TARGET/UNITED FUNDS, INC.
ANNUAL
REPORT
-------------------------------------------
For the fiscal year ended December 31, 1998
<PAGE>
This report is submitted for the general information of the shareholders of
Target/United Funds, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by
the Target/United Funds, Inc. current prospectus.
<PAGE>
DECEMBER 31, 1998
- ---------------------------------------------------------------------------
Dear Policyholder:
The accompanying report contains the financial statements of the
Target/United Funds, Inc. for the fiscal period ended December 31, 1998.
The assets of your Advantage I (Variable Life) , Advantage II (Variable
Annuity), or Advantage Plus (Variable Universal Life) policy are invested
in the investment portfolios of the corresponding investment divisions of
United Investors Life's variable accounts.
As the value of your policy will vary in accordance with the
investment performance of these underlying portfolios, it is important that
you review the information contained in the report. In addition to the
financial statements, the report contains a brief discussion of each
portfolio's objectives
and strategy, and a detailed schedule of the investments held at December
31, 1998.
If your state has approved our fixed account and if the assets of your
policy have been allocated to the fixed account, the results of such
allocation will be reflected in your policy annual report which will be
sent on your policy anniversary.
We have also included in this report a Supplement to your May 1, 1998
Target/United Funds, Inc. Prospectus for your review.
Please do not hesitate to contact us or your financial advisor if we
may be of service with regard to your Advantage policy.
Sincerely,
Anthony L. McWhorter
President
<PAGE>
GROWTH PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Growth Portfolio for the fiscal
year ended December 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during
that period.
Declining interest rates, a benign inflation environment and continued
economic growth all combined to provide a favorable backdrop for the U.S.
equity market in 1998. These factors were enough to overcome a pronounced
slowdown in corporate profit growth, continued global economic turmoil and
a domestic political crisis. The market's advance was relatively narrow,
however, with a large portion of the gains concentrated in large
capitalization, growth-oriented issues in the technology, health care and
retailing sectors. The past year was also notable for its increased
volatility and a number of "mega-mergers" involving some of America's best
known companies.
Despite the manager change late in the year, the Portfolio's investment
focus continued to be geared toward high quality, industry leading
companies with superior long-term growth prospects. We continued to focus
on those companies that we believe possess entrenched competitive
advantages, positive leverage to secular themes embedded in the marketplace
(i.e., demographics, productivity-driven capital spending trends,
deregulation, the Internet, etc.) and experienced management with proven
track records. Consistent with this investment process, the Portfolio
ended 1998 emphasizing the technology, health care and consumer-oriented
sectors and underweighted in the basic industries, energy and utilities
sectors.
The strategies and techniques we applied resulted in the Portfolio modestly
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 underperformance relative to the S&P
Index resulted primarily from its relatively large cash position in the
fourth quarter when the equity market staged a powerful rally.
We anticipate continued market volatility as investors attempt to reconcile
the positive aspects of relatively low inflation and interest rates with
prospects for only modest corporate earnings growth and already high stock
market valuations. We will remain focused on individual company
fundamentals and emphasize those companies positioned to generate above-
average earnings growth in an uncertain economic environment. In our view,
the technology, health care and consumer-oriented sectors will provide the
best opportunities to accomplish such growth. These sectors all benefit
from strong underlying unit demand growth, research and development-led new
product growth, favorable demographic trends and a positive domestic
consumer spending environment. Meanwhile, the basic industries, energy and
utilities sectors are likely to remain underweighted for the foreseeable
future due to their below-average sustainable growth prospects.
Thank you very much for your continued support and confidence.
Respectfully,
Philip J. Sanders
Manager, Growth Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Growth Portfolio
and The S&P 500 Index
TARGET/UNITED S&P
GROWTH 500
PORTFOLIO INDEX
---------- -----
12/31/88 Purchase $10,000 $10,000
12/31/89 12,761 13,169
12/31/90 12,080 12,760
12/31/91 16,441 16,648
12/31/92 19,868 17,917
12/31/93 22,654 19,722
12/31/94 23,195 19,982
12/31/95 32,140 27,492
12/31/96 36,126 33,804
12/31/97 43,874 45,058
12/31/98 55,858 57,989
----- Target/United Growth Portfolio* -- $55,858
+++++ S&P 500 Index -- $57,989
*The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund and assumes reinvestment of dividends and
distributions.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 27.31%
5 Years Ended
12/31/98 19.78%
10 Years Ended
12/31/98 18.77%
+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.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 3.53%
Abercrombie & Fitch Co., Class A* ...... 238,400 $ 16,866,800
Kohl's Corporation* .................... 200,000 12,287,500
Total ................................. 29,154,300
Building Materials and Garden Supplies - 3.04%
Home Depot, Inc. (The) ................. 410,000 25,086,875
Business Services - 5.48%
BMC Software, Inc.* .................... 323,800 14,439,456
Microsoft Corporation* ................. 222,000 30,753,938
Total ................................. 45,193,394
Chemicals and Allied Products - 16.44%
Bristol-Myers Squibb Company ........... 158,600 21,222,663
Colgate-Palmolive Company .............. 97,000 9,008,875
Dial Corporation (The) ................. 290,800 8,396,850
Lilly (Eli) and Company ................ 170,000 15,108,750
Merck & Co., Inc. ...................... 80,000 11,815,000
Monsanto Company ....................... 150,000 7,125,000
Pfizer Inc. ............................ 146,000 18,313,875
Schering-Plough Corporation ............ 374,400 20,685,600
Warner-Lambert Company ................. 318,700 23,962,256
Total ................................. 135,638,869
Communication - 5.09%
ALLTEL Corporation ..................... 150,000 8,971,875
GTE Corporation* ....................... 170,000 11,050,000
Infinity Broadcasting Corporation,
Class A* .............................. 352,200 9,641,475
SBC Communications Inc. ................ 230,000 12,333,750
Total ................................. 41,997,100
Depository Institutions - 1.81%
Comerica Incorporated .................. 219,450 14,963,747
Electronic and Other Electric Equipment - 6.09%
General Electric Company ............... 174,500 17,809,906
Intel Corporation ...................... 194,300 23,030,622
Texas Instruments Incorporated ......... 110,000 9,411,875
Total ................................. 50,252,403
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 1.42%
Bestfoods .............................. 220,000 $ 11,715,000
General Merchandise Stores - 2.38%
Dollar General Corporation ............. 151,562 3,580,652
Wal-Mart Stores, Inc. .................. 197,200 16,059,475
Total ................................. 19,640,127
Health Services - 1.10%
Tenet Healthcare Corporation* .......... 345,000 9,056,250
Industrial Machinery and Equipment - 7.82%
Applied Materials, Inc.* ............... 176,500 7,539,859
Cisco Systems, Inc.* ................... 236,425 21,950,584
Cooper Cameron Corporation* ............ 150,000 3,675,000
EMC Corporation* ....................... 324,600 27,591,000
Smith International, Inc.* ............. 150,000 3,778,125
Total ................................. 64,534,568
Instruments and Related Products - 5.07%
Baxter International Inc. .............. 140,000 9,003,750
Guidant Corporation .................... 153,000 16,868,250
Medtronic, Inc. ........................ 215,000 15,963,750
Total ................................. 41,835,750
Insurance Carriers - 2.22%
American International Group, Inc. ..... 116,700 11,276,137
MGIC Investment Corporation ............ 177,500 7,066,719
Total ................................. 18,342,856
Miscellaneous Retail - 3.59%
Costco Companies, Inc.* ................ 200,000 14,468,750
Walgreen Co. ........................... 258,300 15,126,694
Total ................................. 29,595,444
Motion Pictures - 2.15%
Time Warner Incorporated ............... 286,000 17,749,875
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 6.41%
Fannie Mae ............................. 453,600 $ 33,566,400
Freddie Mac ............................ 300,000 19,331,250
Total ................................. 52,897,650
Oil and Gas Extraction - 0.98%
Schlumberger Limited ................... 175,000 8,071,875
Petroleum and Coal Products - 0.93%
Exxon Corporation ...................... 105,000 7,678,125
Printing and Publishing - 1.00%
Tribune Company ........................ 125,400 8,276,400
Television Broadcasting Stations - 1.89%
Clear Channel Communications, Inc.* .... 286,400 15,608,800
Transportation Equipment - 2.31%
Harley-Davidson, Inc. .................. 401,800 19,035,275
Water Transportation - 2.36%
Carnival Corporation, Class A .......... 405,600 19,468,800
Wholesale Trade -- Durable Goods - 1.65%
Johnson & Johnson ...................... 162,200 13,604,525
TOTAL COMMON STOCKS - 84.76% $699,398,008
(Cost: $464,143,846)
PREFERRED STOCK - 0.26%
Holding and Other Investment Offices
LTC Properties, Inc., 9.5% ............. 100,000 $ 2,175,000
(Cost: $2,500,000)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Communication - 3.39%
GTE Corporation:
5.5%, 1-6-99 .......................... $ 20,000 19,984,722
5.38%, 1-25-99 ........................ 8,000 7,971,307
Total ................................. 27,956,029
Electric, Gas and Sanitary Services - 1.85%
Central Illinois Light Co.,
5.22%, 1-12-99 ........................ 2,350 $ 2,346,252
PS Colorado Credit Corp.,
6.0%, 1-15-99 ......................... 2,000 1,995,333
Puget Sound Energy Inc.,
5.92%, 1-19-99 ........................ 11,000 10,967,440
Total ................................. 15,309,025
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electronic and Other Electric Equipment - 1.89%
Lucent Technologies Inc.,
5.25%, 1-14-99 ........................ $13,500 $ 13,474,406
Sony Capital Corp.,
5.75%, 1-14-99 ........................ 2,165 2,160,505
Total ................................. 15,634,911
Fabricated Metal Products - 0.55%
Danaher Corporation,
5.6288%, Master Note .................. 1,579 1,579,000
Snap-On Inc.,
6.1%, 1-4-99 .......................... 3,000 2,998,475
Total ................................. 4,577,475
Food and Kindred Products - 1.40%
General Mills, Inc.,
5.4883%, Master Note .................. 6,543 6,543,000
Ralston Purina Co.,
5.5%, 1-4-99 .......................... 5,000 4,997,708
Total ................................. 11,540,708
Food Stores - 0.85%
Albertson's Inc.,
5.9%, 1-8-99 .......................... 7,000 6,991,969
Nondepository Institutions - 3.02%
General Electric Capital Corporation,
5.46%, 2-3-99 ......................... 14,000 13,929,930
Island Finance Puerto Rico Inc.,
5.4%, 1-29-99 ......................... 11,000 10,953,800
Total ................................. 24,883,730
Paper and Allied Products - 0.80%
Sonoco Products Co.,
5.16%, 1-19-99 ........................ 6,600 6,582,972
Primary Metal Industries - 1.14%
Aluminum Company of America,
5.12%, 1-15-99 ........................ 9,400 9,381,284
Textile Mill Products - 0.01%
Sara Lee Corporation,
5.4788%, Master Note .................. 44 44,000
TOTAL SHORT-TERM SECURITIES - 14.90% $122,902,103
(Cost: $122,902,103)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1998
Value
TOTAL INVESTMENT SECURITIES - 99.92% $824,475,111
(Cost: $589,545,949)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.08% 640,133
NET ASSETS - 100.00% $825,115,244
See Notes to Schedules of Investments on page 79.
<PAGE>
INCOME PORTFOLIO
MANAGERS' LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Income Portfolio for the fiscal
year ended December 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during
that period.
The U.S. stock market performed admirably in the first half of 1998.
Beginning in mid-July, however, growing concerns regarding Japanese banking
difficulties and the imminent financial collapse in Russia sent the U.S.
market into a rapidly accelerating decline. This dramatic downturn of
nearly 2,000 points on the Dow Jones Industrial Average ended in early
October. Three interest rate cuts by the Federal Reserve, in conjunction
with several cuts by other central banks throughout the developed
economies, sent a clear signal that the central banks would provide
sufficient liquidity to prevent the global economic slump from worsening.
The U.S. stock market responded with a dramatic rally in the fourth quarter
of 1998. By the end of 1998, the U.S. economy enjoyed record stock market
valuations, moderate economic growth, high employment, low inflation,
modest interest rates and record levels of personal consumption.
Prior to the poor stock market performance in the third quarter of 1998, we
moved the Portfolio to a much more conservative position by meaningfully
increasing cash reserves and lowering exposure to the most widely-owned
stocks in the S&P 500. In the fourth quarter, we moved a large portion of
our reserves from cash into U.S. Treasury bonds. We also increased our
position in electric utilities, financial services, defense and
telecommunication stocks. We continue to invest primarily in large U.S.
companies that enjoy dominant global market share in their industries. We
continue to seek new positions in stocks that represent good investment
value.
The strategies and techniques we applied resulted in the Portfolio's
performance remaining below 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. The Portfolio's underperformance
relative to the S&P 500 can be attributed primarily to its more defensive
posture during the fourth quarter of 1998.
We think valuations of large capitalization U.S. stocks have generally
reached levels that are difficult to sustain given current projected
earnings growth rates. The Portfolio is positioned more defensively for
expected slower growth in the U.S. economy and for what we believe could be
a more difficult stock market than experienced over the past few years. We
expect to maintain a well-diversified portfolio with meaningful dividend
yield and a strong emphasis on high quality stocks.
Thank you very much for your continued support and confidence.
Respectfully,
Russell E. Thompson
James D. Wineland
Managers, Income Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Income Portfolio
and The S&P 500 Index
TARGET\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 22,383 22,153
12/31/97 28,238 29,528
12/31/98 34,206 38,002
----- Target/United Income Portfolio* -- $34,206
+++++ S&P 500 Index** -- $38,002
*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
12/31/98 21.14%
5 Years Ended
12/31/98 18.94%
7+ Years Ended
12/31/98++ 17.91%
+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.
++7-16-91 (the initial offering date) through 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 0.72%
Gap, Inc. (The) ........................ 103,350 $ 5,813,437
Building Materials and Garden Supplies - 0.74%
Home Depot, Inc. (The) ................. 98,600 6,033,087
Business Services - 2.32%
BMC Software, Inc.* .................... 158,300 7,059,191
Microsoft Corporation* ................. 85,100 11,789,009
Total ................................. 18,848,200
Chemicals and Allied Products - 12.05%
Air Products and Chemicals, Inc. ....... 101,900 4,076,000
Bristol-Myers Squibb Company ........... 35,300 4,723,581
Colgate-Palmolive Company .............. 57,200 5,312,450
du Pont (E.I.) de Nemours and Company .. 114,300 6,065,044
Gillette Company (The) ................. 125,822 6,078,776
Lilly (Eli) and Company ................ 116,200 10,327,275
Merck & Co., Inc. ...................... 32,000 4,726,000
Monsanto Company ....................... 205,900 9,780,250
Novartis, AG (A) ....................... 3,850 7,568,256
PPG Industries, Inc. ................... 48,300 2,813,475
Pfizer Inc. ............................ 90,300 11,327,006
Procter & Gamble Company (The) ......... 56,500 5,159,156
Warner-Lambert Company ................. 263,400 19,804,388
Total ................................. 97,761,657
Communication - 4.73%
AT&T Corporation ....................... 24,800 1,866,200
AirTouch Communications* ............... 86,600 6,246,025
Cox Communications, Inc., Class A* ..... 214,000 14,792,750
MCI WORLDCOM, Inc.* .................... 99,100 7,113,522
SBC Communications Inc. ................ 156,000 8,365,500
Total ................................. 38,383,997
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 2.57%
BankAmerica Corporation ................ 49,677 $ 2,986,830
Chase Manhattan Corporation (The) ...... 96,600 6,574,838
U. S. Bancorp. ......................... 212,000 7,526,000
Wells Fargo & Company .................. 94,600 3,778,087
Total ................................. 20,865,755
Electric, Gas and Sanitary Services - 4.06%
Consolidated Edison, Inc. .............. 86,200 4,557,825
Duke Energy Corp. ...................... 120,600 7,725,938
Republic Services, Inc., Class A* ...... 266,700 4,917,281
Texas Utilities Company ................ 338,000 15,780,375
Total ................................. 32,981,419
Electronic and Other Electric Equipment - 6.81%
Analog Devices, Inc.* .................. 160,100 5,023,138
General Electric Company ............... 151,800 15,493,088
General Instrument Corporation* ........ 216,200 7,337,287
Intel Corporation ...................... 119,600 14,176,337
Maytag Corporation ..................... 98,000 6,100,500
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 296,600 7,090,594
Total ................................. 55,220,944
Fabricated Metal Products - 0.52%
Newell Co. ............................. 101,900 4,203,375
Food and Kindred Products - 1.76%
Bestfoods .............................. 131,800 7,018,350
Coca-Cola Company (The) ................ 68,100 4,554,187
Panamerican Beverages Inc., Class A .... 122,800 2,678,575
Total ................................. 14,251,112
Food Stores - 1.26%
Kroger Co. (The)* ...................... 169,300 10,242,650
Furniture and Fixtures - 0.30%
Lear Corporation* ...................... 63,700 2,452,450
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores - 2.96%
Dayton Hudson Corporation .............. 151,800 $ 8,235,150
Wal-Mart Stores, Inc. .................. 194,000 15,798,875
Total ................................. 24,034,025
Health Services - 1.56%
Tenet Healthcare Corporation* .......... 481,000 12,626,250
Industrial Machinery and Equipment - 3.11%
Case Corporation ....................... 146,200 3,188,988
Cisco Systems, Inc.* ................... 95,850 8,899,073
Deere & Company ........................ 93,200 3,087,250
International Business Machines
Corporation ........................... 54,400 10,050,400
Total ................................. 25,225,711
Instruments and Related Products - 2.78%
General Motors Corporation, Class H* ... 73,900 2,932,906
Guidant Corporation .................... 111,600 12,303,900
Medtronic, Inc. ........................ 68,600 5,093,550
Raytheon Company, Class A .............. 42,753 2,209,796
Total ................................. 22,540,152
Insurance Carriers - 2.11%
American International Group, Inc. .... 89,700 8,667,263
Chubb Corporation (The) ................ 12,500 810,937
Citigroup Inc. ......................... 155,100 7,677,450
Total .................................. 17,155,650
Miscellaneous Manufacturing Industries - 0.45%
Tyco International Ltd. ................ 48,000 3,621,000
Miscellaneous Retail - 0.66%
Costco Companies, Inc.* ................ 74,400 5,382,375
Motion Pictures - 1.72%
Time Warner Incorporated ............... 190,000 11,791,875
Walt Disney Company (The) .............. 71,700 2,151,000
Total ................................. 13,942,875
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 5.41%
Associates First Capital Corporation,
Class A ............................... 146,220 $ 6,196,072
Fannie Mae ............................. 288,900 21,378,600
Freddie Mac ............................ 253,600 16,341,350
Total ................................. 43,916,022
Oil and Gas Extraction - 1.22%
Burlington Resources Incorporated ...... 275,600 9,869,925
Paper and Allied Products - 0.64%
International Paper Company ............ 55,600 2,491,575
Willamette Industries, Inc. ............ 81,200 2,720,200
Total ................................. 5,211,775
Petroleum and Coal Products - 2.28%
Chevron Corporation .................... 44,000 3,649,250
Exxon Corporation ...................... 48,100 3,517,312
Mobil Corporation ...................... 72,200 6,290,425
Royal Dutch Petroleum Company .......... 104,800 5,017,300
Total ................................. 18,474,287
Primary Metal Industries - 0.51%
Aluminum Company of America ............ 56,000 4,175,500
Railroad Transportation - 0.38%
Burlington Northern Santa Fe Corporation 92,100 3,108,375
Rubber and Miscellaneous Plastics Products - 0.15%
Goodyear Tire & Rubber Company (The) ... 23,900 1,205,456
Television Broadcasting Stations - 1.12%
Clear Channel Communications, Inc.* .... 166,700 9,085,150
Transportation By Air - 0.48%
AMR Corporation* ....................... 65,200 3,871,250
Transportation Equipment - 4.25%
DaimlerChrysler AG* .................... 69,894 6,714,192
Dana Corporation ....................... 62,000 2,534,250
Ford Motor Company ..................... 98,100 5,757,244
Lockheed Martin Corporation ............ 162,100 13,737,975
Northrop Grumman Corporation ........... 78,300 5,725,688
Total ................................. 34,469,349
Wholesale Trade - Durable Goods - 0.49%
Johnson & Johnson ...................... 47,300 3,967,288
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade - Nondurable Goods - 1.48%
Safeway Inc.* .......................... 196,400 $ 11,968,125
TOTAL COMMON STOCKS - 71.60% $580,908,623
(Cost: $340,961,656)
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITY - 17.03%
United States Treasury,
5.5%, 8-15-2028 ....................... $132,000 $138,167,040
(Cost: $136,656,799)
SHORT-TERM SECURITIES
Commercial Paper
Electric, Gas and Sanitary Services - 4.41%
Bay State Gas Co.:
5.32%, 1-13-99 ........................ 9,389 9,372,350
5.45%, 1-19-99 ........................ 8,500 8,476,838
PS Colorado Credit Corp.,
6.0%, 1-15-99 ......................... 2,000 1,995,333
Public Service Co. of Colorado,
5.85%, 1-15-99 ........................ 6,000 5,986,350
Questar Corp.,
5.15%, 1-26-99 ........................ 10,000 9,964,236
Total ................................. 35,795,107
Engineering and Management Services - 0.21%
Halliburton Co.,
5.4%, 1-15-99 ......................... 1,700 1,696,430
Fabricated Metal Products - 1.29%
Danaher Corporation,
5.6288%, Master Note .................. 10,482 10,482,000
Food and Kindred Products - 0.07%
General Mills, Inc.,
5.4838%, Master Note .................. 567 567,000
Industrial Machinery and Equipment - 2.46%
Deere & Company,
5.53%, 1-8-99 ......................... 20,000 19,978,494
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Nondepository Institutions - 0.86%
Associates Corporation of North America,
5.35%, 1-20-99 ........................ $ 7,000 $ 6,980,235
Petroleum and Coal Products - 0.12%
Kerr-McGee Credit Corp.,
6.05%, 1-19-99 ........................ 1,000 996,975
Textile Mill Products - 0.08%
Sara Lee Corporation,
5.4788%, Master Note .................. 615 615,000
Wholesale Trade -- Nondurable Goods - 0.25%
McKesson Corp.,
6.05%, 1-5-99 ......................... 2,000 1,998,656
Total Commercial Paper - 9.75% 79,109,897
Municipal Obligation - 1.23%
California
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds,
(Shell Martinez Refining Company Project),
Series 1996 (Taxable), (Shell Oil Company),
5.25%, 2-8-99 ......................... 10,000 10,000,000
TOTAL SHORT-TERM SECURITIES - 10.98% $ 89,109,897
(Cost: $89,109,897)
TOTAL INVESTMENT SECURITIES - 99.61% $808,185,560
(Cost: $566,728,352)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.39% 3,148,081
NET ASSETS - 100.00% $811,333,641
See Notes to Schedules of Investments on page 79.
