Certain of the instruments listed
below may also be purchased by the other Portfolios in accordance with their
investment policies and all Portfolios may purchase such instruments to invest
otherwise idle cash or for defensive purposes.
Bankers' Acceptance - A bill of exchange or time draft drawn on and
accepted by a commercial bank. It is used by corporations to finance the
shipment and storage of goods and to furnish dollar exchange. Maturities are
generally six months or less.
Certificate of Deposit - A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper - The term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Maturities on these
issues typically vary from a few days to nine months.
U.S. Government Securities - U.S. Government direct obligations consist of
bills, notes and bonds issued by the U.S. Treasury. U.S. Government Agency
Securities are issued by certain federal agencies that have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States, guaranteed by the Treasury or supported by the issuing agency's right to
borrow from the Treasury, or supported only by the credit of the
instrumentality.
U.S. Treasury obligations also include separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system and which are known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry
Safekeeping ("CUBES").
59
<PAGE>
INVESTMENT RESTRICTIONS
The following investment restrictions may not be changed with respect to
any Portfolio without the approval of a majority of the outstanding voting
securities of that Portfolio. Under the Investment Company Act of 1940 and the
rules thereunder, "majority of the outstanding voting securities" of a Portfolio
means the lesser of (1) 67% of the shares of that Portfolio present at a meeting
if the holders of more than 50% of the outstanding shares of that Portfolio are
present in person or by proxy, and (2) more than 50% of the outstanding shares
of that Portfolio. Any investment restrictions which involve a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by or on
behalf of, a Portfolio, as the case may be.
Fundamental Investment Restrictions (All Portfolios Except Tilt Utility
Portfolio, Small Cap Portfolio and Growth & Income Portfolio)
The Trust may not, on behalf of a Portfolio:
(1) as to 75% of the value of the Portfolio's total assets, invest more
than 5% of the value of the total assets of the Portfolio in the securities
(other than U.S. Government Securities) of any one issuer;
(2) invest more than 25% of the value of its total assets in the securities
(other than U.S. Government Securities), of issuers in a single industry, except
that this policy shall not limit investment by the Cash Management Portfolio in
obligations of U.S. banks (excluding their foreign branches);
(3) borrow money except from banks as a temporary measure for extraordinary
or emergency purposes or by entering into reverse repurchase agreements (the
Trust is required to maintain asset coverage (including borrowings) of 300% for
all borrowings);
(4) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations in accordance with
its investment objectives and policies or entry into repurchase agreements may
be deemed to be loans;
(5) invest more than 10% of the total assets of a Portfolio (taken at
market value) in illiquid securities, including repurchase agreements maturing
in more than seven days;
(6) purchase the securities of any issuer if such purchase would cause more
than 10% of the voting securities of such issuer to be held by a Portfolio;
(7) purchase or sell any commodity contract or purchase or write any put or
call option or any combination thereof, except that each Portfolio may purchase
and sell futures contracts based on debt securities, indexes of securities, and
foreign currencies and purchase and write options on securities, futures
contracts which it may purchase, securities indexes, and foreign currencies.
(Securities denominated in gold or other precious metals or whose value is
determined by the value of gold or other precious metals are not considered to
be commodity contracts);
(8) purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities, and except
that it may make margin payments in connection with futures contracts and
related options;
(9) make short sales of securities unless such Portfolio owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities of
the same issue as, and equal in amount to, the securities sold short;
(10) underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws;
(11) purchase or sell real estate, although it may purchase and sell
securities which are secured by or represent interests in real estate,
mortgage-related securities, securities of companies principally engaged in the
real estate industry and participation interests in pools of real estate
mortgage loans, and it may liquidate real estate acquired as a result of default
on a mortgage;
60
<PAGE>
(12) make investments for the purpose of gaining control of a company's
management; and
(13) issue any class of securities which is senior to a Portfolio's shares
of beneficial interest except as permitted under the Investment Company Act of
1940 or by order of the SEC.
Fundamental Investment Restrictions (Tilt Utility Portfolio Only)
The Tilt Utility Portfolio may not:
(1) With respect to 75% of its total assets, purchase any securities (other
than obligations guaranteed by the United States Government or by its agencies
or instrumentalities), if, as a result, more than 5% of the Portfolio's total
assets (determined at the time of investment) would then be invested in
securities of a single issuer or, if, as a result, the Portfolio would hold more
than 10% of the outstanding voting securities of an issuer.
(2) Issue senior securities, borrow money from banks or enter into reverse
repurchase agreements with banks in the aggregate in excess of 33 1/3% of the
Portfolio's total assets (after giving effect to any such borrowing); which
amount includes no more than 5% in borrowings and reverse repurchase agreements
with any entity for temporary purposes. The Portfolio will not mortgage, pledge
or hypothecate any assets other than in connection with issuances, borrowings,
hedging transactions and risk management techniques.
(3) Make loans of money or property to any person, except (i) to the extent
the securities in which the Portfolio may invest are considered to be loans,
(ii) through the loan of portfolio securities, and (iii) to the extent that the
Portfolio may lend money or property in connection with maintenance of the value
of, or the Portfolio's interest with respect to, the securities owned by the
Portfolio.
(4) Buy any securities "on margin." Neither the deposit of initial or
maintenance margin in connection with Strategic Transactions nor short term
credits as may be necessary for the clearance of transactions is considered the
purchase of a security on margin.
(5) Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except in connection with
Strategic Transactions.
(6) Act as an underwriter of securities, except to the extent the Portfolio
may be deemed to be an underwriter in connection with the sale of securities
held in its portfolio.
(7) Make investments for the purpose of exercising control or participation
in management, except to the extent that exercise by the Portfolio of its rights
under agreements related to portfolio securities would be deemed to constitute
such control or participation.
(8) Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition and except as permitted under the
Investment Company Act of 1940, as amended.
(9) Invest in oil, gas or mineral leases or in equity interests in oil,
gas, or other mineral exploration or development programs except pursuant to the
exercise by the Portfolio of its rights under agreements relating to portfolio
securities.
(10) Purchase or sell real estate, commodities or commodity contracts,
except to the extent that the securities that the Portfolio may invest in are
considered to be interests in real estate, commodities or commodity contracts or
to the extent the Portfolio exercises its rights under agreements relating to
portfolio securities (in which case the Portfolio may liquidate real estate
acquired as a result of a default on a mortgage), and except to the extent that
Strategic Transactions the Portfolio may engage in are considered to be
commodities or commodities contracts.
Fundamental Investment Restrictions (Growth & Income Portfolio Only)
The Growth & Income Portfolio may not:
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<PAGE>
1. Borrow money, except from banks or by entering into reverse repurchase
agreements for temporary purposes and then in amounts not in excess of 30% of
the value of the Portfolio's total assets at the time of such borrowing, and
only if after such borrowing there is asset coverage of at least 300 percent for
all borrowings of the Portfolio; or mortgage, pledge or hypothecate any of the
Portfolio's assets except as may be necessary in connection with such borrowing
or reverse repurchase agreements; or purchase portfolio securities while
borrowings and reverse repurchase agreements in excess of 5% of the Portfolio's
net assets are outstanding. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
2. Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of the
Portfolio's total assets would be invested in the securities of such issuer, or
more than 10% of the outstanding voting securities of such issuer would be owned
by the Portfolio, except that up to 25% of the value of the Portfolio's assets
may be invested without regard to this 5% limitation;
3. Purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions, except that the Portfolio may establish
margin accounts in connection with currency transactions and its use of options,
futures contracts and options on futures contracts;
4. Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under Federal securities laws;
5. Make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof, except that the
Portfolio may purchase and sell puts and call options on securities, stock
indices; enter into forward currency contracts and futures contracts; and
currencies and purchase and sell options on futures contracts;
6. Purchase or sell real estate, provided that the Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
7. Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase and sell futures contracts and related options and
purchase and sell currencies on a forward commitment or delayed-delivery basis
or options on currencies;
8. Invest in oil, gas or mineral-related programs or leases except that the
Portfolio may invest in securities of companies that invest in or sponsor oil,
gas, or mineral exploration or development programs;
9. Make loans, except that the Portfolio may purchase or hold fixed income
securities (including loan participations and assignments and structured
securities) in accordance with its investment objective, policies and
limitations and except that the Portfolio may lend portfolio securities and
enter into repurchase agreements;
10. Purchase any securities issued by any other investment company except
in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer or otherwise permitted by the 1940 Act;
or
11. Make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the
Portfolio may not (a) invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations, and (b) purchase any securities which
would cause, at the time of purchase, more than 25% of the value of the total
assets of the Portfolio to be invested in the obligations of issuers in any
industry (exclusive of the U.S. Government and its agencies and
instrumentalities).
Nonfundamental Policies (Growth & Income Portfolio Only)
In addition to the foregoing, and the policies set forth in the Prospectus
with respect to the Growth & Income Portfolio, the Growth & Income Portfolio has
adopted additional investment restrictions which may be amended by the Board of
Trustees without a vote of shareholders.
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<PAGE>
The Growth & Income Portfolio may not:
1. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow and in connection with the writing of covered put
and call options and purchase of securities on a forward commitment or
delayed-delivery basis and collateral and initial or variation margin
arrangements with respect to currency transactions, options, futures contracts,
and options on futures contracts.
2. Invest more than 15% of the Portfolio's net assets in securities which
may be illiquid because of legal or contractual restrictions on resale or
securities for which there are no readily available market quotations. For
purposes of this limitation, repurchase agreements with maturities greater than
seven days shall be considered illiquid securities. In no event will the
Portfolio's investment in restricted and illiquid securities exceed 15% of the
Portfolio's assets.
3. Purchase any security if as a result the Portfolio would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
4. Purchase or retain securities of any company if, to the knowledge of the
Portfolio, any of the Trust's officers or Trustees or any officer or director of
the Adviser or Sub-Adviser individually owns more than 1/2 of 1% of the
outstanding securities of such company and together they own beneficially more
than 5% of the securities.
5. Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets.
6. Make additional investments (including rollovers) if the Portfolio's
borrowings exceed 5% of its net assets.
Fundamental Investment Restrictions (Small Cap Portfolio Only)
The Small Cap Portfolio may not:
1. With respect to 75% of its assets, purchase more than 10% of the
outstanding voting securities of any one issuer.
2. Pledge any of its assets, except that the Portfolio may pledge assets
having a value of not more than 5% of its total assets in order to secure
permitted borrowings. Such borrowings may not exceed 5% of the value of the
Portfolio's assets and can be made only as a temporary measure for extraordinary
or emergency purposes.
3. Make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof, except that the
Portfolio may purchase and sell puts and call options on securities, stock
indices; enter into forward currency contracts and futures contracts; and
currencies and purchase and sell options on futures contracts.
4. Make loans except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investment in repurchase agreements, provided that the
Portfolio will not make any investment in repurchase agreements maturing in more
than seven days if such investments, together with any other illiquid securities
held by the Portfolio, would exceed 10% of the value of its net assets.
5. Purchase the securities of an issuer if, at the time thereof, such
purchase would cause more than 10% of the Portfolio's total assets to be
invested in securities for which there is no readily available market. This
limitation does not include any Rule 144A restricted security that has been
determined by, or pursuant to procedures established by, the Board, based on
trading markets for such security, to be liquid.
6. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except through
purchase in the open market in a transaction involving no commission or profit
to a sponsor or dealer (other than the customary broker's commission) or as part
of a merger, consolidation or other acquisition.
7. Engage in the underwriting of securities of other issuers, except that
the Portfolio may sell an investment position even though it may be deemed to be
an underwriter as that term is defined in the Securities Act of 1933.
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<PAGE>
8. Purchase or sell real estate, commodities or commodity contracts.
9. Invest in interests in oil, gas or other mineral exploration or
development programs.
Nonfundamental Policies (Small Cap Portfolio Only)
In addition to the foregoing, and the policies set forth in the Prospectus
with respect to the Small Cap Portfolio, the Small Cap Portfolio has adopted
additional investment restrictions which may be amended by the Board of Trustees
without a vote of shareholders.
The Small Cap Portfolio may not:
1. Purchase more than 10% of the outstanding voting securities of any one
issuer.
2. Purchase the security of any one issuer if such purchase would cause
more than 5% of the Portfolio's net assets (determined at the time of the
purchase) to be invested in the securities of such issuer except United States
Government securities.
3. Invest in the securities of foreign issuers if, at the time of
acquisition, more than 15% of the value of the Portfolio's total assets would be
invested in such securities.
4. Invest more than 5% of its assets in companies having a record, together
with predecessors, of less than three years continuous operation.
5. Purchase securities which are not registered under the Securities Act of
1933, except that the Portfolio may invest in securities of foreign issuers.
6. Make short sales or purchase securities on margin; but it may obtain
such short-term credits as are necessary for the clearance of purchases and
sales of securities.
7. Invest (i) more than 5% of its net assets in warrants or (ii) more than
2% of its net assets in warrants which are not traded on the New York Stock
Exchange or the American Stock Exchange.
8. Purchase or retain securities of an issuer if, to the knowledge of the
Portfolio, an officer, trustee, partner or director of the Portfolio or any
investment adviser of the Portfolio owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees, partners
and directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
MANAGEMENT OF THE TRUST
<TABLE>
<CAPTION>
Position Held
With the Principal Occupation
Name,Address and Age Trust During Past 5 Years
- -------------------- ------------- -------------------
<S> <C> <C>
Stephan M. Largent* President President, First Variable Life
10 Post Office Square Insurance Company since April 1995;
Boston, MA 02109 prior thereto, President, ING America
Equities, Inc.
Mark E. Reynolds* Treasurer and Trustee Treasurer, Chief Financial Officer and
10 Post Office Square Director of Adviser since October,
Boston, MA 02109 1993; Vice President, Treasurer and
Age: 45 Controller, First International Life
Insurance Company
from 1989 to 1992.
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<PAGE>
Paul G. Chenault Trustee Senior Vice President and Chief
15 Falling Brook Investment Officer, X.L. Investments,
Cincinnati, OH 45241 Ltd., Hamilton, Bermuda from 1990 -
1995.
Wesley E. Horton Trustee Private Trustee and Investor
1100 Country Club Circle
North Palm Beach, FL 33408
Age:_____
W. Lawrence Howe Trustee Consultant; Director, Lone
1626 Barbados Court Star Life Insurance Company;
Marco Island, FL 33937 Director, Howe- Weaver, Inc.
Mailing Address:
P.O. Box 200
Marco Island, FL 33969
Age:_____
Laird E. Wiggin Trustee Managing Director, The E/W Group, Inc.,
The E/W Group, Inc. a financial management and operations
59 Rainbow Road consulting firm, since March, 1993;
East Granby, CT 06026-0169 prior thereto, Vice President, Client
Age:_____ Services, The
Leverage Group from
1992 to February,
1993; prior
thereto, Director
of Consulting
Division,
Securities Software
and Consulting from
1990 to 1992
Norman A. Fair* Trustee Vice President, Treasurer & Asst.
2211 York Rd, Suite 202 Sec., Irish Life of North America,
Oakbrook, IL 60521 Inc.; prior thereto, Senior Vice
Age: 51 President and Chief Financial Officer
of Interstate Assurance Company (an
affiliate of Adviser) since 1988;
Director of Adviser
Arnold R. Bergman Secretary Vice President - Legal &
10 Post Office Square Administration, First Variable Life;
Boston, MA 02109 prior thereto, Counsel, Aetna Life
Age: 45 Insurance and Annuity Company from
October, 1992 to February 1995; prior
thereto, Vice President, General
Counsel and Secretary, First
International Life Insurance Company
from September 1988 to September, 1992,
Mark T. Kelly Assistant Treasurer Assistant Treasurer of First Variable
10 Post Office Square Life; prior thereto, Manager of
Boston, MA 02109 Investments and Banking Relations,
Age: 29 Blue Cross Blue Shield of Massachusetts
from 1992 to
November, 1993;
prior thereto,
Treasury Analyst,
First International
Life Insurance
Company from
1988-1992.
Anthony J. Koenig, Jr. Assistant Assistant Controller of First Variable
10 Post Office Square Treasurer Life; prior thereto, Audit Manager,
Boston, MA 02109 Ernst & Young from December, 1992 to
Age: 32 November, 1993; prior thereto, Senior
Accountant, First International Life
Insurance Company, from April, 1991 to
November, 1992; prior thereto, Super-
65
<PAGE>
vising Senior Assistant, KPMG Peat
Marwick, from April, 1987 to
March, 1991.
</TABLE>
- ----------------------
* Interested person of the Trust within the meaning of the 1940 Act.
As of March 31, 1995, none of the Trustees of the Trust owned shares of the
Trust either directly or through annuity contracts.
Except as stated above, the principal occupations of the officers and
Trustees for the last five years have been with the employers as shown above,
although in some cases they have held different positions with such employers.
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser receives an annual fee of $8,000, an additional fee of $1,500 for each
Trustees' meeting attended and $750 for each Audit Committee Meeting attended
(if held on a day other than when a Board of Trustees meeting is held). With
respect to fiscal 1995, the Trust paid Trustees' fees aggregating $44,250. The
following table shows 1995 compensation by Trustee.
66
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual From Registrant
Name of Person, From As Part of Fund Benefits Upon and Fund Complex
Position Registrant Expenses Retirement Paid to Trustees
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul G. Chenault $ - 0 - None None $0
Trustee (elected
3/19/96)
Wesley E. Horton, $14,750 None None $14,750
Trustee
W. Lawrence Howe, $14,750 None None $14,750
Trustee
Laird E. Wiggin, $14,750 None None $14,750
Trustee
Stephan A. Largent $ - 0 - None None $0
President and Trustee
Mark E. Reynolds, $ - 0 - None None $ - 0 -
Treasurer and
Trustee
Norman A. Fair, $ - 0 - None None $ - 0 -
Trustee
</TABLE>
The Agreement and Declaration of Trust of the Trust provides that the Trust
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Trust, except if it is determined in the manner specified
in the Agreement and Declaration of Trust that they have not acted in good faith
in the reasonable belief that their actions were in the best interests of the
Trust or that such indemnification would relieve any officer or Trustee of any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of his or her duties. The Trust,
at its expense, may provide liability insurance for the benefit of its Trustees
and officers.
Under the Investment Advisory Agreement between the Trust and Adviser (the
"Investment Advisory Agreement"), Adviser, at its expense, provides the
Portfolios with investment advisory services and advises and assists the
officers of the Trust in taking such steps as are necessary or appropriate to
carry out the decisions of its Trustees regarding the conduct of business of the
Trust and each Portfolio. The fees to be paid under the Investment Advisory
Agreement are set forth in the Trust's prospectus.
Under the Investment Advisory Agreement, the Adviser is obligated to
formulate a continuing program for the investment of the assets of each
Portfolio of the Trust in a manner consistent with each Portfolio's investment
objectives, policies and restrictions and to determine from time to time
securities to be purchased, sold, retained or lent by the Trust and implement
those decisions, subject always to the provisions of the Trust's Agreement and
Declaration of Trust and By-laws, and of the Investment Company Act of 1940, and
subject further to such policies and instructions as the Trustees may from time
to time establish.
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<PAGE>
The Investment Advisory Agreement further provides that Adviser shall
furnish the Trust with office space and necessary personnel, pay ordinary office
expenses, pay all executive salaries of the Trust and furnish, without expense
to the Trust, the services of such members of its organization as may be duly
elected officers or Trustees of the Trust.
Under the Investment Advisory Agreement, the Trust is responsible for all
its other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Trustees' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, expenses of issue
or redemption of shares, expenses of registering or qualifying shares for sale,
reports and notices to shareholders, and fees and disbursements of custodians,
transfer agents, registrars, shareholder servicing agents and dividend
disbursing agents, and certain expenses with respect to membership fees of
industry associations.
The Investment Advisory Agreement provides that Adviser may retain
sub-advisers, at Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Trust.
During fiscal 1993, 1994 and 1995, each of the Portfolios paid fees to
their investment advisers pursuant to the Investment Advisory Agreements in
effect at the time as follows:
<TABLE>
<CAPTION>
Portfolio 1993 1994 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Cash Management Portfolio $ 31,948 $ 59,932 $ 59,701
Common Stock Portfolio 215,458 216,926 262,290
Tilt Utility Portfolio
(Formerly Equity Income Portfolio) 67,395 84,178 91,889
High Income Bond Portfolio 63,300 59,419 49,056
Multiple Strategies Portfolio 112,286 130,320 166,507
U.S. Government Bond Portfolio 80,838 87,687 74,445
World Equity Portfolio 45,242 67,514 104,408
Small Cap Portfolio N/A N/A 13,610
Growth & Income Portfolio N/A N/A 8,192
</TABLE>
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<PAGE>
During fiscal 1994, each of the Portfolios paid fees to INVESCO, subject to
an expense limitation in effect during the period, pursuant to the Business
Management Agreement (which has since been terminated) as follows: Cash
Management Portfolio -- $6,798; Common Stock Portfolio -- $25,354; Tilt Utility
Portfolio (formerly Equity Income Portfolio) -- $9,587; High Income Bond
Portfolio -- $8,148; Multiple Strategies Portfolio -- $14,929; U.S. Government
Bond Portfolio -- $12,288; World Equity Portfolio -- $7,162.
State Street Bank and Trust Company ("State Street") provides certain
accounting, transfer agency, and other services to the Trust. Expenses incurred
and payable to State Street for such services in 1994 and 1995 were $327,031 and
$362,933, respectively. The Trust has reimbursed and paid First Variable Life
for certain investor-servicing and accounting expenses incurred by First
Variable Life relating to the Trust, pursuant to an agreement that terminated on
March 31, 1994. The amount of such expenses reimbursed and paid to First
Variable Life in 1994 was $95,194.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of Adviser will be liable for any loss suffered by
the Trust in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations and duties.
The Investment Advisory Agreement may be terminated without penalty by vote
of the Trustees, as to any Portfolio by the shareholders of that Portfolio, or
by Adviser on 60 days written notice. The Agreement also terminates without
payment of any penalty in the event of its assignment. In addition, the
Investment Advisory Agreement may be amended only by a vote of the shareholders
of the affected Portfolio(s), and provides that it will continue in effect from
year to year only so long as such continuance is approved at least annually with
respect to each Portfolio by vote of either the Trustees or the shareholders of
the Portfolio, and, in either case, by a majority of the Trustees who are not
"interested persons" of Adviser. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the outstanding voting
securities" as defined in the Investment Company Act of 1940.
Management of the Investment Adviser
The directors and officers of Adviser are: Stephan M. Largent, President
and Director, Mark E. Reynolds, Treasurer, Chief Financial Officer, and
Director, Norman A. Fair, Director, Martin Sheerin, Director and Arnold R.
Bergman, Secretary. The address of Mr. Largent, Mr. Reynolds, Mr. Sheerin and
Mr. Bergman is the same as that of the Adviser. The address of Mr. Fair is 2211
York Road, Suite 202, Oakbrook, Illinois 60521.
Sub-Advisers
Each of the Sub-Advisers described in the Prospectus serves as Sub-Adviser
to one or more of the Portfolios of the Trust pursuant to separate written
agreements. Certain of the services provided by, and the fees paid to, the
Sub-Advisers are described in the Prospectus under "Management of the Trust
Sub-Advisers."
Management of the Sub-Advisers
Federated Investment Counseling ("Federated"). The trustees of Federated
are John F. Donahue; J. Christopher Donahue; Henry J. Gailliot; Mark L. Mallon;
John W. McGonigle; and Mark D. Olson. The executive officers of Federated are
Henry J. Gailliot, Chairman; Mark L. Mallon, President; J. Alan Minteer, Senior
Vice President; G. Michael Cullen, Vice President; Edward C. Gonzales, Vice
President and Treasurer; Stephen A. Keen, Secretary; Robert J. Ostrowski, Senior
Vice President; and Charles A. Ritter, Vice President.
Value Line, Inc. ("Value Line"). The executive officers and directors of
Value Line are: Jean Bernhard Buttner, Chairman, Chief Executive Officer and
President; Samuel Eisenstadt, Senior Vice President and Director; David T.
Henigson, Vice President and Director; Howard A. Brecher, Secretary and Director
(also Secretary and Treasurer of AB&Co.); Harold Bernard, Jr., Director; Arnold
Van H. Bernhard, Director; William S. Kanaga, Director; and W. Scott Thomas,
Director.
Strong Capital Management, Inc. ("Strong"). The executive officers and
directors of Strong are: Richard S. Strong, Chairman and Chief Investment
Officer; John Dragisic, President and Director; Ronald A. Neville, Senior Vice
President and Chief Financial Officer; Richard T. Weiss, Director; and Lloyd E.
Cole, Senior Vice President and Chief Information Officer.
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<PAGE>
State Street Bank and Trust Company ("State Street"). State Street is a
wholly-owned subsidiary of State Street Boston Corporation, a publicly held bank
holding company.
Keystone Investment Management Company ("Keystone") (Formerly, Keystone
Custodian Funds, Inc.). The Directors of Keystone are: George S. Bissell,
Chairman of the Board of Directors and Chief Executive Officer; Albert H.
Elfner, III, Vice Chairman and Chief Operating Officer; Roger T. Wickers, Senior
Vice President and Secretary; Edward F. Godfrey, Senior Vice President, Chief
Financial Officer and Treasurer; Ralph J. Spuehler, Jr., Philip M. Byrne and
Stephen J. Arpante.
The other officers of Keystone are: James R. McCall, President; Herbert L.
Bishop, Jr., Donald C. Dates, Thomas S. Drumm and Gilman C. Gunn, III, Senior
Vice Presidents; Rosemary D. Van Antwerp, Senior Vice President and General
Counsel; Harry Barr, Robert K. Baumbach, Betsy A. Blacher, Kristine R. Cloyes,
Christopher P. Conkey, Richard Cryan, Maureen E. Cullinane, Christopher R. Ely,
Donald M. Keller, JoAnn L. Lyndon, Walter T. McCormick, Barbara A. McCue,
Stephen A. Marks, Marjorie C. Parker, William H. Parsons, Daniel Rabasco, David
L. Smith, Kathy K. Wang, Judith A. Warners and Marcia Waterman, Vice Presidents;
J. Kevin Kenely, Vice President and Controller; Joseph H. DeCristofaro,
Assistant Vice President; Jean S. Loewenberg and Colleen L. Mette, Assistant
Secretaries; and Kevin J. Morrissey, Assistant Treasurer.
Warburg, Pincus Counsellors, Inc. ("WPC"). The directors and executive
officers of WPC are: John L. Furth, Chairman of the Board of Directors; Lionel
I. Pincus, Director and Chief Executive Officer; John L. Vogelstein, Managing
Director; Susan Black, Senior Managing Director; Stephen Distler, Managing
Director and Treasurer; Stuart M. Goode, Managing Director; Stephen J. Lurito,
Managing Director; S. Scott March III, Managing Director; Anthony G. Orphanos,
Managing Director; Eugene L. Podsiado, Managing Director; Arnold M. Reichman,
Sr., Managing Director and Ass't. Secretary; roger Reinlieb, Managing Director;
Sheila N. Scott, Managing Director; George U. Wyper, Sr. Managing Director; Paul
N. Edwards, Senior Vice President; Harold W. Ehrlich, Senior Vice President,
Eugene P. Grace, Senior Vice President and Ass't. Secretary; Nicholas P.W.
Horsley, Senior Vice President; Richard M. Klemm, Executive Vice President;
Barry T. Lipp, Senior Vice President; Lynn C. Martin, Senior Vice President;
Maryanne Mullarkey, Senior Vice President; Sharon B. Parente, Senior Vice
President and Robert E. Rescoe, Senior Vice President.
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"). The executive
officers and directors of Pilgrim Baxter are: Gary L. Pilgrim, President, Chief
Investment Officer and Director; Harold J. Baxter, Chairman of the Board of
Directors and Chief Executive Officer; and Brian F. Bereznak, Chief Operating
Officer; and Eric C. Schneider, Chief Financial Officer.
Brokerage and Research Services
Transactions on U.S. stock exchanges and other agency transactions involve
the payment by the Trust of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the Trust usually
includes an undisclosed dealer commission or mark-up. In underwritten offerings,
the price paid by the Trust includes a disclosed, fixed commission or discount
retained by the underwriter or dealer.
It is currently intended that the Sub-Advisers will place all orders for
the purchase and sale of portfolio securities for the Trust and buy and sell
securities for the Trust through a substantial number of brokers and dealers. In
so doing, the Sub-Advisers will use their best efforts to obtain for the Trust
the best price and execution available. In seeking the best price and execution,
the Sub-Advisers, having in mind the Trust's best interests, will consider all
factors they deem relevant, including, by way of illustration, price, the size
of the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience, and financial stability of the broker-dealer
involved, and the quality of service rendered by the broker-dealer in other
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
which execute portfolio transactions for the clients of such advisers.
