TARGET/UNITED FUNDS, INC.
ANNUAL
REPORT
-------------------------------------------
December 31, 1999
<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, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
The accompanying report contains the financial statements of the Target/United
Funds, Inc. for the fiscal period ended December 31, 1999. 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, 1999.
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.
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>
ASSET STRATEGY PORTFOLIOMANAGERS' LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Asset Strategy Portfolio for the
fiscal year ended December 31, 1999. 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 was characterized by uncertainty in global markets.
The Russian financial crisis in the fall of 1998 precipitated recessions for
many developing economies. Brazil suffered a large currency devaluation. Asian
economies were still in dire straits from the currency crises there in 1997-98.
The war in Kosovo created even more instability. Finally, Y2K uncertainties
abounded. The second half of the year had a different focus -- the Federal
Reserve, inflation, and higher interest rates. Although economies around the
world were perceived to be improving, worries in the U.S. grew that the Fed was
in a rate-raising mode. Yet through all of this, the U.S. economy continued to
be strong.
During the first half of the year, the fixed income portion of the Portfolio
remained almost entirely in U.S. Treasuries, with maturities averaging between 5
and 10 years. When the global economy appeared to pick up and inflation
expectations were growing domestically, the focus of the fixed-income portion of
the Portfolio switched to short-term U.S. Treasuries and a small investment into
developing markets. This stance was maintained throughout the second half of
the year. Entering 1999, the Portfolio was underweighted in equities and held
very defensive names. In January, we increased the weighting in stocks to about
50% of assets and broadened the exposure to more growth-oriented securities. In
the fall, we dramatically increased the exposure to stocks. This move was
predicated on the assumption that a move to raise rates by the Federal Reserve
was already discounted by the stock market, U.S. economic growth would remain
moderate with low inflation, and the economic outlook for Europe and Asia would
continue to improve.
The strategies and techniques we applied resulted in the Portfolio outperforming
the 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.
As 2000 begins, we are facing the prospect of higher interest rates until the
Federal Reserve is convinced that inflation will no longer be a problem or until
the U.S. economy and the stock market slow down. The question is, how high must
rates go to meet the Fed's objectives? Secondly, this is an election year, so
there may very well be surprises in store. Due to the underlying strength of
the U.S. economy, we will continue to have significant exposure to the equity
market until there are signs of slowing. The fixed income portion of the
Portfolio will continue to concentrate on short-term Treasuries (for liquidity)
and some developing markets. Given the strong performance of growth stocks
relative to value stocks in 1999, we are de-emphasizing growth in favor of value
names. Although we feel the Portfolio is properly positioned, we have the
flexibility and the reserve position to increase our equity weight quickly.
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
12/31/99 16,639 31,102 13,632 12,909
====Target/United Asset Strategy Portfolio* -- $16,639
++++ S&P 500 Index** -- $31,102
....Salomon Brothers Broad Investment Grade Index** -- $13,632
*-*-Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit** --
$12,909
*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.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 22.96%
4+ Years Ended
12/31/99++ 11.52%
+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 12-31-99.
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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS
Business Services - 6.66%
America Online, Inc.* .................. 3,000 $ 226,313
Clear Channel Communications, Inc.* .... 2,600 232,050
Critical Path, Inc.* ................... 1,700 160,544
DoubleClick Inc.* ...................... 2,000 506,562
TMP Worldwide Inc.* .................... 2,200 311,712
Total ................................. 1,437,181
Cable and Other Pay Television Services - 4.73%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 8,600 488,050
Cox Communications, Inc., Class A* ..... 4,693 241,690
EchoStar Communications Corporation,
Class A* .............................. 3,000 292,125
Total ................................. 1,021,865
Chemicals and Allied Products - 11.58%
American Home Products Corporation ..... 3,600 141,975
Forest Laboratories, Inc.* ............. 8,600 528,363
Lilly (Eli) and Company ................ 4,900 325,850
Merck & Co., Inc. ...................... 3,400 228,012
Monsanto Company ....................... 5,100 181,688
Pharmacia & Upjohn, Inc. ............... 4,100 184,500
Pharmacyclics, Inc.* ................... 5,200 215,150
Schering-Plough Corporation ............ 6,800 286,875
Smith International, Inc.* ............. 2,100 104,344
Warner-Lambert Company ................. 3,700 303,169
Total ................................. 2,499,926
Communication - 0.50%
Tritel, Inc.* .......................... 3,400 107,737
Computer Integrated Systems Design - 1.30%
Yahoo! Inc.* ........................... 650 281,267
Depository Institutions - 1.71%
Bank of America Corporation ............ 3,400 170,637
U. S. Bancorp. ......................... 8,300 197,644
Total ................................. 368,281
Eating and Drinking Places - 3.73%
McDonald's Corporation ................. 6,400 258,000
Papa John's International, Inc.* ....... 8,300 216,578
Wendy's International, Inc. ............ 16,000 330,000
Total ................................. 804,578
Electronic and Other Electric Equipment - 11.66%
Analog Devices, Inc.* .................. 5,000 465,000
Eaton Corporation ...................... 3,900 283,238
Intel Corporation ...................... 4,300 353,809
JDS Uniphase Corporation* .............. 2,400 387,150
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment (Continued)
Maxim Integrated Products, Inc.* ....... 4,800 $ 226,350
Nortel Networks Corporation ............ 2,700 272,700
Rambus Inc.* ........................... 2,900 195,478
STMicroelectronics N.V., NY Shares ..... 2,200 333,163
Total ................................. 2,516,888
Fabricated Metal Products - 1.62%
Parker Hannifin Corporation ............ 6,800 348,925
General Merchandise Stores - 3.56%
BJ's Wholesale Club, Inc.* ............. 10,000 365,000
Dayton Hudson Corporation .............. 5,500 403,906
Total ................................. 768,906
Holding and Other Investment Offices - 1.50%
ABB Ltd. [Sweden] (A)* ................. 1,400 170,800
"Shell" Transport and Trading Company,
p.l.c. (The), ADR ..................... 3,100 152,675
Total ................................. 323,475
Industrial Machinery and Equipment - 2.70%
Applied Materials, Inc.* ............... 2,000 253,313
Cooper Cameron Corporation* ............ 2,600 127,237
SPX Corporation* ....................... 2,500 202,031
Total ................................. 582,581
Instruments and Related Products - 4.02%
Beckman Coulter, Inc. .................. 5,100 259,462
CONMED Corporation* .................... 10,000 259,375
Teradyne, Inc.* ........................ 5,300 349,800
Total ................................. 868,637
Insurance Carriers - 3.56%
American International Group, Inc. ..... 2,775 300,047
Aon Corporation ........................ 2,500 100,000
Lincoln National Corporation ........... 4,400 176,000
ReliaStar Financial Corp. .............. 4,900 192,019
Total ................................. 768,066
Metal Mining - 1.26%
Newmont Mining Corporation ............. 11,100 271,950
Oil and Gas Extraction - 2.67%
Burlington Resources Incorporated ...... 5,400 178,537
Schlumberger Limited ................... 2,600 146,250
Transocean Sedco Forex Inc. ............ 3,603 121,388
USX Corporation - Marathon Group ....... 5,300 130,844
Total ................................. 577,019
Petroleum and Coal Products - 0.33%
Texaco Inc. ............................ 1,300 70,606
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software - 3.50%
Microsoft Corporation* ................. 3,500 $ 408,516
Oracle Corporation* .................... 3,100 347,297
Total ................................. 755,813
Primary Metal Industries - 2.17%
Nucor Corporation ...................... 3,900 213,769
USX Corporation - U.S. Steel Group ..... 7,700 254,100
Total ................................. 467,869
Transportation by Air - 1.01%
Southwest Airlines Co. ................. 13,500 218,531
Transportation Equipment - 5.64%
Ford Motor Company ..................... 4,900 261,844
General Motors Corporation ............. 5,700 414,319
Gentex Corporation* .................... 19,400 540,775
Total ................................. 1,216,938
Transportation Services - 1.51%
Expeditors International of Washington, Inc. 7,500 327,187
Wholesale Trade -- Nondurable Goods - 2.94%
Cardinal Health, Inc. .................. 7,800 373,425
U.S. Foodservice* ...................... 15,600 261,300
Total ................................. 634,725
TOTAL COMMON STOCKS - 79.86% $17,238,951
(Cost: $14,131,866)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Fabricated Metal Products - 0.91%
Crown Cork & Seal Company, Inc.,
7.125%, 9-1-02 ........................ $200 197,452
Finance, Taxation and Monetary Policy - 0.87%
Banco Nacional de Comercio Exterior, S.N.C.,
7.25%, 2-2-04 ......................... 200 187,250
Petroleum and Coal Products - 0.92%
Petroleos Mexicanos (Daily Adjusted Yield
Securities (DAYS)),
8.799%, 7-15-05 ....................... 200 196,750
Radio and Television Broadcasting Stations - 0.99%
Grupo Televisa, S.A.,
11.375%, 5-15-03 ...................... 200 213,500
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Stone, Clay and Glass Products - 0.89%
Vicap, S.A. de C.V.,
10.25%, 5-15-02 ....................... $ 200 $ 193,000
TOTAL CORPORATE DEBT SECURITIES - 4.58% $ 987,952
(Cost: $963,278)
OTHER GOVERNMENT SECURITY - 0.78%
Argentina
Republic of Argentina,
0.0%, 10-15-01 ........................ 200 $ 168,500
(Cost: $170,118)
UNITED STATES GOVERNMENT SECURITY - 6.59%
United States Treasury,
5.625%, 12-31-02 ...................... 1,450 $ 1,423,262
(Cost: $1,443,980)
SHORT-TERM SECURITIES
Fabricated Metal Products - 2.03%
Danaher Corporation,
6.49%, Master Note .................... 438 438,000
Food and Kindred Products - 3.24%
General Mills, Inc.,
6.345%, Master Note ................... 700 700,000
Nondepository Institutions - 2.84%
PACCAR Financial Corp.,
5.2757%, Master Note .................. 612 612,000
TOTAL SHORT-TERM SECURITIES - 8.11% $ 1,750,000
(Cost: $1,750,000)
TOTAL INVESTMENT SECURITIES - 99.92% $21,568,665
(Cost: $18,459,242)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.08% 17,888
NET ASSETS - 100.00% $21,586,553
See Notes to Schedules of Investments on page 89.
<PAGE>
BALANCED PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Balanced Portfolio for the fiscal
year ended December 31, 1999. The discussion, graphs and tables contained in
this report will provide you with information regarding the Portfolio's
performance during that period.
