<PAGE> 1
[FIRST VARIABLE LIFE
INSURANCE COMPANY
LOGO]
[Graphic Montage, Money, Calculator, Pen]
VIST
ANNUAL
REPORT
DECEMBER 31, 1998
<PAGE> 2
TABLE OF CONTENTS [BUILD, ENJOY, PRESERVE, LOGO]
Report of the President .............................................. 1
Management's Discussion & Analysis
Small Cap Growth ................................................... 3
World Equity ....................................................... 5
Growth ............................................................. 7
Matrix Equity ...................................................... 9
Growth & Income .................................................... 11
Multiple Strategies ................................................ 13
High Income Bond ................................................... 15
U.S. Government Bond ............................................... 17
Report of Independent Accountants .................................... 19
Schedule of Investments .............................................. 20
Statements of Assets and Liabilities ................................. 58
Statements of Operations ............................................. 60
Statements of Changes in Net Assets .................................. 62
Financial Highlights ................................................. 66
Notes to the Financial Statements .................................... 74
Federated Prime Money Fund II ........................................ F-1
<PAGE> 3
[FIRST
VARIABLE LIFE
INSURANCE COMPANY
LOGO]
February 1999
Dear First Variable Contract Holder,
I am pleased to present the annual report for the Variable Investors Series
Trust (VIST) and the Federated Prime Money Fund II. These portfolios are the
investments within your First Variable contract.
During 1998, the stock market continued to perform and larger company stocks, in
particular, showed strong returns. The Dow Jones Industrial Average was up 18%
while the broader Standard & Poor's 500 Index rose an even greater 28.6%. Global
economic events, like the turmoil in Asia and Russia and the response of the
Federal Reserve by lowering short-term interest rates three times in a
seven-week period, fueled the market's volatility and year-end upturn.
Not all types of stocks benefited from this rise, however. Stock of smaller
companies, like those held by our Small Cap Growth and World Equity Portfolios,
experienced lesser results. The Russell 2000 Index, an index of smaller
capitalization stocks, posted a return of -2.8%.
The global unrest also affected the fixed income markets. The interest rate cuts
and "flight to quality" enhanced the returns of high quality investments, and
the Salomon Broad Investment Grade Bond Index finished up 8.71% for the year.
But, other factors influenced the high yield market, and the Lehman High Yield
Bond Index gained just 1.86% during 1998.
The difference between various stock and bond returns underscores the importance
of holding a diversified investment portfolio. Your First Variable contract
offers a selection of choices to help you and your investment professional
construct a well-balanced portfolio.
Thank you for your continued business. We look forward to helping you BUILD
wealth, ENJOY income, and PRESERVE assets for many years to come.
Sincerely,
/s/ John M. Soukup
---------------------------------------
John M. Soukup
President,
Variable Investors Series Trust
<PAGE> 4
SMALL CAP GROWTH PORTFOLIO PILGRIM BAXTER & ASSOCIATES, LTD.
[PILGRIM BAXTER LOGO]
OBJECTIVE
Seeks capital appreciation by investing primarily in common stocks of emerging
companies with the potential for significant capital appreciation and strong
earnings growth with attendant risk. The Portfolio normally invests at least 65%
of assets in common stocks and convertible securities issued by companies with
market capitalization or annual revenues not exceeding $1 billion at the time of
purchase.
- --------------------------------------------------------------------------------
SMALL CAP GROWTH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year (3.12)%
5 Year N/A
Since Inception* 14.04%
*May 4, 1995
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
Network Appliance, Inc. 2.71% 12.78%
Insight Enterprises, Inc. 2.54% 11.98%
Transaction Systems Architects, Inc. 2.53% 11.94%
Tetra Tech, Inc. 2.25% 10.62%
International Network Services 2.00% 9.44%
Legato Systems, Inc. 1.94% 9.15%
Vitesse Semiconductor Corporation 1.93% 9.13%
Alternative Living Services, Inc. 1.78% 8.41%
Uniphase Corporation 1.75% 8.28%
Medicis Pharmaceutical Corporation 1.75% 8.27%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
--------------------------------------------------------------------
<S> <C>
Software-Client/Server 7.31%
Networking Software 6.79%
Systems Integrator 6.61%
Commercial Services 5.61%
Telecommunication Equipment 3.37%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
For all the trials and tribulations that 1998 had to offer the small cap
investor, it may have appeared rather uninspiring to see the year end basically
flat with our respective index. Flat would imply a relatively stable and
potentially boring year; unfortunately, that would not adequately describe 1998.
In the context of a volatile year, it should be somewhat comforting to know that
we were not swayed from our discipline, we continue to look for the companies
exhibiting our treasured high rates of growth, with low debt and the ability to
beat Wall Street's expectations. There is certainly no shortage of dynamic
growth companies fitting our desired characteristics; however, our style
suffered in a market dominated by the myopic need for liquidity, seemingly at
any cost.
The best that you can say about 1998 for small caps is that it was extraordinary
in its volatility. The year through April 21 was one of inline performance to
the market and our index. Participants shrugged off worries about Asia and the
impact of a (then) potentially impeached President. Our market was deemed the
"oasis of prosperity" in an increasingly unpredictable world environment. Large
cap, "brand name" stocks began to regain the prestige that they had enjoyed in
1997. The market's apathy towards major news events of the day collapsed under
it's own weight and turned decidedly negative in the summer time frame.
The unpredictable nature of the country's smallest and fastest growing companies
can often fill those that step into their raging waters with a plethora of
feelings. The gut-wrenching agony that aggressive growth managers endured from
April 21 through October 8 was nothing short of historic. The
Special risks due to small size such as limited markets and financial resources
should be considered when investing in small cap stocks.
3
<PAGE> 5
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
market was roiled by fears of deflation, uncertainty about global markets after
a Russian devaluation, the persistent Asian contagion, the effect of Long Term
Capital's derivative losses, and the impact of a President who had gone from
lame duck to dead duck. Given the enduring rise in market volatility, company
size (hence liquidity) proved to be the performance lynch pin. Risk premiums
exploded to the upside, wreaking havoc on our style. By almost any measure, we
were setting new lows; the degradation of relative valuations to the larger
stocks eclipsed the lows set in similarly extreme environments of 1987 and 1990.
By October 8, the value destruction in the smaller stocks, and the market as a
whole, had run its course. The Federal Reserve, via three interest rate
reductions, had shown a clear and present willingness to do what it could to
take risk out of the system and steady the course for America in turbulent
global waters. The reaction in our portfolios was nothing short of explosive.
Timing when a style will or will not be in favor is not our mantra. We focus on
being fully invested in our discipline at all times; we pay for that discipline
when times are rough, but fully participate when the tide moves our way. Our
consistent above average weighting in technology helped give our portfolios an
added push off of the bottom.
The leading question for many at this juncture is whether the recent move is a
tactical bounce or a strategic opportunity. For those that remember the glory
years of 1991-93, this question is by no means trivial. We are very constructive
in our 1999 outlook. Even with the strong move from the bottom, small caps still
trade at both a relative and absolute discount to their large cap brethren. The
key is not just valuation, but relative earnings growth as well. The last time
the market witnessed a slowdown in the S&P 500 earnings was in 1990; earnings
growth peaked for the S&P 500 in the first quarter of 1997. The Russell 2000 has
underperformed the S&P 500 for the 5th year in a row, this is a post World War
II record. As extreme liquidity demand begins to decline, the inevitable search
for growth and valuations will drive investors towards small cap stocks. Over
the long term, we know that earnings, not liquidity, drive stock prices. We
believe in earnings. They say that nobody rings a bell at the bottom of the
market, but the music in our sector certainly has changed since October 8.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP GROWTH
PORTFOLIO AND THE RUSSELL 2000 INDEX*
[PERFORMANCE GRAPH #1]
SMALL CAP RUSSEL 2000
GROWTH INDEX
MAY 14, 1995 10,000 10,000
JUN 30, 10,939 10,676
SEP 30, 12,593 11,731
DEC 31, 1995 13,008 11,985
MAR 31 14,439 12,600
JUN 30 16,705 13,230
SEP 30 17,587 13,275
DEC 31, 1996 16,582 13,965
MAR 31 13,401 13,242
JUN 30 16,540 15,655
SEP 30 18,778 17,984
DEC 31, 1997 16,703 17,382
MAR 31 18,207 19,127
JUN 30 16,690 18,234
SEP 30 12,901 14,560
DEC 31, 1998 16,180 16,934
* This Index is an unmanaged index in which investors cannot invest. Results
for the Index do not reflect the expenses and investment management fees
incurred by the Portfolio. Past performance is not predictive of future
performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Life of
Year Portfolio***
------- ------------
<S> <C> <C>
Small Cap Growth Portfolio (3.12)% 14.04%
</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 Growth
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 distributions. Performance numbers
are net of all 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)
4
<PAGE> 6
WORLD EQUITY PORTFOLIO EVERGREEN INVESTMENT
[EVERGREEN INVESTMENT LOGO]
OBJECTIVE
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. This objective per First Variable's
instruction, is to be obtained via international "blue chips" and domestic U.S.
small cap stocks.
- --------------------------------------------------------------------------------
WORLD EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 5.11%
5 Year 12.18%
10 year 8.78%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
Novartis AG 2.60% 13.09%
Nestle S.A. 2.07% 10.43%
Unilever N.V. 2.04% 10.28%
Karstadt AG 2.01% 10.11%
Lindt & Spruengli 1.97% 9.91%
Arnoldo Mondadori Editore SPA 1.97% 9.88%
National Australia Bank 1.93% 9.70%
Astra AB 1.90% 9.53%
Diageo Plc 1.71% 8.59%
Compass Group 1.69% 8.48%
<CAPTION>
TOP 5 COUNTRIES
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
United States 36.00%
United Kingdom 15.94%
Switzerland 8.84%
France 7.27%
Netherlands 5.66%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
INTERNATIONAL COMMENTARY
Our strategy has focused on (1) being "overweight" in European equities, (2)
being significantly "underweight" in Asia, Japan, Latin America, Russia, and
emerging markets in general, and (3) our willingness to go to cash to avoid
excessive volatility.
We currently have approximately 52% of the Portfolio invested in Europe. Our
largest European country weights are the UK (16%), Switzerland (9%), and France
(7%). We expect the recent trends of lower interest rates, restructurings, and
M&A to continue.
Japan has continued to be very difficult. Recent yen strength has meant that
large blue-chip exporters have suffered recently. The yen appreciated from
136.45/1 US dollar on 9/30/98, to 113.60 on 12/31/98, a change of 20% in three
months. We believe the change has taken place because of the large U.S. current
account deficit, which is expected to grow to about 4% of GDP by the end of
1999. A second reason is that the rate differential between U.S. and Japanese
bonds narrowed recently because Japanese rates increased from 0.5% to about
1.8%. Finally, a third reason is that investors are still long the U.S. dollar
and short the yen. Some of these positions are being unwound. Our weight in
Japan is about 3.5%. We have sold some of the exporters, but maintain a 25%
currency hedge on our Japanese holdings. Additionally, the Fund has
approximately 5% in the markets of Australia and Canada. Our positions in these
markets are primarily focused on their banking/financial sectors. Our industry
positions are focused on pharmaceuticals (12%), publishing (9%), foods (7%),
beverages (6%) and banking (6%). These are sectors generally noted for their
defensive qualities.
Special risks such as currency fluctuations and political changes should be
considered when investing internationally.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
We believe Europe will continue to outperform other markets. Low interest rates,
low inflation, abundant liquidity, creation of the European Monetary System,
continued restructuring and M&A activity, and good liquidity should help these
markets deliver good performance in 1999. We expect their economies to grow
about 2% on average, enough to provide companies with good earnings and profit
growth. Valuation levels are at about fair value.
DOMESTIC SMALL-CAP COMMENTARY
Within United States based small companies, the Internet frenzy dominated the
headlines. The space was hard to ignore, as several companies came public to see
their shares triple or quadruple in value. While the huge returns generated by
these "highfliers" can be seductive, they come with an equal amount of risk.
We do believe that the Internet is a real and viable means of doing business.
However, we also believe that the valuations of some of the companies are
extreme, to say the least. We have focused our efforts on those companies that
facilitate web-based activities. We are much more comfortable with these
holdings as they have well-defined, sustainable business models and add
significant value to their customers.
As we enter 1999, we see these possible scenarios unfolding. Most likely is a
continuation of a recent resurgence. The compelling valuations of small
companies, coupled with significant money flows from asset re-allocations and
new investments are powerful drivers. The second scenario entails broadening
economic activity, with earnings increases benefiting stocks in a variety of
industries. However, there are still significant risks as we enter 1999.
Although policy makers have acknowledged the difficulties of Southeast Asia and
South America, their problems are not yet solved. A third scenario would be the
recurrence of the concerns that beset the market in 1998. We will remain
vigilant in managing the risks ahead. There are great opportunities for
individual companies involved with the Internet, telecommunications,
semiconductors, healthcare, and business services. We look forward to 1999.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE WORLD EQUITY
PORTFOLIO AND THE MSCI WORLD INDEX*
[PERFORMANCE GRAPH #2]
WORLD MSCI WORLD
EQUITY INDEX
APR 1, 1994 10,000 10,000
JUN 30, 9,830 10,301
SEP 30, 10,523 10,522
DEC 31, 1994 10,707 10,447
MAR 31 10,921 10,957
JUN 30 11,806 11,375
SEP 30 13,312 11,849
DEC 31, 1995 13,310 12,329
MAR 31 13,721 12,772
JUN 30 14,646 13,131
SEP 30 14,263 13,187
DEC 31, 1996 14,956 13,666
MAR 31 14,544 13,749
JUN 30 16,506 15,728
SEP 30 17,645 16,022
DEC 31, 1997 16,449 15,391
MAR 31 18,895 17,595
JUN 30 19,078 17,952
SEP 30 15,329 15,799
DEC 31, 1998 17,290 19,135
* This Index is an unmanaged index in which investors cannot invest. Results for
the Index do not reflect the expenses and investment management fees incurred by
the Portfolio. Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
World Equity Portfolio 5.11% 12.18% 8.78%
</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 include changes in share price and
reinvestment of dividends and capital gains distributions. Performance numbers
are net of all Portfolio 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. Prior to April 1, 1994 results were achieved
by different portfolio managers.
6
<PAGE> 8
GROWTH PORTFOLIO VALUE LINE, INC.
[VALUE LINE LOGO]
OBJECTIVE
Seeks capital growth by investing primarily in common stocks and securities
convertible into common stock. Also seeks current income when consistent with
the primary 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.
- --------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 33.29%
5 Year 23.04%
10 Year 17.42%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
EMC Corporation 3.86% 11.84%
Cisco Systems, Inc. 3.77% 11.58%
Tellabs, Inc. 3.68% 11.28%
Microsoft Corporation 3.35% 10.28%
Pfizer, Inc. 3.33% 10.21%
America Online, Inc. 3.21% 9.84%
Dell Computer Corporation 2.93% 9.00%
Omnicom Group 2.87% 8.81%
Schering Plough Corporation 2.86% 8.79%
Intel Corporation 2.72% 8.37%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
Computer Related 16.72%
Computer Software 14.16%
Drugs 10.72%
Financial Services 9.01%
Medical Supplies & Services 5.64%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
The portfolio enjoyed a banner year in 1998, benefiting from a strong
orientation toward the large capitalization sector of the market. The Portfolio
had a total return of 33.29%, significantly outperforming the Standard & Poor's
500 Index return of 28.57%. During the fourth quarter alone, the Portfolio
appreciated 27.31%, compared with 21.28% for the Index.
The market was characterized by extreme volatility caused by myriad global
economic events, not the least of which were growing worries about Asia,
Russia's devaluation of its currency and default on government loans, and
concern that the Asian contagion would spread to Latin America. Domestically,
the near collapse and subsequent bailout of the hedge fund, Long Term Capital
Management, and the threat of presidential impeachment hearings created havoc.
The DJIA rose 18% to 9,338 between the beginning of 1998 and July 17th. A
precipitous decline ensued as problems surfaced in Russia, taking the index down
almost 20% to a low of 7,539 on August 31. The subsequent rebound, spurred, in
part, by the Federal Reserve Board's accommodative monetary stance, brought the
DJIA to a new high of 9,374 late in November.
Despite the roller coaster ride in the capital markets, the US economy remained
on course. Economic growth (as measured by real Gross Domestic Product, or GDP)
continued, inflation remained at bay, long-term interest rates moved lower, and
corporate profits were on the rise. In the face of worldwide deflationary
forces, the Federal Open Market Committee (FOMC) lowered short-term interest
rates over a seven-week period with three rate cuts of 25 basis points each,
bringing the fed funds rate down to 4.75%.
Throughout most of 1998, large-cap stocks outpaced smaller-cap companies.
Technology, healthcare, and consumer cyclicals were the best-performing S&P 500
sectors, up 74.3%, 44.1%, and 29.6%, respectively. Much of the outstanding
performance of the S&P 500 was due to a fairly small number of
7
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
stocks, including such names as Microsoft, Intel, and Dell Computers -- all
prominent holdings in the Portfolio. Some of the other technology outperformers
were America Online in the Internet area, EMC, a data storage company, and IBM.
In addition to technology, which was the best-performing S&P 500 industry during
the quarter, as well as year-to-date, was the healthcare sector, where the
Portfolio holds such stand-outs as Pfizer and Schering-Plough, two large
pharmaceutical companies, and Guidant, a medical supply firm specializing in
cardiovascular products. A third sector that boosted performance was consumer
cyclicals, with holdings in several retail giants, like the Gap, Home Depot, and
Staples. A significant weighting in financials, a sector in which the Portfolio
holds such superior performers as Firstar, a Midwest regional bank (formed by
the merger of Star Banc and Firstar), SunAmerica, an annuity company (now merged
with the insurance concern, American International Group), and Freddie Mac, a
government-sponsored enterprise that maintains a secondary market in residential
mortgages by securitizing and guaranteeing such loans (previously Federal Home
Loan Mortgage Corp.), also benefited the Portfolio's returns.
As of December 31, 1998, our heaviest sector weightings were Computer Related
(16.72%), Computer Software (14.16%), Drugs (10.72%), and Financial Services
(9.01%) , all of which were overweighted relative to the benchmark index. Top
ten holdings included EMC, Cisco Systems, Tellabs, Microsoft, America Online,
Dell Computers, and Intel in the technology sector, Pfizer and
Schering-Plough in healthcare and Omnicom -- the world's largest advertising
company -- in consumer cyclicals.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GROWTH PORTFOLIO
AND THE S&P 500 INDEX *
[PERFORMANCE GRAPH #3]
GROWTH S&P 500
APR 1, 1994 10,000 10,000
JUN 30, 9,393 9,966
SEP 30, 10,141 10,380
DEC 31, 1994 10,264 10,303
MAR 31 10,834 11,305
JUN 30 12,461 12,383
SEP 30 14,180 13,365
DEC 31, 1995 14,075 14,169
MAR 31 15,209 14,930
JUN 30 15,970 15,599
SEP 30 16,924 16,081
DEC 31, 1996 17,708 17,420
MAR 31 16,850 17,889
JUN 30 19,920 21,009
SEP 30 22,475 22,582
DEC 31, 1997 21,891 23,231
MAR 31 23,984 26,469
JUN 30 25,037 27,342
SEP 30 22,919 24,627
DEC 31, 1998 29,178 29,868
* This Index is an unmanaged index in which investors cannot invest. Results for
the Index do not reflect the expenses and investment management fees incurred by
the Portfolio. Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
Growth Portfolio 33.29% 23.04% 17.42%
</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 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 distributions. Performance numbers
are net of all 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. Prior to April 1, 1994 results were achieved by different
portfolio managers.
8
<PAGE> 10
MATRIX EQUITY PORTFOLIO STATE STREET
GLOBAL ADVISORS
[STATE STREET
LOGO]
OBJECTIVE
Seeks capital appreciation and current income by investing in a diversified
portfolio of equity securities that are selected on the basis of a proprietary
analytical model.
- --------------------------------------------------------------------------------
MATRIX EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 21.11%
5 Year 15.35%
10 Year 14.58%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
Intl. Business Machines Corporation 3.49% 13.29%
Intel Corporation 2.98% 11.37%
AT&T Corporation 2.94% 11.21%
Microsoft Corporation 2.93% 11.16%
General Electric Company 2.75% 10.49%
Wal-Mart Stores, Inc. 2.49% 9.48%
Oracle Corporation 2.27% 8.64%
Bristol Myers Squibb Company 2.23% 8.48%
Amgen, Inc. 2.16% 8.24%
Ford Motor Company 2.00% 7.64%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
Computer Related 9.80%
Telecommunications 9.46%
Drugs 7.95%
Retail 5.30%
Insurance 4.93%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
Our unrelenting investment philosophy rests on a process that purchases
undervalued stocks with increasing growth potential. The Matrix Equity Strategy
uses two independent valuation measures - value and estimate revision - to
identify the most attractive investment opportunities within the Russell 1000
universe. We believe that the most effective way to evaluate the return
potential of a security is to look at its current relative value and future
earnings potential.
To meet the Strategy objective, our investment process combines proven stock
selection capability with a refined, proprietary portfolio construction
methodology. We seek to control and diversify the active exposures in the
Portfolio relative to the S&P 500 Index by controlling sector and industry
weights, stock-specific weights, and the market capitalization, beta and yield
of the Portfolio. Specifically, capitalization is controlled by a method which
approximates a weighted median cap constraint. Additionally, individual security
specific weights are controlled relative to the benchmark weight.
In a very difficult year in which almost 90% of all active equity mutual fund
managers lagged the S&P 500 Index, the Matrix Equity Strategy posted a 21.11%
return, versus 28.6% for the Index, equating to 7.5% underperformance. While
this Strategy return pales in comparison to that of the Index, the Lipper Growth
and Income Average for the year was, relative to the Index, "merely" 15.6%
(net).
The bulk of the year's underperformance relative to the benchmark was caused
late in the third quarter, as the turmoil in the world capital markets had a
deleterious effect on financials, primarily large money centers. For the third
quarter, almost the entire underperformance of
9
<PAGE> 11
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
the Strategy was caused by: Lehman Brothers, FirstPlus, Morgan Stanley, Chase
Manhattan and BankAmerica. The downside volatility experienced in the U.S.
equity market over the third quarter was the greatest since 1990, during the
start of the Gulf War. During such periods of extreme downside volatility in
which the bulk of the Index returns are garnered by very few individual
securities, our investment process cannot isolate our individual even risk given
the objective, broad and diversified nature of our investment process.
The equity market recovered over the quarter, recouping its October 8 intra-day
low within six weeks, the most powerful period since the bull market's launch in
1982.
Sectors contributing to outperformance for the quarter include: health care
(Wellpoint Health, Arterial Vascular), technology (Lucent, Honeywell, Intel),
capital goods (Caterpillar) and, to a lesser extent, utilities. At the industry
level, quarterly returns were assisted by Strategy stock selection in banks
(Chase Manhattan, Fleet Financial, BankAmerica), computer hardware (Lexmark, Sun
Microsystems), drugs/medicine (Amgen, Bergen Brunswig, Bristol Myers Squibb),
energy production (Mobil, Exxon), defense/aerospace (Gulfstream, Lockheed
Martin), brokers/asset management (Lehman Brothers, Morgan Stanley) and apparel
(TJX, Ross Storos).
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MATRIX EQUITY
PORTFOLIO, THE S&P UTILITY INDEX* AND SINCE MAY 1, 1997 THE S&P 500 INDEX*
[PERFORMANCE GRAPH #4]
MATRIX S&P UTILITY S&P 500
EQUITY INDEX INDEX
MAY 14, 1994 10,000 10,000 10,000
JUN 30, 9,940 9,987 9,987
SEP 30, 10,180 10,076 10,076
DEC 31, 1994 10,009 9,821 9,921
MAR 31 10,604 10,484 10,484
JUN 30 11,153 11,259 11,259
SEP 30 12,369 12,521 12,521
DEC 31, 1995 13,357 13,923 13,923
MAR 31 12,989 13,260 13,260
JUN 30 13,446 13,974 13,974
SEP 30 12,835 13,503 13,503
DEC 31, 1996 13,973 14,403 14,403
MAR 31 13,767 14,026 14,026
JUN 30 15,284 15,366 15,365
SEP 30 17,057 16,516 16,516
DEC 31, 1997 17,055 16,990
MAR 31 19,342 19,359
JUN 30 19,607 19,998
SEP 30 16,941 18,012
DEC 31, 1998 20,656 21,845
* These Indices are an unmanaged indices in which investors cannot invest.
Results for the Indices do not reflect the expenses and investment management
fees incurred by the Portfolio. Effective May 1, 1997, the benchmark for the
Matrix Equity Portfolio is the S&P 500 Index. Past performance is not
predictive of future performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
Matrix Equity Portfolio 21.11% 15.35% 14.58%
</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 Matrix 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 distributions. Performance numbers
are net of all Portfolio 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. Prior to April 1, 1994 results were
achieved by different portfolio managers.