Consistent with this practice, the Sub-Advisers may receive research,
statistical, and quotation services from any broker-dealers with which they
place the Trust's portfolio transactions. These services, which in some cases
may also be purchased for cash, include such matters as general economic and
security market
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<PAGE>
reviews, industry and company reviews, evaluations of securities, and
recommendations as to the purchase and sale of securities. Some of these
services may be of value to the Sub-Advisers and/or their affiliates in advising
various of their clients (including the Trust), although not all of these
services are necessarily useful and of value in managing the Trust. The
management fees paid by the Trust are not reduced because the Sub-Advisers
and/or their affiliates may receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, a
Sub-Adviser may cause a Portfolio to pay a broker-dealer which provides
brokerage and research services to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess of
the commission which another broker-dealer would have charged for effecting that
transaction. A Sub-Adviser's authority to cause a Portfolio to pay any such
greater commissions is also subject to such policies as the Adviser or the
Trustees may adopt from time to time.
Investment decisions. Investment decisions for the Trust and for the other
investment advisory clients of the Sub-Advisers are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment, and the
size of their investments generally. Frequently, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more clients of a Sub-Adviser on the same day. In such
event, such transactions will be allocated among the clients in a manner
believed by the Sub-Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Trust. Purchase and sale orders for the Trust may be
combined with those of other clients of a Sub-Adviser in the interest of
achieving the most favorable net results for the Trust.
In fiscal 1993, 1994 and 1995 none of the Portfolios paid any underwriting
commissions. In fiscal 1993, 1994 and 1995, the Portfolios paid brokerage
commissions in the following aggregate amounts:
Brokerage Commissions
<TABLE>
<CAPTION>
Portfolio 1993 1994 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Cash Management Portfolio $ 0 $ 0 $ 0
Common Stock Portfolio 21,590 148,514 117,033
Tilt Utility Portfolio
(Formerly Equity Income Portfolio) 42,303 81,703 17,239
High Income Bond Portfolio 313 0 0
Multiple Strategies Portfolio 3,174 72,864 64,158
U.S. Government Bond Portfolio 0 0 0
World Equity Portfolio 62,439 67,439 133,115
Small Cap Portfolio 0 0 2,786
Growth & Income Portfolio 0 0 6,654
</TABLE>
In fiscal 1994, INVESCO and the Sub-Advisers , on behalf of the Trust,
placed agency transactions having an approximate aggregate dollar value of
$11,773,165 (.10% of the Trust's agency transactions on which approximately
$35,568 of commissions were paid) with brokers and dealers whose research,
statistical, and quotation services the investment adviser
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<PAGE>
considered to be particularly useful to it and its affiliates. However, many of
such transactions were placed with such brokers and dealers without regard to
the furnishing of such services.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined daily as of
4:00 p.m. on each day the New York Stock Exchange is open for trading. The New
York Stock Exchange is normally closed on the following national holidays: New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, and Christmas.
The valuation of the Cash Management Portfolio's portfolio securities is
based upon their amortized cost, which does not take into account unrealized
securities gains or losses. This method involves initially valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. By using amortized cost valuation, the Trust
seeks to maintain a constant net asset value of $1.00 per share for the Cash
Management Portfolio, despite minor shifts in the market value of its portfolio
securities. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Cash Management Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the quoted yield on
shares of the Cash Management Portfolio may tend to be higher than a like
computation made by a fund with identical investments utilizing a method of
valuation based on market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Cash Management Portfolio would be able to obtain a somewhat
higher yield if he purchased shares of the Cash Management Portfolio on that
day, than would result from investment in a fund utilizing solely market values,
and existing investors in the Cash Management Portfolio would receive less
investment income. The converse would apply on a day when the use of amortized
cost by the Portfolio resulted in a higher aggregate portfolio value. However,
as a result of certain procedures adopted by the Trust, the Trust believes any
difference will normally be minimal.
The net asset value of the shares of each of the Portfolios other than the
Cash Management Portfolio is determined by dividing the total assets of the
Portfolio, less all liabilities, by the total number of shares outstanding.
Securities traded on a national securities exchange or quoted on the NASDAQ
National Market System are valued at their last-reported sale price on the
principal exchange or reported by NASDAQ or, if there is no reported sale, and
in the case of over-the-counter securities not included in the NASDAQ National
Market System, at a bid price estimated by a broker or dealer. Debt securities,
including zero-coupon securities, and certain foreign securities will be valued
by a pricing service. Other foreign securities will be valued by the Trust's
custodian. Securities for which current market quotations are not readily
available and all other assets are valued at fair value as determined in good
faith by the Trustees, although the actual calculations may be made by persons
acting pursuant to the direction of the Trustees.
If any securities held by a Portfolio are restricted as to resale, their
fair value is generally determined as the amount which the Trust could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Trust in connection with such disposition). In addition,
specific factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of purchase and at the time of valuation), the size of the
holding, the prices of any recent transactions or offers with respect to such
securities, and any available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Trust's shares are computed as of such times. Also, because
of the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds and U.S. Government Securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the Exchange. Occasionally, events affecting the value of such
securities may occur between such times and the close of the Exchange which will
not be reflected in the computation of the Trust's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value, in the manner described
above.
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The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can otherwise
be fairly made.
TAXES
Each Portfolio of the Trust intends to qualify each year and elect to be
taxed as a regulated investment company under Subchapter M of the United States
Internal Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to the separate accounts of the Participating Insurance Companies
which hold its shares. As a Massachusetts business trust, a Portfolio under
present law will not be subject to any excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, and other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or other disposition
of certain assets (including stock and securities) held less than three months;
(c) diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash, cash
items, U.S. Government Securities, and other securities limited generally with
respect to any one issuer to not more than 5% of the total assets of the
Portfolio and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any issuer (other than U.S. Government Securities or other
regulated investment companies). In order to receive the favorable tax treatment
accorded regulated investment companies and their shareholders, moreover, a
Portfolio must distribute at least 90% of its interest, dividends, net
short-term capital gain, and certain other income each year.
With respect to investment income and gains received by a Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which a Portfolio will be subject depends on the specific countries in
which its assets will be invested and the extent of the assets invested in each
such country and therefore cannot be determined in advance.
The state and local tax effects of distributions received from a Portfolio
on the separate accounts of Participating Insurance Companies, and any special
tax considerations associated with foreign investments of the Trust, should be
examined by such Companies with regard to their own tax situation.
A Portfolio's ability to use options, futures, and forward contracts and
other hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations. A Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income. This
difference may cause a portion of the Portfolio's distributions of book income
to constitute returns of capital for tax purposes or require the Portfolio to
make distributions exceeding book income in order to permit the Trust to
continue to qualify, and be taxed under Subchapter M of the Code, as a regulated
investment company.
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Portfolio has invested and
their face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must be
distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
It is the policy of each of the Portfolios to meet the requirements of the
Code to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of a
Portfolio's gross income must be derived from gains from sale or other
disposition of securities held for less than three months (with
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<PAGE>
special rules applying to so-called designated hedges). Accordingly, a Portfolio
may be restricted in selling securities held or considered under Code rules to
have been held less than three months, and in engaging in hedging or other
activities (including entering into options, futures, or short-sale
transactions) which may cause the Trust's holding period in certain of its
assets to be less than three months.
This discussion of the federal income tax and state tax treatment of the
Trust and its shareholders is based on the law as of the date of this Statement
of Additional Information. It does not describe in any respect the tax treatment
or offsets of any insurance or other product pursuant to which investments in
the Trust may be made.
DIVIDENDS AND DISTRIBUTIONS
Cash Management Portfolio. The net investment income of the Cash Management
Portfolio is determined as of the close of trading on the New York Stock
Exchange (generally 4:00 p.m. New York time) on each day on which the Exchange
is open for business. All of the net investment income so determined normally
will be declared as a dividend daily to shareholders of record as of the close
of trading on the Exchange after the purchase and redemption of shares. Unless
the business day before a weekend or holiday is the last day of an accounting
period, the dividend declared on that day will include an amount in respect of
the Portfolio's income for the subsequent non-business day or days. No daily
dividend will include any amount of net income in respect of a subsequent
semi-annual accounting period. Dividends commence on the next business day after
the date of purchase. Dividends declared during any month will be invested as of
the close of business on the last calendar day of that month (or the next
business day after the last calendar day of the month if the last calendar day
of the month is a non-business day) in additional shares of the Portfolio at the
net asset value per share, normally $1.00, determined as of the close of
business on that day, unless payment of the dividend in cash has been requested.
Net income of the Cash Management Portfolio consists of all interest income
accrued on portfolio assets less all expenses of the Portfolio and amortized
market premium. Accreted acquisition discount is included in interest income.
The Portfolio does not anticipate that it will normally realize any long-term
capital gains with respect to its portfolio securities.
Normally the Cash Management Portfolio will have a positive net income at
the time of each determination thereof. Net income may be negative if an
unexpected liability must be accrued or a loss realized. If the net income of
the Portfolio determined at any time is a negative amount, the net asset value
per share will be reduced below $1.00 unless one or more of the following steps,
for which the Trustees have authority, are taken: (1) reduce the number of
shares in each shareholder's account, (2) offset each shareholder's pro rata
portion of negative net income against the shareholder's accrued dividend
account or against future dividends, or (3) combine these methods in order to
seek to maintain the net asset value per share at $1.00. The Trust may endeavor
to restore the Portfolio's net asset value per share to $1.00 by not declaring
dividends from net income on subsequent days until restoration, with the result
that the net asset value per share will increase to the extent of positive net
income which is not declared as a dividend.
Should the Cash Management Portfolio incur or anticipate, with respect to
its portfolio, any unusual or unexpected significant expense or loss which would
affect disproportionately the Portfolio's income for a particular period, the
Trustees would at that time consider whether to adhere to the dividend policy
described above or to revise it in light of the then prevailing circumstances in
order to ameliorate to the extent possible the disproportionate effect of such
expense or loss on then existing shareholders. Such expenses or losses may
nevertheless result in a shareholder's receiving no dividends for the period
during which the shares are held and receiving upon redemption a price per share
lower than that which was paid.
Other Portfolios. Each of the Portfolios other than the Cash Management
Portfolio will declare and distribute dividends from net investment income, if
any, and will distribute its net realized capital gains, if any, at least
annually. Both dividends and capital gain distributions will be made in shares
of such Portfolios unless an election is made on behalf of a separate account to
receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
Cash Management Portfolio: Based on the seven-day period ended December 31, 1995
(the "base period"), the yield of the Cash Management Portfolio was 5.17% and
the Portfolio's effective yield was 5.29%. The Portfolio's yield was computed by
determining the percentage net change, excluding capital changes, in the value
of an investment in one share of the Portfolio over the base period, and
multiplying the net change by 365/7 (or approximately 52 weeks). The Portfolio's
effective yield
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represents a compounding of the yield by adding 1 to the number representing the
percentage change in value of the investment during the base period, raising
that sum to a power equal to 365/7, and subtracting 1 from the result.
Other Portfolios:
(a) A Portfolio's yield is presented for a specified 30-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate of dividends and interest earned by the Portfolio during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Portfolio
outstanding during the base period and entitled to receive dividends and (B) the
net asset value per share of the Portfolio on the last day of the base period.
The result is annualized on a compounding basis to determine the Portfolio's
yield. For this calculation, interest earned on debt obligations held by a
Portfolio is generally calculated using the yield to maturity (or first expected
call date) of such obligations based on their market values (or, in the case of
receivables-backed securities such as Ginnie Maes, based on cost). Dividends on
equity securities are accrued daily at their stated dividend rates. The yield of
each of the following Portfolios for the 30-day period ended December 31, 1995
was as follows:
High Income Bond Portfolio 9.61%
U.S. Government Bond Portfolio 5.65%
(b) The total return of each of the following Portfolios for the one-year
and five-year periods ending December 31, 1995, and the average annual total
return for the life of each Portfolio through that date were as follows:
<TABLE>
<CAPTION>
One-Year Five-Year Life of
Period Period Portfolio
<S> <C> <C> <C>
High Income Bond Portfolio 18.98% 13.31% 9.83%
Multiple Strategies Portfolio 32.24% 12.42% 10.11%
U.S. Government Bond Portfolio 20.18% 9.25% 9.16%
Tilt Utility Portfolio 33.45% 15.35% 13.71%
(formerly Equity Income Portfolio)
World Equity Portfolio 24.32 % 11.25% 7.49%
</TABLE>
The average annual total return for the Common Stock Portfolio (formerly, FVL
Growth Fund, Inc.) for each of the one-, five-, and ten-year periods ended
December 31, 1995 was as follows:
One Year 37.12%
Five Years 12.99%
Ten Years 11.71%
The average annual total return for the Small Cap Portfolio for the life of the
Portfolio (inception May 4, 1995) for the period ended December 31, 1995 was
30.08%. The average annual total return for the Growth & Income Portfolio for
the life of the Portfolio (inception May 31, 1995) for the period ended December
31, 1995 was 13.09%.
Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Portfolio made at the beginning of each period, then calculating the
average annual
75
<PAGE>
compounded rate of return which would produce the same investment return on the
$1,000 investment over the same period. Total return for a period of one year or
less is equal to the actual investment return on a $1,000 investment in the
Portfolio during that period. Total return calculations assume that all
Portfolio distributions are reinvested at net asset value on their respective
reinvestment dates.
From time to time, Adviser may reduce its compensation or assume expenses
in respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield and
total return during the period of the waiver or assumption.
SHAREHOLDER COMMUNICATIONS
Owners of policies and contracts issued by Participating Insurance
Companies for which shares of one or more Portfolios are the investment vehicle
are entitled to receive from the Participating Insurance Companies unaudited
semi-annual financial statements and audited year-end financial statements
certified by the Trust's independent public accountants. Each report will show
the investments owned by the Portfolio and the market value thereof and will
provide other information about the Portfolio and its operations.
Participating Insurance Companies with inquiries regarding the Trust may
call the Trust's investment adviser, First Variable Advisory Services Corp. at
(800) 228-1035 or write First Variable Advisory Services Corp. at 10 Post Office
Square, Boston, MA 02109.
ORGANIZATION AND CAPITALIZATION
The Trust is an open-end investment company established under the laws of
The Commonwealth of Massachusetts by Agreement and Declaration of Trust dated
December 23, 1986.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, separate vote will be taken by each Portfolio on
matters affecting an individual Portfolio. For example, a change in a
fundamental investment policy for the Cash Management Portfolio would be voted
upon only by shareholders of the Cash Management Portfolio. Additionally,
approval of the Investment Advisory Agreement is a matter to be determined
separately by each Portfolio. Approval by the shareholders of one Portfolio is
effective as to that Portfolio. Shares have noncumulative voting rights.
Although the Trust is not required to hold annual meetings of its shareholders,
shareholders have the right to call a meeting to elect or remove Trustees or to
take other actions as provided in the Declaration of Trust. Shares have no
preemptive or subscription rights, and are transferable. Shares are entitled to
dividends as declared by the Trustees, and if a Portfolio were liquidated, the
shares of that Portfolio would receive the net assets of that Portfolio. The
Trust may suspend the sale of shares at any time and may refuse any order to
purchase shares.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for different variable life
insurance policies or variable annuity contracts. Any additional Portfolios may
be managed by investment advisers or sub-advisers other than the current Adviser
and Sub-Advisers. In addition, the Trustees have the right, subject to any
necessary regulatory approvals, to create more than one class of shares in a
Portfolio, with the classes being subject to different charges and expenses and
having such other different rights as the Trustees may prescribe and to
terminate any Portfolio of the Trust.
The Common Stock Portfolio is the successor to FVL Growth Trust, Inc., a
Maryland corporation.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Portfolio is defined by the Securities and
Exchange Commission as the ratio of the lesser of annual sales or purchases to
the monthly average value of the portfolio, excluding from both the numerator
and the denominator securities with maturities at the time of acquisition of one
year or less. Under that definition, the Cash Management Portfolio will have no
portfolio turnover. Portfolio turnover generally involves some expense to a
Portfolio, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestment in other
securities.
Portfolio turnover rates for each of the Portfolios are presented in the
Trust's prospectus.
76
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 is the custodian of the Trust's assets. The custodian's
responsibilities include safeguarding and controlling the Trust's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments.
INDEPENDENT AUDITORS
The Trust's independent auditor is Ernst & Young LLP, 200 Clarendon Street,
Boston, Massachusetts 02210. The financial statements and financial highlights
of the Trust included in this Statement of Additional Information have been
audited by Ernst & Young LLP, independent auditors, to the extent and for the
periods indicated in their report which appears in this Statement of Additional
Information, and have been so included in reliance upon its report given upon
its authority as experts in accounting and auditing.
The Trust's independent auditor for 1994 was Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts, 02110. The financial statement of
Variable Investors Series Trust for the year ended December 31, 1994 and
financial highlights for the four years ended December 31, 1994 included in this
Statement of Additional Information, which is incorporated by reference into the
Prospectus, have been so included in reliance upon its report given upon its
authority as experts in accounting and auditing.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of a Portfolio. Thus the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.
FIXED-INCOME SECURITY RATINGS
The rating services' descriptions of corporate bonds are:
Moody's Investors Service, Inc.:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"Gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
77
<PAGE>
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Standard & Poor's Corporation:
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB-B-CCC -- Bonds rated BB, B and CCC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
FINANCIAL STATEMENTS
The Trust's independent auditor for 1995 was Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02210. The financial statements for the
Trust as of December 31, 1995 and for the year then ended included in this
Statement of Additional Information, which is incorporated by reference into the
Prospectus, have been so included in reliance on the report of Ernst & Young LLP
independent auditors, given on the authority of said Firm as experts in auditing
and accounting.
78
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
COMMON STOCK AND MULTIPLE STRATEGIES [LOGO]
PORTFOLIOS
SUB-ADVISOR: VALUE LINE ASSET MANAGEMENT
Hindered by higher interest rates, higher tax rates, and growing consumer debt
burdens, United States economic growth slowed as 1995 progressed. Throw in bad
weather, a strike at Boeing, and repeated government shut-downs, and it is
likely the economy barely grew at all in the fourth quarter. In response to
this, the Federal Reserve Board lowered short term interest rates by 25 basis
points at its December meeting. Given the current weakness of the economy and
the fact that 1996 is an election year, expectations are for several additional
Federal Reserve monetary easings early in the year. Lower interest rates should
enable the economy to strengthen in time for the election in November, although
growth for the first half of 1996 will likely not exceed 2.0% to 2.5%.
A slow growth environment should be positive for equity investors as an easing
of inflationary concerns should keep long term interest rates low. This should
help to offset the expected weakness in corporate profit growth in 1996. In
addition, a budget agreement compromise between Democrats and Republicans which
still seeks to balance the budget within seven years should also help keep
interest rates down. Although we do not expect to see a repeat of last year's
strong performance, we believe that 1996 will be a constructive year for the
stock market.
COMMON STOCK PORTFOLIO
The investment objective of the Common Stock Portfolio is capital growth which
it seeks to achieve through a policy of investing primarily in a diversified
portfolio of common stocks and securities convertible into or exchangeable for
common stock. The secondary objective is current income when consistent with
the primary objective.
The Common Stock Portfolio had a total return (including dividends and income)
for 1995 of 37.12% as compared to 37.53% for the Standard & Poor's 500 Index.
Stock selection is guided by the Value Line Timeliness Ranking System which
focuses on stocks with superior earnings growth and price momentum. The
Portfolio benefited from a significant overweighting in technology stocks which
helped to drive strong performance in the second and third quarters. During the
fourth quarter we reduced the technology weighting and shifted the focus of this
sector away from semiconductor related stocks and into networking and software
stocks. Healthcare and consumer cyclical stocks were also overweighted, while
utilities, energy, and consumer staples were underweighted. The cash position
at the end of the year was approximately 5%, a level we do not expect to change
significantly in 1996.
For 1996 we are cautiously optimistic on the outlook for the stock market, but
believe that issue selection will be more important than in 1995. We expect to
remain overweighted in technology, although probably not to the level seen last
year. Healthcare and financial sectors will also see heavy weighting, but we
intend to add more diversification by adding positions in energy,
transportation, and utilities.
VALUE LINE ASSET MANAGEMENT
79
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE COMMON STOCK
PORTFOLIO AND THE S&P 500 INDEX*
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of Common Stock Line Chart]
Common Stock S&P 500 Index
------------ --------------
April 1, 1994 ................. $10,000 $10,000
June 30, 1994 ................. $ 9,393 $ 9,968
September 30, 1994 ............ $10,141 $10,360
December 31, 1994 ............. $10,264 $10,303
March 31, 1995 ................ $10,634 $11,305
June 30, 1995 ................. $12,461 $12,383
September 30, 1995 ............ $14,190 $13,365
December 31, 1995 ............. $14,075 $14,169
- -------------------------------------------------------------------------------
* This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
year years years
---- ----- -----
<S> <C> <C> <C>
Common Stock Portfolio 37.12% 12.99% 11.71%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the Common Stock
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
80
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
MULTIPLE STRATEGIES PORTFOLIO
The investment objective of the Multiple Strategies Portfolio is to seek as high
a level of return as is considered consistent with prudent investment risk by
investing in a portfolio of equity securities, bonds, and short term instruments
in varying proportions.
At year end 1995 the Portfolio was 70% invested in common stocks, 18% in bonds
with a mixture of high grade corporates, government, and government agencies,
and about 12% in short term securities. This mixture (higher than a typical 60%
equities/40% bonds balanced portfolio) proved to be beneficial as the equity
market posted strong gains, although the bond market was also very strong. The
Portfolio had a total return of 32.24% last year compared to 37.53% for the S&P
500 Index and an estimated 30.20% for a 60% S&P 500/40% Lehman Brothers
Government/Corporate Bond Index mixture.
The equity holdings in the Portfolio mirror those of the Common Stock Portfolio
and will continue to do so. Selection is guided by the Value Line Timeliness
Ranking System which favorably ranks stocks with earnings and price momentum.
We anticipate maintaining a relatively high equity position in the Portfolio
(65% to 75%) based upon our constructive view of the stock market and the
likelihood of further interest rate cuts by the Federal Reserve Board. We
anticipate a nominal increase in the bond position and a corresponding decrease
in the cash position, as the weak economy and Fed easing should be positive for
bonds.
VALUE LINE ASSET MANAGEMENT
81
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MULTIPLE STRATEGIES
PORTFOLIO, THE S&P 500 INDEX AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND
INDEX *
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of Multiple Strategies Line Chart]
Multiple Lehman Brothers
Strategies S&P 500 Index Gov't/CP Bond Index
---------- ------------- -------------------
April 1, 1994 ............ $10,000 $10,000 $10,000
June 30, 1994 ............ $ 9,384 $ 9,878 $ 9,966
September 30, 1994 ....... $ 9,913 $ 9,925 $10,380
December 31, 1994 ........ $ 9,974 $ 9,962 $10,303
March 31, 1995 ........... $10,475 $10,458 $11,305
June 30, 1995 ............ $11,845 $11,138 $12,383
September 30, 1995 ....... $13,154 $11,343 $13,365
December 31, 1995 ........ $13,189 $11,872 $14,169
- -------------------------------------------------------------------------------
* These Indices are unmanaged indices in which investors can not invest.
Results for the Indices do not reflect the expenses and investment management
fees incurred by the Portfolio.
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Life of
year years Fund***
---- ----- -------
<S> <C> <C> <C>
Multiple Strategies Portfolio 32.24% 12.42% 10.11%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the Multiple Strategies
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
*** From commencement of operations (May 5, 1987)
82
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
HIGH INCOME BOND PORTFOLIO [LOGO]
SUB-ADVISOR: FEDERATED INVESTORS
[LOGO]
The High Income Bond Portfolio invests in lower quality corporate bonds with a
goal of obtaining high current income and capital appreciation. Two major
factors impacted the performance of high yield bonds during 1995. First,
interest rates fell substantially, positively impacting all fixed income
securities including high yield bonds. For example, the yield on 10 year
Treasuries increased as investors became more concerned with the credit outlook
for high yield bonds as the economy slowed from its rapid pace of 1994. Default
rates also increased in 1995 impacting investors' perception of the risk
associated with owning high yield bonds. The overall impact of these two
factors resulted in high yield bonds delivering attractive absolute returns
although these returns trailed the returns of like duration high quality bonds.
The High Income Bond Portfolio outperformed both the Lipper High Current Yield
Average and the Lehman Brothers Single B index during 1995. Several factors
were responsible for this performance. First, the Portfolio experienced no
defaults during the year and avoided the majority of near default situations
such as Color Tile which had substantial price declines while not officially
defaulting. Second, the Portfolio has maintained a higher quality portfolio
profile than normal since the fourth quarter of 1994. Higher quality high yield
bonds outperformed during the year as they were impacted less by the spread
widening which impacted the overall market. Third, several industries that the
Portfolio has recently emphasized have performed well including cable TV,
telecommunications and broadcasting. Finally, various Portfolio holdings, such
as Australis Media, Cellular Communications International, People's Choice TV,
IXC Communications, and Affiliated Newspapers performed very well due to issuer
specific fundamentals.
The Portfolio's management expects the economy to be characterized by slow
growth and low inflation over the next few quarters. This should be a rewarding
environment for carefully selected portfolios of high yield bonds. Selectivity
will continue to be important as financial performance across high yield issuers
will vary widely. Given this environment, the High Income Bond Portfolio
continues to emphasize companies with superior operating profiles, companies
with the potential to grow unit volume above the rate of growth of the overall
economy, and companies that have a high level of predictability to their
financial performance. These areas of emphasis have not changed significantly
over the past several quarters. However, given the spread widening that has
occurred, we are attempting to identify selected lower quality issuers that we
believe are attractive on a risk return basis. These lower quality issuers
should be superior performers in a stronger growth environment that we believe
may occur in the second half of 1996.
FEDERATED INVESTORS
83
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH INCOME BOND
PORTFOLIO AND THE LEHMAN BROTHERS SINGLE "B" INDEX *
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of High Income Line Chart]
Lehman Brothers
High Income Single 'B' Index
----------- ----------------
April 1, 1994 ................. $10,000 $10,000
June 30, 1994 ................. $ 9,806 $10,010
September 30, 1994 ............ $ 9,879 $10,199
December 31, 1994 ............. $ 9,655 $10,215
March 31, 1995 ................ $ 9,167 $10,745
June 30, 1995 ................. $10,729 $11,299
September 30, 1995 ............ $11,102 $11,641
December 31, 1995 ............. $11,487 $11,907
- -------------------------------------------------------------------------------
* This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Life of
year years Fund***
---- ----- -------
<S> <C> <C> <C>
High Income Bond Portfolio 18.98% 13.31% 9.83%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the High Income Bond
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
*** From commencement of operations (June 1, 1987)
84
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
TILT UTILITY PORTFOLIO
SUB-ADVISOR: STATE STREET GLOBAL ADVISORS [LOGO]
[LOGO]
The investment objective of the Tilt Utility Portfolio is capital appreciation
and current income. The Portfolio will seek to achieve its investment objective
by investing in a diversified portfolio of common stock and income securities
issued by companies engaged in the utilities industry.
The strategy employed by State Street Global Advisors evaluates a broad universe
of over 200 utility stocks based upon two independent criteria - value and
growth. The manager looks for stocks that, in the aggregate, represent the best
value and future growth opportunities. The strategy, which is computer model
driven, is based on a stock selection methodology which builds a portfolio that
is neutral to broad economic events while focusing on stocks that have
increasing earnings estimates and are undervalued on a fundamental basis.
With the S&P Utility Index posting an impressive 41.78% return for the year,
1995 was a wonderful year for utility stocks. Strong corporate profits,
moderate economic growth, low inflation, lower interest rates and the potential
balancing of the federal budget all served to propel the market to record
levels.
The combination of low inflation and lower interest rates has a positive impact
on the utility industry, especially the electric utility sector. Lower
inflation decreases the near-term risk factor in utilities by allowing rate
setting boards to be more responsive to increasing rates. Also, in an
environment of low inflation and low interest rates, plant and equipment
financing becomes cheaper allowing more investment in efficient production
facilities and techniques.
As inflation remains under control, and the potential for lower interest rates
continues, we expect modest rises in the utility sector. Additionally, State
Street Global Advisors believes that the Portfolio is well positioned for 1996,
as it currently holds stocks which, by our measures, are undervalued and have
rising earnings estimates.
