TMK/UNITED FUNDS, INC.
ANNUAL
REPORT
-------------------------------------------
For the fiscal year ended December 31, 1996
<PAGE>
GROWTH PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Growth Portfolio for the fiscal
year ended December 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during that
period.
The U.S. economy experienced moderate growth, low inflation and declining
unemployment during 1996. Corporate profits increased, although at a slower
rate than in the past few years, and interest rates rose modestly. The equity
market, although highly valued as 1996 began, gained substantial additional
ground. Large inflows of cash into mutual funds and the continuing favorable
political drift of the federal government contributed to the gains. While the
major market indexes experienced significant advances in 1996, the gains were
largely attributable to a limited number of well-capitalized companies that are
heavily weighted in the indexes.
Based upon our belief that a majority of stocks were fully valued at the
beginning of the year, combined with rising interest rates and slower growth in
corporate profits, we pursued a fairly defensive investment strategy throughout
much of 1996. This involved maintaining cash positions at different points
during the year, awaiting more attractive investment opportunities. During
1996, we decreased the Portfolio's holdings in the basic services sector and
increased its emphasis on investments in companies in the financial services
industries and in the public utilities and energy sectors.
The strategies and techniques we applied resulted in the Portfolio
underperforming the S&P 500 Index charted on the following page. The S&P 500
Index reflects the performance of securities that generally represent the stock
market. The Portfolio's performance was negatively impacted, relative to the
indexes, by its underweighting in the securities that contributed most to the
superior gains experienced by the major market indexes.
For 1997, we anticipate continued moderate economic growth and low
inflation. The historically high profit margins experienced by corporations in
1996, combined with relatively low price flexibility, have the potential to
result in lower returns in the equity market. In light of anticipated economic
conditions, we expect to continue a strategy of pursuing attractive investment
opportunities in the health care, energy, technology and financial services
industries.
Thank you very much for your continued support and confidence.
Respectfully,
Antonio Intagliata
Manager, Growth Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Growth Portfolio
and The S&P 500 Index
TMK/UNITED S&P
GROWTH 500
PORTFOLIO INDEX
---------- -----
07/13/87 Purchase $10,000 $ ----
07/31/87 10,237 10,000
12/31/87 9,674 7,860
12/31/88 10,985 9,166
12/31/89 14,018 12,070
12/31/90 13,269 11,696
12/31/91 18,060 15,259
12/31/92 21,824 16,423
12/31/93 24,884 18,077
12/31/94 25,479 18,316
12/31/95 35,304 25,199
12/31/96 39,164 30,984
- ----- TMK/United Growth Portfolio* -- $39,164
+++++ S&P 500 Index** -- $30,984
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500
Index (including income) are not available, investment in the index was
effected as of July 31, 1987.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 10.94%
5 Years Ended
12/31/96 16.74%
9+ Years Ended
12/31/96++ 15.49%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++7-13-87 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 1.22%
Home Depot, Inc. (The) ................. 125,000 $ 6,265,625
Business Services - 4.46%
Automatic Data Processing, Inc. ........ 135,000 5,788,125
Broderbund Software, Inc.* ............. 75,000 2,226,525
Cerner Corporation* .................... 300,000 4,612,500
Computer Associates International, Inc. 100,000 4,975,000
Intuit Inc.* ........................... 50,000 1,587,500
Physician Computer Network* ............ 130,000 1,105,000
Shared Medical Systems Corporation ..... 40,000 1,970,000
Summit Medical Systems, Inc.* .......... 84,000 624,708
Total ................................. 22,889,358
Chemicals and Allied Products - 13.68%
American Home Products Corporation ..... 275,000 16,121,875
Amgen Inc.* ............................ 100,000 5,443,700
Astra AB, Class A, ADR ................. 124,900 6,120,100
Lilly (Eli) and Company ................ 100,000 7,300,000
Liposome Company, Inc. (The)* .......... 200,000 3,837,400
Pfizer Inc. ............................ 75,000 6,215,625
Schering-Plough Corporation ............ 125,000 8,093,750
SmithKline Beecham plc, ADR ............ 175,000 11,900,000
Warner-Lambert Company ................. 69,000 5,175,000
Total ................................. 70,207,450
Communication - 2.63%
Intermedia Communications of Florida,
Inc.* ................................ 155,000 3,981,485
Nokia Corporation, Series A, ADS ....... 75,000 4,321,875
360 Communications Company* ............ 225,000 5,203,125
Total ................................. 13,506,485
Depository Institutions - 19.63%
AmSouth Bancorporation ................. 100,000 4,837,500
Banc One Corporation ................... 125,000 5,375,000
Bank of New York Company, Inc. (The) ... 185,000 6,243,750
Barnett Banks, Inc. .................... 150,000 6,168,750
Chase Manhattan Corporation (The) ...... 175,000 15,618,750
Dime Bancorp, Inc.* .................... 250,000 3,687,500
First American Corporation ............. 75,000 4,331,250
First Bank System, Inc. ................ 75,000 5,118,750
Glendale Federal Bank, Federal
Savings Bank* ......................... 71,100 1,653,075
Hibernia Corporation, Class A ......... 175,000 2,318,750
KeyCorp ................................ 110,000 5,555,000
Long Island Bancorp, Inc. .............. 145,400 5,089,000
Mercantile Bancorporation Inc. ......... 100,000 5,137,500
Northern Trust Corporation ............. 100,000 3,631,200
Norwest Corporation .................... 125,000 5,437,500
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Depository Institutions (Continued)
Roosevelt Financial Group, Inc. ........ 300,000 $ 6,262,500
SouthTrust Corporation ................. 75,000 2,615,625
U.S. Trust Corporation ................. 20,000 1,577,500
Wells Fargo & Company .................. 30,000 8,092,500
Wilmington Trust Corporation ........... 50,000 1,987,500
Total ................................. 100,738,900
Electric, Gas and Sanitary Services - 3.63%
Columbia Gas System, Inc. (The) ........ 50,000 3,181,250
PanEnergy Corporation .................. 200,000 9,000,000
Sonat Inc. ............................. 125,000 6,437,500
Total ................................. 18,618,750
Engineering and Management Services - 1.50%
Fluor Corporation ...................... 75,000 4,706,250
Neurex Corporation* .................... 175,000 2,985,850
Total ................................. 7,692,100
Food and Kindred Products - 2.61%
ConAgra, Inc. .......................... 125,000 6,218,750
Heinz (H. J.) Company .................. 200,000 7,150,000
Total ................................. 13,368,750
General Merchandise Stores - 3.72%
Federated Department Stores, Inc.* ..... 150,000 5,118,750
May Department Stores Company (The) .... 175,000 8,181,250
Sears, Roebuck and Co. ................. 125,000 5,765,625
Total ................................. 19,065,625
Health Services - 2.58%
Beverly Enterprises, Inc.* ............. 235,000 2,996,250
Columbia/HCA Healthcare Corporation .... 200,000 8,150,000
MedPartners, Inc.* ..................... 100,000 2,100,000
Total ................................. 13,246,250
Holding and Other Investment Offices - 3.34%
Conseco, Inc. .......................... 175,000 11,156,250
Duke Realty Investments, Inc. .......... 75,000 2,887,500
Equity Residential Properties .......... 75,000 3,093,750
Total ................................. 17,137,500
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 7.52%
Baxter International Inc. .............` 350,000 $ 14,350,000
General Signal Corporation ............. 125,000 5,343,750
Raytheon Company ....................... 200,000 9,625,000
St. Jude Medical, Inc.* ................ 100,000 4,262,500
Target Therapeutics, Inc.* ............. 119,000 4,990,503
Total ................................. 38,571,753
Insurance Carriers - 13.20%
Allstate Corporation (The) ............. 250,000 14,468,750
American International Group, Inc. ..... 120,500 13,044,125
Berkley (W. R.) Corporation ............ 111,000 5,667,882
Berkshire Hathaway Inc.* ............... 165 5,626,500
Chartwell Re Corporation ............... 20,000 535,000
Chubb Corporation (The) ................ 50,000 2,687,500
Guarantee Life Companies Inc. (The) .... 250,000 4,656,250
NAC Re Corporation ..................... 140,000 4,742,500
TIG Holdings, Inc. ..................... 245,000 8,299,375
Trenwick Group Inc. .................... 110,000 5,115,000
Western National Corporation ........... 150,000 2,887,500
Total ................................. 67,730,382
Nondepository Institutions - 2.54%
Federal National Mortgage Association .. 350,000 13,037,500
Oil and Gas Extraction - 0.49%
Enron Oil & Gas Company ................ 100,000 2,525,000
Petroleum and Coal Products - 4.69%
Coastal Corporation (The) .............. 125,000 6,109,375
Exxon Corporation ...................... 125,000 12,250,000
Valero Energy Corporation .............. 200,000 5,725,000
Total ................................. 24,084,375
Railroad Transportation - 1.09%
Illinois Central Corporation,
Class A ............................... 175,000 5,600,000
Security and Commodity Brokers - 1.16%
Lehman Brothers Holdings Inc. .......... 100,000 3,137,500
Paine Webber Group Inc. ................ 100,000 2,812,500
Total ................................. 5,950,000
Transportation by Air - 0.96%
Southwest Airlines Co. ................. 223,200 4,938,300
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 1.77%
AlliedSignal Inc. ...................... 135,300 $ 9,065,100
Wholesale Trade -- Durable Goods - 4.00%
Johnson & Johnson ...................... 275,000 13,681,250
Lockheed Martin Corporation ............ 75,000 6,862,500
Total ................................. 20,543,750
TOTAL COMMON STOCKS - 96.42% $494,782,953
(Cost: $464,840,860)
TOTAL SHORT-TERM SECURITIES - 3.44% $ 17,665,498
(Cost: $17,665,498)
TOTAL INVESTMENT SECURITIES - 99.86% $512,448,451
(Cost: $482,506,358)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.14% 714,239
NET ASSETS - 100.00% $513,162,690
See Notes to Schedules of Investments on page 75.
<PAGE>
INCOME PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Income Portfolio for the fiscal
year ended December 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during that
period.
In 1996, the U.S. economy was characterized by modest and uneven growth.
While the major market indexes experienced significant advances in 1996, the
gains were largely attributable to a limited number of well-capitalized
companies that are heavily weighted in the indexes. A relatively small group of
stocks in the technology sector enjoyed above-average performance, while
cyclical issues generally experienced poor returns.
The Portfolio maintained a management style during the past fiscal year
consistent with prior years. During 1996, the Portfolio invested in companies
in the technology industry which tend to have better prospects for growth in a
slowing economy. Notably, the Portfolio stressed issues of selected companies
with innovative products for improving corporate communications and networking.
The strategies and techniques we applied resulted in the direction of the
Portfolio's performance remaining fairly consistent with that of the S&P 500
Index as charted on the following page. That index reflects the performance of
securities that generally represent the stock market.
We anticipate that economic growth in 1997 will be moderate, but possibly
stronger than that experienced during the past two years. As a result, we
expect to invest in cyclical stocks and continue to search for attractive
investment opportunities in companies with prospects for sustained growth.
Thank you very much for your continued support and confidence.
Respectfully,
Russell E. Thompson
Manager, Income Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Income Portfolio
and The S&P 500 Index
TMK\UNITED S&P
INCOME 500
PORTFOLIO INDEX
---------- -----
07/16/91 Purchase $10,000 $ ----
07/31/91 10,054 10,000
12/31/91 10,767 10,910
12/31/92 12,251 11,742
12/31/93 14,371 12,924
12/31/94 14,207 13,095
12/31/95 18,692 18,016
12/31/96 22,370 22,153
- ----- TMK/United Income Portfolio* -- $22,370
+++++ S&P 500 Index** -- $22,153
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500
Index (including income) are not available, investment in the index was
effected as of July 31, 1991.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 19.68%
5 Years Ended
12/31/96 15.75%
5+ Years Ended
12/31/96++ 15.87%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++7-16-91 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.15%
Gap, Inc. (The) ........................ 177,300 $ 5,341,162
Apparel and Other Textile Products - 1.17%
Tommy Hilfiger Corporation* ............ 113,200 5,433,600
Building Materials and Garden Supplies - 0.68%
Home Depot, Inc. (The) ................. 62,400 3,127,800
Business Services - 4.45%
Computer Associates International, Inc. 45,825 2,279,794
Electronic Data Systems Corporation .... 88,200 3,814,650
Manpower Inc. .......................... 13,200 429,000
Microsoft Corporation* ................. 69,200 5,721,940
Oracle Systems Corporation* ............ 134,550 5,608,986
3Com Corporation* ...................... 31,400 2,301,997
White Pine Software, Inc.* ............. 61,400 437,475
Total ................................. 20,593,842
Chemicals and Allied Products - 14.86%
Abbott Laboratories .................... 93,900 4,765,425
Air Products and Chemicals, Inc. ....... 93,800 6,483,925
Amgen Inc.* ............................ 36,000 1,959,732
BetzDearborn Inc. ...................... 40,700 2,380,950
Colgate-Palmolive Company .............. 48,900 4,511,025
Crompton & Knowles Corporation ......... 98,500 1,896,125
Dow Chemical Company (The) ............. 46,900 3,675,787
du Pont (E.I.) de Nemours and Company .. 81,600 7,701,000
Geon Company (The) ..................... 100,600 1,974,275
IMC Global, Inc. ....................... 51,500 2,014,937
Lilly (Eli) and Company ................ 27,200 1,985,600
Merck & Co., Inc. ...................... 60,200 4,770,850
PPG Industries, Inc. ................... 101,900 5,719,137
Pfizer Inc. ............................ 54,700 4,533,263
Praxair, Inc. .......................... 81,600 3,763,800
Procter & Gamble Company (The) ......... 48,900 5,256,750
Union Carbide Corporation .............. 71,400 2,918,475
Warner-Lambert Company ................. 31,800 2,385,000
Total ................................. 68,696,056
Communication - 2.34%
AT&T Corporation ....................... 40,800 1,774,800
MCI Communications Corporation ......... 152,900 4,997,842
SBC Communications Inc. ................ 40,300 2,085,525
360 Communications Company* ............ 85,800 1,984,125
Total ................................. 10,842,292
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 4.49%
BankAmerica Corporation ................ 43,700 $ 4,359,075
Chase Manhattan Corporation (The) ...... 48,300 4,310,775
Citicorp ............................... 48,300 4,974,900
First Bank System, Inc. ................ 40,800 2,784,600
Norwest Corporation .................... 99,500 4,328,250
Total ................................. 20,757,600
Electric, Gas and Sanitary Services - 0.34%
WMX Technologies, Inc. ................. 48,900 1,595,363
Electronic and Other Electric Equipment - 13.21%
AMP Incorporated ....................... 89,700 3,442,237
Analog Devices, Inc.* .................. 289,800 9,816,975
Duracell International Inc. ............ 85,300 5,960,337
Emerson Electric Co. ................... 32,600 3,154,050
General Electric Company ............... 97,900 9,679,862
Harman International Industries,
Incorporated .......................... 24,150 1,343,344
Intel Corporation ...................... 124,800 16,340,938
LSI Logic Corporation* ................. 134,400 3,595,200
Molex Incorporated, Class A ............ 78,187 2,780,486
Rival Company (The) .................... 130,300 3,200,429
TRINOVA Corporation .................... 48,900 1,778,737
Total ................................. 61,092,595
Engineering and Management Services - 0.44%
Fluor Corporation ...................... 32,600 2,045,650
Food and Kindred Products - 1.72%
CPC International Inc. ................. 40,800 3,162,000
PepsiCo, Inc. .......................... 163,200 4,773,600
Total ................................. 7,935,600
Food Stores - 0.47%
Kroger Co. (The)* ...................... 46,300 2,152,950
Forestry - 1.17%
Georgia-Pacific Corporation ............ 34,700 2,498,400
Weyerhaeuser Company ................... 61,200 2,899,350
Total ................................. 5,397,750
Furniture and Home Furnishings Stores - 0.85%
Circuit City Stores, Inc. .............. 130,500 3,931,312
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
General Building Contractors - 0.50%
Pulte Corporation ...................... 74,600 $ 2,293,950
General Merchandise Stores - 3.58%
Dayton Hudson Corporation .............. 113,700 4,462,725
Kmart Corporation* ..................... 357,600 3,710,100
May Department Stores Company (The) .... 81,600 3,814,800
Penney (J.C.) Company, Inc. ............ 55,100 2,686,125
Wal-Mart Stores, Inc. .................. 81,600 1,866,600
Total ................................. 16,540,350
Health Services - 1.77%
Columbia/HCA Healthcare Corporation .... 108,200 4,409,150
Tenet Healthcare Corporation* .......... 81,600 1,785,000
Vencor, Incorporated* .................. 62,800 1,986,050
Total ................................. 8,180,200
Heavy Construction, Excluding Building - 0.26%
Foster Wheeler Corporation ............. 32,600 1,210,275
Hotels and Other Lodging Places - 0.88%
ITT Corporation* ....................... 93,600 4,059,900
Industrial Machinery and Equipment - 12.22%
Applied Materials, Inc.* ............... 141,100 5,070,711
Case Corporation ....................... 146,200 7,967,900
Caterpillar Inc. ....................... 107,000 8,051,750
cisco Systems, Inc.* ................... 147,700 9,406,570
Compaq Computer Corporation* ........... 31,700 2,353,725
Deere & Company ........................ 167,600 6,808,750
Eaton Corporation ...................... 40,800 2,845,800
Harnischfeger Industries, Inc. ......... 49,000 2,358,125
Hewlett-Packard Company ................ 72,000 3,618,000
Ingersoll-Rand Company ................. 32,600 1,450,700
Parker Hannifin Corporation ............ 48,900 1,894,875
United Technologies Corporation ........ 70,800 4,672,800
Total ................................. 56,499,706
Instruments and Related Products - 1.74%
General Motors Corporation, Class H .... 14,400 810,000
Guidant Corporation .................... 49,600 2,827,200
Medtronic, Inc. ........................ 65,200 4,433,600
Total ................................. 8,070,800
Insurance Carriers - 0.49%
Aetna Life & Casualty Company .......... 28,100 2,248,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Miscellaneous Manufacturing Industries - 1.10%
Armstrong World Industries, Inc. ....... 73,400 $ 5,101,300
Miscellaneous Retail - 0.24%
OfficeMax, Inc.* ....................... 104,625 1,111,641
Motion Pictures - 0.86%
Walt Disney Company (The) .............. 57,100 3,975,587
Nondepository Institutions - 2.83%
Federal Home Loan Mortgage Corporation . 63,400 6,981,925
Federal National Mortgage Association .. 163,400 6,086,650
Total ................................. 13,068,575
Paper and Allied Products - 1.66%
Champion International Corporation ..... 41,300 1,786,225
International Paper Company ............ 97,900 3,952,713
Union Camp Corporation ................. 40,800 1,948,200
Total ................................. 7,687,138
Petroleum and Coal Products - 2.44%
Mobil Corporation ...................... 36,100 4,413,225
Royal Dutch Petroleum Company .......... 26,200 4,473,650
Tosco Corporation ...................... 30,100 2,381,663
Total ................................. 11,268,538
Primary Metal Industries - 1.04%
Aluminum Company of America ............ 56,000 3,570,000
Nucor Corporation ...................... 24,500 1,249,500
Total ................................. 4,819,500
Railroad Transportation - 0.53%
Union Pacific Corporation .............. 40,800 2,453,100
Rubber and Miscellaneous Plastics Products - 0.91%
Goodyear Tire & Rubber Company (The) ... 81,600 4,192,200
Special Trade Contractors - 1.06%
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 163,100 4,923,500
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Transportation by Air - 2.25%
AMR Corporation* ....................... 32,600 $ 2,872,875
Southwest Airlines Co. ................. 90,000 1,991,250
USAir Group, Inc.* ..................... 236,500 5,528,188
Total ................................. 10,392,313
Transportation Equipment - 7.22%
AlliedSignal Inc. ...................... 61,900 4,147,300
Boeing Company (The) ................... 51,800 5,510,225
Chrysler Corporation ................... 179,400 5,920,200
Dana Corporation ....................... 62,000 2,022,750
Ford Motor Company ..................... 92,600 2,951,625
General Motors Corporation ............. 81,600 4,549,200
Northrop Grumman Corporation ........... 78,300 6,479,325
Sundstrand Corporation ................. 42,000 1,785,000
Total ................................. 33,365,625
Wholesale Trade -- Durable Goods - 0.86%
Motorola, Inc. ......................... 65,100 3,995,513
Wholesale Trade -- Nondurable Goods - 1.83%
Gillette Company (The) ................. 81,600 6,344,400
Safeway Inc.* .......................... 49,700 2,124,675
Total ................................. 8,469,075
TOTAL COMMON STOCKS - 93.61% $432,870,358
(Cost: $292,364,327)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Depository Institutions - 0.03%
U.S. Bancorp,
Master Note............................ $ 129 129,000
Electric, Gas and Sanitary Services - 0.88%
Pacificorp,
5.45%, 2-3-97 ......................... 1,925 1,915,383
Western Resources Inc.,
5.6%, 1-16-97 ......................... 2,165 2,159,948
Total ................................. 4,075,331
Food and Kindred Products - 0.04%
General Mills, Inc.,
Master Note............................ 196 196,000
Food Stores - 0.77%
Albertson's Inc.,
5.45%, 2-7-97 ......................... 3,560 3,540,059
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Instruments and Related Products - 1.46%
Baxter International Inc.,
5.5%, 1-17-97 ......................... 6,780 6,763,427
Metal Mining - 1.17%
BHP Finance (USA) Inc.,
5.35%, 1-28-97 ........................ 5,425 5,403,232
Textile Mill Products - 0.19%
Sara Lee Corporation,
Master Note............................ 902 902,000
Total Commercial Paper - 4.54% 21,009,049
Municipal Obligations - 2.19%
Louisiana
Industrial Development Board of the Parish
of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable), (ABN AMRO Bank N.V.),
5.48%, 1/9/97 ......................... 10,100 10,100,000
TOTAL SHORT-TERM SECURITIES - 6.73% $ 31,109,049
(Cost: $31,109,049)
TOTAL INVESTMENT SECURITIES - 100.34% $463,979,407
(Cost: $323,473,376)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.34%) (1,587,987)
NET ASSETS - 100.00% $462,391,420
See Notes to Schedules of Investments on page 75.