10
<PAGE> 12
GROWTH & INCOME PORTFOLIO WARBURG PINCUS ASSET MANAGEMENT, INC.
[WARBURG PINCUS LOGO]
OBJECTIVE
Seeks long-term growth of capital and income and a reasonable current return by
investing primarily in dividend-paying common stocks, convertibles, and readily
marketable securities that derive their value from common stocks, as well as
fixed income securities. The Portfolio does not strive to maintain a specific
balance of stocks, bonds, and money market instruments. Instead the manager
selects the industry sectors and individual securities he believes have the
highest potential for attractive total returns.
- --------------------------------------------------------------------------------
GROWTH & INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 12.43%
5 Year N/A
Since Inception* 18.32%
* May 31, 1995
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
Intl. Business Machines Corporation 2.63% 12.55%
Philip Morris Companies, Inc. 2.30% 10.99%
British Petroleum Plc ADR 2.13% 10.19%
Federated Department Stores, Inc. 2.13% 10.17%
AT&T Corporation 2.03% 9.71%
Citigroup, Inc. 2.02% 9.66%
Unova, Inc. 1.98% 9.48%
Anheuser-Busch Companies, Inc. 1.96% 9.36%
Ford Motor Company 1.94% 9.27%
Bell Atlantic Corporation 1.80% 8.62%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
Financial Services 10.62%
Telecommunications 7.78%
Aerospace & Defense 6.69%
Food & Beverages 5.17%
Retail Trade 5.14%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
The Portfolio had a gain of 12.43% for the year, vs. gains of 13.58% for the
Lipper Growth & Income Funds Index and 28.57% for the S&P 500 Index. The
Portfolio's underperformance compared to the latter reflected investors' general
preference for growth stocks, in particular large-cap growth stocks, which have
outpaced the market's advance for several years now. Consistent with our value
bias, we continued to largely avoid such issues in favor of value-type stocks we
deemed to have attractive risk-adjusted prospects.
We made few noteworthy adjustments to the Portfolio during the quarter in terms
of sector exposure. We remained well diversified, seeing little incentive to
heavily overweight specific areas, given generally narrow stock valuations
across market sectors.
Our largest area of concentration remained the financial-services sector.
Changes we made here worthy of mention included reducing our weighting in Lehman
Brothers (1.03%). We established a significant position in August, when the
stock came under heavy selling pressure on concerns over balance sheet risk in
general. In Lehman's case, we believed these concerns were exaggerated, hence
our decision to buy. Our subsequent decision to reduce the position somewhat was
strictly valuation based, given the stock's strong October/November rally. One
financial-services stock we added during the fourth quarter was Household
International (0.59%). The move reflected our continued shift away from
insurance and mortgage-services stocks (e.g., Freddie Mac) and toward brokerage
and consumer-lending stocks (Household is a consumer lender serving the middle
tier of the market), where we generally saw better values.
We also maintained significant weighting in the food, beverages & tobacco sector
(5.17%), focusing primarily on food companies undergoing some form of
restructuring. A representative holding in this regard was Keebler Foods
(1.19%), which has continued to
11
<PAGE> 13
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
lower its distribution costs and increase sales of its higher-margin products.
Elsewhere, we had a weighting in the retail sector (5.14%), one we increased in
the final weeks of the quarter. In general, our positive view on the longer-term
prospects for retail stocks is based on the industry's improved
inventory-management skills and these stocks' reasonable valuations. Two names
we added here were Ross Stores (0.65%) and TJX Companies (0.98%), both apparel
retailers.
In aggregate, we reduced our position in certain integrated multinational stocks
on a valuation basis. Somewhat offsetting this adjustment was establishing a
position in Royal Dutch. Royal Dutch's current valuation reflects the
inconsistent results the company has reported over the last couple of years.
However, we believe that recently announced restructuring actions will yield
improved profits and returns in the near future. Note that we eliminated our
exposure to independent exploration and production companies, a move based
largely on two factors. One, we believe that low energy prices will limit these
companies' ability to finance the new exploration projects on which their growth
depends. Secondly, independent energy companies appear less likely to be
acquisition candidates anytime soon, given the current merger activity among
large oil companies.
Looking out over the next several months, we believe that while stock valuations
have generally returned to their mid-1998 highs, many attractive investment
opportunities exist. In this context, areas we are currently scrutinizing for
buying opportunities include certain industrial- and commodity-type sectors
where valuations are depressed, absolutely and relative to the broader market,
and where there exists significant operating leverage when underlying
fundamentals begin to improve. As ever, our overall focus will remain devoted to
identifying stocks we believe have the best risk-adjusted expected returns,
given their current valuations and fundamental prospects.
OUTLOOK
Looking ahead to the next several months, we believe the stock market
will continue to be characterized by generally lofty equity valuations and
considerable volatility. Set within this environment, we continue to place a
premium on risk management for the portfolio as a whole. As a result, individual
stock selection remains critical, and we will continue to hold only those stocks
we deems have the best longer-term risk-adjusted performance potential.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GROWTH & INCOME
PORTFOLIO AND THE S&P500 INDEX*
[PERFORMANCE GRAPH #5]
GROWTH & S&P 500
INCOME INDEX
MAY 14, 1995 10,000 10,000
JUN 30, 10,152 10,232
SEP 30, 11,145 11,043
DEC 31, 1995 11,310 11,708
MAR 31 12,747 12,337
JUN 30 12,907 12,890
SEP 30 12,162 13,288
DEC 31, 1996 12,680 14,395
MAR 31 12,833 14,782
JUN 30 14,608 17,360
SEP 30 16,139 18,660
DEC 31, 1997 16,257 19,185
MAR 31 18,121 21,872
JUN 30 18,324 22,593
SEP 30 15,671 20,350
DEC 31, 1998 18,279 24,680
* This Index is an unmanaged index in which investors cannot invest. Results for
the Index do not reflect the expenses and investment management fees incurred by
the Portfolio. Past performance is not predictive of future performance. Average
Annual Total Returns** Periods ended December 31, 1998
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Life of
Year Portfolio***
------ ------------
<S> <C> <C>
Growth & Income Portfolio 12.43% 18.32%
</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 distributions. Performance numbers
are net of all 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)
12
<PAGE> 14
MULTIPLE STRATEGIES PORTFOLIO VALUE LINE, INC.
[VALUE LINE LOGO]
OBJECTIVE
Seeks as high a level of total return over an extended period of time as is
consistent with prudent investment risk by investing in equity securities, bonds
and money market instruments in varying proportions, depending upon prevailing
economic and financial market conditions.
- --------------------------------------------------------------------------------
MULTIPLE STRATEGIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 29.15%
5 Year 18.79%
10 Year 15.52%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
FNMA, 5.75%, 06/15/2005 3.58% 12.43%
Cisco Systems, Inc. 3.08% 10.69%
Tellabs Inc. 3.02% 10.51%
EMC Corporation 2.96% 10.30%
USTB, 7.25%, 08/15/2022 2.87% 9.99%
Microsoft Corporation 2.87% 9.98%
Pfizer, Inc. 2.85% 9.89%
America Online, Inc. 2.59% 8.99%
HBO & Company 2.51% 8.73%
FNMA, 6.00%, 05/15/2008 2.44% 8.49%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
Computer Related 13.74%
Computer Software 12.16%
Drugs 9.00%
Financial Services 7.69%
Federal Agencies 6.02%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
For the year ended December 31, 1998, the Multiple Strategies Portfolio returned
29.15%, compared with 20.90% for the composite benchmark, consisting of 60% S&P
500/40% Lehman Government Corporate Bond Index. The equity holdings in the
Multiple Strategies Portfolio mirror those of the Growth Portfolio. Our heaviest
sector weightings are in technology, financials, healthcare, and consumer
cyclicals, sectors that are relatively more attractive in terms of
above-trendline growth patterns.
The Portfolio benefited from a strong rally in the bond market beginning in May
and picking up momentum at the end of July as the economic problems in Russia
unfolded. This was further fueled by the Fed's accommodative monetary posture as
it began to lower short-term rates at the end of September. In a flight to
quality, investors drove the yield down on the 30-year Treasury from a high of
over 6% in April to a low of 4.7% in October, the first time that bond yields
fell below 5% since 1967. Given the significant rally in the bond market during
the year, we have actively moved a greater proportion of the Portfolio's assets
from fixed income into equities. As of December 31, 1998, the Portfolio was
85.0% invested in common stocks, 12.7% in bonds with a mixture of high-grade
corporates, government, and government agencies, and 2.3% in short-term
securities.
Our economic outlook for 1999 remains constructive. Steady growth and low
inflation continue to be two of the dominant themes in the domestic economy at
this time. This is underscored by reports that show persisting strength in
consumer spending, housing
13
<PAGE> 15
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
construction, personal income, and employment. Such trends suggest that the
economy will expand by upwards of 3.0% during the opening quarter of 1999. At
the same time, inflation remains muted, with producer and consumer price
increases still modest, overall, and with selective industrial sectors finding
it difficult to implement price increases. In some instances, prices are
actually falling.
At this point, we believe the modest pace of economic activity will continue
over the next several months, with growth holding in the range of 2.0-2.5% for
much of 1999. Our sense is that the global crisis still afflicting much of Asia
and parts of Latin America (in particular, Brazil) will gradually recede over
the next 12 to 18 months. At the same time, we expect inflation to remain
subdued in the area of 1.0-1.5%. However, should the situation overseas
deteriorate to such an extent that a further easing in monetary policy becomes
necessary, the continuing absence of inflation with give the Fed the latitude it
needs to lower interest rates. On the other hand, we would not expect the Fed to
increase rates until, perhaps next year, and then only if growth or inflation
unexpectedly increases materially beyond current ranges.
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*
[PERFORMANCE GRAPH #6]
MULTIPLE LEHMAN BROS.GOV'T/ S&P 500
STRATEGIES CORP BOND INDEX INDEX
APR 1, 1994 10,000 10,000 10,000
JUN 30, 9,364 9,876 9,966
SEP 30, 9,913 9,925 10,380
DEC 31, 1994 9,974 9,962 10,303
MAR 31 10,475 10,458 11,305
JUN 30 11,845 11,136 12,383
SEP 30 13,154 11,343 13,365
DEC 31, 1995 13,189 11,872 14,169
MAR 31 13,884 11,594 14,930
JUN 30 14,351 11,648 15,599
SEP 30 15,053 11,854 16,081
DEC 31, 1996 15,609 12,217 17,420
MAR 31 15,008 11,875 17,889
JUN 30 17,212 12,525 21,009
SEP 30 19,151 13,221 22,582
DEC 31, 1997 19,011 13,991 23,231
MAR 31 20,380 14,191 26,469
JUN 30 21,224 14,792 27,342
SEP 30 20,033 15,525 24,627
DEC 31, 1998 24,553 15,545 29,868
* These Indices are unmanaged indices in which investors cannot invest.
Results for the Indices do not reflect the expenses and investment management
fees incurred by the Portfolio. Past performance is not predictive of future
performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
Multiple Strategies Portfolio 29.15% 18.79% 15.52%
</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 distributions. 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. Prior to April 1, 1994 results were achieved by different
portfolio managers.
14
<PAGE> 16
HIGH INCOME BOND PORTFOLIO FEDERATED INVESTMENT COUNSELING, INC.
[FEDERATED INVESTMENT LOGO]
OBJECTIVE
Seeks a high level of current income while secondarily seeking capital
appreciation 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 to be of comparable quality.
- --------------------------------------------------------------------------------
HIGH INCOME BOND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 3.04%
5 Year 8.12%
10 Year 10.23%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
Tenet Healthcare Corporation 1.43% 12.24%
Level 3 Communications, Inc. 1.39% 11.89%
GS Escrow Corporation 1.38% 11.82%
TeleWest Plc 1.37% 11.68%
Revlon Corporation 1.18% 10.11%
Ameriserve Food Dist., Inc. 1.02% 8.69%
Outdoor Systems Inc. 1.00% 8.54%
Hermes Europe Railtel B.V. 0.99% 8.47%
Fox/Liberty Networks LLC 0.97% 8.29%
Collins & Aikman Products Co. 0.97% 8.27%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
Telecommunications 11.53%
Telecommunications & Cellular 10.93%
Cable Television 10.78%
Broadcast Radio & Television 9.06%
Industrial Products & Equipment 5.19%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
The 12 months ending December 31, 1998 were marked by volatility and generally
disappointing returns from a high yield bond perspective. There were several
reasons for the volatility and disappointing returns. First, the problems in the
international arena and, more importantly, their impact on the domestic economy
caused concern for high yield investors. At the start of the year, Asia was the
main concern, but this spread to Russia and Latin America as the year
progressed. Also, the stock market swoon in the mid-summer and hedge fund
problems in the latter part of the year highlighted the somewhat fragile state
of the world financial system. Falling commodity prices, while good for
consumers, are a negative for high yield companies in the energy, forest
products, metals and mining sectors. Finally, the economic consensus in the
latter part of 1998 pointed to a slowing of the domestic economy in 1999. These
factors caused the yield to spread between high yield bonds and treasury
securities, an indicator of the market's perceived default risk, to increase by
approximately 280 basis points during the year. These factors caused high yield
bonds to underperform high quality bonds. For example, the Lehman Brothers High
Yield Bond Index returned 1.87%, substantially underperforming the Lehman
Brothers Aggregate Bond Index, a measure of high quality bond performance, which
returned 8.67%.
High yield bonds are subject to greater risk of principal and income than higher
quality bonds.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
The Portfolio returned 3.04% for the year, outperforming both the Lehman
Brothers High Yield Bond Index mentioned above, as well as the Lipper High
Current Yield Fund Average, which returned -0.44% during the year. Several
factors positively impacted the fund's returns during the year. First, the fund
was underweight CCC-rated securities, the lowest quality sector of the market,
which was most impacted by the spread widening that occurred. The fund had no
direct exposure to emerging markets, which negatively impacted several of the
funds in the Lipper average. The fund was also underweight energy and commodity
related issues, which underperformed during the year. Overweighting in the
telecommunications, broadcasting and cable TV sectors aided performance, as
these sectors outperformed the overall market. Corporate actions, such as calls,
tenders or acquisition activity involving Viacom, Echostar, Charter
Communications, Sygnet, Simmons, Vanguard Cellular and Allied Waste positively
impacted performance.
As we look out into 1999, many contradicting factors are present. On the
negative side, concerns continue regarding the domestic economy's ability to
continue to grow while many of our trading partners, such as Japan, most of Asia
and parts of Latin America, experience economic problems. Falling commodity
prices continue to present problems for specific high yield issuers. The
uncertainty of Y2K and ".com mania" in the equity markets are also causes for
concern. On the plus side, the consensus economic forecast sees the domestic
economy continuing its remarkable growth for another year, although at a
somewhat slower pace. Inflation remains almost non-existent and interest rates
are low. The Fed would appear ready to counteract any signs of recession with
further cuts in interest rates. Most importantly, the yield spread between high
yield bonds and treasury securities remains very wide, especially in light of
the amazing resilience of the domestic economy. Overall, wide spreads and
positive economic growth should make 1999 a good year for high yield securities,
although security selection will be key as slowing growth and little pricing
power, especially in the commodity area, will make for a challenging environment
for many high yield issuers. We maintain our bias toward high quality operating
companies within the high yield market, to companies in secularly growing
industries, such as telecommunications and companies in sectors with stable
business profiles like food products, cable TV, and broadcasting.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH INCOME BOND
PORTFOLIO, FIRST BOSTON HIGH YIELD INDEX AND THE LEHMAN BROTHERS SINGLE "B"
INDEX*
[PERFORMANCE GRAPH #7]
HIGH INCOME LEHMAN BROTHERS FIRST BOSTON
BOND SINGLE "B" INDEX HIGH YIELD INDEX
APR 1, 1994 10,000 10,000 10,000
JUN 30, 9,906 10,010 9,856
SEP 30, 9,879 10,198 10,014
DEC 31, 1994 9,655 10,215 10,010
MAR 31 10,167 10,745 10,481
JUN 30 10,729 11,299 11,089
SEP 30 11,102 11,641 11,423
DEC 31, 1995 11,487 11,907 11,752
MAR 31 11,795 12,213 12,006
JUN 30 11,948 12,464 12,195
SEP 30 12,635 13,053 12,653
DEC 31, 1996 13,123 13,523 13,211
MAR 31 13,269 13,694 13,405
JUN 30 13,931 14,259 13,984
SEP 30 14,621 14,919 14,641
DEC 31, 1997 14,899 15,159 14,878
MAR 31 15,431 15,746 15,326
JUN 30 15,526 15,854 15,519
SEP 30 14,857 14,946 14,565
DEC 31, 1998 15,352 15,352 14,964
* These Indices are unmanaged indices in which investors cannot invest. Results
for the Indices do not reflect the expenses and investment management fees
incurred by the Portfolio. Past performance is not predictive of future
performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
High Income Bond Portfolio 3.04% 8.12% 10.23%
</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 distributions. Performance numbers
are net of all 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. Prior to April 1, 1994 results were achieved by different
portfolio managers.
16
<PAGE> 18
U.S. GOVERNMENT BOND PORTFOLIO STRONG CAPITAL MANAGEMENT
[STRONG CAPITAL
MANAGEMENT LOGO]
OBJECTIVE
Seeks current income and preservation of capital. Under normal circumstances, at
least 80% of the Portfolio's assets will be invested in U.S. Government
Securities; the remainder may be invested in investment grade corporate
securities and in cash and money market instruments.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT BOND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERFORMANCE
---------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------------------------------
<S> <C>
1 Year 7.79%
5 Year 7.13%
10 Year 8.71%
<CAPTION>
TOP 10 HOLDINGS
---------------------------------------------------------------------
% OF % OF
AS OF 12/31/98 PORTFOLIO TOP 10
---------------------------------------------------------------------
<S> <C> <C>
USTN, 7.875%, 11/15/2004 9.55% 18.00%
USTN, 6.000%, 08/15/2000 9.24% 17.41%
USTB, 6.125%, 11/15/2027 8.29% 15.63%
USTN, 5.625%, 05/15/2008 5.17% 9.75%
USTN, 6.250%, 08/31/2002 4.42% 8.32%
USTB, 7.250%, 05/15/2016 3.76% 7.09%
USTN, 5.875%, 11/30/2001 3.74% 7.05%
FNMA, 9.500%, 03/25/2019 3.52% 6.63%
USTB, 11.625%, 11/15/2004 2.74% 5.17%
FNMA, 7.000%, 06/25/2002 2.62% 4.95%
<CAPTION>
TOP 5 SECTOR WEIGHTINGS
---------------------------------------------------------------------
% OF
AS OF 12/31/98 PORTFOLIO
---------------------------------------------------------------------
<S> <C>
United States Government Securities 52.92%
Mortgage Backed Securities 31.07%
Corporate Bonds 6.03%
Non-Agency Mortgage and Asset Backed 1.79%
Municipal Bond 0.76%
</TABLE>
MANAGEMENT'S DISCUSSION & ANALYSIS
It was a bumpy ride for the bond markets. The fourth quarter began with a
full-scale flight to quality as investors sought shelter from the strained
liquidity in the financial markets. Massive flows into the on-the-run Treasuries
pushed the long bond yield to 4.72%, a historical low. Yield spreads on
non-Treasury debt reached levels not seen since the recession in 1990.
Sanity return to the U.S. bond markets after signs of recovery appeared in the
foreign markets and three successive rate cuts by the Federal Reserve diminished
fears that the U.S. economy would slip into a recession. Liquidity returned
somewhat to the corporate bond market after trading came to a near standstill at
the end of the third quarter. Encouraged by gains in the stock market, new
issuance on corporate bonds resumed, and investors began to cautiously buy high
yield bonds again. In the end, yield spreads on corporate bonds finished about
where they started the quarter, and municipal spreads tightened scantly. Prices
on corporates and mortgages finished lower for the quarter.
Treasury yields rose about 25 basis points on average, notwithstanding continued
easing by the Federal Reserve as the massive flight to quality which
characterized the third quarter began to unwind. Corporate and mortgage spreads
contracted somewhat, partially reversing the substantial widening which took
place in late summer.
The Portfolio returned 0.17% for the quarter, compared with its benchmark, the
Salomon
Investment in the U.S. Government Bond Portfolio is not guaranteed by the U.S.
Government.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION & ANALYSIS (CONTINUED)
Brothers Broad Investment Grade Index, which returned 0.41%. Performance
relative to the benchmark was helped by our overweight position in
mortgage-backed securities, but hurt by our somewhat longer than benchmark
portfolio duration.
We expect the U.S. economy to remain robust early in 1999, with the risk of
slower growth increasing as the year progresses. Consequently, short-term
interest rates are likely to be stable early in the year, with continued
declines materializing later. Opportunities for adding value at the issue
selection level of decision making should remain ample.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE U.S. GOVERNMENT
BOND PORTFOLIO AND THE LEHMAN BROTHERS GOVERNMENT BOND INDEX*
[PERFORMANCE GRAPH #8]
U.S. GOVT. LEHMAN BROS.
BOND GOVT. BOND INDEX
APR 1, 1994 10,000 10,000
JUN 30, 9,929 9,885
SEP 30, 9,960 9,927
DEC 31, 1994 9,959 9,962
MAR 31 10,474 10,431
JUN 30 11,162 11,078
SEP 30 11,403 11,273
DEC 31, 1995 11,968 11,788
MAR 31 11,663 11,522
JUN 30 11,666 11,576
SEP 30 11,839 11,772
DEC 31, 1996 12,217 12,115
MAR 31 12,143 11,729
JUN 30 12,578 12,385
SEP 30 13,010 12,800
DEC 31, 1997 13,362 13,224
MAR 31 13,543 13,424
JUN 30 13,842 13,779
SEP 30 14,379 14,541
DEC 31, 1998 14,404 14,527
* This Index is an unmanaged index in which investors cannot invest. Results for
the Index do not reflect the expenses and investment management fees incurred by
the Portfolio. Past performance is not predictive of future performance.
AVERAGE ANNUAL TOTAL RETURNS**
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Past 1 Past 5 Past 10
Year Years Years
------ ------ -------
<S> <C> <C> <C>
U.S. Government Bond Portfolio 7.79% 7.13% 8.71%
</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 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 distributions. Performance numbers
are net of all 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. Prior to April 1, 1994 results were achieved by different
portfolio managers.
18
<PAGE> 20
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
ADVERTISING -- (1.4%)
Lamar Advertising Company, Class A (a) ................................... 5,600 $ 208,600
--------------
AEROSPACE & DEFENSE -- (0.7%)
Kellstrom Industries, Inc. (a) ........................................... 3,500 100,625
--------------
ASSISTED LIVING -- (1.8%)
Alternative Living Services, Inc.(a) ..................................... 7,600 260,300
--------------
AUTOMATED SOFTWARE QUALITY -- (0.9%)
Rational Software Corporation (a) ........................................ 4,700 124,550
--------------
COMMERCIAL SERVICES -- (5.6%)
Abacus Direct Corporation (a) ............................................ 3,200 145,600
Kroll-O'Gara Company (a) ................................................. 5,400 212,962
NCO Group, Inc. (a) ...................................................... 2,700 121,500
Pre-Paid Legal Services, Inc. (a) ........................................ 7,400 244,200
Rental Service Corporation (a) ........................................... 4,400 69,025
SM&A Corporation (a) ..................................................... 1,500 28,500
--------------
821,787
COMPUTER SERVICES -- (0.6%)
Manhattan Associates, Inc. (a) ........................................... 3,200 87,200
--------------
CONSULTING -- (1.3%)
The Metzler Group, Inc. (a) .............................................. 3,900 189,881
--------------
CONSUMER PRODUCTS-MISCELLANEOUS -- (1.0%)
Blyth Industries, Inc. (a) ............................................... 4,600 143,750
--------------
CONTRACT RESEARCH -- (0.7%)
Kendle International, Inc. (a) ........................................... 4,500 105,188
--------------
DATA STORAGE -- (2.7%)
Network Appliance, Inc. (a) .............................................. 8,800 396,000
--------------
DIGITAL VIDEO RELATED -- (0.7%)
VideoServer, Inc. (a) .................................................... 5,800 106,575
--------------
DRUGS/PHARMACEUTICALS -- (2.7%)
Jones Pharma, Inc. ....................................................... 3,900 142,350
Medicis Pharmaceutical Corporation, Class A (a) .......................... 4,300 256,387
--------------
398,737
ELECTRONIC COMMERCE -- (3.4%)
Pegasus Systems, Inc. (a) ................................................ 3,400 122,400
Transaction Systems Architects, Inc., Class A (a) ........................ 7,400 370,000
--------------
492,400
</TABLE>
See notes to financial statements.