<PAGE>
SCIENCE AND TECHNOLOGY PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Science and Technology
Portfolio for the fiscal year ended December 31, 1998. The following
discussion, graphs and tables provide you with information regarding the
Portfolio's performance during that period.
Economic growth and inflation in 1998 were nearly identical to 1997's
healthy rates. President Clinton was impeached by the House. The Asian
contagion continued this year, negatively affecting economies in Asian
countries. Brazil had trouble meeting its debt obligations and Russia had
a complete meltdown. Global economic problems hurt the third quarter
performance of the stock market, but failed to prevent a remarkable
recovery in the fourth quarter. Stocks outperformed bonds, with large
capitalized stocks again performing better than small and medium
capitalized issues.
The Portfolio continued to benefit from a substantial emphasis on Internet-
related stocks. The process of purchasing these stocks began in 1997, when
personal computer prices began their long decline and made the Internet
accessible for more people. 1998 was the first big year of increased
shopping over the Internet, with many consumers bypassing the traditional
department store. Advances in Internet-related stocks, and technology
stocks in general, were so large that the Portfolio reduced positions in
some holdings because they were becoming too large a portion of total
assets. The Portfolio also maintained large positions in the drug
industry, and in hospital supply and distribution and medical devices
companies.
The strategies and techniques we applied resulted in the Portfolio
significantly outperforming the S&P 400 Index charted on the following
page. The S&P 400 Index reflects the performance of securities that
generally represent the non-financial institution portion of the stock
market. The Portfolio's performance was aided by large advances of
Internet stocks, fewer earnings disappointments in the areas of technology
and health care, and little, if any, Asian or Latin American exposure.
Looking forward, the market risk we see is companies' inability to grow
profits. With little inflation and low interest rates, however, market
valuations likely will remain high. Accordingly, those companies that do
enjoy rapidly growing profits should receive considerable investor support.
In light of these anticipated conditions, we intend to keep diversifying
into high quality, rapidly growing U.S. companies.
Thank you very much for your continued support and confidence.
Respectfully,
Abel Garcia
Manager, Science and Technology Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Science and Technology Portfolio
and The S&P 400 Index
Target/United
Science and S&P
Technology 400
Portfolio Index
--------- ---------
4/4/97 Purchase $10,000 $10,000
12/31/97 11,623 12,770
12/31/98 16,976 17,094
===== Target/United Science and Technology Portfolio* -- $16,976
+++++ S&P 400 Index** -- $17,094
*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 400 Index are not available, investment in the index was effected
as of March 31, 1997.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 46.05%
1+ Years Ended
12/31/98++ 35.49%
+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.
++4-4-97 (the initial offering date) through 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 1.53%
Fastenal Company ....................... 12,000 $ 527,625
Business Services - 39.42%
Amazon.com, Inc.* ...................... 1,500 481,828
America Online, Inc.* .................. 10,000 1,600,000
BMC Software, Inc.* .................... 12,000 535,125
BroadVision, Inc.* ..................... 13,000 420,469
Cerner Corporation* .................... 24,000 643,500
Citrix Systems, Inc.* .................. 9,000 873,281
eBay Inc.* ............................. 2,000 482,750
Fiserv, Inc.* .......................... 13,000 668,281
HNC Software Inc.* ..................... 15,000 606,563
IDX Systems Corporation* ............... 4,000 176,250
Inktomi Corporation* ................... 4,000 519,875
Intuit Inc.* ........................... 10,000 725,000
Macromedia, Inc.* ...................... 20,000 673,125
MemberWorks Incorporated* .............. 20,000 591,250
Networks Associates, Inc.* ............. 10,000 663,437
Parametric Technology Corporation* ..... 20,000 325,000
TMP Worldwide Inc.* .................... 12,000 510,750
Transaction Systems Architects, Inc.,
Class A* .............................. 10,000 503,125
Visio Corporation* ..................... 20,000 725,625
Wind River Systems, Inc.* .............. 13,000 610,188
Yahoo! Inc.* ........................... 5,500 1,302,984
Total ................................. 13,638,406
Communication - 6.45%
AirTouch Communications* ............... 5,000 360,625
COLT Telecom Group plc, ADR* ........... 8,000 480,500
Cox Communications, Inc., Class A* ..... 3,700 255,762
Intermedia Communications of Florida,
Inc.* ................................. 30,000 519,375
MGC Communications, Inc.* .............. 21,000 146,344
MediaOne Group, Inc.* .................. 10,000 470,000
Total ................................. 2,232,606
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 11.31%
Advanced Fibre Communications, Inc.* ... 20,000 $ 218,750
Ascend Communications, Inc.* ........... 12,000 789,375
Broadcom Corporation, Class A* ......... 7,000 844,375
Concord Communications, Inc.* .......... 10,000 572,500
Gemstar International Group Limited* ... 10,000 572,187
Micron Technology, Inc.* ............... 10,000 505,625
Tellabs* ............................... 6,000 411,375
Total ................................. 3,914,187
Engineering and Management Services - 7.85%
Abacus Direct Corporation* ............. 8,000 366,250
Incyte Pharmaceuticals, Inc.* .......... 20,000 746,250
MAXIMUS, Inc.* ......................... 15,000 555,000
Paychex, Inc. .......................... 10,000 514,688
Quintiles Transnational Corp.* ......... 10,000 533,437
Total ................................. 2,715,625
Food and Kindred Products - 2.06%
American Italian Pasta Company, Class A* 27,000 712,125
Furniture and Fixtures - 0.78%
Lear Corporation* ...................... 7,000 269,500
Health Services - 0.58%
American Healthcorp, Inc.* ............. 20,000 199,375
Instruments and Related Products - 3.48%
Bionx Implants, Inc.* .................. 20,000 168,125
STERIS Corporation* .................... 12,000 341,250
Uniphase Corporation* .................. 10,000 694,375
Total ................................. 1,203,750
Printing and Publishing - 1.33%
IDG Books Worldwide, Inc., Class A* .... 27,000 460,688
Television Broadcasting Stations - 1.58%
Clear Channel Communications, Inc.* .... 10,000 545,000
Wholesale Trade -- Durable Goods - 1.00%
OmniCare, Inc. ......................... 10,000 347,500
Wholesale Trade -- Nondurable Goods - 1.32%
Cardinal Health, Inc. .................. 6,000 455,250
TOTAL COMMON STOCKS - 78.69% $27,221,637
(Cost: $19,032,900)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Electronic and Other Electric Equipment - 2.89%
Lucent Technologies Inc.,
5.25%, 1-14-99 ........................ $ 1,000 $ 998,104
Fabricated Metal Products - 3.99%
Danaher Corporation,
5.6288%, Master Note .................. 1,381 1,381,000
Food and Kindred Products - 2.53%
General Mills, Inc.,
5.4838%, Master Note .................. 877 877,000
Paper and Allied Products - 2.88%
Sonoco Products Co.,
5.16%, 1-19-99 ........................ 1,000 997,420
Textile Mill Products - 4.61%
Sara Lee Corporation,
5.4788%, Master Note .................. 1,594 1,594,000
Wholesale Trade -- Nondurable Goods - 4.33%
McKesson Corp.,
6.05%, 1-5-99 ......................... 1,500 1,498,992
TOTAL SHORT-TERM SECURITIES - 21.23% $ 7,346,516
(Cost: $7,346,516)
TOTAL INVESTMENT SECURITIES - 99.92% $34,568,153
(Cost: $26,379,416)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.08% 27,252
NET ASSETS - 100.00% $34,595,405
See Notes to Schedules of Investments on page 79.
<PAGE>
INTERNATIONAL PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the International Portfolio during
the fiscal year ended December 31, 1998. The following discussion, graphs
and tables provide you with information regarding the Portfolio's
performance during that period.
Global markets were extremely volatile during the past year. Asia
struggled with the world's most serious post-War financial crisis, while
Japan made little progress on economic reform. Europe remained in economic
expansion as companies continued to implement restructuring programs and
expand operations across Europe to benefit from the move to a single
currency. Benign inflation led to broad interest rate cuts. Throughout
the year, emerging markets reacted to dramatic shifts in investor
confidence.
Europe has remained our primary focus for several years now. We have
continued to achieve very favorable returns on our European investments,
especially restructuring opportunities and interest-sensitive sectors. We
maintained our cautious stance toward Japan and emerging markets because of
serious fundamental risk in these areas. We temporarily increased our cash
reserves during periods of extreme risk resulting from the Asian financial
crisis. In order to limit exposure to vulnerable countries and industries,
we increased our heavy weighting in European equities.
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 heavy exposure to European
investments and underweight position in Japan contributed to its
outstanding performance.
Continued benign inflation suggests global financial markets will enjoy
further monetary easing. Our positive outlook on Europe has been further
supported by the successful introduction of a single currency. However,
there is risk of further instability in emerging markets and Japan, where
high debt and overvalued assets remain obstacles to recovery. Unpopular,
bold reforms must be implemented before a meaningful recovery will be
realized. Our investments will remain heavily concentrated in Europe, with
a focus on companies that have positioned themselves to benefit from the
move toward an integrated Europe. We will maintain our cautious approach
toward emerging markets and Japan until there is clear evidence of a
sustained recovery in investor confidence. The Asian financial crisis will
eventually force important reforms that should lead to an economic recovery
in this important region of the world.
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
Target/United International Portfolio
and The Morgan Stanley E.A.FE. Index
MORGAN
TARGET/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 12,381 11,782
12/31/97 14,448 11,991
12/31/98 19,345 14,389
----- Target/United International Portfolio* -- $19,345
+++++ Morgan Stanley E.A.FE. Index** -- $14,389
*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
12/31/98 33.89%
4+ Years Ended
12/31/98++ 15.19%
+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 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Brazil - 0.13%
CompanLia de Saneamento Desico do
Estado De Sao Paulo (A)* .............. 3,000,000 $ 227,179
China - 0.17%
Jinpan International Limited* .......... 93,000 279,000
Denmark - 0.79%
Neurosearch A/S (A)* ................... 20,000 1,329,029
Finland - 2.07%
Sonera Group plc (A)* .................. 178,000 3,164,945
Sponda Oyj (A)* ........................ 56,600 332,106
Total ................................. 3,497,051
France - 9.49%
AXA-UAP (A) ............................ 26,700 3,869,081
Etablissements Economiques du Casino
Guichard-Parrachon SA (A) ............. 16,750 1,744,011
Generale de Geophysique S.A. (A)* ...... 8,000 466,143
Lagardere SCA (A) ...................... 29,000 1,232,177
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 4,375 1,146,640
Suez Lyonnaise des Eaux (A) ............ 23,000 4,723,688
VIVENDI (A) ............................ 11,000 2,853,463
Total ................................. 16,035,203
Germany - 9.32%
Altana AG (A) .......................... 9,000 701,986
Bayerische Hypotheken- und
Weschel-Bank AG (A) ................... 21,000 1,644,267
Deutsche Bank AG, Ordinary Shares (A) .. 36,000 2,117,838
Deutsche Prandbrief- und
Hypothekenbank AG (A) ................. 18,725 1,640,277
Mannesmann AG (A) ...................... 37,000 4,240,115
MobilCom AG (A) ........................ 4,255 1,354,339
Rhoen-Klinikum AG (A) .................. 16,600 1,648,347
Volkswagen AG (A) ...................... 30,000 2,393,952
Total ................................. 15,741,121
Greece - 0.64%
PANAFON, S.A. (A) ...................... 40,650 1,088,645
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Italy - 4.96%
CSP International Industria
Calze S.p.A. (A) ...................... 50,000 $ 334,341
Instituto Nazionale delle
Assicurazioni (A)* .................... 245,000 646,569
Istituto Bancario San Paolo di Torino -
Istituto Mobiliare Italiano S.p.A. (A) 97,500 1,721,282
Olivetti S.p.A. (A)* ................... 1,000,000 3,476,421
Telecom Italia Mobile S.p.A., Risp (A) . 350,000 2,200,725
Total ................................. 8,379,338
Japan - 2.76%
Matsushita Communication Industrial
Co., Ltd. (A) ......................... 34,000 1,604,711
Olympus Optical Co., Ltd. (A) .......... 140,000 1,610,378
Sankyo Co., Ltd. (A) ................... 66,000 1,443,549
Total ................................. 4,658,638
Mexico - 0.35%
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (A)* ...... 450,000 589,702
Netherlands - 5.48%
Athlon Groep N.V. (A) .................. 13,000 386,810
Benckiser N.V., Class B (A) ............. 30,000 1,964,124
Content Beheer N.V. (A) ................ 50,000 854,314
EQUANT N.V. (A)* ....................... 24,750 1,721,966
Ordina N.V. (A)* ....................... 84,240 2,246,460
Smit Internationale N.V. (A) ........... 43,166 948,930
Unique International NV (A) ............ 50,000 1,144,408
Total ................................. 9,267,012
Norway - 1.79%
Merkantildata ASA (A) .................. 305,000 3,023,914
Portugal - 2.49%
Banco Portugues do Atlantico, S.A. (A)* 45,900 940,278
Portugal Telecom, S.A., ADS ............ 27,500 1,227,188
Telecel-Comunicacaoes Pessoais, SA (A) . 10,000 2,043,266
Total ................................. 4,210,732
Spain - 3.48%
Superdiplo, S.A. (A)* .................. 48,950 1,375,987
Tele Pizza, S.A. (A)* .................. 250,000 2,374,754
Telefonica de Espana, S.A. (A) ......... 47,818 2,123,924
Total ................................. 5,874,665
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Sweden - 0.25%
Biacore International AB, ADR* ......... 15,550 $ 157,444
Biora AB, ADR* ......................... 20,000 270,000
Total ................................. 427,444
Switzerland - 8.22%
Choco Lindt & Spru AG, Registered (A) .. 50 1,310,520
Credit Suisse Group, Registered Shares (A) 9,000 1,408,810
Julius Baer Holding AG (A) ............. 400 1,329,450
Novartis, AG (A) ....................... 3,840 7,548,598
Swisslog Holding AG, Registered Shares (A) 24,250 2,295,231
Total ................................. 13,892,609
United Kingdom - 26.79%
Barclays PLC (A) ....................... 36,000 781,042
British Aerospace Public Limited
Company (A) ........................... 180,000 1,535,153
COLT Telecom Group plc, ADR* ........... 150,000 9,009,375
Corporate Services Group plc (A) ....... 575,000 1,455,415
Diageo plc (A) ......................... 136,000 1,544,263
Energis plc (A)* ....................... 216,750 4,828,648
Freepages Group plc (A)* ............... 2,000,000 648,375
General Electric Company plc (A) ........ 183,235 1,660,224
Hays plc (A) ........................... 229,528 2,022,429
Independent Energy Holdings plc, ADS* .. 225,000 2,032,031
Lloyds TSB Group plc (A) ............... 55,000 783,619
Misys plc (A) .......................... 388,470 2,835,200
Newsquest plc (A) ...................... 230,000 934,907
Orange plc (A)* ........................ 150,000 1,745,625
Select Appointments (Holdings)
Public Limited Company (A) ............ 90,000 927,675
Sema Group plc (A) ..................... 180,600 1,774,463
Siebe plc (A) .......................... 450,000 1,773,056
Stagecoach Holdings plc (A) ............ 375,000 1,502,484
Telewest Communications plc (A)* ....... 670,000 1,927,004
Tesco PLC (A) .......................... 493,000 1,434,322
Vodafone Group Plc (A) ................. 252,738 4,109,330
Total ................................. 45,264,640
United States - 0.74%
ESG Re Limited ......................... 61,000 1,246,688
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1998
Shares Value
TOTAL COMMON STOCKS - 79.92% $ 135,032,610
(Cost: $101,422,333)
PREFERRED STOCKS
Germany - 8.04%
Fresenius Medical Care AG (A) .......... 5,000 1,052,979
GEA AG (A) ............................. 50,000 1,199,976
Henkel AG (A) .......................... 40,400 3,611,688
Marschollek, Lautenschlager und
Partner AG (A) ........................ 10,000 5,699,886
Moebel Walther AG (A) .................. 20,000 683,986
ProSieben Media AG (A) ................. 29,000 1,339,773
Total ................................. 13,588,288
Portugal - 1.03%
Lusomundo-SGPS, S.A. (A) ............... 150,000 1,738,825
TOTAL PREFERRED STOCKS - 9.07% $15,327,113
(Cost: $10,015,222)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITY - 3.72%
United States Treasury,
7.25%, 8-15-2022 ...................... $5,050 $ 6,285,684
(Cost: $6,255,811)
SHORT-TERM SECURITIES
Commercial Paper
Fabricated Metal Products - 0.23%
Danaher Corporation,
5.6288%, Master Note .................. 392 392,000
Food and Kindred Products - 3.42%
General Mills, Inc.,
5.4838%, Master Note .................. 5,771 5,771,000
Nondepository Institutions - 3.49%
Textron Inc.,
6.47%, 1-6-99 ......................... 5,900 5,894,698
Textile Mill Products - 1.85%
Sara Lee Corporation,
5.4788%, Master Note .................. 3,127 3,127,000
TOTAL SHORT-TERM SECURITIES - 8.99% $ 15,184,698
(Cost: $15,184,698)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1998
Value
TOTAL INVESTMENT SECURITIES - 101.70% $171,830,105
(Cost: $132,878,064)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.70%) (2,868,664)
NET ASSETS - 100.00% $168,961,441
See Notes to Schedules of Investments on page 79.
<PAGE>
SMALL CAP PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Small Cap Portfolio during the
fiscal year ended December 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance
during that period.
In a year filled with much economic and political uncertainty around the
globe, the continued strength and stability of the U.S. economy provided a
favorable backdrop for U.S. stocks, particularly for small and emerging
growth companies. However, when it came to stock performance, investors
continued to favor large well-established companies, particularly those in
the technology sector. Most notable was the performance of anything
related to the Internet. 1998 was the year that people realized the
potential of the electronic superhighway - that it opens the door to a
world of instant information and that it offers the opportunity for
business of all types to be done with anyone, anywhere, anytime, at much
less cost.
Our concerns over the global economic environment, especially Russia, South
America, and the Asia Pacific region, caused us to maintain a defensive
posture. Cash reserves were boosted and holdings were biased towards
companies with minimal international exposure and more predictable business
models.