STATE STREET GLOBAL ADVISORS
85
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE TILT UTILITY
PORTFOLIO AND THE S&P UTILITY INDEX *
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of Tilt Utility Line Chart]
Tilt Utility S&P Utility Index
------------ -----------------
April 1, 1994 ................. $10,000 $10,000
June 30, 1994 ................. $ 9,940 $ 9,987
September 30, 1994 ............ $10,180 $10,878
December 31, 1994 ............. $10,009 $ 9,621
March 31, 1995 ................ $10,604 $10,484
June 30, 1995 ................. $11,153 $11,259
September 30, 1995 ............ $12,359 $12,521
December 31, 1995 ............. $12,989 $13,923
- -------------------------------------------------------------------------------
* This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Life of
year years Fund***
---- ----- -------
<S> <C> <C> <C>
Tilt Utility Portfolio 33.45% 15.35% 13.71%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the Tilt Utility
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
*** From commencement of operations (June 16, 1988)
86
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
[LOGO]
U.S. GOVERNMENT BOND PORTFOLIO
SUB-ADVISOR: STRONG CAPITAL MANAGEMENT, INC.
The investment objective of the U.S. Government Bond Portfolio is to seek
current income and preservation of capital through investing primarily in bonds
issued by the U.S. Government and its agencies. The majority of the investments
in the Portfolio are issued or guaranteed as to timely payment of principal and
interest by the U.S. Government, its agencies or its instrumentalities. While
the U.S. Government guarantees individual securities in the Portfolio, it does
not guarantee the Portfolio's share price.
PATIENT BOND INVESTORS REWARDED IN 1995
After being buffeted by a turbulent bond market in 1994, investors with the
savvy and patience to stay the course were rewarded in 1995 with a powerful
rally. U.S. Government bonds essentially regained all of 1994's losses in the
first quarter of 1995, and prices continued to rise nearly unabated throughout
the entire year. The primary catalyst behind the bonds' strong performance this
year was a stream of unexpectedly weak economic numbers, particularly in April
and May. Many investors had been cautious of the bond market early in the year,
anticipating continued economic strength and higher inflation. When that
scenario failed to materialize, investors became more confident that interest
rates had reached a peak, and money poured from the short end of the market into
longer maturity bonds, forcing yields lower and driving prices higher.
PORTFOLIO STRATEGY: ADJUST DURATION TO MAXIMIZE OPPORTUNITY
While the Portfolio's asset allocation was varied only slightly during the year,
we actively adjusted the duration of our mortgage and Treasury holdings to
maximize the opportunity presented by falling rates. Through most of 1995, we
kept the Portfolio's overall duration slightly longer than neutral to make it
more sensitive to interest rate changes and help us lock in higher yields for
longer periods of time.
At the beginning of the year, we maintained our long duration by lengthening
maturities in the mortgage portion of the portfolio. As rates continued to
fall, however, we began to reduce the duration of our mortgage position, since
lower rates make it more likely that mortgages will be called as homeowners take
advantage of the opportunity to refinance. By October, our mortgage holdings
were of fairly short maturity, and we had increased the duration of our Treasury
position in order to maintain a slightly longer-than-neutral posture for the
portfolio overall.
THE VALUE OF KEEPING A LONGER-TERM PERSPECTIVE
Our outlook for the bond market over the next few quarters is positive. We
expect the economy to continue to grow at around a 2.5% annual rate, with
inflation remaining subdued. Against this backdrop, we look for interest rates
to stay in their current range with a downward bias, and we anticipate a
possible easing by the Federal Reserve in the first or early second quarter of
1996 - overall, a very favorable environment for bond investors.
Even in such a beneficial environment, investors must be patient and maintain a
longer-term outlook. While the market appears to have settled down in
anticipation of a slow growth economy, that doesn't mean a smooth, steady trend.
Instead, you can expect the market to be battered occasionally by contradictory
economic data, international events (particularly in Japan), and political
haggling in Washington as the budget debate and election campaigns kick into
high gear.
87
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
Such factors are why, at Strong, we believe that successful bond investing stems
from TIME IN THE MARKET rather than TIMING THE MARKET. It is important that
investors establish an investment timeline, select the Portfolio that matches
this horizon and then STAY THE COURSE. In our experience, investors who have
the discipline to look past short-term turbulence have the greatest chance of
reaching their goals.
STRONG CAPITAL MANAGEMENT, INC.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE U.S. GOVERNMENT
BOND PORTFOLIO AND THE LEHMAN BROTHERS GOVERNMENT BOND INDEX *
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of U.S. Government Bond Line Chart]
Lehman Brothers
U.S. Government Bond Government Bond Index
-------------------- ---------------------
April 1, 1994 ................. $10,000 $10,000
June 30, 1994 ................. $ 9,928 $ 9,885
September 30, 1994 ............ $ 9,960 $ 9,927
December 31, 1994 ............. $ 9,958 $ 9,962
March 31, 1995 ................ $10,474 $10,431
June 30, 1995 ................. $11,162 $11,078
September 30, 1995 ............ $11,403 $11,273
December 31, 1995 ............. $11,963 $11,768
- -------------------------------------------------------------------------------
* This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
88
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Life of
year years Fund***
---- ----- -------
<S> <C> <C> <C>
U.S. Government Bond Portfolio 20.18% 9.25% 9.16%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the U.S. Government Bond
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
*** From commencement of operations (May 27, 1987)
89
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
WORLD EQUITY PORTFOLIO [LOGO]
SUB-ADVISOR: KEYSTONE INVESTMENT MANAGEMENT COMPANY
The investment objective of the World Equity Portfolio is to seek maximum
long-term total return by investing primarily in common stocks, and securities
convertible into common stocks, traded in securities markets located around the
world, including the United States.
1995 IN REVIEW: INTERNATIONAL
The year 1995 was very volatile in international equity markets: first, due to
volatility in Japan's markets and secondly, due to fluctuations in the U.S.
dollar. Japan's equity market declined 25% (35% for Japanese small cap stocks)
through June, and then began a long climb back to end the year about unchanged.
The U.S. dollar also declined during the first six months about 23% before
recovering also to close the year about where it began.
European markets moved ahead approximately 10-15%, while emerging markets were
generally poor performers. India and Taiwan were down 30%, and markets in Latin
America were off as well. Emerging markets in Latin America and Asia suffered
due to the after effects of Mexico's devaluation in late 1994. As U.S. interest
rates declined in 1995, and as the U.S. dollar stabilized in late 1995, foreign
markets began to respond positively.
THE YEAR AHEAD: INTERNATIONAL
We believe 1996 will be a better year than 1995, and have therefore increased
the international portion of the portfolio from 50% to 70%. This is our maximum
international weighting. Generally speaking, foreign companies offer good
investment value now and we have positioned the Portfolio accordingly.
As of January 19, 1996, we have a weighting of 40% in Japan. We have increased
our Japanese holdings for the following reasons:
1. The markets have been in a bear market for five years, and many stocks
look attractive using standard measures of value.
2. We believe the banking crisis is starting to be dealt with which will have
a positive longer term impact.
3. The Yen has weakened (and should continue to weaken further), thus helping
sales for Japanese exporting companies.
4. The Japanese economy should recover slowly in 1996 from very depressed
levels in 1994 and 1995.
Our holdings in Japan include many blue chip companies (Canon, Sony, Toyota,
Toshiba, Bridgestone), and some sectors we believe are undervalued like
pharmaceuticals, and non-life insurance companies. We have no commercial bank
holdings.
1995 IN REVIEW: DOMESTIC
U.S. equity markets rose sharply in 1995 as investors reacted favorably to
several factors. Positive economic growth continued in 1995 albeit at a slower
pace than experienced in 1994. Inflation was not in evidence and interest rates
declined sharply. Corporate earnings were strong, benefiting from greatly
improved productivity and a weak US dollar.
90
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
Small cap stocks measured by the Russell 2000 actually underperformed the S&P
500. However, there was a significant divergence between growth and value
stocks within the index. Growth oriented small stocks substantially
outperformed value, driven principally by technology issues, an area we heavily
weighted during much of the year. As the year drew to a close, technology
stocks corrected sharply as investors grew concerned about prospects for 1996.
THE YEAR AHEAD: DOMESTIC
We do not expect that US markets will match 1995's thirty-something gains in
1996. In fact, our forecast is for a more normal return of about ten percent.
The environment for stocks is still good: the economy is growing, inflation
remains controlled, interest rates are low. Our biggest concern is corporate
earnings growth which peaked in early 1995. However, we believe that smaller,
emerging growth companies should be able to continue to report strong earnings.
Those earnings gains should compare well with larger cap stocks and hopefully
attract investors to the small cap sector.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE WORLD EQUITY
PORTFOLIO AND THE MSCI WORLD INDEX *
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of World Equity Line Chart]
World Equity MSCI World Index
------------ ----------------
April 1, 1994 ................. $10,000 $10,000
June 30, 1994 ................. $ 9,830 $10,301
September 30, 1994 ............ $10,523 $10,522
December 31, 1994 ............. $10,707 $10,477
March 31, 1995 ................ $10,921 $10,957
June 30, 1995 ................. $11,606 $11,375
September 30, 1995 ............ $13,312 $11,849
December 31, 1995 ............. $13,310 $12,329
- -------------------------------------------------------------------------------
* This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
91
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 1995
CONTINUED
AVERAGE ANNUAL TOTAL RETURNS **
Periods ended December 31, 1995
<TABLE>
<CAPTION>
Past 1 Past 5 Life of
year years Fund***
---- ----- -------
<S> <C> <C> <C>
World Equity Portfolio 24.32% 11.25% 7.49%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the World Equity
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
*** From commencement of operations (June 10, 1988)
92
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 1995 *
CONTINUED
SMALL CAP PORTFOLIO
SUB-ADVISOR: PILGRIM, BAXTER & ASSOCIATES, LTD. [LOGO]
The investment objective of the Small Cap Portfolio is to seek capital
appreciation by investing, under normal conditions, at least 65% of its total
assets in securities of companies with market capitalizations or annual revenues
under $1 billion at time of purchase.
1995 IN REVIEW
As we entered 1995, the level of economic activity that the U.S. was
experiencing was viewed as being well above long-run potential. This provoked a
preemptive series of interest rate hikes from the Federal Reserve followed by
concerns about a dislocation to overall corporate earnings once the economy did
begin to slow. Operating earnings for the Standard & Poor's 500 were rising at
a 20% rate, a level that provides significant competition for small cap growth
companies. Additionally, large multinational corporate profitability was
perceived to be benefiting from the weak dollar, providing many industrial and
cyclical companies with the opportunity for strong relative earnings gains.
As the year progressed, however, it became apparent that seven increases in the
Fed Funds rate - a tightening cycle first begun in the Spring of 1994 - and
significant tax hikes beginning in the same year, were indeed beginning to slow
the economy. The increasing acceptance of the "soft landing" scenario -
moderating real growth, benign inflation, declining interest rates and
decelerating corporate profitability - propelled small cap growth stocks higher
starting in June just after the Portfolio first opened. Investors were well
aware that, in previous soft landing periods, growth stocks had outperformed
their value and cyclical counterparts as the market rewarded earnings stamina
with a premium valuation.
In sum, recapping 1995 as a positive period for U.S. financial assets - and
growth stocks in particular - would be a significant understatement.
Stabilization of the federal deficit (with talk of significant improvement by
the Republican Congressional majority), record levels of non-financial corporate
profitability and cash flow (much of which was reinvested in productivity
enhancing information technology), relatively low costs of labor and capital,
benign levels of inflation and interest rates, and superior relative earnings
gains for small cap growth stocks were all significant contributors to
investment returns.
December Portfolio results were essentially "in line" with the various small cap
indices. Significant contributors to performance were found in the healthcare
and service sectors. Offsetting this was the performance of the technology
group, where semiconductor and semiconductor capital equipment manufacturers
were notably weak. For the year as a whole, technology, healthcare and consumer
issues were by far the principal contributors to investment results.
OUTLOOK
In looking to the year ahead, many of the positives for small cap growth stocks,
which propelled the asset class higher during the second half of 1995, remain in
place. We continue to feel that a landscape characterized by moderate economic
growth, quiescent inflation and interest rates, and continued relative earnings
expansion certainly favors the asset class.
* The Inception Date of the Small Cap Portfolio was May 4, 1995
93
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 1995
CONTINUED
Of course, the slowing economy carries its own special set of risks, the most
notable of which is the need for investors to adjust their expectations to the
slower revenue growth and, hence, much slower profit growth which lies ahead for
many companies. This will not be done without some periods of uncertainty and
attendant market volatility. Additionally, expectations in the bond market seem
particularly high regarding the budget balancing process. Tough decisions need
to be made here, and ultimate resolution of the process may well take a
significant amount of time. But at least we're having the discussion, and
that's quite bullish for the markets longer-term.
PILGRIM BAXTER & ASSOCIATES, LTD.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP PORTFOLIO
AND THE RUSSELL 2000 INDEX **
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of Small Cap Line Chart]
Small Cap Russell 2000 Index
--------- ------------------
May 4, 1995 ................... $10,000 $10,000
June 30, 1995 ................. $10,939 $10,676
September 30, 1995 ............ $12,593 $11,731
December 31, 1995 ............. $13,006 $11,985
- -------------------------------------------------------------------------------
** This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
94
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 1995
CONTINUED
AVERAGE ANNUAL TOTAL RETURNS ***
Period ended December 31, 1995
<TABLE>
<CAPTION>
Life of
Fund****
--------
<S> <C>
Small Cap Portfolio 30.08%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the Small Cap Portfolio
and the return on the investment both will fluctuate and redemption proceeds may
be higher or lower than an investor's original cost.
*** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
**** From commencement of operations (May 4, 1995)
95
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 1995 *
CONTINUED
GROWTH & INCOME PORTFOLIO
SUB-ADVISOR: WARBURG PINCUS COUNSELLORS, INC. [LOGO]
The Growth & Income Portfolio was established May 31, 1995: its investment
objective is to provide growth of capital and income. The Portfolio rose 13.09%
in its first seven months, versus a return of 17.09% for the S&P 500. Much of
the Portfolio's underperformance was attributable to continued heavy
liquidations by gold-sector mutual funds, which pushed down share prices of
gold-mining and other precious-metals-related companies. These issues have a
significant representation in the Portfolio, and their weakness negated much of
the gains recorded by the Portfolio's other holdings during the period.
Their short-term performance notwithstanding, we remain bullish on the prospects
of gold and gold-mining stocks, and believe that their performance in 1996 will
be considerably improved relative to 1995. This bullishness is based entirely
on supply and demand factors, rather than on the gold-as-inflation-hedge
argument. Demand for gold, primarily for its use in jewelry, has risen steadily
over time. This growth has been particularly strong in the last decade, with
much of the demand coming from emerging markets.
We are finding excellent opportunities in other areas as well, and believe that
the portfolio is in good position as the year begins. Stocks we view as
promising include many industrial cyclical companies, particularly steel and
other metals firms, which stand to benefit significantly from what we expect to
be a stronger economy in the second half of the year.
We also see selected opportunities in oil-services companies, which as a group
should show a significant improvement in earnings due to the recent surge in
exploration activity by oil companies.
The Portfolio maintains a sizable weighting in banking stocks, and we believe
they hold good appreciation potential in 1996. Driving these stocks'
performance has been a favorable interest rate environment and the industry's
accelerating trend toward consolidation, which shows few signs of easing.
Recent weakness within the technology sector has brought valuations down to more
reasonable levels, and we have used the opportunity to add selected names to the
portfolio. Other areas in which we see good values are in cable and
telecommunications equipment companies. Collectively, these stocks are down
significantly from their highs, but they stand to benefit greatly from
deregulation following passage of the telecommunications bill, which has passed
both Houses of Congress and should become law some time later this year.
WARBURG, PINCUS COUNSELLORS, INC.
* The Inception Date of the Growth & Income Portfolio was May 31, 1995
96
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 1995
CONTINUED
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GROWTH & INCOME
PORTFOLIO AND THE S&P 500 INDEX **
[GRAPH]
- -------------------------------------------------------------------------------
[Tabular representation of Growth and Income Line Chart]
Small Cap S&P 500 Index
--------- ------------------
May 4, 1995 ................... $10,000 $10,000
June 30, 1995 ................. $10,152 $10,232
September 30, 1995 ............ $11,145 $11,043
December 31, 1995 ............. $11,310 $11,708
- -------------------------------------------------------------------------------
** This Index is an unmanaged index in which investors can not invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio.
AVERAGE ANNUAL TOTAL RETURNS ***
Period ended December 31, 1995
<TABLE>
<CAPTION>
Life of
Fund****
--------
<S> <C>
Growth & Income Portfolio 13.09%
</TABLE>
"Total Return" is calculated including reinvestment of all income dividends and
capital gain distributions. Results represent past performance and do not
indicate future results. The value of an investment in the Growth & Income
Portfolio and the return on the investment both will fluctuate and redemption
proceeds may be higher or lower than an investor's original cost.
*** Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains. Performance numbers are net of all
fund operating expenses, but do not include any insurance charges imposed in
connection with your variable insurance contract. If this performance
information included the effect of the insurance charges, performance numbers
would be lower.
**** From commencement of operations (May 31, 1995)
97
<PAGE>
This page has been left blank intentionally.
98
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees and Contract Owners of Variable Investors Series Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Variable Investors Series Trust
(comprising, respectively, the Cash Management, Common Stock, High Income
Bond, Multiple Strategies, Tilt Utility, U.S. Government Bond, World Equity,
Small Cap and Growth & Income Portfolios) as of December 31, 1995, and the
related statements of operations, changes in net assets and financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of Variable
Investors Series Trust management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial statements of Variable Investors Series Trust for the
year ended December 31, 1994 and the financial highlights for each of the
four years in the period ended December 31, 1994 were audited by other
auditors whose report dated February 14, 1995 expressed an unqualified
opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1995, by correspondence with the custodian and brokers or by other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting Variable Investors Series Trust at
December 31, 1995, the results of their operations, the changes in their net
assets and financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
February 12, 1996
99
<PAGE>
VARIABLE INVESTORS SERIES TRUST
CASH MANAGEMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER
BANKING - (19.7%)
Abbey National North America . . . . . . . . . . 5.710% 01/05/1996 $ 300,000 $ 299,810
Commerzbank United States Finance. . . . . . . . 5.590% 01/22/1996 500,000 498,370
Royal Bank of Canada . . . . . . . . . . . . . . 5.480% 01/11/1996 200,000 199,696
Societe General North America, Inc.. . . . . . . 5.600% 02/09/1996 500,000 496,967
Svenska Handelsbanken, Inc.. . . . . . . . . . . 5.650% 03/29/1996 500,000 493,094
-----------
1,987,937
FINANCE AUTO - (3.0%)
Ford Credit. . . . . . . . . . . . . . . . . . . 5.700% 01/16/1996 300,000 299,288
-----------
FINANCE COMMERCIAL - (22.5%)
Asset Securitization Cooperative Corp. . . . . . 5.750% 01/19/1996 300,000 299,137
Beta Finance, Inc. . . . . . . . . . . . . . . . 5.670% 02/20/1996 400,000 396,850
Beta Finance, Inc. . . . . . . . . . . . . . . . 5.590% 04/19/1996 100,000 98,307
CIT Group Holdings, Inc. . . . . . . . . . . . . 5.700% 01/19/1996 100,000 99,715
Falcon Asset Securitization. . . . . . . . . . . 5.540% 05/03/1996 500,000 490,536
General Electric Capital Corporation . . . . . . 5.690% 02/05/1996 400,000 397,787
Greenwich Funding Corporation. . . . . . . . . . 5.670% 02/15/1996 200,000 198,583
Greenwich Funding Corporation. . . . . . . . . . 5.660% 02/23/1996 300,000 297,500
-----------
2,278,415
FINANCE - RETAIL - (4.9%)
American Express Credit Corporation. . . . . . . 5.610% 04/08/1996 500,000 492,364
-----------
TOTAL COMMERCIAL PAPER - (COST $5,058,004) 50.1% 5,058,004
-----------
GOVERNMENT AND AGENCY SECURITIES
FINANCIAL SERVICES - (9.9%)
Federal Home Loan Mortgage Corporation. . . . . 5.750% 01/02/1996 1,000,000 999,840
-----------
TOTAL GOVERNMENT AND AGENCY SECURITIES - (Cost $999,840) 9.9% 999,840
-----------
BANKING - (24.2%)
Board of Industrial Development - City of
Pelham (Columbus Bank & Trust, LOC) (a). . . . . 6.069% 01/04/1996 390,000 390,000
Maryland State Industrial Authority
(First National Bank, Maryland LOC) (a). . . . . 5.910% 01/01/1996 500,000 500,000
Mississippi Business Finance Corporation
(CoAmerica Bank, LOC) (a). . . . . . . . . . . . 5.869% 01/04/1996 400,000 400,000
PNC Bank NA. . . . . . . . . . . . . . . . . . . . 5.535% 01/01/1996 500,000 499,600
Roby Company (Huntington National
Bank, LOC) (a) . . . . . . . . . . . . . . . . . 5.870% 01/04/1996 390,000 390,000
Vista Funding Corporation (Fifth Third
Bank, LOC) (a). . .. . . . . . . . . . . . . . . 5.869% 01/04/1996 263,000 263,000
-----------
2,442,600
</TABLE>
See notes to financial statements.
100
<PAGE>
VARIABLE INVESTORS SERIES TRUST
CASH MANAGEMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
VARIABLE RATE AND CORPORATE NOTES
INSURANCE - (4.9%)
Sun Life Insurance Company of America. . . . . . 6.088% 09/15/1996 $ 500,000 $ 500,000
------------
LEASING - (3.2%)
Navistar Financial Corporation . . . . . . . . . 5.750% 11/15/1996 323,223 323,217
------------
TOTAL VARIABLE RATE AND CORPORATE
NOTES - (Cost $3,265,817) 32.3% 3,265,817
------------
TIME DEPOSIT
BANKING - (1.0%)
Bank of Nova Scotia . . . . . . . . . . . . . . 7.000% 01/02/1996 100,000 100,000
------------
TOTAL TIME DEPOSIT - (COST $100,000) 1.0% 100,000
------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY
AMOUNT
------
<S> <C> <C> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENTS (b) - (7.8%)
Goldman Sachs . . . . . . . . . . . . . . . . . 5.900% 01/02/1996 $ 390,256 390,000
Paine Webber Group, Inc.. . . . . . . . . . . . 5.930% 01/02/1996 400,264 400,000
------------
TOTAL SHORT TERM INVESTMENTS - (COST $790,000) 7.8% 790,000
------------
TOTAL INVESTMENTS - (Cost $10,213,661) 101.1% 10,213,661
------
OTHER ASSETS LESS LIABILITIES - (1.1)% (117,938)
------ ------------
NET ASSETS - 100.0% $ 10,095,723
------ ------------
------ ------------
</TABLE>
(a) Variable rate demand note. Interest rate is the rate in effect and
maturity date represents the next reset date at December 31, 1995.
(b) The repurchase agreements, dated 12/29/95, are fully collateralized by U.S.
government and/or agency obligations based on market prices at the date of
the purchase. The investments in repurchase agreements are through
participation in a joint account with other portfolios advised by Federated
Investment Counseling.
LOC - Letter of Credit
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
101
<PAGE>
VARIABLE INVESTORS SERIES TRUST
COMMON STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE - (5.6%)
Loral Corporation . . . . . . . . . . . . . . . . . . . . . . . . 36,000 $ 1,273,500
McDonnell Douglas Corporation . . . . . . . . . . . . . . . . . . 10,000 920,000
Watkins Johnson Company . . . . . . . . . . . . . . . . . . . . . 5,000 218,750
------------
2,412,250
BANKS - (1.2%)
Fifth Third Bancorp . . . . . . . . . . . . . . . . . . . . . . . 7,000 512,750
------------
BUSINESS SERVICES - (0.9%)
National Data Corporation . . . . . . . . . . . . . . . . . . . . 16,000 396,000
------------
CHEMICALS - (6.0%)
First Mississippi Corporation. . . . . . . . . . . . . . . . . . . . 22,500 596,250
IMC Fertilizer Group, Inc. . . . . . . . . . . . . . . . . . . . . . 32,000 1,308,000
Praxair, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,500 689,312
------------
2,593,562
COMMUNICATION EQUIPMENT - (0.8%)
Andrew Corporation (a) . . . . . . . . . . . . . . . . . . . . . . . 9,500 363,375
------------
COMPUTER RELATED - (10.1%)
3Com Corporation (a) . . . . . . . . . . . . . . . . . . . . . . . . 16,000 746,000
Cabletron Systems, Inc. (a). . . . . . . . . . . . . . . . . . . . . 10,000 810,000
Cisco System, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . 14,500 1,082,062
Compaq Computer Corporation (a). . . . . . . . . . . . . . . . . . . 7,000 336,000
First Data Corporation . . . . . . . . . . . . . . . . . . . . . . . 6,000 401,250
HBO & Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500 574,688
Measurex Corporation . . . . . . . . . . . . . . . . . . . . . . . . 13,500 381,375
------------
4,331,375
COMPUTER SERVICES - (2.4%)
Computer Associates International, Inc.. . . . . . . . . . . . . . . 7,500 426,563
Informix Corporation . . . . . . . . . . . . . . . . . . . . . . . . 20,000 599,640
------------
1,026,203
CONSTRUCTION - (1.9%)
Clayton Homes, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 37,500 801,563
------------
COSMETICS & TOILETRIES - (1.9%)
Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . . 15,500 807,938
------------
DRUGS - (11.3%)
Amgen, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 831,250
Cardinal Health, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 7,800 427,050
Genzyme Corporation (a). . . . . . . . . . . . . . . . . . . . . . . 13,000 810,875
Merck & Company, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 20,000 1,315,000
Pfizer, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 756,000
Schering Plough Corporation. . . . . . . . . . . . . . . . . . . . . 13,000 711,750
------------
4,851,925
</TABLE>
See notees to financial statements.
102
<PAGE>
VARIABLE INVESTORS SERIES TRUST
COMMON STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ ------
<S> <C> <C>
COMMON STOCKS
ELECTRONICS - (2.3%)
ADC Telecommunications, Inc. (a). . . . . . . . . . . . . . . . . 10,000 $ 365,000
Silicon Graphics, Inc. . . . . . . . . . . . . . . . . . . . . . 10,000 275,000
Vishay Intertechnology, Inc.. . . . . . . . . . . . . . . . . . . 11,000 346,500
-----------
986,500
ENVIRONMENTAL - (2.9%)
Thermo Electron Corporation (a) . . . . . . . . . . . . . . . . . 24,000 1,248,000
-----------
FINANCIAL SERVICES - (6.0%)
Countrywide Credit Industries, Inc. . . . . . . . . . . . . . . . 9,000 195,750
Finova Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 10,500 506,625
Green Tree Financial, Inc.. . . . . . . . . . . . . . . . . . . . 43,000 1,134,125
Money Store, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 15,000 234,375
Sunamerica, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 10,500 498,750
-----------
2,569,625
FOOD & BEVERAGES - (2.6%)
Coca Cola Company . . . . . . . . . . . . . . . . . . . . . . . . 6,000 445,500
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 670,500
-----------
1,116,000
GAS & PIPELINE UTILITIES - (1.0%)
Panhandle Eastern Corporation . . . . . . . . . . . . . . . . . . 15,000 418,125
-----------
INSURANCE - (4.0%)
20th Century Industries (a) . . . . . . . . . . . . . . . . . . . 12,000 238,500
American International Group, Inc. . . . . . . . . . . . . . . . 8,000 740,000
Travelers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 11,500 723,062
-----------
1,701,562
MACHINERY & EQUIPMENT - (7.1%)
Bombardier, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 49,000 645,917
Dover Corporation . . . . . . . . . . . . . . . . . . . . . . . . 10,000 368,750
Duriron, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 350,625
Gleason Corporation . . . . . . . . . . . . . . . . . . . . . . . 12,500 406,250
IDEX Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 14,500 590,875
JLG Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . 23,000 684,250
-----------
3,046,667
MEDIA - (2.7%)
Capital Cities ABC, Inc.. . . . . . . . . . . . . . . . . . . . . 9,500 1,172,062
-----------
MEDICAL SUPPLIES & SERVICES - (6.8%)
Healthcare Compare Corporation (a). . . . . . . . . . . . . . . . 13,500 587,250
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . . . . . 5,500 470,937
Medtronic, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 1,341,000
Stryker Corporation . . . . . . . . . . . . . . . . . . . . . . . 9,500 498,750
-----------
2,897,937
OIL & GAS - (0.7%)
Occidental Petroleum Corporation. . . . . . . . . . . . . . . . . 13,000 277,875
-----------
</TABLE>
See notes to financial statements.