19
<PAGE> 21
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
ELECTRONIC COMPONENTS -- (1.4%)
RF Micro Devices, Inc. (a) ............................................... 4,300 $ 199,413
--------------
EMBEDDED SOFTWARE -- (1.1%)
Wind River Systems, Inc. (a) ............................................. 3,350 157,450
--------------
ENVIRONMENTAL -- (3.1%)
Casella Waste Systems, Inc., Class A (a) ................................. 3,400 126,225
Tetra Tech, Inc. (a) ..................................................... 12,160 329,080
--------------
455,305
FOOD & BEVERAGES -- (0.8%)
Suiza Foods Corporation (a) .............................................. 2,400 122,250
--------------
GRAPHIC-IMAGE PROCESSING -- (0.9%)
Electronics For Imaging, Inc. (a) ........................................ 3,300 132,619
--------------
HOSPITAL -- (1.2%)
Province Healthcare Company (a) .......................................... 4,800 172,200
--------------
HUMAN RESOURCES -- (1.9%)
AHL Services, Inc. (a) ................................................... 4,900 153,125
Metamor Worldwide, Inc. (a) .............................................. 5,050 126,250
--------------
279,375
INFORMATION SYSTEMS -- (3.3%)
IDX Systems Corporation (a) .............................................. 3,100 136,400
Medical Manager Corporation (a) .......................................... 3,600 112,950
MedQuist, Inc. (a) ....................................................... 2,400 94,800
QuadraMed Corporation (a) ................................................ 6,700 137,350
--------------
481,500
MACHINERY & EQUIPMENT -- (0.7%)
United Rentals, Inc. (a) ................................................. 3,100 102,688
--------------
MANAGED CARE-DENTAL -- (0.9%)
Orthodontic Centers of America, Inc. (a) ................................. 6,600 128,288
--------------
MEDICAL EQUIPMENT -- (0.6%)
IDEXX Laboratories, Inc. (a) ............................................. 3,100 83,409
--------------
NETWORKING HARDWARE -- (0.8%)
Apex PC Solutions, Inc. (a) .............................................. 4,200 121,275
--------------
NETWORKING SOFTWARE -- (6.8%)
Bindview Development Corporation (a) ..................................... 5,900 162,250
Concord Communications, Inc. (a) ......................................... 2,500 141,875
Micromuse, Inc. (a) ...................................................... 6,900 134,550
</TABLE>
See notes to financial statements.
20
<PAGE> 22
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
NETWORKING SOFTWARE -- (CONTINUED)
New Era of Networks, Inc. (a) ............................................ 5,500 $ 242,000
Software AG Systems, Inc. (a) ............................................ 5,200 94,250
Veritas Software Company (a) ............................................. 3,650 218,772
--------------
993,697
PACKAGED GOODS/COSMETICS -- (1.0%)
United Natural Foods, Inc. (a) ........................................... 6,000 144,750
--------------
PETROLEUM SERVICES -- (0.7%)
Hanover Compressor Company (a) ........................................... 3,800 97,613
--------------
PHYSICIAN PRACTICE MANAGEMENT -- (1.7%)
Pediatrix Medical Group (a) .............................................. 4,200 251,737
--------------
PRECISION INSTRUMENTS -- (1.6%)
Mettler-Toledo International, Inc. (a) ................................... 4,300 120,669
Waters Corporation (a) ................................................... 1,300 113,425
--------------
234,094
RADIO/TELEVISION -- (0.6%)
Citadel Communications Corporation (a) ................................... 3,500 90,563
--------------
RAILROAD -- (0.8%)
Motive Power Industries, Inc. (a) ........................................ 3,600 115,875
--------------
RESTAURANTS -- (1.2%)
CKE Restaurants, Inc. .................................................... 6,160 181,335
--------------
RETAIL-APPAREL -- (1.6%)
Ann Taylor Stores Corporation (a) ........................................ 4,200 165,638
Childrens Place Retail Stores, Inc. (a) .................................. 3,000 75,375
--------------
241,013
RETAIL-CATALOG -- (2.5%)
Insight Enterprises, Inc. (a) ............................................ 7,300 371,387
--------------
RETAIL-DISCOUNT -- (0.8%)
School Specialty, Inc. (a) ............................................... 5,400 115,425
--------------
RETAIL-GROCERY -- (0.9%)
Whole Foods Market, Inc. (a) ............................................. 2,700 130,613
--------------
RETAIL-SPECIALTY -- (2.7%)
Guitar Center, Inc. (a) .................................................. 5,200 128,050
Restoration Hardware, Inc. (a) ........................................... 6,200 166,625
Sonic Automotive, Inc. (a) ............................................... 3,000 103,312
--------------
397,987
</TABLE>
See notes to financial statements.
21
<PAGE> 23
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
SEMICONDUCTOR MANUFACTURING -- (3.1%)
Applied Micro Circuits Corporation (a) ................................... 4,900 $ 166,447
Vitesse Semiconductor Corporation (a) .................................... 6,200 282,875
--------------
449,322
SOFTWARE -- (2.8%)
Best Software, Inc. (a) .................................................. 5,300 125,875
DSET Corporation (a) ..................................................... 10,700 111,013
TSI International Software Ltd. (a) ...................................... 3,500 167,562
--------------
404,450
SOFTWARE-CLIENT/SERVER -- (7.3%)
Dendrite International, Inc. (a) ......................................... 7,800 194,756
Documentum, Inc. (a) ..................................................... 3,600 192,375
Great Plains Software, Inc. (a) .......................................... 3,400 164,050
Legato Systems, Inc. (a) ................................................. 4,300 283,531
MicroStrategy, Inc. (a) .................................................. 4,900 154,350
SS&C Technologies, Inc. (a) .............................................. 6,500 80,438
--------------
1,069,500
SOFTWARE-DESKTOP -- (2.1%)
Macromedia, Inc. (a) ..................................................... 5,800 195,387
Visio Corporation (a) .................................................... 3,100 113,344
--------------
308,731
SOFTWARE-INTERNET -- (0.9%)
BroadVision, Inc. (a) .................................................... 4,300 137,600
--------------
SOFTWARE-TESTING -- (1.7%)
Mercury Interactive Corporation (a) ...................................... 4,000 253,000
--------------
SPECIAL OUTPATIENT FACILITY -- (1.4%)
Renal Care Group, Inc. (a) ............................................... 6,900 198,806
--------------
SPECIALTY FINANCE -- (1.3%)
HealthCare Financial Partners, Inc. (a) .................................. 4,800 191,400
--------------
SURFACE -- (1.0%)
Coach USA, Inc. (a) ...................................................... 4,400 152,625
--------------
SYSTEMS INTEGRATOR -- (6.6%)
Diamond Technology Partners, Inc. (a)..................................... 8,500 162,562
International Network Services (a) ....................................... 4,400 292,600
Sapient Corporation (a) .................................................. 3,500 196,000
SPR, Inc. (a) ............................................................ 3,500 60,375
Tier Technologies, Inc., Class B (a) ..................................... 6,200 106,950
Whittman-Hart, Inc. (a) .................................................. 5,400 149,175
--------------
967,662
</TABLE>
See notes to financial statements.
22
<PAGE> 24
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
TELECOMMUNICATION COMPONENTS -- (1.8%)
Uniphase Corporation (a) ................................................. 3,700 $ 256,687
--------------
TELECOMMUNICATION EQUIPMENT -- (3.4%)
Aware, Inc. (a) .......................................................... 6,200 168,562
Excel Switching Corporation (a) .......................................... 5,400 205,200
Tekelec, Inc. (a) ........................................................ 7,200 119,250
--------------
493,012
--------------
TOTAL COMMON STOCKS -- (Cost $10,235,573) 96.5 % 14,120,249
--------------
<CAPTION>
INTEREST MATURITY MATURITY
RATE DATE AMOUNT
---- ---- ------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT -- (5.5%)
State Street Bank and Trust Company (b).... 3.750% 01/04/1999 $ 805,335 805,000
--------------
TOTAL SHORT TERM INVESTMENT -- (Cost $805,000) 5.5 % 805,000
--------------
TOTAL INVESTMENTS -- (Cost $11,040,573) 102.0 % 14,925,249
LIABILITIES LESS OTHER ASSETS -- (2.0)% (287,169)
----- --------------
NET ASSETS -- 100.0 % $ 14,638,080
===== ==============
</TABLE>
(a) Non-income producing security.
(b) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 3.75% interest, to be repurchased at $805,335 on 01/04/99, is
fully collateralized by a United States Treasury Bond, 13.25%, 05/15/14,
with a value of $828,024.
See notes to financial statements.
23
<PAGE> 25
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AUSTRALIA -- (3.4%)
Foster's Brewing Group Ltd. .............................................. 64,200 $ 173,886
Lend Lease Corporation Ltd. .............................................. 13,400 180,648
National Australia Bank .................................................. 29,954 451,540
--------------
806,074
CANADA -- (1.5%)
National Bank of Canada .................................................. 4,400 71,390
Quebecor, Inc., Class B .................................................. 12,539 269,894
--------------
341,284
FRANCE -- (7.3%)
Danone ................................................................... 400 114,470
Michelin ................................................................. 5,668 226,578
Pernod Ricard ............................................................ 5,950 386,308
Rhone Poulenc S.A. ....................................................... 4,499 231,428
Societe Eurafrance S.A. .................................................. 348 230,299
Society Elf Aquitaine .................................................... 1,145 132,296
Suez Lyonnaise Des Eaux .................................................. 1,260 258,716
Vivendi .................................................................. 465 120,596
--------------
1,700,691
GERMANY -- (5.0%)
Bayer AG ................................................................. 2,700 112,675
Bayerische Hypo-und Vereinsbank .......................................... 1,320 103,360
DaimlerChrysler AG (a) ................................................... 2,477 244,490
Fresenius AG ............................................................. 1,190 250,624
Karstadt AG .............................................................. 902 470,863
--------------
1,182,012
ITALY -- (3.9%)
Arnoldo Mondadori Editore SPA ............................................ 34,800 459,875
Istituto Nazionale delle Assicurazioni ................................... 80,000 211,195
Telecom Italia SPA ....................................................... 27,000 230,246
--------------
901,316
JAPAN -- (3.5%)
Kao Corporation .......................................................... 10,000 225,564
Sankyo Company Ltd. ...................................................... 11,000 240,336
Taisho Pharmaceutical Company ............................................ 13,000 357,629
--------------
823,529
</TABLE>
See notes to financial statements.
24
<PAGE> 26
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
NETHERLANDS -- (5.7%)
Heineken N.V. ............................................................ 5,325 $ 320,288
Koninklijke Ahold N.V. ................................................... 6,575 242,884
Unilever N.V. ............................................................ 5,601 478,501
VNU N.V. ................................................................. 3,245 122,290
Wolters Kluwer N.V. ...................................................... 752 160,831
--------------
1,324,794
SPAIN -- (1.0%)
Banco Popular ............................................................ 1,450 109,168
Corporacion Bancaria de Espana (Argentaria)............................... 4,800 124,121
--------------
233,289
SWEDEN -- (5.2%)
Astra AB ................................................................. 21,785 443,754
Pharmacia & Upjohn, Inc. ................................................. 4,455 248,938
Svenska Handelsbanken .................................................... 8,700 366,212
Volvo AB ................................................................. 6,500 148,804
--------------
1,207,708
SWITZERLAND -- (8.8%)
Edipresse S.A. ........................................................... 750 215,658
Hero AG .................................................................. 275 188,178
Lindt & Spruengli ........................................................ 176 461,236
Nestle S.A. .............................................................. 223 485,383
Novartis AG .............................................................. 310 609,303
Roche Holdings AG ........................................................ 9 109,806
--------------
2,069,564
UNITED KINGDOM -- (15.9%)
Allied Zurich AG (a) ..................................................... 19,635 295,063
British America Tobacco Plc .............................................. 29,950 263,723
Compass Group Plc......................................................... 34,600 394,919
Cordiant Communications Group Plc ........................................ 58,700 102,401
Diageo Plc ............................................................... 36,058 399,879
Esprit Telecom Group Plc ADR (a) ......................................... 2,900 135,575
Gallaher Group Plc ....................................................... 30,300 202,873
Imperial Tobacco Group Plc ............................................... 9,700 101,528
Lasmo Plc ................................................................ 77,000 127,928
London International Group Plc ........................................... 91,900 189,327
Pearson Plc............................................................... 15,265 303,540
Saatchi & Saatchi Plc .................................................... 58,700 132,633
Scottish & Newcastle Plc ................................................. 15,553 180,879
Siebe Plc ................................................................ 46,333 182,053
</TABLE>
See notes to financial statements.
25
<PAGE> 27
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
UNITED KINGDOM -- (CONTINUED)
Smithkline Beecham Plc.................................................... 24,454 $ 338,915
Smithkline Beechan Plc ADR................................................ 2,000 139,000
Southern Electric Plc (a) ................................................ 11,040 125,092
Thames Water Plc ......................................................... 6,000 115,634
--------------
3,730,962
UNITED STATES -- (36.0%)
ADVO, Inc. (a) ........................................................... 3,800 100,225
AgriBioTech, Inc. (a) .................................................... 9,400 121,612
Alliant Techsystems, Inc. (a) ............................................ 1,300 107,169
Annuity and Life Re (Holdings) Ltd. ...................................... 4,400 118,800
Antec Corporation (a) .................................................... 3,800 76,475
Artisan Components, Inc. (a) ............................................. 12,600 66,938
Astec Industries, Inc. (a) ............................................... 2,200 122,375
Asyst Technologies, Inc. (a) ............................................. 4,100 83,538
Atmel Corporation (a) .................................................... 8,300 127,094
Ballard Medical Products ................................................. 5,000 121,562
Bergen Brunswig Corporation, Class A ..................................... 2,400 83,700
Big Flower Holdings, Inc. (a) ............................................ 6,900 152,231
Bright Horizons, Inc. (a) ................................................ 6,160 166,320
Broadcom Corporation, Class A (a) ........................................ 800 96,600
BroadVision, Inc. (a) .................................................... 4,400 140,800
Buffets, Inc. (a) ........................................................ 6,400 76,400
Cable Design Technologies Corporation (a) ................................ 4,800 88,800
Career Education Corporation (a) ......................................... 3,200 96,000
Caseys General Stores, Inc. .............................................. 6,700 87,309
Centennial Bancorp ....................................................... 5,590 104,813
Coach USA, Inc. (a) ...................................................... 5,300 183,844
Cognex Corporation (a) ................................................... 6,500 130,000
Corporate Express, Inc. (a) .............................................. 10,200 52,913
Covenant Transport, Inc., Class A (a) .................................... 7,900 141,212
CSG Systems International, Inc. (a) ...................................... 2,300 181,700
CUNO, Inc. (a) ........................................................... 5,200 84,500
Cyberonics, Inc. (a) ..................................................... 4,100 55,350
DA Consulting Group, Inc. (a) ............................................ 3,600 78,750
Delphi Financial Group, Inc. ............................................. 946 49,606
Diamond Technology Partners, Inc., Class A (a) ........................... 3,300 63,113
Dime Community Bancorp, Inc. ............................................. 4,100 84,563
Donna Karan International, Inc. (a) ...................................... 18,500 141,062
Eagle USA Airfreight, Inc. (a) ........................................... 8,000 196,000
Electronics for Imaging, Inc. (a) ........................................ 6,700 269,256
Exodus Communications, Inc. (a) .......................................... 2,500 160,625
FileNET Corporation (a) .................................................. 2,300 26,378
</TABLE>
See notes to financial statements.
26
<PAGE> 28
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
UNITED STATES -- (CONTINUED)
Forrester Research, Inc. (a) ............................................. 4,100 $ 179,375
Gadzooks, Inc. (a) ....................................................... 7,100 55,025
Goody's Family Clothing, Inc. (a) ........................................ 12,000 120,375
HBO & Company ............................................................ 5,075 145,589
Health Management Associates, Class A (a) ................................ 2,500 54,063
HON Industries, Inc. ..................................................... 3,400 81,388
IDEXX Laboratories, Inc. (a) ............................................. 2,700 72,647
IDX Systems Corporation (a) .............................................. 2,300 101,200
Investors Financial Services Corporation ................................. 2,000 119,250
ITC DeltaCom, Inc. (a) ................................................... 6,600 100,650
Kaydon Corporation ....................................................... 3,200 128,200
Labor Ready, Inc. (a) .................................................... 6,500 127,969
Lamar Advertising Company, Class A (a) ................................... 3,800 141,550
Lattice Semiconductor Corporation (a) .................................... 1,700 78,041
Market Facts, Inc. (a) ................................................... 2,200 57,200
MAXIMUS, Inc. (a) ........................................................ 4,700 173,900
MiniMed, Inc. (a) ........................................................ 1,200 125,700
MSC Industrial Direct, Inc., Class A (a) ................................. 6,100 138,012
National R.V. Holdings, Inc. (a) ......................................... 5,150 132,612
Newfield Exploration Company (a) ......................................... 4,800 100,200
Pediatrix Medical Group (a) .............................................. 2,400 143,850
PMC-Sierra, Inc. (a) ..................................................... 2,900 183,062
Policy Management Systems Corporation (a) ................................ 2,000 101,000
Premiere Technologies, Inc. (a) .......................................... 12,200 89,975
PRI Automation, Inc. (a) ................................................. 5,600 145,600
Radiant Systems, Inc. (a) ................................................ 14,000 103,250
Rambus, Inc. (a) ......................................................... 1,200 115,500
Roper Industries, Inc. ................................................... 6,100 124,287
Seven Seas Petroleum, Inc. (a) ........................................... 7,200 48,150
SIPEX Corporation (a) .................................................... 4,900 172,112
Sis Bancorp, Inc. ........................................................ 3,400 153,850
Stage Stores, Inc. (a) ................................................... 7,600 71,250
Superior Consultant Holdings Corporation (a) ............................. 2,900 126,150
Superior TeleCom, Inc. ................................................... 2,700 127,575
TeleBanc Financial Corporation (a) ....................................... 1,200 40,800
The Metzler Group, Inc. (a) .............................................. 2,700 131,456
The Scotts Company (a) ................................................... 4,100 157,594
Vanguard Cellular Systems, Inc., Class A (a) ............................. 4,500 116,156
--------------
8,422,196
--------------
TOTAL COMMON STOCKS -- (Cost $18,841,182) 97.2% 22,743,419
--------------
</TABLE>
See notes to financial statements.
27
<PAGE> 29
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER MATURITY PRINCIPAL
AND TITLE OF ISSUE DATE AMOUNT VALUE
------------------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
WARRANTS
BRAZIL -- (0.0%)
Vale Rio Doce Cia ......................... 12/31/1999 $ 9,500 $ 0
--------------
TOTAL WARRANTS -- (Cost $0) 0.0% 0
--------------
SHORT TERM INVESTMENT
UNITED STATES -- (5.2%)
Federal Home Loan Mortgage................. 4.500% 01/04/1999 1,211,000 1,210,546
--------------
TOTAL SHORT TERM INVESTMENT --
(Cost $1,210,546) 5.2% 1,210,546
--------------
TOTAL INVESTMENTS -- (Cost $20,051,728) 102.4% 23,953,965
LIABILITIES LESS OTHER ASSETS -- (2.4)% (553,862)
----- --------------
NET ASSETS -- 100.0% $ 23,400,103
===== ==============
</TABLE>
(a) Non-income producing security.
See notes to financial statements.
28
<PAGE> 30
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
ANALYSIS OF INDUSTRY CLASSIFICATIONS
December 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS VALUE
- -------- ---------- -----
<S> <C> <C>
Advertising.................................... 0.6 % $ 141,550
Aerospace & Defense............................ 0.5 107,169
Agriculture.................................... 0.5 121,613
Automotive..................................... 1.7 393,293
Automotive Parts............................... 1.0 226,577
Banks.......................................... 6.0 1,415,166
Broadcasting/Publishing........................ 2.4 573,434
Building Materials & Construction.............. 0.6 132,612
Business Services.............................. 4.8 1,113,522
Cables/Fiberoptics............................. 0.4 88,800
Chemicals...................................... 1.5 344,103
Commercial Services............................ 0.7 157,425
Computer Services.............................. 0.3 78,750
Computer Software.............................. 1.1 246,589
Consulting..................................... 1.1 257,606
Consumer Products.............................. 2.0 478,500
Cosmetics & Toiletries......................... 1.0 225,564
Diversified.................................... 1.3 302,648
Drugs.......................................... 10.6 2,487,682
Drugs & Health Care............................ 1.1 250,624
Educational Services........................... 1.1 262,320
Electronics.................................... 4.2 984,947
Energy Sources................................. 0.6 132,297
Fertilizer..................................... 0.7 157,594
Financial Services............................. 2.1 494,548
Food & Beverages............................... 12.6 2,953,389
Graphic-Image Processing....................... 1.2 269,256
Health Care.................................... 0.8 189,327
Information Systems............................ 0.4 101,200
Insurance...................................... 2.9 674,664
Investment Companies........................... 1.0 230,299
Machinery & Equipment.......................... 0.9 205,913
Manufacturing.................................. 2.0 466,988
Medical Equipment.............................. 0.5 127,997
Medical Supplies & Services.................... 1.6 385,025
Networking Software............................ 0.7 160,625
Office Furnishings............................. 0.3 81,388
Oil & Gas...................................... 1.2 276,278
Physician Practice Management.................. 0.6 143,850
Publishing..................................... 5.5 1,290,261
Restaurants.................................... 0.3 76,400
Retail-Apparel................................. 0.3 71,250
Retail-Grocery................................. 0.4 87,309
</TABLE>
See notes to financial statements.
29
<PAGE> 31
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
ANALYSIS OF INDUSTRY CLASSIFICATIONS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS VALUE
- -------- ---------- -----
<S> <C> <C>
Retail-Specialty............................... 0.6 % $ 138,013
Retail-Trade................................... 3.6 840,238
Software-Client/Server......................... 0.1 26,378
Software-Internet.............................. 0.6 140,800
Software-Other................................. 0.4 103,250
Surface........................................ 0.8 183,844
Surface Transportation......................... 0.6 141,213
Systems Integrator............................. 0.3 63,113
Telecommunication Equipment.................... 0.9 204,050
Telecommunications............................. 2.9 672,602
Tobacco........................................ 2.4 568,124
Transportation - Air Freight................... 0.8 196,000
Utilities...................................... 2.1 499,442
U.S. Government Security....................... 5.2 1,210,546
----- -------------
TOTAL....................................... 102.4 % $ 23,953,965
===== =============
</TABLE>
See notes to financial statements.
30
<PAGE> 32
VARIABLE INVESTORS SERIES TRUST
GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
BANKS -- (5.4%)
Fifth Third Bancorp ...................................................... 21,225 $ 1,513,608
Firstar Corporation ...................................................... 17,500 1,631,875
Wells Fargo & Company .................................................... 15,000 599,063
Zions Bancorporation ..................................................... 13,500 842,062
--------------
4,586,608
BROADCASTING -- (4.0%)
Cablevision Systems Corporation .......................................... 17,000 853,187
Clear Channel Communications (a) ......................................... 23,500 1,280,750
Time Warner, Inc. ........................................................ 20,000 1,241,250
--------------
3,375,187
COMMUNICATION EQUIPMENT -- (5.3%)
Lucent Technologies, Inc. ................................................ 12,500 1,375,000
Tellabs, Inc. (a) ........................................................ 45,500 3,119,594
--------------
4,494,594
COMPUTERS & BUSINESS EQUIPMENT -- (1.1%)
International Business Machines Corporation .............................. 5,000 923,750
--------------
COMPUTER RELATED -- (16.7%)
Cisco Systems, Inc. (a) .................................................. 34,500 3,202,031
Compaq Computer Corporation .............................................. 20,500 859,719
Dell Computer Corporation (a) ............................................ 34,000 2,488,375
EMC Corporation (a) ...................................................... 38,500 3,272,500
Intel Corporation ........................................................ 19,500 2,311,969
Sun Microsystems, Inc. (a) ............................................... 24,000 2,055,000
--------------
14,189,594
COMPUTER SERVICES -- (0.9%)
Paychex, Inc. ............................................................ 15,000 771,563
--------------
COMPUTER SOFTWARE -- (14.2%)
America Online, Inc. ..................................................... 17,000 2,720,000
BMC Software, Inc. (a) ................................................... 37,500 1,671,094
Computer Associates International, Inc. .................................. 16,575 706,509
Compuware Corporation (a) ................................................ 23,500 1,835,937
HBO & Company ............................................................ 78,000 2,237,625
Microsoft Corporation .................................................... 20,500 2,843,094
--------------
12,014,259
COSMETICS & TOILETRIES -- (1.9%)
CVS Corporation .......................................................... 15,046 827,530
Walgreen Company ......................................................... 14,000 819,875
--------------
1,647,405
DIVERSIFIED MANUFACTURING -- (1.4%)
Tyco International Ltd. .................................................. 15,500 1,169,281
--------------
</TABLE>
See notes to financial statements.