The strategies and techniques we applied resulted in the Portfolio
significantly outperforming the Nasdaq Industrials Index during the fiscal
year, as charted on the following page. That index reflects the
performance of securities that generally represent the small companies
sector of the stock market.
The significant underperformance, both in absolute and relative terms, of
small cap securities in recent years, along with a likely moderation in
corporate profit growth during 1999, make small cap one of the most
appealing investment categories heading into the new year. This, in
conjunction with our focus on sound in-depth research and careful stock
selection, continueS to reinforce our positive long-term outlook.
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
Target/United Small Cap Portfolio
and The Nasdaq Industrials Index
TARGET/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 17,360 14,517
12/31/97 22,834 15,974
12/31/98 25,315 17,063
----- Target/United Small Cap Portfolio* -- $25,315
+++++ Nasdaq Industrials Index** -- $17,063
*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
12/31/98 10.87%
4+ Years Ended
12/31/98++ 22.03%
+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 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Business Services - 17.91%
Cerner Corporation* .................... 215,000 $ 5,764,687
Concur Technologies, Inc.* ............. 30,000 906,562
ENVOY Corporation* ..................... 75,000 4,387,500
Freepages Group plc (A)* ............... 4,500,000 1,458,844
Fundtech Ltd.* ......................... 185,000 3,850,313
Inktomi Corporation* ................... 18,000 2,339,437
Lamar Advertising Company* ............. 50,000 1,875,000
National Data Corporation .............. 60,000 2,921,250
Shared Medical Systems Corporation ..... 75,000 3,740,625
Sunquest Information Systems, Inc.* .... 176,100 2,454,394
Verity, Inc.* .......................... 100,000 2,646,875
Total ................................. 32,345,487
Chemicals and Allied Products - 5.22%
Genzyme Corporation - General Division* 80,000 3,977,500
PAREXEL International Corporation* ..... 60,000 1,494,375
SangStat Medical Corporation* .......... 100,000 2,137,500
Spiros Development Corporation II,
Inc., Units (B)* ...................... 200,000 1,812,500
Total ................................. 9,421,875
Communication - 8.59%
Exodus Communications, Inc.* ........... 100,000 6,456,250
Intermedia Communications of
Florida, Inc.* ........................ 150,000 2,596,875
TCA Cable TV, Inc. ..................... 95,000 3,387,344
Western Wireless Corporation,
Class A* .............................. 140,000 3,075,625
Total ................................. 15,516,094
Eating and Drinking Places - 0.84%
Fresh Foods, Inc.* ..................... 316,000 1,520,750
Electric, Gas and Sanitary Services - 4.33%
Allied Waste Industries, Inc., New* .... 185,000 4,370,625
Waste Industries, Inc.* ................ 200,000 3,443,750
Total ................................. 7,814,375
Electronic and Other Electric Equipment - 1.52%
Coyote Network Systems, Inc.* .......... 144,000 1,080,000
Terayon Communications Systems* ........ 45,000 1,659,375
Total ................................. 2,739,375
Engineering and Management Services - 2.30%
Cornell Corrections, Inc.* ............. 140,000 2,660,000
Incyte Pharmaceuticals, Inc.* .......... 11,600 432,825
Quintiles Transnational Corp.* ......... 20,000 1,066,875
Total ................................. 4,159,700
Fabricated Metal Products - 0.72%
Mark IV Industries, Inc. ............... 100,000 1,300,000
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Health Services - 7.31%
American Retirement Corporation* ....... 217,500 $ 3,412,031
Centennial HealthCare Corporation* ..... 246,000 3,797,625
Quorum Health Group, Inc.* ............. 220,000 2,839,375
Sierra Health Services, Inc.* .......... 150,000 3,159,375
Total ................................. 13,208,406
Industrial Machinery and Equipment - 0.96%
Micron Electronics, Inc.* .............. 100,000 1,728,125
Instruments and Related Products - 8.31%
ADAC Laboratories* ..................... 100,000 1,996,875
Maxxim Medical, Inc.* .................. 175,000 5,206,250
Sabratek Corporation* .................. 100,000 1,631,250
St. Jude Medical, Inc.* ................ 120,000 3,322,500
STERIS Corporation* .................... 100,000 2,843,750
Total ................................. 15,000,625
Insurance Carriers - 2.53%
Annuity and Life Re (Holdings) Ltd. .... 75,000 2,006,250
ESG Re Limited ......................... 125,000 2,554,688
Total ................................. 4,560,938
Oil and Gas Extraction - 0.92%
Newfield Exploration Company* .......... 80,000 1,670,000
Paper and Allied Products - 2.18%
IVEX Packaging Corporation* ............ 169,000 3,929,250
Personal Services - 1.12%
Loewen Group Inc. (The) ................ 240,000 2,025,000
Real Estate - 1.99%
ElderTrust ............................. 312,000 3,588,000
Social Services - 2.22%
Balanced Care Corporation* ............. 500,000 4,000,000
TOTAL COMMON STOCKS - 68.97% $124,528,000
(Cost: $120,877,880)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 1.78%
PHH Corp.,
6.1%, 1-15-99 ......................... $3,220 $ 3,212,361
Chemicals and Allied Products - 4.42%
du Pont (E.I.) de Nemours and Company,
5.13%, 1-12-99 ........................ 8,000 7,987,460
Electric, Gas and Sanitary Services - 4.98%
Public Service Co. of Colorado,
5.9%, 1-15-99 ......................... 4,000 3,990,822
Puget Sound Energy Inc.,
5.9%, 1-13-99 ......................... 5,000 4,990,167
Total ................................. 8,980,989
Electronic and Other Electric Equipment - 6.08%
Lucent Technologies Inc.,
5.55%, 1-14-99 ........................ 6,000 5,987,975
Sony Capital Corp.,
5.75%, 1-14-99 ........................ 5,000 4,989,618
Total ................................. 10,977,593
Fabricated Metal Products - 1.68%
Danaher Corporation,
5.6288%, Master Note .................. 3,030 3,030,000
Food and Kindred Products - 10.57%
General Mills, Inc.,
5.48838%, Master Note ................. 7,098 7,098,000
Ralston Purina Co.:
5.5%, 1-4-99 .......................... 5,000 4,997,708
6.05%, 1-5-99 ......................... 7,000 6,995,295
Total ................................. 19,091,003
Nondepository Institutions - 1.10%
Island Finance Puerto Rico Inc.,
5.38%, 2-5-99 ......................... 2,000 1,989,539
Personal Services - 2.49%
Block Financial Corp.,
5.2%, 1-28-99 ......................... 4,520 4,502,372
Textile Mill Products - 0.27%
Sara Lee Corporation,
5.4788%, Master Note .................. 489 489,000
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1998
Value
TOTAL SHORT-TERM SECURITIES - 33.37% $ 60,260,317
(Cost: $60,260,317)
TOTAL INVESTMENT SECURITIES - 102.34% $184,788,317
(Cost: $181,138,197)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.34%) (4,219,491)
NET ASSETS - 100.00% $180,568,826
See Notes to Schedules of Investments on page 79.
<PAGE>
BALANCED PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Balanced Portfolio for the
fiscal year ended December 31, 1998. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Portfolio's performance during that period.
As the year began, global economies were in the midst of crisis in the
currency and financial markets. As we emerged from the turmoil, we found
central bankers ready to provide liquidity. This contributed to a very
powerful rally during the last quarter of 1998. The U.S. economy ended
1998 in better shape than most would have imagined just a few short months
before. Despite the volatile financial markets and the ongoing issues with
the Presidency, retail sales have continued at high levels, particularly in
large ticket items. This can be attributed to high overall consumer
confidence resulting from record low unemployment, negligible inflation,
low mortgage rates and rising wages.
During the second half of 1998, we became more defensive by moving assets
out of equities and into fixed income securities and cash. Although the
Federal Reserve became more accommodative, we were still concerned that
corporate profits would remain under pressure. Therefore, we stayed
focused on companies with the potential to grow profits in a decelerating
economy. We also kept a high cash position, as we felt more opportunities
would develop.
The strategies and techniques we applied resulted in the Portfolio modestly
underperforming the bond market index and significantly underperforming the
stock market index charted on the following page. Those indexes reflect
the performance of the bond market (the Salomon Brothers
Treasury/Government-Sponsored/Corporate Index) and securities that
generally represent the stock market (the S&P 500 Index). A variety of
indexes is presented because the Portfolio invests in stocks and bonds.
The Portfolio's fixed income investments and defensive position in the
second half of the year contributed to the underperformance of the
Portfolio as compared to the S&P 500 Index. While the Portfolio's
defensive posture provided some protection when the markets corrected in
late summer and early fall, it also prevented full participation in the
fourth quarter rally.
With an economy expected to remain generally healthy over the near-term,
financial markets have already started to broaden out into more
economically sensitive areas, such as paper and metal stocks. While many
of these stocks have lagged significantly and could be poised for a
turnaround, there are still issues outside the U.S. that could hinder a
recovery in profits. Until worldwide economies begin to stabilize, it is
difficult to predict how excess inventories can be worked down. Therefore,
as was the case in 1998, the financial markets will probably be dominated
by macro issues rather than micro issues. As a result, we will remain
defensive in posture and look for opportunities as the year unfolds. In
doing so, we will continue to focus on potential long-term returns
consistent with the Portfolio's objectives.
Thank you for your continued confidence.
Respectfully,
Cynthia P. Prince-Fox
Manager, Balanced Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Balanced Portfolio,
The S&P 500 Index and
The Salomon Brothers Treasury/Government Sponsored/Corporate Index
Salomon
Brothers
Treasury/
Government
Target/United S&P Sponsored/
Balanced 500 Corporate
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 11,978
12/31/96 13,758 17,591 12,327
12/31/97 16,301 23,447 13,535
12/31/98 17,714 30,176 14,814
===== Target/United Balanced Portfolio* -- $17,714
----- S&P 500 Index** -- $30,176
..... Salomon Brothers Treasury/Government Sponsored/Corporate Index** --
$14,814
*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, 1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 8.67%
4+ Years Ended
12/31/98++ 13.04%
+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 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Apparel And Accessory Stores - 0.53%
Kohl's Corporation* .................... 8,000 $ 491,500
Business Services - 0.95%
BMC Software, Inc.* .................... 19,600 874,037
Chemicals and Allied Products - 6.19%
Crompton & Knowles Corporation ......... 14,300 295,831
Dial Corporation (The) ................. 11,900 343,612
Lilly (Eli) and Company ................ 9,500 844,312
Neutraceutical International
Corporation* .......................... 9,000 53,156
Novartis, AG (A) ....................... 470 923,917
Pfizer Inc. ............................ 11,000 1,379,813
Procter & Gamble Company (The) ......... 7,100 648,319
Warner-Lambert Company ................. 16,200 1,218,037
Total ................................. 5,706,997
Communication - 3.73%
AT&T Corporation ....................... 20,000 1,505,000
Cox Communications, Inc., Class A* ..... 12,000 829,500
SBC Communications Inc. ................ 20,600 1,104,675
Total ................................. 3,439,175
Depository Institutions - 1.18%
BankAmerica Corporation ................ 6,789 408,189
Comerica Incorporated .................. 10,000 681,875
Total ................................. 1,090,064
Electric, Gas and Sanitary Services - 1.83%
Houston Industries Incorporated ........ 12,000 385,500
Southern Company (The) ................. 13,000 377,812
Unicom Corporation ..................... 24,000 925,500
Total ................................. 1,688,812
Electronic and Other Electric Equipment - 3.92%
Analog Devices, Inc.* .................. 11,800 370,225
Emerson Electric Co. ................... 10,000 605,000
General Electric Company ............... 7,000 714,438
Intel Corporation ...................... 9,000 1,066,781
Texas Instruments Incorporated ......... 10,000 855,625
Total ................................. 3,612,069
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Fabricated Metal Products - 0.54%
Newell Co. ............................. 12,000 $ 495,000
Food and Kindred Products - 1.03%
ConAgra, Inc. .......................... 11,800 371,700
Ralston-Ralston Purina Group ........... 18,000 582,750
Total ................................. 954,450
General Merchandise Stores - 1.32%
Wal-Mart Stores, Inc. .................. 15,000 1,221,562
Health Services - 1.50%
Columbia/HCA Healthcare Corporation .... 35,000 866,250
Tenet Healthcare Corporation* .......... 19,600 514,500
Total ................................. 1,380,750
Holding and Other Investment Offices - 1.10%
LTC Properties, Inc. ................... 43,000 714,875
National Health Investors, Inc. ........ 12,000 296,250
Total ................................. 1,011,125
Industrial Machinery and Equipment - 1.83%
Baker Hughes Incorporated .............. 17,500 309,531
EMC Corporation* ....................... 16,200 1,377,000
Total ................................. 1,686,531
Instruments and Related Products - 0.81%
Medtronic, Inc. ........................ 10,000 742,500
Insurance Carriers - 2.30%
Chubb Corporation (The) ................ 9,200 596,850
Hartford Financial Services Group Inc. (The) 8,200 449,975
Mercury General Corporation ............ 13,000 569,563
Old Republic International Corporation . 22,500 506,250
Total ................................. 2,122,638
Miscellaneous Retail - 1.18%
Costco Companies, Inc.* ................ 15,000 1,085,156
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 2.06%
Freddie Mac ............................ 18,400 $ 1,185,650
Household International, Inc. .......... 18,000 713,250
Total ................................. 1,898,900
Oil and Gas Extraction - 1.10%
Burlington Resources Incorporated ...... 22,600 809,363
Enron Oil & Gas Company ................ 12,000 207,000
Total ................................. 1,016,363
Paper and Allied Products - 0.47%
Champion International Corporation ..... 10,800 437,400
Petroleum and Coal Products - 2.23%
BP Amoco p.l.c. ........................ 5,080 482,600
Mobil Corporation ...................... 9,600 836,400
Royal Dutch Petroleum Company .......... 15,400 737,275
Total ................................. 2,056,275
Primary Metal Industries - 0.27%
British Steel plc, ADR ................. 17,000 248,625
Printing and Publishing - 2.00%
Gannett Co., Inc. ...................... 5,500 354,750
McGraw-Hill Companies, Inc. (The) ...... 5,200 529,750
Meredith Corporation ................... 15,000 568,125
New York Times Company (The), Class A .. 11,400 395,438
Total ................................. 1,848,063
Rubber and Miscellaneous Plastics Products - 1.19%
A. Schulman, Inc. ...................... 25,000 564,844
Goodyear Tire & Rubber Company (The) ... 10,500 529,594
Total ................................. 1,094,438
Television Broadcasting Stations - 1.00%
Clear Channel Communications, Inc.* .... 17,000 926,500
TOTAL COMMON STOCKS - 40.26% $37,128,930
(Cost: $28,372,511)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Apparel And Accessory Stores - 2.98%
Gap, Inc. (The),
6.9%, 9-15-2007 ....................... $ 2,500 $ 2,748,125
Building Materials and Garden Supplies - 1.14%
Home Depot, Inc. (The), Convertible,
3.25%, 10-1-2001 ...................... 400 1,056,500
Chemicals and Allied Products - 0.31%
American Home Products Corporation,
7.9%, 2-15-2005 ....................... 250 282,510
Communication - 0.16%
Southwestern Bell Telephone Company,
5.77%, 10-14-2003 ..................... 150 151,983
Depository Institutions - 0.28%
Wachovia Corporation,
6.25%, 8-4-2008 ....................... 250 260,033
Electronic and Other Electric Equipment - 0.19%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 243 173,812
Food and Kindred Products - 0.57%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-2036 ...................... 500 529,425
Miscellaneous Manufacturing Industries - 0.28%
Tyco International Group S.A.,
6.375%, 6-15-2005 ..................... 250 254,845
Nondepository Institutions - 1.10%
National Rural Utilities Cooperative
Finance Corp.,
6.1%, 12-22-2000 ...................... 1,000 1,014,900
Television Broadcasting Stations - 0.70%
Clear Channel Communications, Inc., Convertible,
2.625%, 4-1-2003 ...................... 600 642,750
Transportation by Air - 0.44%
Southwest Airlines Co.,
7.875%, 9-1-2007 ...................... 360 402,437
TOTAL CORPORATE DEBT SECURITIES - 8.15% $ 7,517,320
(Cost: $6,693,766)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.51%, 5-6-2008 ....................... $ 750 $ 775,778
6.19%, 7-7-2008 ....................... 500 509,920
7.0%, 9-1-2025 ........................ 2,913 2,971,604
Government National Mortgage Association,
6.5%, 8-15-2028 ....................... 1,505 1,519,894
United States Treasury:
5.5%, 2-28-99 ......................... 1,000 1,001,090
6.875%, 8-31-99 ....................... 250 253,515
7.75%, 11-30-99 ....................... 1,500 1,540,785
7.125%, 2-29-2000 ..................... 500 513,435
5.25%, 1-31-2001 ...................... 2,000 2,024,680
6.375%, 8-15-2002 ..................... 1,100 1,160,324
7.5%, 2-15-2005 ....................... 2,250 2,576,250
7.25%, 8-15-2022 ...................... 4,000 4,978,760
6.25%, 8-15-2023 ...................... 5,250 5,867,715
6.75%, 8-15-2026 ...................... 3,000 3,593,910
TOTAL UNITED STATES GOVERNMENT SECURITIES - 31.76% $ 29,287,660
(Cost: $28,077,086)
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 3.25%
du Pont (E.I.) de Nemours and Company,
5.13%, 1-12-99 ........................ 3,000 2,995,298
Fabricated Metal Products - 2.44%
Danaher Corporation,
5.6288%, Master Note .................. 2,252 2,252,000
Food and Kindred Products - 0.71%
General Mills, Inc.,
5.4838%, Master Note .................. 649 649,000
Food Stores - 4.22%
Albertson's Inc.,
5.45%, 1-12-99 ........................ 3,900 3,893,505
Textile Mill Products - 2.16%
Sara Lee Corporation,
5.4788%, Master Note .................. 1,992 1,992,000
Transportation Equipment - 4.33%
Dana Corporation,
6.5%, 1-6-99 .......................... 4,000 3,996,389
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Wholesale Trade -- Nondurable Goods - 1.63%
McKesson Corp.,
6.05%, 1-5-99 ......................... $1,500 $ 1,498,992
TOTAL SHORT-TERM SECURITIES - 18.74% $17,277,184
(Cost: $17,277,184)
TOTAL INVESTMENT SECURITIES - 98.91% $91,211,094
(Cost: $80,420,547)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.09% 1,008,994
NET ASSETS - 100.00% $92,220,088
See Notes to Schedules of Investments on page 79.
<PAGE>
ASSET STRATEGY PORTFOLIO
MANAGERS' LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Asset Strategy Portfolio for
the fiscal year ended December 31, 1998. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Portfolio's performance during that period.
The first half of the year saw a recovery in the U.S. markets from the
effects of the 1997 Asian crisis. Risk premiums began declining in the
bond markets and U.S. stocks were rising based on strong consumer spending,
high employment and solid economic growth. However, by early summer,
trepidation over Japan and Russia began to build. By August, a full-blown
global crisis was underway, culminating with a meltdown in Russia. This
caused a decline in all the major financial asset classes worldwide, except
for U.S. Treasury bonds. The uncertainty in global markets persisted for a
few weeks, until the Federal Reserve decided to intervene. Stocks
eventually rallied to new highs and bonds recovered most of their losses.
In the first half of the year, the fixed income portfolio consisted mostly
of spread products (bonds that typically are higher risk than U.S.
Treasuries, such as high-grade corporate bonds, mortgage-backed bonds,
high-yield bonds and emerging market bonds). By late spring, there was
enough concern over events unfolding in Russia and Japan that it was
decided to liquidate spread products and concentrate on high quality U.S.
Treasuries and agencies. The Portfolio's equity exposure was increased
from approximately 31% at the beginning of the year to near 58% by April.
Although concerned about the impact of Asia on global growth, the equity
market sentiment had improved enough to warrant an increased emphasis on
U.S. equities. We concentrated on domestic companies with little exposure
to Asia, stocks that tend to benefit from lower interest rates and firms
with high earnings growth potential. By August, concerns over a global
liquidity crisis caused us to reduce equity exposure to roughly 26% of the
Portfolio. We shifted away from consumer-oriented sectors and moved to
more defensive groups, which contributed to superior performance through
September. However, we underestimated the market's reaction to a series of
three interest rate cuts by the Federal Reserve in the fourth quarter and
our low exposure to stocks caused us to miss out on much of the fourth
quarter stock market recovery.