103
<PAGE>
VARIABLE INVESTORS SERIES TRUST
COMMON STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
PACKAGING - (1.0%)
Sealed Air Corporation (a). . . . . . . . . . . . . . . . . . . . 16,000 $ 450,000
------------
PETROLEUM SERVICES - (1.2%)
Halliburton Company . . . . . . . . . . . . . . . . . . . . . . . 10,000 506,250
------------
PRINTING & PUBLISHING - (1.1%)
Omnicom Group . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 484,250
------------
RECREATION - (0.8%)
Walt Disney Company . . . . . . . . . . . . . . . . . . . . . . . 6,000 354,000
------------
RETAIL GROCERY - (1.0%)
Caseys General Stores, Inc. . . . . . . . . . . . . . . . . . . . 20,000 437,500
------------
RETAIL-SPECIALTY - (1.1%)
CUC International, Inc. (a) . . . . . . . . . . . . . . . . . . . 13,500 460,688
------------
SEMICONDUCTORS - (1.5%)
Intel Corporation . . . . . . . . . . . . . . . . . . . . . . . . 7,000 397,250
KLA Instruments (a) . . . . . . . . . . . . . . . . . . . . . . . 9,000 234,563
------------
631,813
SOFTWARE - (2.7%)
Microsoft Corporation (a) . . . . . . . . . . . . . . . . . . . . 6,000 526,500
Oracle System Corporation (a) . . . . . . . . . . . . . . . . . . 15,000 635,625
------------
1,162,125
STEEL - (1.2%)
Texas Industries, Inc.. . . . . . . . . . . . . . . . . . . . . . 9,500 503,500
------------
TELECOMMUNICATIONS - (2.6%)
Sprint Corporation. . . . . . . . . . . . . . . . . . . . . . . . 20,000 797,500
Tellabs, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . 9,000 333,000
------------
1,130,500
TRANSPORTATION - (1.4%)
Burlington Northern Santa Fe. . . . . . . . . . . . . . . . . . . 7,700 600,600
------------
TOTAL COMMON STOCKS - (COST $32,787,844) 93.8% 40,252,520
------------
------------
</TABLE>
See notes to financial statements.
104
<PAGE>
VARIABLE INVESTORS SERIES TRUST
COMMON STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY MATURITY
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT - (7.6%)
State Street Bank and Trust Company (b) . . . . 4.250% 01/02/1996 $ 3,257,538 $ 3,256,000
TOTAL SHORT TERM INVESTMENT - (COST $3,256,000) 7.6% 3,256,000
------------
TOTAL INVESTMENTS - (Cost $36,043,844) 101.4% 43,508,520
OTHER ASSETS LESS LIABILITIES - (1.4)% (589,796)
------ ------------
NET ASSETS - 100.0% $ 42,918,724
------ ------------
------ ------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement, dated 12/29/95, is fully collateralized by a
United States Treasury Bond, 10.75%, 8/15/05, with a value of $3,324,325.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
105
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
AEROSPACE & DEFENSE - (1.8%)
Howmet Corporation (a). . . . . . . . . . . . . 10.000% 12/01/2003 $ 25,000 $ 26,000
Tracor, Inc.. . . . . . . . . . . . . . . . . . 10.875% 08/15/2001 125,000 129,844
----------
155,844
AUTOMOTIVE - (5.4%)
Aftermarket Technology Company. . . . . . . . . 12.000% 08/01/2004 125,000 131,875
Exide Corporation . . . . . . . . . . . . . . . 10.000% 04/15/2005 100,000 108,250
Lear Seating Corporation. . . . . . . . . . . . 8.250% 02/01/2002 125,000 122,656
Motor Wheel Corporation . . . . . . . . . . . . 11.500% 03/01/2000 125,000 108,750
----------
471,531
BANKING - (1.6%)
First Nationwide Holdings, Inc. . . . . . . . . 12.250% 05/15/2001 125,000 140,313
----------
BEVERAGE & TOBACCO - (0.5%)
Dr Pepper Bottling Holdings Company (b) . . . . 10.675% 02/15/2003 50,000 40,750
----------
BROADCAST RADIO & TELEVISION - (9.3%)
Ackerley Communications, Inc. . . . . . . . . . 10.750% 10/01/2003 125,000 133,750
Act III Broadcasting Inc. . . . . . . . . . . . 10.250% 12/15/2005 50,000 51,125
Allbritton CommunicationCompany . . . . . . . . 11.500% 08/15/2004 125,000 131,875
Chancellor Broadcasting Company . . . . . . . . 12.500% 10/01/2004 100,000 107,000
Pegasus Media & Communications, Inc.. . . . . . 12.500% 07/01/2005 50,000 49,750
Peoples Choice TV Corporation (b) . . . . . . . 12.385% 06/01/2004 100,000 58,250
SCI Television, Inc.. . . . . . . . . . . . . . 11.000% 06/30/2005 150,000 159,375
Sinclair Broadcast Group, Inc.. . . . . . . . . 10.000% 12/15/2003 125,000 127,812
----------
818,937
BUSINESS EQUIPMENT & Services - (2.1%)
Monarch Acquisition Corp. . . . . . . . . . . . 12.500% 07/01/2003 125,000 131,875
United Stationers Supply Company. . . . . . . . 12.750% 05/01/2005 50,000 54,625
----------
186,500
CABLE TELEVISION - (10.3%)
Australis Media Ltd. (b). . . . . . . . . . . . 9.631% 05/15/2003 100,000 72,250
Cablevision Systems Company . . . . . . . . . . 9.875% 02/15/2013 75,000 79,875
CAI Wireless Systems, Inc. . . . . . . . . . . 12.250% 09/15/2002 50,000 53,500
Continental Cablevision, Inc. . . . . . . . . . 9.500% 08/01/2013 200,000 212,000
Insight Communications Company (b). . . . . . . 10.678% 03/01/2000 50,000 50,625
International Cabletel, Inc. (b). . . . . . . . 11.475% 10/15/2003 250,000 173,750
Le Group Videotron Ltee.. . . . . . . . . . . . 10.625% 02/15/2005 100,000 107,500
TeleWest Plc(b) . . . . . . . . . . . . . . . . 10.989% 10/01/2007 175,000 105,219
Wireless One Inc. . . . . . . . . . . . . . . . 13.000% 10/15/2003 50,000 53,000
----------
907,719
CHEMICALS & PLASTICS - (6.2%)
Arcadian Partners L.P.. . . . . . . . . . . . . 10.750% 05/01/2005 125,000 137,500
Crain Industries, Inc. (a). . . . . . . . . . . 13.500% 08/15/2005 50,000 50,500
G-I Holdings, Inc.(b) . . . . . . . . . . . . . 9.407% 10/01/1998 75,000 57,562
</TABLE>
See notes to financial statements.
106
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
CHEMICALS & PLASTICS - (CONTINUED)
Harris Chemical North America, Inc. (b) . . . . 10.432% 07/15/2001 $ 100,000 $ 97,000
Polymer Group,Inc.. . . . . . . . . . . . . . . 12.250% 07/15/2002 125,000 128,750
Uniroyal Technology Corporation . . . . . . . . 11.750% 06/01/2003 75,000 72,000
-----------
543,312
CLOTHING & TEXTILES - (1.4%)
WestPoint Stevens, Inc. . . . . . . . . . . . . 9.375% 12/15/2005 125,000 123,438
-----------
CONGLOMERATES - (1.5%)
Sherritt Gordon, Ltd. . . . . . . . . . . . . . 9.750% 04/01/2003 125,000 132,500
-----------
CONSUMER PRODUCTS - (4.3%)
American Safety Razor Company . . . . . . . . . 9.875% 08/01/2005 50,000 50,750
Herff Jones Inc.. . . . . . . . . . . . . . . . 11.000% 08/15/2005 75,000 80,250
Hosiery Corporation of America, Inc.. . . . . . 13.750% 08/01/2002 50,000 53,875
ICON Health & Fitness, Inc. . . . . . . . . . . 13.000% 07/15/2002 100,000 108,000
Playtex Family Products Corporation . . . . . . 9.000% 12/15/2003 100,000 88,500
-----------
381,375
CONTAINER & GLASS PRODUCTS - (0.6%)
Portola Packaging,Inc.. . . . . . . . . . . . . 10.750% 10/01/2005 50,000 51,500
-----------
COSMETICS & TOILETRIES - (1.1%)
Revlon Consumer Products Corporation. . . . . . 9.375% 04/01/2001 100,000 101,250
-----------
ECOLOGICAL SERVICES & EQUIPMENT - (3.1%)
Allied Waste Industries, Inc. . . . . . . . . . 12.000% 02/01/2004 150,000 162,375
Mid-American Waste Systems, Inc.. . . . . . . . 12.250% 02/15/2003 125,000 112,500
-----------
274,875
FARMING & AGRICULTURE - (0.6%)
Spreckels Industries, Inc.. . . . . . . . . . . 11.500% 09/01/2000 50,000 49,250
-----------
FOOD & DRUG RETAILERS - (2.4%)
Pathmark Stores, Inc. . . . . . . . . . . . . . 9.625% 05/01/2003 50,000 48,500
Penn Traffic Company. . . . . . . . . . . . . . 9.625% 04/15/2005 75,000 58,406
Ralph's Grocery Company . . . . . . . . . . . . 10.450% 06/15/2004 100,000 101,500
-----------
208,406
FOOD PRODUCTS - (4.2%)
Curtice-Burns Foods, Inc. . . . . . . . . . . . 12.250% 02/01/2005 100,000 103,000
PMI Acquisition Corporation . . . . . . . . . . 10.250% 09/01/2003 100,000 102,500
Specialty Foods Corporation . . . . . . . . . . 11.250% 08/15/2003 125,000 111,250
Van De Kamp's, Inc. . . . . . . . . . . . . . . 12.000% 09/15/2005 50,000 51,750
-----------
368,500
FOOD SERVICES - (1.0%)
Flagstar Corporation 11.250% 11/01/2004 125,000 88,750
-----------
</TABLE>
See notes to financial statements.
107
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
FOREST PRODUCTS - (5.0%)
Container Corporation of America. . . . . . . . 11.250% 05/01/2004 $ 125,000 $128,437
Repap New Brunswick, Inc. . . . . . . . . . . . 9.875% 07/15/2000 125,000 125,625
S.D. Warren Company . . . . . . . . . . . . . . 12.000% 12/15/2004 100,000 109,500
Stone Container Corporation . . . . . . . . . . 9.875% 02/01/2001 75,000 72,750
-----------
436,312
HEALTHCARE - (2.5%)
AmeriSource Health Corporation. . . . . . . . . 11.250% 07/15/2005 101,525 111,678
Tenet Healthcare Corporation. . . . . . . . . . 10.125% 03/01/2005 100,000 110,750
-----------
222,428
HOME PRODUCTS & FURNISHINGS - (1.0%)
American Standard, Inc. (b) . . . . . . . . . . 9.021% 06/01/2005 100,000 85,750
-----------
INDUSTRIAL PRODUCTS & EQUIPMENT - (1.7%)
Cabot Safety Acquisition Corporation. . . . . . 12.500% 07/15/2005 100,000 106,500
Pace Industries,Inc.. . . . . . . . . . . . . . 10.625% 12/01/2002 50,000 44,000
-----------
150,500
LEISURE & ENTERTAINMENT - (3.1%)
Affinity Group, Inc.. . . . . . . . . . . . . . 11.500% 10/15/2003 50,000 50,750
Alliance Entertainment Corporation. . . . . . . 11.250% 07/15/2005 50,000 50,250
Premier Parks, Inc. . . . . . . . . . . . . . . 12.000% 08/15/2003 50,000 51,375
Six Flags Theme Parks, Inc. (b) . . . . . . . . 10.723% 06/15/2005 150,000 117,375
-----------
269,750
MACHINERY & EQUIPMENT - (2.2%)
Primeco, Inc. . . . . . . . . . . . . . . . . . 12.750% 03/01/2005 75,000 78,375
Waters Corporation. . . . . . . . . . . . . . . 12.750% 09/30/2004 100,000 112,500
-----------
190,875
OIL & GAS - (3.0%)
Falcon Drilling Company, Inc. . . . . . . . . . 12.500% 03/15/2005 100,000 109,500
Giant Industries, Inc.. . . . . . . . . . . . . 9.750% 11/15/2003 125,000 126,406
United Meridian Corporation . . . . . . . . . . 10.375% 10/15/2005 25,000 26,375
-----------
262,281
PRINTING & PUBLISHING - (1.8%)
Affiliated Newspaper (b) . . . . . . . . . . . 13.344% 07/01/2006 250,000 156,875
-----------
RETAILERS - (1.3%)
Brylane Capital Corporation . . . . . . . . . . 10.000% 09/01/2003 125,000 110,625
-----------
SERVICES - (0.6%)
Coinmach Corporation (a). . . . . . . . . . . . 11.750% 11/15/2005 50,000 50,625
-----------
STEEL - (3.3%)
EnviroSource, Inc.. . . . . . . . . . . . . . . 9.750% 06/15/2003 125,000 109,375
Geneva Steel Company. . . . . . . . . . . . . . 9.500% 01/15/2004 100,000 77,750
GS Technologies Operating Company, Inc. . . . . 12.000% 09/01/2004 100,000 99,000
-----------
286,125
</TABLE>
See notes to financial statements.
108
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS
SURFACE TRANSPORTATION - (5.9%)
Gearbulk Holdings Ltd. . . . . . . . . . . . . 11.250% 12/01/2004 $ 100,000 $ 107,500
Sea Containers Ltd. . . . . . . . . . . . . . . 12.500% 12/01/2004 125,000 134,687
Stena AB. . . . . . . . . . . . . . . . . . . . 10.500% 12/15/2005 75,000 77,063
Trans Ocean Container Corporation . . . . . . . 12.250% 07/01/2004 75,000 78,000
Trism, Inc. . . . . . . . . . . . . . . . . . . 10.750% 12/15/2000 125,000 121,875
----------
519,125
TELECOMMUNICATIONS & CELLULAR - (6.5%)
Cellular Communications
International, Inc. (b) . . . . . . . . . . . 10.542% 08/15/2000 100,000 61,500
Dial Call Communications, Inc. (b) . . . . . . 14.646% 04/15/2004 100,000 57,000
Fonorola, Inc. . . . . . . . . . . . . . . . . 12.500% 08/15/2002 25,000 26,250
IXC Communications, Inc. (a). . . . . . . . . . 13.000% 10/01/2005 75,000 80,250
MobileMedia Communications,Inc. . . . . . . . . 9.375% 11/01/2007 25,000 25,625
PanAmSat Corporation(b) . . . . . . . . . . . . 9.848% 08/01/2003 100,000 81,500
ProNet, Inc. . . . . . . . . . . . . . . . . . 11.875% 06/15/2005 100,000 110,125
USA Mobile Communications, Inc. . . . . . . . . 9.500% 02/01/2004 125,000 123,750
----------
566,000
UTILITIES - (1.6%)
California Energy Company, Inc. (b) . . . . . . 9.300% 01/15/2004 150,000 141,000
----------
TOTAL CORPORATE BONDS - (COST $8,192,990) 96.9% 8,493,021
----------
<CAPTION>
SHARES
------
<S> <C> <C> <C>
COMMON STOCKS
BROADCAST RADIO & TELEVISION - (0.0%)
Pegasus Media & Communications, Inc. (a) (c) . . . . . . . . . . . . . . 5 0
-------
CONSUMER PRODUCTS - (0.0%)
Hosiery Corporation Of America, Inc.(c) . . . . . . . . . . . . . . . . . 50 250
-------
FOOD & DRUG RETAILERS - (0.3%)
Grand Union Company (c) . . . . . . . . . . . . . . . . . . . . . . . . . 3,535 26,512
-------
PRINTING & PUBLISHING - (0.1%)
Affiliated Newspaper (c). . . . . . . . . . . . . . . . . . . . . . . . . 250 6,250
-------
TOTAL COMMON STOCKS - (COST $201,312) . . . . . . . . . . . . . . . . . . 0.4% 33,012
-------
PREFERRED STOCK
Telecommunications & Cellular - (0.7%)
PanAmSat Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 60,634
-------
TOTAL PREFERRED STOCK - (COST $53,829). . . . . . . . . . . . . . . . . . 0.7% 60,634
-------
</TABLE>
See notes to financial statements.
109
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
WARRANTS
CONSUMER PRODUCTS - (0.0%)
IHF Capital, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 100 $ 2,500
----------
TELECOMMUNICATIONS & CELLULAR - (0.0%)
DIAL PAGE, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 1
----------
TOTAL WARRANTS - (COST $1,408) 0.0% 2,501
----------
TOTAL INVESTMENTS - (Cost $8,449,539) 98.0% 8,589,168
OTHER ASSETS LESS LIABILITIES - 2.0% 174,672
------- -----------
NET ASSETS - 100.0% $ 8,763,840
------- -----------
------- -----------
</TABLE>
(a) Pursuant to Rule 144A under the Securities Act of 1933, these securities
may be resold in transactions exempt from registration, normally to
qualified institutional buyers. At December 31, 1995, these securities
aggregated $209,875 or 2.4% of the net assets of the Portfolio.
(b) Step bond. Interest rate shown represents yield to maturity.
(c) Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
110
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE - (4.3%)
Loral Corporation . . . . . . . . . . . . . . . . . . . . . . . . 16,000 $ 566,000
McDonnell Douglas Corporation . . . . . . . . . . . . . . . . . . 4,400 404,800
Watkins Johnson Company . . . . . . . . . . . . . . . . . . . . . 3,800 166,250
------------
1,137,050
BANKS - (0.9%)
Fifth Third Bancorp . . . . . . . . . . . . . . . . . . . . . . . 3,300 241,725
------------
BUSINESS SERVICES - (0.7%)
National Data Corporation . . . . . . . . . . . . . . . . . . . . 7,100 175,725
------------
CHEMICALS - (4.5%)
First Mississippi Corporation . . . . . . . . . . . . . . . . . . 10,400 275,600
IMC Fertilizer Group, Inc.. . . . . . . . . . . . . . . . . . . . 14,600 596,775
Praxair, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 302,625
------------
1,175,000
COMMERCIAL SERVICES - (0.7%)
Measurex Corporation. . . . . . . . . . . . . . . . . . . . . . . 6,200 175,150
------------
COMMUNICATION EQUIPMENT - (0.6%)
Andrew Corporation (a). . . . . . . . . . . . . . . . . . . . . . 4,000 153,000
------------
COMPUTER RELATED - (6.7%)
3Com Corporation (a). . . . . . . . . . . . . . . . . . . . . . . 7,600 354,350
Cabletron Systems, Inc. (a) . . . . . . . . . . . . . . . . . . . 4,000 324,000
Cisco System, Inc. (a). . . . . . . . . . . . . . . . . . . . . . 6,800 507,450
Compaq Computer Corporation (a) . . . . . . . . . . . . . . . . . 3,200 153,600
First Data Corporation. . . . . . . . . . . . . . . . . . . . . . 2,500 167,188
HBO & Company . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 268,187
------------
1,774,775
COMPUTER SERVICES - (1.6%)
Computer Associates International, Inc. . . . . . . . . . . . . . 3,000 170,625
Informix Corporation. . . . . . . . . . . . . . . . . . . . . . . 8,000 239,856
------------
410,481
CONSTRUCTION - (1.5%)
Clayton Homes, Inc. . . . . . . . . . . . . . . . . . . . . . . . 18,000 384,750
------------
COSMETICS & TOILETRIES - (1.4%)
Gillette Company. . . . . . . . . . . . . . . . . . . . . . . . . 6,900 359,663
------------
DRUGS - (8.1%)
Amgen, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . . . 6,800 403,750
Cardinal Health Inc.. . . . . . . . . . . . . . . . . . . . . . . 3,100 169,725
Genzyme Corporation (a) . . . . . . . . . . . . . . . . . . . . . 5,200 324,350
</TABLE>
See notes to financial statements.
111
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
DRUGS - (CONTINUED)
Merck & Company, Inc. . . . . . . . . . . . . . . . . . . . . . . 9,000 $ 591,750
Pfizer, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 327,600
Schering Plough Corporation . . . . . . . . . . . . . . . . . . . 5,800 317,550
------------
2,134,725
ELECTRONICS - (1.6%)
ADC Telecommunications, Inc. (a). . . . . . . . . . . . . . . . . 4,300 156,950
Silicon Graphics, Inc. . . . . . . . . . . . . . . . . . . . . . 4,000 110,000
Vishay Intertechnology, Inc.. . . . . . . . . . . . . . . . . . . 4,800 151,200
------------
418,150
ENVIRONMENTAL - (2.7%)
Thermo Electron Corporation (a) . . . . . . . . . . . . . . . . . 13,500 702,000
------------
FINANCIAL SERVICES - (4.5%)
Countrywide Credit Industries, Inc. . . . . . . . . . . . . . . . 5,600 121,800
Finova Group, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 4,700 226,775
Green Tree Financial, Inc.. . . . . . . . . . . . . . . . . . . . 20,000 527,500
Money Store, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 6,500 101,562
Sunamerica, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 4,500 213,750
------------
1,191,387
FOOD & BEVERAGES - (2.0%)
Coca Cola Company . . . . . . . . . . . . . . . . . . . . . . . . 3,000 222,750
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,500 307,312
------------
530,062
GAS & PIPELINE UTILITIES - (0.6%)
Panhandle Eastern Corporation . . . . . . . . . . . . . . . . . . 6,000 167,250
------------
INSURANCE - (3.0%)
20th Century Industries (a) . . . . . . . . . . . . . . . . . . . 4,800 95,400
American International Group, Inc. . . . . . . . . . . . . . . . 3,950 365,375
Travelers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 5,200 326,950
------------
787,725
MACHINERY & EQUIPMENT - (5.3%)
Bombardier, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . 23,000 303,186
Dover Corporation . . . . . . . . . . . . . . . . . . . . . . . . 4,600 169,625
Duriron, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,700 156,612
Gleason Corporation . . . . . . . . . . . . . . . . . . . . . . . 5,600 182,000
IDEX Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 7,000 285,250
JLG Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . 10,400 309,400
------------
1,406,073
MEDIA - (2.0%)
Capital Cities ABC, Inc.. . . . . . . . . . . . . . . . . . . . . 4,300 530,512
------------
</TABLE>
See notes to financial statements.
112
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ----- ------
<S> <C> <C> <C>
COMMON STOCKS
MEDICAL SUPPLIES & SERVICES - (5.2%)
Healthcare Compare Corporation (a). . . . . . . . . . . . . . . . 6,200 $ 269,700
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . . . . . 2,500 214,062
Medtronic, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 12,600 704,025
Stryker Corporation . . . . . . . . . . . . . . . . . . . . . . . 3,700 194,250
------------
1,382,037
OIL & GAS - (0.4%)
Occidental Petroleum Corporation. . . . . . . . . . . . . . . . . 5,300 113,288
------------
PACKAGING - (0.8%)
Sealed Air Corporation (a). . . . . . . . . . . . . . . . . . . . 7,400 208,125
------------
PETROLEUM SERVICES - (1.1%)
Halliburton Company . . . . . . . . . . . . . . . . . . . . . . . 5,800 293,625
------------
PRINTING & PUBLISHING - (0.8%)
Omnicom Group . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 223,500
------------
RECREATION - (0.7%)
Walt Disney Company . . . . . . . . . . . . . . . . . . . . . . . 2,900 171,100
------------
RETAIL GROCERY - (0.8%)
Caseys General Stores, Inc. . . . . . . . . . . . . . . . . . . . 9,200 201,250
------------
RETAIL-SPECIALTY - (0.8%)
CUC International, Inc. (a) . . . . . . . . . . . . . . . . . . . 6,100 208,163
------------
SEMICONDUCTORS - (1.0%)
Intel Corporation . . . . . . . . . . . . . . . . . . . . . . . . 3,100 175,925
KLA Instruments (a) . . . . . . . . . . . . . . . . . . . . . . . 3,800 99,038
------------
274,963
SOFTWARE - (2.0%)
Microsoft Corporation (a) . . . . . . . . . . . . . . . . . . . . 2,800 245,700
Oracle System Corporation (a) . . . . . . . . . . . . . . . . . . 6,500 275,438
------------
521,138
STEEL - (0.9%)
Texas Industries, Inc.. . . . . . . . . . . . . . . . . . . . . . 4,300 227,900
------------
TELECOMMUNICATIONS - (1.8%)
Sprint Corporation. . . . . . . . . . . . . . . . . . . . . . . . 8,000 319,000
Tellabs, Inc.(a). . . . . . . . . . . . . . . . . . . . . . . . . 4,000 148,000
------------
467,000
TRANSPORTATION - (1.0%)
Burlington Northern Santa Fe. . . . . . . . . . . . . . . . . . . 3,300 257,400
------------
TOTAL COMMON STOCKS - (COST $14,911,378) 69.9% 18,404,692
------------
</TABLE>
See notes to financial statements.
113
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS
INDUSTRIALS - (5.8%)
BP America, Inc.. . . . . . . . . . . . . . . . 8.500% 04/15/2001 $250,000 $ 280,027
duPont (E.I.) deNemours . . . . . . . . . . . . 8.650% 12/01/1997 250,000 263,383
Mobil Corporation . . . . . . . . . . . . . . . 7.250% 03/27/2003 1,000,000 991,250
----------
TOTAL CORPORATE BONDS - (COST $1,502,259) 5.8% 1,534,660
----------
GOVERNMENT AND AGENCY SECURITIES
FEDERAL AGENCY - (1.6%)
Government National Mortgage Association. . . . 6.000% 11/15/2008 146,267 145,216
Government National Mortgage Association. . . . 6.500% 10/15/2008 146,609 147,937
Government National Mortgage Association. . . . 7.000% 10/15/2008 137,905 141,093
----------
434,246
U.S. GOVERNMENT SECURITIES - (10.2%)
United States Treasury Note . . . . . . . . . . 5.375% 05/31/1998 500,000 501,640
United States Treasury Note . . . . . . . . . . 6.375% 08/15/2002 500,000 524,295
United States Treasury Note . . . . . . . . . . 7.500% 01/31/1997 500,000 511,795
United States Treasury Bond . . . . . . . . . . 7.250% 08/15/2022 1,000,000 1,156,560
----------
2,694,290
----------
TOTAL GOVERNMENT AND AGENCY
SECURITIES - (Cost $2,952,975) 11.8% 3,128,536
----------
<CAPTION>
MATURITY
AMOUNT
------
<S> <C>
SHORT TERM INVESTMENT
Repurchase Agreement - (12.9%)
State Street Bank and Trust Company (b) . . . . 4.250% 01/02/1996 $ 3,417,613 3,416,000
----------
TOTAL SHORT TERM INVESTMENT -(COST $3,416,000) 12.9% 3,416,000
----------
TOTAL INVESTMENTS - (Cost $22,782,612) 100.4% 26,483,888
OTHER ASSETS LESS LIABILITIES - (0.4)% (104,180)
------ ----------
NET ASSETS - 100.0% $ 26,379,708
------ ----------
------ ----------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement, dated 12/29/95, is fully collateralized by a
United States Treasury Bond, 10.75%, 8/15/05, with a value of $3,486,659.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
114
<PAGE>
VARIABLE INVESTORS SERIES TRUST
TILT UTILITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
ELECTRIC UTILITIES - (37.8%)
American Electric Power, Inc. . . . . . . . . . . . . . . . . . 7,900 $ 319,950
Atlantic Energy, Inc. . . . . . . . . . . . . . . . . . . . . . 31,300 602,525
Boston Edison Company . . . . . . . . . . . . . . . . . . . . . 900 26,550
Central & South West Corporation. . . . . . . . . . . . . . . . 24,900 694,087
Consolidated Edison Company . . . . . . . . . . . . . . . . . . 22,600 723,200
Delmarva Power & Light Company. . . . . . . . . . . . . . . . . 28,600 650,650
DQE, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,100 495,075
Entergy Corporation . . . . . . . . . . . . . . . . . . . . . . 17,200 503,100
LG & E Energy Corporation . . . . . . . . . . . . . . . . . . . 5,100 215,475
Long Island Lighting Company. . . . . . . . . . . . . . . . . . 25,700 420,837
Northeast Utilities . . . . . . . . . . . . . . . . . . . . . . 10,300 251,062
Ohio Edison Company . . . . . . . . . . . . . . . . . . . . . . 30,700 721,450
Portland General Corporation. . . . . . . . . . . . . . . . . . 2,700 78,638
Rochester Gas & Electric Corporation. . . . . . . . . . . . . . 6,100 138,013
San Diego Gas & Electric Company. . . . . . . . . . . . . . . . 7,300 173,375
Unicom Corporation. . . . . . . . . . . . . . . . . . . . . . . 1,100 36,025
----------
6,050,012
GAS & PIPELINE UTILITIES - (7.5%)
Consolidated Natural Gas Company. . . . . . . . . . . . . . . . 2,900 131,588
Pacific Enterprises . . . . . . . . . . . . . . . . . . . . . . 24,400 689,300
Panhandle Eastern Corporation . . . . . . . . . . . . . . . . . 13,600 379,100
----------
1,199,988
TELEPHONE - (53.1%)
Alltel Corporation. . . . . . . . . . . . . . . . . . . . . . . 20,400 601,800
Ameritech Corporation . . . . . . . . . . . . . . . . . . . . . 13,300 784,700
AT&T Corporation. . . . . . . . . . . . . . . . . . . . . . . . 9,500 615,125
Bell Atlantic Corporation . . . . . . . . . . . . . . . . . . . 10,500 702,187
Bellsouth Corporation . . . . . . . . . . . . . . . . . . . . . 17,400 756,900
Century Telephone Enterprises, Inc. . . . . . . . . . . . . . . 20,700 657,225
Frontier Corporation. . . . . . . . . . . . . . . . . . . . . . 17,700 531,000
GTE Corporation . . . . . . . . . . . . . . . . . . . . . . . . 16,900 743,600
NYNEX Corporation . . . . . . . . . . . . . . . . . . . . . . . 13,700 739,800
Pacific Telesis Group . . . . . . . . . . . . . . . . . . . . . 22,600 759,925
SBC Communications, Inc.. . . . . . . . . . . . . . . . . . . . 12,600 724,500
Southern N E Telecommunications Corporation . . . . . . . . . . 6,900 274,275
Sprint Corporation. . . . . . . . . . . . . . . . . . . . . . . 15,700 626,038
----------
8,517,075
----------
TOTAL COMMON STOCKS - (COST $12,953,973) 98.4% 15,767,075
----------
</TABLE>
See notes to financial statements.