During much of 1999, rising interest rates were of concern to investors. The
Federal Reserve seemed willing to raise rates, and did, in order to keep
inflation and growth in check. As a result, the S&P corrected 10% as rates were
rising and the dollar weakened. This correction proved to be short-lived as the
economic data continued to indicate a resilient economy. On the consumer side,
retail sales, consumer confidence, overall consumption and personal income
maintained an upward trend. On the manufacturing side of the economy,
industrial production grew and inventories remained lean. As the year pressed
on, however, the numbers continued to support that rising productivity would
keep inflation in check despite a strong underlying economy. This, coupled with
the Fed facing Y2K issues and not raising rates, led to a very powerful rally in
the fourth quarter.
While we made no significant changes to our allocation of stocks, bonds, and
cash during the year, we did increase our focus on high quality growth stocks.
Particular attention was given to technology, which represents over 30% of the
S&P 500. We increased our technology exposure to capture some of the powerful
underlying trends that seem to be accelerating through the year. For example,
there was an increase in consolidation/strategic alliances to capture share of
the developing Internet. In addition, the wireless world seemed to be taking
off as more applications are just starting to be developed. Going forward,
these developments should continue to favor the technology sector, especially in
light of mergers like America Online and Time Warner, which will likely force
more spending and consolidation in the technology world.
The strategies and techniques we applied helped the Portfolio outperform the
bond market index and underperform the stock market index charted on the
following page. The performance of the bond market is represented by the
Salomon Brothers Treasury/Government-Sponsored/Corporate Index and the S&P 500
Index reflects securities that generally represent the stock market. Multiple
indexes are presented because the Portfolio invests in stocks and bonds.
The fourth quarter rally in the stock market was certainly impressive,
particularly in the technology sector. However, the markets still must contend
with a Fed that wants to slow the economy down. This may lead the market to be
more valuation-sensitive than we have experienced recently. As a result, we are
cautiously optimistic and will continue to try to provide competitive returns
that are consistent with the objectives of the Portfolio.
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
12/31/99 19,510 36,533 14,514
===== Target/United Balanced Portfolio* -- $19,510
- ----- S&P 500 Index** -- $36,533
..... Salomon Brothers Treasury/Government Sponsored/Corporate Index** --
$14,514
*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.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 10.14%
5 Years Ended
12/31/99 14.39%
5+ Years Ended
12/31/99++ 12.52%
+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 12-31-99.
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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.62%
Walt Disney Company (The) .............. 25,000 $ 731,250
Building Materials and Garden Supplies - 0.91%
Home Depot, Inc. (The) ................. 15,538 1,065,358
Business Services - 1.77%
Clear Channel Communications, Inc.* .... 9,000 803,250
Young & Rubicam Inc. ................... 18,000 1,273,500
Total ................................. 2,076,750
Cable and Other Pay Television Services - 0.88%
Cox Communications, Inc., Class A* ..... 20,000 1,030,000
Chemicals and Allied Products - 4.45%
Air Products and Chemicals, Inc. ....... 29,700 996,806
Lilly (Eli) and Company ................ 5,500 365,750
Merck & Co., Inc. ...................... 12,000 804,750
Pfizer Inc. ............................ 26,000 843,375
Pharmacia & Upjohn, Inc. ............... 12,000 540,000
Procter & Gamble Company (The) ......... 6,100 668,331
Warner-Lambert Company ................. 12,200 999,638
Total ................................. 5,218,650
Communication - 1.88%
Bell Atlantic Corporation .............. 7,500 461,719
Nextel Communications, Inc.* ........... 9,000 927,844
SBC Communications Inc. ................ 16,600 809,250
Total ................................. 2,198,813
Depository Institutions - 1.70%
Bank of America Corporation ............ 20,089 1,008,217
Comerica Incorporated .................. 10,000 466,875
U. S. Bancorp. ......................... 21,700 516,731
Total ................................. 1,991,823
Eating and Drinking Places - 0.34%
Wendy's International, Inc. ............ 19,200 396,000
Electric, Gas and Sanitary Services - 0.92%
Reliant Energy ......................... 12,000 274,500
Unicom Corporation ..................... 24,000 804,000
Total ................................. 1,078,500
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 8.10%
Analog Devices, Inc.* .................. 20,000 $ 1,860,000
Eaton Corporation ...................... 12,000 871,500
General Electric Company ............... 7,000 1,083,250
Intel Corporation ...................... 12,000 987,375
Koninklijke Philips Electronics N.V.,
NY Shares ............................. 10,000 1,350,000
Maxim Integrated Products, Inc.* ....... 17,000 801,656
Motorola, Inc. ......................... 11,300 1,663,925
Texas Instruments Incorporated ......... 9,100 881,563
Total ................................. 9,499,269
Fabricated Metal Products - 1.02%
Parker Hannifin Corporation ............ 23,400 1,200,713
Food and Kindred Products - 1.46%
PepsiCo, Inc. .......................... 29,500 1,039,875
Seagram Company Ltd. (The) ............. 15,000 674,063
Total ................................. 1,713,938
Food Stores - 0.72%
Kroger Co. (The)* ...................... 45,000 849,375
General Merchandise Stores - 2.16%
BJ's Wholesale Club, Inc.* ............. 20,000 730,000
Dayton Hudson Corporation .............. 9,500 697,656
Wal-Mart Stores, Inc. .................. 16,000 1,106,000
Total ................................. 2,533,656
Holding and Other Investment Offices - 0.41%
Plum Creek Timber Company, Inc. ........ 19,200 480,000
Industrial Machinery and Equipment - 3.94%
Apple Computer, Inc.* .................. 9,200 945,587
Applied Materials, Inc.* ............... 8,900 1,127,241
EMC Corporation* ....................... 14,500 1,584,125
Hewlett-Packard Company ................ 8,400 957,075
Total ................................. 4,614,028
Instruments and Related Products - 0.49%
Emerson Electric Co. ................... 10,000 573,750
Insurance Agents, Brokers and Service - 0.74%
Hartford Financial Services Group Inc. (The) 18,200 862,225
Insurance Carriers - 1.01%
Lincoln National Corporation ........... 15,000 600,000
ReliaStar Financial Corp. .............. 15,000 587,812
Total ................................. 1,187,812
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Motion Pictures - 1.39%
News Corporation Limited (The), ADR .... 20,000 $ 765,000
Time Warner Incorporated ............... 12,000 869,250
Total ................................. 1,634,250
Nondepository Institutions - 1.38%
Fannie Mae ............................. 12,000 749,250
Freddie Mac ............................ 18,400 865,950
Total ................................. 1,615,200
Oil and Gas Extraction - 1.73%
Burlington Resources Incorporated ...... 32,600 1,077,837
Schlumberger Limited ................... 15,200 855,000
Transocean Sedco Forex Inc. ............ 2,943 99,133
Total ................................. 2,031,970
Paper and Allied Products - 2.03%
Champion International Corporation ..... 10,800 668,925
Consolidated Papers, Inc. .............. 31,500 1,002,094
International Paper Company ............ 12,500 705,469
Total ................................. 2,376,488
Petroleum and Coal Products - 1.39%
BP Amoco p.l.c., ADR ................... 10,160 602,615
Exxon Mobil Corporation ................ 12,673 1,020,969
Total ................................. 1,623,584
Prepackaged Software - 4.89%
BMC Software, Inc.* .................... 15,900 1,270,509
Citrix Systems, Inc.* .................. 10,000 1,229,688
Intuit Inc.* ........................... 12,000 718,875
Microsoft Corporation* ................. 11,900 1,388,953
Oracle Corporation* .................... 10,000 1,120,312
Total ................................. 5,728,337
Primary Metal Industries - 0.38%
Corus Group plc, ADR ................... 17,000 439,875
Printing and Publishing - 1.28%
Belo (A. H.) Corporation, Class A ...... 23,800 453,687
Meredith Corporation ................... 25,000 1,042,188
Total ................................. 1,495,875
Radio and Television Broadcasting Stations - 1.10%
Hearst-Argyle Television, Inc.* ........ 21,000 559,125
Sinclair Broadcast Group, Inc.* ........ 60,000 733,125
Total ................................. 1,292,250
Stone, Clay and Glass Products - 0.93%
Corning Incorporated ................... 8,500 1,095,969
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Transportation by Air - 0.99%
UAL Corporation* ....................... 15,000 $ 1,163,437
Transportation Equipment - 1.63%
Boeing Company (The) ................... 25,000 1,039,062
General Motors Corporation ............. 12,000 872,250
Total ................................. 1,911,312
Trucking and Warehousing - 0.82%
CNF Transportation Inc. ................ 28,000 966,000
Water Transportation - 0.82%
Carnival Corporation, Class A .......... 20,000 956,250
TOTAL COMMON STOCKS - 54.28% $63,632,707
(Cost: $48,622,947)
PREFERRED STOCK - 0.81%
Cable and Other Pay Television Services
Cox Communications, Inc., 7.0% (Convertible) 14,000 $ 952,000
(Cost: $ 700,000)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Apparel and Accessory Stores - 2.06%
Gap, Inc. (The),
6.9%, 9-15-07 ......................... $ 2,500 2,414,675
Business Services - 0.76%
Clear Channel Communications, Inc.,
2.625%, 4-1-03 (Convertible) .......... 600 888,000
Chemicals and Allied Products - 0.22%
American Home Products Corporation,
7.9%, 2-15-05 ......................... 250 254,700
Communication - 0.12%
Southwestern Bell Telephone Company,
5.77%, 10-14-03 ....................... 150 143,910
Depository Institutions - 0.20%
Wachovia Corporation,
6.25%, 8-4-08 ......................... 250 230,185
Electronic and Other Electric Equipment - 0.23%
STMicroelectronics N.V.,
0.0%, 9-22-09 (Convertible) ........... 200 274,500
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Kindred Products - 0.42%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-36 ........................ $ 500 $ 493,950
Industrial Machinery and Equipment - 0.20%
Tyco International Group S.A.,
6.375%, 6-15-05 ....................... 250 234,195
Nondepository Institutions - 0.85%
National Rural Utilities Cooperative
Finance Corp.,
6.1%, 12-22-00 ........................ 1,000 995,790
Transportation by Air - 0.31%
Southwest Airlines Co.,
7.875%, 9-1-07 ........................ 360 359,593
TOTAL CORPORATE DEBT SECURITIES - 5.37% $ 6,289,498
(Cost: $6,192,392)
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.51%, 5-6-08 ......................... 750 706,642
6.19%, 7-7-08 ......................... 500 460,390
7.0%, 9-1-25 .......................... 2,170 2,097,884
Government National Mortgage Association,
6.5%, 8-15-28 ......................... 1,428 1,340,366
United States Treasury:
7.125%, 2-29-00 ....................... 500 501,405
5.25%, 1-31-01 ........................ 2,000 1,981,880
6.375%, 8-15-02 ....................... 1,100 1,102,409
7.5%, 2-15-05 ......................... 2,250 2,346,683
6.5%, 8-15-05 ......................... 4,000 4,000,000
7.25%, 8-15-22 ........................ 4,000 4,216,880
6.25%, 8-15-23 ........................ 5,250 4,949,752
6.75%, 8-15-26 ........................ 3,000 3,014,070
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 22.79% 26,718,361
(Cost: $28,595,107)
SHORT-TERM SECURITIES
Commercial Paper
Depository Institutions - 2.56%
Deutsche Bank Financial Inc.,
6.75%, 1-6-00 ......................... 3,000 2,997,188
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services - 1.70%
Bay State Gas Co.,
6.15%, 1-12-00 ........................ $2,000 $ 1,996,242
Fabricated Metal Products - 4.27%
Danaher Corporation,
6.49%, Master Note .................... 5,009 5,009,000
Food and Kindred Products - 1.47%
General Mills, Inc.,
6.345%, Master Note ................... 1,717 1,717,000
Nondepository Institutions - 2.60%
PACCAR Financial Corp.,
5.2757%, Master Note .................. 3,052 3,052,000
Total Commercial Paper - 12.60% 14,771,430
Commercial Paper (backed by irrevocable bank
letter of credit) - 4.09%
Nondepository Institutions
Agway Financial Corp. (Rabobank Nederland),
5.0%, 1-5-00 .......................... 4,800 4,797,333
TOTAL SHORT-TERM SECURITIES - 16.69% $ 19,568,763
(Cost: $19,568,763)
TOTAL INVESTMENT SECURITIES - 99.94% $117,161,329
(Cost: $103,679,209)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.06% 71,637
NET ASSETS - 100.00% $117,232,966
See Notes to Schedules of Investments on page 89.