31
<PAGE> 33
VARIABLE INVESTORS SERIES TRUST
GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
DRUGS -- (10.7%)
Merck & Company, Inc. .................................................... 6,000 $ 886,125
Pfizer, Inc. ............................................................. 22,500 2,822,344
Schering Plough Corporation .............................................. 44,000 2,431,000
Warner Lambert Company ................................................... 28,000 2,105,250
Watson Pharmaceuticals, Inc. (a) ......................................... 13,500 848,812
--------------
9,093,531
ELECTRICAL EQUIPMENT -- (1.5%)
General Electric Company ................................................. 12,000 1,224,750
--------------
FINANCIAL SERVICES -- (9.0%)
Citigroup, Inc. .......................................................... 32,000 1,584,000
Federal Home Loan Mortgage Corporation ................................... 25,500 1,643,156
Federal National Mortgage Association .................................... 16,500 1,221,000
FINOVA Group, Inc. ....................................................... 18,000 970,875
Sunamerica, Inc. ......................................................... 27,500 2,230,938
--------------
7,649,969
FOOD RETAILERS -- (2.3%)
Safeway, Inc. (a) ........................................................ 31,500 1,919,531
--------------
INSURANCE -- (1.8%)
American International Group, Inc. ....................................... 15,500 1,497,687
--------------
MEDICAL PRODUCTS & SUPPLIES -- (3.1%)
Guidant Corporation ...................................................... 13,000 1,433,250
Medtronic, Inc. .......................................................... 16,500 1,225,125
--------------
2,658,375
MEDICAL SUPPLIES & SERVICES -- (5.6%)
Cardinal Health, Inc. .................................................... 21,000 1,593,375
Health Management Associates (a) ......................................... 41,500 897,438
Lincare Holdings, Inc. (a) ............................................... 23,500 953,219
McKesson Corporation ..................................................... 17,000 1,344,062
--------------
4,788,094
PRINTING & PUBLISHING -- (2.9%)
Omnicom Group ............................................................ 42,000 2,436,000
--------------
RETAIL -- (3.6%)
Dayton Hudson Corporation ................................................ 14,000 759,500
Wal-Mart Stores, Inc. .................................................... 28,000 2,280,250
--------------
3,039,750
RETAIL-DISCOUNT -- (1.7%)
Dollar General Corporation ............................................... 31,000 732,375
TJX Companies, Inc. ...................................................... 25,000 725,000
--------------
1,457,375
</TABLE>
See notes to financial statements.
32
<PAGE> 34
VARIABLE INVESTORS SERIES TRUST
GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
RETAIL-SPECIALTY -- (4.2%)
Gap, Inc. ................................................................ 22,500 $ 1,265,625
Home Depot, Inc. ......................................................... 21,000 1,284,938
Staples, Inc. (a) ........................................................ 23,500 1,026,656
--------------
3,577,219
TELECOMMUNICATIONS -- (1.4%)
MCI WorldCom, Inc. ....................................................... 17,000 1,219,750
--------------
TOTAL COMMON STOCKS -- (Cost $50,916,332) 98.7% 83,734,272
--------------
<CAPTION>
INTEREST MATURITY MATURITY
RATE DATE AMOUNT
---- ---- ------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT -- (0.8%)
State Street Bank and Trust Company (b).... 3.750% 01/04/1999 $ 722,301 722,000
--------------
TOTAL SHORT TERM INVESTMENT --
(Cost $722,000) 0.8% 722,000
--------------
TOTAL INVESTMENTS -- (Cost $51,638,332) 99.5% 84,456,272
OTHER ASSETS LESS LIABILITIES -- 0.5% 407,172
----- --------------
NET ASSETS -- 100.0% $ 84,863,444
===== ==============
</TABLE>
(a) Non-income producing security.
(b) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 3.75% interest, to be repurchased at $722,301 on 01/04/99, is
fully collateralized by a United States Treasury Bond, 6.625%, 03/31/12,
with a value of $741,229.
See notes to financial statements.
33
<PAGE> 35
VARIABLE INVESTORS SERIES TRUST
MATRIX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE & DEFENSE -- (2.8%)
General Dynamics Corporation ............................................. 4,800 $ 281,400
Gulfstream Aerospace Corporation (a) ..................................... 5,300 282,225
United Technologies Corporation .......................................... 600 65,250
--------------
628,875
ALUMINUM -- (0.7%)
Aluminum Company of America .............................................. 2,200 164,038
--------------
AUTOMOTIVE -- (2.1%)
Ford Motor Company ....................................................... 7,600 446,025
PACCAR, Inc. ............................................................. 300 12,338
--------------
458,363
BANKS -- (3.8%)
BankAmerica Corporation .................................................. 3,110 186,989
Chase Manhattan Corporation .............................................. 6,400 435,600
Comerica, Inc. ........................................................... 100 6,819
First Union Corporation .................................................. 2,200 133,787
UnionBanCal Corporation .................................................. 2,400 81,750
--------------
844,945
BUILDING MATERIALS & CONSTRUCTION -- (0.8%)
Louisiana-Pacific Corporation ............................................ 1,800 32,963
USG Corporation .......................................................... 3,000 152,812
--------------
185,775
CHEMICALS & PLASTICS -- (1.2%)
BF Goodrich Company ...................................................... 100 3,588
FMC Corporation (a) ...................................................... 200 11,200
Solutia, Inc. ............................................................ 10,900 243,887
--------------
258,675
COMMERCIAL SERVICES -- (0.0%)
Dun & Bradstreet Corporation ............................................. 100 3,156
--------------
COMMUNICATION EQUIPMENT -- (0.9%)
Lucent Technologies, Inc. ................................................ 1,800 198,000
--------------
COMPUTERS & BUSINESS EQUIPMENT -- (4.0%)
Gateway 2000, Inc. (a) ................................................... 2,100 107,494
International Business Machines Corporation .............................. 4,200 775,950
--------------
883,444
COMPUTER RELATED -- (9.8%)
Cisco Systems, Inc. (a) .................................................. 2,300 213,469
Dell Computer Corporation (a) ............................................ 1,300 95,144
Intel Corporation ........................................................ 5,600 663,950
Lexmark International Group, Inc. (a) .................................... 3,900 391,950
Quantum Corporation (a) .................................................. 14,100 299,625
Sun Microsystems, Inc. (a) ............................................... 3,500 299,687
Unisys Corporation (a) ................................................... 6,300 216,956
--------------
2,180,781
</TABLE>
See notes to financial statements.
34
<PAGE> 36
VARIABLE INVESTORS SERIES TRUST
MATRIX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
COMPUTER SOFTWARE -- (4.0%)
Microsoft Corporation .................................................... 4,700 $ 651,831
Valassis Communications .................................................. 4,900 252,963
--------------
904,794
DRUGS -- (8.0%)
American Home Products Corporation ....................................... 1,300 73,206
Amgen, Inc. (a) .......................................................... 4,600 480,987
Bristol-Myers Squibb Company ............................................. 3,700 495,106
Eli Lilly & Company ...................................................... 1,100 97,763
Merck & Company, Inc. .................................................... 1,900 280,606
Pfizer, Inc. ............................................................. 2,200 275,963
Schering-Plough Corporation .............................................. 1,200 66,300
--------------
1,769,931
ELECTRIC UTILITIES -- (2.1%)
Energy East Corporation .................................................. 1,500 84,750
GPU, Inc. ................................................................ 1,200 53,025
PP&L Resources, Inc. ..................................................... 7,100 197,912
Public Service Enterprise Group .......................................... 3,500 140,000
--------------
475,687
ELECTRICAL EQUIPMENT -- (2.8%)
General Electric Company ................................................. 6,000 612,375
--------------
FINANCIAL SERVICES -- (4.0%)
Citigroup, Inc. .......................................................... 3,500 173,250
Countrywide Credit Industries, Inc. ...................................... 2,500 125,469
Federal National Mortgage Association .................................... 2,700 199,800
Fleet Financial Group, Inc. .............................................. 8,600 384,312
--------------
882,831
FOOD & BEVERAGES -- (4.4%)
Anheuser-Busch Companies, Inc. ........................................... 3,300 216,563
Coca-Cola Company ........................................................ 3,900 260,812
General Mills, Inc. ...................................................... 1,800 139,950
IBP, Inc. ................................................................ 5,600 163,100
Interstate Bakeries Corporation .......................................... 3,300 87,244
Quaker Oats Company ...................................................... 1,700 101,150
--------------
968,819
HEALTH CARE -- (1.7%)
Wellpoint Health Networks, Inc., Class A (a) ............................. 4,300 374,100
--------------
HOTELS & RESTAURANTS -- (1.2%)
Tricon Global Restaurants, Inc. (a) ...................................... 5,400 270,675
--------------
HOUSEHOLD PRODUCTS -- (3.0%)
Kroger Company (a)........................................................ 3,000 181,500
Premark International, Inc. .............................................. 5,700 197,363
Procter & Gamble Company ................................................. 3,300 301,331
--------------
680,194
</TABLE>
See notes to financial statements.
35
<PAGE> 37
VARIABLE INVESTORS SERIES TRUST
MATRIX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
INSURANCE -- (4.9%)
Allstate Corporation ..................................................... 7,800 $ 301,275
American International Group, Inc. ....................................... 1,350 130,444
CIGNA Corporation ........................................................ 4,400 340,175
Loews Corporation ........................................................ 3,300 324,225
--------------
1,096,119
INVESTMENT COMPANIES -- (1.6%)
Lehman Brothers Holdings, Inc. ........................................... 8,100 356,906
--------------
LEISURE & ENTERTAINMENT -- (0.7%)
Carnival Corporation ..................................................... 3,100 148,800
--------------
MEDICAL PRODUCTS & SUPPLIES -- (0.4%)
Guidant Corporation ...................................................... 900 99,225
--------------
MEDICAL SUPPLIES & SERVICES -- (4.0%)
Abbott Laboratories ...................................................... 1,000 49,000
Arterial Vascular Engineering, Inc. (a) .................................. 4,400 231,000
Becton, Dickinson & Company .............................................. 3,200 136,600
Bergen Brunswig Corporation .............................................. 9,800 341,775
Johnson & Johnson ........................................................ 1,600 134,200
--------------
892,575
OFFICE SUPPLIES & EQUIPMENT -- (0.1%)
Xerox Corporation ........................................................ 100 11,800
--------------
OIL & GAS -- (3.1%)
Coastal Corporation ...................................................... 4,400 153,725
Exxon Corporation ........................................................ 5,300 387,562
Mobil Corporation ........................................................ 1,700 148,113
--------------
689,400
PETROLEUM SERVICES -- (0.9%)
Tidewater, Inc. .......................................................... 9,100 211,006
--------------
PUBLISHING SERVICES -- (0.8%)
R.R. Donnelley & Sons Company ............................................ 4,100 179,631
--------------
REAL ESTATE -- (0.2%)
Meditrust Companies ...................................................... 3,200 48,400
--------------
RETAIL -- (5.3%)
Best Buy Co., Inc. (a) ................................................... 500 30,737
Dayton Hudson Corporation ................................................ 5,300 287,525
K-Mart ................................................................... 20,100 307,781
Wal-Mart Stores, Inc. .................................................... 6,800 553,775
--------------
1,179,818
</TABLE>
See notes to financial statements.
36
<PAGE> 38
VARIABLE INVESTORS SERIES TRUST
MATRIX EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
RETAIL-DISCOUNT -- (1.0%)
TJX Companies, Inc. ...................................................... 8,000 $ 232,000
--------------
RETAIL-SPECIALTY -- (1.2%)
Dillards, Inc. ........................................................... 7,500 212,813
Home Depot, Inc. ......................................................... 800 48,950
--------------
261,763
RETAIL-TRADE -- (1.2%)
May Department Stores Company ............................................ 4,500 271,688
--------------
SOFTWARE -- (3.2%)
Oracle System Corporation (a) ............................................ 11,700 504,562
Sterling Software, Inc. (a) .............................................. 7,600 205,675
--------------
710,237
TELECOMMUNICATIONS -- (9.5%)
Ameritech Corporation .................................................... 200 12,675
AT&T Corporation ......................................................... 8,700 654,675
Bell Atlantic Corporation ................................................ 7,324 388,172
BellSouth Corporation .................................................... 6,000 299,250
GTE Corporation .......................................................... 1,400 91,000
MCI WorldCom, Inc. ....................................................... 1,900 136,325
SBC Communications, Inc. ................................................. 4,800 257,400
U.S. West, Inc. .......................................................... 4,100 264,962
--------------
2,104,459
TOBACCO -- (1.8%)
Philip Morris Companies, Inc. ............................................ 7,600 406,600
--------------
TRANSPORTATION -- (0.4%)
Burlington Northern Santa Fe Corporation ................................. 2,300 77,625
--------------
WHOLESALE -- (1.1%)
Tech Data Corporation (a) ................................................ 6,300 253,575
--------------
TOTAL COMMON STOCKS -- (Cost $17,977,334) 98.7% 21,977,085
--------------
<CAPTION>
INTEREST
RATE
----
<S> <C> <C> <C> <C>
MUTUAL FUNDS -- (1.5%)
Dreyfus Cash Management Plus (b) .......... 5.050% 327,819 327,819
--------------
TOTAL MUTUAL FUNDS -- (Cost $327,819) 1.5% 327,819
--------------
TOTAL INVESTMENTS -- (Cost $18,305,153) 100.2% 22,304,904
LIABILITIES LESS OTHER ASSETS -- (0.2)% (54,044)
----- --------------
NET ASSETS -- 100.0% $ 22,250,860
===== ==============
</TABLE>
(a) Non-income producing security.
(b) Interest rate shown is the 7 day yield as of December 31, 1998.
See notes to financial statements.
37
<PAGE> 39
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE & DEFENSE -- (6.7%)
General Dynamics Corporation ............................................. 6,400 $ 375,200
Gulfstream Aerospace Corporation (a) ..................................... 5,200 276,900
Litton Industries, Inc. (a) .............................................. 4,400 287,100
Raytheon Company, Class A ................................................ 6,550 338,553
TRW, Inc. ................................................................ 6,400 359,600
United Technologies Corporation .......................................... 2,250 244,688
--------------
1,882,041
ALUMINUM -- (1.2%)
Aluminum Company of America .............................................. 4,574 341,049
--------------
AUTOMOTIVE -- (3.0%)
DaimlerChrysler AG (a) ................................................... 2,315 222,384
Ford Motor Company ....................................................... 9,300 545,794
Volvo AB ADR ............................................................. 3,900 90,919
--------------
859,097
BANKS -- (0.9%)
Bank One Corporation ..................................................... 4,900 250,206
--------------
BUILDING MATERIALS & CONSTRUCTION -- (2.3%)
American Standard Companies, Inc. (a) .................................... 6,000 216,000
USG Corporation .......................................................... 8,650 440,609
--------------
656,609
BUSINESS SERVICES -- (1.6%)
WPP Group Plc (GBP)....................................................... 29,900 181,317
WPP Group Plc ADR ........................................................ 4,600 284,050
--------------
465,367
CAPITAL EQUIPMENT -- (2.1%)
Emerson Electric Company ................................................. 3,100 187,550
Federal Mogul Corporation ................................................ 2,500 148,750
ITT Industries, Inc. ..................................................... 6,500 258,375
--------------
594,675
CHEMICALS -- (2.3%)
Ferro Corporation ........................................................ 5,400 140,400
Rhone Poulenc S.A. ADR ................................................... 5,450 273,862
Union Carbide Corporation ................................................ 5,400 229,500
--------------
643,762
COMPUTERS & BUSINESS EQUIPMENT -- (3.3%)
International Business Machines Corporation .............................. 4,000 739,000
Pitney Bowes, Inc. ....................................................... 3,000 198,187
--------------
937,187
COMPUTER RELATED -- (4.0%)
Allied Signal, Inc. ...................................................... 5,200 230,425
Compaq Computer Corporation .............................................. 8,200 343,888
Sun Microsystems, Inc. (a) ............................................... 5,100 436,687
Unisys Corporation (a) ................................................... 3,300 113,644
--------------
1,124,644
</TABLE>
See notes to financial statements.
38
<PAGE> 40
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
CONSTRUCTION MATERIALS -- (0.9%)
Harsco Corporation ....................................................... 8,200 $ 249,588
--------------
DRUGS -- (1.1%)
Merck & Company, Inc. .................................................... 2,200 324,913
--------------
ELECTRIC UTILITIES -- (2.5%)
Allegheny Energy, Inc. ................................................... 6,100 210,450
American Electric Power Company, Inc. .................................... 3,500 164,719
DQE, Inc. ................................................................ 900 39,544
Illinova Corporation ..................................................... 3,900 97,500
Wisconsin Energy Corporation ............................................. 5,800 182,337
--------------
694,550
ELECTRONICS -- (1.3%)
Dallas Semiconductor Corporation ......................................... 5,000 203,750
Tektronix, Inc. .......................................................... 5,000 150,313
--------------
354,063
ENVIRONMENTAL -- (2.2%)
Allied Waste Industries, Inc. (a) ........................................ 5,500 129,937
Waste Management, Inc. ................................................... 10,400 484,900
--------------
614,837
FINANCIAL SERVICES -- (10.6%)
American Express Company ................................................. 1,800 184,050
Associates First Capital Corporation, Class A ............................ 3,110 131,786
Citigroup, Inc. .......................................................... 11,500 569,250
Federal National Mortgage Association .................................... 2,800 207,200
FINOVA Group, Inc. ....................................................... 4,900 264,294
Household International, Inc. ............................................ 4,100 162,463
MBIA, Inc. ............................................................... 7,400 485,162
Terra Nova (Bermuda) Holdings, Ltd., Class A ............................. 8,300 209,575
The PMI Group, Inc. ...................................................... 7,600 375,250
Washington Mutual, Inc. .................................................. 10,500 400,969
--------------
2,989,999
FOOD & BEVERAGES -- (5.2%)
Anheuser-Busch Companies, Inc. ........................................... 8,400 551,250
Corn Products International, Inc. ........................................ 4,800 145,800
H.J. Heinz Company ....................................................... 2,700 152,887
Keebler Foods Company (a) ................................................ 8,900 334,862
Ralston Purina Company ................................................... 3,500 113,313
Sara Lee Corporation ..................................................... 5,600 157,850
--------------
1,455,962
</TABLE>
See notes to financial statements.
39
<PAGE> 41
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
HEALTH CARE -- (4.2%)
Baxter International, Inc. ............................................... 5,400 $ 347,288
Tenet Healthcare Corporation (a) ......................................... 6,300 165,375
Trigon Healthcare, Inc. (a) .............................................. 9,950 371,259
Wellpoint Health Networks, Inc., Class A (a) ............................. 3,300 287,100
--------------
1,171,022
HOUSEHOLD PRODUCTS -- (1.4%)
Premark International, Inc. .............................................. 11,500 398,188
--------------
INDUSTRIAL MANUFACTURING & PROCESSING -- (2.0%)
UNOVA, Inc. (a) .......................................................... 30,800 558,250
--------------
INSURANCE -- (1.6%)
MGIC Investment Corporation .............................................. 6,000 238,875
Old Republic International Corporation ................................... 9,100 204,750
--------------
443,625
INVESTMENT COMPANIES -- (0.9%)
Lehman Brothers Holdings, Inc. ........................................... 6,000 264,375
--------------
MACHINERY & EQUIPMENT -- (1.6%)
Case Corporation ......................................................... 8,800 191,950
Caterpillar, Inc. ........................................................ 1,600 73,600
Ingersoll-Rand Company ................................................... 3,700 173,669
--------------
439,219
MEDIA -- (0.5%)
The E.W. Scripps Company, Class A ........................................ 2,900 144,275
--------------
OIL & GAS -- (5.1%)
Amerada Hess Corporation ................................................. 2,800 139,300
British Petroleum Plc ADR ................................................ 6,320 600,400
Royal Dutch Petroleum Company ADR......................................... 6,600 315,975
Total S.A. ADR ........................................................... 7,400 368,150
--------------
1,423,825
PUBLISHING SERVICES -- (0.5%)
R.R. Donnelley & Sons Company ............................................ 3,300 144,581
--------------
REAL ESTATE -- (0.2%)
Equity Residential Properties Trust ...................................... 1,300 52,569
--------------
RETAIL-DISCOUNT -- (1.5%)
Consolidated Stores Corporation (a) ...................................... 8,300 167,556
TJX Companies, Inc. ...................................................... 8,700 252,300
--------------
419,856
RETAIL-SPECIALTY -- (1.1%)
CompUSA, Inc. (a) ........................................................ 10,400 135,850
Ross Stores, Inc. ........................................................ 4,600 181,125
--------------
316,975
</TABLE>
See notes to financial statements.
40
<PAGE> 42
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
RETAIL-TRADE -- (5.1%)
Federated Department Stores, Inc. (a) .................................... 13,750 $ 598,984
May Department Stores Company ............................................ 4,700 283,763
Payless Shoesource, Inc. (a) ............................................. 2,285 108,252
Saks, Inc. (a) ........................................................... 6,100 192,531
Sears, Roebuck & Company ................................................. 6,200 263,500
--------------
1,447,030
TELECOMMUNICATIONS -- (7.8%)
Alltel Corporation ....................................................... 2,700 161,494
Ameritech Corporation .................................................... 6,200 392,925
AT&T Corporation ......................................................... 7,600 571,900
Bell Atlantic Corporation ................................................ 9,580 507,740
BellSouth Corporation .................................................... 4,800 239,400
SBC Communications, Inc. ................................................. 5,900 316,387
--------------
2,189,846
TOBACCO -- (2.3%)
Philip Morris Companies, Inc. ............................................ 12,100 647,350
--------------
TRANSPORTATION -- (0.6%)
Burlington Northern Santa Fe Corporation ................................. 4,800 162,000
--------------
TOTAL COMMON STOCKS -- (Cost $21,319,567) 87.6% 24,661,535
--------------
PREFERRED STOCKS
CABLE TELEVISION -- (1.4%)
MediaOne Group, Inc. ..................................................... 6,000 399,000
--------------
INDUSTRIAL MACHINERY -- (0.7%)
Ingersoll Rand Ltd. ...................................................... 10,700 212,663
--------------
REAL ESTATE -- (0.5%)
Equity Residential Properties Trust ...................................... 6,300 129,150
--------------
TOTAL PREFERRED STOCKS -- (Cost $706,273) 2.6% 740,813
--------------
<CAPTION>
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT
---- ---- ------
<S> <C> <C> <C> <C> <C>
CONVERTIBLE BOND
ELECTRONICS -- (0.5%)
National Semiconductor Corporation ........ 6.500% 10/01/2002 $ 140,000 123,200
--------------
TOTAL CONVERTIBLE BOND --
(Cost $132,247) 0.5% 123,200
--------------
</TABLE>
See notes to financial statements.
41
<PAGE> 43
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-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 -- (9.5%)
State Street Bank and Trust Company (b).... 4.800% 01/04/1999 $ 2,663,420 $ 2,662,000
--------------
TOTAL SHORT TERM INVESTMENT --
(Cost $2,662,000) 9.5% 2,662,000
--------------
TOTAL INVESTMENTS -- (Cost $24,820,087) 100.2% 28,187,548
LIABILITIES LESS OTHER ASSETS -- (0.2)% (43,884)
----- --------------
NET ASSETS -- 100.0% $ 28,143,664
===== ==============
</TABLE>
(a) Non-income producing security.
(b) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 4.80% interest, to be repurchased at $2,663,420 on 01/04/99, is
fully collateralized by a United States Treasury Bond, 6.625%, 03/31/02,
with a value of $2,717,840.
See notes to financial statements.