115
<PAGE>
VARIABLE INVESTORS SERIES TRUST
TILT UTILITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST
AND TITLE OF ISSUE RATE SHARES VALUE
------------------ -------- ------ -----
<S> <C> <C> <C> <C>
MUTUAL FUNDS - (1.2%)
Dreyfus Cash Management Plus (a). . . . . . . . 5.694% 190,764 $ 190,764
------------
TOTAL MUTUAL FUNDS - (COST $190,764) 1.2% 190,764
------------
TOTAL INVESTMENTS - (COST $13,144,737) 99.6% 15,957,839
OTHER ASSETS LESS LIABILITIES - 0.4% 60,471
------ ------------
NET ASSETS - 100.0% $ 16,018,310
------ ------------
------ ------------
</TABLE>
(a) Interest rate shown is the 7 day yield as of December 31, 1995.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
116
<PAGE>
VARIABLE INVESTORS SERIES TRUST
U.S. GOVERNMENT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
GOVERNMENT AND AGENCY SECURITIES
FEDERAL AGENCY - (2.4%)
Tennessee Valley Authority. . . . . . . . . . 6.375% 06/15/2005 $ 270,000 $ 278,978
------------
MORTGAGE BACKED SECURITIES - (23.4%)
Federal Home Loan Mortgage Corporation. . . . 8.500% 01/01/2003 267,104 275,016
Federal Home Loan Mortgage Corporation. . . . 9.000% 06/01/2016 382,851 403,669
Federal National Mortgage Association . . . . 6.500% 09/01/2008 254,290 255,338
Federal National Mortgage Association . . . . 10.000% 04/01/2020 154,384 169,726
Federal National Mortgage Association . . . . 12.500% 05/01/2015 691,455 800,455
Government National Mortgage Association. . . 7.500% 04/15/2024 279,998 288,223
Government National Mortgage Association. . . 9.000% 01/15/2008 491,481 521,564
------------
2,713,991
U.S. GOVERNMENT SECURITIES - (45.5%)
United States Treasury Note . . . . . . . . . 5.875% 11/15/2005 330,000 337,528
United States Treasury Note . . . . . . . . . 6.125% 05/31/1997 880,000 891,274
United States Treasury Note . . . . . . . . . 6.500% 08/15/1997 525,000 535,663
United States Treasury Note . . . . . . . . . 6.500% 04/30/1999 450,000 466,594
United States Treasury Note . . . . . . . . . 6.500% 08/15/2005 365,000 388,953
United States Treasury Note . . . . . . . . . 6.875% 07/31/1999 455,000 477,750
United States Treasury Note . . . . . . . . . 7.500% 05/15/2002 120,000 133,200
United States Treasury Note . . . . . . . . . 7.875% 08/15/2001 1,000,000 1,118,436
United States Treasury Bond . . . . . . . . . 6.250% 08/15/2023 670,000 688,844
United States Treasury Bond . . . . . . . . . 7.500% 11/15/2024 115,000 138,179
United States Treasury Bond . . . . . . . . . 7.625% 02/15/2025 90,000 109,997
------------
5,286,418
------------
TOTAL GOVERNMENT AND AGENCY
SECURITIES - (COST $7,930,234) 71.3% 8,279,387
------------
CORPORATE BONDS
BROADCASTING - (2.2%)
Viacom, Inc.. . . . . . . . . . . . . . . . . 7.625% 01/15/2016 255,000 257,436
------------
FOOD & BEVERAGES - (2.5%)
Coca Cola Enterprises, Inc. (a) . . . . . . . 6.785% 06/20/2020 1,505,000 295,284
------------
PRINTING & PUBLISHING - (2.9%)
News America Holdings, Inc. . . . . . . . . . 7.750% 02/01/2024 320,000 334,464
------------
TELECOMMUNICATIONS - (5.6%)
Bellsouth Telecommunications (a). . . . . . . 6.730% 12/15/2095 700,000 185,578
Tele Communications, Inc. . . . . . . . . . . 9.800% 02/01/2012 385,000 460,068
------------
645,646
------------
TOTAL CORPORATE BONDS - (COST $1,430,664) 13.2% 1,532,830
------------
</TABLE>
See notes to financial statements.
117
<PAGE>
VARIABLE INVESTORS SERIES TRUST
U.S. GOVERNMENT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
OTHER MORTGAGES
COLLATERALIZED MORTGAGE OBLIGATIONS - (3.3%)
Community Program Loan Trust 1987 A . . . . . 4.500% 10/01/2018 $ 425,000 $ 380,884
------------
FEDERAL HOUSING AUTHORITY - (6.2%)
FHA Project Loan. . . . . . . . . . . . . . . 3.025% 11/01/2006 490,573 440,603
FHA Project Loan. . . . . . . . . . . . . . . 7.500% 11/15/2030 275,000 279,469
------------
720,072
------------
TOTAL OTHER MORTGAGES - (COST $1,033,568) 9.5% 1,100,956
------------
MATURITY
AMOUNT
------
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT (b) - (5.0%)
State Street Bank and Trust Company . . . . . 2.250% 01/02/1996 $ 584,146 584,000
------------
TOTAL SHORT TERM INVESTMENT - (COST $584,000) 5.0% 584,000
------------
TOTAL INVESTMENTS - (COST $10,978,466) 99.0% 11,497,173
OTHER ASSETS LESS LIABILITIES - 1.0% 120,882
------ ------------
NET ASSETS - 100.0% $ 11,618,055
------ ------------
------ ------------
</TABLE>
(a) Zero coupon bond. Interest rate shown represents yield to maturity.
(b) The repurchase agreement, dated 12/29/95, is fully collateralized by a
United States Treasury Bond, 10.75%, 8/15/05, with a value of $599,931.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
118
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AUSTRALIA - (3.4%)
Broken Hill Proprietary Company. . . . . . . . . . . . . . 19,795 $279,549
CRA Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 2,400 35,213
Memtec Ltd.. . . . . . . . . . . . . . . . . . . . . . . . 70,349 112,420
National Australia Bank. . . . . . . . . . . . . . . . . . 11,754 105,711
WMC Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 96,328
--------
629,221
BELGIUM - (1.3%)
Bekaert SA . . . . . . . . . . . . . . . . . . . . . . . . 295 243,077
--------
CANADA - (3.9%)
Brascan Ltd. . . . . . . . . . . . . . . . . . . . . . . . 4,000 70,304
Hudsons Bay Company. . . . . . . . . . . . . . . . . . . . 2,555 36,721
Loewen Group, Inc.. . . . . . . . . . . . . . . . . . . . 3,500 88,109
Potash Corporation Saskatchewan, Inc.. . . . . . . . . . . 3,520 249,403
Quebecor . . . . . . . . . . . . . . . . . . . . . . . . . 17,839 266,181
--------
710,718
FRANCE - (1.7%)
Accor. . . . . . . . . . . . . . . . . . . . . . . . . . . 154 19,938
Carrefour. . . . . . . . . . . . . . . . . . . . . . . . . 100 60,670
Credit Commerce France . . . . . . . . . . . . . . . . . . 2,543 129,772
Peugeot SA . . . . . . . . . . . . . . . . . . . . . . . . 345 45,512
Society Elf Aquitaine. . . . . . . . . . . . . . . . . . . 652 48,038
--------
303,930
GERMANY - (0.5%)
Bayer AG . . . . . . . . . . . . . . . . . . . . . . . . . 270 71,241
Schering AG. . . . . . . . . . . . . . . . . . . . . . . . 350 23,186
--------
94,427
HONG KONG - (1.9%)
HSBC Holdings. . . . . . . . . . . . . . . . . . . . . . . 18,000 272,357
Sime Darby HK. . . . . . . . . . . . . . . . . . . . . . . 88,000 84,785
--------
357,142
ITALY - (0.6%)
Telecom Italia (a) . . . . . . . . . . . . . . . . . . . . 32,000 56,318
Telecom Italia Mobilaire . . . . . . . . . . . . . . . . . 32,000 49,769
--------
106,087
JAPAN - (31.3%)
Advantest. . . . . . . . . . . . . . . . . . . . . . . . . 2,000 102,663
Bridgestone Corporation. . . . . . . . . . . . . . . . . . 12,000 190,605
Canon, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 33,000 597,676
Daifuku Company . . . . . . . . . . . . . . . . . . . . . 3,000 42,421
Fanuc. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 86,586
Fuji Coca Cola Bottling. . . . . . . . . . . . . . . . . . 15,000 162,712
Fuji Photo Film Company. . . . . . . . . . . . . . . . . . 14,000 404,068
</TABLE>
See notes to financial statements.
119
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
JAPAN - (CONTINUED)
Hitachi. . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 $110,799
Jusco Company. . . . . . . . . . . . . . . . . . . . . . . 10,000 260,533
Kita Kyushu Coca . . . . . . . . . . . . . . . . . . . . . 5,000 111,864
Mitsui Marine and Fire . . . . . . . . . . . . . . . . . . 48,000 342,160
Mori Seiki Company . . . . . . . . . . . . . . . . . . . . 2,000 45,133
NEC Corporation. . . . . . . . . . . . . . . . . . . . . . 18,000 219,661
NGK Spark Plug Company . . . . . . . . . . . . . . . . . . 22,000 276,998
Nichido Fire and Marine. . . . . . . . . . . . . . . . . . 64,000 514,479
Nichiei Company. . . . . . . . . . . . . . . . . . . . . . 2,000 149,153
Rohm Company . . . . . . . . . . . . . . . . . . . . . . . 3,000 169,395
Sharp Corporation. . . . . . . . . . . . . . . . . . . . . 37,000 591,283
Sodick Company (a) . . . . . . . . . . . . . . . . . . . . 5,000 46,973
Sony Corporation . . . . . . . . . . . . . . . . . . . . . 10,200 611,506
Sumitomo Marine and Fire . . . . . . . . . . . . . . . . . 65,000 533,850
Toshiba Corporation. . . . . . . . . . . . . . . . . . . . 15,000 117,530
----------
5,688,048
MALAYSIA - (1.1%)
Genting Berhad . . . . . . . . . . . . . . . . . . . . . . 12,000 100,169
Sime Darby Berhad. . . . . . . . . . . . . . . . . . . . . 35,000 93,023
----------
193,192
NETHERLANDS - (0.5%)
Akzo Nv. . . . . . . . . . . . . . . . . . . . . . . . . . 520 60,143
Philips Electronic . . . . . . . . . . . . . . . . . . . . 950 34,337
----------
94,480
SPAIN - (0.3%)
Repsol SA. . . . . . . . . . . . . . . . . . . . . . . . . 1,470 48,172
----------
SWEDEN - (3.2%)
Asea AB. . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 97,294
Astra AB Series A . . . . . . . . . . . . . . . . . . . . 1,500 59,867
Astra AB Series B . . . . . . . . . . . . . . . . . . . . 1,890 74,863
Electrolux AB. . . . . . . . . . . . . . . . . . . . . . . 2,000 82,082
Elekta . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 100,155
Volvo AB . . . . . . . . . . . . . . . . . . . . . . . . . 8,100 165,911
---------
580,172
SWITZERLAND - (1.5%)
Ciba Geigy AG. . . . . . . . . . . . . . . . . . . . . . . 80 70,394
Nestle SA. . . . . . . . . . . . . . . . . . . . . . . . . 180 199,116
----------
269,510
UNITED KINGDOM - (2.8%)
Antofagasta Holdings . . . . . . . . . . . . . . . . . . . 11,000 48,688
Compass Group. . . . . . . . . . . . . . . . . . . . . . . 6,700 50,986
Hanson . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300 15,804
Lloyds TSB Group . . . . . . . . . . . . . . . . . . . . . 21,902 112,760
Pearson. . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 106,515
</TABLE>
See notes to financial statements.
120
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
UNITED KINGDOM - (CONTINUED)
Severn Trent . . . . . . . . . . . . . . . . . . . . . . . 4,400 $ 46,979
Smithkline Beecham . . . . . . . . . . . . . . . . . . . . 8,663 95,523
Williams Holdings. . . . . . . . . . . . . . . . . . . . . 5,900 30,009
----------
507,264
UNITED STATES - (36.9%)
Agco Corporation . . . . . . . . . . . . . . . . . . . . . 4,500 229,500
AHI Healthcare Systems, Inc. (a) . . . . . . . . . . . . . 17,500 100,625
Apple South, Inc.. . . . . . . . . . . . . . . . . . . . . 8,000 172,000
Applebees International, Inc. . . . . . . . . . . . . . . 6,000 136,500
Avant Corporation (a). . . . . . . . . . . . . . . . . . . 5,250 101,062
Cidco, Inc. (a). . . . . . . . . . . . . . . . . . . . . . 4,500 114,750
Devry, Inc., Delaware (a). . . . . . . . . . . . . . . . . 8,000 216,000
Epic Design Technology, Inc. (a) . . . . . . . . . . . . . 8,000 168,000
Expert Software, Inc. (a). . . . . . . . . . . . . . . . . 8,300 116,200
Gilead Sciences, Inc. (a). . . . . . . . . . . . . . . . . 4,000 128,000
Health Management Associates (a) . . . . . . . . . . . . . 9,000 235,125
HFS, Inc. (a). . . . . . . . . . . . . . . . . . . . . . . 3,500 286,125
Inso Corporation (a) . . . . . . . . . . . . . . . . . . . 5,400 229,500
Mattson Technology, Inc. (a) . . . . . . . . . . . . . . . 8,000 120,000
Medisense, Inc. (a). . . . . . . . . . . . . . . . . . . . 8,000 253,000
Mercury Interactive Corporation (a). . . . . . . . . . . . 6,000 109,500
Microchip Technology, Inc. (a) . . . . . . . . . . . . . . 5,500 200,750
Netmanage, Inc. (a). . . . . . . . . . . . . . . . . . . . 7,000 162,750
Newpark Resource, Inc. . . . . . . . . . . . . . . . . . . 6,300 140,175
Office Max, Inc. . . . . . . . . . . . . . . . . . . . . . 9,450 211,444
Outback Steakhouse, Inc. (a) . . . . . . . . . . . . . . . 5,000 179,375
Project Software & Development, Inc. (a) . . . . . . . . . 9,000 313,875
Pure Software, Inc. (a). . . . . . . . . . . . . . . . . . 7,000 225,750
Railtex, Inc. (a). . . . . . . . . . . . . . . . . . . . . 5,600 117,600
Seer Technologies, Inc. (a). . . . . . . . . . . . . . . . 7,500 93,750
Staples, Inc. (a). . . . . . . . . . . . . . . . . . . . . 7,000 170,625
Station Casinos, Inc. (a). . . . . . . . . . . . . . . . . 10,000 146,250
Studio Plus Hotels, Inc. (a) . . . . . . . . . . . . . . . 6,000 154,500
Swift Transportation, Inc. (a) . . . . . . . . . . . . . . 10,000 152,500
Synopsys, Inc. (a) . . . . . . . . . . . . . . . . . . . . 8,000 304,000
TCF Financial Corporation. . . . . . . . . . . . . . . . . 8,000 265,000
Teradyne, Inc. (a) . . . . . . . . . . . . . . . . . . . . 6,000 150,000
Thermedics, Inc. (a) . . . . . . . . . . . . . . . . . . . 8,000 222,000
Verity, Inc. (a). . . . . . . . . . . . . . . . . . . . . 8,000 354,000
Wabash National Corporation. . . . . . . . . . . . . . . . 5,000 111,250
Winstar Communications, Inc. (a) . . . . . . . . . . . . . 10,000 171,250
Xilinx, Inc. (a) . . . . . . . . . . . . . . . . . . . . . 5,000 152,500
----------
6,715,231
----------
TOTAL COMMON STOCKS - (COST $13,277,647). . . . . . . . . . 90.9% 16,540,671
----------
</TABLE>
See notes to financial statements.
121
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C> <C> <C>
RIGHTS
AUSTRALIA - (0.0%)
CRA Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . 180 $ 2,595
-----------
TOTAL RIGHTS - (COST $0) 0.0% 2,595
-----------
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT
---- ---- ------
SHORT TERM INVESTMENT
UNITED STATES - (8.3%)
Federal Home Loan Mortgage Corporation. 5.750% 01/02/1996 $1,512,000 1,511,759
-----------
TOTAL SHORT TERM INVESTMENT - (COST $1,511,759) 8.3% 1,511,759
-----------
TOTAL INVESTMENTS - (COST $14,789,406) 99.2% 18,055,025
OTHER ASSETS LESS LIABILITIES - 0.8% 135,707
------ -----------
NET ASSETS - 100.0% $18,190,732
------ -----------
------ -----------
</TABLE>
(a) Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
122
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
ANALYSIS OF INDUSTRY CLASSIFICATIONS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS VALUE
- -------- ---------- -----
<S> <C> <C>
Agricultural Machinery . . . . . . . . . 1.3% $ 229,500
Appliances . . . . . . . . . . . . . . . 0.6 116,419
Automobiles . . . . . . . . . . . . . . 1.2 211,423
Automotive . . . . . . . . . . . . . . . 0.4 84,785
Banking . . . . . . . . . . . . . . . . 2.8 507,840
Broadcasting/Publishing . . . . . . . . 2.0 372,696
Business/Public . . . . . . . . . . . . 0.2 46,979
Chemicals . . . . . . . . . . . . . . . 3.3 605,846
Commercial Services . . . . . . . . . . 1.7 304,109
Computer Services . . . . . . . . . . . 2.5 455,062
Conglomerates . . . . . . . . . . . . . 1.0 179,130
Construction Materials . . . . . . . . . 0.2 30,009
Drugs & Health Care . . . . . . . . . . 4.6 835,220
Ecological Services & Equipment . . . . 0.8 140,175
Electrical Equipment . . . . . . . . . . 0.6 114,750
Electric Utilities . . . . . . . . . . . 0.5 97,294
Electronics . . . . . . . . . . . . . . 15.8 2,854,674
Energy Sources . . . . . . . . . . . . . 2.1 375,759
Entertainment . . . . . . . . . . . . . 0.8 146,250
Fertilizer . . . . . . . . . . . . . . . 1.4 249,403
Financial Services . . . . . . . . . . . 11.3 2,038,670
Food & Beverages . . . . . . . . . . . . 1.1 199,116
Gold Mining . . . . . . . . . . . . . . 0.2 48,688
Hospital Management . . . . . . . . . . 1.3 235,125
Hotels & Restaurants . . . . . . . . . . 2.5 460,563
Industrial Components . . . . . . . . . 3.9 710,680
Insurance . . . . . . . . . . . . . . . 5.8 1,048,329
Insurance Contracts . . . . . . . . . . 1.9 342,160
Leisure/Tourism . . . . . . . . . . . . 0.5 100,169
Machinery & Equipment . . . . . . . . . 0.7 134,528
Machinery Engineering . . . . . . . . . 0.6 112,420
Merchandising . . . . . . . . . . . . . 4.1 739,992
Metals . . . . . . . . . . . . . . . . . 0.7 134,137
Office Equipment . . . . . . . . . . . . 3.3 597,676
Packaging . . . . . . . . . . . . . . . 1.5 274,576
Restaurants . . . . . . . . . . . . . . 3.0 538,861
Software . . . . . . . . . . . . . . . . 9.5 1,723,325
Telecommunications . . . . . . . . . . . 1.5 277,337
Transportation . . . . . . . . . . . . . 1.2 228,850
Trucking & Freight Forwarding . . . . . 0.8 152,500
----- -----------
TOTAL . . . . . . . . . . . . . . . 99.2% $18,055,025
----- -----------
-----------
</TABLE>
See notes to financial statements.
123
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AIR TRANSPORTATION - (0.8%)
Atlas Air, Inc. (a). . . . . . . . . . . . . . . . . . . . 1,800 $30,150
-------
APPAREL - (4.3%)
Nautica Enterprises, Inc. (a). . . . . . . . . . . . . . . 1,200 52,500
St. John Knits, Inc. . . . . . . . . . . . . . . . . . . . 900 47,813
Tommy Hilfiger Corporation (a) . . . . . . . . . . . . . . 1,500 63,562
-------
163,875
Auto Finance - (0.6%)
Oxford Resources Corporation (a) . . . . . . . . . . . . . 1,100 24,750
-------
AUTOMATED DATA COLLECTION - (1.4%)
Zebra Technologies Corporation (a) . . . . . . . . . . . . 1,600 54,400
-------
BIOTECHNOLOGY - (1.2%)
Idexx Labs, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,000 47,000
-------
CLIENT-SERVER SOFTWARE - (2.8%)
Hyperion Software Corporation (a). . . . . . . . . . . . . 1,600 34,000
Project Software & Development, Inc. (a) . . . . . . . . . 1,100 38,362
Remedy Corporation (a) . . . . . . . . . . . . . . . . . . 600 35,550
-------
107,912
COMMERCIAL SERVICES - (2.5%)
Acxiom Corporation (a) . . . . . . . . . . . . . . . . . . 1,500 41,063
Gartner Group, Inc. (a). . . . . . . . . . . . . . . . . . 1,100 52,662
-------
93,725
COMMUNICATION SERVICES - (2.1%)
Clear Channel Communications (a) . . . . . . . . . . . . . 1,200 52,950
LCI International, Inc. (a). . . . . . . . . . . . . . . . 1,300 26,650
-------
79,600
COMPONENTS - (1.1%)
Kemet Corporation (a). . . . . . . . . . . . . . . . . . . 1,700 40,588
-------
CONNECTORS - (0.7%)
Cable Design Technologies Corporation (a). . . . . . . . . 600 26,400
-------
CONSUMER PRODUCTS - (0.5%)
Cidco, Inc. (a). . . . . . . . . . . . . . . . . . . . . . 700 17,850
-------
CONSUMER SOFTWARE - (0.6%)
Davidson & Associates, Inc. (a). . . . . . . . . . . . . . 1,100 24,200
-------
CONTRACT MANUFACTURING - (1.1%)
Sanmina Corporation (a). . . . . . . . . . . . . . . . . . 800 41,500
-------
</TABLE>
See notes to financial statements.
124
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
CORRECTIONAL SERVICES - (2.3%)
Corrections Corporation of America (a) . . . . . . . . . . 2,400 $ 89,100
---------
DATACOMMUNICATIONS - (1.4%)
Global Village Communications (a). . . . . . . . . . . . . 1,300 25,188
Microcom, Inc. (a) . . . . . . . . . . . . . . . . . . . . 1,100 28,600
---------
53,788
DESIGN-MANUFACTURING AUTOMATION - (2.9%)
Cognex Corporation (a) . . . . . . . . . . . . . . . . . . 2,200 76,450
Epic Design Technology, Inc. (a) . . . . . . . . . . . . . 1,600 33,600
---------
110,050
DISTRIBUTED SYSTEM-HARDWARE & PERIPHERALS - (1.0%)
Stormedia, Inc. (a). . . . . . . . . . . . . . . . . . . . 1,000 36,500
---------
EMPLOYMENT SERVICE - (2.2%)
Accustaff, Inc. (a). . . . . . . . . . . . . . . . . . . . 1,400 61,600
Alternative Resources Corporation (a). . . . . . . . . . . 700 21,175
---------
82,775
ENVIRONMENTAL SERVICES - (2.8%)
Tetra Tech, Inc. (a) . . . . . . . . . . . . . . . . . . . 1,900 43,225
United Waste Systems, Inc. (a) . . . . . . . . . . . . . . 1,700 63,325
---------
106,550
GRAPHIC-IMAGE PROCESSING - (1.8%)
Electronics For Imaging, Inc. (a). . . . . . . . . . . . . 1,600 70,000
---------
HEALTH CARE-MANAGEMENT SERVICES - (1.3%)
Quintiles Transnational Corporation (a). . . . . . . . . . 1,200 49,200
---------
INFORMATION SYSTEMS - (0.8%)
Medic Computer Systems, Inc. (a) . . . . . . . . . . . . . 500 30,250
---------
LEISURE - (1.5%)
Regal Cinemas, Inc. (a). . . . . . . . . . . . . . . . . . 1,950 58,013
---------
MISCELLANEOUS - (0.6%)
Amresco Inc. . . . . . . . . . . . . . . . . . . . . . . . 1,800 22,950
---------
NETWORKING - (2.8%)
Alantec Corporation (a). . . . . . . . . . . . . . . . . . 800 46,600
Optical Data Systems, Inc. (a) . . . . . . . . . . . . . . 600 15,150
Shiva Corporation (a). . . . . . . . . . . . . . . . . . . 500 36,375
Transaction Systems Architects Inc. (a). . . . . . . . . . 300 9,637
---------
107,762
</TABLE>
See notes to financial statements.
125
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
NETWORKING SOFTWARE - (2.3%)
McAfee Associates, Inc. (a). . . . . . . . . . . . . . . . 1,350 $ 59,231
Netmanage, Inc. (a). . . . . . . . . . . . . . . . . . . . 1,200 27,900
---------
87,131
NON-DURABLES - (1.2%)
Blyth Industries, Inc. (a) . . . . . . . . . . . . . . . . 1,600 47,200
---------
PHARMACEUTICAL SERVICES - (2.1%)
Express Scripts, Inc. (a). . . . . . . . . . . . . . . . . 600 30,600
Omnicare, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,100 49,225
---------
79,825
PHYSICIAN PRACTICE MANAGEMENT - (4.0%)
Compdent Corporation (a) . . . . . . . . . . . . . . . . . 700 29,050
Medpartners/Mullikin Inc. (a). . . . . . . . . . . . . . . 1,000 33,000
Phycor, Inc. (a) . . . . . . . . . . . . . . . . . . . . . 1,000 50,562
Physician Reliance Network, Inc. (a) . . . . . . . . . . . 1,000 39,750
---------
152,362
RESTAURANTS - (1.8%)
Boston Chicken, Inc. (a) . . . . . . . . . . . . . . . . . 1,400 44,975
Papa Johns International, Inc. (a) . . . . . . . . . . . . 600 24,713
---------
69,688
RETAIL-AUTOMOTIVE RELATED - (1.1%)
Discount Auto Parts, Inc. (a). . . . . . . . . . . . . . . 1,300 40,463
---------
RETAIL-CATALOG - (0.8%)
CDW Computer Centers, Inc. (a) . . . . . . . . . . . . . . 800 32,400
---------
RETAIL-OFFICE PRODUCTS - (1.8%)
Corporate Express, Inc. (a). . . . . . . . . . . . . . . . 1,200 36,150
U S Office Products Company (a). . . . . . . . . . . . . . 1,500 34,125
---------
70,275
RETAIL-SPECIALTY - (1.4%)
MSC Industrial Direct Inc. (a) . . . . . . . . . . . . . . 700 19,250
Sunglass Hut International, Inc. . . . . . . . . . . . . . 1,400 33,250
---------
52,500
SEMICONDUCTOR EQUIPMENT - (5.6%)
Credence Systems Corporation (a) . . . . . . . . . . . . . 1,100 25,162
Electroglas, Inc. (a). . . . . . . . . . . . . . . . . . . 2,000 49,000
FSI International, Inc. (a). . . . . . . . . . . . . . . . 1,500 30,375
GaSonics International Corporation (a) . . . . . . . . . . 1,450 19,575
Helix Technology Corporation (a) . . . . . . . . . . . . . 900 35,550
Integrated Process Equipment Corporation (a) . . . . . . . 800 18,800
Ultratech Stepper, Inc. (a). . . . . . . . . . . . . . . . 1,300 33,475
---------
211,937
</TABLE>
See notes to financial statements.