The strategies and techniques we applied resulted in the Portfolio's
overall performance remaining below that of the S&P 500 Index, but above
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 Salomon Brothers Broad
Investment Grade Index). A variety of indexes is presented because the
Portfolio invests in stocks, bonds and other instruments. The Portfolio's
underperformance relative to the S&P 500 Index was largely due to a low
exposure to stocks during the fourth quarter.
The overall global economic environment has not improved. The amount of
uncertainty due to conditions in Brazil, Japan, China and Russia, along
with a potential slowing of the U.S. economy, is at least as great as it
was last summer and fall. Due to this uncertainty, we intend to limit
exposure to more risky assets and spread products and concentrate on U.S.
Treasuries with respect to the fixed income investments of the Portfolio.
On the equity side, we plan to focus on domestic companies with superior
relative earnings growth potential.
Thank you for your continued confidence.
Respectfully,
Michael L. Avery
Daniel J. Vrabac
Managers, Asset Strategy Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Asset Strategy Portfolio,
The S&P 500 Index,
The Salomon Brothers Broad Investment Grade Index and
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit
Salomon
Salomon Brothers
Target/ Brothers Short-Term
United Broad Index
Asset S&P Investment for 1 month
Strategy 500 Grade Certificates
Portfolio Index Index of Deposit
--------- --------- ---------- --------
05/01/95Purchase $10,000 $10,000 $10,000 $10,000
12/31/95 10,180 12,179 11,130 10,401
12/31/96 13,265 14,975 11,533 10,976
12/31/97 12,307 19,961 12,644 11,599
12/31/98 13,531 25,689 13,746 12,257
====Target/United Asset Strategy Portfolio* -- $13,531
++++ S&P 500 Index** -- $25,689
....Salomon Brothers Broad Investment Grade Index** -- $13,746
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of
Deposit** -- $12,257
*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
12/31/98 9.95%
3+ Years Ended
12/31/98++ 8.59%
+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 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Business Services - 0.78%
Cerner Corporation* .................... 4,100 $ 109,931
Chemicals and Allied Products - 5.05%
Bristol-Myers Squibb Company ........... 1,400 187,338
Merck & Co., Inc. ...................... 1,000 147,687
Pfizer Inc. ............................ 900 112,894
Warner-Lambert Company ................. 3,500 263,156
Total ................................. 711,075
Communication - 5.17%
Bell Atlantic Corporation .............. 3,300 174,900
Cox Communications, Inc., Class A* ..... 2,400 165,900
Intermedia Communications of
Florida, Inc.* ........................ 7,900 136,769
SBC Communications Inc. ................ 3,550 190,369
TCA Cable TV, Inc. ..................... 1,700 60,615
Total ................................. 728,553
Eating and Drinking Places - 1.18%
Wendy's International, Inc. ............ 7,600 165,775
Electric, Gas and Sanitary Services - 6.28%
Allied Waste Industries, Inc. New* ..... 9,800 231,525
Consolidated Edison, Inc. .............. 2,600 137,475
DQE, Inc. .............................. 3,600 158,175
Montana Power Company (The) ............ 3,600 203,625
Texas Utilities Company ................ 3,300 154,069
Total ................................. 884,869
Electronic and Other Electric Equipment - 3.66%
Analog Devices, Inc.* .................. 4,800 150,600
Gemstar International Group Limited* ... 1,100 62,940
Intel Corporation ...................... 1,400 165,944
Micron Technology, Inc.* ............... 2,700 136,519
Total ................................. 516,003
Fabricated Metal Products - 0.50%
Newell Co. ............................. 1,700 70,125
Health Services - 0.58%
Tenet Healthcare Corporation* .......... 3,100 81,375
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Industrial Machinery and Equipment - 1.39%
Baker Hughes Incorporated .............. 3,900 $ 68,981
Cooper Cameron Corporation* ............ 2,600 63,700
Smith International, Inc.* ............. 2,500 62,969
Total ................................. 195,650
Instruments and Related Products - 2.44%
Baxter International Inc. .............. 2,100 135,056
Guidant Corporation .................... 600 66,150
Medtronic, Inc. ........................ 800 59,400
Uniphase Corporation* .................. 1,200 83,325
Total ................................. 343,931
Insurance Carriers - 0.92%
Chubb Corporation (The) ................ 2,000 129,750
Metal Mining - 1.44%
Barrick Gold Corporation ............... 3,550 69,225
Battle Mountain Gold Company ........... 12,300 50,737
Homestake Mining Company ............... 5,325 48,923
Kinross Gold Corporation (A)* ........... 15,000 34,597
Total ................................. 203,482
Motion Pictures - 1.45%
Time Warner Incorporated ............... 3,300 204,806
Oil and Gas Extraction - 2.59%
Burlington Resources Incorporated ...... 4,300 153,994
Noble Affiliates, Inc. ................. 6,100 150,212
Schlumberger Limited ................... 1,300 59,963
Total ................................. 364,169
Paper and Allied Products - 0.61%
IVEX Packaging Corporation* ............ 3,700 86,025
Real Estate - 0.69%
ElderTrust ............................. 8,500 97,750
Television Broadcasting Stations - 1.01%
Clear Channel Communications, Inc.* .... 2,600 141,700
Transportation Equipment - 1.09%
Newport News Shipbuilding Inc. ......... 4,600 153,813
Wholesale Trade - Durable Goods - 1.01%
Johnson & Johnson ...................... 1,700 142,588
TOTAL COMMON STOCKS - 37.84% $ 5,331,370
(Cost: $4,930,233)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.2%, 2-27-2004 ....................... $ 200 $ 200,014
6.225%, 2-27-2004 ..................... 200 199,438
6.02%, 3-30-2006 ...................... 200 198,250
Federal Home Loan Mortgage Corporation,
6.5%, 2-15-2023 ....................... 1,873 242,698
United States Treasury:
5.625%, 12-31-2002 .................... 3,350 3,461,488
5.875%, 11-15-2005 .................... 400 426,688
6.125%, 8-15-2007 ..................... 2,450 2,675,866
5.25%, 11-15-2028 ..................... 200 204,750
TOTAL UNITED STATES GOVERNMENT SECURITIES - 54.00% $ 7,609,192
(Cost: $7,596,352)
SHORT-TERM SECURITIES
Commercial Paper
Fabricated Metal Products - 3.73%
Danaher Corporation,
5.6288%, Master Note .................. 525 525,000
Food and Kindred Products - 0.96%
General Mills, Inc.,
5.4838%, Master Note .................. 135 135,000
Textile Mill Products - 3.73%
Sara Lee Corporation,
5.4788%, Master Note .................. 526 526,000
TOTAL SHORT-TERM SECURITIES - 8.42% $ 1,186,000
(Cost: $1,186,000)
TOTAL INVESTMENT SECURITIES - 100.26% $14,126,562
(Cost: $13,712,585)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.26%) (36,964)
NET ASSETS - 100.00% $14,089,598
See Notes to Schedules of Investments on page 79.
<PAGE>
MONEY MARKET PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report covers the operation of the Money Market Portfolio for the
fiscal year ended December 31, 1998. The following discussion and tables
provide you with information regarding the Portfolio's performance during
that period.
The short-term market was relatively stable in the early part of the year.
However, problems in world financial markets ultimately caused the Federal
Reserve to lower the Federal Funds rate by a total of three-quarters of a
percent in three different cuts. This left the Federal Funds rate at 4.75%
at year-end.
Although management of the Portfolio changed during the year with the
retirement of the former manager, management style has not changed. The
term of securities purchased for the Portfolio was extended to lock in
higher yields in anticipation of the Federal Reserve interest rate cuts.
Securities continued to be purchased to keep a longer average maturity in
the Portfolio with the possibility of further rate cuts. We have continued
to hold variable rate securities that have the ability to reset at
favorable rates of interest.
We expect short-term rates to be stable to lower in the next fiscal year.
The Federal Reserve may be on hold for now, while it monitors the effects
of its decreases in the Federal Funds rate this past year. However, the
potential still exists that short-term rates could move lower as the year
progresses. We will continue to seek out new issuers and new structures to
maximize yield while striving to maintain a low risk profile. We will
continue to include the purchase of securities such as floating rate notes
and callable notes, which have added to our performance in the past. As
opportunities arise and conditions warrant, we also plan to take advantage
of any yield differentials and lock in yield by extending maturities.
Thank you very much for your continued support and confidence.
Respectfully,
Mira Stevovich
Manager, Money Market Portfolio
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit - 3.70%
Yankee
Societe Generale - New York,
5.55%, 2-9-99 ......................... $1,000 $ 999,654
Svenska Handelsbanken,
5.79%, 5-7-99 ......................... 1,000 999,059
Total ................................. 1,998,713
Commercial Paper - 2.77%
ANZ (DE) Inc.,
6.1%, 1-4-99 .......................... 1,500 1,499,237
Notes - 5.08%
Abbey National Treasury Services PLC,
5.64%, 7-15-99 ........................ 1,000 998,887
Shawmut National Corporation,
(Fleet Financial Group Inc.),
8.625%, 12-15-99 ...................... 1,690 1,744,804
Total ................................. 2,743,691
TOTAL BANK OBLIGATIONS - 11.55% $ 6,241,641
(Cost: $6,241,641)
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals and Allied Products - 5.89%
du Pont (E.I.) de Nemours and Company,
5.13%, 1-12-99 ........................ 1,000 998,433
Monsanto Company,
5.09%, 3-5-99 ......................... 2,200 2,180,404
Total ................................. 3,178,837
Electric, Gas and Sanitary Services - 16.51%
Allegheny Energy Inc.,
5.17%, 3-4-99 ......................... 2,000 1,982,192
Bay State Gas Co.,
5.32%, 1-13-99 ........................ 2,200 2,196,099
Central Illinois Light Co.,
5.22%, 1-12-99 ........................ 1,650 1,647,368
PacifiCorp.,
5.07%, 1-19-99 ........................ 800 797,972
Questar Corp.:
5.37%, 1-6-99 ......................... 1,100 1,099,180
5.2%, 1-12-99 ......................... 1,200 1,198,093
Total ................................. 8,920,904
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Engineering and Management Services - 4.25%
Halliburton Co.:
5.2%, 1-13-99 ......................... $1,000 $ 998,267
5.4%, 1-15-99 ......................... 1,300 1,297,270
Total ................................. 2,295,537
Fabricated Metal Products - 2.73%
Danaher Corporation,
5.6288%, Master Note .................. 1,477 1,477,000
Food and Kindred Products - 2.38%
General Mills, Inc.,
5.4838%, Master Note .................. 135 135,000
McCormick & Co. Inc.,
5.14%, 1-4-99 ......................... 1,150 1,149,507
Total ................................. 1,284,507
Insurance Carriers - 3.69%
Transamerica Finance Corp.,
5.47%, 1-26-99 ........................ 2,000 1,992,403
Nondepository Institutions - 12.17%
Avco Financial Services, Inc.,
5.2%, 1-12-99 ......................... 1,000 998,411
General Electric Capital Corporation,
5.07%, 2-18-99 ........................ 1,200 1,191,888
General Motors Acceptance Corporation,
5.35%, 1-4-99 ......................... 2,200 2,199,019
Island Finance Puerto Rico Inc.,
5.1%, 2-16-99 ......................... 2,200 2,185,663
Total ................................. 6,574,981
Oil and Gas Extraction - 4.22%
Atlantic Richfield Co.,
5.03%, 3-3-99 ......................... 2,300 2,280,397
Paper and Allied Products - 3.97%
Sonoco Products Co.,
5.16%, 1-19-99 ........................ 2,150 2,144,453
Personal Services - 3.67%
Block Financial Corp.,
5.13%, 2-26-99 ........................ 2,000 1,984,040
Total Commercial Paper - 59.48% 32,133,059
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (backed by irrevocable bank
letter of credit) - 2.77%
Oil and Gas Extraction
Louis Dreyfus Corp. (ABN-AMRO Bank N.V.),
5.8%, 1-15-99 ......................... $1,500 $ 1,496,617
Notes
Auto Repair, Services and Parking - 2.78%
PHH Corporation,
4.86%, 3-11-99 ........................ 1,500 1,499,538
Electric, Gas and Sanitary Services - 3.70%
Baltimore Gas and Electric Company,
5.1812%, 3-1-99 ....................... 2,000 1,999,936
Nondepository Institutions - 3.71%
General Electric Capital Corporation,
5.0934%, 3-8-99 ....................... 1,000 999,788
Deere (John) Capital Corp.,
6.43%, 8-9-99 ......................... 1,000 1,004,294
Total ................................. 2,004,082
Total Notes - 10.19% 5,503,556
TOTAL CORPORATE OBLIGATIONS - 72.44% $39,133,232
(Cost: $39,133,232)
MUNICIPAL OBLIGATIONS
California - 4.63%
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds
(Shell Martinez Refining Company Project),
Series 1996 (Taxable), (Shell Oil Company),
5.28%, 2-5-99 ......................... 2,000 2,000,000
Oakland-Alameda County Coliseum Authority,
Lease Revenue Bonds (Oakland Coliseum
Arena Project), (Canadian Imperial Bank
of Commerce),
5.35%, 2-5-99 ......................... 500 500,000
Total ................................. 2,500,000
Indiana - 3.70%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.23%, 3-8-99 ......................... 2,000 2,000,000
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
New Jersey - 0.38%
New Jersey Economic Development Authority,
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (The Morey
Organization, Inc. Project), Series of 1997
(First Union National Bank),
6.05%, 1-6-99 ......................... $ 205 $ 205,000
Pennsylvania - 3.13%
Schuylkill County Industrial Development
Authority, Commercial Development Revenue
Bonds (Midway Supermarket, Inc. Project),
Taxable Series of 1995 (First Union National Bank),
6.05%, 1-6-99 ......................... 1,490 1,490,000
Montgomery County Industrial Development
Authority, Taxable Fixed Rate/Variable
Rate Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(First Union National Bank),
6.05%, 1-6-99 ......................... 200 200,000
Total ................................. 1,690,000
Texas - 1.84%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.2843%, 2-2-99........................ 1,000 995,303
TOTAL MUNICIPAL OBLIGATIONS - 13.68% $ 7,390,303
(Cost: $7,390,303)
UNITED STATES GOVERNMENT SECURITY - 2.59%
Federal Farm Credit Bank,
5.24%, 9-29-99 ........................ $1,400 $ 1,400,000
(Cost: $1,400,000)
TOTAL INVESTMENT SECURITIES - 100.26% $54,165,176
(Cost: $54,165,176)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.26%) (142,430)
NET ASSETS - 100.00% $54,022,746
See Notes to Schedules of Investments on page 79.
<PAGE>
LIMITED-TERM BOND PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Limited-Term Bond Portfolio for
the fiscal year ended December 31, 1998. The following discussion, graphs
and tables provide you with information regarding the Portfolio's
performance during that period.
Interest rates fell sharply last year as global deflationary pressures
intensified. The economies of Asia were weaker than most expected and the
impact on the global economy more severe. Russia's meltdown, a slide in
commodity prices and the collapse of a large hedge fund indicated that the
shock waves from Asia continued to spread around the world. Investor
response to these developments was to seek out a safe haven in the storm.
With U.S. Treasury securities considered the safest and most secure of all
investments, a "flight to quality" into Treasuries began in August of last
year. A drop of .75% in short-term interest rates by the Federal Reserve
eventually stabilized the market. As investors sold riskier securities to
purchase Treasuries, the yield differential between Treasuries and other
fixed income investments widened substantially. Corporate bonds traded at
levels normally seen during recessions, while mortgage-backed security
spreads also widened. Although yield spreads narrowed somewhat late in the
year, they remained significantly wider than they were at the beginning of
the year.
The Portfolio was overweighted in both corporate and mortgage-backed
securities last year in order to pick up additional yield. This proved to
be a drag on overall performance, as both of these sectors underperformed
Treasuries. However, the high quality level of the corporate bonds held by
the Portfolio aided performance, as lower quality bonds were by far the
worst performing sector of the fixed income market last year. Our
management style stresses the spread sectors of the market, including
corporate bonds, government agencies and mortgage-backed securities. We
attempt to evaluate relative value opportunities within each sector and
invest accordingly.
The strategies and techniques we applied resulted in the Portfolio's
performance remaining modestly below the Salomon Brothers
Treasury/Government-Sponsored/Corporate 1-5 Year Index charted on the
following page. That index reflects the performance of securities that
generally represent the short-maturity sector of the bond market.
We anticipate that the economy will slow this year as weakness in the
global economy spreads to the U.S. Short-term interest rates should
continue moving lower as the Fed eases in response to slowing growth.
Lower rates combined with a still buoyant consumer should keep the U.S.
economy from sinking into recession. Based on our outlook for a slow, but
growing, economy, we will seek to take advantage of recession-level yield
spreads in the corporate sector. In addition, we will continue to look for
relative value opportunities in the mortgage area. Duration will be
lengthened somewhat in an attempt to provide additional total returns in
the anticipated falling rate environment.
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
Target/United Limited-Term Bond Portfolio and The
Salomon Brothers Treasury/Government Sponsored/Corporate 1 - 5 Year Index
Salomon
Brothers
Treasury/
Target/United Government
Limited-Term Sponsored/
Bond Corporate
Portfolio 1-5 Year Index
--------- -----------
05/03/94 Purchase $10,000 $10,000
12/31/94 10,026 10,105
12/31/95 11,458 11,404
12/31/96 11,892 11,938
12/31/97 12,707 12,791
12/31/98 13,554 13,769
+++++ Target/United Limited-Term Bond Portfolio* -- $13,554
..... Salomon Brothers Treasury/Government Sponsored/Corporate 1 - 5 Year
Index** -- $13,769
*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
Salomon Brothers Treasury/Government Sponsored/Corporate 1 - 5 Year
Index are not available, investment in the index was effected as of
April 30, 1994.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 6.66%
4+ Years Ended
12/31/98++ 6.73%
+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 12-31-98.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.30%
Hertz Corporation (The),
7.375%, 6-15-2001 ..................... $100 $ 103,794
Chemicals and Allied Products - 4.52%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 100 102,800
Praxair, Inc.,
6.7%, 4-15-2001 ....................... 100 101,514
Total ................................. 204,314
Communication - 2.37%
GTE Corporation,
9.375%, 12-1-2000 ..................... 100 107,257
Depository Institutions - 4.76%
BankAmerica Corporation,
9.7%, 8-1-2000 ........................ 100 106,327
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 100 108,631
Total ................................. 214,958
Electric, Gas and Sanitary Services - 7.33%
UtiliCorp United,
6.875%, 10-1-2004 ..................... 100 104,037
WMX Technologies, Inc.,
8.25%, 11-15-99 ....................... 100 102,068
Western Resources, Inc.,
7.25%, 8-15-2002 ...................... 120 125,214
Total ................................. 331,319
Electronic and Other Electric Equipment - 2.35%
Black & Decker Corp.,
7.5%, 4-1-2003 ........................ 100 105,972
Furniture and Fixtures - 2.23%
Masco Corporation,
6.625%, 9-15-99 ....................... 100 100,803
Instruments and Related Products - 5.72%
Baxter International Inc.,
7.625%, 11-15-2002 .................... 100 106,811
Raytheon Company,
6.3%, 8-15-2000 ....................... 150 151,853
Total ................................. 258,664
Insurance Carriers - 3.38%
American General Finance Corporation,
6.2%, 3-15-2003 ....................... 150 152,812
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 9.96%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ $100 $ 102,527
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 140 146,437
Ford Motor Credit Company,
5.75%, 1-25-2001 ...................... 100 100,866
General Motors Acceptance Corporation,
7.75%, 1-15-99 ........................ 100 100,069
Total ................................. 449,899
Oil and Gas Extraction - 2.63%
USX Corporation,
9.8%, 7-1-2001 ........................ 110 118,851
Petroleum and Coal Products - 2.20%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-2004 ...................... 92 99,630
Railroad Transportation - 2.33%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 100 105,481
Security and Commodity Brokers - 2.28%
Salomon Inc.,
7.75%, 5-15-2000 ...................... 100 102,927
Textile Mill Products - 2.22%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 100 100,228
Wholesale Trade -- Durable Goods - 2.36%
Westinghouse Electric Corporation,
8.875%, 6-1-2001 ...................... 100 106,497
TOTAL CORPORATE DEBT SECURITIES - 58.94% $2,663,406
(Cost: $2,618,466)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
5.33%, 10-8-2002 ...................... $150 $ 148,641
7.0%, 5-15-2005 ....................... 86 86,534
6.05%, 9-15-2020 ...................... 151 151,366
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 43 42,983
6.4%, 12-27-2004 ...................... 155 157,350
7.95%, 3-7-2005 ....................... 100 103,156
6.21%, 8-15-2005 ...................... 100 100,344
7.5%, 11-15-2006 ...................... 100 101,812
6.5%, 12-1-2010 ....................... 76 76,773
6.0%, 1-1-2011 ........................ 65 65,115
6.5%, 2-1-2011 ........................ 75 75,640
7.0%, 5-1-2011 ........................ 59 60,013
7.0%, 7-1-2011 ........................ 69 70,727
7.0%, 9-1-2012 ........................ 79 81,067
6.0%, 10-1-2013 ....................... 98 98,050
11.0%, 10-1-2020 ...................... 19 21,328
7.0%, 4-1-2026 ........................ 75 77,033
Government National Mortgage Association,
7.0%, 9-15-2008 ....................... 50 51,533
TOTAL UNITED STATES GOVERNMENT SECURITIES - 34.73% $1,569,465
(Cost: $1,553,515)
TOTAL SHORT-TERM SECURITIES - 4.76% $ 215,000
(Cost: $215,000)
TOTAL INVESTMENT SECURITIES - 98.43% $4,447,871
(Cost: $4,386,981)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.57% 71,072
NET ASSETS - 100.00% $4,518,943
See Notes to Schedules of Investments on page 79.