42
<PAGE> 44
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
BANKS -- (4.6%)
Fifth Third Bancorp ...................................................... 8,960 $ 638,960
Firstar Corporation ...................................................... 7,700 718,025
Wells Fargo & Company .................................................... 7,000 279,563
Zions Bancorporation ..................................................... 5,700 355,537
--------------
1,992,085
BROADCASTING -- (3.5%)
Cablevision Systems Corporation, Class A ................................. 8,000 401,500
Clear Channel Communications (a) ......................................... 10,300 561,350
Time Warner, Inc. ........................................................ 8,600 533,737
--------------
1,496,587
COMMUNICATION EQUIPMENT -- (4.3%)
Lucent Technologies, Inc. ................................................ 4,900 539,000
Tellabs, Inc. (a) ........................................................ 19,100 1,309,544
--------------
1,848,544
COMPUTERS & BUSINESS EQUIPMENT -- (0.9%)
International Business Machines Corporation .............................. 2,000 369,500
--------------
COMPUTER RELATED -- (13.7%)
Cisco Systems, Inc. (a) .................................................. 14,350 1,331,859
Compaq Computer Corporation .............................................. 9,600 402,600
Dell Computer Corporation (a) ............................................ 14,400 1,053,900
EMC Corporation (a) ...................................................... 15,100 1,283,500
Intel Corporation ........................................................ 8,600 1,019,638
Sun Microsystems, Inc. (a) ............................................... 10,000 856,250
--------------
5,947,747
COMPUTER SERVICES -- (0.8%)
Paychex, Inc. ............................................................ 7,100 365,206
--------------
COMPUTER SOFTWARE -- (12.2%)
America Online, Inc. ..................................................... 7,000 1,120,000
BMC Software, Inc. (a) ................................................... 16,060 715,674
Computer Associates International, Inc. .................................. 7,450 317,556
Compuware Corporation (a) ................................................ 10,000 781,250
HBO & Company ............................................................ 37,900 1,087,256
Microsoft Corporation .................................................... 8,960 1,242,640
--------------
5,264,376
COSMETICS & TOILETRIES -- (1.7%)
CVS Corporation .......................................................... 6,518 358,490
Walgreen Company ......................................................... 6,800 398,225
--------------
756,715
DIVERSIFIED MANUFACTURING -- (1.1%)
Tyco International, Ltd. ................................................. 6,300 475,256
--------------
</TABLE>
See notes to financial statements.
43
<PAGE> 45
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
DRUGS -- (9.0%)
Merck & Company, Inc. .................................................... 2,900 $ 428,294
Pfizer, Inc. ............................................................. 9,820 1,231,796
Schering Plough Corporation .............................................. 18,200 1,005,550
Warner Lambert Company ................................................... 11,700 879,694
Watson Pharmaceuticals, Inc. (a) ......................................... 5,600 352,100
--------------
3,897,434
DRUGS/PHARMACEUTICALS -- (0.0%)
Crescendo Pharmaceuticals Corporation, Class A (a) ....................... 181 2,466
--------------
ELECTRICAL EQUIPMENT -- (1.2%)
General Electric Company ................................................. 5,000 510,313
--------------
ENVIRONMENTAL -- (0.1%)
Thermo Electron Corporation (a) .......................................... 3,150 53,353
--------------
FINANCIAL SERVICES -- (7.7%)
Citigroup, Inc. .......................................................... 14,580 721,710
Federal Home Loan Mortgage Corporation ................................... 7,950 512,278
Federal National Mortgage Association .................................... 6,700 495,800
FINOVA Group, Inc. ....................................................... 12,220 659,116
Sunamerica, Inc. ......................................................... 11,600 941,050
--------------
3,329,954
FOOD RETAILERS -- (1.9%)
Safeway, Inc. (a) ........................................................ 13,800 840,937
--------------
INSURANCE -- (1.6%)
American International Group, Inc. ....................................... 7,035 679,757
--------------
MEDICAL PRODUCTS & SUPPLIES -- (2.7%)
Guidant Corporation ...................................................... 6,200 683,550
Medtronic, Inc. .......................................................... 6,800 504,900
--------------
1,188,450
MEDICAL SUPPLIES & SERVICES -- (4.6%)
Cardinal Health, Inc. .................................................... 8,715 661,251
Health Management Associates, Class A (a) ................................ 15,800 341,675
Lincare Holdings, Inc. (a) ............................................... 9,700 393,456
McKesson Corporation ..................................................... 7,300 577,156
--------------
1,973,538
PRINTING & PUBLISHING -- (2.3%)
Omnicom Group ............................................................ 17,500 1,015,000
--------------
</TABLE>
See notes to financial statements.
44
<PAGE> 46
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
COMMON STOCKS
RETAIL -- (2.9%)
Dayton Hudson Corporation ................................................ 6,600 $ 358,050
Wal-Mart Stores, Inc. .................................................... 11,300 920,244
--------------
1,278,294
RETAIL-DISCOUNT -- (1.5%)
Dollar General Corporation ............................................... 13,700 323,663
TJX Companies, Inc. ...................................................... 10,800 313,200
--------------
636,863
RETAIL-SPECIALTY -- (5.4%)
Costco Companies, Inc. (a) ............................................... 11,093 800,776
Gap, Inc. ................................................................ 9,450 531,563
Home Depot, Inc. ......................................................... 9,400 575,162
Staples, Inc. (a) ........................................................ 9,600 419,400
--------------
2,326,901
TELECOMMUNICATIONS -- (1.3%)
MCI WorldCom, Inc. ....................................................... 7,600 545,300
--------------
TOTAL COMMON STOCKS -- (Cost $22,516,527) 85.0% 36,794,576
--------------
<CAPTION>
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT
---- ---- ------
<S> <C> <C> <C> <C> <C>
GOVERNMENT AND AGENCY SECURITIES
FEDERAL AGENCIES -- (6.0%)
Federal National Mortgage Association ..... 5.750% 06/15/2005 $ 1,500,000 1,548,750
6.000% 05/15/2008 1,000,000 1,055,620
--------------
2,604,370
U.S. GOVERNMENT SECURITIES -- (5.3%)
United States Treasury Bond ............... 7.250% 08/15/2022 1,000,000 1,244,690
United States Treasury Notes .............. 6.500% 05/31/2001 500,000 520,860
6.375% 08/15/2002 500,000 527,420
--------------
2,292,970
--------------
TOTAL GOVERNMENT AND AGENCY SECURITIES
-- (Cost $4,606,796) 11.3% 4,897,340
--------------
CORPORATE BOND
INDUSTRIALS -- (0.6%)
BP America, Inc. .......................... 8.500% 04/15/2001 250,000 267,143
--------------
TOTAL CORPORATE BOND-(Cost $251,165) 0.6% 267,143
--------------
CONVERTIBLE BOND
MEDICAL SUPPLIES & SERVICES -- (0.8%)
Alza Corporation .......................... 5.000% 05/01/2006 250,000 357,500
--------------
TOTAL CONVERTIBLE BOND-(Cost $240,214) 0.8% 357,500
--------------
</TABLE>
See notes to financial statements.
45
<PAGE> 47
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-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 -- (1.8%)
State Street Bank and Trust Company (b) ... 3.750% 01/04/1999 $ 780,325 $ 780,000
--------------
TOTAL SHORT TERM INVESTMENT --
(Cost $780,000) 1.8% 780,000
--------------
TOTAL INVESTMENTS -- (Cost $28,394,702) 99.5% 43,096,559
OTHER ASSETS LESS LIABILITIES -- 0.5% 199,753
----- --------------
NET ASSETS -- 100.0% $ 43,296,312
===== ==============
</TABLE>
(a) Non-income producing security.
(b) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 3.75% interest to be repurchased at $780,325 on 01/04/99 is fully
collateralized by a United States Treasury Bond, 13.25%, 05/15/14, with a
value of $802,932.
See notes to financial statements.
46
<PAGE> 48
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
AUTOMOTIVE -- (1.6%)
Accuride Corporation ...................... 9.250% 02/01/2008 $ 75,000 $ 73,875
Aftermarket Technology Company ............ 12.000% 08/01/2004 56,000 59,080
Collins & Aikman Products Company ......... 11.500% 04/15/2006 200,000 208,000
--------------
340,955
BANKS -- (1.4%)
GS Escrow Corporation ..................... 7.125% 08/01/2005 300,000 297,393
--------------
BEVERAGE & TOBACCO -- (0.5%)
Dimon, Inc. ............................... 8.875% 06/01/2006 100,000 99,500
--------------
BROADCAST RADIO & TELEVISION -- (7.3%)
Acme Television LLC (a) .................. 11.634% 09/30/2004 100,000 80,250
Big City Radio, Inc. (a) ................. 14.503% 03/15/2005 100,000 66,500
Capstar Radio Broadcasting Partners, Inc. . 9.250% 07/01/2007 50,000 52,250
CBS Radio Corporation ..................... 11.375% 01/15/2009 94,000 110,215
Chancellor Media Corporation .............. 10.500% 01/15/2007 100,000 111,500
8.750% 06/15/2007 125,000 128,750
8.125% 12/15/2007 200,000 199,500
Cumulus Media, Inc. ....................... 10.375% 07/01/2008 50,000 53,250
Fox/Liberty Networks LLC .................. 8.875% 08/15/2007 50,000 51,000
(a) 10.028% 08/15/2007 300,000 208,500
Outdoor Systems, Inc. ..................... 8.875% 06/15/2007 200,000 215,000
Sinclair Broadcast Group, Inc.............. 9.000% 07/15/2007 50,000 51,125
8.750% 12/15/2007 200,000 203,500
Young Broadcasting, Inc. .................. 9.000% 01/15/2006 50,000 50,875
--------------
1,582,215
BUILDING & DEVELOPMENT -- (0.7%)
American Builders & Contractors Supply
Company ................................ 10.625% 05/15/2007 50,000 46,750
Building Materials Corporation of America 8.625% 12/15/2006 50,000 51,125
8.000% 10/15/2007 50,000 50,438
--------------
148,313
BUSINESS EQUIPMENT & SERVICES -- (2.5%)
Dialog Corporation ........................ 11.000% 11/15/2007 125,000 125,000
Electronic Retailing Systems
International, Inc. (a),(b) ........... 36.892% 02/01/2004 50,000 18,250
Fisher Scientific International, Inc. ..... 9.000% 02/01/2008 150,000 150,000
(b) 9.000% 02/01/2008 50,000 50,000
U.S. Office Products Company .............. 9.750% 06/15/2008 125,000 81,875
United Stationers Supply Company .......... 12.750% 05/01/2005 50,000 56,000
8.375% 04/15/2008 50,000 50,125
--------------
531,250
</TABLE>
See notes to financial statements.
47
<PAGE> 49
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
CABLE TELEVISION -- (10.1%)
Charter Communications Holdings,
Inc., LP (a) .......................... 10.965% 03/15/2007 $ 150,000 $ 134,250
Charter Communications Southeast, LP ...... 11.250% 03/15/2006 50,000 56,125
Comcast Corporation ....................... 9.375% 05/15/2005 150,000 160,125
10.625% 07/15/2012 50,000 64,750
CSC Holdings, Inc. ........................ 9.250% 11/01/2005 25,000 26,750
7.875% 12/15/2007 100,000 105,481
Diamond Holdings Plc ...................... 9.125% 02/01/2008 125,000 122,812
Diva Systems Corporation (a),(b) ......... 17.522% 03/01/2008 50,000 18,875
International CableTel, Inc. (a) ......... 11.557% 04/15/2005 125,000 113,125
(a) 10.604% 02/01/2006 125,000 104,375
Lenfest Communications, Inc. .............. 8.250% 02/15/2008 150,000 157,125
NTL, Inc. (a) ............................ 10.671% 04/01/2008 275,000 170,844
(a), (b) 11.066% 10/01/2008 100,000 63,000
(b) 11.500% 10/01/2008 100,000 109,500
Pegasus Communications Corporation ........ 9.750% 12/01/2006 50,000 50,375
Pegasus Media & Communications, Inc. ...... 12.500% 07/01/2005 50,000 55,250
Rogers Cablesystems Ltd. .................. 10.000% 12/01/2007 150,000 168,750
TeleWest Plc (a),(b) ..................... 10.821% 10/01/2007 350,000 294,000
(b) 11.250% 11/01/2008 50,000 56,125
UIH Australia/Pacific, Inc. (a) .......... 20.362% 05/15/2006 125,000 63,750
United International Holdings, Inc. (a) ... 13.069% 02/15/2008 150,000 81,750
--------------
2,177,137
CHEMICALS & PLASTICS -- (2.7%)
Buckeye Cellulose Corporation ............. 9.250% 09/15/2008 125,000 131,562
Huntsman Corporation (b) ................. 9.500% 07/01/2007 100,000 100,000
ISP Holdings, Inc. ........................ 9.750% 02/15/2002 100,000 106,750
Polymer Group, Inc. ....................... 9.000% 07/01/2007 175,000 174,125
8.750% 03/01/2008 50,000 49,375
Sterling Chemicals, Inc. (a) ............. 22.942% 08/15/2008 75,000 28,875
--------------
590,687
CLOTHING & TEXTILES -- (1.8%)
Collins & Aikman Floorcoverings, Inc. ..... 10.000% 01/15/2007 75,000 78,750
GFSI, Inc. ................................ 9.625% 03/01/2007 50,000 47,750
Glenoit Corporation ....................... 11.000% 04/15/2007 100,000 93,500
Pillowtex Corporation ..................... 10.000% 11/15/2006 100,000 107,500
9.000% 12/15/2007 50,000 51,750
--------------
379,250
CONGLOMERATES -- (0.5%)
Eagle Picher Industries, Inc. ............. 9.375% 03/01/2008 125,000 118,750
--------------
</TABLE>
See notes to financial statements.
48
<PAGE> 50
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
CONSUMER PRODUCTS -- (3.6%)
Albecca, Inc. (b) ........................ 10.750% 08/15/2008 $ 100,000 $ 100,750
American Safety Razor Company ............. 9.875% 08/01/2005 50,000 50,250
Amscan Holdings, Inc. ..................... 9.875% 12/15/2007 100,000 93,750
Chattem, Inc. ............................. 8.875% 04/01/2008 75,000 77,250
ICON Fitness Corporation (a) ............. 100.544% 11/15/2006 100,000 1,500
Playtex Family Products Corporation ....... 8.875% 07/15/2004 100,000 105,000
Revlon Corporation ........................ 8.625% 02/01/2008 275,000 254,375
Sealy Mattress Company .................... 9.875% 12/15/2007 50,000 48,500
True Temper Sports, Inc. (b) ............. 10.875% 12/01/2008 50,000 50,250
--------------
781,625
CONTAINER & GLASS PRODUCTS -- (0.5%)
Tekni Plex, Inc. .......................... 9.250% 03/01/2008 100,000 105,000
--------------
FOOD & DRUG RETAILERS -- (0.5%)
Carr Gottstein Foods Company .............. 12.000% 11/15/2005 50,000 58,000
Di Giorgio Corporation .................... 10.000% 06/15/2007 50,000 46,750
--------------
104,750
FOOD PRODUCTS -- (2.7%)
Agrilink Foods, Inc. (b) ................. 11.875% 11/01/2008 100,000 102,000
Aurora Foods, Inc. ........................ 9.875% 02/15/2007 100,000 109,500
9.875% 02/15/2007 50,000 54,750
Eagle Family Foods, Inc. .................. 8.750% 01/15/2008 150,000 142,125
International Home Foods, Inc. ............ 10.375% 11/01/2006 150,000 163,125
--------------
571,500
FOOD SERVICES -- (1.7%)
Ameriserve Food Distribution, Inc. ........ 10.125% 07/15/2007 250,000 218,750
Carrols Corporation (b) .................. 9.500% 12/01/2008 100,000 101,250
Dominos, Inc. (b) ........................ 10.375% 01/15/2009 50,000 50,000
--------------
370,000
FOREST PRODUCTS -- (0.7%)
Stone Container Corporation ............... 11.500% 10/01/2004 75,000 78,375
12.580% 08/01/2016 75,000 76,500
--------------
154,875
HEALTH CARE -- (3.8%)
Alliance Imaging, Inc. .................... 9.625% 12/15/2005 50,000 49,750
Conmed Corporation ........................ 9.000% 03/15/2008 100,000 100,750
Dade International, Inc. .................. 11.125% 05/01/2006 150,000 166,875
Hudson Respiratory Care, Inc............... 9.125% 04/15/2008 100,000 81,500
Tenet Healthcare Corporation .............. 8.000% 01/15/2005 300,000 307,974
8.625% 01/15/2007 100,000 104,500
--------------
811,349
</TABLE>
See notes to financial statements.
49
<PAGE> 51
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
HOTELS, MOTELS, INNS & CASINOS -- (1.7%)
Courtyard by Marriott II LP ............... 10.750% 02/01/2008 $ 50,000 $ 51,750
HMH Properties, Inc. ...................... 7.875% 08/01/2005 100,000 99,750
7.875% 08/01/2008 150,000 146,250
8.450% 12/01/2008 75,000 75,375
--------------
373,125
INDUSTRIAL PRODUCTS & EQUIPMENT -- (4.9%)
Amphenol Corporation ...................... 9.875% 05/15/2007 100,000 104,000
Cabot Safety Acquisition Corporation ...... 12.500% 07/15/2005 100,000 109,500
Continental Global Group, Inc. ............ 11.000% 04/01/2007 100,000 86,500
Euramax International Plc ................. 11.250% 10/01/2006 75,000 75,000
International Utility Structures, Inc. .... 10.750% 02/01/2008 50,000 46,750
ISG Resources, Inc. ....................... 10.000% 04/15/2008 100,000 99,500
Johnstown America Industries, Inc. ........ 11.750% 08/15/2005 75,000 79,500
MMI Products, Inc. ........................ 11.250% 04/15/2007 100,000 108,500
Neenah Corporation ........................ 11.125% 05/01/2007 100,000 103,250
Unifrax Investment Corporation ............ 10.500% 11/01/2003 50,000 50,750
Wesco Distribution, Inc. .................. 9.125% 06/01/2008 150,000 150,750
Wesco International, Inc. (a) ............. 11.193% 06/01/2008 50,000 30,875
--------------
1,044,875
LEISURE & ENTERTAINMENT -- (3.2%)
AMF Group, Inc. (a) ....................... 17.395% 03/15/2006 122,000 70,455
Premier Parks, Inc. (a) ................... 12.000% 08/15/2003 50,000 54,375
9.603% 04/01/2008 250,000 170,625
Regal Cinemas, Inc. ....................... 9.500% 06/01/2008 125,000 129,375
(b) 9.500% 06/01/2008 75,000 77,625
Six Flags Theme Parks, Inc. ............... 12.250% 06/15/2005 175,000 195,125
--------------
697,580
MACHINERY & EQUIPMENT -- (1.9%)
Alvey Systems, Inc. ....................... 11.375% 01/31/2003 52,000 52,260
Clark Material Handling Corporation........ 10.750% 11/15/2006 75,000 76,688
National Equipment Services, Inc. ......... 10.000% 11/30/2004 50,000 49,750
(b) 10.000% 11/30/2004 100,000 99,500
United Rentals, Inc. (b) .................. 9.250% 01/15/2009 125,000 125,937
--------------
404,135
METALS & MINING -- (0.8%)
AEI Holding Company (b) ................... 10.500% 12/15/2005 75,000 73,875
AEI Resources, Inc. (b) ................... 11.500% 12/15/2006 100,000 99,500
--------------
173,375
OIL & GAS -- (3.5%)
Continental Resources, Inc. ............... 10.250% 08/01/2009 100,000 83,500
Dailey International, Inc. ................ 9.500% 02/15/2008 100,000 47,000
Forcenergy Gas Exploration, Inc. .......... 9.500% 11/01/2006 150,000 116,250
8.500% 02/15/2007 50,000 37,250
Nuevo Energy Company ...................... 8.875% 06/01/2008 100,000 97,500
</TABLE>
See notes to financial statements.
50
<PAGE> 52
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER INTEREST MATURITY PRINCIPAL
AND TITLE OF ISSUE RATE DATE AMOUNT VALUE
------------------ ---- ---- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BONDS
OIL & GAS -- (CONTINUED)
Ocean Energy, Inc. ........................ 10.375% 10/15/2005 $ 75,000 $ 77,625
Pride Petroleum Services, Inc. ............ 9.375% 05/01/2007 150,000 140,250
The Houston Exploration Company ........... 8.625% 01/01/2008 75,000 73,875
Universal Compression, Inc. (a) ........... 11.911% 02/15/2008 125,000 71,875
--------------
745,125
PRINTING & PUBLISHING -- (0.9%)
Hollinger International Publishing, Inc. .. 9.250% 03/15/2007 175,000 185,500
--------------
RETAILERS -- (0.2%)
Leslie's Poolmart, Inc. ................... 10.375% 07/15/2004 50,000 51,750
--------------
SERVICES -- (0.7%)
Coinmach Corporation ...................... 11.750% 11/15/2005 50,000 55,375
Sitel Corporation ......................... 9.250% 03/15/2006 100,000 90,500
--------------
145,875
STEEL -- (0.3%)
Metals USA, Inc. .......................... 8.625% 02/15/2008 75,000 70,875
--------------
SURFACE TRANSPORTATION -- (2.7%)
Gearbulk Holdings Ltd. .................... 11.250% 12/01/2004 150,000 159,000
Statia Terminals International N.V. ....... 11.750% 11/15/2003 100,000 100,500
Stena AB .................................. 10.500% 12/15/2005 175,000 181,563
8.750% 06/15/2007 50,000 47,875
StenaLine AB .............................. 10.625% 06/01/2008 50,000 45,250
The Holt Group, Inc. (b) ................. 9.750% 01/15/2006 75,000 52,875
--------------
587,063
TELECOMMUNICATIONS -- (11.5%)
Call-Net Enterprises, Inc. (a) ............ 10.790% 08/15/2007 225,000 145,125
10.385% 08/15/2008 100,000 59,250
E. Spire Communications, Inc. (a).......... 16.134% 11/01/2005 50,000 33,750
13.750% 07/15/2007 50,000 49,250
Esprit Telecommunication Group Plc ........ 11.500% 12/15/2007 50,000 52,000
Hermes Europe Railtel B.V. ................ 11.500% 08/15/2007 200,000 213,000
ICG Holdings, Inc. (a) .................... 12.798% 05/01/2006 50,000 37,094
ICG Services, Inc. (a) .................... 12.900% 05/01/2008 125,000 64,904
IXC Communications, Inc. .................. 9.000% 04/15/2008 100,000 100,625
Level 3 Communications, Inc. .............. 9.125% 05/01/2008 300,000 299,250
(a),(b) 10.856% 12/01/2008 150,000 88,125
Metronet Communications Corporation........ 12.000% 08/15/2007 100,000 109,250
(a) 11.063% 11/01/2007 75,000 49,125
(a) 10.579% 06/15/2008 150,000 92,625
(b) 10.625% 11/01/2008 75,000 79,875
NEXTEL International, Inc. (a) ............ 15.468% 04/15/2008 75,000 35,166
Pathnet, Inc. ............................. 12.250% 04/15/2008 100,000 76,000
PSInet, Inc. .............................. 10.000% 02/15/2005 100,000 99,500
</TABLE>
See notes to financial statements.
51
<PAGE> 53
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-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
TELECOMMUNICATIONS -- (CONTINUED)
PSInet, Inc. ...........................(b) 11.500% 11/01/2008 $ 50,000 $ 52,000
Qwest Communications International, ..Inc. 10.875% 04/01/2007 65,000 75,075
(a) 8.051% 10/15/2007 175,000 137,375
(b) 7.500% 11/01/2008 100,000 105,000
Telecommunications Techniques Company ..... 9.750% 05/15/2008 125,000 121,875
Teligent, Inc. ............................ 11.500% 12/01/2007 150,000 138,750
United States Xchange LLC ................. 15.000% 07/01/2008 50,000 52,625
Viatel, Inc. .............................. 11.250% 04/15/2008 75,000 75,375
(a) 13.073% 04/15/2008 50,000 28,500
--------------
2,470,489
TELECOMMUNICATIONS & CELLULAR -- (10.5%)
Americian Cellular Corporation (b) ....... 10.500% 05/15/2008 125,000 124,375
Centennial Cellular Corporation (b) ....... 10.750% 12/15/2008 75,000 75,750
Intermedia Communications of Florida,
Inc. (a) ............................... 11.699% 05/15/2006 200,000 157,500
(a) 10.940% 07/15/2007 125,000 86,875
Intermedia Communications, Inc. ........... 8.600% 06/01/2008 75,000 71,625
McLeodUSA, Inc. (b) ....................... 9.794% 03/01/2007 150,000 114,000
9.250% 07/15/2007 50,000 51,375
8.375% 03/15/2008 50,000 50,500
9.500% 11/01/2008 50,000 53,500
Metromedia Fiber Network, Inc. (b) ....... 10.000% 11/15/2008 50,000 51,625
Millicom International Cellular S.A. (a) . 14.055% 06/01/2006 200,000 141,500
NEXTEL Communications, Inc. (a) .......... 11.305% 09/15/2007 300,000 195,000
(a) 11.288% 02/15/2008 200,000 121,000
Nextlink Communications, Inc. ............. 9.625% 10/01/2007 50,000 48,875
9.000% 03/15/2008 75,000 69,937
(a) 11.339% 04/15/2008 50,000 29,000
Orange Plc ................................ 8.000% 08/01/2008 125,000 125,625
Paging Network, Inc. ...................... 10.000% 10/15/2008 200,000 194,000
Rogers Cantel Mobile Communications, Inc. 8.800% 10/01/2007 150,000 152,062
Telesystem International Wireless, Inc. (a) 19.194% 06/30/2007 200,000 86,000
(a) 18.865% 11/01/2007 50,000 18,500
Triton PCS, Inc. (a) ..................... 14.703% 05/01/2008 175,000 82,688
USA Mobile Communications, Inc. ........... 9.500% 02/01/2004 125,000 113,750
Verio, Inc. (b) .......................... 11.250% 12/01/2008 50,000 50,750
--------------
2,265,812
UTILITIES -- (0.8%)
El Paso Electric Company .................. 9.400% 05/01/2011 50,000 56,772
Niagara Mohawk Power Corporation (a) ...... 7.224% 07/01/2010 150,000 116,647
--------------
173,419
--------------
TOTAL CORPORATE BONDS --
(Cost $18,657,787) 86.2% 18,553,547
--------------
</TABLE>
See notes to financial statements.