<PAGE>
BOND PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Bond Portfolio for the fiscal year
ended December 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Portfolio's performance during that period.
The Portfolio had a difficult year mainly because of the economic excesses of
the prior year. During the fall of 1998, the world's financial system faced
disaster: a nuclear nation defaulted on its debt, underdeveloped nations could
not find markets for their commodities, and financial market-makers refused to
make markets. Wealth from all over the globe poured into the U.S. Treasury
market as a safe haven. This pushed long-term interest rates near the 4.75%
mark, a low not seen since the Treasury started offering long-term bonds in the
1970s. The world's central bankers flooded the financial systems with paper
money and avoided a meltdown. The price of this salvation was artificially low
interest rates in late 1998. Interest rates rose steadily throughout the year
as the Federal Reserve took back its "easings." The easy transition to the year
2000 further reduced the seeming need for the relative safety of the bond
markets. And the Fed seems to have promised us another rise in short rates
sometime soon into 2000. These factors, plus a continued asset reallocation
away from bonds to equities, combined to make it a tough year for bonds.
The only saving grace was that the Portfolio did well vis-a-vis its peer funds
in 1999. At the beginning of the year, the Portfolio had about 35% of its
portfolio in so-called put bonds. These bonds become more sensitive to interest
rates when rates fall, thereby producing greater returns than other bonds of the
same starting duration. Conversely, these bonds contract in duration when rates
rise, as in 1999. At the beginning of the year, no put bonds in the Portfolio
were priced to put. Thus, they all acted like long-term bonds, which are more
sensitive to interest rate changes. By the end of the year, more than half of
these put bonds were priced to their respective put dates (about three to five
years). As a result, the Portfolio's sensitivity to a rising rate environment
was reduced substantially over the year, and this produced better than average
results. Another factor was the Portfolio's substantial exposure to corporate
bonds, which did well compared to Treasuries over the course of 1999. As 1998
"pushed out" the interest rate spreads of corporate bonds due to the liquidity
crisis, investors returned to the more risky corporate bonds (vis-a-vis Treasury
market) as the economy settled in 1999, thereby producing better returns in that
segment of the market. Finally, last winter the Portfolio invested in some
developing market debt. Although it was only a small position, the developing
market debt proved to be a positive contributor to the Portfolio's performance.
The strategies and techniques we applied resulted in the Portfolio's performance
remaining slightly below 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 economy is still "hot" and the Federal Reserve seems to have promised more
rate hikes. The world is still recovering from its slow growth over the past
several years, and investors seemingly want to reallocate from bonds generally,
and U.S. investments specifically. This would seem to bode poorly for U.S.
bonds, which comprise most of the Portfolio. Making matters worse is that this
is an election year. There is no telling what the candidates may say that could
harm the capital markets. However, if the economy slows or the stock market
falters, the Portfolio may do well. The Portfolio is invested largely in
investment grade debt -- we have reduced our non-investment grade exposure from
about 17% last year to about 4% currently. When we see signs of economic
slowing, or if the Fed goes too far in raising rates, we anticipate that we will
extend our duration by purchasing longer-term U.S. Treasury bonds and thereby
increase our exposure to declining interest rates.
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
---------- -----------
12/31/89 Purchase $10,000 $10,000
12/31/90 10,704 10,909
12/31/91 12,437 12,651
12/31/92 13,391 13,611
12/31/93 15,046 14,958
12/31/94 14,158 14,532
12/31/95 17,067 17,228
12/31/96 17,653 17,851
12/31/97 19,378 19,569
12/31/98 20,802 21,274
12/31/99 20,503 21,097
+++++ Target/United Bond Portfolio* -- $20,503
..... The Salomon Brothers Broad Investment Grade Index -- $21,097
*The value of the investment in the Fund is impacted by the ongoing expenses of
the Fund and assumes reinvestment of dividends and distributions.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 -1.44%
5 Years Ended
12/31/99 7.69%
10 Years Ended
12/31/99 7.45%
+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 PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Cable and Other Pay Television Services - 1.86%
Cox Trust II,
7.0%, 8-16-04 ......................... $ 500 $ 486,105
Jones Intercable, Inc.,
9.625%, 3-15-02 ....................... 500 519,640
Tele-Communications, Inc.,
8.35%, 2-15-05 ........................ 1,000 1,050,740
Total ................................. 2,056,485
Chemicals and Allied Products - 1.94%
Procter & Gamble Company (The),
8.0%, 9-1-24 .......................... 2,000 2,148,160
Communication - 0.90%
BellSouth Telecommunications, Inc.,
5.85%, 11-15-45 ....................... 1,000 994,250
Depository Institutions - 9.10%
AmSouth Bancorporation,
6.75%, 11-1-25 ........................ 2,000 1,912,700
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-05 ........................ 500 477,500
First Union Corporation:
6.824%, 8-1-26 ........................ 1,132 1,111,658
6.55%, 10-15-35 ....................... 525 502,068
Kansallis-Osake-Pankki,
10.0%, 5-1-02 ......................... 1,000 1,055,910
National Westminster Bank plc,
7.375%, 10-1-09 ....................... 750 732,922
NationsBank Corporation,
8.57%, 11-15-24 ....................... 1,000 1,072,760
SouthTrust Bank of Alabama, National
Association:
5.58%, 2-6-06 ......................... 2,000 1,975,400
7.69%, 5-15-25 ........................ 500 500,460
Wachovia Corporation,
6.605%, 10-1-25 ....................... 750 718,065
Total ................................. 10,059,443
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 7.95%
California Infrastructure and Economic
Development Bank, Special Purpose
Trust:
PG&E-1,
6.42%, 9-25-08 ........................ $ 1,000 $ 967,920
SCE-1,
6.38%, 9-25-08 ........................ 1,000 964,060
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-05 ......................... 678 705,988
Entergy Arkansas, Inc.,
7.5%, 8-1-07 .......................... 750 760,178
Kansas Gas and Electric Company,
7.6%, 12-15-03 ........................ 1,000 1,011,040
Korea Electric Power Corporation,
6.375%, 12-1-03 ....................... 500 474,195
Niagara Mohawk Power Corporation,
7.375%, 7-1-03 ........................ 756 752,801
TXU Eastern Funding Company,
6.45%, 5-15-05 ........................ 1,750 1,649,375
Union Electric Co.,
8.25%, 10-15-22 ....................... 1,500 1,500,615
Total ................................. 8,786,172
Electronic and Other Electric Equipment - 1.45%
Motorola, Inc.,
8.4%, 8-15-31 ......................... 1,500 1,606,020
Food and Kindred Products - 2.55%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-05 .......................... 500 491,430
Coca-Cola Enterprises Inc.,
0.0%, 6-20-20 ......................... 9,000 1,828,800
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-06 ........................ 500 500,000
Total ................................. 2,820,230
General Merchandise Stores - 0.66%
Fred Meyer, Inc.:
7.15%, 3-1-03 ......................... 250 246,825
7.45%, 3-1-08 ......................... 500 486,900
Total ................................. 733,725
Health Services - 0.44%
Tenet Healthcare Corporation,
7.875%, 1-15-03 ....................... 500 485,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Holding and Other Investment Offices - 1.77%
Bay Apartment Communities, Inc.,
6.5%, 1-15-05 ......................... $ 500 $ 462,520
GRUMA, S.A. de C.V.,
7.625%, 10-15-07 ...................... 500 436,250
NBD Bank, National Association,
8.25%, 11-1-24 ........................ 1,000 1,051,830
Total ................................. 1,950,600
Industrial Machinery and Equipment - 0.44%
Coltec Industries Inc.,
7.5%, 4-15-08 ......................... 500 482,675
Insurance Carriers - 0.41%
Reliance Group Holdings, Inc.,
9.0%, 11-15-00 ........................ 500 450,000
Nondepository Institutions - 6.04%
Asset Securitization Corporation,
7.49%, 4-14-29 ........................ 1,244 1,238,240
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-10 (B) .................... 1,500 1,380,000
General Motors Acceptance Corporation,
8.875%, 6-1-10 ........................ 500 547,520
IMC Home Equity Loan Trust,
6.9%, 1-20-22 ......................... 1,000 987,810
Norse CBO, Ltd. and Norse CBO, Inc.,
6.515%, 8-13-10 (B) ................... 1,250 1,167,975
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-24 ........................ 816 820,900
Westinghouse Electric Corporation,
8.875%, 6-14-14 ....................... 500 537,515
Total ................................. 6,679,960
Oil and Gas Extraction - 1.74%
Anadarko Petroleum Corporation,
7.25%, 3-15-25 ........................ 1,000 1,000,180
Mitchell Energy & Development Corp.,
9.25%, 1-15-02 ........................ 27 27,625
Oryx Energy Company,
10.0%, 4-1-01 ......................... 400 412,252
Pemex Finance Ltd.,
5.72%, 11-15-03 ....................... 500 486,250
Total ................................. 1,926,307
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products - 2.20%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-02 ........................ $ 1,000 $ 1,030,930
Champion International Corporation,
6.4%, 2-15-26 ......................... 1,500 1,403,265
Total ................................. 2,434,195
Petroleum and Coal Products - 1.33%
Conoco Inc.,
5.9%, 4-15-04 ......................... 500 477,335
YPF Sociedad Anoima,
8.0%, 2-15-04 ......................... 1,000 990,120
Total ................................. 1,467,455
Printing and Publishing - 1.48%
Quebecor Printing Capital Corporation,