<PAGE>
BOND PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Bond Portfolio for the fiscal
year ended December 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during
that period.
1998 was characterized by tremendous volatility in the bond market, not
only in bond yields, but also in spreads (the yield difference between a
debt instrument and benchmark Treasuries) and in various measures of
liquidity (the ability to trade bonds). Interest rates declined, but
generally just enough to offset the widening in spreads between Treasury
bonds and other bonds. Perhaps the major factor contributing to this
volatility was the international financial meltdown, with Russia defaulting
on its debt obligations and the near-collapse of the Far East's financial
system. Despite Main Street's growing economic optimism, some major
Western banks needed help from central bankers and the near-failure of some
large hedge funds nearly precipitated a credit crisis on Wall Street. The
difference in mood between the financial markets and the American consumer
was wide throughout the year.
We positioned the Portfolio to be more sensitive to declining interest
rates in an effort to offset the decline in value of the Portfolio's non-
U.S. government debt holdings. Over the course of the year, we extended
the duration of the Portfolio's holdings as we pared exposure to non-U.S.
government debt. We also reduced the Portfolio's exposure to non-
investment grade debt. We maintained our exposure to putable bonds (bonds
that give the owner the right to sell them back to the issuing corporation
at a stated time prior to maturity). Although, like most corporate debt,
the putables suffered a cheapening vis-a-vis Treasury bonds, their embedded
put option effectively extended their duration in a falling interest rate
market and were thus able to compensate for any spread widening.
The strategies and techniques we applied resulted in the Portfolio's
performance remaining fairly consistent with the Salomon Brothers Broad
Investment Grade Index charted on the following page. That index reflects
the performance of securities that generally represent the bond market.
The Portfolio underperformed the Salomon Brothers Index due to a heavy
weighting in corporate bonds and mortgage-backed securities.
We expect the volatility of this past year to continue, but with one
additional variable: the Euro currency. The introduction of a unified
currency ought to improve the various European economies. It will,
however, draw some of the world's financial capital out of the U.S. and
Japan and into Europe. It remains to be seen whether growing European
economies, which should increase demand for U.S. exports, will overcome the
deleterious effect of a flight of capital from the U.S. markets. We expect
a further slight decline in U.S. interest rates due to anticipated
continued low inflation and a slight slowing in the domestic economy.
Since we feel the U.S. economy will probably avoid a recession, we will
maintain our current exposure to corporate bonds. However, unless the
existing international issues clear up quickly, we doubt if we will be
tempted by the high yields in the emerging markets of Asia and Latin
America.
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
Target/United Bond Portfolio and
The Salomon Brothers Broad Investment Grade Index
Salomon
Brothers
Target/United Broad
Bond Investment
Portfolio Grade Index
---------- -----------
12/31/88 Purchase $10,000 $10,000
12/31/89 11,206 11,445
12/31/90 11,995 12,485
12/31/91 13,937 14,478
12/31/92 15,006 15,578
12/31/93 16,860 17,118
12/31/94 15,865 16,631
12/31/95 19,126 19,717
12/31/96 19,782 20,430
12/31/97 21,715 22,395
12/31/98 23,311 24,347
+++++ Target/United Bond Portfolio* -- $23,311
..... The Salomon Brothers Broad Investment Grade Index -- $24,347
*The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund and assumes reinvestment of dividends and
distributions.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 7.35%
5 Years Ended
12/31/98 6.81%
10 Years Ended
12/31/98 8.83%
+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.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 3.79%
Dow Capital BV,
9.0%, 5-15-2010 ....................... $ 500 $ 617,530
Dow Chemical Company (The),
8.55%, 10-15-2009 ..................... 1,000 1,195,820
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 2,000 2,513,720
Total ................................. 4,327,070
Communication - 3.49%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 1,000 1,301,850
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ..................... 1,000 1,014,850
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 500 538,750
Tele-Communications, Inc.,
6.58%, 2-15-2005 ...................... 1,000 1,135,930
Total ................................. 3,991,380
Depository Institutions - 10.46%
AmSouth Bancorporation,
6.75%, 11-1-2025 ...................... 1,500 1,570,005
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 500 500,000
Citicorp,
9.5%, 2-1-2002 ........................ 500 554,905
First Union Corporation:
6.824%, 8-1-2026 ...................... 1,132 1,253,984
6.55%, 10-15-2035 ..................... 525 553,030
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 1,000 1,124,200
NBD Bank, National Association,
8.25%, 11-1-2024 ...................... 1,000 1,225,900
NationsBank Corporation,
8.57%, 11-15-2024 ..................... 1,000 1,245,290
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 1,500 1,561,260
SouthTrust Bank of Alabama, N.A.:
5.58%, 2-6-2006 ....................... 1,000 994,210
7.69%, 5-15-2025 ...................... 500 589,325
Wachovia Corporation,
6.605%, 10-1-2025 ..................... 750 782,055
Total ................................. 11,954,164
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 9.32%
Cajun Electric Power Cooperative, Inc.,
8.92%, 3-15-2019 ...................... $1,500 $ 1,590,660
California Infrastructure and Economic
Development Bank, Special Purpose
Trust:
PG&E-1,
6.42%, 9-25-2008 ...................... 1,000 1,030,420
SCE-1,
6.38%, 9-25-2008 ...................... 1,000 1,037,700
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-2005 ....................... 678 740,383
El Paso Electric Company,
7.25%, 2-1-99 ......................... 500 500,405
Entergy Arkansas, Inc.,
7.5%, 8-1-2007 ........................ 750 778,320
Kansas Gas and Electric Company,
7.6%, 12-15-2003 ...................... 1,000 1,074,860
Niagara Mohawk Power Corporation:
9.5%, 6-1-2000 ........................ 500 524,455
7.375%, 7-1-2003 ...................... 500 513,215
Pacific Gas & Electric Co.,
6.875%, 12-1-99 ....................... 500 500,605
Pennsylvania Power & Light Co.,
9.25%, 10-1-2019 ...................... 656 701,585
Southern Company Capital Trust I,
8.19%, 2-1-2037 ....................... 1,500 1,658,655
Total ................................. 10,651,263
Fabricated Metal Products - 0.42%
Mark IV Industries, Inc.,
7.5%, 9-1-2007 ........................ 500 476,250
Food and Kindred Products - 2.80%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-2005 ........................ 500 528,225
Coca-Cola Enterprises Inc.,
0.0%, 6-20-2020 ....................... 10,000 2,675,700
Total ................................. 3,203,925
Food Stores - 0.48%
Kroger Co. (The),
7.65%, 4-15-2007 ...................... 500 548,015
General Merchandise Stores - 0.23%
Fred Meyer, Inc.,
7.15%, 3-1-2003 ....................... 250 260,095
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Health Services - 0.90%
Tenet Healthcare Corporation:
7.875%, 1-15-2003 ..................... $ 500 $ 510,000
8.625%, 12-1-2003 ..................... 500 523,750
Total ................................. 1,033,750
Holding and Other Investment Offices - 0.43%
Bay Apartment Communities, Inc.,
6.5%, 1-15-2005 ....................... 500 486,040
Instruments and Related Products - 0.67%
Raytheon Company,
6.45%, 8-15-2002 ...................... 750 769,215
Insurance Carriers - 0.46%
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 ...................... 500 520,775
Nondepository Institutions - 6.69%
Asset Securitization Corporation,
7.49%, 4-14-2029 ...................... 1,244 1,342,301
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-2010 (C) .................. 1,500 1,507,035
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 1,000 1,060,640
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 500 625,780
IMC Home Equity Loan Trust,
6.9%, 1-20-2022 ....................... 1,000 1,008,120
National Rural Utilities Cooperative
Finance Corp.,
6.1%, 12-22-2000 ...................... 500 507,450
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-2024 ...................... 1,000 1,019,220
Westinghouse Electric Corporation,
8.875%, 6-14-2014 ..................... 500 580,220
Total ................................. 7,650,766
Oil and Gas Extraction - 2.58%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 ...................... 1,000 1,036,790
Mitchell Energy & Development Corp.,
9.25%, 1-15-2002 ...................... 27 28,738
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction (Continued)
Oryx Energy Company,
10.0%, 4-1-2001 ....................... $ 400 $ 430,768
Pemex Finance Ltd.,
5.72%, 11-15-2003 (C) ................. 500 499,325
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 1,000 950,000
Total ................................. 2,945,621
Paper and Allied Products - 1.37%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ..................... 500 501,880
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 1,000 1,064,360
Total ................................. 1,566,240
Printing and Publishing - 1.31%
News America Holdings Incorporated,
7.45%, 6-1-2000 ....................... 500 511,445
Quebecor Printing Capital Corporation,
6.5%, 8-1-2027 ........................ 1,000 982,460
Total ................................. 1,493,905
Railroad Transportation - 0.54%
CSX Corporation,
6.95%, 5-1-2027 ....................... 575 612,737
Security and Commodity Brokers - 0.87%
Salomon Inc.,
3.65%, 2-14-2002 ...................... 1,000 999,660
Stone, Clay and Glass Products - 1.12%
Owens-Illinois, Inc.,
7.15%, 5-15-2005 ...................... 750 751,658
USG Corporation,
9.25%, 9-15-2001 ...................... 500 533,925
Total ................................. 1,285,583
Transportation Equipment - 0.46%
Coltec Industries Inc.,
7.5%, 4-15-2008 ....................... 500 529,375
United States Postal Service - 0.22%
Postal Square Limited Partnership,
6.5%, 6-15-2022 ....................... 245 252,002
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Wholesale Trade -- Durable Goods - 1.66%
Motorola, Inc.,
8.4%, 8-15-2031 ....................... $ 1,500 $ 1,903,035
TOTAL CORPORATE DEBT SECURITIES - 50.27% $ 57,460,866
(Cost: $54,500,916)
OTHER GOVERNMENT SECURITIES
Canada - 4.54%
Hydro-Quebec:
8.05%, 7-7-2024 ....................... 1,000 1,200,050
7.4%, 3-28-2025 ....................... 1,000 1,242,040
Province de Quebec:
5.67%, 2-27-2026 ...................... 1,500 1,642,035
6.29%, 3-6-2026 ....................... 1,000 1,107,010
Total ................................. 5,191,135
Supranational - 1.08%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 1,000 1,231,370
TOTAL OTHER GOVERNMENT SECURITIES - 5.62% $ 6,422,505
(Cost: $5,650,009)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
5.89%, 7-17-2003 ...................... 1,000 1,013,440
7.5%, 2-15-2007 ....................... 1,787 1,813,175
7.5%, 11-15-2017 ...................... 60 60,090
6.5%, 9-25-2018 ....................... 500 517,185
7.5%, 4-15-2019 ....................... 1,606 1,628,712
7.95%, 12-15-2020 ..................... 1,532 1,543,563
6.25%, 1-15-2021 ...................... 4,000 4,035,000
Federal National Mortgage Association:
5.98%, 6-18-2003 ...................... 1,000 1,015,470
5.875%, 7-16-2003 ..................... 2,250 2,279,520
0.0%, 2-12-2018 ....................... 2,500 808,000
0.0%, 10-9-2019 ....................... 6,750 2,014,470
7.0%, 9-25-2020 ....................... 500 508,590
6.5%, 8-25-2021 ....................... 500 503,045
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Government National Mortgage Association:
7.5%, 7-15-2023 ....................... $1,216 $ 1,255,171
7.5%, 12-15-2023 ...................... 1,648 1,700,249
8.0%, 9-15-2025 ....................... 1,190 1,246,648
7.0%, 7-20-2027 ....................... 570 580,732
7.0%, 8-20-2027 ....................... 1,159 1,179,847
7.75%, 10-15-2031 ..................... 317 330,399
United States Treasury:
5.75%, 10-31-2000 ..................... 6,000 6,114,360
5.25%, 1-31-2001 ...................... 1,000 1,012,340
6.5%, 8-15-2005 ....................... 1,500 1,648,590
6.5%, 10-15-2006 ...................... 7,000 7,764,540
0.0%, 2-15-2019 ....................... 1,750 573,388
Miscellaneous United States Government Backed
Securities:
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................... 750 795,855
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust:
1997-2 Class C,
7.5%, 8-15-2017 ..................... 2,000 2,037,500
1998-1 Class 2B,
7.0%, 5-15-2005 ..................... 250 256,015
TOTAL UNITED STATES GOVERNMENT SECURITIES - 38.70% $ 44,235,894
(Cost: $43,650,442)
TOTAL SHORT-TERM SECURITIES - 3.97% $ 4,531,000
(Cost: $4,531,000)
TOTAL INVESTMENT SECURITIES - 98.56% $112,650,265
(Cost: $108,332,367)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.44% 1,645,786
NET ASSETS - 100.00% $114,296,051
See Notes to Schedules of Investments on page 79.
<PAGE>
HIGH INCOME PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1998
---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the High Income Portfolio for the
fiscal year ended December 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance
during that period.
During the year, market conditions were chaotic. The year started out
strong, but by mid-year Russia was deep in financial crisis, Japan was
dealing with its banking crisis, and the market was worried about Brazil
and the rest of Latin America. The U.S. stock markets had a major
correction, Treasury rates declined, and the Federal Reserve lowered
interest rates. In the high yield market, the first six months of the year
were up, August and September were down, and the year ended on a positive
note in November and December.
The Portfolio followed three major themes that affected its performance.
We had minimal exposure to the emerging markets, the quality of our
investments remained high, and we maintained limited exposure to companies
whose products are considered commodities (i.e., paper, oil, gas,
chemicals). We stayed away from these types of companies because of the
danger that they would be plagued by oversupply due to anticipated lower
demand from Asia. As the events unfolded during the year, buyers moved to
add more BB credits, which comprised roughly 13% of the Fund, and moved
away from the commodities. We were cautious going into the year and raised
cash due to the Asian crisis, but by year-end we had reduced that position
back to the 5% level. The concern was that the slowdown in growth in the
emerging markets could cause a recession in the U.S., which kept our
investment philosophy more conservative. By lowering interest rates, the
Federal Reserve was able to keep the economy growing at a moderate pace and
help the market to rebound from its lows.
The strategies and techniques we applied resulted in the Portfolio
underperforming the Salomon Brothers High Yield Composite Index, charted on
the following page. The Salomon Brothers Index reflects the performance of
securities that generally represent the high-yield bond market.
We remain cautious as we enter the new year. Buyers are still seeking
quality. Interest rates are higher for issuers and not as much capital is
available. There is still concern about Japan and Brazil and their
currencies. The main concern for the year will be the growth rate of the
U.S. economy. The Fed has done an admirable job lowering rates to support
U.S. growth, but this is a global economy. We are still seeing new effects
from lack of growth in Asia and there is now the potential for slower
growth in Europe, both of which could lead to lower growth in the U.S. We
anticipate maintaining our quality stance on new investments and avoiding
sectors we believe could be more affected by lower GDP growth in the U.S.
Cash positions will be adjusted during the year if the need arises.
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
Target/United High Income Portfolio and
The Salomon Brothers High Yield Composite Index
Salomon
Brothers
High
Target/United Yield
High Income Composite
Portfolio Index
----------- ------
12/31/88 Purchase $10,000 $10,000
12/31/89 9,581 10,198
12/31/90 8,869 9,337
12/31/91 11,901 13,372
12/31/92 13,768 15,818
12/31/93 16,234 18,718
12/31/94 15,819 18,242
12/31/95 18,696 22,333
12/31/96 21,025 24,844
12/31/97 23,977 28,389
12/31/98 24,445 29,537
+++++ Target/United High Income Portfolio* -- $24,445
..... The Salomon Brothers High Yield Composite Index --$29,537
*The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund and assumes reinvestment of dividends and
distributions.
Annual Average Total Return+
----------------------------
Year Ended
12/31/98 1.95%
5 Years Ended
12/31/98 8.54%
10 Years Ended
12/31/98 9.35%
+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.