52
<PAGE> 54
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
PREFERRED STOCKS
BANKS -- (0.1%)
California Federal Preferred Capital Corporation, 9.125% ................. 1,000 $ 25,313
--------------
BROADCAST RADIO & TELEVISION -- (1.7%)
Benedek Communications Corporation,11.50% ................................ 75 60,375
Capstar Broadcasting Partners, Inc., Sr., 12.00% ......................... 597 71,763
Cumulus Media, Inc., Sr., 13.75% (c) ..................................... 52 56,160
SFX Broadcasting, Inc., Exch., Series E, 12.625% ......................... 565 68,082
Sinclair Broadcast Group, Inc., 11.625% .................................. 1,050 111,300
--------------
367,680
CABLE TELEVISION -- (0.7%)
Pegasus Communications Corporation, PIK, Series A, 12.75% ................ 145 139,925
--------------
FOOD SERVICES -- (0.1%)
Nebco Evans Holding Company, Exch.,11.25% ................................ 270 13,635
--------------
INDUSTRIAL PRODUCTS & EQUIPMENT -- (0.3%)
Fairfield Manufacturing Company, Inc., Exch., 11.25% (c) ................. 75 72,375
--------------
PRINTING & PUBLISHING -- (1.2%)
Primedia, Inc., Exch., Series D,10.00% ................................... 750 77,625
Primedia, Inc., Exch., Series E, 9.20% (c) ............................... 1,850 182,225
--------------
259,850
TELECOMMUNICATIONS -- (0.0%)
Viatel, Inc., Conv., PIK, 10.00% ......................................... 63 6,946
--------------
TELECOMMUNICATIONS & CELLULAR -- (0.4%)
NEXTEL Communications, Inc., 13.00% ...................................... 55 57,062
NEXTEL Communications, Inc., Exch.,11.125% ............................... 25 21,625
--------------
78,687
UTILITIES -- (0.3%)
El Paso Electric Company, PIK,11.40% ..................................... 675 72,563
--------------
TOTAL PREFERRED STOCKS -- (Cost $981,945) 4.8% 1,036,974
--------------
COMMON STOCKS
CABLE TELEVISION -- (0.0%)
CS Wireless Systems, Inc. (b),(c) ........................................ 13 0
Pegasus Communications Corporation (c) ................................... 112 2,807
--------------
2,807
PRINTING & PUBLISHING -- (0.2%)
Affiliated Newspaper Investments, Inc. (c) ............................... 250 37,500
--------------
TOTAL COMMON STOCKS -- (Cost $99) 0.2% 40,307
--------------
</TABLE>
See notes to financial statements.
53
<PAGE> 55
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-CONTINUED-
<TABLE>
<CAPTION>
NAME OF ISSUER
AND TITLE OF ISSUE SHARES VALUE
------------------ ------ -----
<S> <C> <C> <C>
WARRANTS
BUSINESS EQUIPMENT & SERVICES -- (0.0%)
Electronic Retailing Systems International, Inc. (c) ..................... 50 $ 250
-------------
CABLE TELEVISION -- (0.0%)
Australis Holdings Property Ltd. (c) ..................................... 50 0
Diva Systems Corporation ................................................. 150 0
Pegasus Communications Corporation (c) ................................... 75 1,537
UIH Australia/Pacific, Inc. (c) .......................................... 125 0
Wireless One, Inc. (c) ................................................... 150 0
--------------
1,537
CONSUMER PRODUCTS -- (0.0%)
IHF Capital, Inc. (b),(c) ............................................... 100 50
--------------
STEEL -- (0.0%)
Bar Technologies, Inc. (b),(c) ........................................... 25 1,375
--------------
TELECOMMUNICATIONS -- (0.0%)
Metronet Communications Corporation (b),(c) .............................. 100 4,378
Pathnet, Inc. ............................................................ 100 0
--------------
4,378
TELECOMMUNICATIONS & CELLULAR -- (0.1%)
Cellular Communications International, Inc. (c) .......................... 100 6,200
NEXTEL Communications, Inc. (c) .......................................... 100 1
--------------
6,201
--------------
TOTAL WARRANTS -- (Cost $1,408) 0.1% 13,791
--------------
<CAPTION>
INTEREST MATURITY MATURITY
RATE DATE AMOUNT
---- ---- ------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT -- (1.1%)
State Street Bank and Trust Company (d) ... 3.750% 01/04/1999 $ 232,097 232,000
--------------
TOTAL SHORT TERM INVESTMENT --
(Cost $232,000) 1.1% 232,000
--------------
TOTAL INVESTMENTS -- (Cost $19,873,239) 92.4% 19,876,619
OTHER ASSETS LESS LIABILITIES -- 7.6% 1,639,445
----- --------------
NET ASSETS -- 100.0% $ 21,516,064
===== ==============
</TABLE>
(a) Step bond. Interest rate shown represents yield to maturity.
(b) 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, 1998, these securities
aggregated $2,068,490 or 9.61% of the net assets of the Portfolio.
(c) Non-income producing security.
(d) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 3.75% interest, to be repurchased at $232,097 on 01/04/99 is fully
collateralized by a United States Treasury Bond, 6.625%, 03/31/02, with a
value of $241,705.
See notes to financial statements.
54
<PAGE> 56
VARIABLE INVESTORS SERIES TRUST
U.S. GOVERNMENT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
<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
MORTGAGE BACKED SECURITIES -- (31.1%)
FHA Insured Project Loan ......................... 3.025% 11/01/2006 $ 333,252 $ 313,050
7.500% 11/15/2030 270,551 279,344
FHLMC Participation Certificates ................. 8.500% 01/01/2003 78,111 80,773
10.000% 10/01/2005 63,257 67,869
9.500% 04/01/2007 62,399 65,698
9.000% 06/01/2016 111,549 119,621
7.625% 08/25/2022 213,697 213,764
6.250% 09/15/2022 200,000 201,607
(a) 8.137% 08/01/2025 147,139 152,288
FNMA Guaranteed Real Estate Mortgage
Investment Pass-Thru Certificates ............ 6.740% 08/25/2007 300,000 317,111
8.400% 02/25/2009 290,000 306,349
6.000% 09/01/2012 159,222 159,907
(a) 7.299% 08/17/2018 235,000 253,750
9.500% 03/25/2019 503,166 544,663
10.000% 04/01/2020 85,755 93,122
(a) 6.487% 04/01/2020 104,273 104,088
7.000% 06/25/2022 400,323 406,074
(a) 6.150% 11/01/2035 398,446 400,900
GNMA Guaranteed Pass-Thru Certificates............ 9.000% 12/15/2006 124,351 131,408
9.000% 01/15/2008 168,837 176,113
(a) 6.875% 03/20/2018 219,880 225,111
7.500% 04/15/2024 187,462 193,496
----------
4,806,106
U.S. GOVERNMENT SECURITIES -- (52.9%)
U.S. Treasury Bonds .............................. 11.625% 11/15/2004 315,000 424,266
7.250% 05/15/2016 480,000 582,450
7.500% 11/15/2024 115,000 149,141
6.125% 11/15/2027 1,145,000 1,282,758
U.S. Treasury Notes .............................. 6.000% 08/15/2000 1,400,000 1,429,313
5.500% 12/31/2000 235,000 238,966
5.875% 11/30/2001 560,000 578,725
6.250% 08/31/2002 650,000 683,313
7.875% 11/15/2004 1,275,000 1,477,406
7.000% 07/15/2006 220,000 250,594
6.125% 08/15/2007 265,000 289,678
5.625% 05/15/2008 750,000 800,391
----------
8,187,001
----------
TOTAL GOVERNMENT AND AGENCY SECURITIES --
(Cost $12,848,491) 84.0% 12,993,107
----------
</TABLE>
See notes to financial statements.
55
<PAGE> 57
VARIABLE INVESTORS SERIES TRUST
U.S. GOVERNMENT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 1998
-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
BANKS -- (2.5%)
GS Escrow Corporation (b)......................... 7.000% 08/01/2003 $ 390,000 $ 382,552
--------------
BROADCASTING -- (2.2%)
Time Warner, Inc. ................................ 8.110% 08/15/2006 300,000 343,455
--------------
REAL ESTATE -- (1.3%)
Colonial Realty LP ............................... 7.000% 07/14/2007 215,000 206,097
--------------
TOTAL CORPORATE BONDS -- (Cost $931,421) 6.0% 932,104
--------------
MUNICIPAL BOND
New Jersey Economic Development Authority ........ 7.425% 02/15/2029 100,000 117,001
--------------
TOTAL MUNICIPAL BOND-(Cost $100,000) 0.8% 117,001
--------------
NON-AGENCY MORTGAGES AND ASSET BACKED
Community Program Loan ........................... 4.500% 04/01/2029 340,000 277,525
--------------
TOTAL NON-AGENCY MORTGAGES AND
ASSET BACKED-(Cost $254,044) 1.8% 277,525
--------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY
AMOUNT
------
<S> <C> <C> <C> <C> <C>
SHORT TERM INVESTMENT
REPURCHASE AGREEMENT -- (6.8%)
State Street Bank and Trust Company (c)........... 4.000% 01/04/1999 $ 1,051,467 1,051,000
-------------
TOTAL SHORT TERM INVESTMENT --
(Cost $1,051,000) 6.8% 1,051,000
-------------
TOTAL INVESTMENTS -- (Cost $15,184,956) 99.4% 15,370,737
OTHER ASSETS LESS LIABILITIES -- 0.6% 99,665
----- -------------
NET ASSETS -- 100.0% $ 15,470,402
===== =============
</TABLE>
(a) Variable rate instrument. Interest rate is the rate in effect at December
31, 1998.
(b) Pursuant to Rule 144A under the Securities Act of 1933, this security may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At December 31, 1998, this security was $382,552 or
2.47% of the net assets of the Portfolio.
(c) The agreement with State Street Bank & Trust Company, dated 12/31/98,
bearing 4.00% interest, to be repurchased at $1,051,467 on 1/4/99 is fully
collateralized by a United States Treasury Bond, 13.25%, 05/15/14, with a
value of $1,078,940.
See notes to financial statements.
56
<PAGE> 58
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
SMALL CAP WORLD
GROWTH EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investments - securities, at value .......................... $ 14,120,249 $ 23,953,965 $ 83,734,272
Investments - repurchase agreements ......................... 805,000 0 722,000
Foreign currency holdings, at value (cost $1,497) ........... 0 1,497 0
Cash ........................................................ 615 15,860 277
Income receivable ........................................... 201 11,245 35,921
Receivable for securities sold .............................. 147,359 88,107 984,959
Receivable for trust shares sold ............................ 19,845 0 3,594
Prepaid expenses ............................................ 2,988 4,695 13,128
Foreign income tax reclaim receivable ....................... 0 24,978 0
Due from adviser ............................................ 11,815 20,953 0
------------ ------------ ------------
TOTAL ASSETS ............................................ 15,108,072 24,121,300 85,494,151
LIABILITIES
Payable for securities purchased ............................ 381,796 465,461 487,801
Unrealized depreciation on forward currency
contracts .............................................. 0 64,671 0
Advisory fee payable ........................................ 18,045 25,969 88,927
Accounts payable and accrued expenses ....................... 70,151 46,115 53,979
Payable for trust shares redeemed ........................... 0 118,981 0
------------ ------------ ------------
TOTAL LIABILITIES ....................................... 469,992 721,197 630,707
------------ ------------ ------------
TOTAL NET ASSETS .................................... $ 14,638,080 $ 23,400,103 $ 84,863,444
============ ============ ============
NET ASSETS
Capital paid - in ........................................... $ 12,551,893 $ 19,906,395 $ 49,636,463
Undistributed (distributions in
excess of) net investment income ....................... 0 (386,734) 0
Accumulated net realized gain (loss) on
investments and foreign currency transactions .......... (1,798,489) 41,397 2,409,041
Net unrealized appreciation (depreciation) of:
Investments ............................................ 3,884,676 3,902,237 32,817,940
Foreign currency ....................................... 0 (63,192) 0
------------ ------------ ------------
TOTAL NET ASSETS .................................... $ 14,638,080 $ 23,400,103 $ 84,863,444
============ ============ ============
NET ASSET VALUE PER SHARE (based on shares of beneficial interest
outstanding, unlimited number of shares
authorized without par value) ............................... $ 15.098 $ 13.618 $ 41.004
Total shares outstanding at end of period ................... 969,569 1,718,268 2,069,652
Cost of investment securities ............................... $ 11,040,573 $ 20,051,728 $ 51,638,332
</TABLE>
See notes to financial statements.
57
<PAGE> 59
<TABLE>
<CAPTION>
MATRIX GROWTH & MULTIPLE HIGH INCOME U.S. GOVERNMENT
EQUITY INCOME STRATEGIES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 22,304,904 $ 25,525,548 $ 42,316,559 $ 19,644,619 $ 14,319,737
0 2,662,000 780,000 232,000 1,051,000
0 0 0 0 0
2,626 535 146 1,396,043 696
22,118 39,649 76,597 352,366 163,508
394,967 229,863 332,096 1,369 1,676
0 0 0 0 0
3,283 5,271 6,896 3,993 1,970
0 5,920 0 0 0
7,409 3,496 0 6,269 13,914
- ------------ ------------ ------------ ------------ ------------
22,735,307 28,472,282 43,512,294 21,636,659 15,552,501
340,737 138,130 22,764 0 0
0 0 0 0 0
22,812 33,495 46,075 24,917 15,475
53,179 55,006 42,195 45,303 43,954
67,719 101,987 104,948 50,375 22,670
- ------------ ------------ ------------ ------------ ------------
484,447 328,618 215,982 120,595 82,099
- ------------ ------------ ------------ ------------ ------------
$ 22,250,860 $ 28,143,664 $ 43,296,312 $ 21,516,064 $ 15,470,402
============ ============ ============ ============ ============
$ 17,882,926 $ 24,205,289 $ 27,312,879 $ 21,773,180 $ 15,279,082
0 694 0 (281,489) 467
368,183 570,220 1,281,576 20,993 5,072
3,999,751 3,367,461 14,701,857 3,380 185,781
0 0 0 0 0
- ------------ ------------ ------------ ------------ ------------
$ 22,250,860 $ 28,143,664 $ 43,296,312 $ 21,516,064 $ 15,470,402
============ ============ ============ ============ ============
$ 16.351 $ 15.901 $ 17.143 $ 9.165 $ 10.322
1,360,804 1,769,884 2,525,550 2,347,521 1,498,751
$ 18,305,153 $ 24,820,087 $ 28,394,702 $ 19,873,239 $ 15,184,956
</TABLE>
58
<PAGE> 60
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
SMALL CAP WORLD
GROWTH EQUITY GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income ...................................... $ 8,958 $ 328,214 $ 320,168
Interest income ...................................... 13,516 63,382 122,457
Foreign taxes withheld ............................... 0 (35,666) 0
------------ ------------ ------------
TOTAL INCOME ........................................ 22,474 355,930 442,625
EXPENSES
Investment management fee ............................... 126,469 169,949 490,627
Administrative fee ...................................... 26,162 41,050 114,116
Custodian fee ........................................... 74,704 103,467 61,748
Audit fee and expenses .................................. 15,750 15,750 15,750
Legal fee ............................................... 5,250 5,250 5,250
Printing expenses ....................................... 6,250 6,250 6,250
Trustees fee and expenses ............................... 10,500 10,500 10,500
Transfer agent fee ...................................... 4,000 1,800 1,800
Insurance ............................................... 3,828 5,829 14,062
Other ................................................... 768 7,624 2,822
------------ ------------ ------------
TOTAL EXPENSES ........................................ 273,681 367,469 722,925
------------ ------------ ------------
Expenses borne by the adviser ........................... (71,605) (72,485) 0
Expense reductions ...................................... (1,215) (3,643) (6,221)
------------ ------------ ------------
NET EXPENSES .......................................... 200,861 291,341 716,704
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ....................... (178,387) 64,589 (274,079)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on investments .................... (1,643,534) 1,634,127 11,544,968
Net realized gain (loss) on foreign currency transactions... 0 8,967 0
Change in unrealized appreciation (depreciation) of:
Investments ............................................. 1,647,584 46,584 10,132,342
Foreign currency ........................................ 0 (335,881) 0
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ............... 4,050 1,353,797 21,677,310
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ (174,337) $ 1,418,386 $ 21,403,231
============ ============ ============
</TABLE>
See notes to financial statements.
59
<PAGE> 61
<TABLE>
<CAPTION>
MATRIX GROWTH & MULTIPLE HIGH INCOME U.S. GOVERNMENT
EQUITY INCOME STRATEGIES BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$ 251,223 $ 392,394 $ 136,489 $ 77,387 $ 0
22,985 137,984 475,357 1,552,855 716,239
0 (7,803) 0 (576) 0
- ----------- ----------- ----------- ----------- -----------
274,208 522,575 611,846 1,629,666 716,239
117,982 201,099 259,847 141,078 68,415
31,280 44,941 61,176 34,617 21,023
76,580 65,366 57,365 74,218 49,284
15,749 15,750 15,750 15,750 15,750
5,250 5,250 5,250 5,250 5,250
6,238 6,250 6,250 6,250 6,250
10,500 10,500 10,500 10,499 10,500
1,797 3,600 1,800 1,800 1,800
3,258 3,637 7,733 3,429 2,190
712 799 1,553 688 442
- ----------- ----------- ----------- ----------- -----------
269,346 357,192 427,224 293,579 180,904
- ----------- ----------- ----------- ----------- -----------
(58,686) (20,854) (325) (49,963) (84,085)
(1,923) (1,173) (153) (1,769) (300)
- ----------- ----------- ----------- ----------- -----------
208,737 335,165 426,746 241,847 96,519
- ----------- ----------- ----------- ----------- -----------
65,471 187,410 185,100 1,387,819 619,720
1,112,486 1,029,650 3,693,846 595,756 269,972
0 (11) 0 0 0
2,335,203 1,018,985 6,061,258 (1,312,647) (75,641)
0 0 0 0 0
- ----------- ----------- ----------- ----------- -----------
3,447,689 2,048,624 9,755,104 (716,891) 194,331
- ----------- ----------- ----------- ----------- -----------
$ 3,513,160 $ 2,236,034 $ 9,940,204 $ 670,928 $ 814,051
=========== =========== =========== =========== ===========
</TABLE>
60
<PAGE> 62
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SMALL CAP GROWTH PORTFOLIO
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income (loss) .................................. $ (178,387) $ (178,639)
Net realized gain (loss) on investments ....................... (1,643,534) 484,519
Net realized gain (loss) on foreign currency transactions ..... 0 0
Change in unrealized appreciation (depreciation) of:
Investments ................................................. 1,647,584 231,867
Foreign currency ............................................ 0 0
------------ ------------
Net increase (decrease) in net assets resulting from operations (174,337) 537,747
Dividends and distributions to Shareholders from:
Net investment income ......................................... 0 0
Net realized gain on investments .............................. 0 (489,944)
In excess of net investment income ............................ 0 0
In excess of net realized gain on investments ................. 0 (144,232)
------------ ------------
Net decrease in net assets resulting from distributions ....... 0 (634,176)
Trust share transactions:
Shares sold ................................................... 7,082,026 11,425,373
Shares issued to shareholders in reinvestments ................ 0 634,176
Shares repurchased ............................................ (10,523,136) (7,512,702)
------------ ------------
Net increase (decrease) in net assets resulting from
trust share transactions .................................... (3,441,110) 4,546,847
------------ ------------
Total increase (decrease) in net assets ....................... (3,615,447) 4,450,418
Net assets
Beginning of year ............................................. 18,253,527 13,803,109
------------ ------------
END OF YEAR (1) ............................................... $ 14,638,080 $ 18,253,527
============ ============
(1) Including undistributed (distributions in
excess of) net investment income .............................. $ 0 $ 0
CHANGE IN FUND SHARES:
Shares sold ................................................... 504,990 747,354
Shares issued to shareholders in reinvestments ................ 0 42,547
Shares repurchased ............................................ (707,191) (478,142)
------------ ------------
Net (decrease) increase ..................................... (202,201) 311,759
============ ============
</TABLE>
See notes to financial statements.
61
<PAGE> 63
<TABLE>
<CAPTION>
WORLD EQUITY PORTFOLIO GROWTH PORTFOLIO MATRIX EQUITY PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 64,589 $ 64,509 $ (274,079) $ (154,536) $ 65,471 $ 232,683
1,634,127 2,871,387 11,544,968 5,049,584 1,112,486 3,205,511
8,967 364,843 0 18 0 0
46,584 (1,085,449) 10,132,342 7,861,793 2,335,203 (602,094)
(335,881) 210,514 0 0 0 0
- ------------ ------------ ------------ ------------ ------------ ------------
1,418,386 2,425,804 21,403,231 12,756,859 3,513,160 2,836,100
(261,531) (247,476) 0 0 (65,471) (232,797)
(1,363,543) (3,143,419) (9,536,196) (5,388,137) (1,024,778) (3,143,585)
(278,838) (192,080) 0 0 (53,864) 0
0 (145,806) 0 0 0 0
- ------------ ------------ ------------ ------------ ------------ ------------
(1,903,912) (3,728,781) (9,536,196) (5,388,137) (1,144,113) (3,376,382)
10,235,565 6,457,778 12,710,333 12,611,360 6,573,307 1,797,770
1,903,912 3,728,781 9,536,196 5,388,138 1,144,113 3,376,382
(13,025,399) (8,646,191) (14,522,739) (14,660,353) (2,356,812) (4,560,270)
- ------------ ------------ ------------ ------------ ------------ ------------
(885,922) 1,540,368 7,723,790 3,339,145 5,360,608 613,882
- ------------ ------------ ------------ ------------ ------------ ------------
(1,371,448) 237,391 19,590,825 10,707,867 7,729,655 73,600
24,771,551 24,534,160 65,272,619 54,564,752 14,521,205 14,447,605
- ------------ ------------ ------------ ------------ ------------ ------------
$ 23,400,103 $ 24,771,551 $ 84,863,444 $ 65,272,619 $ 22,250,860 $ 14,521,205
============ ============ ============ ============ ============ ============
$ (386,734) $ (28,529) $ 0 $ 0 $ 0 $ 50,309
692,396 403,152 341,748 367,894 427,178 104,446
138,416 266,229 235,070 158,068 70,970 237,431
(871,336) (539,499) (388,098) (426,876) (154,561) (271,817)
- ------------ ------------ ------------ ------------ ------------ ------------
(40,524) 129,882 188,720 99,086 343,587 70,060
============ ============ ============ ============ ============ ============
</TABLE>
62
<PAGE> 64
VARIABLE INVESTORS SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
-CONTINUED-
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO
YEAR ENDED YEAR ENDED
12/31/98 12/31/97
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From operations:
Net investment income (loss) ..................................... $ 187,410 $ 167,722
Net realized gain (loss) on investments .......................... 1,029,650 1,907,739
Net realized gain (loss) on foreign currency transactions ........ (11) 0
Change in unrealized appreciation (depreciation) of:
Investments .................................................... 1,018,985 1,748,714
------------ ------------
Net increase (decrease) in net assets resulting from operations 2,236,034 3,824,175
Dividends and distributions to Shareholders from:
Net investment income ............................................ (185,661) (166,959)
Net realized gain on investments ................................. (622,669) (1,588,279)
In excess of net investment income ............................... (8,816) 0
In excess of net realized gain on investments .................... 0 0
------------ ------------
Net decrease in net assets resulting from distributions .......... (817,146) (1,755,238)
Trust share transactions:
Shares sold ...................................................... 14,032,668 9,350,713
Shares issued to shareholders in reinvestments ................... 817,146 1,755,239
Shares repurchased ............................................... (9,186,505) (2,413,468)
------------ ------------
Net increase (decrease) in net assets resulting from
trust share transactions ....................................... 5,663,309 8,692,484
------------ ------------
Total increase (decrease) in net assets .......................... 7,082,197 10,761,421
Net assets
Beginning of year ................................................ 21,061,467 10,300,046
------------ ------------
END OF YEAR (1) .................................................. $ 28,143,664 $ 21,061,467
============ ============
(1) Including undistributed (distributions in
excess of) net investment income ................................. $ 694 $ 763
CHANGE IN FUND SHARES:
Shares sold ...................................................... 897,454 662,608
Shares issued to shareholders in reinvestments ................... 51,415 122,683
Shares repurchased ............................................... (624,788) (168,745)
------------ ------------
Net (decrease) increase ........................................ 324,081 616,546
============ ============
</TABLE>
See notes to financial statements.