6.5%, 8-1-27 .......................... 1,750 1,629,250
Railroad Transportation - 0.52%
CSX Corporation,
6.95%, 5-1-27 ......................... 575 571,056
Security and Commodity Brokers - 0.93%
Salomon Inc.,
3.65%, 2-14-02 ........................ 1,000 1,032,340
Stone, Clay and Glass Products - 1.55%
Cemex, S.A. de C.V.,
9.5%, 9-20-01 ......................... 500 511,250
Owens-Illinois, Inc.,
7.15%, 5-15-05 ........................ 750 693,442
USG Corporation,
9.25%, 9-15-01 ........................ 500 511,600
Total ................................. 1,716,292
Transportation Equipment - 0.42%
Federal-Mogul Corporation,
7.75%, 7-1-06 ......................... 500 462,965
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
United States Postal Service - 0.20%
Postal Square Limited Partnership,
6.5%, 6-15-22 ......................... $ 241 $ 217,033
TOTAL CORPORATE DEBT SECURITIES - 45.88% $50,709,613
(Cost: $52,406,184)
OTHER GOVERNMENT SECURITIES
Canada - 4.16%
Hydro-Quebec:
8.05%, 7-7-24 ......................... 1,000 1,056,140
7.4%, 3-28-25 ......................... 1,000 1,075,630
Province de Quebec:
5.67%, 2-27-26 ........................ 1,500 1,484,175
6.29%, 3-6-26 ......................... 1,000 979,230
Total ................................. 4,595,175
Korea - 0.45%
Korea Development Bank (The),
7.9%, 2-1-02 .......................... 500 501,040
Supranational - 0.98%
Inter-American Development Bank,
8.4%, 9-1-09 .......................... 1,000 1,086,190
TOTAL OTHER GOVERNMENT SECURITIES - 5.59% $ 6,182,405
(Cost: $6,145,540)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-07 ......................... 1,008 1,013,484
6.5%, 9-25-18 ......................... 500 480,310
7.5%, 4-15-19 ......................... 1,455 1,460,041
6.25%, 1-15-21 ........................ 4,000 3,877,480
Federal National Mortgage Association:
6.09%, 4-1-09 ......................... 1,988 1,815,996
0.0%, 2-12-18 ......................... 2,500 682,450
7.0%, 9-25-20 ......................... 500 493,280
6.5%, 8-25-21 ......................... 500 482,340
7.0%, 6-1-24 .......................... 2,353 2,274,695
6.0%, 12-1-28 ......................... 2,615 2,391,517
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Government National Mortgage Association:
7.5%, 7-15-23 ......................... $ 943 $ 937,466
7.5%, 12-15-23 ........................ 1,316 1,308,257
8.0%, 9-15-25 ......................... 850 864,081
7.0%, 7-20-27 ......................... 453 435,326
7.0%, 8-20-27 ......................... 949 911,883
7.5%, 7-15-29 ......................... 1,991 1,969,076
7.75%, 10-15-31 ....................... 315 315,069
United States Treasury:
6.625%, 3-31-02 ....................... 2,000 2,013,740
5.5%, 3-31-03 ......................... 2,000 1,950,320
7.5%, 2-15-05 ......................... 500 521,485
6.5%, 8-15-05 ......................... 1,500 1,500,000
6.5%, 10-15-06 ........................ 4,000 3,989,360
11.25%, 2-15-15 ....................... 500 706,795
6.125%, 11-15-27 ...................... 14,750 13,726,645
Miscellaneous United States Government Backed
Securities:
Tennessee Valley Authority,
5.88%, 4-1-36 ....................... 750 702,773
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust:
1997-2 Class C,
7.5%, 8-15-17 ....................... 2,000 2,005,620
1998-1 Class 2-B,
7.0%, 6-15-19 ....................... 250 248,045
1999-2 Class 1-B,
6.5%, 7-15-19 ....................... 1,000 971,560
1999 Class 3-B,
6.5%, 2-15-20 ....................... 500 475,780
TOTAL UNITED STATES GOVERNMENT SECURITIES - 45.71% $ 50,524,874
(Cost: $52,292,360)
TOTAL SHORT-TERM SECURITIES - 1.49% $ 1,649,000
(Cost: $1,649,000)
TOTAL INVESTMENT SECURITIES - 98.67% $109,065,892
(Cost: $112,493,084)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.33% 1,470,264
NET ASSETS - 100.00% $110,536,156
See Notes to Schedules of Investments on page 89.
<PAGE>
GROWTH PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Growth Portfolio for the fiscal year
ended December 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Portfolio's performance during that period.
Despite upward pressure on interest rates, the U.S. equity market posted another
strong year of performance in 1999. Stocks benefited from the favorable
backdrop provided by rising corporate profits, continued economic growth and a
benign inflation environment. Once again, however, the market's advance was
relatively narrow as almost half of the stocks in the S&P 500 index actually had
negative returns. It was a year in which investors' appetite for risk was
largely rewarded. The market's healthy return was predominantly powered by high
growth issues residing in the technology sector.
Our investment philosophy continues to be based on the belief that investors
will only award premium long-term valuations to those companies that possess
superior growth and profitability characteristics on an ongoing basis. Thus, we
focus on high quality, industry leading companies that possess sustainable
competitive advantages and are well positioned to benefit from secular trends
embedded in the marketplace. An assessment of the top-down macro environment
and individual stock valuation metrics are also considered when evaluating the
appropriate price to pay for a specific security.
The strategies and techniques we applied resulted in the Portfolio significantly
outperforming the S&P 500 Index during 1999, as charted on the following page.
Primary drivers of the outperformance were the Portfolio's above-average
exposure to the technology sector (especially semiconductors, software,
networking and telecom equipment) and certain growth retailers, as well as
below-average exposure to underperforming sectors such as financials, consumer
staples, transportation and utilities.
Looking forward, we anticipate some market volatility as investors balance the
strong corporate profit environment with higher interest rates and relatively
high stock market valuations. Amid this backdrop, we will remain focused on
identifying attractively valued companies poised to deliver superior earnings
growth on a sustainable basis. Technology will likely remain an area of
emphasis given the trend toward productivity-driven capital spending, the
emergence of corporate e-commerce initiatives and the burgeoning growth of the
Internet. We also see opportunities in the healthcare sector as we expect
election year discussions of Medicare reform to temporarily depress valuations
of certain high-quality pharmaceutical companies that continue to benefit from
strong underlying unit demand and favorable demographic trends. The basic
materials, capital goods and utilities sectors are likely to remain
underweighted given their below average long-term 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
---------- -----
12/31/89 Purchase $10,000 $10,000
12/31/90 9,466 9,690
12/31/91 12,884 12,642
12/31/92 15,569 13,606
12/31/93 17,752 14,976
12/31/94 18,176 15,174
12/31/95 25,185 20,877
12/31/96 28,309 25,670
12/31/97 34,381 34,216
12/31/98 43,771 44,035
12/31/99 58,807 53,313
- ----- Target/United Growth Portfolio* -- $58,807
+++++ S&P 500 Index -- $53,313
*The value of the investment in the Fund is impacted by the ongoing expenses of
the Fund and assumes reinvestment of dividends and distributions.
Avaerage Annual Total Return+
----------------------------
Year Ended
12/31/99 34.35%
5 Years Ended
12/31/99 26.47%
10 Years Ended
12/31/99 19.38%
+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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.54%
Walt Disney Company (The) .............. 215,000 $ 6,288,750
Building Materials and Garden Supplies - 2.40%
Home Depot, Inc. (The) ................. 225,000 15,426,563
Lowe's Companies, Inc. ................. 210,000 12,547,500
Total ................................. 27,974,063
Business Services - 2.53%
America Online, Inc.* .................. 145,000 10,938,437
CheckFree Holdings Corporation* ........ 30,000 3,157,500
Clear Channel Communications, Inc.* .... 171,400 15,297,450
Total ................................. 29,393,387
Cable and Other Pay Television Services - 2.88%
Comcast Corporation, Class A ........... 200,000 10,106,250
Cox Communications, Inc., Class A* ..... 115,000 5,922,500
Viacom Inc., Class B* .................. 290,000 17,526,875
Total ................................. 33,555,625
Chemicals and Allied Products - 13.47%
Bristol-Myers Squibb Company ........... 172,200 11,053,087
Forest Laboratories, Inc.* ............. 140,000 8,601,250
Johnson & Johnson ...................... 197,200 18,364,250
Lilly (Eli) and Company ................ 150,000 9,975,000
Merck & Co., Inc. ...................... 295,000 19,783,438
Monsanto Company ....................... 140,000 4,987,500
Pfizer Inc. ............................ 355,000 11,515,312
Pharmacia & Upjohn, Inc. ............... 250,000 11,250,000
Procter & Gamble Company (The) ......... 100,000 10,956,250
Schering-Plough Corporation ............ 389,400 16,427,813
Smith International, Inc.* ............. 210,000 10,434,375
Warner-Lambert Company ................. 283,700 23,245,669
Total ................................. 156,593,944
Communication - 1.51%
Lucent Technologies Inc. ............... 110,000 8,229,375
Nextel Communications, Inc.* ........... 90,000 9,278,437
Total ................................. 17,507,812
Computer Integrated Systems Design - 1.12%
Yahoo! Inc.* ........................... 30,000 12,981,562
Depository Institutions - 2.39%
Bank of America Corporation ............ 180,000 9,033,750
Chase Manhattan Corporation (The) ...... 115,000 8,934,062
Citigroup Inc. ......................... 177,500 9,862,344
Total ................................. 27,830,156
Eating and Drinking Places - 1.17%
McDonald's Corporation ................. 170,000 6,853,125
Wendy's International, Inc. ............ 325,000 6,703,125
Total ................................. 13,556,250
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 17.11%
ADC Telecommunications, Inc.* .......... 75,000$ 5,439,844
Analog Devices, Inc.* .................. 215,000 19,995,000
General Electric Company ............... 179,500 27,777,625
Intel Corporation ...................... 348,600 28,683,244
JDS Uniphase Corporation* .............. 90,000 14,518,125