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 Target/United Funds, Inc.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998 Shares Value
COMMON STOCKS AND WARRANTS
Communication - 0.88%
Allegiance Telecom, Inc., Warrants (C)* 1,000 $ 3,000
Concentric Network Corporation,
Warrants (C)* ......................... 750 111,683
Heartland Wireless Communications,
Inc., Warrants (C)* ................... 3,000 30
Infinity Broadcasting Corporation,
Class A* .............................. 31,200 854,100
Iridium LLC, Warrants (C)* ............. 500 62,500
Microcell Telecommunications Inc.,
Warrants (C)* ......................... 5,000 62,500
OnePoint Communications Corp.,
Warrants (C)* ......................... 900 900
Pathnet, Inc., Warrants (C)* ........... 500 5,000
Primus Telecommunications Group,
Incorporated, Warrants* ............... 500 6,250
Total ................................. 1,105,963
Electronic and Other Electric Equipment - 0.01%
Powertel, Inc., Warrants* .............. 2,400 6,600
Food and Kindred Products - 1.07%
Keebler Foods Company* ................. 36,000 1,354,500
Furniture and Fixtures - 0.24%
Lear Corporation* ...................... 8,000 308,000
Health Services - 0.01%
LTC Healthcare, Inc.* .................. 6,666 17,915
Holding and Other Investment Offices - 0.42%
LTC Properties, Inc. ................... 31,666 526,447
Instruments and Related Products - 0.94%
Maxxim Medical, Inc.* .................. 40,000 1,190,000
Paper and Allied Products - 0.00%
SF Holdings Group, Inc., Class C (C)* .. 2,000 4,000
TOTAL COMMON STOCKS AND WARRANTS - 3.57% $ 4,513,425
(Cost: $3,518,726)
PREFERRED STOCKS
Communication - 0.46%
IXC Communications, Inc., 12.5% ........ 580 585,800
Depository Institutions - 0.25%
California Federal Preferred Capital
Corporation, 9.125% ................... 12,500 314,062
Printing and Publishing - 0.41%
PRIMEDIA Inc., 10.0% ................... 5,000 518,750
TOTAL PREFERRED STOCKS - 1.12% $ 1,418,612
(Cost: $1,400,563)
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Agricultural Production -- Crops - 0.85%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 ...................... $ 750 $ 735,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................... 325 344,500
Total ................................. 1,079,500
Agricultural Production -- Livestock - 0.24%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ..................... 300 309,000
Amusement and Recreation Services - 3.44%
American Skiing Company,
12.0%, 7-15-2006 ...................... 1,000 1,042,500
Premier Parks Inc.,
0.0%, 4-1-2008 (D) .................... 2,500 1,700,000
Showboat Marina Casino Partnership,
13.5%, 3-15-2003 ...................... 500 565,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 ...................... 1,000 1,040,000
Total ................................. 4,347,500
Apparel and Accessory Stores - 0.39%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 ..................... 500 495,000
Apparel and Other Textile Products - 0.82%
Consoltex Group Inc.,
11.0%, 10-1-2003 ...................... 1,000 1,031,250
Auto Repair, Services and Parking - 0.55%
Safelite Glass Corp.,
9.875%, 12-15-2006 (C) ................ 750 697,500
Building Materials and Garden Supplies - 0.79%
ISG Resources, Inc.,
10.0%, 4-15-2008 ...................... 1,000 1,000,000
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services - 2.49%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 ..................... $ 750 $ 810,000
DecisionOne Holdings Corp., Units,
0.0%, 8-1-2008 (D)(E) ................. 1,750 367,500
Federal Data Corporation,
10.125%, 8-1-2005 ..................... 500 495,000
Lamar Advertising Company,
9.625%, 12-1-2006 ..................... 1,000 1,080,000
Rental Service Corporation,
9.0%, 5-15-2008 ....................... 400 390,000
Total ................................. 3,142,500
Chemicals and Allied Products - 1.69%
Aqua-Chem, Inc.,
11.25%, 7-1-2008 (C) .................. 750 712,500
Dade International Inc.,
11.125%, 5-1-2006 ..................... 500 550,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................... 1,000 870,000
Total ................................. 2,132,500
Communication - 24.26%
Adelphia Communications Corporation:
10.25%, 7-15-2000 ..................... 500 518,750
9.25%, 10-1-2002 ...................... 500 527,500
10.5%, 7-15-2004 ...................... 500 547,500
9.875%, 3-1-2007 ...................... 500 553,125
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (D) ................... 1,000 470,000
American Radio Systems Corporation,
9.0%, 2-1-2006 ........................ 750 815,625
CSC Holdings, Inc.,
9.875%, 2-15-2013 ..................... 1,450 1,616,750
Chancellor Media Corporation of Los Angeles,
8.0%, 11-1-2008 (C) ................... 750 766,875
Comcast Corporation,
9.5%, 1-15-2008 ....................... 350 366,163
Concentric Network Corporation,
12.75%, 12-15-2007 .................... 750 757,500
Crown Castle International Corp.,
0.0%, 11-15-2007 (D) .................. 500 347,500
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (D) .................. 500 411,250
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
GST Telecommunications,
0.0%, 11-15-2007 (D) .................. $1,000 $ 955,000
Hyperion Telecommunications, Inc.,
0.0%, 4-15-2003 (D) ................... 2,000 1,440,000
ICG Services, Inc.,
0.0%, 5-1-2008 (D) .................... 900 450,000
ITC /\ DeltaCom, Inc.:
8.875%, 3-1-2008 ...................... 500 502,500
9.75%, 11-15-2008 (C) ................. 500 517,500
IXC Communications, Inc.,
9.0%, 4-15-2008 ....................... 500 503,750
Intermedia Communications, Inc.,
8.5%, 1-15-2008 ....................... 750 712,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (D) ................... 750 585,000
Iridium LLC and Iridium Capital Corporation:
10.875%, 7-15-2005 .................... 650 549,250
11.25%, 7-15-2005 ..................... 500 427,500
13.0%, 7-15-2005 ...................... 1,000 915,000
Marcus Cable Co.,
0.0%, 12-15-2005 (D) .................. 1,000 955,000
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (D) .................... 1,500 1,503,750
Metromedia Fiber Network, Inc.,
10.0%, 11-15-2008 (C) ................. 500 512,500
MetroNet Communications Corp.,
0.0%, 6-15-2008 (D) ................... 1,000 600,000
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (D) .................... 1,750 1,321,250
Nextel Communications, Inc.:
0.0%, 8-15-2004 (D) ................... 1,500 1,455,000
0.0%, 2-15-2008 (D) ................... 1,000 600,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ..................... 900 868,500
OnePoint Communications Corp.,
14.5%, 6-1-2008 (C) ................... 900 486,000
Pathnet, Inc.,
12.25%, 4-15-2008 ..................... 500 350,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 ...................... 500 525,000
RSL Communications PLC,
10.5%, 11-15-2008 (C) ................. 2,000 1,945,000
Salem Communications Corporation,
9.5%, 10-1-2007 ....................... 500 518,750
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (D) ................... 1,000 910,000
Time Warner Telecom LLC and
Time Warner Telecom Inc.,
9.75%, 7-15-2008 ...................... 500 522,500
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
VersaTel Telecom International N.V., Units,
13.25%, 5-15-2008 (C)(F) .............. $ 500 $ 496,250
WinStar Communications, Inc.:
0.0%, 10-15-2005 (Convertible) (C)(D) . 500 700,000
0.0%, 3-15-2008 (D) ................... 1,000 720,000
10.0%, 3-15-2008 ...................... 500 405,000
Total ................................. 30,651,038
Eating and Drinking Places - 1.71%
Domino's Pizza, Inc.,
10.375%, 1-15-2009 (C) ................ 400 398,000
Foodmaker, Inc.,
8.375%, 4-15-2008 ..................... 1,000 1,006,250
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 ..................... 750 761,250
Total ................................. 2,165,500
Electric, Gas and Sanitary Services - 1.61%
Allied Waste North America, Inc.,
7.875%, 1-1-2009 (C) .................. 2,000 2,032,500
Electronic and Other Electric Equipment - 2.95%
Communications Instruments, Inc.,
10.0%, 9-15-2004 ...................... 450 433,125
Echostar Communications Corporation:
0.0%, 3-15-2004 (D) ................... 500 498,750
0.0%, 6-1-2004 (D) .................... 1,000 1,025,000
Elgar Holdings, Inc.,
9.875%, 2-1-2008 ...................... 500 460,000
Intercel, Inc.,
0.0%, 2-1-2006 (D) .................... 750 566,250
Telex Communications, Inc.,
10.5%, 5-1-2007 ....................... 500 449,375
WESCO International, Inc.,
0.0%, 6-1-2008 (D) .................... 500 300,000
Total ................................. 3,732,500
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Engineering and Management Services - 0.42%
United International Holdings, Inc.,
0.0%, 2-15-2008 (D) ................... $1,000 $ 530,000
Fabricated Metal Products - 3.44%
AXIA Incorporated,
10.75%, 7-15-2008 ..................... 750 761,250
Neenah Corporation,
11.125%, 5-1-2007 ..................... 1,500 1,552,500
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 500 512,500
Safety Components International, Inc.,
10.125%, 7-15-2007 .................... 1,000 1,008,750
U.S. Can Corporation,
10.125%, 10-15-2006 ................... 500 515,000
Total ................................. 4,350,000
Food and Kindred Products - 0.79%
Eagle Family Foods, Inc.,
8.75%, 1-15-2008 ...................... 500 475,000
Southern Foods Group, L.P. and
SFG Capital Corporation,
9.875%, 9-1-2007 ...................... 500 520,625
Total ................................. 995,625
Food Stores - 0.77%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 500 490,000
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ........................ 500 480,000
Total ................................. 970,000
Health Services - 1.83%
Multicare Companies, Inc. (The),
9.0%, 8-1-2007 ........................ 750 690,000
Paragon Health Network, Inc.:
0.0%, 11-1-2007 (D) ................... 750 363,750
9.5%, 11-1-2007 ....................... 900 733,500
Tenet Healthcare Corporation,
8.625%, 1-15-2007 ..................... 500 522,500
Total ................................. 2,309,750
Heavy Construction, Except Building - 1.28%
Level 3 Communications, Inc.:
9.125%, 5-1-2008 ...................... 750 743,438
0.0%, 12-1-2008 (C)(D) ................ 1,500 877,500
Total ................................. 1,620,938
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 4.63%
CapStar Hotel Company,
8.75%, 8-15-2007 ...................... $ 500 $ 490,000
MGM Grand, Inc.,
6.875%, 2-6-2008 ...................... 1,000 916,210
Prime Hospitality Corp.:
9.25%, 1-15-2006 ...................... 1,500 1,558,125
9.75%, 4-1-2007 ....................... 500 502,500
Station Casinos, Inc.:
10.125%, 3-15-2006 .................... 500 523,750
8.875%, 12-1-2008 (C) ................. 1,850 1,863,875
Total ................................. 5,854,460
Industrial Machinery and Equipment - 3.65%
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (D) ................... 2,000 1,150,000
Morris Material Handling, Inc.,
9.5%, 4-1-2008 ........................ 1,000 730,000
National Equipment Services, Inc.:
10.0%, 11-30-2004 ..................... 550 544,500
10.0%, 11-30-2004 (C) ................. 700 693,000
Terex Corporation,
8.875%, 4-1-2008 ...................... 1,000 1,001,250
Walbro Corporation,
9.875%, 7-15-2005 ..................... 500 495,000
Total ................................. 4,613,750
Instruments and Related Products - 1.69%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................... 500 517,500
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ....................... 1,500 1,616,250
Total ................................. 2,133,750
Miscellaneous Manufacturing Industries - 1.06%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 ..................... 500 440,000
Amscan Holdings Inc.,
9.875%, 12-15-2007 .................... 500 470,000
Hedstrom Corporation,
10.0%, 6-1-2007 ....................... 500 432,500
Total ................................. 1,342,500
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Miscellaneous Retail - 0.84%
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................... $1,000 $ 1,062,500
Motion Pictures - 2.11%
AMC Entertainment, Inc.,
9.5%, 3-15-2009 ....................... 500 510,000
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ..................... 1,500 1,117,500
Regal Cinemas, Inc.:
9.5%, 6-1-2008 ........................ 400 412,000
9.5%, 6-1-2008 (C) .................... 600 625,500
Total ................................. 2,665,000
Paper and Allied Products - 4.57%
Buckeye Technologies Inc.,
8.0%, 10-15-2010 ...................... 750 720,000
Container Corporation of America,
11.25%, 5-1-2004 ...................... 1,500 1,560,000
Fort Howard Corporation,
11.0%, 1-2-2002 ....................... 420 419,765
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 500 525,000
Mail-Well I Corporation,
8.75%, 12-15-2008 (C) ................. 1,000 1,005,000
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 (C) ................. 500 475,000
Republic Group Incorporated,
9.5%, 7-15-2008 ....................... 750 733,125
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (D) ................... 1,000 330,000
Total ................................. 5,767,890
Personal Services - 0.39%
Prime Succession Acquisition Corp.,
10.75%, 8-15-2004 ..................... 500 490,625
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Petroleum and Coal Products - 0.48%
Building Materials Corporation of America,
8.0%, 12-1-2008 (C) ................... $ 600 $ 604,500
Primary Metal Industries - 0.72%
Weirton Steel Corporation,
11.375%, 7-1-2004 ..................... 500 445,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ..................... 500 470,000
Total ................................. 915,000
Printing and Publishing - 4.38%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 1,000 1,025,000
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 (C) ................. 1,000 1,003,750
K-III Communications Corporation,
8.5%, 2-1-2006 ........................ 500 510,000
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................... 1,000 1,050,000
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 .................... 900 939,375
World Color Press, Inc.,
8.375%, 11-15-2008 (C) ................ 1,000 1,000,000
Total ................................. 5,528,125
Real Estate - 0.41%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................... 500 515,000
Rubber and Miscellaneous Plastics Products - 5.07%
Graham Packaging Holdings Company and
GPC Capital Corp. II,
0.0%, 1-15-2009 (D) ................... 6,000 4,170,000
Home Products International, Inc.,
9.625%, 5-15-2008 ..................... 750 738,750
J.H. Heafner Company, Inc. (The):
10.0%, 5-15-2008 ...................... 500 506,250
10.0%, 5-15-2008 (C) .................. 500 506,250
LDM Technologies, Inc.,
10.75%, 1-15-2007 ..................... 500 490,000
Total ................................. 6,411,250
Social Services - 0.59%
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 ...................... 750 742,500
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Stone, Clay and Glass Products - 0.28%
SIMCALA, Inc.,
9.625%, 4-15-2006 ..................... $ 500 $ 357,500
Television Broadcasting Stations - 0.83%
Allbritton Communications Company,
9.75%, 11-30-2007 ..................... 500 527,500
LIN Holdings Corp.,
0.0%, 3-1-2008 (D) .................... 750 517,500
Total ................................. 1,045,000
Textile Mill Products - 1.82%
Avondale Mills, Inc.,
10.25%, 5-1-2006 ...................... 500 525,000
Galey & Lord, Inc.,
9.125%, 3-1-2008 ...................... 1,500 1,305,000
Glenoit Corporation,
11.0%, 4-15-2007 ...................... 500 468,750
Total ................................. 2,298,750
Transportation by Air - 1.21%
Atlas Air, Inc.,
9.375%, 11-15-2006 (C) ................ 1,500 1,528,125
Transportation Equipment - 1.62%
Federal-Mogul Corporation:
7.75%, 7-1-2006 ....................... 1,000 1,015,440
7.875%, 7-1-2010 ...................... 500 518,170
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 500 515,000
Total ................................. 2,048,610
Trucking and Warehousing - 0.43%
Iron Mountain Incorporated,
10.125%, 10-1-2006 .................... 500 542,500
Wholesale Trade -- Durable Goods - 0.93%
Alvey Systems, Inc.,
11.375%, 1-31-2003 .................... 696 702,960
Sealy Mattress Company,
9.875%, 12-15-2007 .................... 500 475,000
Total ................................. 1,177,960
Wholesale Trade -- Nondurable Goods - 0.76%
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 ...................... 1,000 953,750
See Notes to Schedules of Investments on page 79.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1998
Value
TOTAL CORPORATE DEBT SECURITIES - 88.79% $112,191,646
(Cost: $115,623,748)
TOTAL SHORT-TERM SECURITIES - 4.79% $ 6,046,000
(Cost $6,046,000)
TOTAL INVESTMENT SECURITIES - 98.27% $124,169,683
(Cost: $126,589,037)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.73% 2,183,767
NET ASSETS - 100.00% $126,353,450
See Notes to Schedules of Investments on page 79.
<PAGE>
TARGET/UNITED FUNDS, INC.
Notes to Schedules of Investments
*No dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside of the United States.
(B) Each unit of Spiros Development Corporation II, Inc. consists of one
share of callable common stock, par value $0.001 per share, of Spiros
Development Corporation II, Inc. and one warrant to purchase one-
fourth of one share of common stock, par value $0.001 per share, of
Dura Pharmaceuticals, Inc.
(C) Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1998, the
value of these securities amounted to $2,006,360 and $19,696,738,
respectively, or 1.76% and 15.59%, respectively, of the total net
assets in the Bond Portfolio and High Income Portfolio.
(D) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(E) Each Unit of DecisionOne Holdings Corp. consists of $1,000 principal
amount at maturity of 11.5% senior discount debentures due 2008 and
one warrant to purchase 1.9 shares of common stock, par value $0.01
per share, of Quaker Holding Co.
(F) Each Unit of VersaTel Telecom B.V. consists of $1,000 principal amount
of 13.25% senior notes due 2008 and one warrant to purchase 6.667
ordinary shares of VersaTel, par value NLG 0.10 per share.
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>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands,
Except for Per Share Amounts) Science and
Growth Income Technology
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $824,475 $808,186 $34,568
Cash ................. 1 2 2
Receivables:
Investment securities
sold ............... 1,379 --- ---
Fund shares sold ..... 612 1,186 151
Dividends and interest 389 3,264 18
Prepaid insurance
premium .............. 4 3 ---
-------- -------- -------
Total assets ....... 826,860 812,641 34,739
Liabilities -------- -------- -------
Payable for investment
securities purchased . 1,412 812 131
Payable to Fund
shareholders ......... 141 301 3
Accrued service
fee (Note 2) ......... 164 164 6
Accrued accounting
services fee (Note 2). 7 7 2
Accrued management
fee (Note 2) ......... 16 15 1
Other ................. 5 8 1
-------- -------- -------
Total liabilities .. 1,745 1,307 144
-------- -------- -------
Total net assets .. $825,115 $811,334 $34,595
Net Assets ======== ======== =======
$0.01 par value capital stock
Capital stock ........ $ 887 $ 658 $ 42
Additional paid-in
capital ............ 589,299 569,217 26,364
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated
net realized loss
on investment
transactions ....... --- --- ---
Distribution in excess of
net realized gains . --- --- ---
Net unrealized appreciation
(depreciation) of
investments 234,929 241,459 8,189
-------- -------- -------
Net assets applicable to
outstanding units
of capital ........ $825,115 $811,334 $34,595
======== ======== =======
Net asset value, redemption
and offering price per share $9.2989 $12.3351 $8.2750
======= ======== =======
Capital shares outstanding 88,733 65,774 4,181
Capital shares authorized 100,000 100,000 100,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands,
Except for Per Share Amounts)
International Small Cap Balanced
Portfolio Portfolio Portfolio
Assets ------------ ------------ -----------
Investment securities--at
value (Notes 1 and 3) $171,830 $184,788 $91,211
Cash ................. 1 1 2
Receivables:
Investment securities
sold ............... --- --- 111
Fund shares sold ..... 134 147 234
Dividends and interest 359 62 755
Prepaid insurance
premium .............. 1 1 1
-------- -------- -------
Total assets ....... 172,325 184,999 92,314
Liabilities -------- -------- -------
Payable for investment
securities purchased . 3,248 4,367 ---
Payable to Fund
shareholders ......... 41 18 70
Accrued service
fee (Note 2) ......... 34 36 19
Accrued accounting
services fee (Note 2). 3 3 3
Accrued management
fee (Note 2) ......... 4 4 1
Other ................. 34 2 1
-------- -------- -------
Total liabilities .. 3,364 4,430 94
-------- -------- -------
Total net assets .. $168,961 $180,569 $92,220
Net Assets ======== ======== =======
$0.01 par value capital stock
Capital stock ........ $ 216 $ 229 $ 130
Additional paid-in
capital ............ 129,805 177,978 81,299
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated
net realized loss
on investment
transactions ....... --- --- ---
Distribution in excess of
net realized gains . --- (1,288) ---
Net unrealized appreciation
(depreciation) of
investments ........ 38,940 3,650 10,791
-------- -------- -------
Net assets applicable to
outstanding units
of capital ........ $168,961 $180,569 $92,220
======== ======== =======
Net asset value, redemption
and offering price per share $7.8176 $7.9019 $7.1081
======= ======== =======
Capital shares outstanding 21,613 22,851 12,974
Capital shares authorized 100,000 100,000 50,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands,
Except for Per Share Amounts) Asset
Strategy Money Market Limited-Term
Portfolio Portfolio Bond Portfolio
Assets ------------- ------------ -----------
Investment securities--at
value (Notes 1 and 3) $14,127 $54,165 $4,448
Cash ................. 2 1 1
Receivables:
Investment securities
sold ............... --- --- ---
Fund shares sold ..... 43 1,746 3
Dividends and interest 94 226 68
Prepaid insurance
premium .............. --- 1 ---
------- ------- ------
Total assets ....... 14,266 56,139 4,520
Liabilities ------- ------- ------
Payable for investment
securities purchased . 167 --- ---
Payable to Fund
shareholders ......... 4 2,101 ---
Accrued service
fee (Note 2) ......... 3 11 1
Accrued accounting
services fee (Note 2). 1 3 ---
Accrued management
fee (Note 2) ......... --- 1 ---
Other ................. 1 --- ---
------- ------- ------
Total liabilities .. 176 2,116 1
------- ------- ------
Total net assets .. $14,090 $54,023 $4,519
Net Assets ======= ======= ======
$0.01 par value capital stock
Capital stock ........ $ 26 $ 540 $ 9
Additional paid-in
capital ............ 13,650 53,483 4,449
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated
net realized loss
on investment
transactions ....... --- --- ---
Distribution in excess of
net realized gains . --- --- ---
Net unrealized appreciation
(depreciation) of
investments ........ 414 --- 61
------- ------- ------
Net assets applicable to
outstanding units
of capital ........ $14,090 $54,023 $4,519
======= ======= ======
Net asset value, redemption
and offering price per share $5.3868 $1.0000 $5.2292
======= ======== =======
Capital shares outstanding 2,616 54,023 864