63
<PAGE> 65
<TABLE>
<CAPTION>
MULTIPLE STRATEGIES PORTFOLIO HIGH INCOME BOND PORTFOLIO U.S. GOVERNMENT BOND PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 185,100 $ 235,173 $ 1,387,819 $ 1,076,184 $ 619,720 $ 562,674
3,693,846 2,477,484 595,756 (33,655) 269,972 39,088
0 7 0 0 0 0
6,061,258 3,813,895 (1,312,647) 888,853 (75,641) 238,876
- ------------ ------------ ------------ ------------ ------------ ------------
9,940,204 6,526,559 670,928 1,931,382 814,051 840,638
(183,824) (235,173) (1,387,819) (1,167,386) (599,416) (552,823)
(2,499,972) (2,650,474) (21,504) 0 (269,972) (59,836)
(610) (22) (295,487) (17,411) (10,635) 0
0 0 0 0 (2,866) (19,087)
- ------------ ------------ ------------ ------------ ------------ ------------
(2,684,406) (2,885,669) (1,704,810) (1,184,797) (882,889) (631,746)
6,809,962 9,697,302 13,842,830 12,288,479 12,659,425 1,631,131
2,684,406 2,885,670 1,704,810 1,184,796 882,889 631,746
(8,572,541) (12,988,684) (10,913,520) (9,138,545) (7,682,181) (3,526,283)
- ------------ ------------ ------------ ------------ ------------ ------------
921,827 (405,712) 4,634,120 4,334,730 5,860,133 (1,263,406)
- ------------ ------------ ------------ ------------ ------------ ------------
8,177,625 3,235,178 3,600,238 5,081,315 5,791,295 (1,054,514)
35,118,687 31,883,509 17,915,826 12,834,511 9,679,107 10,733,621
- ------------ ------------ ------------ ------------ ------------ ------------
$ 43,296,312 $ 35,118,687 $ 21,516,064 $ 17,915,826 $ 15,470,402 $ 9,679,107
============ ============ ============ ============ ============ ============
$ 0 $ 0 $ (281,489) $ (85,597) $ 467 $ 4,929
453,065 655,204 1,415,009 1,263,456 1,181,963 155,066
158,139 207,591 185,314 121,580 85,783 62,082
(566,210) (892,919) (1,095,976) (941,065) (721,568) (344,656)
- ------------ ------------ ------------ ------------ ------------ ------------
44,994 (30,124) 504,347 443,971 546,178 (127,508)
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
64
<PAGE> 66
VARIABLE INVESTORS SERIES TRUST
SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------- PERIOD ENDED
1998 1997 1996 DECEMBER 31, 1995 (1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD ......... $ 15.578 $ 16.050 $ 12.638 $ 10.000
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Loss ...................... (0.000) (0.152) (0.091) (0.042)
Net Realized and Unrealized Gain
(losses) on Investments ............... (0.480) 0.243 3.560 3.047
----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS ............... (0.480) 0.091 3.469 3.005
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income ............... (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains .......... (0.000) (0.435) (0.057) (0.367)
In Excess of Net Realized Capital Gains (0.000) (0.128) (0.000) (0.000)
----------- ----------- ----------- -----------
Total Distributions ...................... (0.000) (0.563) (0.057) (0.367)
----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD ............... $ 15.098 $ 15.578 $ 16.050 $ 12.638
=========== =========== =========== ===========
TOTAL RETURN (2) (3) ........................... (3.12)% 0.73% 27.39% 30.08% (4)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) ...... $ 14,638 $ 18,254 $ 13,803 $ 3,813
Ratios to Average Net Assets:
Gross Expenses ........................ 1.84% 1.79% 2.38% 9.00% (5)
Net Expenses .......................... 1.35% 1.35% 1.35% 1.35% (5)
Net Investment Income ................. (1.20)% (1.06)% (0.90)% (0.79)% (5)
Portfolio Turnover Rate .................. 105.35% 104.72% 72.66% 73.76% (4)
</TABLE>
(1) From commencement of operations May 4, 1995.
(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) Not annualized.
(5) Annualized.
See notes to financial statements.
65
<PAGE> 67
VARIABLE INVESTORS SERIES TRUST
WORLD EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD ........ $ 14.084 $ 15.062 $ 13.823 $ 11.752 $ 11.348
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................... 0.130 0.068 0.016 0.014 0.013
Net Realized and Unrealized Gain
on Investments ....................... 0.593 1.392 1.647 2.872 1.119
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS .............. 0.723 1.460 1.663 2.886 1.132
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income .............. (0.165) (0.161) (0.013) (0.000) (0.023)
In Excess of Net Investment Income ...... (0.174) (0.126) (0.051) (0.000) (0.000)
From Net Realized Capital Gains ......... (0.850) (2.056) (0.360) (0.815) (0.698)
In Excess of Net Realized Capital Gains.. (0.000) (0.095) (0.000) (0.000) (0.007)
----------- ----------- ----------- ----------- -----------
Total Distributions ..................... (1.189) (2.438) (0.424) (0.815) (0.728)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD .............. $ 13.618 $ 14.084 $ 15.062 $ 13.823 $ 11.752
=========== =========== =========== =========== ===========
TOTAL RETURN (2) (3) .......................... 5.11% 9.98% 12.33% 24.32% 10.02%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) ..... $ 23,400 $ 24,772 $ 24,534 $ 18,191 $ 11,500
Ratios to average net assets:
Gross Expenses ....................... 1.51% 1.47% 1.50% 1.67% 2.22%
Net Expenses .......................... 1.20% 1.20% 1.20% 1.20% 1.20%
Net Investment Income ................ 0.27% 0.25% 0.10% 0.12% 0.16%
Portfolio Turnover Rate ................. 150.22% 120.50% 61.14% 97.85% 110.12%
</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.
See notes to financial statements.
66
<PAGE> 68
VARIABLE INVESTORS SERIES TRUST
GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD .... $ 34.702 $ 30.623 $ 25.866 $ 20.056 $ 20.390
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ........ (0.000) (0.082) (0.063) 0.007 0.173
Net Realized and Unrealized Gain
(Loss) on Investments ............ 11.465 7.226 6.736 7.419 (0.335)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS .......... 11.465 7.144 6.673 7.426 (0.162)
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income .......... (0.000) (0.000) (0.000) (0.173) (0.086)
In Excess of Net Investment Income... (0.000) (0.000) (0.002) (0.000) (0.000)
From Net Realized Capital Gains ..... (5.163) (3.065) (1.914) (1.443) (0.086)
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (5.163) (3.065) (1.916) (1.616) (0.172)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD .......... $ 41.004 $ 34.702 $ 30.623 $ 25.866 $ 20.056
=========== =========== =========== =========== ===========
TOTAL RETURN (2) (3) ..................... 33.29% 23.62% 25.74% 37.12% (0.79)%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's).. $ 84,863 $ 65,273 $ 54,565 $ 42,919 $ 30,815
Ratios to Average Net Assets:
Gross Expenses ................... 1.03% 1.10% 1.17% 1.17% 1.33%
Net Expenses ...................... 1.02% 1.10% 1.17% 1.17% 1.20%
Net Investment Income ............ (0.39)% (0.25)% (0.23)% 0.01% 0.78%
Portfolio Turnover Rate ............. 86.91% 54.74% 67.82% 166.87% 155.12%
</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.
See notes to financial statements.
67
<PAGE> 69
VARIABLE INVESTORS SERIES TRUST
MATRIX EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD .... $ 14.275 $ 15.254 $ 15.704 $ 12.372 $ 14.650
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............... 0.047 0.287 0.659 0.559 0.521
Net Realized and Unrealized Gain
(Loss) on Investments ............ 2.939 2.965 0.063 3.560 (0.651)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS .......... 2.986 3.252 0.722 4.119 (0.130)
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income .......... (0.056) (0.291) (0.654) (0.494) (0.521)
In Excess of Net Investment Income .. (0.041) (0.000) (0.000) (0.000) (0.000)
From Net Realized Capital Gains ..... (0.813) (3.940) (0.518) (0.293) (1.627)
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.910) (4.231) (1.172) (0.787) (2.148)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD .......... $ 16.351 $ 14.275 $ 15.254 $ 15.704 $ 12.372
=========== =========== =========== =========== ===========
TOTAL RETURN (2) (3) ...................... 21.11% 22.05% 4.62% 33.45% (1.05)%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's).. $ 22,251 $ 14,521 $ 14,448 $ 16,018 $ 12,312
Ratio to Average Net Assets:
Gross Expenses ................... 1.48% 1.54% 1.48% 1.51% 1.60%
Net Expenses ...................... 1.15% 1.15% 1.15% 1.15% 1.16%
Net Investment Income ............ 0.36% 1.63% 3.74% 3.89% 3.16%
Portfolio Turnover Rate ............. 138.23% 169.75% 19.41% 48.20% 193.40%
</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.
See notes to financial statements.
68
<PAGE> 70
VARIABLE INVESTORS SERIES TRUST
GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
1998 1997 1996 DECEMBER 31, 1995 (1)
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD...... $ 14.567 $ 12.421 $ 11.171 $ 10.000
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................. 0.112 0.127 0.070 0.045
Net Realized and Unrealized Gain
(Loss) on Investments............... 1.696 3.351 1.291 1.266
--------- ----------- ----------- ----------
TOTAL FROM INVESTMENT OPERATIONS............ 1.808 3.478 1.361 1.311
--------- ----------- ----------- ----------
LESS DISTRIBUTIONS:
From Net Investment Income............. (0.107) (0.127) (0.070) (0.045)
In Excess of Net Investment Income..... (0.005) (0.000) (0.001) (0.000)
From Net Realized Capital Gains........ (0.362) (1.205) (0.040) (0.095)
--------- ----------- ----------- ----------
Total Distributions.................... (0.474) (1.332) (0.111) (0.140)
--------- ----------- ----------- ----------
NET ASSET VALUE AT END OF PERIOD............ $ 15.901 $ 14.567 $ 12.421 $ 11.171
========= =========== =========== ==========
TOTAL RETURN (2) (3)........................ 12.43% 28.20% 12.15% 13.09%(4)
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's).... $ 28,144 $ 21,061 $ 10,300 $ 3,335
Ratio to Average Net Assets:
Gross Expenses ..................... 1.33% 1.60% 2.63% 7.27%(5)
Net Expenses........................ 1.25% 1.25% 1.25% 1.25%(5)
Net Investment Income .............. 0.70% 1.05% 0.82% 1.17%(5)
Portfolio Turnover Rate................ 78.37% 162.94% 131.85% 33.49%(4)
</TABLE>
(1) From commencement of operations May 31, 1995.
(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) Not annualized.
(5) Annualized.
See notes to financial statements.
69
<PAGE> 71
VARIABLE INVESTORS SERIES TRUST
MULTIPLE STRATEGIES PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 14.158 $ 12.699 $ 12.043 $ 10.022 $ 12.182
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.078 0.103 0.143 0.137 0.236
Net Realized and Unrealized Gain
(Loss) on Investments 4.035 2.629 2.069 3.086 (0.711)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 4.113 2.732 2.212 3.223 (0.475)
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income (0.078) (0.103) (0.144) (0.136) (0.235)
In Excess of Net Investment Income (2) (0.000) (0.000) (0.000) (0.000) (0.008)
From Net Realized Capital Gains (1.050) (1.170) (1.412) (1.066) (1.418)
In Excess of Net Realized Capital Gains (0.000) (0.000) (0.000) (0.000) (0.024)
----------- ----------- ----------- ----------- -----------
Total Distributions (1.128) (1.273) (1.556) (1.202) (1.685)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 17.143 $ 14.158 $ 12.699 $ 12.043 $ 10.022
=========== =========== =========== =========== ===========
TOTAL RETURN (3) (4) 29.15% 21.79% 18.29% 32.24% (3.91)%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) $ 43,296 $ 35,119 $ 31,884 $ 26,380 $ 21,150
Ratio to Average Net Assets:
Gross Expenses 1.15% 1.21% 1.32% 1.33% 1.48%
Net Expenses 1.15% 1.19% 1.20% 1.20% 1.20%
Net Investment Income 0.50% 0.69% 1.16% 1.14% 1.74%
Portfolio Turnover Rate 74.00% 45.87% 92.21% 161.10% 153.64%
</TABLE>
(1) On April 1, 1994, FVAS became investment adviser. Prior to that date,
results were achieved by former investment advisers.
(2) For 1997, amount was less than $0.001 per share.
(3) Total returns would have been lower had certain expenses not been borne
by the adviser or its affiliates.
(4) 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.
See notes to financial statements.
70
<PAGE> 72
VARIABLE INVESTORS SERIES TRUST
HIGH INCOME BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
-CONTINUED-
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.720 $ 9.173 $ 8.589 $ 7.914 $ 9.704
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.766 0.640 0.596 0.779 1.018
Net Realized and Unrealized Gain
(Loss) on Investments 0.471 0.598 0.624 0.717 (1.711)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.295 1.238 1.220 1.496 (0.693)
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income (0.691) (0.681) (0.596) (0.779) (1.005)
In Excess of Net Investment Income (0.148) (0.010) (0.040) (0.042) (0.006)
From Net Realized Capital Gains (0.011) (0.000) (0.000) (0.000) (0.075)
In Excess of Net Realized Capital Gains (0.000) (0.000) (0.000) (0.000) (0.011)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.850) (0.691) (0.636) (0.821) (1.097)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 9.165 $ 9.720 $ 9.173 $ 8.589 $ 7.914
=========== =========== =========== =========== ===========
TOTAL RETURN (2) (3) 3.04% 13.54% 14.20% 18.98% (7.08)%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) $ 21,516 $ 17,916 $ 12,835 $ 8,764 $ 7,771
Ratio to Average Net Assets:
Gross Expenses 1.46% 1.64% 1.99% 2.04% 2.03%
Net Expenses 1.20% 1.20% 1.18% 1.20% 1.20%
Net Investment Income 6.89% 7.15% 7.96% 8.62% 8.70%
Portfolio Turnover Rate 54.70% 91.54% 105.48% 82.15% 200.19%
</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.
See notes to financial statements.
71
<PAGE> 73
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,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.161 $ 9.938 $ 10.510 $ 9.718 $ 10.923
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.430 0.630 0.629 0.765 0.690
Net Realized and Unrealized Gain
(Loss) on Investments 0.360 0.299 (0.385) 1.191 (0.986)
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.790 0.929 0.244 1.956 (0.296)
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
From Net Investment Income (0.427) (0.617) (0.610) (0.765) (0.690)
In Excess of Net Investment Income (0.008) (0.000) (0.000) (0.045) (0.000)
From Net Realized Capital Gains (0.192) (0.068) (0.206) (0.354) (0.105)
In Excess of Net Realized Capital Gains (0.002) (0.021) (0.000) (0.000) (0.112)
Tax Return of Capital (0.000) (0.000) (0.000) (0.000) (0.002)
----------- ----------- ----------- ----------- -----------
Total Distributions (0.629) (0.706) (0.816) (1.164) (0.909)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 10.322 $ 10.161 $ 9.938 $ 10.510 $ 9.718
=========== =========== =========== =========== ===========
TOTAL RETURN (2) (3) 7.79% 9.37% 2.36% 20.18% (2.72)%
RATIOS & SUPPLEMENTAL DATA
Net Assets at End of Period (000's) $ 15,470 $ 9,679 $ 10,734 $ 11,618 $ 14,444
Ratio to Average Net Assets:
Gross Expenses 1.59% 1.73% 1.66% 1.59% 1.45%
Net Expenses 0.85% 0.85% 0.85% 0.85% 0.85%
Net Investment Income 5.43% 5.86% 5.80% 6.18% 5.65%
Portfolio Turnover Rate 66.12% 124.75% 244.96% 252.94% 289.71%
</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.
See notes to financial statements.
72
<PAGE> 74
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 is comprised of eight 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
Small Cap Growth Portfolio, the World Equity Portfolio, the Growth Portfolio,
the Matrix Equity Portfolio, the Growth & Income Portfolio, the Multiple
Strategies Portfolio, the High Income Bond Portfolio, and the U.S. Government
Bond Portfolio.
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 Portfolios' equity securities, including
American Depositary 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 pricing services which determine valuations for normal
institutional size trading units of debt securities, without exclusive reliance
upon quoted prices. Short-term securities maturing in 60 days or less are valued
at amortized cost, which approximates market value. 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.
73
<PAGE> 75
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
-CONTINUED-
INVESTMENT TRANSACTIONS: Investment security transactions are recorded on
the trade date. 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 Portfolio 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 Portfolios 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 Portfolio 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 a Portfolio 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
Portfolio on contracts which have matured or which the Portfolio 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 net realized
capital gains, for the fiscal year. In addition, by distributing during each
calendar year substantially all of their net investment income, net 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, 1998, the Small Cap Growth Portfolio had a realized
capital loss carryforward, for Federal income tax purposes, of $1,772,991, that
expires on December 31, 2006, available to be used to offset future realized
capital gains.
74
<PAGE> 76
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
-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 1998:
PORTFOLIO AMOUNT
--------- ------
World Equity Portfolio $ 398,013
Growth & Income Portfolio 6
U.S. Government Bond Portfolio 6,282
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 declares and
distributes dividends from net investment income, if any, and distributes its
net realized capital gains, if any, at least annually. 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 a Separate Account to receive dividends
and capital gain distributions in cash. The Trust made the following
reclassifications as of December 31, 1998:
<TABLE>
<CAPTION>
Increase/ Increase/(Decrease) Increase/(Decrease)
(Decrease) Undistributed Net Accumulated
Paid in Capital Investment Income (Loss) Realized Gain/(Loss)
--------------- ------------------------ --------------------
<S> <C> <C> <C>
Small Cap Growth Portfolio......... $ (178,387) $ 178,387 $ 0
World Equity Portfolio............. (7,999) 117,575 (109,576)
Growth Portfolio................... (227,332) 274,079 (46,747)
Matrix Equity Portfolio............ (1) 3,555 (3,554)
Growth & Income Portfolio.......... (27) 6,998 (6,971)
Multiple Strategies Portfolio...... 0 (666) 666
High Income Bond Portfolio......... 0 99,595 (99,595)
U.S. Government Bond Portfolio..... 464 (14,131) 13,667
</TABLE>
Net investment income, net realized gains and net assets were not affected by
these changes.
75
<PAGE> 77
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
-CONTINUED-
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: Value Line, Inc. as sub-adviser to the Growth and Multiple Strategies
Portfolios, State Street Bank and Trust Company through its investment
management division State Street Global Advisors as sub-adviser to the Matrix
Equity Portfolio, Federated Investment Counseling as sub-adviser to the High
Income Bond Portfolio and Strong Capital Management, Inc. as sub-adviser to the
U.S. Government Bond 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 Growth
Portfolio and Warburg Pincus Asset Management, Inc. as sub-adviser to the Growth
& Income Portfolio. FVAS retained the following sub-adviser at its own cost and
expense pursuant to a sub-advisory agreement dated December 9, 1996: Evergreen
Investment Management Company (formerly known as the Keystone Investment
Management Company) as sub-adviser to the World Equity 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: 0.85% of average daily net
assets for the Small Cap Growth 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; 0.70% of average daily net assets for the Growth 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 Matrix Equity Portfolio; 0.75% of average daily net assets for the Growth &
Income 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; 0.60% 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.
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, 1999 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 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 year ended December
31, 1998 the Trust's expenses were reduced by $16,397.
76
<PAGE> 78
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
-CONTINUED-
TRUSTEES' COMPENSATION
Trustees' fees of $10,000 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
or FVAS. No remuneration is paid by the Trust to any Trustee or officer of the
Trust who is affiliated with First Variable, ILoNA or FVAS.
NOTE D -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities for each Portfolio for the year ended December 31, 1998
were as follows:
<TABLE>
<CAPTION>
NON- NON-
GOVERNMENT GOVERNMENT GOVERNMENT GOVERNMENT
PURCHASES PURCHASES SALES SALES
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Cap Growth Portfolio.............. $ 15,581,516 $ 0 $ 19,280,173 $ 0
World Equity Portfolio................... 34,817,255 0 37,855,264 0
Growth Portfolio......................... 57,440,386 2,511,283 58,641,664 127,089
Matrix Equity Portfolio.................. 28,613,940 195,317 24,040,112 352,680
Growth & Income Portfolio................ 23,396,350 82,759 18,733,931 341,189
Multiple Strategies Portfolio............ 22,144,857 6,424,132 21,062,297 5,060,140
High Income Bond Portfolio............... 20,379,722 0 16,709,361 537,109
U.S. Government Bond Portfolio........... 1,490,675 11,759,466 1,463,372 5,679,966
</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, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
IDENTIFIED COST APPRECIATION (DEPRECIATION) APPRECIATION/(DEPRECIATION)
--------------- ------------ -------------- ---------------------------
<S> <C> <C> <C> <C>
Small Cap Growth Portfolio............ $ 11,066,071 $ 4,117,310 $ (258,132) $ 3,859,178
World Equity Portfolio................ 20,360,168 4,298,990 (705,193) 3,593,797
Growth Portfolio...................... 51,653,632 32,960,487 (157,847) 32,802,640
Matrix Equity Portfolio............... 18,361,972 4,270,686 (327,754) 3,942,932
Growth & Income Portfolio............. 24,886,282 4,085,492 (784,226) 3,301,266
Multiple Strategies Portfolio......... 28,394,702 14,804,005 (102,148) 14,701,857
High Income Bond Portfolio............ 20,157,415 458,965 (739,761) (280,796)
U.S. Government Bond Portfolio........ 15,184,956 247,981 (62,200) 185,781
</TABLE>
77
<PAGE> 79
VARIABLE INVESTORS SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
-CONTINUED-
NOTE E -- FORWARD FOREIGN CURRENCY CONTRACT
As of December 31, 1998 the World Equity Portfolio had open 6 forward
foreign currency contracts which contractually obligate the Portfolio to deliver
currencies at a specified date, as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
CURRENCY SOLD SETTLEMENT DATE COST VALUE (DEPRECIATION)
------------- --------------- ---- ----- --------------
<S> <C> <C> <C> <C>
539,084 Australian Dollars 01/08/99 $ 314,000 $ 330,368 $ (16,368)
703,907 Swiss Francs 02/26/99 505,000 515,459 (10,459)
475,412 German Marks 02/26/99 280,000 286,068 (6,068)
2,334,058 French Francs 02/26/99 410,000 418,652 (8,652)
29,313,270 Japanese Yen 02/26/99 245,000 261,260 (16,260)
612,344 Netherlands Guilder 02/26/99 320,000 326,864 (6,864)
-----------
$ (64,671)
===========
</TABLE>
NOTE F - YEAR 2000 ISSUE (UNAUDITED)
Like other mutual funds, as well as other financial and business
organizations around the world, the Trust could be adversely affected if the
computer systems used by the Adviser, the Sub-Adviser and other service
providers in performing their administrative functions do not properly process
and calculate date-related information and data as of and after January 1, 2000.
This is commonly known as the "Year 2000 issue." The Adviser and Sub-Advisers
are taking steps that they believe are reasonably designed to address the Year
2000 issue with respect to computer systems that they use and to obtain
reasonable assurances that comparable steps are being taken by the Trust's other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Trust.
NOTE G - TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished
with respect to the distributions of the Trust for its fiscal year ended
December 31, 1998:
World Equity Portfolio, Growth Portfolio, Matrix Equity Portfolio, Growth &
Income Portfolio, Multiple Strategies Portfolio, High Income Bond Portfolio, and
U.S. Government Bond Portfolio designate $1,363,543, $9,536,196, $498,834,
$440,118, $2,499,972, $21,504, and $99,168, respectively, as long term capital
gains dividend paid.
78
<PAGE> 80
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 (the Trust)
(comprising, respectively, the Small Cap Growth, World Equity, Growth, Matrix
Equity, Growth & Income, Multiple Strategies, High Income Bond, and U.S.
Government Bond Portfolios) as of December 31, 1998, the related statements of
operations for the year then ended, and the statements of changes in net assets
for each of the two years in the period then ended and financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of Variable Investors Series Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the two 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 financial highlights.
We conducted our audits 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, 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
audits provide 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, 1998, the results of their operations for the year then ended, and
the changes in their net assets for each of the two years in the period then
ended and financial highlights for each of the periods in the four years then
ended, in conformity with generally accepted accounting principles.