Motorola, Inc. ......................... 170,000 25,032,500
Nokia Corporation, Series A, ADR ....... 105,000 19,950,000
Nortel Networks Corporation ............ 215,000 21,715,000
Rambus Inc.* ........................... 70,000 4,718,438
Tellabs* ............................... 85,000 5,453,281
Texas Instruments Incorporated ......... 110,000 10,656,250
Xilinx, Inc.* .......................... 330,000 15,004,688
Total ................................. 198,943,995
Fabricated Metal Products - 0.99%
Parker Hannifin Corporation ............ 225,000 11,545,313
Food and Kindred Products - 3.72%
Anheuser-Busch Companies, Inc. ......... 210,000 14,883,750
Pepsi Bottling Group, Inc. ............. 350,000 5,796,875
PepsiCo, Inc. .......................... 400,000 14,100,000
Ralston-Ralston Purina Group ........... 305,000 8,501,875
Total ................................. 43,282,500
Furniture and Home Furnishings Stores - 0.98%
Best Buy Co., Inc.* .................... 105,000 5,269,688
Circuit City Stores, Inc. -
Circuit City Group .................... 135,000 6,083,437
Total ................................. 11,353,125
General Merchandise Stores - 3.17%
BJ's Wholesale Club, Inc.* ............. 335,000 12,227,500
Dayton Hudson Corporation .............. 335,000 24,601,562
Total ................................. 36,829,062
Industrial Machinery and Equipment - 10.03%
Applied Materials, Inc.* ............... 113,000 14,312,156
Cisco Systems, Inc.* ................... 377,850 40,465,373
Cooper Cameron Corporation* ............ 210,000 10,276,875
Dell Computer Corporation* ............. 165,000 8,409,844
Dover Corporation ...................... 325,000 14,746,875
EMC Corporation* ...................... 179,200 19,577,600
SPX Corporation* ....................... 110,000 8,889,375
Total ................................. 116,678,098
Instruments and Related Products - 2.62%
Guidant Corporation* ................... 161,000 7,567,000
Medtronic, Inc. ........................ 230,000 8,380,625
Teradyne, Inc.* ........................ 220,000 14,520,000
Total ................................. 30,467,625
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers - 1.36%
American International Group, Inc. ..... 145,875$ 15,772,734
Miscellaneous Retail - 0.61%
Walgreen Co. ........................... 241,600 7,066,800
Motion Pictures - 1.53%
Time Warner Incorporated ............... 246,000 17,819,625
Nondepository Institutions - 2.46%
Fannie Mae ............................. 318,600 19,892,587
Freddie Mac ............................ 185,000 8,706,563
Total ................................. 28,599,150
Oil and Gas Extraction - 2.86%
Burlington Resources Incorporated ...... 350,000 11,571,875
Schlumberger Limited ................... 345,100 19,411,875
Transocean Sedco Forex Inc. ............ 66,811 2,250,708
Total ................................. 33,234,458
Petroleum and Coal Products - 1.45%
Exxon Mobil Corporation ................ 210,000 16,918,125
Prepackaged Software - 11.98%
BMC Software, Inc.* .................... 140,000 11,186,875
Citrix Systems, Inc.* .................. 45,000 5,533,594
Computer Associates International, Inc. 255,000 17,834,062
Compuware Corporation* ................. 325,000 12,096,094
Intuit Inc.* ........................... 160,000 9,585,000
Microsoft Corporation* ................. 429,000 50,072,344
Oracle Corporation* .................... 295,000 33,049,219
Total ................................. 139,357,188
Printing and Publishing - 1.02%
Gannett Co., Inc. ...................... 145,000 11,826,563
Radio and Television Broadcasting Stations - 1.30%
Infinity Broadcasting Corporation,
Class A* .............................. 417,200 15,097,425
Security and Commodity Brokers - 0.86%
Morgan Stanley, Dean Witter, Discover & Co. 70,000 9,992,500
Transportation Equipment - 1.30%
Harley-Davidson, Inc. .................. 235,300 15,073,906
Water Transportation - 1.50%
Carnival Corporation, Class A .......... 203,000 9,705,937
Royal Caribbean Cruises Ltd. ........... 158,000 7,791,375
Total ................................. 17,497,312
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade -- Nondurable Goods - 0.55%
U.S. Foodservice* ...................... 380,000$ 6,365,000
TOTAL COMMON STOCKS - 95.41% $1,109,402,053
(Cost: $732,453,656)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Depository Institutions - 2.24%
Dresdner U.S. Finance Inc.,
6.23%, 1-10-00 ........................ $10,000 9,984,425
Toronto-Dominion Holdings USA Inc.,
6.9%, 1-10-00 ......................... 5,000 4,991,375
UBS Finance (DE) Inc.,
4.4%, 1-5-00 .......................... 11,000 10,994,622
Total ................................. 25,970,422
Fabricated Metal Products - 0.12%
Danaher Corporation,
6.49%, Master Note .................... 1,409 1,409,000
Food and Kindred Products - 1.59%
Conagra Inc.,
5.95%, 1-13-00 ........................ 5,000 4,990,083
General Mills, Inc.,
6.345%, Master Note ................... 541 541,000
Ralston Purina Co.:
6.6%, 1-19-00 ......................... 10,000 9,967,000
6.62%, 1-24-00 ........................ 3,000 2,987,312
Total ................................. 18,485,395
Nondepository Institutions - 1.16%
Associates First Capital Corp.,
4.0%, 1-3-00 .......................... 5,500 5,498,778
PACCAR Financial Corp.,
5.2757%, Master Note .................. 5,005 5,005,000
Textron Financial Corp.,
8.3%, 1-5-00 .......................... 3,000 2,997,233
Total ................................. 13,501,011
TOTAL SHORT-TERM SECURITIES - 5.11% $ 59,365,828
(Cost: $59,365,828)
TOTAL INVESTMENT SECURITIES - 100.52% $1,168,767,881
(Cost: $791,819,484)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.52%) $ (6,019,976)
NET ASSETS - 100.00% $1,162,747,905
See Notes to Schedules of Investments on page 89.
<PAGE>
HIGH INCOME PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the High Income Portfolio for the fiscal
year ended December 31, 1999. The following discussion, graphs and tables
provide you with information regarding the Portfolio's performance during that
period.
The overriding themes again in 1999 were the economy and the stance taken by the
Federal Reserve in dealing with interest rates following the global financial
crisis of 1998. In the early part of 1999, and again later in the year, the
focus of the market was on the telecommunications and media arenas, with the
equity markets rewarding these sectors.
We limited the Portfolio's investments in developing markets and concentrated on
the U.S., Canada and Europe, while Asia continued to lag in its recovery. We
added equity investments on a limited basis in the telecommunications and media
sectors to enhance performance, as merger and acquisition activity continued in
these sectors. As the Fed raised rates in the earlier part of 1999, the
Portfolio was more defensive in nature, with the memory of the 1998 global
crisis still fresh, and invested in better quality. As the year unfolded and
the economy was being sustained at a healthy pace, the Portfolio more
aggressively expanded its investments while continuing to utilize equity to
enhance returns.
The strategies and techniques we applied resulted in the Portfolio outperforming
the Salomon Brothers High Yield Market Index, charted on the following page.
The Salomon Brothers Index reflects the performance of securities that generally
represent the high-yield bond market. The Portfolio outperformed the index due
to its defensive position of investing in higher quality securities and the
enhanced performance from equities. The Salomon Brothers High Yield Market
Index replaces the Salomon Brothers High Yield Composite Index in this year's
report. We believe that the new index provides a more accurate basis for
comparing the Portfolio's performance to the types of fixed income securities in
which the Portfolio invests. Both indexes are presented in this year's report
for comparison purposes.
The main concern as we enter 2000 is the strength of the economy. Current
conditions as we start 2000 suggest a need for the Fed to raise rates, perhaps
several times over the course of the year. Presidential elections may impact
specific sectors, such as healthcare and defense. The direction the equity
markets move in 2000 may greatly impact which high yield sectors perform best.
The Portfolio is positioned cautiously to be shorter duration and less Treasury-
sensitive as 2000 begins. As the year progresses and if rates plateau, we may
change strategy as we read the economy at that point. Should the economy slow
to a sustained pace that does not jeopardize a recession, then we will readdress
the current shorter-term duration of the Portfolio.
Thank you very much for your continued support and confidence.
Respectfully,
William M. Nelson
Manager, High Income Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United High Income Portfolio,
The Salomon Brothers High Yield Market Index and
The Salomon Brothers High Yield Composite Index
Salomon Salomon
Brothers Brothers
High High
Target/United Yield Yield
High Income Market Composite
Portfolio Index Index
----------- ------ ------
12/31/89 Purchase $10,000 $10,000 $10,000
12/31/90 9,268 9,296 9,155
12/31/91 12,437 13,008 13,112
12/31/92 14,388 15,330 15,510
12/31/93 16,965 17,994 18,354
12/31/94 16,532 17,770 17,887
12/31/95 19,538 21,274 21,899
12/31/96 21,973 23,673 24,361
12/31/97 25,057 26,797 27,837
12/31/98 25,546 27,763 28,963
12/31/99/ 26,623 28,244 29,323
+++++ Target/United High Income Portfolio* -- $26,623
- ----- The Salomon Brothers High Yield Market Index -- $28,244
..... The Salomon Brothers High Yield Composite Index -- $29,323
*The value of the investment in the Fund is impacted by the ongoing expenses of
the Fund and assumes reinvestment of dividends and distributions.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 4.22%
5 Years Ended
12/31/99 10.00%
10 Years Ended
12/31/99 10.29%
+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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS, RIGHTS AND WARRANTS
Business Services - 0.60%
Cybernet Internet Services International,
Inc., Warrants (B)* ................... 1,000 $ 80,000
deltathree.com, Inc.* .................. 25,000 642,187
Total ................................. 722,187