<PAGE>
INTERNATIONAL PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the International Portfolio during
the fiscal year ended December 31, 1996. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
During 1996, inflation remained subdued and global economic growth
continued to slow, especially in Continental Europe, despite generally declining
worldwide interest rates. The Japanese economy experienced strong growth during
the first half of the year, but slowed during the remainder of 1996 due
primarily to lower domestic demand. The U.S. Dollar remained strong against
most major world currencies in 1996, rising roughly 7% against Continental
European currencies and nearly 12% against the Japanese Yen.
During the past year, the Portfolio emphasized investments in European
companies engaged in corporate restructuring, primarily in Scandinavia, Germany
and Great Britain. In the Pacific Basin, we concentrated on Hong Kong companies
in the banking and real estate sectors and those with significant activities in
China. As the value of the U.S. Dollar rose throughout the year, we focused on
exporters and hedged a part of our currency exposure to protect the value of our
foreign assets. We limited our exposure in Japan to blue chip issues that may
benefit from the current devaluation of the Yen. Infrastructure stocks were
preferred for emerging economies with strong government spending plans.
The strategies and techniques we applied resulted in the Portfolio
significantly outperforming the Morgan Stanley E.A.FE. Index (Europe, Australia,
Far East Index) charted on the following page. That index reflects the
performance of securities that generally represent the international stock
market. The Portfolio's performance was positively impacted by its
proportionately greater exposure to investments in Scandinavia, Mexico and Hong
Kong, and lower exposure to Japanese investments.
We expect global inflation to remain subdued in 1997. The value of the
U.S. Dollar may continue to rise, but it should be at a slower pace than that
experienced in 1996. Latin American countries should continue their gradual
recoveries, as their governments take steps to privatize and deregulate various
industries. European economies may show signs of recovery later in the year,
driven primarily by exports. Japan's economic outlook remains clouded by fiscal
tightening and continued structural problems. We anticipate that Hong Kong's
economy will strengthen during the transition to Chinese rule, driven by higher
property prices and increased private consumption. We expect to continue our
investment strategy of focusing on quality growth stocks in areas of the world
experiencing economic growth and in emerging markets experiencing deregulation
and privatization.
Thank you very much for your continued support and confidence.
Respectfully,
Thomas A. Mengel
Manager, International Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United International Portfolio
and The Morgan Stanley E.A.FE. Index
MORGAN
TMK/UNITED STANLEY
INTERNATIONAL E.A.FE.
PORTFOLIO INDEX
--------- ---------
05/03/94 Purchase $10,000 $10,000
12/31/94 10,026 9,990
12/31/95 10,756 11,110
12/31/96 12,378 11,782
- ----- TMK/United International Portfolio* -- $12,378
+++++ Morgan Stanley E.A.FE. Index** -- $11,782
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Morgan
Stanley E.A.FE. Index (including income) are not available, investment in
the index was effected as of April 30, 1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 15.09%
2+ Years Ended
12/31/96++ 8.33%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++5-3-94 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Argentina - 1.65%
Disco S.A., Sponsored ADR* ............. 46,700 $ 1,319,275
Australia - 2.34%
Publishing & Broadcasting PBL (A) ...... 150,000 729,718
Westpac Banking Corporation Limited (A) 200,000 1,138,297
Total ................................. 1,868,015
Brazil - 0.96%
Telebras S.A., ADR ...................... 10,000 765,000
Denmark - 2.34%
Bang & Olufsen Holding A/S, Class B (A) 20,000 972,607
Neurosearch A/S (A)* ................... 20,000 893,064
Total ................................. 1,865,671
Finland - 1.09%
Nokia Corporation, Series K (A) ........ 15,000 868,241
France - 4.01%
Business Objects S.A., ADR* ............ 31,000 422,375
But S.A. (A) ........................... 8,000 470,434
Compagnie Generale des Eaux (A) ........ 7,500 929,782
Elf Aquitaine S.A. (A) ................. 7,000 637,419
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 3,500 742,283
Total ................................. 3,202,293
Germany - 9.67%
CKAG Colonia Konzern AG (A) ............ 11,000 908,027
Commerzbank AG (A) ..................... 30,000 762,431
Daimler-Benz AG (A)* ................... 31,500 2,170,296
GILDEMEISTER Aktiengesellschaft (A)* ... 8,750 383,897
Herlitz International Trading AG (A) ... 1,500 382,190
Mannesmann AG (A) ...................... 4,300 1,864,218
Metallgesellschaft AG (A)* ............. 20,000 409,490
Schering AG (A) ........................ 10,000 844,329
Total ................................. 7,724,878
Hong Kong - 11.12%
Amoy Properties Ltd. (A) ............... 500,000 720,796
Cheung Kong Holdings Ltd. (A) .......... 100,000 888,875
Cheung Kong Infrastructure Holdings
Limited (A)* .......................... 254,000 673,217
First Pacific Company Limited (A) ...... 750,000 974,530
Guangdong Corporation Limited (A) ...... 1,000,000 963,217
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Hong Kong (Continued)
Guangdong Tannery Ltd.(A)* ............. 50,000 $ 12,606
Guangnan Holdings Limited (A) .......... 800,000 687,827
HSBC Holdings plc (A) .................. 60,000 1,283,858
Hysan Development Company Limited (A) .. 150,000 597,324
JCG Holdings Ltd. (A) .................. 650,000 634,495
National Mutual Asia Ltd. (A) .......... 800,000 760,230
Wing Hang Bank Limited (A) ............. 150,000 680,716
Total ................................. 8,877,691
Indonesia - 2.81%
PT Bank NISP, F (A) .................... 500,000 566,018
PT Matahari Putra Prima, F (A) ......... 573,750 667,716
PT Steady Safe Transportation
Service, F (A) ........................ 453,333 580,335
PT United Tractors, F (A) .............. 205,000 429,433
Total ................................. 2,243,502
Italy - 2.63%
Istituto Mobiliare Italiano SpA (A)* .... 69,500 593,225
Mediolanum S.p.A. (A)* ................. 70,000 662,507
STET - Societa Financiaria
Telefonica p.a. (A) ................... 250,000 844,657
Total .................................. 2,100,389
Japan - 6.20%
Aloka Co. Ltd. (A) ..................... 13,000 148,174
Daiichi Corporation (A) ................ 30,000 606,165
Eisai Co., Ltd. (A) .................... 30,000 590,623
Matsushita Electric Industrial (A) ..... 40,000 652,793
NEC Corporation (A) .................... 60,000 725,326
Nintendo Corp., Ltd. (A) ............... 13,000 930,576
Promise Co., Ltd. (A) .................. 16,000 787,497
Xebio Co., Ltd. (A) .................... 17,000 506,433
Total ................................. 4,947,587
Mexico - 5.80%
Corporacion Industrial Sanluis, S.A.
de C.V., CPO (A) ...................... 75,500 468,039
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B (A)* ............ 200,000 1,092,480
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS* .................... 50,000 731,250
Gruma, S.A., Class B (A)* .............. 70,000 426,829
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares (A)* .............. 2,000,000 800,305
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Mexico (Continued)
Grupo Financiero Inbursa S.A. de
C.V., Class B (A) ..................... 175,234 $ 598,805
Grupo Televisa, S.A., GDR* ............. 20,100 515,062
Total ................................. 4,632,770
Netherlands - 3.23%
Internatio-Muller NV (A) ............... 25,000 628,439
Koninklijke Boskalis
Westminster N.V. (A) .................. 35,000 709,528
Ordina Beheer N.V. (A)* ................ 10,000 448,885
Vendex International N.V. (A) .......... 18,500 791,862
Total ................................. 2,578,714
Norway - 2.32%
Merkantildata A/S (A) .................. 61,000 1,115,976
Schibsted AS (A) ....................... 40,000 734,915
Total ................................. 1,850,891
Portugal - 0.80%
Telecel-Comunicacaoes Pessoais, SA (A)* 10,000 638,504
Spain - 1.04%
Sociedad General de Aquas de
Barcelona, S.A. (A) ................... 20,000 833,526
Sweden - 9.72%
Althin Medical AB, Class B (A) ......... 13,000 280,180
Astra AB, Class A (A) .................. 35,000 1,717,635
Biacore International AB, ADR* ......... 25,000 546,875
Celsius Industrier AB, Class B (A)* .... 20,000 313,092
Diligentia AB (A)* ..................... 15,000 234,819
Enator AB (A)* ......................... 30,000 762,342
Frontec AB, Class B (A)* ............... 54,900 943,381
Kinnevik AB, B Shares (A) .............. 21,500 588,612
Skandia Enskilda Banken, Class A (A) ... 150,000 1,529,052
Skandia Group Insurance Company Ltd. (A) 30,000 843,163
Total ................................. 7,759,151
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Switzerland - 6.56%
Brauerei Eichhof AG (A) ................ 280 $ 564,896
CS Holding, Registered Shares (A) ...... 7,000 719,196
Choco Lindt & Spru AG, Registered (A) .. 50 912,538
Novartis AG (A)* ....................... 907 1,038,565
SMH Swiss Corporation for Microelectronics
and Watchmaking Industries Ltd.(A) .... 1,000 616,453
Zurich Insurance Company (A) ........... 5,000 1,389,823
Total ................................. 5,241,471
Thailand - 1.42%
Bank of Ayudhya Public Company
Limited, F (A) ........................ 150,000 353,732
Srithai Superware Public Company
Limited, F (A) ........................ 130,000 780,355
Total ................................. 1,134,087
United Kingdom - 8.29%
Corporate Services Group plc (A) ....... 575,000 1,698,984
Dr Solomon's Group PLC, ADR* ........... 25,000 423,425
Michael Page Group plc (A) ............. 100,000 710,854
Professional Staff plc, ADR* ........... 55,000 467,500
Storehouse PLC (A) ..................... 150,000 664,177
Tomkins plc (A) ........................ 200,000 924,966
Vodafone Group Plc (A) ................. 250,000 1,057,716
Whitbread and Company, Public Limited
Company (A) ........................... 50,000 674,026
Total ................................. 6,621,648
United States - 0.73%
Rofin-Sinar Technologies Inc.* ......... 50,000 581,250
TOTAL COMMON STOCKS - 84.73% $67,654,554
(Cost: $58,433,029)
PREFERRED STOCKS
Brazil - 0.81%
Banco Itau S.A., (A) ................... 1,500,000 649,976
Germany - 3.07%
Marschollek, Lautenschlager und
Partner AG (A) ........................ 12,890 1,792,954
Moebel Walther AG (A) .................. 10,000 656,484
Total ................................. 2,449,438
TOTAL PREFERRED STOCKS - 3.88% $ 3,099,414
(Cost: $1,946,091)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Communication - 2.81%
Bell Atlantic Financial Services Inc.,
5.33%, 1-24-97......................... $2,250 $ 2,242,338
Depository Institutions - 1.29%
U.S. Bancorp,
Master Note............................ 1,030 1,030,000
Food and Kindred Products - 0.43%
General Mills, Inc.,
Master Note............................ 343 343,000
Food Stores - 2.81%
Albertson's Inc.,
5.35%, 1-21-97 ........................ 2,250 2,243,312
Forestry - 3.72%
Weyerhaeuser Co.,
5.45%, 2-24-97 ........................ 3,000 2,975,475
Textile Mill Products - 0.80%
Sara Lee Corporation,
Master Note............................ 637 637,000
TOTAL SHORT-TERM SECURITIES - 11.86% $ 9,471,125
(Cost: $9,471,125)
TOTAL INVESTMENT SECURITIES - 100.47% $80,225,093
(Cost: $69,850,245)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.47%) (375,640)
NET ASSETS - 100.00% $79,849,453
See Notes to Schedules of Investments on page 75.
<PAGE>
SMALL CAP PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Small Cap Portfolio during the
fiscal year ended December 31, 1996. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
The U.S. economy was characterized by moderate growth and low inflation in
1996. Government intervention in economic affairs was minimal during the year,
paving the way for continued free market based reforms.
We began 1996 by concentrating on small emerging companies in the areas of
healthcare, technology and consumer services. This strategy proved successful
during the first half of the year. However, the summer market correction was
particularly hard on these sectors and they remained in a downward trend through
the end of the year. While the major market indexes experienced significant
advances in 1996, the gains were largely attributable to a limited number of
companies with large market capitalizations that are heavily weighted in the
indexes.
The strategies and techniques we applied resulted in the Portfolio
underperforming the Naddaq Industrials Index charted on the following page.
That index reflects the performance of securities that generally represent the
small companies sector of the stock market. The Portfolio's performance was
negatively impacted, relative to the Nasdaq Industrials Index, by its lack of
ownership of the mid to large cap issues that contributed most to the superior
gains experienced by the index.
In 1997, we anticipate continued moderate economic growth and a broadening
of performance in the small cap sector due to the growing valuation disparity
between comparable companies. We expect the consolidation trend of the past
several years to continue, and possibly even accelerate, particularly in the
technology and healthcare sectors. Further, we expect to continue our focus on
companies with strong growth potential, especially those that can benefit from
new products, geographic expansion and industry consolidation.
Thank you very much for your continued support and confidence.