Capital shares authorized 100,000 100,000 50,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands,
Except for Per Share Amounts)
Bond High Income
Portfolio Portfolio
Assets ------------- -------------
Investment securities--at
value (Notes 1 and 3) $112,650 $124,170
Cash ................. 2 2
Receivables:
Investment securities
sold ............... --- ---
Fund shares sold ..... 212 56
Dividends and interest 1,537 2,236
Prepaid insurance
premium .............. 1 1
-------- --------
Total assets ....... 114,402 126,465
Liabilities -------- --------
Payable for investment
securities purchased . --- ---
Payable to Fund
shareholders ......... 77 79
Accrued service
fee (Note 2) ......... 23 26
Accrued accounting
services fee (Note 2). 3 3
Accrued management
fee (Note 2) ......... 2 2
Other ................. 1 2
-------- --------
Total liabilities .. 106 112
-------- --------
Total net assets .. $114,296 $126,353
Net Assets ======== ========
$0.01 par value capital stock
Capital stock ........ $ 210 $ 286
Additional paid-in
capital ............ 111,174 128,824
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- ---
Accumulated
net realized loss
on investment
transactions ....... (1,406) (338)
Distribution in excess of
net realized gains . --- ---
Net unrealized appreciation
(depreciation) of
investments ........ 4,318 (2,419)
-------- --------
Net assets applicable to
outstanding units
of capital ........ $114,296 $126,353
======== ========
Net asset value, redemption
and offering price per share $5.4451 $4.4143
======= ========
Capital shares outstanding 20,991 28,624
Capital shares authorized 100,000 100,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands) Science and
Growth Income Technology
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income (Note 1B):
Interest and
amortization ........ $ 4,271 $ 9,491 $ 174
Dividends ............ 5,261 6,153 7
-------- -------- ------
Total income ....... 9,532 15,644 181
-------- -------- ------
Expenses (Note 2):
Investment management
fee ................ 4,904 5,016 126
Service fee .......... 597 614 20
Accounting services
fee ................ 73 74 12
Custodian fees ....... 26 51 5
Audit fees ........... 9 9 4
Legal fees ........... 13 13 ---
Other ................ 34 35 1
-------- -------- ------
Total expenses ..... 5,656 5,812 168
-------- -------- ------
Net investment
income .......... 3,876 9,832 13
-------- -------- ------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 24,867 110,723 624
Realized net gain (loss)
on foreign currency
transactions ......... 28 (33) ---
Realized net gain on forward
currency contracts ... --- --- ---
Realized net gain on
options .............. --- --- ---
-------- -------- ------
Realized net gain (loss)
on investments ..... 24,895 110,690 624
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 146,953 16,851 7,947
-------- -------- ------
Net gain (loss) on
investments ....... 171,848 127,541 8,571
-------- -------- ------
Net increase
in net assets
resulting from
operations ...... $175,724 $137,373 $8,584
======== ======== ======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
International Small Cap Balanced
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income (Note 1B):
Interest and
amortization ........ $ 951 $ 2,583 $2,238
Dividends ............ 1,376 578 690
------- ------- ------
Total income ....... 2,327 3,161 2,928
------- ------- ------
Expenses (Note 2):
Investment management
fee ................ 1,169 1,395 472
Service fee .......... 125 136 71
Accounting services
fee ................ 40 40 30
Custodian fees ....... 161 14 7
Audit fees ........... 7 6 6
Legal fees ........... 3 3 1
Other ................ 8 9 4
------- ------- ------
Total expenses ..... 1,513 1,603 591
------- ------- ------
Net investment
income .......... 814 1,558 2,337
------- ------- ------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 13,346 23,004 761
Realized net gain (loss)
on foreign currency
transactions ......... (116) --- (3)
Realized net gain on forward
currency contracts ... 382 --- ---
Realized net gain on
options .............. --- 228 ---
------- ------- ------
Realized net gain (loss)
on investments ..... 13,612 23,232 758
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 25,132 (8,246) 3,437
------- ------- ------
Net gain (loss) on
investments ....... 38,744 14,986 4,195
------- ------- ------
Net increase
in net assets
resulting from
operations ...... $39,558 $16,544 $6,532
======= ======= ======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
Asset Strategy Money Market Limited-Term
Portfolio Portfolio Bond Portfolio
--------------- ---------- ----------
Investment Income
Income (Note 1B):
Interest and
amortization ........ $ 420 $2,538 $273
Dividends ............ 47 --- ---
------ ------ ----
Total income ....... 467 2,538 273
------ ------ ----
Expenses (Note 2):
Investment management
fee ................ 91 223 23
Service fee .......... 11 43 3
Accounting services
fee ................ 9 23 ---
Custodian fees ....... 6 7 2
Audit fees ........... 5 4 5
Legal fees ........... --- 5 ---
Other ................ 1 3 ---
------ ------ ----
Total expenses ..... 123 308 33
------ ------ ----
Net investment
income .......... 344 2,230 240
------ ------ ----
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 462 --- 9
Realized net gain (loss)
on foreign currency
transactions ......... (2) --- ---
Realized net gain on forward
currency contracts ... --- --- ---
Realized net gain on
options .............. --- --- ---
------ ------ ----
Realized net gain (loss)
on investments ..... 460 9
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 225 --- 18
------ ------ ----
Net gain (loss) on
investments ....... 685 --- 27
------ ------ ----
Net increase
in net assets
resulting from
operations ...... $1,029 $2,230 $267
====== ====== ====
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
Bond High Income
Portfolio Portfolio
------------- -------------
Investment Income
Income (Note 1B):
Interest and
amortization ........ $7,000 $11,649
Dividends ............ --- 261
------ -------
Total income ....... 7,000 11,910
------ -------
Expenses (Note 2):
Investment management
fee ................ 548 801
Service fee .......... 91 101
Accounting services
fee ................ 40 40
Custodian fees ....... 7 8
Audit fees ........... 6 7
Legal fees ........... 2 2
Other ................ 6 7
------ -------
Total expenses ..... 700 966
------ -------
Net investment
income .......... 6,300 10,944
------ -------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 783 (338)
Realized net gain (loss)
on foreign currency
transactions ......... --- ---
Realized net gain on forward
currency contracts ... --- ---
Realized net gain on
options .............. --- ---
------ -------
Realized net gain (loss)
on investments ..... 783 (338)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 369 (8,207)
------ -------
Net gain (loss) on
investments ....... 1,152 (8,545)
------ -------
Net increase
in net assets
resulting from
operations ...... $7,452 $ 2,399
====== =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(Dollars In Thousands) Science and
Growth Income Technology
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............ $ 3,876 $ 9,832 $ 13
Realized net gain (loss)
on investments ..... 24,895 110,690 624
Unrealized appreciation
(depreciation) ..... 146,953 16,851 7,947
-------- -------- -------
Net increase
in net assets
resulting from
operations......... 175,724 137,373 8,584
-------- -------- -------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (3,904) (9,799) (13)
From realized gains on
security transactions (24,867) (110,723) (624)
In excess of realized
capital gains ...... --- --- ---
-------- -------- -------
(28,771) (120,522) (637)
-------- -------- -------
Capital share
transactions** ....... 38,803 157,579 16,441
-------- -------- -------
Total increase .... 185,756 174,430 24,388
Net Assets
Beginning of period ... 639,359 636,904 10,207
-------- -------- -------
End of period ......... $825,115 $811,334 $34,595
======== ======== =======
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 10,496,688 9,126,482 2,834,669
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 3,093,937 9,770,626 76,928
Shares redeemed ......... (9,340,560) (6,368,869) (499,069)
--------- --------- ---------
Increase in
outstanding capital
shares ................. 4,250,065 12,528,239 2,412,528
========= ========== =========
Value issued from sale
of shares ............. $88,088 $122,003 $19,146
Value issued from reinvest-
ment of dividends and/or
distributions ......... 28,771 120,522 637
Value redeemed .......... (78,056) (84,946) (3,342)
------- -------- -------
Increase in
outstanding capital ... $38,803 $157,579 $16,441
======= ======== =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(Dollars In Thousands)
International Small Cap Balanced
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 814 $ 1,558 $ 2,337
Realized net gain (loss)
on investments ..... 13,612 23,232 758
Unrealized appreciation
(depreciation) ..... 25,132 (8,246) 3,437
-------- -------- -------
Net increase
in net assets
resulting from
operations......... 39,558 16,544 6,532
-------- -------- -------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (698) (1,558) (2,334)
From realized gains on
security transactions (13,728) (23,232) (761)
In excess of realized
capital gains ...... --- (1,288) ---
-------- -------- -------
(14,426) (26,078) (3,095)
-------- -------- -------
Capital share
transactions** ....... 29,198 41,865 21,024
-------- -------- -------
Total increase .... 54,330 32,331 24,461
Net Assets
Beginning of period ... 114,631 148,238 67,759
-------- -------- -------
End of period ......... $168,961 $180,569 $92,220
======== ======== =======
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 3,799,283 3,802,845 3,612,259
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,845,305 3,300,299 435,475
Shares redeemed ......... (1,986,996) (2,044,217) (1,084,517)
--------- --------- ---------
Increase in
outstanding capital
shares ................. 3,657,592 5,058,927 2,963,217
========= ========= =========
Value issued from sale
of shares ............. $30,196 $33,860 $25,583
Value issued from reinvest-
ment of dividends and/or
distributions ......... 14,426 26,079 3,095
Value redeemed .......... (15,424) (18,074) (7,654)
------- ------- ------
Increase in
outstanding capital ... $29,198 $41,865 $21,024
======= ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(Dollars In Thousands)
Asset Strategy Money Market Limited-Term
Portfolio Portfolio Bond Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 344 $ 2,230 $ 240
Realized net gain (loss)
on investments ..... 460 --- 9
Unrealized appreciation
(depreciation) ..... 225 --- 18
------- ------- ------
Net increase
in net assets
resulting from
operations......... 1,029 2,230 267
------- ------- ------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (342) (2,230) (240)
From realized gains on
security transactions (462) --- (9)
In excess of realized
capital gains ...... --- --- ---
------- ------- ------
(804) (2,230) (249)
------- ------- ------
Capital share
transactions** ....... 4,055 10,723 249
------- ------- ------
Total increase .... 4,280 10,723 267
Net Assets
Beginning of period ... 9,810 43,300 4,252
------- ------- ------
End of period ......... $14,090 $54,023 $4,519
======= ======= ======
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 782,664 261,149,946 376,497
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 149,309 2,230,118 47,562
Shares redeemed ......... (203,962) (252,657,467) (379,449)
------- ----------- -------
Increase in
outstanding capital
shares ................. 728,011 10,722,597 44,610
======= =========== =======
Value issued from sale
of shares ............. $4,385 $261,150 $2,035
Value issued from reinvest-
ment of dividends and/or
distributions ......... 804 2,230 249
Value redeemed .......... (1,134) (252,657) (2,035)
------ -------- ------
Increase in
outstanding capital ... $4,055 $ 10,723 $ 249
====== ======== ======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(Dollars In Thousands)
Bond High Income
Portfolio Portfolio
----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $6,300 $10,944
Realized net gain (loss)
on investments ..... 783 (338)
Unrealized appreciation
(depreciation) ..... 369 (8,207)
-------- --------
Net increase
in net assets
resulting from
operations......... 7,452 2,399
-------- --------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (6,300) (10,944)
From realized gains on
security transactions --- ---
In excess of realized
capital gains ...... --- ---
-------- --------
(6,300) (10,944)
-------- --------
Capital share
transactions** ....... 13,655 15,374
-------- --------
Total increase .... 14,807 6,829
Net Assets
Beginning of period ... 99,489 119,524
-------- --------
End of period ......... $114,296 $126,353
======== ========
Undistributed net investment
income ............. $--- $---
==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 4,065,889 4,966,466
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,156,993 2,479,124
Shares redeemed ......... (2,764,025) (4,037,179)
--------- ---------
Increase in
outstanding capital
shares ................. 2,458,857 3,408,411
========= =========
Value issued from sale
of shares ............. $22,739 $24,022
Value issued from reinvest-
ment of dividends and/or
distributions ......... 6,300 10,944
Value redeemed .......... (15,384) (19,592)
------- -------
Increase in
outstanding capital ... $13,655 $15,374
======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1997
(Dollars In Thousands) Science and
Growth Income Technology
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 4,445 $ 4,562 $ 25
Realized net gain
on investments ..... 48,713 36,631 43
Unrealized
appreciation ....... 58,034 84,102 242
-------- -------- -------
Net increase
in net assets
resulting from
operations......... 111,192 125,295 310
-------- -------- -------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (4,415) (4,556) (25)
From realized gains on
security transactions (48,744) (36,637) (43)
-------- -------- -------
(53,159) (41,193) (68)
-------- -------- -------
Capital share
transactions** ....... 68,163 90,411 9,965
-------- -------- -------
Total increase .... 126,196 174,513 10,207
Net Assets
Beginning of period ... 513,163 462,391 ---
-------- -------- -------
End of period ......... $639,359 $636,904 $10,207
======== ======== =======
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 8,757,287 8,155,958 1,872,760
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 7,024,201 3,443,827 11,856
Shares redeemed ......... (6,800,077) (3,966,432) (116,416)
--------- --------- ---------
Increase in outstanding
capital shares ......... 8,981,411 7,633,353 1,768,200
========= ========= =========
Value issued from sale
of shares ............. $68,063 $96,368 $10,542
Value issued from reinvest-
ment of dividends and/or
distributions ......... 53,159 41,193 68
Value redeemed .......... (53,059) (47,150) (645)
------- ------- ------
Increase in
outstanding capital ... $68,163 $90,411 $9,965
======= ======= ======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1997
(Dollars In Thousands)
International Small Cap Balanced
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 798 $ 390 $ 1,665
Realized net gain
on investments ..... 10,548 30,677 3,626
Unrealized
appreciation ....... 3,439 2,772 3,878
-------- -------- -------
Net increase
in net assets
resulting from
operations......... 14,785 33,839 9,169
-------- -------- -------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (759) (396) (1,665)
From realized gains on
security transactions (9,339) (30,671) (3,626)
-------- -------- -------
(10,098) (31,067) (5,291)
-------- -------- -------
Capital share
transactions** ....... 30,095 48,058 21,454
-------- -------- -------
Total increase .... 34,782 50,830 25,332
Net Assets
Beginning of period ... 79,849 97,408 42,427
-------- -------- -------
End of period ......... $114,631 $148,238 $67,759
======== ======== =======
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 4,424,820 3,274,112 3,058,976
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,581,672 3,728,844 781,696
Shares redeemed ......... (1,361,494) (1,359,852) (676,618)
--------- --------- ---------
Increase in outstanding
capital shares ......... 4,644,998 5,643,104 3,164,054
========= ========= =========
Value issued from sale
of shares ............. $29,101 $29,240 $20,762
Value issued from reinvest-
ment of dividends and/or
distributions ......... 10,098 31,067 5,291
Value redeemed .......... (9,104) (12,249) (4,599)
------- ------- -------
Increase in
outstanding capital ... $30,095 $48,058 $21,454
======= ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1997
(Dollars In Thousands)
Asset Strategy Money Market Limited-Term
Portfolio Portfolio Bond Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 321 $ 1,952 $ 238
Realized net gain
on investments ..... 826 --- 16
Unrealized
appreciation ....... 31 --- 17
------ ------- ------
Net increase
in net assets
resulting from
operations......... 1,178 1,952 271
------ ------- ------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (321) (1,952) (238)
From realized gains on
security transactions (779) --- (16)
------ ------- ------
(1,100) (1,952) (254)
------ ------- ------
Capital share
transactions** ....... 1,258 6,042 520
------ ------- ------
Total increase ... 1,336 6,042 537
Net Assets
Beginning of period ... 8,474 37,258 3,715
------ ------- ------
End of period ......... $9,810 $43,300 $4,252
====== ======= ======
Undistributed net
investment income .. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 282,151 208,969,939 161,256
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 211,668 1,952,260 48,888
Shares redeemed ......... (256,770) (204,879,652) (110,075)
--------- ------------ --------
Increase in outstanding
capital shares ......... 237,049 6,042,547 100,069
========= ============ ========
Value issued from sale
of shares ............. $1,517 $208,970 $857
Value issued from reinvest-
ment of dividends and/or
distributions ......... 1,100 1,952 254
Value redeemed .......... (1,359) (204,880) (591)
------- -------- ----
Increase in
outstanding capital ... $1,258 $ 6,042 $520
======= ======== ====
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1997
(Dollars In Thousands)
Bond High Income
Portfolio Portfolio
----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 5,928 $ 9,390
Realized net gain
on investments ..... 431 1,777
Unrealized
appreciation ....... 2,382 2,903
-------- --------
Net increase
in net assets
resulting from
operations......... 8,741 14,070
-------- --------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (5,928) (9,390)
From realized gains on
security transactions --- (1,539)
-------- --------
(5,928) (10,929)
-------- --------
Capital share
transactions** ....... 4,309 18,977
-------- --------
Total increase .... 7,122 22,118
Net Assets
Beginning of period ... 92,367 97,406
-------- --------
End of period ......... $99,489 $119,524
======== ========
Undistributed net
investment income .. $--- $---
==== ====
*See "Financial Highlights" on pages 88 - 98.
**Shares issued from sale
of shares ............. 2,087,123 4,093,165
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,104,169 2,305,606
Shares redeemed ......... (2,421,031) (2,474,500)
--------- ---------
Increase in outstanding
capital shares ......... 770,261 3,924,271
========= =========
Value issued from sale
of shares ............. $11,323 $20,075
Value issued from reinvest-
ment of dividends and/or
distributions ......... 5,928 10,929
Value redeemed .......... (12,942) (12,027)
---a---- -------
Increase in
outstanding capital ... $ 4,309 $18,977
======= =======
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,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $7.5679 $6.7967 $6.8260 $5.8986 $6.1962
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0456 0.0574 0.0990 0.0903 0.1211
Net realized and
unrealized gain
on investments .. 2.0215 1.4003 0.7478 2.1842 0.0268
------- ------- ------- ------- -------
Total from investment
operations ....... 2.0671 1.4577 0.8468 2.2745 0.1479
------- ------- ------- ------- -------
Less distributions:
From net
investment
income .......... (0.0456)(0.0570) (0.0990)(0.0903) (0.1211)
From capital
gains ........... (0.2905)(0.6295) (0.7771)(1.2568) (0.3244)
------- ------- ------- ------- -------
Total distributions. (0.3361)(0.6865) (0.8761)(1.3471) (0.4455)
------- ------- ------- ------- -------
Net asset value,
end of period .... $9.2989 $7.5679 $6.7967 $6.8260 $5.8986
======= ======= ======= ======= =======
Total return ....... 27.31% 21.45% 12.40% 38.57% 2.39%
Net assets, end of
period (in
millions) ........ $825 $639 $513 $419 $277
Ratio of expenses
to average net
assets ............ 0.80% 0.72% 0.73% 0.75% 0.77%
Ratio of net investment
income to average
net assets ....... 0.55% 0.75% 1.44% 1.35% 2.07%
Portfolio turnover
rate ............. 75.58% 162.41% 243.00% 245.80% 277.36%
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,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $11.9615$10.1373 $ 8.6756 $6.7689 $6.9180
---------------- -------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.1752 0.0916 0.0856 0.0839 0.0703
Net realized and
unrealized gain (loss)
on investments .. 2.3532 2.5598 1.6280 2.0525 (0.1491)
---------------- -------- ------- -------
Total from investment
operations ....... 2.5284 2.6514 1.7136 2.1364 (0.0788)
---------------- -------- ------- -------
Less distributions:
From net investment
income .......... (0.1752)(0.0915) (0.0856)(0.0839) (0.0703)
From capital gains (1.9796)(0.7357) (0.1663)(0.1457) (0.0000)
In excess of
capital gains ... (0.0000)(0.0000) (0.0000)(0.0001) (0.0000)
---------------- -------- ------- -------
Total distributions. (2.1548)(0.8272) (0.2519)(0.2297) (0.0703)
---------------- -------- ------- -------
Net asset value,
end of period .... $12.3351$11.9615 $10.1373 $8.6756 $6.7689
================ ======== ======= =======
Total return........ 21.14% 26.16% 19.75% 31.56% -1.14%
Net assets, end of
period (in
millions) ........ $811 $637 $462 $331 $219
Ratio of expenses
to average net
assets ............ 0.80% 0.72% 0.73% 0.77% 0.77%
Ratio of net investment
income to average
net assets ....... 1.35% 0.80% 0.97% 1.13% 1.16%
Portfolio turnover
rate ............. 62.84% 36.61% 22.95% 15.00% 23.32%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE SCIENCE AND TECHNOLOGY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period
ended ended
12/31/98 12/31/97*
---------- ----------
Net asset value,
beginning of
period ........... $5.7726 $5.0000
------- -------
Income from investment operations:
Net investment
income .......... 0.0032 0.0146
Net realized and
unrealized gain
on investments .. 2.6551 0.7971
------- -------
Total from investment
operations ....... 2.6583 0.8117
------- -------
Less distributions:
From net investment
income .......... (0.0032) (0.0146)
From capital gains (0.1527) (0.0245)
------- -------
Total distributions (0.1559) (0.0391)
------- -------
Net asset value,
end of period .... $8.2750 $5.7726
======= =======
Total return........ 46.05% 16.24%
Net assets, end of
period (in
millions) ........ $35 $10
Ratio of expenses
to average net
assets ............ 0.92% 0.94%
Ratio of net investment
income to average
net assets ....... 0.07% 0.64%
Portfolio turnover
rate ............. 64.72% 15.63%
*The Science and Technology Portfolio's inception date is March 13, 1997;
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 April
4, 1997 (initial offering) through December 31, 1997. Ratios have been
annualized.