Cable and Other Pay Television Services - 1.00%
Classic Communications, Inc., Class A* . 22,500 825,469
Cox Communications, Inc., Class A* ..... 7,500 386,250
Total ................................. 1,211,719
Chemicals and Allied Products - 0.41%
Smith International, Inc.* ............. 10,000 496,875
Communication - 1.86%
Allegiance Telecom, Inc., Warrants (B)* 1,250 144,375
Iridium LLC, Warrants (B)* ............. 500 1
Metromedia Fiber Network, Inc.* ........ 5,000 239,531
Microcell Telecommunications Inc.,
Warrants (B)* ......................... 5,000 346,205
Nextel Communications, Inc.* ........... 5,000 515,469
OnePoint Communications Corp., Warrants (B)* 900 9,000
Powertel, Inc., Warrants* .............. 2,400 216,000
Primus Telecommunications Group,
Incorporated* ......................... 14,500 554,625
Primus Telecommunications Group,
Incorporated, Warrants* ............... 500 25,000
VersaTel Telecom International N.V.,
Warrants (B)* ......................... 500 200,000
Total ................................. 2,250,206
Communication Services - 0.53%
Crown Castle International Corp.* ...... 20,000 641,250
Electronic and Other Electric Equipment - 0.16%
TeleCorp PCS, Inc.* .................... 5,000 190,937
Engineering and Management Services - 0.22%
Harris Interactive Inc.* ............... 20,000 261,875
Food and Kindred Products - 0.42%
Keebler Foods Company* ................. 18,000 506,250
Holding and Other Investment Offices - 0.20%
"Shell" Transport and Trading Company,
p.l.c. (The), ADR ..................... 5,000 246,250
Industrial Machinery and Equipment - 0.41%
Cooper Cameron Corporation* ............ 10,000 489,375
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS, RIGHTS AND WARRANTS
Nondepository Institutions - 0.02%
ONO Finance Plc, Rights (B)* ........... 250 $ 22,500
Oil and Gas Extraction - 0.68%
Transocean Sedco Forex Inc. ............ 20,000 673,750
USX Corporation - Marathon Group ....... 6,000 148,125
Total ................................. 821,875
Paper and Allied Products - 0.00%
SF Holdings Group, Inc., Class C (B)* .. 1,500 15
Petroleum and Coal Products - 0.38%
Royal Dutch Petroleum Company, NY Shares 7,500 453,281
Radio and Television Broadcasting Stations - 1.19%
Infinity Broadcasting Corporation,
Class A* .............................. 31,200 1,129,050
Spanish Broadcasting System, Inc.* ..... 7,500 300,469
Total ................................. 1,429,519
Water Transportation - 0.20%
Royal Caribbean Cruises Ltd. ........... 5,000 246,563
Wholesale Trade -- Durable Goods - 0.18%
WESCO International, Inc.* ............. 25,000 221,875
Wholesale Trade -- Nondurable Goods - 0.34%
Cardinal Health, Inc. .................. 5,000 239,375
U.S. Foodservice* ...................... 10,000 167,500
Total ................................. 406,875
TOTAL COMMON STOCKS, RIGHTS AND WARRANTS - 8.80% $ 10,619,427
(Cost: $7,658,594)
PREFERRED STOCKS
Communication - 0.17%
IXC Communications, Inc., 12.5%* ....... 182 201,110
Nondepository Institutions - 0.23%
California Federal Preferred Capital
Corporation, 9.125% ................... 12,500 282,031
Printing and Publishing - 0.41%
PRIMEDIA Inc., 10.0% ................... 5,000 490,000
TOTAL PREFERRED STOCKS - 0.81% $ 973,141
(Cost: $992,040)
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Agricultural Production -- Crops - 1.42%
Hines Horticulture, Inc.,
11.75%, 10-15-05 ...................... $ 1,661 $ 1,719,135
Amusement and Recreation Services - 4.66%
Hollywood Park, Inc.,
9.25%, 2-15-07 ........................ 500 495,000
MGM Grand, Inc.,
6.875%, 2-6-08 ........................ 1,000 885,190
Premier Parks Inc.:
9.75%, 6-15-07 ........................ 1,000 1,005,000
0.0%, 4-1-08 (C) ...................... 2,500 1,712,500
Station Casinos, Inc.:
10.125%, 3-15-06 ...................... 500 510,000
8.875%, 12-1-08 ....................... 850 811,750
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-05 ........................ 250 206,875
Total ................................. 5,626,315
Apparel and Accessory Stores - 0.41%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-04 ....................... 500 500,000
Business Services - 5.22%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-06 ....................... 2,030 2,123,887
Coinmach Corporation,
11.75%, 11-15-05 ...................... 1,000 1,032,500
Cybernet Internet Services
International, Inc.,
14.0%, 7-1-09 (B) ..................... 1,000 870,000
Lamar Advertising Company,
9.625%, 12-1-06 ....................... 1,000 1,032,500
National Equipment Services, Inc.,
10.0%, 11-30-04 ....................... 1,250 1,235,250
Total ................................. 6,294,137
Cable and Other Pay Television Services - 8.32%
Adelphia Communications Corporation:
10.25%, 7-15-00 ....................... 500 502,500
10.5%, 7-15-04 ........................ 500 521,250
9.875%, 3-1-07 ........................ 500 507,500
Bresnan Communications Group LLC and Bresnan
Capital Corporation:
0.0%, 2-1-09 (C) ..................... 250 172,500
8.0%, 2-1-09 ......................... 250 249,688
CSC Holdings, Inc.,
9.875%, 2-15-13 ....................... 1,450 1,529,750
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Cable and Other Pay Television Services (Continued)
Charter Communications Holdings, LLC and
Charter Communications Holdings Capital
Corporation:
8.625%, 4-1-09 ....................... $1,500 $1,396,875
0.0%, 4-1-11 (C) ..................... 1,500 918,750
Classic Cable, Inc.,
9.375%, 8-1-09 ........................ 500 491,250
Comcast Corporation,
9.5%, 1-15-08 ......................... 350 361,056
Concentric Network Corporation,
12.75%, 12-15-07 ...................... 750 795,000
Diamond Cable Communications Plc,
0.0%, 12-15-05 (C) ................... 500 472,500
FrontierVision Holdings, L.P.,
11.0%, 10-15-06 ....................... 500 531,250
Telewest Communications plc,
0.0%, 4-15-09 (B) (C).................. 500 322,500
United International Holdings, Inc.,
0.0%, 2-15-08 (C) ..................... 2,000 1,265,000
Total ................................. 10,037,369
Chemicals and Allied Products - 0.18%
Outsourcing Services Group, Inc.,
10.875%, 3-1-06 ....................... 250 220,000
Communication - 22.96%
AirGate PCS, Inc.,
13.5%, 10-1-09, Units (D) ............. 2,000 1,300,000
Alestra, S.A. de C.V.,
12.625%, 5-15-09 (B) .................. 1,000 1,007,500
Allegiance Telecom, Inc.,
0.0%, 2-15-08 (C) ..................... 1,250 892,187
GST Telecommunications,
0.0%, 11-15-07 (C) .................... 1,000 940,000
Hyperion Telecommunications, Inc.:
0.0%, 4-15-03 (C) ..................... 2,000 1,780,000
12.0%, 11-1-07 ........................ 500 527,500
ITC /\ DeltaCom, Inc.:
8.875%, 3-1-08 ........................ 250 240,000
9.75%, 11-15-08 ....................... 750 757,500
Intercel, Inc.,
0.0%, 2-1-06 (C) ...................... 750 668,438
Intermedia Communications Inc.,
8.5%, 1-15-08 ......................... 750 682,500
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-06 (C) ..................... 750 656,250
Metromedia Fiber Network, Inc.,
10.0%, 12-15-09 ....................... 250 255,625
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Microcell Telecommunications Inc.,
0.0%, 6-1-06 (C) ..................... $ 750 $ 660,000
Nextel Communications, Inc.:
0.0%, 2-15-08 (C) .................... 1,000 702,500
9.375%, 11-15-09 (B) .................. 1,000 982,500
Nextel Partners, Inc.,
0.0%, 2-1-09 (C) ..................... 2,000 1,310,000
NEXTLINK Communications, Inc.,
10.75%, 6-1-09 ........................ 500 515,000
Nuevo Grupo Iusacell, S.A. de C.V.,
14.25%, 12-1-06 (B) ................... 850 881,875
OnePoint Communications Corp.,
14.5%, 6-1-08 ........................ 900 578,250
Primus Telecommunications Group, Incorporated:
11.75%, 8-1-04 ........................ 500 495,000
12.75%, 10-15-09 ...................... 750 778,125
RSL Communications, Ltd.,
10.5%, 11-15-08 ....................... 1,750 1,662,500
Rhythms NetConnections Inc.,
0.0%, 5-15-08 (C) ..................... 2,000 1,080,000
Time Warner Telecom LLC and
Time Warner Telecom Inc.,
9.75%, 7-15-08 ........................ 500 512,500
Tritel PCS, Inc.,
0.0%, 5-15-09 (B) (C) ................. 2,000 1,260,000
Triton PCS, Inc.,
0.0%, 5-1-08 (C) ..................... 2,000 1,415,000
VersaTel Telecom B.V.,
11.875%, 7-15-09 ...................... 250 255,625
VersaTel Telecom International N.V.,
13.25%, 5-15-08 ....................... 500 535,000
Viatel Inc.,
11.5%, 3-15-09 ........................ 500 500,000
VoiceStream Wireless Corporation:
0.0%, 11-15-09 (B) (C) ................ 1,500 907,500
10.375%, 11-15-09 (B) ................. 500 515,000
WinStar Communications, Inc.:
0.0%, 10-15-05 (C) .................... 1,000 970,000
0.0%, 3-15-08 (C) .................... 1,000 1,020,000
10.0%, 3-15-08 ........................ 500 472,500
Total ................................. 27,716,375
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication Services - 2.45%
EchoStar DBS Corporation,
9.375%, 2-1-09 ........................ $2,500 $2,506,250
ICG Services, Inc.,
0.0%, 5-1-08 (C) ...................... 900 454,500
Total ................................. 2,960,750
Depository Institutions - 2.54%
Sovereign Bancorp, Inc.,
10.5%, 11-15-06 ....................... 3,000 3,060,000
Eating and Drinking Places - 2.27%
Avado Brands, Inc.,
11.75%, 6-15-09 ....................... 1,000 755,000
Domino's, Inc.,
10.375%, 1-15-09 ...................... 400 384,000
Foodmaker, Inc.,
8.375%, 4-15-08 ....................... 1,000 935,000
NE Restaurant Company, Inc.,
10.75%, 7-15-08 ....................... 750 668,438
Total ................................. 2,742,438
Electronic and Other Electric Equipment - 1.92%
ASAT (Finance) LLC,
12.5%, 11-1-06 (B) .................... 1,000 1,080,000
Elgar Holdings, Inc.,
9.875%, 2-1-08 ........................ 500 327,500
Level 3 Communications, Inc.,
0.0%, 12-1-08 (C) ..................... 1,500 907,500
Total ................................. 2,315,000
Fabricated Metal Products - 1.34%
AXIA Incorporated,
10.75%, 7-15-08 ....................... 500 457,500
Neenah Corporation,
11.125%, 5-1-07 ....................... 1,250 1,162,500
Total ................................. 1,620,000