Respectfully,
Zachary H. Shafran
Manager, Small Cap Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Small Cap Portfolio
and The Nasdaq Industrials Index
TMK/UNITED Nasdaq
SMALL CAP INDUSTRIALS
PORTFOLIO INDEX
---------- -----------
05/03/94 Purchase $10,000 $10,000
12/31/94 12,091 9,862
12/31/95 15,999 12,620
12/31/96 17,332 14,517
----- TMK/United Small Cap Portfolio* -- $17,332
+++++ Nasdaq Industrials Index** -- $14,517
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the NASDAQ
Industrials Index is not available, investment in the index was effected as
of April 30, 1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 8.33%
2+ Years Ended
12/31/96++ 22.91%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++5-3-94 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Business Services - 24.45%
America Online, Inc.* .................. 60,000 $ 1,995,000
Cerner Corporation* .................... 183,100 2,815,162
Dr Solomon's Group PLC, ADR* ........... 50,000 846,850
Health Systems Design Corporation* ..... 140,000 1,190,000
IMNET Systems, Inc.* ................... 90,000 2,160,000
Intelligroup, Inc.* .................... 45,000 511,875
Intuit Inc.* ........................... 50,000 1,587,500
Mechanical Dynamics, Inc.* ............. 105,500 1,443,979
Netscape Communications Corporation* ... 20,000 1,137,500
Object Design, Inc.* ................... 100,000 1,156,200
Parametric Technology Corporation* ..... 36,000 1,851,732
PHAMIS, Inc.* .......................... 110,000 1,430,000
Pure Atria Corporation* ................ 45,000 1,105,290
Segue Software, Inc.* .................. 60,000 1,083,720
Summit Medical Systems, Inc.* .......... 160,000 1,189,920
Sync Research, Inc.* ................... 120,000 1,627,440
Synopsys, Inc.* ........................ 15,000 690,000
Total ................................. 23,822,168
Chemicals and Allied Products - 1.28%
Carson, Inc.* .......................... 90,000 1,248,750
Communication - 4.31%
Intermedia Communications of Florida,
Inc.* ................................ 100,000 2,568,700
MFS Communications Company, Inc.* ...... 30,000 1,631,250
Total ................................. 4,199,950
Eating and Drinking Places - 2.00%
Longhorn Steaks, Inc.* ................. 90,000 1,710,000
Pizza Inn, Inc.* ....................... 50,000 234,350
Total ................................. 1,944,350
Electronic and Other Electric Equipment - 2.91%
Etec Systems, Inc.* .................... 64,000 2,416,000
XeTel Corporation* ..................... 105,000 413,385
Total ................................. 2,829,385
Engineering and Management Services - 4.18%
Owen Healthcare, Inc.* ................. 70,000 1,855,000
Transition Systems, Inc.* .............. 160,000 2,220,000
Total ................................. 4,075,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Health Services - 11.15%
American Healthcorp, Inc.* ............. 100,000 $ 1,137,500
Emeritus Corporation* .................. 50,000 675,000
Inphynet Medical Management Inc.* ...... 115,000 2,026,875
Physicians Resource Group, Inc.* ....... 85,000 1,508,750
Quorum Health Group, Inc.* ............. 100,000 2,962,500
Renal Care Group, Inc.* ................ 66,000 2,107,842
Sterling House Corporation* ............ 50,000 437,500
Total ................................. 10,855,967
Industrial Machinery and Equipment - 2.30%
Integrated Process Equipment Corp.* .... 125,000 2,242,125
Instruments and Related Products - 15.76%
Cymer, Inc.* ........................... 102,000 4,915,074
DePuy, Inc.* ........................... 100,000 2,025,000
Hologic, Inc.* ......................... 65,000 1,608,750
LUNAR CORPORATION* ..................... 40,000 1,385,000
St. Jude Medical, Inc.* ................ 40,000 1,705,000
Ventritex, Inc.* ....................... 65,000 1,588,405
Waters Corporation* .................... 70,000 2,126,250
Total ................................. 15,353,479
Insurance Agents, Brokers and Service - 0.92%
CRA Managed Care, Inc.* ................ 20,000 892,500
Insurance Carriers - 1.96%
CMAC Investment Corporation ............ 52,000 1,911,000
Personal Services - 3.45%
Carriage Services, Inc.* ............... 85,000 1,885,895
Equity Corporation International* ...... 75,000 1,471,875
Total ................................. 3,357,770
Real Estate - 2.09%
Stewart Enterprises, Inc., Class A ..... 60,000 2,040,000
Wholesale Trade -- Durable Goods - 0.92%
OmniCare, Inc. ......................... 28,000 899,500
TOTAL COMMON STOCKS - 77.68% $75,671,944
(Cost: $66,660,069)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES - 2.17%
Holding and Other Investment Offices
LTC Properties, Inc., Convertible:
8.25%, 7-1-2001 ....................... $1,000 1,037,500
7.75%, 1-1-2002 ....................... 1,000 1,075,000
Total ................................. 2,112,500
(Cost: $2,000,000)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Auto Repair, Services and Parking - 3.79%
PHH Corporation,
5.57%, 1-31-97 ........................ $3,705 $ 3,687,802
Depository Institutions - 3.75%
U.S. Bancorp,
Master Note............................ 3,655 3,655,000
Food and Kindred Products - 4.74%
General Mills, Inc.,
Master Note...........................z 4,620 4,620,000
Food Stores - 3.16%
Albertson's Inc.,
5.35%, 1-21-97 ........................ 3,085 3,075,831
Nondepository Institutions - 1.67%
Island Finance Puerto Rico Inc.,
5.55%, 1-31-97 ........................ 1,635 1,627,438
Textile Mill Products - 2.94%
Sara Lee Corporation,
Master Note............................ 2,865 2,865,000
TOTAL SHORT-TERM SECURITIES - 20.05% $19,531,071
(Cost: $19,531,071)
TOTAL INVESTMENT SECURITIES - 99.90% $97,315,515
(Cost: $88,191,140)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.10% 92,775
NET ASSETS - 100.00% $97,408,290
See Notes to Schedules of Investments on page 75.
<PAGE>
BALANCED PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Balanced Portfolio for the
fiscal year ended December 31, 1996. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Portfolio's performance during that period.
During 1996, the economy experienced modest growth with continuing low
interest and inflation rates. However, perceptions regarding the direction and
strength of the economy varied widely during the past fiscal year, contributing
to volatility and uncertainty in both the equity and fixed income markets.
Inflation concerns, prompted by upward wage pressures and increased energy
prices, affected the performance of both the equity and fixed income markets and
caused investors to gravitate towards growth companies that enjoy a perception
of stability regardless of economic strength.
In 1996, we continued to pursue a strategy of attempting to increase total
return while striving to preserve capital. In an attempt to reduce investment
risk, we continued to diversify the Portfolio's investments across a broad
section of industries. We maintained a cash position during the past fiscal
year to enable us to react to interest rate changes and take advantage of
investment opportunities we perceived as being attractive.
The strategies and techniques we applied resulted in the Portfolio
outperforming the bond market index and underperforming the stock market index
charted on the following page. Those indexes reflect the performance of
securities that generally represent the stock market (the S&P 500 Index) and the
bond market (the Lehman Brothers Government/Corporate Bond Index). A variety of
indexes is presented because the Portfolio invests in stocks and bonds. The
Portfolio's fixed income investments and our strategy of maintaining a cash
position contributed to the underperformance of the Portfolio as compared to the
S&P 500 Index.
We anticipate moderate economic growth during 1997. High current levels of
household debt and weak export markets, particularly in Europe, should hinder
economic growth during the first half of the year. Intimations from the Federal
Reserve and prevailing economic conditions make us cautious that steps may be
taken to raise interest rates in the event signs of inflation appear. Market
reaction to such an increase could be swift and significant. Accordingly, we
expect to maintain a diversified and defensive position, while continuing to
invest in securities that present the opportunity for positive long-term returns
consistent with the Portfolio's objectives.
Thank you very much for your continued support and confidence.
Respectfully,
Cynthia P. Prince-Fox
Manager, Balanced Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Balanced Portfolio,
The S&P 500 Index and The
Lehman Brothers Government/Corporate Bond Index
Lehman
Brothers
Standard Government/
TMK/United & Poor's Corporate
Balanced 500 Bond
Portfolio Index Index
---------- -------- -----------
05/03/94 Purchase $10,000 $10,000 $10,000
12/31/94 9,963 10,398 10,046
12/31/95 12,373 14,306 11,979
12/31/96 13,715 17,591 12,327
===== TMK/United Balanced Portfolio* -- $13,715
- ----- S&P 500 Index** -- $17,591
+++++ Lehman Bros Gov't/Corp Bond Index** -- $12,327
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the S&P 500
Index and the Lehman Brothers Government/Corporate Bond Index (including
income) are not available, investment in the indexes was effected as of
April 30, 1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 10.84%
2+ Years Ended
12/31/96++ 12.58%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++5-3-94 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.38%
Gap, Inc. (The) ........................ 10,000 $ 301,250
Talbots, Inc. (The) .................... 10,000 286,250
Total ................................. 587,500
Apparel and Other Textile Products - 0.82%
Liz Claiborne, Inc. .................... 9,000 347,625
Building Materials and Garden Supplies - 1.32%
Sherwin-Williams Company (The) ......... 10,000 560,000
Business Services - 0.60%
Broderbund Software, Inc.* ............. 6,300 187,028
Electronic Data Systems Corporation .... 1,548 66,951
Total ................................. 253,979
Chemicals and Allied Products - 10.30%
American Home Products Corporation ..... 7,000 410,375
Avon Products, Inc. .................... 8,300 474,138
Crompton & Knowles Corporation ......... 14,300 275,275
Dow Chemical Company (The) ............. 5,500 431,063
du Pont (E.I.) de Nemours and Company .. 2,400 226,500
IMC Global, Inc. ....................... 13,000 508,625
Merck & Co., Inc. ...................... 6,600 523,050
Nalco Chemical Company ................. 7,000 252,875
Pfizer Inc. ............................ 5,500 455,812
Praxair, Inc. .......................... 8,800 405,900
Warner-Lambert Company ................. 5,400 405,000
Total ................................. 4,368,613
Communication - 2.79%
AT&T Corporation ....................... 7,300 317,550
GTE Corporation ........................ 5,300 241,150
Nokia Corporation, Series A, ADS ....... 1,600 92,200
SBC Communications Inc. ................ 10,300 533,025
Total ................................. 1,183,925
Depository Institutions - 2.99%
BankAmerica Corporation ................ 4,500 448,875
Comerica Incorporated .................. 5,900 309,013
Wells Fargo & Company .................. 1,900 512,525
Total ................................. 1,270,413
Electric, Gas and Sanitary Services - 1.81%
Baltimore Gas and Electric Company ..... 7,600 203,300
Houston Industries Incorporated ........ 12,000 271,500
Southern Company (The) ................. 13,000 294,125
Total ................................. 768,925
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 6.51%
AMP Incorporated ....................... 10,800 $ 414,450
Duracell International Inc. ............ 7,500 524,062
Emerson Electric Co. ................... 4,500 435,375
General Electric Company ............... 7,500 741,563
LSI Logic Corporation* ................. 20,000 535,000
Lucent Technologies Inc. ............... 2,365 109,381
Total ................................. 2,759,831
Food and Kindred Products - 1.55%
ConAgra, Inc. .......................... 5,900 293,525
PepsiCo, Inc. .......................... 12,400 362,700
Total ................................. 656,225
Forestry - 1.15%
Georgia-Pacific Corporation ............ 6,800 489,600
General Merchandise Stores - 0.60%
May Department Stores Company (The) .... 5,400 252,450
Health Services - 1.01%
Tenet Healthcare Corporation* .......... 19,600 428,750
Heavy Construction, Excluding Building - 1.23%
bufete industrial, s.a., ADR* .......... 15,000 318,750
Foster Wheeler Corporation ............. 5,500 204,187
Total ................................. 522,937
Holding and Other Investment Offices - 2.84%
LTC Properties, Inc. ................... 18,000 333,000
National Health Investors, Inc. ........ 12,000 454,500
Zurich Insurance Company (A) ........... 1,500 416,947
Total ................................. 1,204,447
Industrial Machinery and Equipment - 2.12%
Applied Materials, Inc.* ............... 13,000 467,181
Deere & Company ........................ 6,000 243,750
York International Corporation ......... 3,400 189,975
Total ................................. 900,906
Instruments and Related Products - 1.60%
General Motors Corporation, Class H .... 6,600 371,250
St. Jude Medical, Inc.* ................ 7,200 306,900
Total ................................. 678,150
Insurance Carriers - 1.90%
Chubb Corporation (The) ................ 6,200 333,250
ITT Hartford Group, Inc. ............... 4,100 276,750
United HealthCare Corporation .......... 4,400 198,000
Total ................................. 808,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 2.11%
Associates First Capital Corporation* .. 8,600 $ 379,475
Federal Home Loan Mortgage Corporation . 4,700 517,587
Total ................................. 897,062
Nonmetallic Minerals, Except Fuels - 1.20%
Potash Corporation of Saskatchewan Inc. 6,000 510,000
Oil and Gas Extraction - 1.85%
Noble Affiliates, Inc. ................. 8,500 406,937
Schlumberger Limited ................... 3,800 379,525
Total ................................. 786,462
Paper and Allied Products - 0.79%
Champion International Corporation ..... 5,800 250,850
Union Camp Corporation ................. 1,800 85,950
Total ................................. 336,800
Petroleum and Coal Products - 2.18%
Mobil Corporation ...................... 2,800 342,300
Royal Dutch Petroleum Company .......... 3,400 580,550
Total ................................. 922,850
Primary Metal Industries - 1.20%
Nucor Corporation ...................... 10,000 510,000
Printing and Publishing - 2.29%
Belo (A. H.) Corporation, Class A ...... 11,000 383,625
McGraw-Hill, Inc. ...................... 5,200 239,850
Viacom Inc., Class B* .................. 10,000 348,750
Total ................................. 972,225
Railroad Transportation - 0.29%
Conrail Inc. ........................... 1,224 121,941
Textile Mill Products - 1.56%
Sara Lee Corporation ................... 9,700 361,325
Unifi, Inc. ............................ 9,300 298,763
Total ................................. 660,088
Transportation by Air - 0.29%
Delta Air Lines, Inc. .................. 456 32,319
Southwest Airlines Co. ................. 4,000 88,500
Total ................................. 120,819
Wholesale Trade -- Nondurable Goods - 0.73%
Nu Skin Asia Pacific, Inc. - A* ........ 10,000 308,750
TOTAL COMMON STOCKS - 57.01% $24,189,273
(Cost: $20,873,288)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Building Materials and Garden Supplies - 0.92%
Home Depot, Inc. (The), Convertible,
3.25%, 10-1-2001 ...................... $ 400 $ 390,000
Electronic and Other Electric Equipment - 0.87%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 257 368,125
Oil and Gas Extraction - 0.68%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable) ........ 261 288,000
Security and Commodity Brokers - 0.71%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ 266 302,500
TOTAL CORPORATE DEBT SECURITIES - 3.18% $ 1,348,625
(Cost: $1,183,750)
UNITED STATES GOVERNMENT SECURITIES - 31.03%
United States Treasury:
5.625%, 8-31-97 ....................... 1,000 1,000,310
5.125%, 2-28-98 ....................... 1,000 993,590
5.5%, 2-28-99 ......................... 1,000 991,560
6.875%, 8-31-99 ....................... 250 255,235
7.75%, 11-30-99 ....................... 1,500 1,567,260
7.125%, 2-29-2000 ..................... 500 514,765
6.375%, 8-15-2002 ..................... 1,100 1,107,216
7.5%, 2-15-2005 ....................... 3,250 3,475,973
6.25%, 8-15-2023 ...................... 250 234,375
6.75%, 8-15-2026 ...................... 3,000 3,022,500
Total ................................. $13,162,784
(Cost: $13,168,658)
SHORT-TERM SECURITIES
Depository Institutions - 4.04%
U.S. Bancorp,
Master Note............................ 1,712 1,712,000
Electric, Gas and Sanitary Services - 2.70%
Commonwealth Edison Co.,
5.67%, 1-24-97 ........................ 1,150 1,145,834
Food and Kindred Products - 0.68%
General Mills, Inc.,
Master Note............................ 288 288,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Textile Mill Products - 0.42%
Sara Lee Corporation,
Master Note............................ $ 180 $ 180,000
TOTAL SHORT-TERM SECURITIES - 7.84% $ 3,325,834
(Cost: $3,325,834)
TOTAL INVESTMENT SECURITIES - 99.06% $42,026,516
(Cost: $38,551,530)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.94% 400,542
NET ASSETS - 100.00% $42,427,058
See Notes to Schedules of Investments on page 75.
<PAGE>
ASSET STRATEGY PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Asset Strategy Portfolio for
the fiscal year ended December 31, 1996. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Portfolio's performance during that period.
1996 was characterized by modest economic growth, low inflation and slowing
growth rates for U.S. corporate earnings. Interest rates rose modestly for the
year, but experienced substantial volatility. The U.S. equity market achieved
another positive year, while investor confidence ranged from fear in July to
euphoria by year end.
Our management style remained unchanged during the past fiscal year. We
continued to focus on value and confined our investments to stocks and bonds in
sectors and asset groups that have been out of favor, permitting us to limit
risk to the Portfolio. Unfortunately, the prevailing investment environment in
1996 did not favor such a low risk value-oriented approach.
The strategies and techniques we applied resulted in the Portfolio's
overall performance, and the performance of its holdings in the various
categories of securities in which the Portfolio invests, remaining below that of
the S&P 500 Index, but fairly consistent with the other indexes charted on the
following page. The S&P 500 Index reflects the performance of securities that
generally represent the stock market. The other indexes reflect the performance
of one-month certificates of deposit (Salomon Brothers Short-Term Index for 1
Month Certificates of Deposit) and the bond market (the Lehman Brothers
Aggregate Bond Index). A variety of indexes is presented because the Portfolio
invests in stocks, bonds and other instruments. The Portfolio underperformed
the S&P 500 Index primarily due to its conservative positioning away from
exposure to U.S. stocks.
In 1997, the prevailing trend during much of the past six years could be
challenged as valuations for U.S. stocks continue to break records. We
anticipate maintaining a relatively low exposure to U.S. stocks as 1997 begins,
awaiting more reasonable prices. We will continue to have a meaningful exposure
to U.S. government bonds, U.S. industrial bonds and foreign stocks. We will
also maintain a cash position to take advantage of attractive investment
opportunities as they develop.
Thank you very much for your continued support and confidence.