Chicago, Illinois
February 5, 1999
<PAGE> 81
PRINCIPAL OFFICERS AND TRUSTEES OF
VARIABLE INVESTORS SERIES TRUST
----------------
PAUL G. CHENAULT, TRUSTEE
NORMAN A. FAIR, TRUSTEE
WESLEY E. HORTON, TRUSTEE
W. LAWRENCE HOWE, TRUSTEE
LAIRD E. WIGGIN, TRUSTEE
JOHN SOUKUP, PRESIDENT AND TRUSTEE
ARNOLD R. BERGMAN, SECRETARY
CHRIS HARDEN, TREASURER
----------------
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 AND
VARIABLE LIFE INSURANCE POLICIES.
<PAGE> 82
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated Prime
Money Fund II, a portfolio of Federated Insurance Series.
This report covers the 12-month fiscal year period from January 1, 1998 through
December 31, 1998. It begins with a commentary by the fund's portfolio manager,
which is followed by a complete listing of the fund's money market holdings and
the financial statements.
Over the reporting period, the fund kept shareholders' cash working--and
accessible--every day while maintaining a stable share price of $1.00.(1)
To provide a competitive daily yield, the fund invests in a diversified
portfolio of high-quality money market securities. Over the 12-month reporting
period, the fund paid a total of $0.05 per share in dividends to shareholders.
On December 31, 1998, net assets reached $103 million.
Thank you for choosing Federated Prime Money Fund II as a convenient,
professionally managed way to keep your ready cash working. We will continue to
keep you up-to-date on your investment, and welcome your comments and
suggestions.
Sincerely,
J. Christopher Donahue
President
February 15, 1999
- ----------
(1) An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although money market funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.
INVESTMENT REVIEW
Federated Prime Money Fund II invests in money market instruments maturing in
397 days or less. The average maturity of these securities, computed on a
dollar-weighted basis, is restricted to 90 days or less. Portfolio securities
must be rated in one of the two highest short-term rating categories by one or
more of the nationally recognized statistical rating organizations or be of
comparable quality to securities having such ratings. Typical security types
include, but are not limited to, commercial paper, certificates of deposit, time
deposits, variable rate instruments and repurchase agreements.
Economic growth during the second half of 1998 resumed its above-average
pace, after a brief slowdown in the second quarter. Specifically, third quarter
gross domestic product ("GDP") registered 3.9% while fourth quarter GDP topped
the year at 5.6%. Despite the high growth, though, inflation remained subdued by
all measures. The consumer price index rose just 1.6% for the 12 months ended
December 31, 1998. For the same time period, the producer price index actually
declined 0.2%, due mostly to a decline in food and energy prices, while the
employment cost index grew 3.8% on an annualized basis through the end of the
third quarter.
Thirty-day commercial paper started the reporting period at 5.77% on January
1, 1998, hovered in the 5.50% range area until September 23, 1998, when
expectations began to surface about the Federal Reserve Board ("the Fed")
lowering rates, and then dropped as low as 4.90% on November 20, 1998, before
rising to end the reporting period at 4.98%.
The money market yield curve looked lower but similarly shaped from December
31, 1997 to December 31, 1998. One-month commercial paper rates declined 79
basis points while six-month rates declined 76
<PAGE> 83
basis points reflecting the concern in the market about the lack of liquidity in
the U.S. credit markets. The Fed responded to this by lowering the Federal funds
target rate three times during the reporting period--25 basis points on
September 29, 1998, 25 basis points on October 15, 1998, and 25 basis points on
November 17, 1998-- to end the reporting period with a 4.75% target rate. The
Fed also lowered the discount rate twice by 25 basis points to 4.75% on October
15, 1998, and by 25 basis points on November 17, 1998, to 4.50%.
The target average maturity range for the fund was lengthened from 35-45 days
to 40-50 days on July 6, 1998. It was subsequently increased to 45-55 days on
October 1, 1998, reflecting the Fed's concern about liquidity in the credit
markets and the current easing scenario. In structuring the fund, there is
continued emphasis placed on positioning 30-35% of the fund's assets in variable
rate demand notes and accomplishing a modest barbell structure.
During the reporting period ended December 31, 1998, the net assets of the
fund increased from $59.7 to $103.1 million while the seven-day net yield
decreased from 5.10% to 4.52%.(1) The effective average maturity of the fund on
December 31, 1998, was 52 days.
- ----------
(1) Performance quoted represents past performance and is not indicative of
future results. Yield will vary. Yields quoted for money market funds most
closely reflect the fund's current earnings.
<PAGE> 84
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
<S> <C> <C>
SHORT-TERM NOTES 6.3%
BANKING 1.9%
$1,000,000 SALTS III Cayman Island Corp., Series 1998-11, (Guaranteed by Bankers $1,000,000
Trust International, PLC), 5.589%, 3/12/1999
1,000,000 SALTS III Cayman Island Corp., Series 1998-13, (Guaranteed by Bankers 1,000,000
Trust International, PLC), 5.571%, 3/18/1999
TOTAL 2,000,000
FINANCE - AUTOMOTIVE 0.5%
122,629 Chase Manhattan Auto Owner Trust 1998-C, Class A-1, 5.588%, 7/9/1999 122,622
369,441 Premier Auto Trust 1998-5, Class A-1, 5.140%, 7/8/1999 369,357
TOTAL 491,979
FINANCE - EQUIPMENT 2.5%
585,890 Copelco Capital Funding Trust 1998-A, Class A-1, 5.680%, 8/15/1999 585,890
2,000,000 Green Tree Lease Finance LLC 1998-1, Class A-1, 5.201%, 1/20/2000 2,000,000
TOTAL 2,585,890
INSURANCE 0.8%
604,744 Americredit Automobile Receivables Trust 1998-C, Class A-1, (Insured by 604,744
FSA), 5.380%, 9/12/1999
200,609 WFS Financial Owner Trust 1998-B, Class A-1, (Insured by FSA), 5.658%, 200,609
7/20/1999
TOTAL 805,353
RECREATION 0.6%
72,978 Greentree Recreational, Equipment & Consumer Trust 1998-B, Class A-1, 72,978
5.669%, 7/15/1999
534,383 Greentree Recreational, Equipment & Consumer Trust 1998-C, Class A-1, 534,383
5.554%, 8/15/1999
TOTAL 607,361
TOTAL SHORT-TERM NOTES 6,490,583
CERTIFICATES OF DEPOSIT 5.4%
BANKING 5.4%
1,000,000 KeyBank, N.A., 5.080%, 4/9/1999 1,000,000
2,600,000 Societe Generale, Paris, 5.645% - 5.835%, 2/26/1999 - 4/27/1999 2,599,806
2,000,000 Svenska Handelsbanken, Stockholm, 5.800%, 4/6/1999 1,999,776
TOTAL CERTIFICATES OF DEPOSIT 5,599,582
COMMERCIAL PAPER 57.7%
AEROSPACE/AUTO 4.7%
4,900,000 Johnson Controls, Inc., 5.392% - 5.494%, 1/13/1999 - 1/20/1999 4,889,366
BANKING 9.2%
500,000 Abbey National N.A. Corp., (Guaranteed by Abbey National Bank PLC, 491,663
London), 5.003%, 5/4/1999
1,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal de Belgique, 994,977
Brussles), 5.635%, 2/3/1999
5,507,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank, Cincinnati 5,450,476
Support Agreement), 5.243% - 5.422%, 3/1/1999 - 3/15/1999
2,600,000 Westpac Capital Corp., (Guaranteed by Westpac Banking Corp. Ltd., 2,586,155
Sydney), 5.297% - 5.450%, 1/11/1999 - 3/22/1999
TOTAL 9,523,271
BROKERAGE 3.9%
4,000,000 Salomon Smith Barney Holdings, Inc., 5.145% - 5.299%, 1/6/1999 - 3,977,036
3/8/1999
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
<S> <C> <C>
COMMERCIAL PAPER continued
CHEMICALS 1.1%
$1,141,000 IMC Global, Inc., 5.782% - 6.028%, 1/14/1999 - 1/20/1999 $ 1,137,904
FINANCE - AUTOMOTIVE 3.9%
4,000,000 Ford Motor Credit Corp., 5.139%, 2/5/1999 3,980,361
FINANCE - COMMERCIAL 14.1%
1,000,000 Asset Securitization Cooperative Corp., 5.156%, 4/16/1999 985,242
4,000,000 Falcon Asset Securitization Corp., 5.331%, 2/11/1999 3,975,992
1,000,000 General Electric Capital Corp., 5.455%, 2/12/1999 993,782
3,641,000 Greenwich Funding Corp., 4.889% - 5.215%, 3/5/1999 - 4/6/1999 3,602,509
5,000,000 Sheffield Receivables Corp., 5.217% - 5.359%, 2/22/1999 - 3/15/1999 4,956,147
TOTAL 14,513,672
FINANCE - EQUIPMENT 0.8%
785,000 Comdisco, Inc., 5.687% - 6.087%, 1/15/1999 - 1/28/1999 783,133
FINANCE - RETAIL 11.0%
2,000,000 American Express Credit Corp., 5.023%, 4/12/1999 1,972,506
4,500,000 Associates First Capital Corp., 4.949% - 5.094%, 4/19/1999 - 5/27/1999 4,417,797
5,000,000 Island Finance, Puerto Rico, (Norwest Financial Inc. Support Agreement) 4,967,097
5.200%, 2/16/1999
TOTAL 11,357,400
INDUSTRIAL PRODUCTS 0.8%
851,000 Praxair, Inc., 5.731% - 5.834%, 1/27/1999 - 2/23/1999 846,004
INSURANCE 2.3%
946,000 CNA Financial Corp., 5.533% - 5.899%, 1/15/1999 - 1/28/1999 942,861
1,000,000 CXC, Inc., 5.161%, 5/17/1999 980,998
500,000 Marsh & McLennan Cos., Inc., 5.637%, 3/29/1999 493,408
TOTAL 2,417,267
MACHINERY, EQUIPMENT, AUTO 3.8%
2,000,000 Allied-Signal, Inc., 5.625%, 1/22/1999 1,993,525
2,000,000 Eaton Corp., 5.597%, 5/11/1999 1,960,856
TOTAL 3,954,381
OIL & OIL FINANCE 1.1%
1,179,000 Occidental Petroleum Corp., 5.752% - 6.135%, 1/15/1999 - 2/19/1999 1,174,284
TELECOMMUNICATIONS 1.0%
991,000 MCI Worldcom, Inc., 5.731% - 5.732%, 1/11/1999 - 1/19/1999 988,640
TOTAL COMMERCIAL PAPER 59,542,719
LOAN PARTICIPATION 2.5%
ELECTRICAL EQUIPMENT 0.6%
600,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General Electric 600,000
Co.), 5.370%, 5/17/1999
INSURANCE 1.9%
2,000,000 Marsh & McLennan Cos., Inc., 5.254%, 5/24/1999 2,000,000
TOTAL LOAN PARTICIPATION 2,600,000
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
Principal
Amount
<S> <C> <C>
NOTESVARIABLE 13.7%(2)
BANKING 9.3%
$ 160,000 Alabama State IDA, (Wellborn Cabinet, Inc.), Tax Revenue Bonds, $ 160,000
(Amsouth Bank N.A., Birmingham LOC), 5.480%, 1/7/1999
1,000,000 Bankers Trust Co., New York, 4.880%, 1/1/1999 999,712
800,000 (1)Bankers Trust Corp., 4.960%, 1/1/1999 800,000
6,000 Capital One Funding Corp., Series 1995-A, (Bank One, Indiana, N.A 6,000
LOC), 5.570%, 1/7/1999
170,000 Denver Urban Renewal Authority, (Series 1992-B), (Paribas, Paris LOC), 170,000
5.700%, 1/7/1999
345,000 Edgefield County, SC, Series 1997 (Bondex Inc. Project), (Marine 345,000
Midland Bank N.A., Buffalo, NY LOC), 5.076%, 1/7/1999
185,000 Franklin County, OH, Edison Welding, Series 1995, (Huntington National 185,000
Bank, Columbus, OH LOC), 5.570%, 1/7/1999
400,000 La-Man Corp., (SouthTrust Bank of Alabama, Birmingham LOC), 5.680%, 400,000
1/1/1999
1,532,970 (1)Liquid Asset Backed Securities Trust, Series 1997-1, (Westdeutsche 1,532,970
Landesbank Girozentrale Swap Agreement), 5.536%, 1/19/1999
625,000 Lynn Haven, FL, Taxable Revenue Bond (Series 1998-B), (Bank One, Ohio, 625,000
N.A. LOC), 5.770%, 1/7/1999
560,000 Madison, WI Community Development Authority, Series 1997-B Hamilton 560,000
Point Apts., (Bank One, Wisconsin, N.A. LOC), 5.670%, 1/7/1999
198,000 Maryland State IDFA, Human Genome, Series1994, (First National Bank of 198,000
Maryland, Baltimore LOC), 5.430%, 1/4/1999
275,000 Mississippi Business Finance Corp., Metalloy Project, (Comerica Bank, 275,000
Detroit, MI LOC), 5.460%, 1/7/1999
438,956 (1)Rabobank Optional Redemption Trust, Series 1997-101, 5.343%, 1/20/1998 438,956
355,000 Roby Company Ltd. Partnership, (Huntington National Bank, Columbus, OH 355,000
LOC), 5.570%, 1/7/1999
1,000,000 Societe Generale, Paris, 4.883%, 1/1/1999 999,599
100,000 Southeast Regional Holdings, LLC, Series 1995-A, (Columbus Bank and 100,000
Trust Co., GA LOC), 5.280%, 1/7/1999
1,200,000 Trap Rock Industries, Inc., Series 1997, (First Union National Bank, 1,200,000
Charlotte, NC LOC), 6.050%, 1/6/1999
186,000 Vista Funding Corp., Series 1994-A, (Fifth Third Bank of Northwestern 186,000
OH LOC), 5.570%, 1/7/1999
TOTAL 9,536,237
INSURANCE 4.4%
2,000,000 General American Life Insurance Co., 5.780%, 1/21/1999 2,000,000
1,000,000 Jackson National Life Insurance Co., 5.289%, 1/2/1999 1,000,000
544,657 (1)Liquid Asset Backed Securities Trust, Series 1997-3 Senior Notes, 544,657
(Guaranteed by AMBAC), 5.254%, 3/28/1999
1,000,000 Travelers Insurance Company, 5.353%, 1/1/1999 1,000,000
TOTAL 4,544,657
TOTAL NOTESVARIABLE 14,080,894
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS 12.9%(3)
$1,702,000 Nationsbanc Montgomery Securities, Inc., 5.100%, dated 12/31/1998, due $ 1,702,000
1/4/1999
5,000,000 Paribas Corp., 5.100%, dated 12/31/1998, due 1/4/1999 5,000,000
2,559,000 Prudential Securities, Inc., 5.100%, dated 12/31/1998, due 1/4/1999 2,559,000
2,000,000 Societe Generale Securities Corp., 4.850%, dated 12/31/1998, due 2,000,000
1/4/1999
2,000,000 Toronto Dominion Securities (USA) Inc., 4.970%, dated 12/31/1998, due 2,000,000
1/4/1999
TOTAL REPURCHASE AGREEMENTS 13,261,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(4) $101,574,778
</TABLE>
- ----------
(1) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At December 31, 1998, these securities
amounted to $3,316,583 which represents 3.2% of net assets.
(2) Floating rate note with current rate and next reset date shown.
(3) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(4) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($103,096,582) at December 31, 1998.
The following acronyms are used throughout this portfolio:
AMBAC American Municipal Bond Assurance Corporation
FSA Financial Security Assurance
IDA Industrial Development Authority
IDFA Industrial Development Finance Authority
LLC Limited Liability Corporation
LOC Letter of Credit
PLC Public Limited Company
See Notes which are an integral part of the Financial Statements
<PAGE> 88
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998
ASSETS:
<S> <C> <C>
Investments in repurchase agreements $ 13,261,000
Investments in securities 88,313,778
Total investments at amortized cost and value $101,574,778
Income receivable 359,636
Receivable for shares sold 1,886,997
TOTAL ASSETS 103,821,411
LIABILITIES:
Payable for shares redeemed 678,019
Payable to Bank 23,872
Accrued expenses 22,938
TOTAL LIABILITIES 724,829
Net Assets for 103,096,582 shares outstanding $103,096,582
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$103,096,582 / 103,096,582 shares outstanding $ 1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE> 89
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C>
INVESTMENT INCOME:
Interest 4,681,873
EXPENSES:
Investment advisory fee 417,405
Administrative personnel and services fee 125,000
Custodian fees 12,587
Transfer and dividend disbursing agent fees and expenses 16,899
Trustees' fees 2,162
Auditing fees 12,691
Legal fees 6,933
Portfolio accounting fees 33,542
Share registration costs 6,306
Printing and postage 25,699
Insurance premiums 6,866
Miscellaneous 9,406
TOTAL EXPENSES 675,496
WAIVER:
Waiver of investment advisory fee (4,302)
Net expenses 671,194
Net investment income 4,010,679
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE> 90
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C>
Net investment income 4,010,679 2,970,896
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (4,010,679) (2,970,896)
SHARE TRANSACTIONS:
Proceeds from sale of shares 316,636,277 247,591,033
Net asset value of shares issued to shareholders in payment of 4,013,066 2,968,806
distributions declared
Cost of shares redeemed (277,212,104) (236,555,828)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 43,437,239 14,004,011
Change in net assets 43,437,239 14,004,011
NET ASSETS:
Beginning of period 59,659,343 45,655,332
End of period 103,096,582 59,659,343
</TABLE>
See Notes which are an integral part of the Financial Statements
<PAGE> 91
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996 1995 1994(1)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.05 0.01
LESS DISTRIBUTIONS:
Distributions from net investment income (0.05) (0.05) (0.05) (0.05) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
TOTAL RETURN(2) 4.92 4.93 4.75 5.20 0.50%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.80 0.80 0.80 0.80 0.80%(3)
Net investment income 4.80 4.84 4.68 5.12 4.26%(3)
Expense waiver(4) 0.01 0.20 0.57 2.69 71.84%(3)
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $103,097 $59,659 $45,655 $17,838 $ 552
</TABLE>
- ----------
(1) Reflects operations for the period from November 18, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 10,
1993 (start of business) to November 17, 1994, the Fund had no public
investment.
(2) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(3) Computed on an annualized basis.
(4) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Prime Money Fund II (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to provide current income
consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Trustees. The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule 2a-7
under the Act.
Additional information on each restricted security held at December 31, 1998
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION ACQUISITION
DATE COST
<S> <C> <C>
Bankers Trust Corp. 7/30/1998 $ 800,000
Liquid Asset 2/19/1997 1,532,970
Backed Securities
Trust, Series
1997-1
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
<S> <C> <C>
Liquid Asset 6/27/1997 544,657
Backed Securities
Trust, Series
1997-3
Rabobank Optional 4/17/1997 438,956
Redemption Trust,
Series 1997-101
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1998, capital paid-in aggregated $103,096,582.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997
<S> <C> <C>
Shares sold 316,636,277 247,591,033
Shares issued to shareholders in payment of distributions declared 4,013,066 2,968,806
Shares redeemed (277,212,104) (236,555,828)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 43,437,239 14,004,011
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Advisers, the Fund's investment adviser (the "Adviser"), receives for
its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $22,431 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended December 31, 1998, the Fund was fully amortized.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1,
<PAGE> 94
2000. The Fund's Adviser and administrator are taking measures that they believe
are reasonably designed to address the Year 2000 issue with respect to computer
systems that they use and to obtain reasonable assurances that comparable steps
are being taken by each of the Fund's other service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Fund.
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES OF THE FEDERATED INSURANCE SERIES AND SHAREHOLDERS OF
FEDERATED PRIME MONEY FUND II:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Federated Prime Money Fund II (the "Fund") (a
portfolio of the Federated Insurance Series) as of December 31, 1998, and the
related statement of operations for the year then ended, the statements of
changes in net assets for the year then ended December 31, 1998 and 1997, and
the financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits 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 the securities owned at
December 31, 1998, by correspondence with the custodian. 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of of Federated Prime
Money Fund II as of December 31, 1998, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 12, 1999
<PAGE> 96
TRUSTEES
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
J. CHRISTOPHER DONAHUE
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
OFFICERS
JOHN F. DONAHUE
Chairman
J. CHRISTOPHER DONAHUE
President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
MATTHEW S. HARDIN
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including the possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
<PAGE> 97
FEDERATED[SM]
Federated Prime Money Fund II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 313916504
G008842 (2/99)
Federated is a registered mark [LOGO]
of Federated Investors, Inc. RECYCLED
1999 [C] Federated Investors, Inc. PAPER
FEDERATED
WORLD CLASS INVESTMENT MANAGER[SM]
FEDERATED
PRIME MONEY
FUND II
Federated Insurance Series
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
<PAGE> 98
TAX ADVANTAGE PRODUCT CHOICES
First Variable
Life Insurance
Company
[FIRST
VARIABLE LIFE
INSURANCE COMPANY
LOGO]
PRODUCTS
VARIABLE UNIVERSAL LIFE
CAPITAL SOLUTIONS VUL
With the potential to...
BUILD WEALTH with tax-deferred growth.
ENJOY INCOME with tax-advantages through loans and withdrawals.
PRESERVE ASSETS with a death benefit that can pass free of income tax to
heirs.*
SINGLE PREMIUM VARIABLE LIFE
CAPITAL ONE PAY VL
With the potential to...
BUILD WEALTH with tax-deferred growth.
ENJOY INCOME through loans and withdrawals after age 59-1/2.**
PRESERVE ASSETS with a death benefit that can pass income tax free to
heirs.*
VARIABLE ANNUITIES
CAPITAL SIX VA
CAPITAL FIVE VA
CAPITAL NO LOAD VA
With the potential to...
BUILD WEALTH with tax-deferred growth.
ENJOY INCOME with tax-advantaged access through withdrawals and
annuitization.**
PRESERVE ASSETS with a death benefit that guarantees heirs receive at least
the original investment regardless of market performance.*
* May be subject to estate taxation
** Earnings are subject to income tax when withdrawn or paid as a death
benefit. Distributions before age 59-1/2 may also be subject to 10%
penalty.
All products not yet available in all states.
- --------------------------------------------------------------------------------
TAX ADVANTAGED PRODUCT CHOICES
- --------------------------------------------------------------------------------
SPECIAL PROGRAMS
ASSET ALLOCATION STRATEGIES
Asset Allocation is dividing your portfolio among several different investment
categories, such as stocks, bonds and money market instruments. Asset allocation
theory helps you and your investment professional design a portfolio that meets
your tolerance for risk. It can also help you gain the most potential return for
a certain risk level. First Variable Life offers a menu of asset allocation
models that can help you build, enjoy and preserve your wealth.
AUTOMATIC ASSET REBALANCING
Once you and your investment professional have selected a mix of investments,
automatic asset rebalancing helps you maintain it by rebalancing your portfolio.
Choose from quarterly, semi-annual or annual rebalancing. Your quarterly
statement will show activities to make tracking your investment easier.
DOLLAR COST AVERAGING
You can take advantage of a time-tested investment technique of dollar cost
averaging within your First Variable product. This strategy invests equal
amounts at regular intervals over time to take advantage of the natural ups and
downs of the financial markets. The key to dollar cost averaging is staying with
your plan, regardless of market performance. At First Variable, you can use
dollar cost averaging to move from one investment choice to another.
Dollar cost averaging does not assure a profit or protect against loss in
declining markets. Since prices fluctuate, consider your ability to continue
purchases through both high and low price levels.
<PAGE> 99
------------
Bulk Rate
U.S. Postage
PAID
Permit No. 7
Ashland, MA
------------
Securities distributed through First Variable Capital Services, Inc.,
member NASD.
2122 York Road, Suite 300
Oak Brook, IL 60523-1930
800.499.0713
www.firstvariable.com
[BUILD, ENJOY, PRESERVE LOGO]
FIRST VARIABLE LIFE INSURANCE
A HISTORY OF INNOVATION
Founded in 1968, First Variable Life Insurance Company is an innovative
financial services company and the first to offer variable life insurance in the
United States. In 1994, First Variable Life was purchased by Irish Life of North
America, Inc., the U.S. subsidiary of a highly regarded, global financial
services company, Irish Life plc.
Headquartered in Dublin, Ireland, Irish Life is a major international financial
institution with assets in excess of $14 billion, specializing in life
insurance, pension plans and investment management. Irish Life's other U.S.
companies include:
* Interstate Assurance Company
* Guarantee Reserve Life Insurance Company
* IAC Securities Corporation
First Variable Life Insurance Company brings an innovative approach to managing
wealth. We strive to help investors build, enjoy and preserve financial assets
for many generations to come.
Neither First Variable Life Insurance Company nor its agents give legal,
accounting or tax advice. Consult an attorney or tax advisor about the
consequences of financial decisions. All products not yet available in all
states.