Food and Kindred Products - 0.67%
Pilgrim's Pride Corporation,
10.875%, 8-1-03 ....................... 300 302,250
Southern Foods Group, L.P. and
SFG Capital Corporation,
9.875%, 9-1-07 ........................ 500 505,000
Total ................................. 807,250
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food Stores - 0.66%
Big V Supermarkets, Inc.,
11.0%, 2-15-04 ........................ $ 500 $ 485,000
Pueblo Xtra International, Inc.,
9.5%, 8-1-03 .......................... 500 310,000
Total ................................. 795,000
Health Services - 2.27%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-02 ......................... 1,745 1,710,100
IASIS Healthcare Corporation,
13.0%, 10-15-09 (B) ................... 1,000 1,025,000
Total ................................. 2,735,100
Hotels and Other Lodging Places - 3.04%
CapStar Hotel Company,
8.75%, 8-15-07 ........................ 500 462,500
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-09 .......................... 500 480,000
Lodgian Financing Corp.,
12.25%, 7-15-09 ....................... 750 744,375
Prime Hospitality Corp.:
9.25%, 1-15-06 ........................ 1,500 1,500,000
9.75%, 4-1-07 ......................... 500 483,750
Total ................................. 3,670,625
Industrial Machinery and Equipment - 1.54%
Terex Corporation,
8.875%, 4-1-08 ........................ 1,000 940,000
WEC Company,
12.0%, 7-15-09 ........................ 1,000 920,000
Total ................................. 1,860,000
Miscellaneous Retail - 3.09%
Amazon.com, Inc.,
0.0%, 5-1-08 (C) ...................... 1,000 630,000
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-08 ........................ 750 510,000
Michaels Stores, Inc.:
6.75%, 1-15-03 (Convertible) .......... 500 470,000
10.875%, 6-15-06 ...................... 2,000 2,115,000
Total ................................. 3,725,000
Motion Pictures - 1.94%
AMC Entertainment Inc.,
9.5%, 3-15-09 ......................... 500 441,250
Regal Cinemas, Inc.,
9.5%, 6-1-08 .......................... 2,500 1,900,000
Total ................................. 2,341,250
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 0.21%
ONO Finance plc,
13.0%, 5-1-09 ......................... $ 250 $ 257,500
Paper and Allied Products - 5.60%
Container Corporation of America,
11.25%, 5-1-04 ........................ 1,500 1,552,500
Mail-Well I Corporation,
8.75%, 12-15-08 ....................... 1,000 950,000
SF Holdings Group, Inc.,
0.0%, 3-15-08 (C) .................... 7,500 4,256,250
Total ................................. 6,758,750
Petroleum and Coal Products - 0.46%
Building Materials Corporation of America,
8.0%, 12-1-08 ......................... 600 549,000
Primary Metal Industries - 1.33%
ISG Resources, Inc.,
10.0%, 4-15-08 ........................ 1,000 850,000
SIMCALA, Inc.,
9.625%, 4-15-06 ....................... 500 290,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-07 ....................... 500 470,000
Total ................................. 1,610,000
Printing and Publishing - 1.95%
K-III Communications Corporation,
8.5%, 2-1-06 .......................... 500 490,000
Perry-Judd's Incorporated,
10.625%, 12-15-07 ..................... 1,000 880,000
World Color Press, Inc.,
8.375%, 11-15-08 ...................... 1,000 983,750
Total ................................. 2,353,750
Radio and Television Broadcasting Stations - 2.78%
Chancellor Media Corporation of Los Angeles,
8.0%, 11-1-08 ......................... 750 750,000
LIN Holdings Corp.,
0.0%, 3-1-08 (C) ..................... 750 502,500
Salem Communications Corporation,
9.5%, 10-1-07 ......................... 500 500,000
Spanish Broadcasting System, Inc.,
9.625%, 11-1-09 ....................... 1,000 1,007,500
Susquehanna Media Co.,
8.5%, 5-15-09 ........................ 610 594,750
Total ................................. 3,354,750
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1999 Principal
Amount in
CORPORATE DEBT SECURITIES (Continued) Thousands Value
Rubber and Miscellaneous Plastics Products - 2.87%
Globe Manufacturing Corp.,
10.0%, 8-1-08 ......................... $1,000 $ 480,000
Graham Packaging Holdings Company,
0.0%, 1-15-09 (C) .................... 2,750 1,870,000
Home Products International, Inc.,
9.625%, 5-15-08 ....................... 750 684,375
LDM Technologies, Inc.,
10.75%, 1-15-07 ....................... 500 425,000
Total ................................. 3,459,375
Textile Mill Products - 1.55%
Anvil Knitwear, Inc.,
10.875%, 3-15-07 ...................... 1,000 825,000
Consoltex Group Inc.,
11.0%, 10-1-03 ........................ 1,000 995,000
Glenoit Corporation,
11.0%, 4-15-07 ........................ 200 52,000
Total ................................. 1,872,000
Transportation by Air - 1.22%
Atlas Air, Inc.,
9.375%, 11-15-06 ...................... 1,500 1,470,000
Transportation Equipment - 0.39%
Delco Remy International, Inc.,
8.625%, 12-15-07 ...................... 500 472,500
Wholesale Trade -- Durable Goods - 1.19%
AAi.Fostergrant, Inc.,
10.75%, 7-15-06 ....................... 500 165,000
Federal Data Corporation,
10.125%, 8-1-05 ....................... 500 360,000
Heafner (J. H.) Company, Inc. (The),
10.0%, 5-15-08 ........................ 1,000 915,000
Total ................................. 1,440,000
Wholesale Trade -- Nondurable Goods - 0.35%
Amscan Holdings, Inc.,
9.875%, 12-15-07 ...................... 500 422,500
TOTAL CORPORATE DEBT SECURITIES - 86.80% $104,765,869
(Cost: $108,469,826)
TOTAL SHORT-TERM SECURITIES - 2.11% $ 2,552,000
(Cost $2,552,000)
TOTAL INVESTMENT SECURITIES - 98.52% $118,910,437
(Cost: $119,672,460)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.48% 1,788,486
NET ASSETS - 100.00% $120,698,923
See Notes to Schedules of Investments on page 89.
<PAGE>
INCOME PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Income Portfolio for the fiscal year
ended December 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Portfolio's performance during that period.
The stock market was dominated by the technology sector in 1999. Wireless
telecommunications, Internet infrastructure, and Internet service-related
companies enjoyed an extraordinary period of market strength. Interest rates
rose throughout the year. The long-term U.S. Treasury bond began 1999 by
yielding 5.12% and ended the year at 6.48%, a level not seen in over two years.
This rise in interest rates created a very difficult environment for financial
stocks, building-related issues, and utilities. The focus of strength in the
stock market remained very narrow, with a few large technology stocks providing
about three-quarters of the gain in the S&P 500 Index. Valuations reached
record levels among the leading stocks. A large majority of stocks, however,
did not participate in the rapid rise in prices that occurred at the end of
1999. In fact, the median S&P stock declined. The U.S. economy was strong in
1999. Consumer confidence indicators were near record highs. Inflation
remained moderate, despite a large increase in petroleum prices.
The Portfolio's performance was materially affected by our holdings in bonds and
our underweightings in the technology area. The Portfolio held a position in
bonds for much of 1999 for two reasons: 1) to provide enhanced dividend yield;
and 2) as a defensive investment in response to what we viewed as a growing risk
from high stock valuations. The Portfolio eliminated virtually all its bond
holdings in November of 1999. The rising trend in interest rates and the
growing likelihood that rates would continue to rise well into 2000 caused us to
take this action. We have maintained meaningful positions in technology stocks,
but the Portfolio is consciously underweighted in the most extremely valued
ones. We have maintained large holdings in chemicals, energy, drugs, and
financial services. These areas did not perform well in 1999, but represent
reasonable value and possess, in most cases, very strong earnings growth
prospects in 2000.
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 performance shortfall relative to the S&P 500
Index can be primarily attributed to the position in bonds. From January until
November, the Portfolio maintained a bond position of roughly 15%. While this
position did serve to enhance the dividend yield of the Portfolio, the total
return was negatively affected by the decline in bond prices in the period.
We expect 2000 to be a very volatile year in the stock market. While inflation
in the U.S. remains quite tame, the current high level of business activity and
the very low level of unemployment raise concerns about limits to growth and
Federal Reserve policy. The rapidly expanding trade deficit also represents a
potential problem for the U.S. dollar. A strengthening global economy could
diminish this country's attraction as a "safe haven," further reducing demand
for our currency. We think pharmaceuticals and other large U.S. multinational
companies provide good defensive investments in the event the dollar comes under
pressure. The rapid advances in wireless telecommunications, the Internet, and
electronic commerce will continue to generate change at every level. The future
is heavy with both opportunity and risk. We think the outlook in many sectors
(pharmaceuticals, biotechnology, data storage, wireless telecommunications, and
consumer electronics) remains especially compelling. We expect to maintain a
widely diversified portfolio that will also emphasize basic industries, energy,
and financial services -- all areas which should benefit from continued global
economic expansion. We intend to continue reducing positions or avoiding
sectors and individual stocks that represent extremes in valuation relative to
their underlying fundamental business prospects.
Thank you very much for your continued support and confidence.
Respectfully,
James D. Wineland
Manager, 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
12/31/99 38,491 46,008
- ----- Target/United Income Portfolio* -- $38,491
+++++ S&P 500 Index** -- $46,008
*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.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 12.52%
5 Years Ended
12/31/99 22.06%
8+ Years Ended
12/31/99++ 17.26%
+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 12-31-99.