Respectfully,
James D. Wineland
Manager, Asset Strategy Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Asset Strategy Portfolio,
The S&P 500 Index,
The Lehman Brothers Aggregate Bond Index, and
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit
Salomon
Brothers
Lehman Short-Term
United Brothers Index
Asset S&P Aggregate for 1 month
Strategy 500 Bond Certificates
Portfolio Index Index of Deposit
--------- --------- ---------- ----------
05/01/95Purchase $10,000 $10,000 $10,000 $10,000
12/31/95 10,180 12,179 11,123 10,401
12/31/96 10,783 14,975 11,525 10,976
====TMK/United Asset Strategy Portfolio* -- $10,785
++++ S&P 500 Index** -- $14,975
****Lehman Brothers Aggregate Bond Index** -- $11,525
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** -
- - $10,976
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the above
indexes (including income) are not available, investment in the indexes was
effected as of April 30, 1995.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 5.92%
1+ Years Ended
12/31/96++ 4.61%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++5-1-95 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Business Services - 4.66%
Broderbund Software, Inc.* ............. 8,000 $ 237,496
Maxis, Inc.* ........................... 13,000 157,625
Total ................................. 395,121
Chemicals and Allied Products - 4.19%
IMC Global, Inc. ....................... 4,000 156,500
Nalco Chemical Company ................. 5,500 198,688
Total ................................. 355,188
Communication - 5.59%
Cox Communications, Inc.* .............. 9,000 208,125
Nokia Corporation, Series A, ADS ....... 2,400 138,300
360 Communications Company* ............ 5,500 127,187
Total ................................. 473,612
Eating and Drinking Places - 2.12%
Sonic Corp.* ........................... 7,100 179,275
Food and Kindred Products - 4.52%
Seagram Company Ltd. (The) ............. 4,500 174,375
Whitbread and Company, Public
Limited Company (A) ................... 15,500 208,948
Total ................................. 383,323
Heavy Construction, Excluding Building - 1.98%
Koninklijke Boskalis Westminster N.V. (A) 8,288 168,016
Holding and Other Investment Offices - 0.98%
LTC Properties, Inc. ................... 4,500 83,250
Oil and Gas Extraction - 2.98%
Kerr-McGee Corporation ................. 3,500 252,000
Textile Mill Products - 0.98%
Polymer Group, Inc.* .................... 6,000 83,250
TOTAL COMMON STOCKS - 28.00% $2,373,035
(Cost: $2,228,144)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 2.34%
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... $200 $ 198,000
Communication - 1.93%
MFS Communications Company, Inc.,
0.0%, 1-15-2006 (B) ................... 225 163,688
Electronic and Other Electric Equipment - 1.53%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 130 129,432
Paper and Allied Products - 3.68%
Buckeye Cellulose Corporation,
9.25%, 9-15-2008 ...................... 300 312,000
Printing and Publishing - 1.81%
Viacom International Inc.,
9.125%, 8-15-99 ....................... 150 153,375
Security and Commodity Brokers - 2.00%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ 149 169,400
TOTAL CORPORATE DEBT SECURITIES - 13.29% $1,125,895
(Cost: $1,079,703)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.875%, 2-28-97 ....................... 40 40,100
6.125%, 5-31-97 ....................... 400 401,124
7.25%, 2-15-98 ........................ 60 60,984
6.375%, 7-15-99 ....................... 1,050 1,059,513
7.125%, 2-29-2000 ..................... 60 61,772
7.5%, 2-15-2005 ....................... 130 139,039
5.875%, 11-15-2005 .................... 1,050 1,012,431
9.125%, 5-15-2018 ..................... 450 570,024
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 39.47% $3,344,987
(Cost: $3,378,749)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Depository Institutions - 1.85%
U.S. Bancorp,
Master Note ........................... $157 $ 157,000
Food and Kindred Products - 3.49%
General Mills, Inc.,
Master Note ........................... 296 296,000
Food Stores - 3.82%
Albertson's Inc.,
5.45%, 2-7-97 ......................... 325 323,180
Personal Services - 4.71%
Block Financial Corp.,
5.43%, 1-22-97 ........................ 400 398,733
Textile Mill Products - 4.32%
Sara Lee Corporation,
Master Note ........................... 366 366,000
TOTAL SHORT-TERM SECURITIES - 18.19% $1,540,913
(Cost: $1,540,913)
TOTAL INVESTMENT SECURITIES - 98.95% $8,384,830
(Cost: $8,227,509)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.05% 89,368
NET ASSETS - 100.00% $8,474,198
See Notes to Schedules of Investments on page 75.
<PAGE>
MONEY MARKET PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report covers the operation of the Money Market Portfolio for the
fiscal year ended December 31, 1996. The following discussion and tables
provide you with information regarding the Portfolio's performance during that
period.
During the beginning of 1996, the U.S. economy experienced slow growth and
little inflationary pressure. In response to the slow economy, the Federal
Reserve took action in the early part of 1996 to ease short-term interest rates.
The Federal Reserve made no additional interest rate changes throughout the
remainder of the year.
Due to a positively sloped yield curve, we extended the average maturity on
a portion of the Portfolio's holdings to between six months and one year to take
advantage of higher yields. We also maintained a large position in floating-
rate securities which reset at, or slightly above, current market rates at
frequent intervals.
We anticipate continued moderate economic growth in 1997. We also expect
unemployment rates to remain at historically low levels. If these economic
conditions prevail, increasing wage pressures may prompt the Federal Reserve to
tighten its monetary policies in an effort to prevent inflationary tendencies.
In response, the Fund would shorten the average maturity of its fixed-rate
holdings to take advantage of the higher interest rates. In any event, the Fund
will continue to respond to changing economic and market conditions.
Thank you very much for your continued support and confidence.
Respectfully,
Richard K. Poettgen
Manager, Money Market Portfolio
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit
Domestic - 2.68%
Bankers Trust New York Corp.,
5.47%, 1-7-97 ......................... $1,000 $ 999,753
Yankee - 5.37%
Creditanstalt - Bankverein,
5.38%, 3-7-97 ......................... 1,000 1,000,000
Societe Generale - New York,
5.3%, 2-21-97 ......................... 1,000 1,000,000
Total ................................. 2,000,000
Total Certificates of Deposit - 8.05% 2,999,753
Notes - 5.37%
Comerica Bank,
5.5855%, 2-14-97....................... 1,000 1,000,000
PNC Bank, N.A.,
5.5037%, 1-13-97 ...................... 1,000 999,696
Total ................................. 1,999,696
TOTAL BANK OBLIGATIONS - 13.42% $ 4,999,449
(Cost: $4,999,449)
CORPORATE OBLIGATIONS
Commercial Paper
Electric, Gas and Sanitary Services - 2.03%
Carolina Power & Light Co.,
5.4%, 2-12-97 ......................... 760 755,212
Food and Kindred Products - 4.19%
General Mills, Inc.,
Master Note ........................... 1,559 1,559,000
Forestry - 3.39%
Weyerhaeuser Co.,
5.45%, 2-20-97 ........................ 1,272 1,262,372
Insurance Carriers - 2.67%
Transamerica Finance Corporation,
5.38%, 1-28-97 ........................ 1,000 995,965
Metal Mining - 3.08%
BHP Finance (USA) Inc.,
5.4%, 2-5-97 .......................... 1,155 1,148,936
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Nondepository Institutions - 2.68%
General Electric Capital Corporation,
5.47%, 1-17-97 ........................ $1,000 $ 997,569
Personal Services - 2.67%
Block Financial Corp.,
5.55%, 1-27-97 ........................ 1,000 995,992
Textile Mill Products - 1.62%
Sara Lee Corporation,
Master Note ........................... 602 602,000
Tobacco Products - 2.68%
B.A.T. Capital Corp.,
5.4%, 1-17-97 ......................... 1,000 997,600
Transportation Equipment - 2.66%
Echlin, Inc.,
5.55%, 2-18-97 ........................ 1,000 992,600
Total Commercial Paper - 27.67% 10,307,246
Notes
Auto Repair, Services and Parking - 2.68%
PHH Corporation,
5.8105%, 3-26-97 ...................... 1,000 999,864
Nondepository Institutions - 5.37%
Caterpillar Financial Services Corp.,
5.9585%, 1-1-97 ....................... 1,000 1,000,000
Deere (John) Capital Corp.,
5.95%, 6-30-97 ........................ 1,000 999,475
Total ................................. 1,999,475
Security and Commodity Brokers - 2.68%
Merrill Lynch & Co., Inc.,
5.6541%, 5-29-97 ...................... 1,000 1,000,000
Total Notes - 10.73% 3,999,339
TOTAL CORPORATE OBLIGATIONS - 38.40% $14,306,585
(Cost: $14,306,585)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS
California - 8.05%
California Pollution Control Financing
Authority, Environmental Improvement
Revenue Bonds (Shell Martinez Refining
Company Project), Series 1996 (Taxable),
5.52%, 1-2-97 ......................... $1,000 $ 1,000,000
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.56%, 5-1-97 ......................... 1,000 1,000,000
Oakland-Alameda County Coliseum Lease Revenue
Bonds (Oakland Coliseum Project),1995 Series
B-1 (Canadian Imperial Bank of Commerce),
5.42%, 1-3-97 ......................... 1,000 1,000,000
Total ................................. 3,000,000
Indiana - 2.68%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds (Amoco
Oil Company Project), Taxable Series 1995,
5.55%, 1-13-97 ........................ 1,000 1,000,000
Louisiana - 2.68%
Industrial District No. 3 of the Parish
of West Baton Rouge, State of Louisiana,
Variable Rate Demand Revenue Bonds (The
Dow Chemical Company Project),
Series 1995 (Taxable),
5.45%, 1-17-97 ........................ 1,000 1,000,000
New York - 4.57%
Health Insurance Plan of Greater New York
(Morgan Guaranty Trust Company of New York),
5.8%, 1-1-97 .......................... 1,700 1,700,000
Pennsylvania - 3.37%
Monroe County Industrial Development
Authority, Manufacturing Facilities
Revenue Bonds (United Steel Enterprises,
Inc., Project), Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds, Series B of 1996
(CoreStates Bank, N.A.),
5.75%, 1-1-97 ......................... 165 165,000
Montgomery County Industrial Development
Authority, Taxable Fixed Rate/Variable
Rate Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(Meridian Bank),
5.75%, 1-1-97 ......................... 200 200,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania (Continued)
Schuylkill County Industrial Development
Authority, Commercial Development Revenue
Bonds (Midway Supermarket, Inc. Project),
Taxable Series of 1995 (Meridian Bank),
5.75%, 1-1-97 ......................... $ 890 $ 890,000
Total ................................. 1,255,000
South Dakota - 2.68%
Central Plains Clinic Ltd., Floating Rate
Taxable Bonds, Series 1996 (Cooperatieve
Centrale Raiffeisen-Borenleenbank B.A.,
"Rabobank Nederland," New York Branch),
5.55%, 1-21-97 ........................ 1,000 1,000,000
Texas - 6.19%
City of Brownsville, Texas, Utilities System,
Taxable Commercial Paper Notes, Series A
(The Toronto-Dominion Bank),
5.48%, 1-15-97 ........................ 1,316 1,313,195
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.406%, 3-3-97 ........................ 1,000 990,840
Total ................................. 2,304,035
TOTAL MUNICIPAL OBLIGATIONS - 30.22% $11,259,035
(Cost: $11,259,035)
UNITED STATES GOVERNMENT OBLIGATIONS
Federal Farm Credit Banks,
4.95%, 3-3-97.......................... 1,000 999,285
Federal Home Loan Banks,
5.82%, 11-6-97 ........................ 1,000 1,000,074
Federal National Mortgage Association,
5.15%, 6-20-97......................... 1,000 999,540
Student Loan Marketing Association,
5.52%, 1-7-97.......................... 1,000 1,000,000
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS - 10.73% $ 3,998,899
(Cost: $3,998,899)
TOTAL INVESTMENT SECURITIES - 92.77% $34,563,968
(Cost: $34,563,968)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 7.23% 2,693,634
NET ASSETS - 100.00% $37,257,602
See Notes to Schedules of Investments on page 75.
<PAGE>
LIMITED-TERM BOND PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Limited-Term Bond Portfolio for
the fiscal year ended December 31, 1996. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
During the beginning of 1996, the U.S. economy experienced a strong upturn
in activity, prompting inflation concerns among a majority of market
participants and an expectation that the Federal Reserve would take steps to
raise short-term interest rates. These concerns caused a sell off in the bond
market, with the yield on the five year Treasury note increasing from a low of
5.13% in February to a high of 6.84% in June. With the increased yields, the
total return for bonds was negative through the first half of 1996, as measured
by most indexes. As the third quarter of 1996 began, economic growth began to
slow. As a result, the Federal Reserve took no action with respect to short-
term rates and the bond market responded by rallying during much of the
remainder of the year.
In response to the prevailing economic conditions, the Portfolio increased
its exposure to mortgage-backed and corporate bonds. Mortgage-backed bonds tend
to provide attractive yield and total return characteristics in an environment
of rising interest rates. Corporate bonds typically provide superior yield and
are attractive during periods of economic growth. We also attempted to maintain
an average maturity for the Portfolio's holdings near the mid-point of the two
to five year range.
The strategies and techniques we applied resulted in the Portfolio
underperforming the Lehman Brothers Mutual Fund Short Investment Grade Debt
Index as charted on the following page. That index reflects the performance of
securities that generally represent the short-maturity sector of the bond
market.
As 1997 begins, we anticipate continued moderate economic growth, with
periods of stronger than expected growth balanced by periods of weaker growth.
We also expect inflation to remain relatively low during 1997. If anticipated
economic conditions prevail, the Federal Reserve can be expected to maintain
short-term interest rates at current levels and interest rates in general should
remain stable. In such an environment, we will look to lengthen somewhat the
maturities of the Portfolio's holdings to take advantage of yield opportunities.
We will continue our strategy of seeking investments in securities that offer
superior yield characteristics.
Thank you very much for your continued support and confidence.
Respectfully,
W. Patrick Sterner
Manager, Limited-Term Bond Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Limited-Term Bond Portfolio
and The Lehman Brothers Mutual Fund Short Investment Grade Debt Index
Lehman
Brothers
Mutual Fund
TMK/United Short
Limited-Term Investment
Bond Grade Debt
Portfolio Index
--------- ---------
05/03/94 Purchase $10,000 $10,000
12/31/94 10,026 10,142
12/31/95 11,458 11,605
12/31/96 11,860 12,200
+++++ TMK/United Limited-Term Bond Portfolio* -- $11,860
- ----- Lehman Bros MF Short Inv Grade Debt Index** -- $12,200
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions..
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Lehman
Brothers Mutual Fund Short Investment Grade Debt Index (including income)
are not available, investment in the index was effected as of April 30,
1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 3.51%
2+ Years Ended
12/31/96++ 6.61%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++5-3-94 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 7.71%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... $100 $ 103,693
ICI Wilmington, Inc.,
9.5%, 11-15-2000 ...................... 75 82,520
Praxair, Inc.,
6.7%, 4-15-2001 ....................... 100 100,314
Total ................................. 286,527
Depository Institutions - 10.82%
BankAmerica Corporation,
9.7%, 8-1-2000 ........................ 100 109,914
Boatmen's Bancshares, Inc.,
9.25%, 11-1-2001 ...................... 50 55,192
First Chicago Corporation,
7.625%, 1-15-2003 ..................... 125 130,212
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 100 106,633
Total ................................. 401,951
Electric, Gas and Sanitary Services - 1.41%
Consolidated Natural Gas Company,
8.75%, 6-1-99 ......................... 50 52,585
General Merchandise Stores - 5.57%
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 100 103,035
Sears, Roebuck and Co.,
9.25%, 4-15-98 ........................ 100 103,853
Total ................................. 206,888
Instruments and Related Products - 2.35%
Polaroid Corporation,
8.0%, 3-15-99 ......................... 85 87,246
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 15.31%
American General Finance Corporation,
8.25%, 1-15-98 ........................ $ 50 $ 51,086
Associates Corporation of North America,
7.875%, 9-30-2001 ..................... 100 104,885
Ford Motor Credit Company,
8.0%, 1-15-99 ......................... 150 154,884
General Motors Acceptance Corporation,
7.75%, 1-15-99 ........................ 100 102,825
Household Finance Corporation,
7.75%, 6-15-97 ........................ 50 50,417
Norwest Financial, Inc.,
7.75%, 8-15-2001 ...................... 50 52,145
Transamerica Finance Corporation,
8.75%, 10-1-99 ........................ 50 52,680
Total ................................. 568,922
Oil and Gas Extraction - 3.59%
Burlington Resources Inc.,
8.5%, 10-1-2001 ....................... 125 133,360
Paper and Allied Products - 2.72%
International Paper Company,
6.875%, 7-1-2000 ...................... 100 101,258
Petroleum and Coal Products - 4.30%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 100 106,159
Texaco Capital Inc.,
9.0%, 12-15-99 ........................ 50 53,537
Total ................................. 159,696
Railroad Transportation - 2.82%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 100 104,778
Transportation by Air - 2.85%
Federal Express Corporation,
10.0%, 9-1-98 ......................... 100 105,821
Transportation Equipment - 1.35%
General Motors Corporation,
7.625%, 2-15-97 ....................... 50 50,104
TOTAL CORPORATE DEBT SECURITIES - 60.80% $2,259,136
(Cost: $2,237,770)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... $ 72 $ 69,982
5.0%, 12-25-2001 ...................... 29 29,258
6.5%, 12-1-2010 ....................... 99 96,820
6.0%, 1-1-2011 ........................ 93 88,925
6.5%, 2-1-2011 ........................ 94 92,465
7.0%, 5-1-2011 ........................ 97 96,660
7.0%, 7-1-2011 ........................ 96 96,462
11.0%, 10-1-2020 ...................... 33 37,585
7.0%, 4-1-2026 ........................ 99 97,150
Government National Mortgage Association,
7.0%, 9-15-2008 ....................... 75 75,529
United States Treasury:
6.375%, 8-15-2002 ..................... 100 100,656
6.25%, 2-15-2003....................... 100 99,875
7.25%, 5-15-2004....................... 100 105,219
TOTAL UNITED STATES GOVERNMENT SECURITIES - 29.25% $1,086,586
(Cost: $1,082,599)
SHORT-TERM SECURITIES
Depository Institutions - 4.74%
U.S. Bancorp,
Master Note ........................... 176 176,000
Food and Kindred Products - 1.53%
General Mills, Inc.,
Master Note ........................... 57 57,000
Textile Mill Products - 1.83%
Sara Lee Corporation,
Master Note ........................... 68 68,000
TOTAL SHORT-TERM SECURITIES - 8.10% $ 301,000
(Cost: $301,000)
TOTAL INVESTMENT SECURITIES - 98.15% $3,646,722
(Cost: $3,621,369)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.85% 68,702
NET ASSETS - 100.00% $3,715,424
See Notes to Schedules of Investments on page 75.
<PAGE>
BOND PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Bond Portfolio for the fiscal
year ended December 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during that
period.
Fluctuating interest rates throughout much of 1996 had a significant impact
on the fixed income market. Although rates were generally only slightly higher
at the end of the year than they were at the beginning, interest rate volatility
had varying effects on different sectors of the fixed income market. Various
domestic political events during 1996 played important roles in the interest
rate volatility, including the presidential election, welfare reform legislation
and tax reform proposals. Interest rates were also affected during the latter
part of the year by foreign investment in U.S. markets and a rise in the value
of the U.S. dollar relative to the currency of Japan, Germany and other
industrialized nations.
During 1996, we maintained investment strategies implemented during the
prior year designed to respond to prevailing interest rate volatility. The
Portfolio's holdings included exposure to a variety of bonds that may be sold
back to the issuer prior to maturity at par value. Yields of these bonds tend
to be lower than bonds that do not have the _put_ feature, but their prices
typically react more favorably to changing interest rates. To balance the
effects of these lower yielding bonds, we maintained a material position in
higher yielding corporate bonds.
The strategies and techniques we applied resulted in the Portfolio slightly
outperforming the Lehman Brothers Government/Corporate Bond Index charted on the
following page. That index reflects the performance of securities that
generally represent the bond market.
In 1997, we expect the volatility in the fixed income market to continue.