126
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
SEMICONDUCTOR MANUFACTURING - (3.2%)
Actel Corporation (a). . . . . . . . . . . . . . . . . . . 2,100 $ 22,575
Burr Brown (a) . . . . . . . . . . . . . . . . . . . . . . 1,000 25,500
DSP Communications, Inc. (a) . . . . . . . . . . . . . . . 900 39,262
S3, Inc. (a) . . . . . . . . . . . . . . . . . . . . . . . 2,000 35,250
---------
122,587
SERVICE-EQUIPMENT - (1.1%)
Input/Output, Inc. (a) . . . . . . . . . . . . . . . . . . 700 40,425
---------
SOFTWARE-GENERAL - (1.6%)
Inso Corporation (a) . . . . . . . . . . . . . . . . . . . 700 29,750
Rational Software Corporation (a). . . . . . . . . . . . . 1,400 31,325
---------
61,075
SUPPLIES - (3.3%)
Gulf South Medical Supply, Inc.. . . . . . . . . . . . . . 1,400 42,350
Physician Sales & Service, Inc. (a). . . . . . . . . . . . 2,900 82,650
---------
125,000
SURFACE TRANSPORTATION - (2.1%)
Fritz Company, Inc. (a). . . . . . . . . . . . . . . . . . 1,100 45,650
Wisconsin Central Transport Corporation (a). . . . . . . . 500 32,875
---------
78,525
SYSTEMS INTEGRATED VALUE ADDED RESELLERS - (1.5%)
Cambridge Technology Partners (a). . . . . . . . . . . . . 1,000 57,500
---------
TELECOMMUNICATION EQUIPMENT - (2.1%)
Allen Group, Inc.. . . . . . . . . . . . . . . . . . . . . 1,200 26,850
Coherent Communications System Corporation (a) . . . . . . 1,500 28,875
Tel Corporation (a). . . . . . . . . . . . . . . . . . . . 1,400 25,900
---------
81,625
TRANSACTION PROCESSING - (0.5%)
National Data Corporation. . . . . . . . . . . . . . . . . 800 19,800
---------
VOICE-CALL TRANSACTION PROCESSING - (2.1%)
Aspect Telecommunications Corporation (a). . . . . . . . . 1,500 50,250
Comverse Technology, Inc. (a). . . . . . . . . . . . . . . 1,400 28,000
---------
78,250
---------
TOTAL COMMON STOCKS - (COST $2,662,571) 80.7% 3,077,456
---------
</TABLE>
See notes to financial statements.
127
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY MATURITY
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
Repurchase Agreement - (13.8%)
State Street Bank and Trust Company (b) 2.250% 01/02/1996 $ 527,132 $ 527,000
----------
TOTAL SHORT TERM INVESTMENT - (COST $527,000) 13.8% 527,000
----------
TOTAL INVESTMENTS - (COST $3,189,571) 94.5% 3,604,456
OTHER ASSETS LESS LIABILITIES - 5.5% 208,646
------ ----------
NET ASSETS - 100.0% $3,813,102
------ ----------
------ ----------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement, dated 12/29/95, is fully collateralized by a
United States Treasury Bond, 10.75%, 8/15/05, with a value of $543,467.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
128
<PAGE>
VARIABLE INVESTORS SERIES TRUST
GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE - (5.8%)
GRC International, Inc. (a). . . . . . . . . . . . . . . . 5,000 $ 191,875
---------
APPAREL & TEXTILES - (0.9%)
Intimate Brands, Inc. . . . . . . . . . . . . . . . . . . 2,000 30,000
--------
BANKS AND SAVINGS & LOANS - (8.4%)
Ahmanson H F and Company . . . . . . . . . . . . . . . . . 500 13,250
Bankamerica Corporation. . . . . . . . . . . . . . . . . . 1,300 84,175
Crestar Financial Corporation. . . . . . . . . . . . . . . 1,000 59,125
First Interstate Bancorp . . . . . . . . . . . . . . . . . 800 109,200
Great Western Financial Corporation. . . . . . . . . . . . 500 12,750
--------
278,500
COMMUNICATIONS & MEDIA - (3.4%)
Comcast Corporation. . . . . . . . . . . . . . . . . . . . 3,000 54,562
Tele Communications, Inc.. . . . . . . . . . . . . . . . . 3,000 59,625
--------
114,187
COMPUTERS & BUSINESS EQUIPMENT - (0.8%)
International Business Machines Corporation. . . . . . . . 300 27,525
--------
DRUGS & HEALTH CARE - (0.5%)
Acuson (a) . . . . . . . . . . . . . . . . . . . . . . . . 1,300 16,088
--------
ELECTRONICS - (7.7%)
Honeywell, Inc. . . . . . . . . . . . . . . . . . . . . . 1,500 72,937
Micron Technology, Inc. . . . . . . . . . . . . . . . . . 1,500 59,438
Motorola, Inc. . . . . . . . . . . . . . . . . . . . . . . 1,300 74,100
Texas Instruments, Inc.. . . . . . . . . . . . . . . . . . 1,000 51,750
--------
258,225
ENGINEERING & CONSTRUCTION - (2.3%)
Stone & Webster, Inc.. . . . . . . . . . . . . . . . . . . 2,100 75,337
--------
HEALTHCARE - (3.2%)
Foxmeyer Health Corporation. . . . . . . . . . . . . . . . 4,000 107,000
--------
HOUSEHOLD APPLIANCES & HOME FURNISHINGS - (0.0%)
Beneficial Franklin Retail Store (a) . . . . . . . . . . . 333 916
--------
INDUSTRIAL MANUFACTURING & PROCESSING - (2.4%)
Corning, Inc.. . . . . . . . . . . . . . . . . . . . . . . 2,500 80,000
--------
INSURANCE - (1.8%)
USF & G Corporation. . . . . . . . . . . . . . . . . . . . 3,500 59,063
--------
LEISURE & ENTERTAINMENT - (1.5%)
Acclaim Entertainment, Inc. (a). . . . . . . . . . . . . . 4,000 49,500
--------
</TABLE>
See notes to financial statements.
129
<PAGE>
VARIABLE INVESTORS SERIES TRUST
GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
METALS & MINING - (20.1%)
Coeur D'Alene Mines Corporation. . . . . . . . . . . . . . 5,000 $ 85,625
Hecla Mining Company (a) . . . . . . . . . . . . . . . . . 8,000 55,000
Homestake Mining Company . . . . . . . . . . . . . . . . . 8,000 125,000
Inco, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . 2,000 66,500
Newmont Mining Corporation . . . . . . . . . . . . . . . . 3,000 135,750
Pegasus Gold, Inc. (a) . . . . . . . . . . . . . . . . . . 6,000 83,250
Placer Dome, Inc.. . . . . . . . . . . . . . . . . . . . . 5,000 120,625
---------
671,750
OIL SERVICES - (2.7%)
Baker Hughes, Inc. . . . . . . . . . . . . . . . . . . . . 2,000 48,750
Halliburton Company. . . . . . . . . . . . . . . . . . . . 800 40,500
---------
89,250
PAPER - (3.0%)
Boise Cascade Corporation. . . . . . . . . . . . . . . . . 2,000 69,250
James River Corporation. . . . . . . . . . . . . . . . . . 1,300 31,362
---------
100,612
PUBLISHING - (1.1%)
Time Warner, Inc. . . . . . . . . . . . . . . . . . . . . 1,000 37,875
---------
STEEL - (8.9%)
Bethleham Steel Corporation (a). . . . . . . . . . . . . . 7,000 98,000
LTV Corporation (a). . . . . . . . . . . . . . . . . . . . 7,000 96,250
USX U.S. Steel . . . . . . . . . . . . . . . . . . . . . . 3,000 92,250
WHX Corporation (a). . . . . . . . . . . . . . . . . . . . 800 8,700
---------
295,200
TELEPHONE - (1.3%)
Airtouch Communications, Inc. (a). . . . . . . . . . . . . 1,500 42,375
---------
TOTAL COMMON STOCKS - (COST $2,431,417) 75.8% 2,525,278
---------
</TABLE>
See notes to financial statements.
130
<PAGE>
VARIABLE INVESTORS SERIES TRUST
GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY MATURITY
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENTS
REPURCHASE AGREEMENT - (18.8%)
State Street Bank and Trust Company (b). . 5.400% 01/02/1996 $ 627,376 $ 627,000
----------
PRINCIPAL
AMOUNT
------
U.S. GOVERNMENT SECURITIES - (5.9%)
United States Treasury Bill. . . . . . . . 5.340% 02/29/1996 $ 200,000 198,250
----------
TOTAL SHORT TERM INVESTMENTS - (COST $825,250) 24.7% 825,250
----------
TOTAL INVESTMENTS - (COST $3,256,667) 100.5% 3,350,528
OTHER ASSETS LESS LIABILITIES - (0.5)% (15,772)
------ ----------
NET ASSETS - 100.0% $3,334,756
------ ----------
------ ----------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement, dated 12/29/95, is fully collateralized by a
United States Treasury Bond, 10.75%, 8/15/05, with a value of $642,279.
The percentage shown for each investment category is the total value of that
category as a percent of the total Net Assets of the Portfolio.
See notes to financial statements.
131
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
CASH COMMON
MANAGEMENT STOCK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS
Investments - securities, at value. . . . . . . . . . . . . $ 9,423,661 $ 40,252,520
Investments - repurchase agreements . . . . . . . . . . . . 790,000 3,256,000
Foreign currency holdings (Cost $1,146) . . . . . . . . . . 0 0
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 948 969
Income receivable . . . . . . . . . . . . . . . . . . . . . 22,529 36,460
Receivable for securities sold. . . . . . . . . . . . . . . 0 0
Unrealized appreciation on forward currency contracts . . . 0 0
Receivable for trust shares sold. . . . . . . . . . . . . . 29,051 83,076
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 3 12
Due from adviser. . . . . . . . . . . . . . . . . . . . . . 7,819 0
------------ -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . 10,274,011 43,629,037
LIABILITIES
Payable for securities purchased. . . . . . . . . . . . . . 0 599,640
Unrealized depreciation on forward currency contracts . . . 0 0
Payable to custodian. . . . . . . . . . . . . . . . . . . . 0 0
Advisory fee payable. . . . . . . . . . . . . . . . . . . . 4,293 27,957
Accounts payable and accrued expenses . . . . . . . . . . . 51,342 53,393
Payable for trust shares redeemed . . . . . . . . . . . . . 122,653 29,323
------------ -------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . 178,288 710,313
------------ -------------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . . . $ 10,095,723 $ 42,918,724
------------ -------------
------------ -------------
NET ASSETS
Capital paid - in . . . . . . . . . . . . . . . . . . . . . $ 10,095,723 $ 35,214,338
Undistributed (distributions in excess of) net
investment income. . . . . . . . . . . . . . . . . . . . . 0 2,498
Accumulated net realized gain (loss) on
investments and foreign currency transactions. . . . . . . 0 237,212
Net unrealized appreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . . . . 0 7,464,676
Foreign currency . . . . . . . . . . . . . . . . . . . . . 0 0
------------ -------------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . . . $ 10,095,723 $ 42,918,724
------------ -------------
------------ -------------
NET ASSET VALUE PER SHARE
(based on shares of beneficial interest outstanding,
unlimited number of shares authorized without par value). . $ 1,000 $ 25,866
Total shares outstanding at end of period . . . . . . . . . 10,095,723 1,659,267
Cost of investment securities . . . . . . . . . . . . . . . $ 10,213,661 $ 36,043,844
</TABLE>
See notes to financial statements.
132
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HIGH INCOME MULTIPLE TILT U.S. WORLD
BOND STRATEGIES UTILITY GOVERNMENT BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments - securities, at value. . . . . . . . . . $ 8,589,168 $ 23,067,888 $ 15,957,839 $ 10,913,173 $ 18,055,025
Investments - repurchase agreements . . . . . . . . . 0 3,416,000 0 584,000 0
Foreign currency holdings (Cost $1,146) . . . . . . . 0 0 0 0 1,143
Cash. . . . . . . . . . . . . . . . . . . . . . . . . 0 605 0 797 86,584
Income receivable . . . . . . . . . . . . . . . . . . 207,819 102,317 93,889 155,070 13,874
Receivable for securities sold. . . . . . . . . . . . 109,092 0 0 1,809 0
Unrealized appreciation on forward currency contracts 0 0 0 0 22,878
Receivable for trust shares sold. . . . . . . . . . . 22,212 134,375 54,766 39,446 95,619
Other assets. . . . . . . . . . . . . . . . . . . . . 3 6 3 6 7,081
Due from adviser. . . . . . . . . . . . . . . . . . . 5,182 3,573 3,452 7,104 6,284
------------ ------------- ------------- ------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . 8,933,476 26,724,764 16,109,949 11,701,405 18,288,488
LIABILITIES
Payable for securities purchased. . . . . . . . . . .
Unrealized depreciation on forward currency contracts 0 239,856 0 0 0
Payable to custodian. . . . . . . . . . . . . . . . . 0 0 0 0 8,563
Advisory fee payable. . . . . . . . . . . . . . . . . 42,210 0 0 0 0
Accounts payable and accrued expenses . . . . . . . . 5,324 15,572 8,606 5,928 10,509
Payable for trust shares redeemed . . . . . . . . . . 45,782 47,736 46,745 44,802 56,829
76,320 41,892 36,288 32,620 21,855
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . ------------ ------------- ------------- ------------- -------------
169,636 345,056 91,639 83,350 97,756
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . ------------ ------------- ------------- ------------- -------------
$ 8,763,840 $ 26,379,708 $ 16,018,310 $ 11,618,055 $ 18,190,732
------------ ------------- ------------- ------------- -------------
NET ASSETS ------------ ------------- ------------- ------------- -------------
Capital paid - in . . . . . . . . . . . . . . . . . .
Undistributed (distributions in excess of) net $ 9,245,346 $ 22,566,506 $ 13,044,307 $ 10,992,844 $ 14,701,568
investment income. . . . . . . . . . . . . . . . . . (14,589) 10,013 67,014 2,331 (11,431)
Accumulated net realized gain (loss) on
investments and foreign currency transactions. . . . (606,546) 101,913 93,887 104,173 220,351
Net unrealized appreciation of:
Investments. . . . . . . . . . . . . . . . . . . . . 139,629 3,701,276 2,813,102 518,707 3,265,616
Foreign currency . . . . . . . . . . . . . . . . . . 0 0 0 0 14,628
------------ ------------- ------------- ------------- -------------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . $ 8,763,840 $ 26,379,708 $ 16,018,310 $ 11,618,055 $ 18,190,732
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
NET ASSET VALUE PER SHARE
(based on shares of beneficial interest outstanding,
unlimited number of shares authorized without par
value) . . . . . . . . . . . . . . . . . . . . . . . $ 8,589 $ 12,043 $ 15,704 $ 10,510 $ 13,823
Total shares outstanding at end of period . . . . . . 1,020,302 2,190,519 1,019,992 1,105,453 1,315,970
Cost of investment securities . . . . . . . . . . . . $ 8,449,539 $ 22,782,612 $ 13,144,737 $ 10,978,466 $ 14,789,406
</TABLE>
133
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
GROWTH &
SMALL CAP INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS
Investments - securities, at value . . . . . . . . . . . . $ 3,077,456 $ 2,723,528
Investments - repurchase agreements . . . . . . . . . . . . 527,000 627,000
Foreign currency holdings (Cost $0) . . . . . . . . . . . . 0 0
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 167
Income receivable . . . . . . . . . . . . . . . . . . . . . 99 1,812
Receivable for securities sold. . . . . . . . . . . . . . . 0 0
Unrealized appreciation on forward currency contracts . . . 0 0
Receivable for trust shares sold. . . . . . . . . . . . . . 305,934 34,672
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 0 0
Due from adviser. . . . . . . . . . . . . . . . . . . . . . 12,273 0
----------- -----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . 3,922,794 3,387,179
LIABILITIES
Payable for securities purchased. . . . . . . . . . . . . . 36,535 0
Unrealized depreciation on forward currency contracts . . . 0 0
Payable to custodian. . . . . . . . . . . . . . . . . . . . 0 0
Advisory fee payable . . . . . . . . . . . . . . . . . . . 2,484 18,261
Accounts payable and accrued expenses . . . . . . . . . . . 70,673 34,162
Payable for trust shares redeemed . . . . . . . . . . . . . 0 0
----------- -----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . 109,692 52,423
----------- -----------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . . . $ 3,813,102 $ 3,334,756
----------- -----------
----------- -----------
NET ASSETS
Capital paid-in . . . . . . . . . . . . . . . . . . . . . . $3,361,669 $3,225,253
Undistributed (distributions in excess of) net
investment income. . . . . . . . . . . . . . . . . . . . . 0 0
Accumulated net realized gain (loss) on
investments and foreign currency transactions. . . . . . . 36,548 15,642
Net unrealized appreciation of:
Investments . . . . . . . . . . . . . . . . . . . . . . . 414,885 93,861
Foreign currency. . . . . . . . . . . . . . . . . . . . . 0 0
----------- -----------
TOTAL NET ASSETS . . . . . . . . . . . . . . . . . . . . $ 3,813,102 $ 3,334,756
----------- -----------
----------- -----------
NET ASSET VALUE PER SHARE
(based on shares of beneficial interest outstanding,
unlimited number of shares authorized without par value). . $ 12,638 $ 11,171
Total shares outstanding at end of period . . . . . . . . . 301,724 298,528
Cost of investment securities . . . . . . . . . . . . . . . $ 3,189,571 $ 3,256,667
</TABLE>
See notes to financial statements.
134
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CASH COMMON
MANAGEMENT STOCK
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
INVESTMENT INCOME
Dividend income . . . . . . . . . . . . . . $ 0 $ 268,164
Interest income . . . . . . . . . . . . . . 596,554 172,022
Foreign taxes withheld. . . . . . . . . . . 0 (873)
---------- ------------
TOTAL INCOME. . . . . . . . . . . . . . 596,554 439,313
EXPENSES
Investment management fee . . . . . . . . . 49,056 262,290
Administrative fee. . . . . . . . . . . . . 34,029 82,349
Custodian fee . . . . . . . . . . . . . . . 34,452 31,479
Audit fee and expenses. . . . . . . . . . . 17,857 21,657
Legal fee . . . . . . . . . . . . . . . . . 11,428 11,428
Printing expenses . . . . . . . . . . . . . 6,429 6,429
Trustees fee and expenses . . . . . . . . . 6,324 6,325
Transfer agent fee. . . . . . . . . . . . . 2,059 2,058
Registration fees . . . . . . . . . . . . . 36 36
Insurance . . . . . . . . . . . . . . . . . 6,751 16,572
Other . . . . . . . . . . . . . . . . . . . 1,054 2,515
Expenses borne by the adviser . . . . . . . (95,420) (6,296)
Expense reductions. . . . . . . . . . . . . (36) (27)
---------- ------------
TOTAL EXPENSES. . . . . . . . . . . . . 74,019 436,815
---------- ------------
NET INVESTMENT INCOME . . . . . . . . . 522,535 2,498
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on investments. . . 65 4,418,581
Net realized gain on foreign currency
transactions. . . . . . . . . . . . . . . . 0 899
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . 0 7,157,127
Foreign currency. . . . . . . . . . . . . . 0 0
---------- ------------
NET REALIZED AND UNREALIZED GAIN. . . . 65 11,576,607
---------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . $ 522,600 $ 11,579,105
---------- ------------
---------- ------------
</TABLE>
See notes to financial statements.
135
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
HIGH INCOME MULTIPLE
BOND STRATEGIES
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
INVESTMENT INCOME
Dividend income . . . . . . . . . . . . . . . . . . . . . . $ 3,829 $ 136,285
Interest income . . . . . . . . . . . . . . . . . . . . . . 828,304 420,560
Foreign taxes withheld. . . . . . . . . . . . . . . . . . . 0 (394)
------------ ------------
TOTAL INCOME. . . . . . . . . . . . . . . . . . . . . . 832,133 556,451
EXPENSES
Investment management fee . . . . . . . . . . . . . . . . . 59,701 166,507
Administrative fee. . . . . . . . . . . . . . . . . . . . . 22,817 51,459
Custodian fee . . . . . . . . . . . . . . . . . . . . . . . 41,021 43,689
Audit fee and expenses. . . . . . . . . . . . . . . . . . . 17,857 17,857
Legal fee . . . . . . . . . . . . . . . . . . . . . . . . . 11,428 11,428
Printing expenses . . . . . . . . . . . . . . . . . . . . . 6,429 6,429
Trustees fee and expenses . . . . . . . . . . . . . . . . . 6,324 6,324
Transfer agent fee. . . . . . . . . . . . . . . . . . . . . 2,059 2,059
Registration fees . . . . . . . . . . . . . . . . . . . . . 36 36
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 3,858 9,661
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 556 1,458
Expenses borne by the adviser . . . . . . . . . . . . . . . (69,671) (31,469)
Expense reductions. . . . . . . . . . . . . . . . . . . . . (957) (73)
------------ ------------
TOTAL EXPENSES. . . . . . . . . . . . . . . . . . . . . 101,458 285,365
------------ ------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 730,675 271,086
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on investments. . . . . . . . . . . (19,728) 2,272,079
Net realized gain on foreign currency transactions . . . . . 3,252 3
Change in unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . . . . 723,665 3,961,315
Foreign currency. . . . . . . . . . . . . . . . . . . . . . 0 0
------------ ------------
NET REALIZED AND UNREALIZED GAIN. . . . . . . . . . . . 707,189 6,233,397
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . . . . $ 1,437,864 $ 6,504,483
------------ ------------
------------ ------------
</TABLE>
(1) From commencement of operations May 4, 1995.
(2) From commencement of operations May 31, 1995.
See notes to financial statements.
136
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
TILT U.S. WORLD GROWTH &
UTILITY GOVERNMENT BOND EQUITY SMALL CAP INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (1) PORTFOLIO (2)
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend income . . . . . . . . . . . . . . . . . . . $ 709,178 $ 0 $ 178,074 $ 598 $ 10,010
Interest income . . . . . . . . . . . . . . . . . . . 362 860,404 81,298 8,333 17,129
Foreign taxes withheld. . . . . . . . . . . . . . . . 16 0 (24,340) 0 (101)
----------- ----------- ----------- ----------- -----------
TOTAL INCOME. . . . . . . . . . . . . . . . . . . 709,556 860,404 235,032 8,931 27,038
EXPENSES
Investment management fee . . . . . . . . . . . . . . 91,889 74,445 104,408 13,610 8,192
Administrative fee. . . . . . . . . . . . . . . . . . 33,125 29,503 35,454 33,592 21,671
Custodian fee . . . . . . . . . . . . . . . . . . . . 35,091 36,511 58,897 54,767 10,731
Audit fee and expenses. . . . . . . . . . . . . . . . 17,857 17,857 17,857 18,006 17,940
Legal fee . . . . . . . . . . . . . . . . . . . . . . 11,428 11,428 11,428 11,523 11,481
Printing expenses . . . . . . . . . . . . . . . . . . 6,429 6,429 6,429 6,483 6,459
Trustees fee and expenses . . . . . . . . . . . . . . 6,324 6,324 6,324 4,530 3,194
Transfer agent fee. . . . . . . . . . . . . . . . . . 2,059 2,059 2,059 1,398 1,395
Registration fees . . . . . . . . . . . . . . . . . . 36 36 36 36 36
Insurance . . . . . . . . . . . . . . . . . . . . . . 6,725 7,916 5,768 0 0
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,017 1,098 852 101 101
Expenses borne by the adviser . . . . . . . . . . . . (47,787) (89,309) (69,498) (121,935) (64,518)
Expense reductions. . . . . . . . . . . . . . . . . . (2,278) (498) (229) (501) (2,715)
----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES. . . . . . . . . . . . . . . . . . 161,915 103,799 179,785 21,610 13,967
----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . 547,641 756,605 55,247 (12,679) 13,071
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on investments. . . . . . . . 346,305 678,846 957,186 148,029 43,303
Net realized gain on foreign currency transactions . . 0 0 223,542 0 0
Change in unrealized appreciation (depreciation) of:
Investments . . . . . . . . . . . . . . . . . . . . . 3,179,720 843,009 2,212,725 414,885 93,861
Foreign currency. . . . . . . . . . . . . . . . . . . 0 0 (62,988) 0 0
----------- ----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN. . . . . . . . . 3,526,025 1,521,855 3,330,465 562,914 137,164
----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . . $ 4,073,666 $ 2,278,460 $ 3,385,712 $ 550,235 $ 150,235
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
137
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
CASH MANAGEMENT PORTFOLIO COMMON STOCK PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/95 12/31/94
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income. . . . . . . . . . . . . . $ 522,535 $ 484,186 $ 2,498 $ 267,715
Net realized gain (loss) on investments. . . . . 65 0 4,418,581 (1,190,682)
Net realized gain (loss) on foreign
currency transactions . . . . . . . . . . . . 0 0 899 0
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . . 0 0 7,157,127 332,617
Foreign currency. . . . . . . . . . . . . . . 0 0 0 0
----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . 522,600 484,186 11,579,105 (590,350)
Dividends and distributions to Shareholders
from:
Net investment income. . . . . . . . . . . . . . (522,535) (484,186) (267,715) (133,025)
Net realized gain on investments . . . . . . . . (53) 0 (2,264,091) (132,832)
Dividends and distributions to Shareholders
in excess of:
Net investment income. . . . . . . . . . . . . . 0 0 0 0
Net realized gain on investments . . . . . . . . 0 0 0 0
Tax return of capital . . . . . . . . . . . . . . . 0 0 0 0
Trust share transactions - Note E . . . . . . . . . 1,897,366 (883,125) 3,056,280 (10,858,240)
----------- ---------- ----------- -----------
TOTAL INCREASE (DECREASE) . . . . . . . . . . 1,897,378 (883,125) 12,103,579 (11,714,447)
Net Assets
Beginning of period. . . . . . . . . . . . . . . 8,198,345 9,081,470 30,815,145 42,529,592
----------- ---------- ----------- -----------
END OF PERIOD (1). . . . . . . . . . . . . . . . $10,095,723 $8,198,345 $42,918,724 $30,815,145
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
(1) Including undistributed (distributions in
excess of) net investment income . . . . . . . . $ 0 $ 0 $ 2,498 $ 134,690
See notes to financial statements.
138
<PAGE>
<CAPTION>
HIGH INCOME BOND PORTFOLIO MULTIPLE STRATEGIES PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/95 12/31/94
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income. . . . . . . . . . . . . . $ 730,675 $ 843,098 $ 271,086 $ 360,791
Net realized gain (loss) on investments. . . . . (19,728) (545,819) 2,272,079 2,173,355
Net realized gain (loss) on foreign
currency transactions . . . . . . . . . . . . 3,252 (434) 3 0
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . .
Foreign currency. . . . . . . . . . . . . . . 723,665 (975,528) 3,961,315 (3,568,738)
0 0 0 0
---------- ----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . 1,437,864 (678,683) 6,504,483 (1,034,592)
Dividends and distributions to Shareholders
from:
Net investment income. . . . . . . . . . . . . . (730,675) (843,098) (270,194) (360,791)
Net realized gain on investments . . . . . . . . 0 (62,815) (2,115,878) (2,173,355)
Dividends and distributions to Shareholders
in excess of:
Net investment income. . . . . . . . . . . . . . (43,548) (5,052) 0 (11,819)
Net realized gain on investments . . . . . . . . 0 (9,525) 0 (36,982)
Tax return of capital . . . . . . . . . . . . . . . 0 0 0 0
Trust share transactions - Note E . . . . . . . . . 329,113 (5,125,701) 1,111,737 245,164
---------- ----------- ----------- ------------
TOTAL INCREASE (DECREASE) . . . . . . . . . . 992,754 (6,724,874) 5,230,148 (3,372,375)
Net Assets
Beginning of period. . . . . . . . . . . . . . . 7,771,086 14,495,960 21,149,560 24,521,935
---------- ----------- ----------- ------------
END OF PERIOD (1). . . . . . . . . . . . . . . . $8,763,840 $ 7,771,086 $26,379,708 $ 21,149,560
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
(1) Including undistributed (distributions in
excess of) net investment income. . . . . . . . . . . $ (14,589) $ (5,486) $ 10,013 $ (11,819)
<CAPTION>
TILT UTILITY PORTFOLIO
YEAR ENDED YEAR ENDED
12/31/95 12/31/94
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income. . . . . . . . . . . . . . $ 547,641 $ 446,733
Net realized gain (loss) on investments. . . . . 346,305 1,214,155
Net realized gain (loss) on foreign
currency transactions . . . . . . . . . . . . 0 0
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . .
Foreign currency. . . . . . . . . . . . . . . 3,179,720 (1,775,894)
0 0
----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . 4,073,666 (115,006)
Dividends and distributions to Shareholders
from:
Net investment income. . . . . . . . . . . . . . (481,008) (446,352)
Net realized gain on investments . . . . . . . . (286,632) (1,394,774)
Dividends and distributions to Shareholders
in excess of:
Net investment income. . . . . . . . . . . . . . 0 0
Net realized gain on investments . . . . . . . . 0 0
Tax return of capital . . . . . . . . . . . . . . . 0 0
Trust share transactions - Note E . . . . . . . . . 400,523 (983,283)
----------- -----------
TOTAL INCREASE (DECREASE) . . . . . . . . . . 3,706,549 (2,939,415)
Net Assets
Beginning of period. . . . . . . . . . . . . . . 12,311,761 15,251,176
----------- -----------
END OF PERIOD (1). . . . . . . . . . . . . . . . $16,018,310 $12,311,761
----------- -----------
----------- -----------
(1) Including undistributed (distributions in
excess of) net investment income . . . . . . . . $ 67,014 $ 381
</TABLE>
139
<PAGE>
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
-CONTINUED-
<TABLE>
<CAPTION>
U.S. GOVERNMENT
BOND PORTFOLIO WORLD EQUITY PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/94 12/31/95 12/31/94
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income. . . . . . . . . . . . . . $ 756,605 $ 958,567 $ 55,247 $ 17,475
Net realized gain (loss) on investments. . . . . 678,846 146,586 957,186 820,711
Net realized gain (loss) on foreign
currency transactions . . . . . . . . . . . . 0 0 223,542 (216,114)
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . . 843,009 (1,598,045) 2,212,725 384,032
Foreign currency. . . . . . . . . . . . . . . 0 0 (62,988) 56,901
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . 2,278,460 (492,892) 3,385,712 1,063,005
Dividends and distributions to Shareholders
from:
Net investment income. . . . . . . . . . . . . . (756,605) (958,567) 0 (20,517)
Net realized gain on investments . . . . . . . . (352,027) (146,586) (1,008,027) (622,228)
Dividends and distributions to Shareholders
in excess of:
Net investment income. . . . . . . . . . . . . . (49,391) 0 0 0
Net realized gain on investments . . . . . . . . 0 (155,582) 0 (6,239)
Tax return of capital . . . . . . . . . . . . . . . 0 (3,468) 0 0
Trust share transactions - Note E . . . . . . . . . (3,946,311) (4,508,657) 4,313,369 (1,144,645)
----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE) . . . . . . . . . . (2,825,874) (6,265,752) 6,691,054 (730,624)
Net Assets
Beginning of period . . . . . . . . . . . . . . 14,443,929 20,709,681 11,499,678 12,230,302
----------- ----------- ----------- -----------
END OF PERIOD (1) . . . . . . . . . . . . . . . $11,618,055 $14,443,929 $18,190,732 $11,499,678
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(1) Including undistributed (distributions in
excess of) net investment income . . . . . . . . $ 2,331 $ 0 $ (11,431) $ (69,065)
(2) From commencement of operations May 4, 1995.
(3) From commencement of operations May 31, 1995.
See notes to financial statements.
140
<PAGE>
<CAPTION>
SMALL CAP PORTFOLIO GROWTH & INCOME PORTFOLIO
PERIOD ENDED PERIOD ENDED
12/31/95 (2) 12/31/95 (3)
----------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income. . . . . . . . . . . . . . $ (12,679) $ 13,071
Net realized gain (loss) on investments. . . . . 148,029 43,303
Net realized gain (loss) on foreign
currency transactions . . . . . . . . . . . . 0 0
Change in unrealized appreciation
(depreciation) of:
Investments . . . . . . . . . . . . . . . . . 414,885 93,861
Foreign currency. . . . . . . . . . . . . . . 0 0
---------- ----------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . 550,235 150,235
Dividends and distributions to Shareholders
from:
Net investment income. . . . . . . . . . . . . . 0 (13,071)
Net realized gain on investments . . . . . . . . (98,802) (27,661)
Dividends and distributions to Shareholders
in excess of:
Net investment income. . . . . . . . . . . . . . 0 0
Net realized gain on investments . . . . . . . . 0 0
Tax return of capital . . . . . . . . . . . . . . . 0 0
Trust share transactions - Note E . . . . . . . . . 3,361,669 3,225,253
---------- ----------
TOTAL INCREASE (DECREASE) . . . . . . . . . . 3,813,102 3,334,756
Net Assets
Beginning of period . . . . . . . . . . . . . . 0 0
---------- ----------
$3,813,102 $3,334,756
END OF PERIOD (1) . . . . . . . . . . . . . . . ---------- ----------
---------- ----------
(1) Including undistributed (distributions in
excess of) net investment income . . . . . . . . $ 0 $ 0
</TABLE>
141
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A -- ORGANIZATION
Variable Investors Series Trust (the "Trust") was established as a
Massachusetts business trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated December 23, 1986. The Trust is an open-end, series
management investment company which currently comprises nine series of shares of
beneficial interest (the "Portfolios") each of which represents the entire
interest in a separate portfolio of investments. The Portfolios are the Cash
Management Portfolio, the Common Stock Portfolio, the High Income Bond
Portfolio, the Multiple Strategies Portfolio, the Tilt Utility Portfolio, the
U.S. Government Bond Portfolio, the World Equity Portfolio, the Small Cap
Portfolio and the Growth & Income Portfolio.
As of December 31, 1995, 92.74% of the assets of the Trust are owned by
First Variable Life Insurance Company ("First Variable") and 7.26% of the assets
of the Trust are owned by Monarch Life Insurance Company ("MLIC"), through
separate accounts maintained by First Variable and MLIC, respectively.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements.
ESTIMATES: 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 and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS: The Trust's equity securities, including
American Depository Receipts (ADR's) and other forms of depository receipts,
traded on a national securities exchange are valued at the last sales price, or,
if no closing price is available, at a bid price estimated by a broker or
dealer. Debt securities are generally valued on the basis of valuations
furnished by a pricing service which determines valuations for normal
institutional size trading units of debt securities, without exclusive reliance
upon quoted prices. These valuations are believed to reflect with greater
accuracy the fair market value of such securities. Short-term securities
maturing in 60 days or less are valued at cost plus earned discount to maturity
(amortized cost), which approximates market value. The Cash Management Portfolio
values its securities using the amortized cost method, which values securities
initially at cost and thereafter assumes a constant amortization to maturity of
any discount or premium. Securities in other mutual funds are valued at the net
asset value of those funds. Securities for which current market quotations are
not readily available are stated at fair value as determined in good faith under
the direction of the Trustees.
FOREIGN SECURITIES: Foreign securities traded on a recognized securities
exchange are valued at the last sales price in the principal market where they
are traded, or, if closing prices are unavailable, at the last bid price
available prior to the time a Portfolio's net asset value is determined.
Foreign portfolio security prices are furnished by quotation services expressed
in the local currency's value and are translated into U.S. dollars at the
current rate of exchange. Foreign securities for which prices cannot be
obtained by the quotation services are valued using dealer supplied quotations.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase
agreements, the Trust's custodian takes possession of the underlying collateral
securities, the value of which at least equals the principal amount, including
interest, of the repurchase transaction. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is marked-to-
market on a daily basis to ensure the adequacy of the collateral. In the event
of default of the obligation to repurchase, the Portfolio has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral, or proceeds may be subject to legal proceedings.
142
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
INVESTMENT TRANSACTIONS: Investment security transactions are recorded on
the date of purchase, sale, or maturity. Dividend income is recorded on the
ex-dividend date, or, in the case of dividend income on foreign securities, on
the ex-dividend date or when the Trust becomes aware of its declaration.
Interest income is recorded on the accrual basis. Realized gains and losses
from security transactions are determined on the basis of identified cost.
FOREIGN CURRENCY TRANSLATIONS: The records of the Trust are maintained in
U.S. dollars. Foreign currency amounts are translated into U.S. dollars at a
current rate of exchange of such currency to determine the value of investments,
other assets and liabilities on the date of any determination of net asset value
of the Portfolios. Purchases and sales of securities and income and expenses
are converted at the prevailing rate of exchange on the respective dates of such
transactions. Net realized gain/(loss) on foreign currency includes net
realized currency gains and losses recognized between accrual and payment
dates. The Portfolios do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
FORWARD FOREIGN CURRENCY CONTRACTS: Upon the purchase or sale of a
security denominated in foreign currency the Trust may enter into a forward
currency exchange contract for the purchase or sale, for a fixed amount of U.S.
dollars, of an amount of the foreign currency required to settle the security
transaction in order to hedge against a change in the foreign currency exchange
rate. Accordingly, the Trust would not realize currency gains or losses between
the trade and settlement dates on such security transactions. A Portfolio may
engage in position hedging to protect against a decline in value relative to the
U.S. dollar of the currencies in which their portfolio securities are
denominated or quoted.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Trust on each day and the resulting net unrealized
appreciation (depreciation) and related net receivable (payable) amount are
determined by using foreign currency exchange rates supplied by a quotation
service.
Realized gain (loss) includes net gains or losses realized by the Trust on
contracts which have matured or which the Trust has terminated by entering into
an offsetting closing transaction.
FORWARD COMMITMENTS: To secure prices or yields deemed advantageous at a
particular time, each Portfolio of the Trust may enter into a forward commitment
in which a Portfolio agrees on trade date to either make or receive delivery
against payment for securities on a delayed delivery basis. The price and
interest rate of such securities are fixed at trade date. For forward
commitment purchases, the Portfolio does not earn interest on such security
until settlement date.
FEDERAL INCOME TAXES: Each Portfolio of the Trust is treated as a separate
entity for federal tax purposes. Each Portfolio of the Trust has qualified and
intends to continue to qualify each year as a "regulated investment company"
under Subchapter M of the Internal Revenue Code, as amended. By so qualifying,
the Portfolios of the Trust will not be subject to federal income taxes to the
extent that they distribute all of their taxable income, including realized
capital gains, for the fiscal year. In addition, by distributing during each
calendar year substantially all of their net investment income, capital gains
and certain other amounts, if any, the Portfolios of the Trust will not be
subject to a federal excise tax.
As of December 31, 1995, the High Income Bond Portfolio has a realized
capital loss carryforward, for Federal income tax purposes, of $757,850
($552,042 expires on December 31, 2002, $205,808 expires on December 31, 2003),
available to be used to offset future realized capital gains.
143
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
Any net capital losses incurred after October 31, within a Portfolio's tax
year, are deemed to arise on the first day of a Portfolio's next tax year. The
Portfolios incurred and elected to defer net capital losses as follows, during
such period in fiscal 1995:
<TABLE>
<CAPTION>
PORTFOLIO AMOUNT
--------- ------
<S> <C>
High Income Bond Portfolio $ 1,794
World Equity Portfolio 17,911
</TABLE>
EXPENSES: Expenses directly attributable to a Portfolio are charged to
that Portfolio. Expenses not directly attributable to a Portfolio are split
evenly among the affected Portfolios, allocated on the basis of relative average
net assets, or otherwise allocated among the Portfolios as the Trustees may
direct or approve.
DIVIDENDS AND DISTRIBUTIONS: Each of the Portfolios, other than the Cash
Management Portfolio, declares and distributes dividends from net investment
income, if any, and distributes its net realized capital gains, if any, at least
annually. The Cash Management Portfolio declares daily and pays monthly
dividends from net investment income. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to utilization of capital loss carryovers, differing treatments for foreign
currency transactions and differences in the timing of recognition of certain
capital losses for financial reporting and tax purposes. Both dividends and
capital gain distributions are made in shares of such Portfolios unless an
election is made on behalf of an Annuity Account to receive dividends and
capital gain distributions in cash. The Trust made the following
reclassifications as of December 31, 1995:
<TABLE>
<CAPTION>
INCREASE INCREASE/(DECREASE)
INCREASE/(DECREASE) UNDISTRIBUTED NET ACCUMULATED
PAID IN CAPITAL INVESTMENT INCOME REALIZED GAIN/(LOSS)
------------------- ----------------- --------------------
<S> <C> <C> <C>
Common Stock Portfolio . . . . . . . $ (139,079) $ 133,033 $ 6,046
High Income Bond Portfolio . . . . . 281 34,445 (34,726)
Multiple Strategies Portfolio. . . . (11,822) 20,940 (9,118)
Tilt Utility Portfolio . . . . . . . 14,992 0 (14,992)
U.S. Government Bond Portfolio . . . 3,467 51,722 (55,189)
World Equity Portfolio . . . . . . . 14,611 19,950 (34,561)
Small Cap Portfolio. . . . . . . . . 0 12,679 (12,679)
Growth & Income Portfolio. . . . . . 0 1 (1)
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these changes.
NOTE C -- INVESTMENT ADVISORY AND OTHER RELATED PARTY AGREEMENTS
INVESTMENT ADVISORY AGREEMENT
First Variable Advisory Services Corp. ("FVAS") is the investment adviser to all
Portfolios of the Trust under an investment advisory agreement with the Trust
dated September 22, 1994. FVAS retained the following sub-advisers at its own
cost and expense pursuant to sub-advisory agreements dated September 22, 1994:
Federated Investment Counseling as sub-adviser to the Cash Management and the
High Income Bond Portfolios, Value Line, Inc. as sub-adviser to the Multiple
Strategies and the Common Stock Portfolios, Strong Capital Management, Inc. as
sub-adviser to the U.S. Government
144
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
Bond Portfolio, State Street Bank and Trust Company as sub-adviser to the Tilt
Utility Portfolio, and Keystone Investment Management Company as sub-adviser to
the World Equity Portfolio. FVAS retained the following sub-advisers at its own
cost and expense pursuant to sub-advisory agreements dated May 1, 1995: Pilgrim
Baxter & Associates, Ltd. as sub-adviser to the Small Cap Portfolio and Warburg,
Pincus Counsellors, Inc. as sub-adviser to the Growth & Income Portfolio.
FVAS is a Massachusetts corporation which was incorporated on October 8,
1993 and which is registered with the Securities and Exchange Commission as an
investment adviser under the Investment Advisers Act of 1940, as amended. FVAS
is a wholly-owned subsidiary of First Variable, which is a wholly-owned
subsidiary of Irish Life of North America, Inc. ("ILoNA"), which is a wholly-
owned subsidiary of Irish Life plc., of Dublin, Ireland.
As compensation for all services rendered, facilities provided and expenses
paid or assumed by FVAS under the advisory agreement, the Trust pays
compensation monthly to FVAS at the following annual rates based on the average
daily net assets of each Portfolio taken separately: 0.70% of average daily net
assets for the Common Stock and the Multiple Strategies Portfolios; 0.65% of the
first $100 million of average daily net assets and 0.55% of average daily net
assets in excess of $100 million for the Tilt Utility Portfolio; 0.70% of the
first $40 million of average daily net assets, 0.65% of the next $20 million of
average daily net assets, 0.55% of the next $15 million of average daily net
assets, and 0.50% of average daily net assets in excess of $75 million for the
High Income Bond Portfolio; 0.70% of the first $200 million of average daily
net assets, 0.625% of the next $300 million of average daily net assets, and
0.50% of average daily net assets in excess of $500 million for the World Equity
Portfolio; 0.60% of the first $200 million of average daily net assets and 0.50%
of average daily net assets in excess of $200 million for the U.S. Government
Bond Portfolio; 0.50% of the first $70 million of average daily net assets and
0.45% of average daily net assets in excess of $70 million for the Cash
Management Portfolio; 0.85% of average daily net assets for the Small Cap
Portfolio; and, 0.75% of average daily net assets for the Growth & Income
Portfolio.
LIMITATIONS
First Variable has agreed to reduce its compensation for certain services
to the Trust (and, if necessary, bear certain expenses of each of the
Portfolios) through April 1, 1996 with respect to each of the Portfolios to the
extent that Portfolio expenses, other than FVAS's compensation, exceed the
annual rate of 0.50% of a Portfolio's average daily net assets (0.25% in the
case of the Cash Management Portfolio and the U.S. Government Bond Portfolio).
EXPENSE REDUCTIONS
State Street Bank and Trust Company, the Trust's custodian, has agreed to
compensate the Portfolios and decrease the Trust's custodian expenses for cash
balances left uninvested in each of the Portfolios. For the period ended
December 31, 1995, the Trust's expenses were reduced by $7,314.
TRUSTEES' COMPENSATION
Trustees' fees of $8,000 per year, plus $1,500 per meeting of the Board of
Trustees and $750 for each Audit Committee meeting attended (if held on a day
other than when a Board of Trustees meeting is held), are paid by the Trust to
each Trustee who is not an interested person of the Trust, First Variable,
ILoNA, MLIC or FVAS. No remuneration is paid by the Trust to any Trustee or
officer of the Trust who is affiliated with First Variable, ILoNA, MLIC or FVAS.
NOTE D -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities for each Portfolio other than the Cash Management
Portfolio, for the period ended December 31, 1995 were as follows:
145
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
NON- NON-
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES PURCHASES SALES SALES
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash Management Portfolio. . . . . $432,892,962 $10,396,050 $432,191,132 $9,400,000
Common Stock Portfolio . . . . . . 58,510,324 0 57,016,729 0
High Income Bond Portfolio . . . . 7,322,323 0 6,618,927 0
Multiple Strategies Portfolio. . . 31,489,876 2,523,203 31,239,205 3,110,219
Tilt Utility Portfolio . . . . . . 6,774,768 0 6,697,168 0
U.S. Government Bond Portfolio . . 6,283,109 24,097,112 8,030,679 27,589,903
World Equity Portfolio . . . . . . 15,658,383 0 13,062,176 0
Small Cap Portfolio. . . . . . . . 4,167,474 0 1,652,932 0
Growth & Income Portfolio. . . . . 2,760,933 62,059 375,303 59,559
</TABLE>
The identified cost for federal income tax purposes of investments owned by each
Portfolio (including earned discount on corporate short-term notes and
commercial paper) and their respective gross unrealized appreciation and
depreciation at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION (DEPRECIATION) APPRECIATION/(DEPRECIATION)
--------------- ------------ -------------- ---------------------------
<S> <C> <C> <C> <C>
Cash Management Portfolio. . . . . $10,213,661 $ 0 $ 0 $ 0
Common Stock Portfolio . . . . . . 36,043,844 8,197,998 (733,322) 7,464,676
High Income Bond Portfolio . . . . 8,541,588 374,085 (326,505) 47,580
Multiple Strategies Portfolio. . . 22,782,612 4,025,152 (323,876) 3,701,276
Tilt Utility Portfolio . . . . . . 13,176,577 2,817,862 (36,600) 2,781,262
U.S. Government Bond Portfolio . . 11,003,509 496,032 (2,368) 493,664
World Equity Portfolio . . . . . . 14,794,236 3,692,306 (431,520) 3,260,786
Small Cap Portfolio . . . . . . . 3,193,109 562,886 (151,539) 411,347
Growth & Income Portfolio . . . . 3,256,667 228,731 (134,870) 93,861
</TABLE>
NOTE E -- TRUST SHARE TRANSACTIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH MANAGEMENT PORTFOLIO
Shares sold. . . . . . . . . . . . . . 20,464,576 $ 20,464,576 25,982,539 $ 25,982,539
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 522,595 522,595 484,179 484,179
------------ ------------ ------------ ------------
20,987,171 20,987,171 26,466,718 26,466,718
Shares repurchased . . . . . . . . . . (19,089,805) (19,089,805) (27,349,843) (27,349,843)
------------ ------------ ------------ ------------
Net increase (decrease) . . . . . . . 1,897,366 $ 1,897,366 (883,125) $ (883,125)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
146
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COMMON STOCK PORTFOLIO
Shares sold . . . . . . . . . . . . . 363,229 $ 8,619,361 262,854 $ 5,195,828
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 98,408 2,531,806 13,273 265,857
------------ ------------ ----------- ------------
461,637 11,151,167 276,127 5,461,685
Shares repurchased . . . . . . . . . . (338,854) (8,094,887) (825,476) (16,319,925)
------------ ------------ ----------- ------------
Net increase (decrease) . . . . . . . 122,783 $ 3,056,280 (549,349) $(10,858,240)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
HIGH INCOME BOND PORTFOLIO
Shares sold. . . . . . . . . . . . . . 685,858 $ 6,023,295 1,118,872 $ 10,391,147
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 90,256 774,223 116,951 920,490
------------ ------------ ----------- ------------
776,114 6,797,518 1,235,823 11,311,637
Shares repurchased . . . . . . . . . . (737,813) (6,468,405) (1,747,524) (16,437,338)
------------ ------------ ----------- ------------
Net increase (decrease) . . . . . . . 38,301 $ 329,113 (511,701) $ (5,125,701)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
MULTIPLE STRATEGIES PORTFOLIO
Shares sold. . . . . . . . . . . . . . 407,094 $ 4,796,839 614,383 $ 6,597,428
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 199,328 2,386,073 257,485 2,582,947
------------ ------------ ----------- ------------
606,422 7,182,912 871,868 9,180,375
Shares repurchased . . . . . . . . . . (526,172) (6,071,175) (774,529) (8,935,211)
------------ ------------ ----------- ------------
Net increase . . . . . . . . . . . . . 80,250 $ 1,111,737 97,339 $ 245,164
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
TILT UTILITY PORTFOLIO
Shares sold. . . . . . . . . . . . . . 345,562 $ 4,803,339 211,964 $ 3,164,408
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 49,831 767,641 147,298 1,841,126
------------ ------------ ----------- ------------
395,393 5,570,980 359,262 5,005,534
Shares repurchased . . . . . . . . . . (370,564) (5,170,457) (405,142) (5,988,817)
------------ ------------ ----------- ------------
Net increase (decrease) . . . . . . . 24,829 $ 400,523 (45,880) $ (983,283)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
U.S. GOVERNMENT BOND PORTFOLIO
Shares sold. . . . . . . . . . . . . . 252,791 $ 2,717,003 382,993 $ 4,069,637
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 110,604 1,158,024 129,993 1,264,203
------------ ------------ ----------- ------------
363,395 3,875,027 512,986 5,333,840
Shares repurchased . . . . . . . . . . (744,322) (7,821,338) (922,528) (9,842,497)
------------ ------------ ----------- ------------
Net (decrease) . . . . . . . . . . . . (380,927) $ (3,946,311) (409,542) $ (4,508,657)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
WORLD EQUITY PORTFOLIO
Shares sold. . . . . . . . . . . . . . 659,927 $ 8,568,833 600,970 $ 7,167,528
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 72,816 1,008,027 55,538 648,984
------------ ------------ ----------- ------------
732,743 9,576,860 656,508 7,816,512
Shares repurchased . . . . . . . . . . (395,278) (5,263,491) (755,796) (8,961,157)
------------ ------------ ----------- ------------
Net increase (decrease) . . . . . . . 337,465 $ 4,313,369 (99,288) $ (1,144,645)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
147
<PAGE>
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
-CONTINUED-
<TABLE>
<CAPTION>
PERIOD FROM
MAY 4, 1995 TO
DECEMBER 31, 1995
------------------------
SHARES AMOUNT
-------- ----------
<S> <C> <C>
SMALL CAP PORTFOLIO
Shares sold . . . . . . . . . . . . . 504,211 $5,867,210
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 7,913 98,802
-------- ----------
512,124 5,966,012
Shares repurchased . . . . . . . . . . (210,400) (2,604,343)
-------- ----------
Net increase . . . . . . . . . . . . . 301,724 $3,361,669
-------- ----------
-------- ----------
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
MAY 31, 1995 TO
DECEMBER 31, 1995
------------------------
<S> <C> <C>
GROWTH & INCOME PORTFOLIO
Shares sold . . . . . . . . . . . . . 357,601 $3,877,668
Shares issued to shareholders in
reinvestment . . . . . . . . . . . . 3,645 40,731
-------- ----------
361,246 3,918,399
Shares repurchased . . . . . . . . . . (62,718) (693,146)
-------- ----------
Net increase . . . . . . . . . . . . . 298,528 $3,225,253
-------- ----------
-------- ----------
</TABLE>
NOTE F -- FORWARD FOREIGN CURRENCY CONTRACT
As of December 31, 1995 the World Equity Portfolio had open twelve forward
foreign currency contracts which contractually obligates the Portfolio to
deliver currencies at a specified date, as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
CURRENCY SOLD SETTLEMENT DATE COST VALUE APPRECIATION/(DEPRECIATION)
------------- --------------- ---- ----- ---------------------------
<S> <C> <C> <C> <C> <C>
348,946 Australian Dollars 01/05/96 $ 259,269 $ 266,386 $ 7,117
2,993,120 Belgian Francs 02/20/96 101,984 104,000 2,016
794,502 Canadian Dollars 01/25/96 581,812 574,000 (7,812)
358,394 French Francs 02/05/96 73,241 73,000 (241)
32,225 German Marks 02/20/96 22,524 23,000 476
220,636,350 Japanese Yen 03/29/96 2,164,640 2,175,000 10,360
80,400,000 Italian Lira 02/20/96 50,280 50,000 (280)
73,682 Netherland Guilder 02/20/96 46,056 47,000 944
77,126 Pound Sterling 02/20/96 119,625 120,000 375
2,708,420 Spanish Peseta 02/13/96 22,225 22,000 (225)
1,514,907 Swedish Krona 03/28/96 226,567 227,000 433
72,102 Swiss Francs 02/20/96 62,843 64,000 1,157
-------
$14,320
-------
-------
</TABLE>
148
<PAGE>
This page has been left blank intentionally.