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
1998 1997 1996 1995 12/31/94*
------ ------ ------- -------- ----------
Net asset value,
beginning of
period ........... $6.3842 $5.9990 $5.2790 $4.9926 $5.0000
------- ------- ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.0353 0.0485 0.0644 0.0846 0.0207
Net realized and
unrealized gain (loss)
on investments... 2.1283 0.9534 0.7329 0.2790 (0.0074)
------- ------- ------- ------- -------
Total from investment
operations ....... 2.1636 1.0019 0.7973 0.3636 0.0133
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.0353) (0.0463)(0.0644) (0.0772) (0.0207)
From capital gains (0.6949) (0.5704)(0.0129) (0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions. (0.7302) (0.6167)(0.0773) (0.0772) (0.0207)
------- ------- ------- ------- -------
Net asset value,
end of period .... $7.8176 $6.3842 $5.9990 $5.2790 $4.9926
======= ======= ======= ======= =======
Total return........ 33.89% 16.70% 15.11% 7.28% 0.26%
Net assets, end of
period (in
millions) ........ $169 $115 $80 $50 $26
Ratio of expenses
to average net
assets ............ 1.02% 0.98% 1.00% 1.02% 1.26%
Ratio of net investment
income to average
net assets ....... 0.47% 0.79% 1.42% 1.99% 1.36%
Portfolio turnover
rate ............. 88.84% 117.37% 75.01% 34.93% 23.23%
*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.
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
1998 1997 1996 1995 12/31/94*
------- ------- -------- -------- ----------
Net asset value,
beginning of
period ........... $8.3316 $8.0176 $7.6932 $5.9918 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0798 0.0279 0.0170 0.0900 0.0376
Net realized and
unrealized gain
on investments .. 0.8255 2.5004 0.6367 1.8470 1.0086
------- ------- ------- ------- -------
Total from investment
operations ....... 0.9053 2.5283 0.6537 1.9370 1.0462
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.0798) (0.0282)(0.0170) (0.0900) (0.0376)
From capital gains (1.2027) (2.1861)(0.3123) (0.1456) (0.0168)
In excess of realized
capital gains ... (0.0525) (0.0000)(0.0000) (0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions (1.3350) (2.2143)(0.3293) (0.2356) (0.0544)
------- ------- ------- ------- -------
Net asset value,
end of period .... $7.9019 $8.3316 $8.0176 $7.6932 $5.9918
======= ======= ======= ======= =======
Total return........ 10.87% 31.53% 8.50% 32.32% 20.92%
Net assets, end of
period (in
millions) ........ $181 $148 $97 $56 $16
Ratio of expenses
to average net
assets ............ 0.97% 0.90% 0.91% 0.96% 1.08%
Ratio of net investment
income to average
net assets ....... 0.94% 0.32% 0.25% 1.77% 2.35%
Portfolio turnover
rate ............. 177.32% 211.46% 133.77% 43.27% 21.61%
*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
1998 1997 1996 1995 12/31/94*
-------- -------- -------- -------- ----------
Net asset value,
beginning of
period ........... $6.7686 $6.1967 $5.9000 $4.9359 $5.0000
------- ------- ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.1865 0.1805 0.1594 0.1333 0.0460
Net realized and
unrealized gain (loss)
on investments .. 0.4003 0.9650 0.5003 1.0611 (0.0641)
------- ------- ------- ------- -------
Total from investment
operations ....... 0.5868 1.1455 0.6597 1.1944 (0.0181)
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.1865) (0.1805)(0.1594) (0.1333) (0.0460)
From capital gains (0.0608) (0.3931)(0.2036) (0.0970) (0.0000)
------- ------- ------- ------- -------
Total distributions (0.2473) (0.5736)(0.3630) (0.2303) (0.0460)
------- ------- ------- ------- -------
Net asset value,
end of period .... $7.1081 $6.7686 $6.1967 $5.9000 $4.9359
======= ======= ======= ======= =======
Total return........ 8.67% 18.49% 11.19% 24.19% -0.37%
Net assets, end of period
(in millions) .... $92 $68 $42 $24 $9
Ratio of expenses
to average net
assets ............ 0.74% 0.67% 0.70% 0.72% 0.95%
Ratio of net investment
income to average
net assets ....... 2.92% 3.06% 3.18% 3.22% 3.14%
Portfolio turnover
rate ............. 54.62% 55.66% 44.23% 62.87% 19.74%
*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 fiscal year For the
ended December 31, period
------------------------- ended
1998 1997 1996 12/31/95*
------- ------- -------- ---------
Net asset value,
beginning of
period ........... $5.1969 $5.1343 $5.0137 $5.0000
------- ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.1391 0.1915 0.1814 0.0717
Net realized and
unrealized gain
on investments .. 0.3779 0.5277 0.1206 0.0193
------- ------- ------- -------
Total from investment
operations ....... 0.5170 0.7192 0.3020 0.0910
------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.1391) (0.1919)(0.1814) (0.0713)
From capital gains (0.1880) (0.4647)(0.0000) (0.0060)
------- ------- ------- -------
Total distributions (0.3271) (0.6566)(0.1814) (0.0773)
------- ------- ------- -------
Net asset value,
end of period .... $5.3868 $5.1969 $5.1343 $5.0137
======= ======= ======= =======
Total return........ 9.95% 14.01% 6.05% 1.80%
Net assets, end of
period (in
millions) ........ $14 $10 $8 $4
Ratio of expenses
to average net
assets ............ 1.07% 0.93% 0.93% 0.91%
Ratio of net investment
income to average
net assets ....... 2.97% 3.55% 3.92% 4.42%
Portfolio turnover
rate ............. 189.02% 222.50% 49.92% 149.17%
*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,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $1.000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment
income ........... 0.0492 0.0503 0.0486 0.0542 0.0368
Less dividends
declared ......... (0.0492)(0.0503) (0.0486)(0.0542) (0.0368)
------- ------- ------- ------- -------
Net asset value,
end of period .... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total return ....... 5.04% 5.13% 5.01% 5.56% 3.72%
Net assets, end of
period (in
millions) ........ $54 $43 $37 $37 $31
Ratio of expenses
to average net
assets ............ 0.68% 0.58% 0.61% 0.62% 0.65%
Ratio of net investment
income to average
net assets ....... 4.90% 5.04% 4.87% 5.42% 3.72%
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
1998 1997 1996 1995 12/31/94*
------- ------- ------- ------- ----------
Net asset value,
beginning of
period ........... $5.1882 $5.1639 $5.2521 $4.8611 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.2935 0.3086 0.2842 0.2841 0.1507
Net realized and
unrealized gain (loss)
on investments .. 0.0522 0.0451 (0.0870) 0.4122 (0.1375)
------- ------- ------- ------- -------
Total from investment
operations ....... 0.3457 0.3537 0.1972 0.6963 0.0132
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.2935) (0.3086)(0.2842) (0.2841) (0.1507)
From capital gains (0.0112) (0.0208)(0.0012) (0.0212) (0.0014)
------- ------- ------- ------- -------
Total distributions (0.3047) (0.3294)(0.2854) (0.3053) (0.1521)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.2292 $5.1882 $5.1639 $5.2521 $4.8611
======= ======= ======= ======= =======
Total return........ 6.66% 6.85% 3.79% 14.29% 0.26%
Net assets, end of
period (in
millions) ........ $5 $4 $4 $3 $2
Ratio of expenses
to average net
assets ............ 0.79% 0.73% 0.76% 0.71% 0.93%
Ratio of net investment
income to average
net assets ....... 5.65% 5.93% 5.92% 6.22% 5.89%
Portfolio turnover
rate ............. 47.11% 35.62% 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,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.3686 $5.2004 $5.3592 $4.7393 $5.4045
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.3180 0.3400 0.3407 0.3556 0.3507
Net realized and
unrealized gain
(loss) on
investments ..... 0.0765 0.1682 (0.1588) 0.6202 (0.6652)
------- ------- ------- ------- -------
Total from investment
operations ....... 0.3945 0.5082 0.1819 0.9758 (0.3145)
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.3180)(0.3400) (0.3407)(0.3559) (0.3507)
From capital gains (0.0000)(0.0000) (0.0000)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions. (0.3180)(0.3400) (0.3407)(0.3559) (0.3507)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.4451 $5.3686 $5.2004 $5.3592 $4.7393
======= ======= ======= ======= =======
Total return ....... 7.35% 9.77% 3.43% 20.56% -5.90%
Net assets, end of
period (in
millions) ........ $114 $99 $92 $89 $74
Ratio of expenses
to average net
assets ............ 0.67% 0.58% 0.59% 0.60% 0.62%
Ratio of net investment
income to average
net assets ....... 5.99% 6.35% 6.39% 6.73% 6.73%
Portfolio turnover
rate ............. 32.75% 36.81% 64.02% 71.17% 135.82%
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,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.7402 $4.5750 $4.4448 $4.1118 $4.6373
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.4185 0.4098 0.4216 0.4165 0.4106
Net realized and
unrealized gain
(loss) on
investments ..... (0.3259) 0.2324 0.1302 0.3330 (0.5255)
------- ------- ------- ------- -------
Total from investment
operations ....... 0.0926 0.6422 0.5518 0.7495 (0.1149)
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.4185)(0.4098) (0.4216)(0.4165) (0.4106)
From capital gains (0.0000)(0.0672) (0.0000)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions (0.4185)(0.4770) (0.4216)(0.4165) (0.4106)
------- ------- ------- ------- -------
Net asset value,
end of period .... $4.4143 $4.7402 $4.5750 $4.4448 $4.1118
======= ======= ======= ======= =======
Total return ....... 1.95% 14.04% 12.46% 18.19% -2.55%
Net assets, end of
period (in
millions) ........ $126 $120 $97 $87 $73
Ratio of expenses
to average net
assets ............ 0.77% 0.70% 0.71% 0.72% 0.74%
Ratio of net investment
income to average
net assets ....... 8.76% 8.79% 9.10% 9.25% 9.03%
Portfolio turnover
rate ............. 63.64% 65.28% 58.91% 41.78% 37.86%
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- Significant Accounting Policies
Target/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 eleven
classes that are designated the Growth Portfolio, the Income Portfolio, the
Science and Technology 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 the Nasdaq Stock Market,
which provides information on bid and asked 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. 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
$175,930. 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. 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 carryovers. At December 31, 1998 the
following amounts were reclassified:
Increase/(Decrease) Increase/(Decrease) (Decrease)
Accumulated Accumulated Distributions
Undistributed Undistributed in Excess of
Net Investment Net Realized Net Realized
Fund Income Capital Gains Gains
---- ------------------- ------------------- -------------
Growth Portfolio $ 27,648 $(27,648) ---
Income Portfolio (33,184) 33,184 ---
International Portfolio (115,574) 115,574 ---
Small Cap Portfolio --- 1,287,773 (1,287,773)
Balanced Portfolio (3,126) 3,126 ---
Asset Strategy Portfolio (1,470) 1,470 ---
Net investment income, net realized gains and net assets were not
affected by these changes.
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; Science and Technology 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 $2.4 billion of combined net assets at December 31, 1998)
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 has adopted a Service Plan pursuant to Rule 12b-1 of the 1940
Act. Under the Plan, each Portfolio may pay monthly a fee to W&R in an
amount not to exceed 0.25% of the Portfolio's average annual net assets.
The fee is to be paid to compensate W&R for amounts it expends in
connection with the provision of personal services to Policyowners and/or
maintenance of Policyowner accounts.
The Fund paid Directors' fees of $72,525, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., 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 fiscal year ended December
31, 1998 are summarized as follows:
Science and
Growth Income Technology
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $476,791,185 $237,925,019 $19,808,170
Purchases of U.S. Government
securities --- 136,656,960 ---
Purchases of short-term
securities 1,250,645,360 2,276,250,365 228,136,999
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 530,010,418 352,273,957 10,013,335
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 1,196,672,399 2,259,978,909 222,154,000
International Small Cap Balanced
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $130,746,866 $220,538,891 $34,427,720
Purchases of U.S. Government
securities 6,261,211 --- 13,231,252
Purchases of short-term
securities 262,482,238 644,702,927 153,011,780
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 117,226,815 213,364,417 35,531,137
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,129,836
Proceeds from maturities
and sales of short-term
securities 263,991,674 633,481,935 145,464,288
Limited-
Asset Strategy Term Bond Bond
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $13,929,296 $1,534,073 $21,548,650
Purchases of U.S. Government
securities 10,099,320 755,690 24,955,370
Purchases of short-term
securities 23,580,639 3,542,835 53,371,763
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 13,995,144 1,307,435 23,201,659
Proceeds from maturities
and sales of U.S.
Government securities 4,128,600 551,557 9,721,511
Proceeds from maturities
and sales of short-term
securities 25,708,753 3,706,000 54,062,594
High
Income
Portfolio
-----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $ 85,236,731
Purchases of U.S. Government
securities 1,587,188
Purchases of short-term
securities 139,622,352
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 72,365,479
Proceeds from maturities
and sales of U.S.
Government securities 1,620,000
Proceeds from maturities
and sales of short-term
securities 139,611,655
For Federal income tax purposes, cost of investments owned at December
31, 1998, and the related unrealized appreciation (depreciation) were as
follows:
For Federal income tax purposes, cost of investments owned at December
31, 1998, and the related unrealized appreciation (depreciation) were as
follows:
Aggregate
Appreciation
CostAppreciationDepreciation(Depreciation)
------------------------------------------------
Growth Portfolio $589,582,053$238,711,983$(3,818,925)$234,893,058
Income Portfolio 566,730,116 249,812,805 (8,357,361) 241,455,444
Science and Technology
Portfolio 26,379,416 9,210,580 (1,021,843) 8,188,737
International Portfolio132,878,064 46,648,783 (7,696,742) 38,952,041
Small Cap Portfolio 181,143,212 23,176,328(19,531,223) 3,645,105
Balanced Portfolio 80,420,547 12,635,895 (1,845,348) 10,790,547
Asset Strategy Portfolio13,724,620 668,732 (266,790) 401,942
Money Market Portfolio 54,165,176 --- --- ---
Limited-Term Bond Portfolio4,386,981 64,100 (3,210) 60,890
Bond Portfolio 108,332,367 4,547,166 (229,268) 4,317,898
High Income Portfolio 126,589,037 3,794,911 (6,214,265) (2,419,354)
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,
Science and Technology, International, Balanced and Asset Strategy
Portfolios realized capital gain net income of $24,740,928, $110,722,842,
$623,709, $13,346,041, $761,232 and $474,359, respectively, during the year
ended December 31, 1998. For Federal income tax purposes, Small Cap
Portfolio realized capital gain net income of $24,172,355 for the year
ended December 31, 1998, which included the effect of certain losses
deferred into the next fiscal year, as well as the effect of losses
recognized from the prior year (see discussion below). For Federal income
tax purposes, Limited-Term Bond Portfolio realized capital gain net income
of $9,156 during the year ended December 31, 1998, 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 losses of $65,442 for the year ended December 31, 1998, which
included the effect of certain losses deferred into the next fiscal year
(see discussion below). For Federal income tax purposes, Bond Portfolio
realized capital gains of $783,100 during the year ended December 31, 1998,
which were entirely offset by capital loss carryovers. In addition, prior
year capital loss carryovers of Bond Portfolio aggregated $1,405,971 as of
December 31, 1998, and are available to offset future realized capital gain
net income as follows: $1,389,275 through December 31, 2002, and $16,696
through December 31, 2004. The capital gain net income of Growth, Income,
Science and Technology, International, Small Cap, Balanced, Asset Strategy
and Limited-Term Bond Portfolios was paid to shareholders during the year
ended December 31, 1998.
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, 1998 through December 31, 1998, Small
Cap, Limited-Term Bond and High Income Portfolios incurred net capital
losses of $1,287,773, $211 and $273,055, respectively, which have been
deferred to the fiscal year ending December 31, 1999. In addition, during
the year ended December 31, 1998, Small Cap Portfolio recognized post-
October losses of $352,811 that had been deferred from the year ended
December 31, 1997.
NOTE 5 -- Name Change
On August 21, 1998, a meeting of shareholders was held at which the
name of the Fund was changed to Target/United Funds, Inc. effective August
31, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Target/United Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Growth Portfolio, Income
Portfolio, Science and Technology 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") comprising Target/United Funds,
Inc. (formerly known as TMK/United Funds, Inc.), as of December 31, 1998,
and the related statements of operations for the fiscal year then ended,
the statements of changes in net assets for each of the two fiscal years in
the period then ended, and the financial highlights for each of the five
fiscal years in the period then ended. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and 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 as of December 31, 1998, 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial positions
of each of the respective Portfolios of Target/United Funds, Inc. as of
December 31, 1998, the results of their operations for the fiscal year then
ended, the changes in their net assets for each of the fiscal years in the
period then ended and the financial highlights for each of the five fiscal
years in the period then ended, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
Shareholder Meeting Results
A special meeting of TMK/United Funds, Inc. Asset Strategy Portfolio,
Balanced Portfolio, Bond Portfolio, Growth Portfolio, High Income
Portfolio, Income Portfolio, International Portfolio, Limited-Term Bond
Portfolio, Money Market Portfolio, Science and Technology Portfolio and
Small Cap Portfolio was held on August 21, 1998. The matters voted upon by
the shareholders and the resulting votes for each matter are presented
below.
Item 1.To change the name of the Fund:
For Against Abstain
226,203,931 37,242,665 14,756,882
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year:
For Against Abstain
260,976,988 3,062,301 14,164,189
Item 3.For Money Market Portfolio only: To approve a change in the
Portfolio's concentration policy:
For Against Abstain
37,470,436 2,615,776 3,035,591
Item 4.To adopt a Service Plan pursuant to Rule 12b-1 under the 1940 Act:
For Against Abstain
Asset Strategy
Portfolio 1,654,769 88,913 228,874
Balanced Portfolio 9,481,231 670,416 1,016,134
Bond Portfolio 15,395,644 1,502,634 1,573,996
Growth Portfolio 70,809,579 5,964,102 7,172,397
High Income Portfolio 21,548,630 1,864,688 2,145,960
Income Portfolio 45,495,300 3,686,344 4,618,938
International
Portfolio 15,947,611 1,174,307 1,447,516
Limited-Term Bond
Portfolio 597,881 2,907 36,115
Money Market Portfolio 36,145,581 3,471,878 3,504,344
Science and
Technology Portfolio 2,035,609 197,460 154,899
Small Cap Portfolio 15,833,601 1,422,411 1,312,809
Item 5.To change the requirements for a quorum for a shareholders meeting:
For Against Abstain
230,742,679 25,454,967 22,005,832
<PAGE>
SUPPLEMENT TO THE PROSPECTUS
The following information replaces the disclosure regarding management
of Target/ United Funds, Inc. High Income portfolio in the section entitled
` `Management' ':
William N. Nelson is primarily responsible for the management of the
portfolio of High Income Portfolio. Mr. Nelson has held his Fund
responsibilities since January 1999. He is Vice President of the Manager
and Vice President of the Fund. Mr. Nelson has been an employee of the
Manager since January 1995. Mr. Nelson was formerly an Investment Manager
with Xerox Credit Corporation.
The following information replaces the disclosure regarding management
of Target/ United Funds, Inc. Small Cap Portfolio in the section entitled
` `Management' ':
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the portfolio of Small Cap Portfolio. Mr. Seferovich has
held his responsibilities for Small Cap Portfolio since the portfolio's
inception to January 1, 1996 and from February, 1999 to the present. He is
Senior Vice President of the Manager, Vice President of the Fund and Vice
President of another investment company for which the Manager serves as
investment as investment manager. From March 1996 to March 1998, Mr.
Seferovich was Vice President of, and a portfolio manager for, Waddell &
Reed Asset Management Company, a former affiliate. Mr. Seferovich has
served as the portfolio manager for investment companies managed by the
Manager, and has been an employee of the Manager, since February 1989.
Mr. Sarris has held his Fund responsibilities since February 1999. He
is Vice President of the Manager and Vice President of another investment
company for which the Manager serves as investment manager. Mr. Sarris has
served as an investment analyst with the Manager, and has been an employee
of the Manager, since October 1, 1991.
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Michael L. Avery, Vice President
James C. Cusser, Vice President
Abel Garcia, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Thomas A. Mengel, Vice President
William M. Nelson, Vice President
Cynthia P. Prince-Fox, Vice President
Philip J. Sanders, Vice President
Grant P. Sarris, Vice President
W. Patrick Sterner, Vice President
Mira Stevovich, Vice President
Russell E. Thompson, Vice President
Daniel J. Vrabac, Vice President
James D. Wineland, Vice President
<PAGE>
Advantage I. A flexible premium variable life insurance policy.
Advantage II. A deferred variable annuity policy.
Advantage Plus. A flexible premium variable life insurance policy.
All three 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, with
capital growth
as a secondary goal.
Invested In: Primarily common stocks or securities convertible into common
stocks.
SCIENCE AND TECHNOLOGY Portfolio
Objective: Long-term capital growth.
Invested in: Common stocks of companies whose products, processes or
services are expected to benefit from scientific or
technological discoveries or developments.
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 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(12-98)
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