Declining federal budget deficits and a conservative fiscal outlook at the
federal level point towards increased national savings and a continuing
revaluation of financial assets. Internationally, free market initiatives
should provide increased economic opportunities worldwide for market
penetration. We anticipate moderate economic growth and relatively low
inflation during 1997. We expect to continue our present strategies in light of
the projected market volatility and to search for investments in companies with
strong credit experience.
Thank you very much for your continued support and confidence.
Respectfully,
James C. Cusser
Manager, Bond Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United Bond Portfolio
and The Lehman Brothers Government/Corporate Bond Index
Lehman
Brothers
Government/
TMK/United Corporate
Bond Bond
Portfolio Index
---------- -----------
07/13/87 Purchase $10,000 $ ---
07/31/87 10,070 10,000
12/31/87 10,331 10,298
12/31/88 11,131 11,079
12/31/89 12,449 12,656
12/31/90 13,325 13,705
12/31/91 15,482 15,916
12/31/92 16,670 17,121
12/31/93 18,730 19,014
12/31/94 17,624 18,347
12/31/95 21,246 21,877
12/31/96 21,892 22,512
+++++ TMK/United Bond Portfolio* -- $21,892
- ----- Lehman Bros Gov't/Corp Bond Index** -- $22,512
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the Lehman
Brothers Government/Corporate Bond Index (including income) are not
available, investment in the index was effected as of July 31, 1987.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 3.04%
5 Years Ended
12/31/96 7.44%
9+ Years Ended
12/31/96++ 8.62%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++7-13-87 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 2.26%
MGM Grand Hotel Finance Corp.,
11.75%, 5-1-99......................... $2,000 $ 2,087,500
Chemicals and Allied Products - 4.28%
Dow Capital BV,
9.0%, 5-15-2010 ....................... 500 572,970
Dow Chemical Company (The),
8.55%, 10-15-2009 ..................... 1,000 1,113,840
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 2,000 2,265,020
Total ................................. 3,951,830
Communication - 10.67%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 1,000 1,175,140
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ..................... 1,000 984,930
Cablevision Industries Corporation,
9.25%, 4-1-2008 ....................... 1,000 1,060,610
Centel Capital Corporation,
9.0%, 10-15-2019 ...................... 1,000 1,185,140
Continental Cablevision, Inc.,
8.5%, 9-15-2001 ....................... 1,000 1,065,470
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 250 263,750
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 500 525,000
Southwestern Bell Telephone Company,
7.0%, 8-26-2002 ....................... 1,000 1,016,440
Tele-Communications, Inc.,
6.58%, 2-15-2005 ...................... 1,000 1,034,210
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 1,000 1,020,810
U S WEST, Inc.,
8.4%, 9-15-99 ......................... 500 523,955
Total ................................. 9,855,455
Depository Institutions - 10.47%
AmSouth Bancorporation,
6.75%, 11-1-2025 ...................... 1,500 1,478,130
BarclaysAmerican Corporation,
9.125%, 12-1-97 ....................... 225 230,760
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 500 510,000
Deutsche Bank Financial Inc.,
6.7%, 12-13-2006 ...................... 750 736,020
J.P. Morgan & Co. Incorporated,
7.54%, 1-15-2027 ...................... 750 732,968
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 1,000 1,134,900
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions (Continued)
NBD Bank, National Association,
8.25%, 11-1-2024 ...................... $1,000 $ 1,126,190
NationsBank Corporation,
8.57%, 11-15-2024 ..................... 1,000 1,144,510
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 1,500 1,567,500
SouthTrust Bank of Alabama, N.A.:
5.58%, 2-6-2006 ....................... 500 483,340
7.69%, 5-15-2025 ...................... 500 528,215
Total ................................. 9,672,533
Electric, Gas and Sanitary Services - 2.57%
Arkla, Inc.,
10.0%, 11-15-2019 ..................... 975 1,086,111
El Paso Electric Company,
7.25%, 2-1-99 ......................... 250 249,385
Kansas Gas and Electric Company,
7.6%, 12-15-2003 ...................... 1,000 1,037,650
Total ................................. 2,373,146
Fabricated Metal Products - 1.12%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,000 1,030,000
Food and Kindred Products - 3.58%
Coca-Cola Enterprises Inc.:
0.0%, 6-20-2020 ....................... 10,000 1,946,700
6.7%, 10-15-2036 ..................... 1,000 1,009,200
Nabisco, Inc.,
6.8%, 9-1-2001 ........................ 345 352,659
Total ................................. 3,308,559
General Building Contractors - 0.89%
Del Webb Corporation,
10.875%, 3-31-2000 .................... 800 824,000
Health Services - 0.57%
Tenet Healthcare Corporation,
8.625%, 12-1-2003 ..................... 500 527,500
Hotels and Other Lodging Places - 1.70%
Marriott International, Inc.,
7.875%, 4-15-2005 ..................... 1,000 1,038,710
RHG Finance Corporation,
8.875%, 10-1-2005 ..................... 500 528,560
Total ................................. 1,567,270
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment - 1.19%
Joy Technologies Inc.,
10.25%, 9-1-2003 ...................... $ 1,000 $ 1,102,500
Insurance Carriers - 1.76%
Penn Central Corporation (The),
10.625%, 4-15-2000 .................... 1,000 1,105,780
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 ...................... 500 515,000
Total ................................. 1,620,780
Lumber and Wood Products - 0.25%
Doman Industries Limited,
8.75%, 3-15-2004 ...................... 250 233,750
Metal Mining - 0.53%
Noranda Inc.,
7.0%, 7-15-2005 ....................... 500 493,630
Nondepository Institutions - 7.60%
Associates Corporation of North America,
7.95%, 2-15-2010 ...................... 500 547,385
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 1,000 1,157,770
Countrywide Mortgage Backed Securities,
Inc.,
6.5%, 4-25-2024 ....................... 2,000 1,950,460
DLJ Mortgage Acceptance Corp.,
6.5%, 4-25-2024 ....................... 960 913,281
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 250 278,760
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 1,000 1,157,220
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
1995-KS3 Class D,
8.0%, 10-25-2024 ...................... 1,000 1,007,910
Total ................................. 7,012,786
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction - 4.03%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 ...................... $ 1,000 $ 1,036,330
Oryx Energy Company:
10.0%, 4-1-2001 ....................... 400 439,076
8.375%, 7-15-2004 ..................... 500 518,765
Seagull Energy Corporation,
7.875%, 8-1-2003 ...................... 500 504,375
Union Texas Petroleum Holdings, Inc.,
8.25%, 11-15-99 ....................... 250 257,777
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 1,000 965,000
Total ................................. 3,721,323
Paper and Allied Products - 1.67%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ..................... 500 529,395
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 1,000 1,015,980
Total ................................. 1,545,375
Petroleum and Coal Products - 0.61%
Coastal Corporation (The),
10.375%, 10-1-2000 .................... 500 561,245
Printing and Publishing - 1.72%
News America Holdings Incorporated,
9.125%, 10-15-99 ...................... 500 533,520
Viacom International Inc.:
9.125%, 8-15-99 ....................... 500 511,250
10.25%, 9-15-2001 ..................... 500 545,000
Total ................................. 1,589,770
Stone, Clay and Glass Products - 1.16%
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 500 542,195
USG Corporation,
9.25%, 9-15-2001 ...................... 500 532,500
Total ................................. 1,074,695
Transportation Equipment - 1.53%
General Motors Corporation,
8.8%, 3-1-2021 ........................ 750 854,857
McDonnell Douglas Corporation,
9.25%, 4-1-2002 ....................... 500 558,450
Total ................................. 1,413,307
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade -- Durable Goods- 2.86%
Fisher Scientific International Inc.,
7.125%, 12-15-2005 .................... $ 900 $ 885,564
Motorola, Inc.,
8.4%, 8-15-2031 ....................... 1,500 1,757,085
Total ................................. 2,642,649
TOTAL CORPORATE DEBT SECURITIES - 63.02% $58,209,603
(Cost: $57,018,774)
OTHER GOVERNMENT SECURITIES
Canada - 3.63%
Hydro Quebec:
8.05%, 7-7-2024 ....................... 1,000 1,099,520
7.4%, 3-28-2025 ....................... 1,000 1,118,440
Province of Nova Scotia,
8.25%, 11-15-2019...................... 1,000 1,132,270
Total ................................. 3,350,230
Supranational - 1.23%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 1,000 1,141,330
TOTAL OTHER GOVERNMENT SECURITIES - 4.86% $ 4,491,560
(Cost: $4,270,754)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.83%, 7-3-2002 ....................... 500 497,030
7.5%, 2-15-2007 ....................... 2,000 2,048,120
7.5%, 11-15-2017 ...................... 1,538 1,573,559
7.5%, 4-15-2019 ....................... 1,383 1,354,979
7.95%, 12-15-2020 ..................... 3,000 3,070,290
Federal National Mortgage Association,
7.09%, 4-1-2004 ....................... 500 495,470
Government National Mortgage Association:
7.5%, 7-15-2023 ....................... 2,168 2,181,916
7.5%, 12-15-2023 ...................... 2,279 2,293,496
8.0%, 9-15-2025 ....................... 1,945 2,010,268
7.75%, 10-15-2031 ..................... 320 324,423
Tennessee Valley Authority,
5.98%, 4-1-2036 ....................... 1,000 1,015,640
United States Treasury:
5.5%, 2-28-99 ......................... 5,000 4,957,800
6.75%, 5-31-99 ........................ 1,000 1,017,030
0.0%, 5-15-2007 ....................... 3,000 1,531,770
TOTAL UNITED STATES GOVERNMENT SECURITIES - 26.39% $24,371,791
(Cost: $24,216,245)
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1996
Value
TOTAL SHORT-TERM SECURITIES - 4.28% $ 3,950,934
(Cost: $3,950,934)
TOTAL INVESTMENT SECURITIES - 98.55% $91,023,888
(Cost: $89,456,707)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.45% 1,342,898
NET ASSETS - 100.00% $92,366,786
See Notes to Schedules of Investments on page 75.
<PAGE>
HIGH INCOME PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1996
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the High Income Portfolio for the
fiscal year ended December 31, 1996. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
1996 was characterized by modest, but steady, economic growth and modest
increases in interest rates, but more volatility. The Federal Reserve lowered
the discount rate in January of 1996, but did not change interest rates during
the remainder of the year. Strong demand for higher yielding securities
throughout much of the year positively impacted the Fund. With the relatively
low rates available in the high grade bond market, investors turned to the high
yield market in increasing numbers. Growing demand resulted in total returns
for high yield bonds surpassing those for high grade bonds and a narrowing of
the spread between high yield securities and U.S. Treasury securities.
During the past fiscal year, we lengthened the duration and average
maturity of the Portfolio's investments. We also reduced the Portfolio's
holdings in the _BB_ rating sector due to the tendency of such investments to
underperform during periods when investors are reaching for yield. We
reinvested the proceeds in the lower rated _B_ and, occasionally, _CCC_ sectors.
Continued economic growth should help companies issuing these securities.
The strategies and techniques we applied resulted in the performance of the
First Boston High Yield Index, charted on the following page, slightly exceeding
that of the Portfolio. The First Boston index reflects the performance of
securities that generally represent the high-yield bond market.
In 1997, we expect modest economic growth to continue. While no strong
evidence points towards increasing inflation as the year begins, the Federal
Reserve has intimated that inflationary signals may be combated with increased
interest rates. Apprehension of such a move may lead to volatility in the high
yield market, perhaps, however, to a lesser degree than might occur in the U.S.
Treasury and high grade bond markets. We will continue to monitor the demand
for, and available supply of, high yield instruments and attempt to respond
accordingly.
Thank you very much for your continued support and confidence.
Respectfully,
Louise D. Rieke
Manager, High Income Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
TMK/United High Income Portfolio
and The First Boston High Yield Index
First
Boston
TMK/United High
High Income Yield
Portfolio Index
----------- ------
07/13/87 Purchase $10,000 $ ---
07/31/87 10,041 10,000
12/31/87 9,954 10,087
12/31/88 11,461 11,465
12/31/89 10,980 11,509
12/31/90 10,164 10,775
12/31/91 13,639 15,489
12/31/92 15,779 18,070
12/31/93 18,605 21,488
12/31/94 18,130 21,280
12/31/95 21,426 24,980
12/31/96 23,925 28,083
+++++ TMK/United High Income Portfolio* -- $23,925
- ----- First Boston High Yield Index** -- $28,083
*The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund and assumes reinvestment of dividends and distributions.
**Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the First Boston
High Yield Index (including income) are not available, investment in the
index was effected as of July 31, 1987.
Annual Average Total Return+
----------------------------
Year Ended
12/31/96 11.66%
5 Years Ended
12/31/96 11.90%
9+ Years Ended
12/31/96++ 9.64%
+Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost.
++7-13-87 (the initial offering date) through 12-31-96.
Past performance is not predictive of future performance. Indexes are
unmanaged. Performance data quoted does not take into account any expenses
or charges associated with owning a variable life or annuity policy invested
in the TMK/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Shares Value
COMMON STOCKS AND WARRANTS
Chemicals and Allied Products - 0.24%
Carson, Inc.* .......................... 16,500 $ 228,938
Communication - 0.07%
Heartland Wireless Communications,
Inc., Warrants (C)* ................... 3,000 3,000
Microcell Telecommunications Inc.,
Conditional Warrants (C)* ............. 5,000 3,125
Microcell Telecommunications Inc.,
Warrants(C)* .......................... 5,000 62,500
Total ................................. 68,625
General Building Contractors - 0.33%
Walter Industries, Inc.* ............... 23,272 325,808
Hotels and Other Lodging Places - 0.71%
Trump Hotels & Casino Resorts, Inc.* ... 6,250 75,000
Wyndham Hotel Corporation* ............. 25,000 615,625
Total ................................. 690,625
Industrial Machinery and Equipment - 0.15%
Bell & Howell Company* ................. 6,250 148,437
Printing and Publishing - 0.44%
Knight-Ridder, Inc. .................... 5,000 191,250
Tribune Company ........................ 3,000 236,625
Total ................................. 427,875
TOTAL COMMON STOCKS AND WARRANTS - 1.94%.. $ 1,890,308
(Cost: $1,643,743)
PREFERRED STOCKS
Depository Institutions - 0.57%
California Federal Bank, F.S.B. ........ 5,000 555,000
Printing and Publishing - 0.48%
K-III Communications Corporation ....... 5,000 465,000
TOTAL PREFERRED STOCKS - 1.05% $ 1,020,000
(Cost: $1,000,000)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production -- Crops - 0.54%
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................... $ 500 530,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Agricultural Production -- Livestock - 0.31%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ..................... $ 300 $ 300,000
Amusement and Recreation Services - 5.49%
American Skiing Company,
12.0%, 7-15-2006 (C) .................. 500 528,750
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 1,500 1,567,500
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 .................... 1,000 1,067,500
Showboat Marina Casino Partnership,
13.5%, 3-15-2003 ...................... 500 551,250
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... 500 495,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 ...................... 1,000 1,140,000
Total ................................. 5,350,000
Apparel and Other Textile Products - 2.62%
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 1,000 1,006,250
Pillowtex Corporation,
10.0%, 11-15-2006 (C) ................. 500 515,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 1,000 1,030,000
Total ................................. 2,551,250
Business Services - 4.93%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ..................... 750 803,437
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................... 1,000 1,042,500
Heritage Media Corporation,
8.75%, 2-15-2006 ...................... 500 480,000
Lamar Advertising Company,
9.625%, 12-1-2006 ..................... 1,000 1,032,500
Scotsman Group, Inc.,
9.5%, 12-15-2000 ...................... 500 512,500
Shared Technologies Fairchild
Communications Corp.,
0.0%, 3-1-2006 (B) .................... 500 417,500
Universal Outdoor, Inc.,
9.75%, 10-15-2006 ..................... 500 516,250
Total ................................. 4,804,687
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Chemicals and Allied Products - 3.22%
Dade International Inc.,
11.125%, 5-1-2006 ..................... $ 500 $ 542,500
Freedom Chemical Company,
10.625%, 10-15-2006 (C) ............... 750 787,500
Revlon Worldwide Corporation,
0.0%, 3-15-98 ......................... 1,500 1,290,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 (C) ................ 500 517,500
Total ................................. 3,137,500
Communication - 16.52%
Adelphia Communications Corporation,
12.5%, 5-15-2002 ...................... 1,000 1,025,000
Allbritton Communications Company,
9.75%, 11-30-2007 ..................500 485,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ........................ 750 735,000
Arch Communications Group, Inc.,
0.0%, 3-15-2008 (B) ................... 1,000 570,000
Argyle Television Operations, Inc.,
9.75%, 11-1-2005 ...................... 1,000 1,015,000
Cablevision Systems Corporation,
9.875%, 2-15-2013 ..................... 1,450 1,428,250
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ........................ 500 360,000
Comcast Corporation,
9.5%, 1-15-2008 ....................... 350 362,250