149
<PAGE>
VARIABLE INVESTORS SERIES TRUST
CASH MANAGEMENT PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income . . . . . . . . . . 0.052 0.036 0.024 0.032 0.055
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . 0.000 0.000 0.000 0.000 0.000
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 0.052 0.036 0.024 0.032 0.055
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.052) (0.036) (0.024) (0.032) (0.055)
From Net Realized Capital Gains. . . . . . (0.000) (0.000) (0.000) (0.000) (0.000)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . (0.052) (0.036) (0.024) (0.032) (0.055)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD. . . . . $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 5.43% 3.68% 2.46% 3.22% 5.64%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . . $ 10,096 $ 8,198 $ 9,081 $ 18,405 $ 21,594
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 0.75% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 5.30% 3.64% 2.46% 3.20% 5.59%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.72%; 1994 - 1.46%; 1993 - 1.46%;
1992 - 1.13%; 1991 - 0.85%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
150
<PAGE>
VARIABLE INVESTORS SERIES TRUST
COMMON STOCK PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 20.056 $ 20.390 $ 20.454 $ 26.290 $ 21.250
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income. . . . . . . . . . . 0.007 0.173 0.468 0.254 0.571
Net Realized and Unrealized Gain
(Loss) on Investments. . . . . . . . . . 7.419 (0.335) 1.401 (2.256) 6.727
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 7.426 (0.162) 1.869 (2.002) 7.298
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.173) (0.086) (0.436) (0.254) (0.571)
In Excess of Net Investment Income . . . . (0.000) (0.000) (0.373) (0.000) (0.000)
From Net Realized Capital Gains. . . . . . (1.443) (0.086) (1.124) (3.580) (1.687)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . (1.616) (0.172) (1.933) (3.834) (2.258)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 25.866 $ 20.056 $ 20.390 $ 20.454 $ 26.290
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 37.12% (0.79)% 9.09% (7.59)% 34.37%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . . $ 42,919 $ 30,815 $ 42,530 $ 52,538 $ 54,877
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 1.17% 1.20% 1.20% 1.16% 0.99%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 1.17% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 0.01% 0.78% 1.74% 1.06% 2.12%
Portfolio Turnover Rate. . . . . . . . . . 166.87% 155.12% 6.05% 133.30% 69.04%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.19%; 1994 - 1.33%; 1993 - 1.21%;
1992 - 1.16%; 1991 - 1.00%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
151
<PAGE>
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 7.914 $ 9.704 $ 9.492 $ 9.187 $ 7.911
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income. . . . . . . . . . . 0.779 1.018 0.848 0.972 0.878
Net Realized and Unrealized Gain
(Loss) on Investments. . . . . . . . . . 0.717 (1.711) 0.567 0.481 1.258
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 1.496 (0.693) 1.415 1.453 2.136
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.779) (1.005) (0.849) (0.975) (0.860)
In Excess of Net Investment Income . . . . (0.042) (0.006) (0.000) (0.000) (0.000)
From Net Realized Capital Gains. . . . . . (0.000) (0.075) (0.354) (0.173) (0.000)
In Excess of Net Realized Capital Gains. . (0.000) (0.011) (0.000) (0.000) (0.000)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . (0.821) (1.097) (1.203) (1.148) (0.860)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 8.589 $ 7.914 $ 9.704 $ 9.492 $ 9.187
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 18.98% (7.08)% 14.91% 15.77% 27.01%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . . $ 8,764 $ 7,771 $ 14,496 $ 12,448 $ 8,386
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 1.20% 1.20% 1.20% 1.20% 1.13%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 1.21% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 8.62% 8.70% 8.04% 9.70% 10.54%
Portfolio Turnover Rate. . . . . . . . . . 82.15% 200.19% 90.82% 166.27% 41.14%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 2.04%; 1994 - 2.03%; 1993 - 1.59%;
1992 - 1.68%; 1991 - 2.15%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
152
<PAGE>
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 10.022 $ 12.182 $ 11.785 $ 12.515 $ 10.790
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income. . . . . . . . . . . 0.137 0.236 0.424 0.499 0.536
Net Realized and Unrealized Gain
(Loss) on Investments. . . . . . . . . . 3.086 (0.711) 0.835 (0.060) 1.989
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 3.223 (0.475) 1.259 0.439 2.525
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.136) (0.235) (0.424) (0.506) (0.526)
In Excess of Net Investment Income . . . . (0.000) (0.008) (0.000) (0.000) (0.000)
From Net Realized Capital Gains. . . . . . (1.066) (1.418) (0.438) (0.663) (0.274)
In Excess of Net Realized Capital Gains. . (0.000) (0.024) (0.000) (0.000) (0.000)
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . . (1.202) (1.685) (0.862) (1.169) (0.800)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 12.043 $ 10.022 $ 12.182 $ 11.785 $ 12.515
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 32.24% (3.91)% 10.52% 3.62% 23.43%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . . $ 26,380 $ 21,150 $ 24,522 $ 26,012 $ 26,916
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 1.20% 1.20% 1.20% 1.20% 1.11%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 1.20% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 1.14% 1.74% 3.20% 3.73% 4.49%
Portfolio Turnover Rate. . . . . . . . . . 161.10% 153.64% 25.57% 52.11% 61.17%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.33%; 1994 - 1.48%; 1993 - 1.35%;
1992 - 1.24%; 1991 - 1.22%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
153
<PAGE>
VARIABLE INVESTORS SERIES TRUST
TILT UTILITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 12.372 $ 14.650 $ 13.891 $ 14.057 $ 12.183
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income. . . . . . . . . . . 0.559 0.521 0.314 0.326 0.477
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . 3.560 (0.651) 2.171 (0.168) 3.140
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 4.119 (0.130) 2.485 0.158 3.617
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.494) (0.521) (0.296) (0.324) (0.475)
In Excess of Net Investment Income . . . . (0.000) (0.000) (0.170) (0.000) (0.000)
From Net Realized Capital Gains. . . . . . (0.293) (1.627) (1.260) (0.000) (1.268)
-------- -------- -------- -------- --------
Total Distributions. . . . . . . . . . . . (0.787) (2.148) (1.726) (0.324) (1.743)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 15.704 $ 12.372 $ 14.650 $ 13.891 $ 14.057
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 33.45% (1.05)% 17.87% 1.12% 29.79%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . . $ 16,018 $ 12,312 $ 15,251 $ 12,693 $ 11,156
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 1.15% 1.16% 1.20% 1.20% 1.12%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 1.17% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 3.89% 3.16% 1.85% 2.49% 3.54%
Portfolio Turnover Rate . . . . . . . . . 48.20% 193.40% 109.57% 308.39% 113.97%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.51%; 1994 - 1.60%; 1993 - 1.59%;
1992 - 1.64%; 1991 - 1.74%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
154
<PAGE>
VARIABLE INVESTORS SERIES TRUST
U.S. GOVERNMENT BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 9.718 $ 10.923 $ 10.659 $ 11.372 $ 10.610
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income . . . . . . . . . . 0.765 0.690 0.674 0.886 0.628
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . 1.191 (0.986) 0.328 (0.187) 0.929
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 1.956 (0.296) 1.002 0.699 1.557
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.765) (0.690) (0.673) (0.887) (0.614)
In Excess of Net Investment Income . . . . (0.045) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains . . . . . (0.354) (0.105) (0.062) (0.525) (0.181)
In Excess of Net Realized Capital Gains . (0.000) (0.112) (0.000) (0.000) (0.000)
Tax Return of Capital . . . . . . . . . . (0.000) (0.002) (0.003) (0.000) (0.000)
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . . (1.164) (0.909) (0.738) (1.412) (0.795)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 10.510 $ 9.718 $ 10.923 $ 10.659 $ 11.372
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3)
RATIOS & SUPPLEMENTAL DATA . . . . . . . . . 20.18% (2.72)% 9.38% 6.13% 14.70%
Net Assets at End of Period (000's) . . . $ 11,618 $ 14,444 $ 20,710 $ 24,280 $ 35,544
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 0.85% 0.85% 0.85% 0.85% 0.85%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (5) . . . . . . . . . . . . . 0.85% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 6.18% 5.65% 5.20% 6.41% 7.15%
Portfolio Turnover Rate . . . . . . . . . 252.94% 289.71% 27.84% 133.86% 125.90%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.59%; 1994 - 1.45%; 1993 - 1.30%;
1992 - 1.17%; 1991 - 1.04%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
155
<PAGE>
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1994 (1) 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 11.752 $ 11.348 $ 10.177 $ 10.377 $ 9.734
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income . . . . . . . . . . 0.014 0.013 0.086 0.128 0.154
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . 2.872 1.119 1.679 (0.319) 0.645
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 2.886 1.132 1.765 (0.191) 0.799
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . . (0.000) (0.023) (0.091) (0.009) (0.156)
In Excess of Net Investment Income . . . . (0.000) (0.000) (0.007) (0.000) (0.000)
From Net Realized Capital Gains . . . . . (0.815) (0.698) (0.496) (0.000) (0.000)
In Excess of Net Realized Capital Gains . (0.000) (0.007) (0.000) (0.000) (0.000)
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . . . . (0.815) (0.728) (0.594) (0.009) (0.156)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 13.823 $ 11.752 $ 11.348 $ 10.177 $ 10.377
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN (2) (3) . . . . . . . . . . . . 24.32% 10.02% 17.32% (1.83)% 8.22%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) . . . $ 18,191 $ 11,500 $ 12,230 $ 9,280 $ 8,304
Ratio of Net Operating Expenses to
Average Net Assets (4) . . . . . . . . . 1.20% 1.20% 1.20% 1.20% 1.11%
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions(5) . . . . . . . . . . . . . 1.20% - - - -
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 0.12% 0.16% 0.92% 1.34% 1.40%
Portfolio Turnover Rate . . . . . . . . . 97.85% 110.12% 78.50% 103.43% 79.97%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(3) The performance of the Portfolio shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(4) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates in 1995 and waiver of business management fee and payment or
reimbursement of certain other expenses by affiliates in 1994, 1993, 1992
and 1991. (See Note C to the Trust's financial statements.) Had affiliates
not undertaken to waive their fees and/or pay or reimburse expenses related
to the Portfolio, the Ratio of Operating Expenses to Average Net Assets
would have been as follows: 1995 - 1.67%; 1994 - 2.22%; 1993 - 1.79%;
1992 - 2.26%; 1991 - 2.93%.
(5) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
156
<PAGE>
VARIABLE INVESTORS SERIES TRUST
SMALL CAP AND GROWTH & INCOME PORTFOLIOS
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
SMALL CAP PORTFOLIO GROWTH & INCOME PORTFOLIO
PERIOD ENDED PERIOD ENDED
DECEMBER 31, 1995 (1) DECEMBER 31, 1995 (2)
--------------------- ---------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD . . . $ 10.000 $ 10.000
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) . . . . . . (0.042) 0.045
Net Realized and Unrealized Gain
(Loss) on Investments. . . . . . . . . 3.047 1.266
-------- --------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . 3.005 1.311
-------- --------
LESS DISTRIBUTIONS:
From Net Investment Income . . . . . . . (0.000) (0.045)
From Net Realized Capital Gains. . . . . (0.367) (0.095)
-------- --------
Total Distributions. . . . . . . . . . . (0.367) (0.140)
-------- --------
NET ASSET VALUE AT END OF PERIOD . . . . . . $ 12.638 $ 11.171
-------- --------
-------- --------
TOTAL RETURN (3) (4) . . . . . . . . . . . . 30.08% (5) 13.09% (5)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's). . . $ 3,813 $ 3,335
Ratio of Net Operating Expenses to
Average Net Assets (6) . . . . . . . . 1.35% (7) 1.25% (7)
Ratio of Operating Expenses to
Average Net Assets before Expense
Reductions (8) . . . . . . . . . . . . 1.38% (7) 1.49% (7)
Ratio of Net Investment Income (Loss)
to Average Net Assets . . . . . . . . (0.79)% (7) 1.17% (7)
Portfolio Turnover Rate. . . . . . . . . 73.76% (5) 33.49% (5)
</TABLE>
(1) From commencement of operations May 4, 1995.
(2) From commencement of operations May 31, 1995.
(3) Total returns would have been lower had certain expenses not been borne by
the adviser or its affiliates.
(4) The performance of the Portfolios shown on this page does not reflect
expenses and charges of the applicable separate accounts and variable
products, all of which vary to a considerable extent and are described in
your product's prospectus.
(5) Not annualized.
(6) Net Investment Income is after payment or reimbursement of certain expenses
by affiliates. (See Note C to the Trust's financial statements.) Had
affiliates not undertaken to pay or reimburse expenses related to the
Portfolios, the Ratio of Operating Expenses to Average Net Assets would
have been reduced as follows: Small Cap Portfolio - 9.00%; Growth & Income
Portfolio - 7.27%, respectively.
(7) Annualized.
(8) For fiscal years ending after September 1, 1995, the Portfolio is required
to calculate an expense ratio without expense reductions.
157
<PAGE>
PRINCIPAL OFFICERS AND TRUSTEES OF
VARIABLE INVESTORS SERIES TRUST
----------------
Norman A. Fair, Trustee
Wesley E. Horton, Trustee
W. Lawrence Howe, Trustee
Laird E. Wiggin, Trustee
Stephan M. Largent, President
Mark E. Reynolds, Treasurer and Trustee
Arnold R. Bergman, Secretary
----------------
INVESTMENT ADVISER
FIRST VARIABLE ADVISORY SERVICES CORP.
----------------
- ------------------------------------------------------------------------------
The information contained in this report is intended for general
informational purposes only. This report is not authorized for distribution
to prospective investors unless preceded or accompanied by current Trust and
Separate Account prospectuses which contain important information concerning
the Trust, the Company, and its current public offering of variable annuity
contracts.
- ------------------------------------------------------------------------------
158
<PAGE>
PART C
159
<PAGE>
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Index to Financial Statements and Supporting Schedules: *Financial
Statements dated December 31, 1995 of:
(i) Cash Management Portfolio
(ii) U.S. Government Bond Portfolio
(iii) High Income Bond Portfolio
(iv) Multiple Strategies Portfolio
(v) Common Stock Portfolio
(vi) World Equity Portfolio
(vii) Tilt Utility Portfolio
(viii) Small Cap Portfolio
(ix) Growth & Income Portfolio
*Included in Part B of this Registration Statement
(b) Exhibits
1. Agreement and Declaration of Trust --incorporated by reference to
the Registrant's initial Registration Statement on Form N-1A (File
No. 33-11182)
2. By-Laws, as amended to March 19, 1987 --incorporated by reference
to Pre-Effective Amendment No. 1 to theRegistrant's Registration
Statement on Form N-1A (File No. 33- 11182)
3. Not applicable
4. Not applicable
5. (a) Form of Investment Advisory Agreement between First Variable
Advisory Services Corp. and the Regis-trant -- incorporated by
reference to Post- EffectiveAmendment No. 13 to the Registrant's
RegistrationStatement on Form N-1A (File No. 33-11182), as filed
on September 1, 1994.
(b) Form of Addendum to Investment Advisory Agreementbetween First
Variable Advisory Services Corp. andthe Registrant incorporated
by reference to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on Form N-1A (File No.
33-11182), as filed on April 28, 1995.
(c) Form of Sub-Advisory Agreements between the Sub-Advisers and the
Registrant incorporated by referenceto Post-Effective Amendment
No. 15 to the Registrant's Registration Statement on Form N-1A
(File No. 33-11182), as filed on April 28, 1995.
6. Not applicable
7. Not applicable
160
<PAGE>
8. Form of Custodian Agreement between the Registrant and State Street
Bank and Trust Company -- incorporated byreference to Post-Effective
Amendment No. 11 to the Registrant's Registration Statement on Form
N-1A (FileNo. 33-11182), as filed on February 2, 1994
9. (a) Reimbursement Agreement between the Registrant and First
Variable Life Insurance Company dated April 30,1993 --
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File No.
33-11182), as filed on February 2, 1994
(b) Form of Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company --
incorporated by reference to Post-Effective Amendment No. 11 to
the Registrant's Registration Statement on Form N-1A (File No.
33-11182), as filed on February 2, 1994
(c) Form of Subadministration Agreement for Reporting and Accounting
Services between the Registrant and State Street Bank and Trust
Company -- incorporated by reference to Post-Effective Amendment
No. 11 to the Registrant's Registration Statement on Form N-1A
(FileNo. 33-11182), as filed on February 2, 1994
(d) Expense Reimbursement Agreement -- incorporated by reference to
Post-Effective Amendment No. 13 to the Registrant's Registration
Statement on Form N-1A (File No. 33-11182), as filed on
September 1, 1994.
10. Opinion of Blazzard, Grodd & Hasenauer, P.C. -- incorporated by
reference to Post-Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A (File No. 33- 11182), as filed
on April 11, 1994.
11. (a) Consent of Ernst & Young LLP
(b) Consent of Price Waterhouse LLP
12. Not applicable
13. Not applicable
14. Not applicable
15. Not applicable
16. Schedule of computation of performance information
27. Financial Data Schedules
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of April 1, 1996, all of the shares of each of the Portfolios then operating
were owned by First Variable Life Insurance Company and Monarch Life Insurance
Company pursuant to variable annuity contracts issued to contract owners of
First Variable Annuity Fund A, First Variable Annuity Fund E, First Variable
Annuity Fund M, Monarch Life Insurance Company Separate Account VA and Monarch
Life Insurance Company Separate Account VA-3.
161
<PAGE>
Item 27. Indemnification
The information required by this item is incorporated by reference to the
Registrant's initial Registration Statement on Form N-1A (File No. 33-11182).
Item 28. Business and Other Connections of Investment Adviser First Variable
Advisory Services Corp. ("Adviser") is the investment adviser to the Registrant.
Adviser is a wholly-owned subsidiary of First Variable Life Insurance Company
("First Variable Life"), which is a wholly-owned subsidiary of Irish Life of
North America, Inc. ("ILoNA"). ILoNA is a wholly-owned subsidiary of Irish Life
plc.
There is set forth below information as to any other business, vocation, or
employment of a substantial nature in which each director or officer of the
Registrant's investment adviser is, or at any time during the past two fiscal
years has been, engaged for his or her own account or in the capacity of
director, officer, employee, partner, or trustee.
Name Business and other connections
Stephan M. Largent, President, First Variable Life (since
President and Director April, 1995), prior thereto, President,
ING America Equities, Inc.
Mark E. Reynolds, Treasurer and Trustee of Variable Investors
Treasurer, Chief Financial Series Trust since 1993; Vice President of
Officer, and Director First Variable Life since October, 1993.
Norman A. Fair, Senior Vice President and Chief Financial
Officer of Interstate Director Assurance
Company since 1988.
Martin Sheerin, Vice President and Chief Actuary of First
Director Variable Life since October, 1994; prior
thereto, Vice President of Irish Life of North
America, Inc., Assistant Vice President of
Interstate Assurance Company from ____________ to
October, 1994.
Arnold R. Bergman, Vice President and General Counsel, First
Secretary Variable Life; prior thereto, Counsel,
Aetna Life Insurance and Annuity Company from
October, 1992 to February, 1995; prior thereto,
Vice President, General Counsel and Secretary,
First International Life Insurance Company
from September 1988 to September 1992.
With respect to information regarding the Sub-Advisers, reference is hereby made
to "Management of the Trust" in the Prospectus and to "Management of the
Sub-Advisers" in the Statement of Additional Information. For information as to
the business, profession, vocation or employment of a substantial nature of each
of the officers and directors of the Sub-Advisers, reference is made to the
current Form ADVs of the Sub-Advisers (except with respect to State Street Bank
and Trust Company) filed under the Investment Advisers Act of 1940, incorporated
herein by reference, the file numbers of which are as follows:
Strong/Corneliuson Capital Management, Inc.
File No. 801-10724
Keystone Investment Management Company
File No. 801-8327
Value Line, Inc.
162
<PAGE>
File No. 801-625
Federated Investment Counseling
File No. 801-34611
Warburg, Pincus Counsellors, Inc.
File No. 801-07321
Pilgrim Baxter & Associates, Ltd.
File No. 801-48872
Item 29. Principal Underwriter
Not applicable
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules promulgated thereunder include the Registrant's Secretary; the
Registrant's investment adviser, First Variable Advisory Services Corp.; the
Registrant's custodian, State Street Bank and Trust Company; and First Variable
Life Insurance Company, in connection with its performance under the Investor
Servicing Agreement. The address of the Secretary, First Variable Advisory
Services Corp., and First Variable Life Insurance Company is 10 Post Office
Square, Boston, Massachusetts 02109; and the address of State Street Bank and
Trust Company is 225 Franklin Street, Boston, Massachusetts 02110.
Item 31. Management Services
None.
Item 32. Undertaking
The Registrant will furnish each person to whom a prospectus is delivered with a
copy of the Registrant's latest Annual Report upon request and without charge.
163
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and the Commonwealth of
Massachusetts, on the 25th day of April, 1996.
VARIABLE INVESTORS SERIES TRUST
By: s/Stephan M. Largent
----------------------------
Stephan M. Largent
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement of Variable Investors Series Trust has been signed
below by the following persons in the capacities indicated and on the 25th day
of April, 1996.
s/Stephan M. Largent s/Mark E. Reynolds
- ----------------------------- -----------------------------
Stephan M. Largent Mark E. Reynolds
President and Trustee Treasurer and Trustee
s/Paul G. Chenault s/Norman A. Fair
- ----------------------------- -----------------------------
Paul G. Chenault Norman A. Fair
Trustee Trustee
s/Wesley E. Horton s/W. Lawrence Howe
- ----------------------------- -----------------------------
Wesley E. Horton W. Lawrence Howe
Trustee Trustee
s/Laird E. Wiggin
----------------------------------------
Laird E. Wiggin
Trustee
164
<PAGE>
EXHIBITS TO
POST EFFECTIVE AMENDMENT NO. 16 TO
FORM N-1A
FOR
VARIABLE INVESTORS SERIES TRUST
165
<PAGE>
VARIABLE INVESTORS SERIES TRUST
Index to Exhibits
Exhibit No. Page No.
EX-99.B11.(a) Consent of Ernst & Young LLP
EX-99.B11.(b) Consent of Price Waterhouse LLP
EX-99.B16. Schedule of Computation of Performance Information
EX-27 Financial Data Schedules
166
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "The Trust's
Financial History" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information included in
Post-Effective Amendment No. 16 to the Registration Statement (Form N-1A, No.
33-11182) of Variable Investors Series Trust.
We also consent to the inclusion of our report dated February 12, 1996 on the
Cash Management, Common Stock, High Income Bond, Multiple Strategies, Tilt
Utility, U.S. Government Bond, World Equity, Small Cap and Growth & Income
Portfolios of Variable Investors Series Trust included in the Annual Report to
Contract Owners.
s/ERNST & YOUNG LLP
Boston, Massachusetts
April 24, 1995
167
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 16 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 14, 1995, relating to the statements of
changes in net assets of the Variable Investor Series Trust for the year ended
December 31, 1994 and financial highlights for the four years ended December 31,
1994, which appear in such Statement of Additional Information. We also consent
to the reference to us under the heading "Independent Auditors" in such
Statement of Additional Information and to the reference to us under the heading
"The Trust's Financial History" in such Prospectus.
s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 19, 1996
168
<PAGE>
160 Federal Street Telephone 617 439 4390
Boston, MA 02110
Price Waterhouse LLP
To the Trustees and Shareholders of
Variable Investors Series Trust
In our opinion, the statements of changes in net assets for the year ended
December 31, 1994 and the financial highlights for each of the four years ended
December 31, 1994 which are included in the 1995 Annual Report of the Variable
Investors Series Trust present fairly, in all material respects, changes in net
assets of the Cash Management Portfolio, the Common Stock Portfolio, the High
Income Bond Portfolio, the Multiple Strategies Portfolio, the Tilt Utility
Portfolio (formerly known as the Equity Income Portfolio), the U.S. Government
Bond Portfolio and the World Equity Portfolio (constituting the Variable
Investors Series Trust, hereafter referred to as the "Trust"), in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter refered to as "financial statements") are the
responsibility of the Trust'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, 1994 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 14, 1995
169
VIST COMMON STOCK PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the Common Stock Portfolio's
average annual total return ("T") for the one year, five year and ten year
periods ended December 31, 1995, which have been included in the Statement of
Additional Information: In the following eqquations, "ERV" represents the
Redeemable Value at the end of each time period, "n" represents the period of
time and "P" represents the amount of the initial investment, i.e., $10,000. The
calculation assumes reinvestment of all dividends and distributions. The formula
for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Ten Year Period January 1, 1986 through December 31, 1995
n = 10
ERV = 30,281.08
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 10||30,281.08-1
---------
10,000
T = .1370894 or 13.70894%
Five Year Period January 1, 1991 through December 31, 1995
n = 5
ERV = 18,422.03
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 5||18,422.03-1
---------
10,000
T = .1298959 or 12.98959%
One Year Period January 1, 1995 through December 31, 1995
n = 1
ERV = 13,712.10
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 1||13,712.10-1
---------
10,000
170
<PAGE>
T = .37121 or 37.121%
171
<PAGE>
VIST MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the Multiple Strategies
Portfolio's average annual total return ("T") for the one year, five year and
life of Portfolio periods ended December 31, 1995, which have been included in
the Statement of Additional Information: In the following equations, "ERV"
represents the Redeemable Value at the end of each time period, "n" represents
the period of time and "P" represents the amount of the initial investment,
i.e., $10,000. The calculation assumes reinvestment of all dividends and
distributions. The formula for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Period May 6, 1987 through December 31, 1995
n = 8.66
ERV = 23,039.47
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 8.66||30,281.08-1
---------
10,000
T = .1011371 or 10.11371%
Five Year Period January 1, 1991 through December 31, 1995
n = 5
ERV = 17,964.02
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 5||17,964.02-1
---------
10,000
T = .1242239 or 12.42239%
172
<PAGE>
One Year Period January 1, 1995 through December 31, 1995
n = 1
ERV = 13,223.59
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 1||13,223.59-1
---------
10,000
T = .3223587 or 32.23587%
173
<PAGE>
VIST WORLD EQUITY PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the World Equity Portfolio's
average annual total return ("T") for the one year, five year and life of
Portfolio periods ended December 31, 1995, which have been included in the
Statement of Additional Information: In the following equations, "ERV"
represents the Redeemable Value at the end of each time period, "n" represents
the period of time and "P" represents the amount of the initial investment,
i.e., $10,000. The calculation assumes reinvestment of all dividends and
distributions. The formula for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Period June 10, 1988 through December 31, 1995
n = 6.56
ERV = 17,267.21
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 6.56||17,267.21-1
---------
10,000
T = .0749092 or 7.49092%
Five Year Period January 1, 1991 through December 31, 1995
n = 5
ERV = 17,046.77
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 5||17,046.77-1
---------
10,000
T = .1125078 or 11.25078%
One Year Period January 1, 1995 through December 31, 1995
n = 1
ERV = 12,431.76
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 1||12,431.76-1
---------
10,000
T = .2431759 or 24.31759%
174
<PAGE>
VIST GROWTH & INCOME PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the Growth & Income Portfolio's
average annual total return ("T") for the period ended December 31, 1995, which
has been included in the Statement of Additional Information: In the following
equations, "ERV" represents the Redeemable Value at the end of each time period,
"n" represents the period of time and "P" represents the amount of the initial
investment, i.e., $10,000. The calculation assumes reinvestment of all dividends
and distributions. The formula for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Period May 31, 1995 through December 31, 1995
n = .59
ERV = 11,309.50
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = .59||11,309.50-1
---------
10,000
T = .2319187 or 23.19187%
175
<PAGE>
VIST SMALL CAP PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the Small Cap Portfolio's average
annual total return ("T") for the period ended December 31, 1995, which has been
included in the Statement of Additional Information: In the following equations,
"ERV" represents the Redeemable Value at the end of each time period, "n"
represents the period of time and "P" represents the amount of the initial
investment, i.e., $10,000. The calculation assumes reinvestment of all dividends
and distributions. The formula for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Period May 4, 1995 through December 31, 1995
n = .66
ERV = 13,007.91
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = .66||13,007.91-1
---------
10,000
T = .4895041 or 48.95041%
176
<PAGE>
VIST TILT UTILITY PORTFOLIO
SCHEDULE FOR COMPUTATION OF
TOTAL RETURN FIGURES INCLUDED IN THE
STATEMENT OF ADDITIONAL INFORMATION
The following reflects the calculation of the Tilt Utility Portfolio's
average annual total return ("T") for the one year, five year and life of
Portfolio periods ended December 31, 1995, which have been included in the
Statement of Additional Information: In the following equations, "ERV"
represents the Redeemable Value at the end of each time period, "n" represents
the period of time and "P" represents the amount of the initial investment,
i.e., $10,000. The calculation assumes reinvestment of all dividends and
distributions. The formula for calculating average annual total return is:
[EXPLANATION OF AN EQUATION || = squared]
T = n||ERV-1
--
P
Period June 16, 1988 through December 31, 1995
n = 7.55
ERV = 26,362.21
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 7.55||26,362.21-1
---------
10,000
T = .1370894 or 13.70894%
Five Year Period January 1, 1991 through December 31, 1995
n = 5
ERV = 20,430.35
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 5||20,430.35-1
---------
10,000
T = .1535095 or 15.35095%
One Year Period January 1, 1995 through December 31, 1995
n = 1
ERV = 13,344.93
P = $10,000
[EXPLANATION OF AN EQUATION || = squared]
T = 1||13,344.93-1
---------
10,000
T = .3344925 or 33.44925%
177
<PAGE>
VIST Cash Management Portfolio
Current/Effective Yield Computation
7 Days Ended December 31, 1995
Current Yield = (Base period return/7 x 365)
Current Yield = (.00099074/7 x 365)
Current Yield = 0.05166 or 5.166%
Effective Yield = [(Base period return + 1)^365/7] - 1
Effective Yield = [(1.00099074)^365/7] - 1
Effective Yield = 0.05299 or 5.299%
178
<PAGE>
EXHIBIT 16
VIST HIGH INCOME PORTFOLIO
30-Day Computation
30 Days Ended December 31, 1995
A = Dividend and interest income
B = Expenses accrued for the period
C = Average daily number of shares outstanding during the period that
was entitled to receive dividends
D = Maximum offering price on the last day of the month
YIELD=2[(a-b+1) to the sixth power -1]
-----
cd
YIELD=2[(74,579.45 - 8,837.69 +1) to the sixth power -1
----------------------
974,303.64 X 8.589456
YIELD = .0961459 or 9.61459%
179
<PAGE>
EXHIBIT 16
VIST U.S. GOVERNMENT BOND PORTFOLIO
30-Day Computation
30 Days Ended December 31, 1995
A = Dividend and interest income
B = Expenses accrued for the period
C = Average daily number of shares outstanding during the period that
was entitled to receive dividends
D = Maximum offering price on the last day of the month
Yield = 2[(a-b+1) to the sixth power -1]
----
cd
Yield = 2[(58,168.85-8,124.62+1) to the sixth power -1]
----------------------
1,022,963.05X10.509766
YIELD = .0565117 or 5.65117%
180
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<NAME> VARIABLE INVESTORS SERIES TRUST
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<NAME> CASH MANAGEMENT PORTFOLIO
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<GROSS-EXPENSE> 443138
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<NAME> VARIABLE INVESTORS SERIES TRUST
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<NAME> MULTIPLE STRATEGIES PORTFOLIO
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<CIK> 0000808490
<NAME> VARIABLE INVESTORS SERIES TRUST
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<NAME> U.S. GOVERNMENT BOND PORTFOLIO
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<CIK> 0000808490
<NAME> VARIABLE INVESTORS SERIES TRUST
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<CIK> 0000808490
<NAME> VARIABLE INVESTORS SERIES TRUST
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<NAME> VARIABLE INVESTORS SERIES TRUST
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