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) .................. 500 360,000
Heartland Wireless Communications, Inc.,
13.0%, 4-15-2003 ...................... 500 497,500
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 500 527,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B) ................... 750 510,000
MFS Communications Company, Inc.:
0.0%, 1-15-2004 (B) ................... 500 433,750
0.0%, 1-15-2006 (B) ................... 1,000 727,500
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (B) .................... 1,500 1,230,000
Metrocall, Inc.,
10.375%, 10-1-2007 .................... 500 430,000
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) .................... 1,250 696,875
RSL Communications, Ltd., Units,
12.25%, 11-15-2006 (C)(D) ............. 500 502,500
Rogers Cantel Inc.,
9.375%, 6-1-2008 ...................... 500 525,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ................... $1,000 $ 682,500
Teleport Communications Group Inc.,
0.0%, 7-1-2007 (B)..................... 1,250 856,250
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ........................ 500 475,000
Vanguard Cellular Systems, Inc.,
9.375%, 4-15-2006 ..................... 500 507,500
Videotron Plc,
0.0%, 8-15-2005 (B) ................... 1,000 805,000
Wireless One, Inc., Units,
0.0%, 8-1-2006 (B)(E) ................. 750 341,250
Total ................................. 16,088,625
Depository Institutions - 0.58%
First Nationwide Holdings Inc.,
12.5%, 4-15-2003 ...................... 500 560,000
Eating and Drinking Places - 0.53%
Foodmaker, Inc.,
9.25%, 3-1-99 ......................... 500 511,250
Electronic and Other Electric Equipment - 1.09%
Advanced Micro Devices, Inc.,
11.0%, 8-1-2003 ....................... 500 542,500
Rayovac Corporation,
10.25%, 11-1-2006 (C) ................. 500 516,250
Total ................................. 1,058,750
Engineering and Management Services - 0.74%
United International Holdings, Inc.,
0.0%, 11-15-99 ........................ 1,000 725,000
Fabricated Metal Products - 2.79%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,500 1,545,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 500 505,000
Silgan Corporation,
13.25%, 12-15-2002 .................... 139 139,869
U.S. Can Corporation,
10.125%, 10-15-2006 (C) ............... 500 525,625
Total ................................. 2,715,494
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Kindred Products - 2.41%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................... $ 500 $ 470,000
Specialty Foods Corporation:
10.25%, 8-15-2001 ..................... 1,000 925,000
11.125%, 10-1-2002 .................... 1,000 950,000
Total ................................. 2,345,000
Food Stores - 5.70%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 500 462,500
Bruno's, Inc.,
10.5%, 8-1-2005 ....................... 1,500 1,590,000
Kroger Co. (The),
9.75%, 2-15-2004 ...................... 1,000 1,060,000
Penn Traffic Company (The),
10.375%, 10-1-2004 .................... 1,000 837,500
Ralphs Grocery Company,
11.0%, 6-15-2005 ...................... 1,000 1,050,000
Smith's Food & Drug Centers, Inc.,
11.25%, 5-15-2007 ..................... 500 552,500
Total ................................. 5,552,500
Furniture and Fixtures - 1.55%
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... 1,500 1,511,250
General Building Contractors - 1.82%
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 750 723,750
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,000 1,050,000
Total ................................. 1,773,750
Health Services - 2.63%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ....................... 500 522,500
Quorum Health Group, Inc.,
8.75%, 11-1-2005 ...................... 1,000 1,025,000
Regency Health Services, Inc.,
9.875%, 10-15-2002 .................... 1,000 1,015,000
Total ................................. 2,562,500
Holding and Other Investment Offices - 2.40%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 ..................... 1,000 1,095,000
LTC Properties, Inc., Convertible,
8.5%, 1-1-2000 ........................ 1,000 1,240,000
Total ................................. 2,335,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 5.88%
Boyd Gaming Corporation,
9.25%, 10-1-2003 ...................... $ 500 $ 490,000
Casino America, Inc.,
12.5%, 8-1-2003 ....................... 750 710,625
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 ...................... 500 507,500
Prime Hospitality Corp.,
9.25%, 1-15-2006 ...................... 1,500 1,530,000
Red Roof Inns, Inc.,
9.625%, 12-15-2003 .................... 500 500,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 1,000 982,500
Station Casinos, Inc.,
10.125%, 3-15-2006 .................... 1,000 1,005,000
Total ................................. 5,725,625
Industrial Machinery and Equipment - 2.44%
American Standard Inc.,
9.875%, 6-1-2001 ...................... 1,000 1,060,000
Bell & Howell Company,
10.75%, 10-1-2002 ..................... 750 798,750
Walbro Corporation,
9.875%, 7-15-2005 ..................... 500 515,000
Total ................................. 2,373,750
Instruments and Related Products - 2.58%
Cole National Group, Inc.,
9.875%, 12-31-2006 (C) ................ 500 515,000
IMED Corporation,
9.75%, 12-1-2006 (C) .................. 500 508,750
InterCel, Inc., Units,
0.0%, 2-1-2006 (B)(F) ................. 8 444,375
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ....................... 1,000 1,047,500
Total ................................. 2,515,625
Lumber and Wood Products - 1.08%
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 1,000 1,055,000
Miscellaneous Retail - 0.50%
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................... 500 487,500
Motion Pictures - 1.14%
MacAndrews & Forbes Group, Incorporated,
13.0%, 3-1-99 ......................... 100 101,125
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 1,000 1,007,500
Total ................................. 1,108,625
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction - 1.62%
Flores & Rucks, Inc.,
9.75%, 10-1-2006 ...................... $1,000 $ 1,060,000
Kelley Oil & Gas Corporation,
10.375%, 10-15-2006 (C) ............... 500 521,250
Total ................................. 1,581,250
Paper and Allied Products - 4.57%
Asia Pulp & Paper Company Ltd,
11.75%, 10-1-2005 ..................... 1,000 1,072,500
Container Corporation of America,
11.25%, 5-1-2004 ...................... 1,500 1,627,500
Fort Howard Corporation,
11.0%, 1-2-2002 ....................... 453 477,611
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 500 495,000
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ....................... 750 780,000
Total ................................. 4,452,611
Personal Services - 0.56%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 (C) ................. 500 542,500
Primary Metal Industries - 1.05%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... 1,000 1,025,000
Printing and Publishing - 5.83%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 1,000 1,075,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 666 700,965
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 1,500 1,477,500
K-III Communications Corporation,
8.5%, 2-1-2006 ........................ 500 491,250
Viacom International, Inc.,
8.0%, 7-7-2006 ........................ 2,000 1,935,000
Total ................................. 5,679,715
Rubber and Miscellaneous Plastics Products - 0.46%
RBX Corporation,
11.25%, 10-15-2005 .................... 500 450,000
See Notes to Schedules of Investments on page 75.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textile Mill Products - 1.09%
Avondale Mills, Inc.,
10.25%, 5-1-2006 ..................... $ 500 $ 515,000
Collins & Aikman Products Co.,
11.5%, 4-15-2006 ...................... 500 545,000
Total ................................. 1,060,000
Transportation Equipment - 1.62%
Aetna Industries, Inc.,
11.875%, 10-1-2006 .................... 500 535,000
Greenwich Air Services, Inc.,
10.5%, 6-1-2006 ....................... 500 532,500
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 500 510,000
Total ................................. 1,577,500
Trucking and Warehousing - 0.54%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................... 500 530,000
Wholesale Trade -- Durable Goods - 2.80%
E&S Holdings Corporation,
10.375%, 10-1-2006 (C) ................ 500 523,750
Exide Corporation:
0.0%, 12-15-2004 (B) .................. 500 460,000
10.0%, 4-15-2005 ...................... 500 518,750
General Medical Corporation,
12.125%, 8-15-2005 .................... 1,264 1,223,439
Total ................................. 2,725,939
Wholesale Trade -- Nondurable Goods - 0.57%
United Stationers Supply Co.,
12.75%, 5-1-2005 ...................... 500 556,250
TOTAL CORPORATE DEBT SECURITIES - 90.20% $87,859,446
(Cost: $85,241,309)
TOTAL SHORT-TERM SECURITIES - 4.74% $ 4,619,233
(Cost: $4,619,233)
TOTAL INVESTMENT SECURITIES - 97.93% $95,388,987
(Cost: $92,504,285)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.07% 2,017,084
NET ASSETS - 100.00% $97,406,071
See Notes to Schedules of Investments on page 75.
<PAGE>
TMK/UNITED FUNDS, INC.
Notes to Schedules of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside of the United States.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(C) As of December 31, 1996, the following restricted securities were owned in
the High Income Portfolio: Shares/
Principal
Acquisition Amount Acquisition Market
Security Date (in 000's) Cost Value
---------------- --------------------------------------------
Heartland Wireless Communications,
Inc., Warrants 4/20/95 3,000$ 18,500 $3,000
Microcell Telecommunications Inc.,
Conditional Warrants 6/13/96 5,000 --- 3,125
Microcell Telecommunications Inc.,
Warrants 6/13/96 5,000 61,247 62,500
American Skiing Company,
12.0%, 7-15-2006 6/25/96 $ 500 485,825 528,750
Cole National Group, Inc.,
9.875%, 12-31-2006 11/13/96 500 496,250 515,000
E&S Holdings Corporation,
10.375%, 10-1-2006 9/24/96 250 250,000 261,875
9/25/96 250 254,375 261,875
Freedom Chemical Company,
10.625%, 10-15-2006 10/10/96 500 500,000 525,000
10/15/96 250 253,438 262,500
IMED Corporation,
9.75%, 12-1-2006 11/19/96 500 500,000 508,750
Kelley Oil & Gas Corporation,
10.375%, 10-15-2006 10/25/96 500 498,750 521,250
Pillowtex Corporation,
10.0%, 11-15-2006 11/6/96 500 500,000 515,000
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 8/13/96 500 500,000 542,500
RSL Communications, Ltd., Units,
12.25%, 11-15-2006 9/30/96 500 500,000 502,500
Rayovac Corporation,
10.25%, 11-1-2006 10/17/96 500 500,000 516,250
Spinnaker Industries, Inc.,
10.75%, 10-15-200610/18/96 500 500,000 517,500
U.S. Can Corporation,
10.125%, 10-15-2006 10/10/96 500 500,000 525,625
--------------------
$6,318,385$6,573,000
====================
The total market value of restricted securities represents approximately
6.75% of the total net assets in the High Income Portfolio at December 31,
1996.
<PAGE>
TMK/UNITED FUNDS, INC.
Notes to Schedules of Investments
(D) Each Unit consists of one 12.25% senior note due 2006 and one warrant to
purchase Class A common stock.
(E) Each Unit consists of $1,000 principal amount of 13.5% senior discount
notes due
2006 and one warrant to purchase 2.274 shares of common stock.
(F) Each Unit consists of 10 senior discount notes due 2-1-2006 and 32
warrants.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
Growth Income International
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $512,448,451 $463,979,407 $80,225,093
Cash ................. 13,765 5,243 5,496
Receivables:
Investment securities
sold ............... --- --- ---
Fund shares sold ..... 199,072 167,322 61,374
Dividends and interest 578,733 431,588 100,691
Prepaid insurance
premium .............. 3,137 2,095 575
------------ ----------- ----------
Total assets ....... 513,243,158 464,585,655 80,393,229
Liabilities ------------ ------------ -----------
Payable for investment
securities purchased . --- 2,141,771 525,759
Payable for Fund shares
redeemed ............. 60,077 34,968 3,217
Accrued accounting
services fee (Note 2). 5,000 5,000 2,500
Other ................. 15,391 12,496 12,300
------------ ------------ -----------
Total liabilities .. 80,468 2,194,235 543,776
------------ ------------ -----------
Total net assets .. $513,162,690 $462,391,420 $79,849,453
Net Assets ============ ============ ===========
$0.01 par value capital stock
Capital stock ........ $ 755,015 $ 456,129 $ 133,104
Additional paid-in
capital ............ 482,465,582 321,429,249 70,594,734
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss
on investment
transactions ....... --- --- (1,248,302)
Net unrealized appreciation
of investments at end
of period .......... 29,942,093 140,506,042 10,369,917
------------ ------------ -----------
Net assets applicable to
outstanding units
of capital ........ $513,162,690 $462,391,420 $79,849,453
============ ============ ===========
Net asset value, redemption
and offering price per share $6.7967 $10.1373 $5.9990
======= ======== =======
Capital shares outstanding 75,501,538 45,612,852 13,310,431
Capital shares authorized 100,000,000 100,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
Asset
Small Cap Balanced Strategy
Portfolio Portfolio Portfolio
Assets ------------ ------------ -----------
Investment securities--at
value (Notes 1 and 3). $97,315,515 $42,026,516 $8,384,830
Cash ................. 4,758 2,272 5,737
Receivables:
Investment securities
sold ............... 782,167 --- ---
Fund shares sold ..... 92,768 60,098 439
Dividends and interest 103,602 348,272 83,492
Prepaid insurance
premium .............. 600 350 145
----------- ----------- ----------
Total assets ....... 98,299,410 42,437,508 8,474,643
Liabilities ----------- ------------ ----------
Payable for investment
securities purchased . 881,250 --- ---
Payable for Fund shares
redeemed ............. 4,188 7,152 ---
Accrued accounting
services fee (Note 2) 2,500 1,667 ---
Other ................. 3,182 1,631 445
----------- ----------- ----------
Total liabilities .. 891,120 10,450 445
----------- ----------- ----------
Total net assets .. $97,408,290 $42,427,058 $8,474,198
Net Assets =========== =========== ==========
$0.01 par value capital stock
Capital stock ........ $ 121,492 $ 68,467 $ 16,505
Additional paid-in
capital ............ 88,162,423 38,883,605 8,346,900
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss
on investment
transactions ....... --- --- (46,572)
Net unrealized appreciation
of investments at end
of period .......... 9,124,375 3,474,986 157,365
----------- ----------- ----------
Net assets applicable to
outstanding units
of capital ........ $97,408,290 $42,427,058 $8,474,198
=========== =========== ==========
Net asset value, redemption
and offering price per share $8.0176 $6.1967 $5.1343
======= ======= =======
Capital shares outstanding 12,149,248 6,846,695 1,650,512
Capital shares authorized 100,000,000 50,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
Money Market Limited-Term Bond
Portfolio Bond Portfolio Portfolio
Assets ------------- ------------ -----------
Investment securities--at
value (Notes 1 and 3). $34,563,968 $3,646,722 $91,023,888
Cash ................. 3,157 2,548 4,462
Receivables:
Investment securities
sold ............... --- --- ---
Fund shares sold ..... 2,671,382 --- 59,499
Dividends and interest 227,123 66,241 1,348,197
Prepaid insurance
premium .............. 968 145 1,111
----------- ---------- ----------
Total assets ....... 37,466,598 3,715,656 92,437,157
Liabilities ----------- ---------- -----------
Payable for investment
securities purchased . --- --- ---
Payable for Fund shares
redeemed ............. 206,275 --- 65,440
Accrued accounting
services fee (Note 2). 1,667 --- 2,500
Other ................. 1,054 232 2,431
----------- ---------- -----------
Total liabilities .. 208,996 232 70,371
----------- ---------- -----------
Total net assets .. $37,257,602 $3,715,424 $92,366,786
Net Assets =========== ========== ===========
$0.01 par value capital stock
Capital stock ........ $ 372,576 $ 7,195 $ 177,614
Additional paid-in
capital ............ 36,885,026 3,682,876 93,241,722
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized loss
on investment
transactions ....... --- --- (2,619,731)
Net unrealized appreciation
of investments at end
of period .......... --- 25,353 1,567,181
----------- ---------- -----------
Net assets applicable to
outstanding units
of capital ........ $37,257,602 $3,715,424 $92,366,786
=========== ========== ===========
Net asset value, redemption
and offering price per share $1.0000 $5.1639 $5.2004
======= ======= =======
Capital shares outstanding 37,257,602 719,500 17,761,447
Capital shares authorized 200,000,000 50,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
High Income
Portfolio
Assets -------------
Investment securities--at
value (Notes 1 and 3). $95,388,987
Cash ................. 3,557
Receivables:
Investment securities
sold ............... ---
Fund shares sold ..... 81,991
Dividends and interest 2,035,604
Prepaid insurance
premium .............. 1,281
-----------
Total assets ....... 97,511,420
Liabilities -----------
Payable for investment
securities purchased . ---
Payable for Fund shares
redeemed ............. 100,021
Accrued accounting
services fee (Note 2) 2,500
Other ................. 2,828
-----------
Total liabilities .. 105,349
-----------
Total net assets .. $97,406,071
Net Assets ===========
$0.01 par value capital stock
Capital stock ........ $ 212,908
Additional paid-in
capital ............ 94,545,977
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income ---
Accumulated undistributed
net realized loss
on investment
transactions ....... (237,516)
Net unrealized appreciation
of investments at end
of period .......... 2,884,702
-----------
Net assets applicable to
outstanding units
of capital ........ $97,406,071
===========
Net asset value, redemption
and offering price per share $4.5750
=======
Capital shares outstanding 21,290,838
Capital shares authorized 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
Growth Income International
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income (Note 1B):
Interest ............. $ 2,967,518 $ 1,189,162 $ 768,107
Dividends ............ 7,032,017 5,508,654 778,353
----------- ----------- ----------
Total income 9,999,535 6,697,816 1,546,460
----------- ----------- ----------
Expenses (Note 2):
Investment management
fee ................ 3,238,802 2,772,236 513,923
Accounting services
fee ................ 60,000 59,167 30,000
Custodian fees ....... 37,764 19,618 82,193
Audit fees ........... 12,608 10,257 5,240
Legal fees ........... 10,474 9,018 2,024
Other ................ 20,632 18,036 3,175
----------- ----------- ----------
Total expenses ..... 3,380,280 2,888,332 636,555
----------- ----------- ----------
Net investment income 6,619,255 3,809,484 909,905
----------- ----------- ----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 51,959,601 7,401,806 (973,393)
Realized net gain (loss)
on foreign currency
transactions ......... 1,777 --- (63,943)
----------- ----------- ----------
Realized net gain (loss)
on investments ..... 51,961,378 7,401,806 (1,037,336)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... (3,365,641) 60,154,057 9,364,785
----------- ----------- ----------
Net gain (loss) on
investments ....... 48,595,737 67,555,863 8,327,449
----------- ----------- ----------
Net increase
in net assets
resulting from
operations ...... $55,214,992 $71,365,347 $9,237,354
=========== =========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
Small Cap Balanced Asset Strategy
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income (Note 1B):
Interest ............. $ 928,415 $ 870,557 $339,073
Dividends ............ 6,825 383,567 18,744
---------- ---------- --------
Total income ....... 935,240 1,254,124 357,817
---------- ---------- --------
Expenses (Note 2):
Investment management
fee ................ 689,578 194,884 59,397
Accounting services
fee ................ 30,000 19,167 ---
Custodian fees ....... 6,755 4,259 3,647
Audit fees ........... 5,303 5,093 4,982
Legal fees ........... 1,902 722 207
Other ................ 3,700 1,703 325
---------- ---------- --------
Total expenses ..... 737,238 225,828 68,558
---------- ---------- --------
Net investment income 198,002 1,028,296 289,259
---------- ---------- --------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 3,641,030 1,315,431 (46,572)
Realized net gain (loss)
on foreign currency
transactions ......... --- 1,290 (128)
---------- ---------- --------
Realized net gain (loss)
on investments ..... 3,641,030 1,316,721 (46,700)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 172,785 1,209,473 211,346
---------- ---------- --------
Net gain (loss) on
investments ....... 3,813,815 2,526,194 164,646
---------- ---------- --------
Net increase
in net assets
resulting from
operations ...... $4,011,817 $3,554,490 $453,905
========== ========== ========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
Money Market Limited-Term Bond
Portfolio Bond Portfolio Portfolio
--------------- ---------- ----------
Investment Income
Income (Note 1B):
Interest ............. $1,980,105 $218,628 $6,148,572
Dividends ............ --- --- ---
---------- -------- ----------
Total income ....... 1,980,105 218,628 6,148,572
---------- -------- ----------
Expenses (Note 2):
Investment management
fee ................ 181,734 18,112 469,708
Accounting services
fee ................ 20,000 --- 30,000
Custodian fees ....... 5,502 1,361 6,481
Audit fees ........... 5,136 4,965 5,874
Legal fees ........... 7,482 75 1,984
Other ................ 2,149 316 4,839
---------- -------- ----------
Total expenses ..... 222,003 24,829 518,886
---------- -------- ----------
Net investment income 1,758,102 193,799 5,629,686
---------- -------- ----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ --- 848 (16,696)
Realized net gain (loss)
on foreign currency
transactions ......... --- --- 50,409
---------- -------- ----------
Realized net gain (loss)
on investments ..... --- 848 33,713
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... --- (66,484) (2,694,467)
---------- -------- ----------
Net gain (loss) on
investments ....... --- (65,636) (2,660,754)
---------- -------- ----------
Net increase
in net assets
resulting from
operations ...... $1,758,102 $128,163 $2,968,932
========== ======== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
High Income
Portfolio
---------------
Investment Income
Income (Note 1B):
Interest ............. $ 8,733,322
Dividends ............ 125,386
----------
Total income ....... 8,858,708
----------
Expenses (Note 2):
Investment management
fee ................ 590,009
Accounting services
fee ................ 30,000
Custodian fees ....... 6,361
Audit fees ........... 5,875
Legal fees ........... 2,042
Other ................ 4,862
----------
Total expenses ..... 639,149
----------
Net investment income 8,219,559
----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 2,951,518
Realized net gain (loss)
on foreign currency
transactions ......... ---
----------
Realized net gain (loss)
on investments ..... 2,951,518
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... (486,973)
----------
Net gain (loss) on
investments ....... 2,464,545
----------
Net increase
in net assets
resulting from
operations ...... $10,684,104
===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1996
Growth Income International
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 6,619,255 $ 3,809,484 $ 909,905
Realized net gain (loss)
on investments ..... 51,961,378 7,401,806 (1,037,336)
Unrealized appreciation
(depreciation) ..... (3,365,641) 60,154,057 9,364,785
------------ ------------ -----------
Net increase
in net assets
resulting from
operations......... 55,214,992 71,365,347 9,237,354
------------ ------------ -----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (6,621,032) (3,809,484) (845,962)
From realized gains
on securities
transactions ....... (51,959,601) (7,400,042) (169,132)
In excess of realized
gains .............. --- --- ---
------------ ------------ -----------
(58,580,633) (11,209,526) (1,015,094)
------------ ------------ -----------
Capital share
transactions** ....... 97,702,647 71,041,567 21,430,848
------------ ------------ -----------
Total increase .... 94,337,006 131,197,388 29,653,108
Net Assets
Beginning of period ... 418,825,684 331,194,032 50,196,345
------------ ------------ -----------
End of period ......... $513,162,690 $462,391,420 $79,849,453
============ ============ ===========
Undistributed net
investment income .. $--- $--- $---
========== ========== ========
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 10,798,375 9,532,901 4,545,608
Shares issued from reinvest-
ment of dividends and/or
distributions .......... 8,618,982 1,105,770 169,211
Shares redeemed ......... (5,273,088) (3,201,312) (913,129)
--------- --------- ---------
Increase in outstanding
capital shares ......... 14,144,269 7,437,359 3,801,690
========= ========= =========
Value issued from sale
of shares ............. $76,770,633 $ 90,220,484 $ 25,545,695
Value issued from reinvest-
ment of dividends and/or
distributions .......... 58,580,633 11,209,526 1,015,094
Value redeemed .......... (37,648,619) (30,388,443) (5,129,941)
................. ----------- ----------- -----------
Increase in
outstanding capital ... $97,702,647 $71,041,567 $21,430,848
=========== =========== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1996
Small Cap Balanced Asset Strategy
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 198,002 $ 1,028,296 $ 289,259
Realized net gain (loss)
on investments ..... 3,641,030 1,316,721 (46,700)
Unrealized appreciation
(depreciation) ..... 172,785 1,209,473 211,346
----------- ----------- ----------
Net increase
in net assets
resulting from
operations......... 4,011,817 3,554,490 453,905
----------- ----------- ----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (198,002) (1,029,586) (289,131)
From realized gains
on securities
transactions ....... (3,641,030) --- ---
In excess of realized
gains .............. --- (1,315,431) ---
----------- ----------- ----------
(3,839,032) (2,345,017) (289,131)
----------- ----------- ----------
Capital share
transactions** ....... 41,644,058 17,614,713 3,965,482
----------- ----------- ----------
Total increase .... 41,816,843 18,824,186 4,130,256
Net Assets
Beginning of period ... 55,591,447 23,602,872 4,343,942
----------- ----------- ----------
End of period ......... $97,408,290 $42,427,058 $8,474,198
=========== =========== ==========
Undistributed net
investment income . $--- $--- $---
======= ======== ========
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 5,458,630 2,884,829 1,038,946
Shares issued from reinvest-
ment of dividends and/or
distributions .......... 478,826 378,430 56,314
Shares redeemed ......... (1,014,254) (417,037) (311,169)
---------- --------- ---------
Increase in outstanding
capital shares ......... 4,923,202 2,846,222 784,091
========= ========= =========
Value issued from sale
of shares ............. $46,147,982 $17,870,938 $5,287,460
Value issued from reinvest-
ment of dividends and/or
distributions .......... 3,839,032 2,345,016 289,131
Value redeemed .......... (8,342,956) (2,601,241) (1,611,109)
----------- ----------- -----------
Increase in
outstanding capital ... $41,644,058 $17,614,713 $3,965,482
=========== =========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1996
Money Market Limited-Term Bond
Portfolio Bond Portfolio Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 1,758,102 $ 193,799 $ 5,629,686
Realized net gain (loss)
on investments ..... --- 848 33,713
Unrealized appreciation
(depreciation) ..... --- (66,484) (2,694,467)
----------- ---------- -----------
Net increase
in net assets
resulting from
operations......... 1,758,102 128,163 2,968,932
----------- ---------- -----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (1,758,102) (193,799) (5,680,095)
From realized gains
on securities
transactions ....... --- (848) ---
In excess of realized
gains .............. --- --- ---
----------- ---------- -----------
(1,758,102) (194,647) (5,680,095)
----------- ---------- -----------
Capital share
transactions** ....... 385,358 928,429 6,508,442
----------- ---------- -----------
Total increase .... 385,358 861,945 3,797,279
Net Assets
Beginning of period ... 36,872,244 2,853,479 88,569,507
----------- ---------- -----------
End of period ......... $37,257,602 $3,715,424 $92,366,786
=========== ========== ===========
Undistributed net
investment income .. $--- $--- $---
==== ======= ==========
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 217,565,342 223,662 2,284,864
Shares issued from reinvest-
ment of dividends and/or
distributions .......... 1,758,186 37,694 1,092,242
Shares redeemed ......... (218,938,170) (85,156) (2,142,176)
----------- ------- ---------
Increase in outstanding
capital shares ......... 385,358 176,200 1,234,930
=========== ======= =========
Value issued from sale
of shares ............. $217,565,342 $1,180,216 $12,180,349
Value issued from reinvest-
ment of dividends and/or
distributions .......... 1,758,186 194,647 5,680,095
Value redeemed .......... (218,938,170) (446,434) (11,352,002)
----------- ---------- -----------
Increase in
outstanding capital ... $ 385,358 $ 928,429 $ 6,508,442
=========== ========== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1996
High Income
Portfolio
-----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 8,219,559
Realized net gain (loss)
on investments ..... 2,951,518
Unrealized appreciation
(depreciation) ..... (486,973)
----------
Net increase
in net assets
resulting from
operations......... 10,684,104
----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (8,219,559)
From realized gains
on securities
transactions ....... ---
In excess of realized
gains .............. ---
-----------
(8,219,559)
-----------
Capital share
transactions** ....... 8,255,333
-----------
Total increase .... 10,719,878
Net Assets
Beginning of period ... 86,686,193
-----------
End of period ......... $97,406,071
===========
Undistributed net
investment income .. $---
==========
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 2,475,713
Shares issued from reinvest-
ment of dividends and/or
distributions .......... 1,796,625
Shares redeemed ......... (2,484,538)
---------
Increase in outstanding
capital shares ......... 1,787,800
=========
Value issued from sale
of shares ............. $11,575,727
Value issued from reinvest-
ment of dividends and/or
distributions .......... 8,219,560
Value redeemed .......... (11,539,954)
-----------
Increase in
outstanding capital ... $ 8,255,333
===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Growth Income International
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 4,620,896 $ 3,112,227 $ 791,682
Realized net gain (loss)
on investments ..... 64,283,233 5,870,913 (155,262)
Unrealized appreciation
(depreciation) ..... 42,925,336 63,977,939 1,669,228
------------ ------------ -----------
Net increase in net
assets resulting
from operations.... 111,829,465 72,961,079 2,305,648
------------ ------------ -----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (4,621,508) (3,112,674) (721,188)
From realized gains
on securities
transactions ....... (64,282,621) (5,407,615) ---
In excess of realized
gains .............. ---- (1,764) ---
------------ ------------ -----------
(68,904,129) (8,522,053) (721,188)
------------ ------------ -----------
Capital share
transactions** ....... 99,163,713 47,981,404 22,592,251
------------ ------------ -----------
Total increase .... 142,089,049 112,420,430 24,176,711
Net Assets
Beginning of period ... 276,736,635 218,773,602 26,019,634
------------ ------------ -----------
End of period ......... $418,825,684 $331,194,032 $50,196,345
============ ============ ===========
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 8,244,920 7,529,946 5,011,325
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 10,094,216 982,290 136,620
Shares redeemed ......... (3,897,735) (2,657,368) (850,796)
---------- --------- ---------
Increase in outstanding
capital shares ......... 14,441,401 5,854,868 4,297,149
========== ========= =========
Value issued from sale
of shares ............. $57,245,750 $60,548,279 $26,298,441
Value issued from reinvest-
ment of dividends and/or
distributions ......... 68,904,129 8,522,053 721,188
Value redeemed .......... (26,986,166) (21,088,928) (4,427,378)
----------- ----------- -----------
Increase in
outstanding capital ... $99,163,713 $47,981,404 $22,592,251
=========== =========== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Small Cap Balanced Asset Strategy
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 625,470 $ 511,312 $ 60,277
Realized net gain (loss)
on investments ..... 1,011,622 375,170 4,660
Unrealized appreciation
(depreciation) ..... 7,643,311 2,500,947 (53,981)
----------- ----------- ----------
Net increase in net
assets resulting
from operations.... 9,280,403 3,387,429 10,956
----------- ----------- ----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (625,470) (511,312) (59,911)
From realized gains
on securities
transactions ....... (1,011,622) (371,952) (5,026)
In excess of realized
gains .............. ---- --- ---
----------- ----------- ----------
(1,637,092) (883,264) (64,937)
----------- ----------- ----------
Capital share
transactions** ....... 31,867,974 12,427,639 4,397,923
----------- ----------- ----------
Total increase .... 39,511,285 14,931,804 4,343,942
Net Assets
Beginning of period ... 16,080,162 8,671,068 ---
----------- ----------- ----------
End of period ......... $55,591,447 $23,602,872 $4,343,942
=========== =========== ==========
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 4,818,197 2,264,439 876,052
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 212,809 149,718 12,955
Shares redeemed ......... (488,640) (170,404) (22,586)
--------- --------- -------
Increase in outstanding
capital shares........ 4,542,366 2,243,753 866,421
========= ========= =======
Value issued from sale
of shares ............. $33,624,752 $12,476,652 $4,448,147
Value issued from reinvest-
ment of dividends and/or
distributions ......... 1,637,092 883,263 64,938
Value redeemed .......... (3,393,870) (932,276) (115,162)
----------- ----------- ----------
Increase in
outstanding capital ... $31,867,974 $12,427,639 $4,397,923
=========== =========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Money Market Limited-Term Bond
Portfolio Bond Portfolio Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 1,574,075 $ 144,743 $ 5,511,692
Realized net gain (loss)
on investments ..... --- 10,804 882,169
Unrealized appreciation
(depreciation) ..... --- 139,524 8,857,982
----------- ---------- -----------
Net increase in net
assets resulting
from operations.... 1,574,075 295,071 15,251,843
----------- ---------- -----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (1,574,075) (144,743) (5,517,200)
From realized gains
on securities
transactions ....... --- (10,804) ---
In excess of realized
gains .............. ---- --- ---
----------- ---------- -----------
(1,574,075) (155,547) (5,517,200)
Capital share
transactions**........ 6,059,981 1,068,809 4,818,014
----------- ---------- -----------
Total increase ..... 6,059,981 1,208,333 14,552,657
Net Assets
Beginning of period ... 30,812,263 1,645,146 74,016,850
----------- ---------- -----------
End of period ......... $36,872,244 $2,853,479 $88,569,507
=========== ========== ===========
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 169,760,641 294,605 1,918,955
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,573,890 29,626 1,029,828
Shares redeemed ......... (165,274,550) (119,359) (2,040,023)
----------- ------- ---------
Increase in outstanding
capital shares ........ 6,059,981 204,872 908,760
=========== ======= =========
Value issued from sale
of shares ............. $169,760,641 $1,551,139 $9,976,902
Value issued from reinvest-
ment of dividends and/or
distributions ......... 1,573,890 155,548 5,517,200
Value redeemed .......... (165,274,550) (637,878) (10,676,088)
------------ ---------- ----------
Increase in
outstanding capital ... $ 6,059,981 $1,068,809 $4,818,014
============ ========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
High Income
Portfolio
-----------
Increase in Net Assets
Operations:
Net investment income $ 7,429,973
Realized net gain (loss)
on investments ..... (1,443,930)
Unrealized appreciation
(depreciation) ..... 7,364,701
-----------
Net increase in net
assets resulting
from operations.... 13,350,744
-----------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (7,429,973)
From realized gains
on securities
transactions ....... ---
In excess of realized
gains .............. ---
-----------
(7,429,973)
-----------
Capital share
transactions**........ 8,121,747
-----------
Total increase ..... 14,042,518
Net Assets
Beginning of period ... 72,643,675
-----------
End of period ......... $86,686,193
===========
Undistributed net
investment income .. $---
====
*See "Financial Highlights" on pages 84 - 93.
**Shares issued from sale
of shares ............. 2,353,273
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,672,287
Shares redeemed ......... (2,189,523)
................. ---------
Increase in outstanding
capital shares ........ 1,836,037
................. =========
Value issued from sale
of shares ............. $10,517,788
Value issued from reinvest-
ment of dividends and/or
distributions ......... 7,429,973
Value redeemed .......... (9,826,014)
................. -----------
Increase in
outstanding capital ... $ 8,121,747
................. ===========
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE GROWTH PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $6.8260 $5.8986 $6.1962 $6.1505 $5.5973
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0877 0.0903 0.1211 0.0537 0.1013
Net realized and
unrealized gain
on investments .. 0.6589 2.1842 0.0268 0.8087 1.0653
------- ------- ------- ------- -------
Total from investment
operations ....... 0.7466 2.2745 0.1479 0.8624 1.1666
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0877)(0.0903) (0.1211)(0.0537) (0.1013)
Distribution from
capital gains ... (0.6882)(1.2568) (0.3244)(0.7569) (0.5121)
Distribution in
excess of capital
gains ........... (0.0000)(0.0000) (0.0000)(0.0061) (0.0000)
------- ------- ------- ------- -------
Total distributions. (0.7759)(1.3471) (0.4455)(0.8167) (0.6134)
------- ------- ------- ------- -------
Net asset value,
end of period .... $6.7967 $6.8260 $5.8986 $6.1962 $6.1505
======= ======= ======= ======= =======
Total return ....... 10.94% 38.57% 2.39% 14.02% 20.84%
Net assets, end of
period (000
omitted) ......... $513,163$418,826 $276,737$220,590 $122,363
Ratio of expenses
to average net
assets ............ 0.73% 0.75% 0.77% 0.78% 0.80%
Ratio of net investment
income to average
net assets ....... 1.44% 1.35% 2.07% 1.01% 2.00%
Portfolio turnover
rate ............. 243.00% 245.80% 277.36% 297.81% 225.87%
Average commission
rate paid ........ $0.0572
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $ 8.6756 $6.7689 $6.9180 $5.9530 $5.3158
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0835 0.0839 0.0703 0.0651 0.0803
Net realized and
unrealized gain (loss)
on investments .. 1.6239 2.0525 (0.1491) 0.9650 0.6496
-------- ------- ------- ------- -------
Total from investment
operations ....... 1.7074 2.1364 (0.0788) 1.0301 0.7299
-------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0835)(0.0839) (0.0703)(0.0651) (0.0803)
Distribution from
capital gains.... (0.1622)(0.1457) (0.0000)(0.0000) (0.0124)
Distribution in excess
of capital gains (0.0000)(0.0001) (0.0000)(0.0000) (0.0000)
-------- ------- ------- ------- -------
Total distributions. (0.2457)(0.2297) (0.0703)(0.0651) (0.0927)
-------- ------- ------- ------- -------
Net asset value,
end of period .... $10.1373 $8.6756 $6.7689 $6.9180 $5.9530
======== ======= ======= ======= =======
Total return........ 19.68% 31.56% -1.14% 17.30% 13.78%
Net assets, end of
period (000
omitted) ......... $462,391$331,194 $218,774$155,092 $65,027
Ratio of expenses
to average net
assets ............ 0.73% 0.77% 0.77% 0.79% 0.85%
Ratio of net investment
income to average
net assets ....... 0.97% 1.13% 1.16% 1.36% 1.78%
Portfolio turnover
rate ............. 22.95% 15.00% 23.32% 18.38% 15.74%
Average commission
rate paid ........ $0.0586
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INTERNATIONAL PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended For the
December 31, period
-------------------------- ended
1996 1995 12/31/94*
---------- ---------- ----------
Net asset value,
beginning of
period ........... $5.2790 $4.9926 $5.0000
------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0663 0.0846 0.0207
Net realized and
unrealized gain (loss)
on investments... 0.7300 0.2790 (0.0074)
------- ------- -------
Total from investment
operations ....... 0.7963 0.3636 0.0133
------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0636) (0.0772) (0.0207)
Distributions from
capital gains ... (0.0127) (0.0000) (0.0000)
------- ------- -------
Total distributions. (0.0763) (0.0772) (0.0207)
Net asset value,
end of period .... $5.9990 $5.2790 $4.9926
======= ======= =======
Total return........ 15.09% 7.28% 0.26%
Net assets, end of
period (000
omitted) ......... $79,849 $50,196 $26,020
Ratio of expenses
to average net
assets ............ 1.00% 1.02% 1.26%
Ratio of net investment
income to average
net assets ....... 1.42% 1.99% 1.36%
Portfolio turnover
rate ............. 75.01% 34.93% 23.23%
Average commission
rate paid ........ $0.0217
*The International Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 3, 1994 (initial offering)
through December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE SMALL CAP PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended For the
December 31, period
---------------------------- ended
1996 1995 12/31/94*
---------- ---------- ----------
Net asset value,
beginning of
period ........... $7.6932 $5.9918 $5.0000
------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0163 0.0900 0.0376
Net realized and
unrealized gain
on investments .. 0.6241 1.8470 1.0086
------- ------- -------
Total from investment
operations ....... 0.6404 1.9370 1.0462
------- ------- -------
Less distributions:
Dividends from net
investment income (0.0163) (0.0900) (0.0376)
Distribution from
capital gains.... (0.2997) (0.1456) (0.0168)
------- ------- -------
Total distributions (0.3160) (0.2356) (0.0544)
------- ------- -------
Net asset value,
end of period .... $8.0176 $7.6932 $5.9918
======= ======= =======
Total return........ 8.33% 32.32% 20.92%
Net assets, end of
period (000
omitted) ......... $97,408 $55,591 $16,080
Ratio of expenses
to average net
assets ............ 0.91% 0.96% 1.08%
Ratio of net investment
income to average
net assets ....... 0.25% 1.77% 2.35%
Portfolio turnover
rate ............. 133.77% 43.27% 21.61%
Average commission
rate paid ........ $0.0448
*The Small Cap Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses prior
to the date of initial offering, the per share information is for a capital
share outstanding for the period from May 3, 1994 (initial offering) through
December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BALANCED PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended For the
December 31, period
---------------------------- ended
1996 1995 12/31/94*
---------- ---------- ----------
Net asset value,
beginning of
period ........... $5.9000 $4.9359 $5.0000
------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.1502 0.1333 0.0460
Net realized and
unrealized gain (loss)
on investments .. 0.4890 1.0611 (0.0641)
------- ------- -------
Total from investment
operations ....... 0.6392 1.1944 (0.0181)
------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.1504) (0.1333) (0.0460)
Distribution from
capital gains.... (0.1921) (0.0970) (0.0000)
------- ------- -------
Total distributions (0.3425) (0.2303) (0.0460)
------- ------- -------
Net asset value,
end of period .... $6.1967 $5.9000 $4.9359
======= ======= =======
Total return........ 10.84% 24.19% -0.37%
Net assets, end of period
(000 omitted) .... $42,427 $23,603 $8,671
Ratio of expenses
to average net
assets ............ 0.70% 0.72% 0.95%
Ratio of net investment
income to average
net assets ....... 3.18% 3.22% 3.14%
Portfolio turnover
rate ............. 44.23% 62.87% 19.74%
Average commission
rate paid ........ $0.0579
*The Balanced Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses prior
to the date of initial offering, the per share information is for a capital
share outstanding for the period from May 3, 1994 (initial offering) through
December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE ASSET STRATEGY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period
ended ended
12/31/96 12/31/95*
---------- ----------
Net asset value,
beginning of
period ........... $5.0137 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.1755 0.0717
Net realized and
unrealized gain
on investments .. 0.1203 0.0193
------- -------
Total from investment
operations ....... 0.2958 0.0910
------- -------
Less distributions:
Dividends from net
investment
income .......... (0.1752) (0.0713)
Distribution from
capital gains.... (0.0000) (0.0060)
------- -------
Total distributions (0.1752) (0.0773)
------- -------
Net asset value,
end of period .... $5.1343 $5.0137
======= =======
Total return........ 5.92% 1.80%
Net assets, end of
period (000
omitted) ......... $8,474 $4,344
Ratio of expenses
to average net
assets ............ 0.93% 0.91%
Ratio of net investment
income to average
net assets ....... 3.92% 4.42%
Portfolio turnover
rate ............. 49.92% 149.17%
Average commission
rate paid ........ $0.0375
*The Asset Strategy Portfolio's inception date is February 14, 1995; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 1, 1995 (initial offering)
through December 31, 1995. Ratios have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE MONEY MARKET PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment
income .......... 0.0486 0.0542 0.0368 0.0260 0.0324
Less dividends
declared ......... (0.0486)(0.0542) (0.0368)(0.0260) (0.0324)
------- ------- ------- ------- -------
Net asset value,
end of period .... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total return ....... 5.01% 5.56% 3.72% 2.63% 3.29%
Net assets, end of
period (000
omitted) ......... $37,258 $36,872 $30,812 $26,000 $23,995
Ratio of expenses
to average net
assets ............ 0.61% 0.62% 0.65% 0.65% 0.65%
Ratio of net investment
income to average
net assets ....... 4.87% 5.42% 3.72% 2.61% 3.17%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE LIMITED-TERM BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended For the
December 31, period
---------------------------- ended
1996 1995 12/31/94*
---------- ---------- ----------
Net asset value,
beginning of
period ........... $5.2521 $4.8611 $5.0000
------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.2694 0.2841 0.1507
Net realized and
unrealized gain (loss)
on investments .. (0.0870) 0.4122 (0.1375)
------- ------- -------
Total from investment
operations ....... 0.1824 0.6963 0.0132
------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.2694) (0.2841) (0.1507)
Distribution from
capital gains ... (0.0012) (0.0212) (0.0014)
------- ------- -------
Total distributions (0.2706) (0.3053) (0.1521)
------- ------- -------
Net asset value,
end of period .... $5.1639 $5.2521 $4.8611
======= ======= =======
Total return........ 3.51% 14.29% 0.26%
Net assets, end of
period (000
omitted) ......... $3,715 $2,853 $1,645
Ratio of expenses
to average net
assets ............ 0.76% 0.71% 0.93%
Ratio of net investment
income to average
net assets ....... 5.92% 6.22% 5.89%
Portfolio turnover
rate ............. 15.81% 18.16% 93.83%
*The Limited-Term Bond Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 3, 1994 (initial offering)
through December 31, 1994. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.3592 $4.7393 $5.4045 $5.2626 $5.2661
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.3170 0.3556 0.3507 0.3334 0.3643
Net realized and
unrealized gain
(loss) on
investments ..... (0.1560) 0.6202 (0.6652) 0.3046 0.0216
------- ------- ------- ------- -------
Total from investment
operations ....... 0.1610 0.9758 (0.3145) 0.6380 0.3859
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.3198)(0.3559) (0.3507)(0.3334) (0.3643)
Distribution from
capital gains ... (0.0000)(0.0000) (0.0000)(0.1627) (0.0251)
------- ------- ------- ------- -------
Total distributions. (0.3198)(0.3559) (0.3507)(0.4961) (0.3894)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.2004 $5.3592 $4.7393 $5.4045 $5.2626
======= ======= ======= ======= =======
Total return ....... 3.04% 20.56% -5.90% 12.37% 7.67%
Net assets, end of
period (000
omitted) ......... $92,367 $88,570 $74,017 $81,727 $49,428
Ratio of expenses
to average net
assets ............ 0.59% 0.60% 0.62% 0.62% 0.64%
Ratio of net investment
income to average
net assets ....... 6.39% 6.73% 6.73% 6.01% 6.91%
Portfolio turnover
rate ............. 64.02% 71.17% 135.82% 68.75% 44.32%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE HIGH INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.4448 $4.1118 $4.6373 $4.2886 $4.0770
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.3861 0.4165 0.4106 0.3899 0.4050
Net realized and
unrealized gain
(loss) on
investments ..... 0.1302 0.3330 (0.5255) 0.3487 0.2116
------- ------- ------- ------- -------
Total from investment
operations ....... 0.5163 0.7495 (0.1149) 0.7386 0.6166
------- ------- ------- ------- -------
Less dividends from
net investment
income ........... (0.3861)(0.4165) (0.4106)(0.3899) (0.4050)
------- ------- ------- ------- -------
Net asset value,
end of period .... $4.5750 $4.4448 $4.1118 $4.6373 $4.2886
======= ======= ======= ======= =======
Total return ....... 11.66% 18.19% -2.55% 17.90% 15.70%
Net assets, end of
period (000
omitted) ......... $97,406 $86,686 $72,644 $71,265 $41,456
Ratio of expenses
to average net
assets ............ 0.71% 0.72% 0.74% 0.75% 0.77%
Ratio of net investment
income to average
net assets ....... 9.10% 9.25% 9.03% 8.66% 9.48%
Portfolio turnover
rate ............. 58.91% 41.78% 37.86% 54.22% 60.79%
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- Significant Accounting Policies
TMK/United Funds, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
Capital stock is currently divided into the ten classes that are designated the
Growth Portfolio, the Income Portfolio, the International Portfolio, the Small
Cap Portfolio, the Balanced Portfolio, the Asset Strategy Portfolio, the Money
Market Portfolio, the Limited-Term Bond Portfolio, the Bond Portfolio and the
High Income Portfolio. The assets belonging to each Portfolio are held
separately by the Custodian. The capital shares of each Portfolio represent a
pro rata beneficial interest in the principal, net income, and realized and
unrealized capital gains or losses of its respective investments and other
assets. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using Nasdaq (National Association of Securities Dealers Automated
Quotations System) which provides information on bid and asked or closing
prices quoted by major dealers in such stocks. Securities for which
quotations are not readily available are valued as determined in good faith
in accordance with procedures established by and under the general
supervision of the Fund's Board of Directors. Short-term debt securities
are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income is recorded on the accrual basis. For International Portfolio,
dividend income is net of foreign withholding taxes of $88,163. See Note 3
-- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Portfolio on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management And Payments To Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the following annual rates: Growth Portfolio
- - .20% of net assets; Income Portfolio - .20% of net assets; International
Portfolio - .30% of net assets; Small Cap Portfolio - .35% of net assets;
Balanced Portfolio - .10% of net assets; Asset Strategy Portfolio - .30% of net
assets; Money Market Portfolio - none; Limited-Term Bond Portfolio - .05% of net
assets; Bond Portfolio - .03% of net assets; High Income Portfolio - .15% of net
assets and (ii) a base fee computed each day on the combined net asset values of
all of the Portfolios (approximately $1.4 billion of combined net assets at
December 31, 1996) and allocated among the Portfolios based on their relative
net asset size at the annual rates of .51% of the first $750 million of combined
net assets, .49% on that amount between $750 million and $1.5 billion, .47%
between $1.5 billion and $2.25 billion, and .45% of that amount over $2.25
billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. (W&R), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of each Portfolio. For these
services, each Portfolio pays WARSCO a monthly fee of one-twelfth of the annual
fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Portfolio
-------------------------- -----------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund paid Directors' fees of $31,861.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Investment securities transactions for the period ended December 31, 1996
are summarized as follows:
Growth Income International
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $1,040,870,797 144,181,555 64,556,283
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 846,781,140 291,692,250 150,382,170
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 996,546,863 85,178,243 37,686,374
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 853,465,387 285,255,891 155,764,432
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $125,946,580 19,355,388 4,751,742
Purchases of U.S. Government
securities --- 9,060,547 3,389,069
Purchases of short-term
securities 198,792,126 38,737,849 28,537,937
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 88,715,672 12,036,780 2,150,271
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 198,541,634 39,071,000 30,702,807
Limited- High
Term Bond Bond Income
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $ 573,045 31,828,950 59,299,135
Purchases of U.S. Government
securities 748,694 27,115,480 ---
Purchases of short-term
securities 1,638,000 46,484,023 59,031,704
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 350,401 32,735,705 50,300,654
Proceeds from maturities
and sales of U.S.
Government securities 126,135 21,038,550 ---
Proceeds from maturities
and sales of short-term
securities 1,525,000 45,108,954 59,733,061
For Federal income tax purposes, cost of investments owned at December 31,
1996 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
CostAppreciationDepreciationAppreciation
------------------------------------------------
Growth Portfolio $482,578,321$ 42,625,397$(12,755,267)$ 29,870,130
Income Portfolio 323,475,140 141,809,541 (1,305,274) 140,504,267
International Portfolio69,850,245 12,334,759 (1,959,911) 10,374,848
Small Cap Portfolio 88,191,140 13,864,367 (4,739,992) 9,124,375
Balanced Portfolio 38,551,530 4,064,071 (589,085) 3,474,986
Asset Strategy Portfolio8,227,509 249,550 (92,229) 157,321
Money Market Portfolio 34,563,968 -- -- --
Limited-Term Bond Portfolio3,621,369 41,817 (16,464) 25,353
Bond Portfolio 89,456,707 1,857,614 (290,433) 1,567,181
High Income Portfolio 92,504,285 3,928,471 (1,043,769) 2,884,702
NOTE 4 -- Federal Income Tax Matters
The Fund's income and expenses attributed to each Portfolio and the gains
and losses on security transactions of each Portfolio have been attributed to
that Portfolio for Federal income tax purposes as well as accounting purposes.
For Federal income tax purposes, Growth, Income, Balanced, and Limited-Term Bond
Portfolios realized capital gain net income of $51,622,358, $7,401,806,
$1,315,431 and $848, respectively, during the year ended December 31, 1996. For
Federal income tax purposes, Small Cap Portfolio realized capital gain net
income of $8,896,601 for the year ended December 31, 1996, which included the
effect of certain losses deferred into the next fiscal year (see discussion
below). For Federal income tax purposes, High Income Portfolio realized capital
gain net income of $2,951,518 for the year ended December 31, 1996, which was
entirely offset by utilization of capital loss carryforwards. Remaining prior
year capital loss carryforwards of High Income Portfolio aggregated $237,516 as
of December 31, 1996, and are available to offset future capital gain net income
through December 31, 2003. For Federal income tax purposes, International
Portfolio, Asset Strategy Portfolio and Bond Portfolio realized capital losses
of $1,145,948, $46,572 and $16,696, respectively, during the year ended December
31, 1996. These amounts are available to offset future realized capital gain
net income through December 31, 2004. In addition, prior year capital loss
carryforwards of Bond Portfolio aggregated $2,603,035 as of December 31, 1996,
and are available to offset future realized capital gain net income through
December 31, 2002. The capital gain net income of Growth, Income, Balanced and
Limited-Term Bond Portfolios was paid to shareholders during the year ended
December 31, 1996. A portion of the capital gain net income of Small Cap
Portfolio was paid to shareholders during the period ended December 31, 1996.
Remaining capital gain net income will be distributed to shareholders.
Internal Revenue Code regulations permit each Portfolio to defer into its
next fiscal year net capital losses or net long-term capital losses incurred
between each November 1 and the end of its fiscal year ("post-October losses").
From November 1, 1996 through December 31, 1996, Small Cap Portfolio incurred
net capital losses of $5,285,152, which have been deferred to the calendar year
ending December 31, 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
TMK/United Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Growth Portfolio, Income
Portfolio, International Portfolio, Small Cap Portfolio, Balanced
Portfolio, Asset Strategy Portfolio, Money Market Portfolio, Limited-Term
Bond Portfolio, Bond Portfolio and High Income Portfolio (collectively
the _Portfolios_) of TMK/United Funds, Inc., as of December 31, 1996,
the related statements of operations and changes in net assets for the
year then ended, and the financial highlights for the year then ended.
These financial statements and the financial highlights are the
responsibility of the Portfolios' management. Our responsibility is to
express an opinion on these financial statements and the financial
highlights based on our audits. The financial statements and the
financial highlights of the Portfolios for each of the years in the four-
year period ended December 31, 1995 were audited by other auditors whose
report, dated February 8, 1996, expressed an unqualified opinion on those
statements and 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
the financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1996 by correspondence
with the custodian and brokers. 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 each
of the respective Portfolios of TMK/United Funds, Inc. as of December 31,
1996, the results of their operations, the changes in their net assets,
and their financial highlights for the year then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
January 31, 1997
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
James C. Cusser, Vice President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Antonio Intagliata, Vice President
Thomas A. Mengel, Vice President
Sharon K. Pappas, Vice President and Secretary
Richard K. Poettgen, Vice President
Cynthia P. Prince-Fox, Vice President
Louise D. Rieke, Vice President
Zachary H. Shafran, Vice President
W. Patrick Sterner, Vice President
Carl E. Sturgeon, Vice President
Russell E. Thompson, Vice President
James D. Wineland, Vice President
This report is submitted for the general information of the shareholders of
TMK/United Funds, Inc. It is not authorized for distribution to prospective
investors in the Fund unless accompanied with or preceded by the TMK/United
Funds, Inc. current prospectus.
<PAGE>
Advantage I. A flexible premium variable life insurance policy.
Advantage II. A deferred variable annuity policy.
Both offer you the investment flexibility of positioning your investment in one
or more of the following professionally managed portfolios:
GROWTH Portfolio
Objective: Capital growth with income as a secondary goal.
Invested In: Mainly common stocks of large, well-known companies representing
major sectors of the economy.
INCOME Portfolio
Objective: Maintain current income, subject to market conditions.
Invested In: Primarily common stocks or securities convertible into common
stocks.
INTERNATIONAL Portfolio
Objective: Long-term appreciation of capital with a secondary goal of current
income.
Invested in: Securities issued by companies or governments of any nation.
SMALL CAP Portfolio
Objective: Capital growth.
Invested in: Common stocks of relatively new or unseasoned companies, or
smaller companies positioned in new and emerging industries.
BALANCED Portfolio
Objective: Current income with a secondary goal of long-term appreciation of
capital.
Invested in: A variety of securities including debt securities, common stocks
and preferred stocks.
ASSET STRATEGY Portfolio
Objective: High total return with reduced risk over the long term.
Invested In: An allocation of its assets among stocks, bonds, and short-term
instruments.
MONEY MARKET Portfolio
Objective: Maximum income consistent with stability of principal.
Invested In: Short-term securities including bank CD's, government securities,
investment grade commercial paper and other corporate debt
securities.
LlMITED-TERM BOND Portfolio
Objective: High level of current income consistent with the preservation of
capital.
Invested in: Debt securities of investment grade, including debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; the portfolio will maintain a dollar weighted
average maturity of two to five years.
BOND Portfolio
Objective: Income with an emphasis on preservation of capital.
Invested In: High-quality bonds issued by companies in a variety of industries;
government securities.
HIGH INCOME Portfolio
Objective: High level of income with a secondary objective of capital
appreciation when consistent with its primary objective.
Invested In: Corporate bonds offering higher rates of return than investment-
grade bonds.
FOR MORE INFORMATION:
Contact your representative, or your local office as listed on your Account
Statement, or contact:
United Investors Life
Variable Products Division
P.O. Box 156
Birmingham, AL 35201-0156
(205)325-4300
NUR1016A(12-96)
printed on recycled paper