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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 1.52%
Walt Disney Company (The) .............. 489,700 $ 14,323,725
Building Materials and Garden Supplies - 0.72%
Home Depot, Inc. (The) ................. 99,300 6,808,256
Business Services - 2.38%
America Online, Inc.* .................. 109,200 8,237,775
Clear Channel Communications, Inc.* .... 158,700 14,163,975
Total ................................. 22,401,750
Cable and Other Pay Television Services - 1.83%
Cox Communications, Inc., Class A* ..... 333,200 17,159,800
Chemicals and Allied Products - 16.19%
Air Products and Chemicals, Inc. ....... 227,700 7,642,181
American Home Products Corporation ..... 216,800 8,550,050
Biogen, Inc.* .......................... 59,600 5,034,338
Bristol-Myers Squibb Company ........... 56,100 3,600,919
Dow Chemical Company (The) ............. 75,200 10,048,600
du Pont (E.I.) de Nemours and Company .. 274,300 18,069,512
Forest Laboratories, Inc.* ............. 76,900 4,724,544
Johnson & Johnson ...................... 99,100 9,228,688
Lilly (Eli) and Company ................ 166,700 11,085,550
Merck & Co., Inc. ...................... 205,500 13,781,344
Monsanto Company ....................... 323,700 11,531,812
Pfizer Inc. ............................ 194,100 6,296,119
Pharmacia & Upjohn, Inc. ............... 102,100 4,594,500
Procter & Gamble Company (The) ......... 56,500 6,190,281
Schering-Plough Corporation ............ 193,500 8,163,281
Warner-Lambert Company ................. 289,100 23,688,131
Total ................................. 152,229,850
Communication - 6.44%
MCI WORLDCOM, Inc.* .................... 172,650 9,155,845
Nippon Telegraph and
Telephone Corporation (A) ............. 450 7,710,761
SBC Communications Inc. ................ 156,000 7,605,000
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 361,400 23,728,169
Vodafone Airtouch Public Limited
Company, ADR .......................... 249,700 12,360,150
Total ................................. 60,559,925
Communication Services - 0.75%
General Motors Corporation, Class H* ... 73,900 7,094,400
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 3.17%
Bank of America Corporation ............ 155,800 $ 7,819,212
Chase Manhattan Corporation (The) ...... 116,500 9,050,594
Citigroup Inc. ......................... 232,650 12,926,616
Total ................................. 29,796,422
Electric, Gas and Sanitary Services - 0.75%
Duke Energy Corp. ...................... 141,500 7,092,688
Electronic and Other Electric Equipment - 7.83%
Analog Devices, Inc.* .................. 160,100 14,889,300
General Electric Company ............... 184,000 28,474,000
Intel Corporation ...................... 311,200 25,605,925
Rambus Inc.* ........................... 68,700 4,630,809
Total ................................. 73,600,034
Fabricated Metal Products - 0.76%
Gillette Company (The) ................. 174,222 7,175,769
Food and Kindred Products - 0.52%
PepsiCo, Inc. .......................... 140,000 4,935,000
Food Stores - 1.41%
Kroger Co. (The)* ...................... 704,800 13,303,100
Furniture and Home Furnishings Stores - 1.54%
Circuit City Stores, Inc. -
Circuit City Group .................... 321,200 14,474,075
General Merchandise Stores - 2.42%
Dayton Hudson Corporation .............. 106,400 7,813,750
Wal-Mart Stores, Inc. .................. 216,300 14,951,737
Total ................................. 22,765,487
Holding and Other Investment Offices - 2.11%
ABB Ltd. [Switzerland] (A)* ............ 162,100 19,816,066
Industrial Machinery and Equipment - 7.86%
Baker Hughes Incorporated .............. 205,600 4,330,450
Cisco Systems, Inc.* ................... 181,500 19,437,516
Deere & Company ........................ 116,800 5,066,200
Dell Computer Corporation* ............. 215,400 10,978,669
EMC Corporation* ....................... 150,000 16,387,500
International Business Machines
Corporation ........................... 133,200 14,385,600
Sun Microsystems, Inc.* ................ 43,200 3,343,950
Total ................................. 73,929,885
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 2.67%
Guidant Corporation* ................... 266,400 $ 12,520,800
Medtronic, Inc. ........................ 215,800 7,863,212
Raytheon Company, Class A .............. 190,353 4,723,134
Total ................................. 25,107,146
Insurance Carriers - 3.12%
American International Group, Inc. .... 127,225 13,756,203
Aon Corporation ........................ 119,300 4,772,000
Chubb Corporation (The) ................ 192,600 10,845,788
Total ................................. 29,373,991
Motion Pictures - 1.46%
Time Warner Incorporated ............... 190,000 13,763,125
Nondepository Institutions - 3.90%
Associates First Capital Corporation,
Class A ............................... 367,220 10,075,599
Fannie Mae ............................. 252,700 15,777,956
Freddie Mac ............................ 230,300 10,838,494
Total ................................. 36,692,049
Oil and Gas Extraction - 4.04%
Anadarko Petroleum Corporation ......... 147,800 5,043,675
Burlington Resources Incorporated ...... 412,100 13,625,056
Schlumberger Limited ................... 251,400 14,141,250
Transocean Sedco Forex Inc. ............ 48,671 1,639,606
USX Corporation - Marathon Group ....... 142,100 3,508,094
Total ................................. 37,957,681
Petroleum and Coal Products - 3.01%
Chevron Corporation .................... 44,000 3,811,500
Exxon Mobil Corporation ................ 178,229 14,358,574
Royal Dutch Petroleum Company .......... 167,700 10,135,369
Total ................................. 28,305,443
Prepackaged Software - 4.08%
Microsoft Corporation* ................. 226,300 26,413,453
Oracle Corporation* .................... 106,500 11,931,328
Total ................................. 38,344,781
Primary Metal Industries - 0.79%
Alcoa Incorporated ..................... 89,200 7,403,600
Security and Commodity Brokers - 0.43%
Charles Schwab Corporation (The) ....... 104,200 3,998,675
Transportation By Air - 0.63%
AMR Corporation* ....................... 88,800 5,949,600
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 3.42%
Boeing Company (The) ................... 94,500 $ 3,927,656
DaimlerChrysler AG ..................... 69,894 5,469,205
Ford Motor Company ..................... 329,600 17,613,000
Lockheed Martin Corporation ............ 236,500 5,173,437
Total ................................. 32,183,298
Trucking and Warehousing - 0.25%
United Parcel Service, Inc. ............ 33,800 2,332,200
Wholesale Trade -- Nondurable Goods - 3.34%
Cardinal Health, Inc. .................. 271,800 13,012,425
Enron Corp. ............................ 119,700 5,311,688
Safeway Inc.* .......................... 367,000 13,051,437
Total ................................. 31,375,550
TOTAL COMMON STOCKS - 89.34% $840,253,371
(Cost: $557,569,368)
PREFERRED STOCK - 0.39%
Cable and Other Pay Television Services
Cox Communications, Inc., 7.0% (Convertible) 53,500 $ 3,638,000
(Cost: $2,675,000)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 1.06%
PHH Corp.,
6.75%, 1-11-00 ........................ $10,000 9,981,250
Depository Institutions - 1.63%
Dresdner U.S. Finance Inc.,
6.23%, 1-10-00 ........................ 5,000 4,992,213
UBS Finance (DE) Inc.:
5.0%, 1-4-00 .......................... 2,860 2,858,808
4.4%, 1-5-00 .......................... 7,500 7,496,333
Total ................................. 15,347,354
Electric, Gas and Sanitary Services - 2.76%
Detriot Edison Co.,
6.75%, 1-13-00 ........................ 16,000 15,964,000
PS Colorado Credit Corp.,
6.3%, 1-20-00 ......................... 10,000 9,966,750
Total ................................. 25,930,750
Fabricated Metal Products - 0.09%
Danaher Corporation,
6.49%, Master Note .................... 827 827,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Food and Kindred Products - 0.11%
General Mills, Inc.,
6.345%, Master Note ................... $ 1,063 $ 1,063,000
Instruments and Related Products - 1.06%
Snap-On Inc.,
6.375%, 1-14-00 ....................... 10,000 9,976,979
Insurance Carriers - 0.53%
SAFECO Credit Co. Inc.,
6.53%, 1-13-00 ........................ 5,000 4,989,117
Nondepository Institutions - 0.58%
Associates First Capital B.V.
(Associates First Capital
Corporation):
5.95%, 1-10-00 ........................ 2,000 1,997,025
6.0%, 1-10-00 ......................... 1,315 1,313,028
PACCAR Financial Corp.,
5.2757%, Master Note .................. 2,106 2,106,000
Total ................................. 5,416,053
Petroleum and Coal Products - 1.69%
Kerr-McGee Credit LLC,
6.85%, 1-27-00 ........................ 16,000 15,920,844
Total Commercial Paper - 9.51% 89,452,347
Municipal Obligation - 0.53%
California
California Pollution Control Financing
Authority, Environmental Improvement
Revenue Bonds (Shell Martinez Refining
Company Project), Series 1996 (Taxable),
6.55%, 1-20-00 ........................ 5,000 5,000,000
TOTAL SHORT-TERM SECURITIES - 10.04% $ 94,452,347
(Cost: $94,452,347)
TOTAL INVESTMENT SECURITIES - 99.77% $938,343,718
(Cost: $654,696,715)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.23% 2,191,204
NET ASSETS - 100.00% $940,534,922
See Notes to Schedules of Investments on page 89.
<PAGE>
INTERNATIONAL PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the International Portfolio during the
fiscal year ended December 31, 1999. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
Global economic growth continued to surprise positively. Most developing
economies have recovered to pre-crisis levels. European recoveries have
broadened. Japan's progress remains very slow, but corporate reform has begun.
Y2K concerns continued to diminish as the year-end approached. Actual economic
distortions due to Y2K appeared to be much lower than economists had earlier
feared. Global financial markets soon refocused on the dynamic technology
sector and the tremendous demand being created for the new and innovative
products being developed by that sector. The technology sector was responsible
for much of the substantial stock market gain seen late in the year.
The Portfolio remains concentrated in high quality European growth stocks we
believe are best positioned for Europe's new single market. We have also
invested in carefully selected Japanese companies where corporate reform is
evident. Much of this focus has been in high tech consumer and business
services, which produced outstanding returns for the year. In managing the
Portfolio, we continue to focus on the broad secular themes that have been so
apparent and profitable over the last few years. The combination of a broad
single European market and the rapidly changing global technology scene
continues to provide enormous opportunities for investment. In addition, this
activity should continue to trigger mergers and acquisitions for many
industries. These broad changes can continue to flourish in our global
environment of low inflation and moderate interest rates.
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 benefited from significant exposure to high tech consumer and business
services companies, most notably in Continental Europe and Sweden.
Although inflation concerns remain minimal, major central banks will likely
raise interest rates in the early months of 2000 to keep inflationary
expectations well-managed. As a result, financial markets could react with
temporary periods of high volatility before returning to a more stable profile.
Longer-term, healthy global economic growth and moderate inflation should
continue to provide a positive atmosphere for global investing. We believe the
Portfolio is well structured for anticipated conditions. However, we will
continue to closely monitor changing global developments to respond quickly to
changes in investment opportunities.
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
12/31/99 32,031 18,269
- ----- Target/United International Portfolio* -- $32,031
+++++ Morgan Stanley E.A.FE. Index** -- $18,269
*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.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 65.58%
5 Years Ended
12/31/99 26.15%
5+ Years Ended
12/31/99++ 22.81%
+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 12-31-99.
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 PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS
Australia - 0.54%
Solution 6 Holdings Limited (A)* ....... 148,829 $ 1,621,429
Canada - 5.02%
AT&T Canada Inc., Class B (A)* ......... 80,000 3,213,741
BCE Inc. (A) ........................... 38,000 3,451,794
Nortel Networks Corporation ............ 54,000 5,454,000
Rogers Communications Inc.,
Class B (A)* .......................... 120,000 2,933,924
Total ................................. 15,053,459
China - 0.06%
Jinpan International Limited* .......... 85,300 191,925
Finland - 5.64%
Perlos Oy (A) (B)* ...................... 61,600 2,171,739
Sonera Group plc (A) (B) ............... 178,000 12,201,324
UPM-Kymmene Corporation (A) ............ 63,300 2,550,484
Total ................................. 16,923,547
France - 9.57%
AXA-UAP (A) ............................ 26,700 3,722,256
Alcatel Alsthom CGE, SA, ADR ........... 90,000 4,050,000
CANAL+ (A) ............................. 19,500 2,838,320
Carrefour, S.A. (A) .................... 11,850 2,185,574
France Telecom (A) ..................... 20,000 2,645,170
Havas Advertising (A) ................... 8,350 3,557,834
Suez Lyonnaise des Eaux (A) ............ 23,000 3,686,013
Transiciel S.A. (A) (B) ................ 27,500 3,321,320
Vivendi (A) ............................ 30,000 2,709,133
Total ................................. 28,715,620
Germany - 10.99%
Bayerische Hypo- und Vereinsbank AG (A) 15,000 1,024,424
Deutsche Bank AG, Registered Shares (A) 35,000 2,956,174
Deutsche Prandbrief- und
Hypothekenbank AG (A) ................. 18,725 1,399,538
Dresdner Bank AG (A) ................... 15,000 815,913
ELMOS Semiconductor AG (A) (B)* ........ 50,000 2,064,965
EM.TV & Merchandising AG (A) ........... 45,000 2,901,024
Kamps AG (A)* .......................... 25,000 1,667,081
Mannesmann AG, Registered Shares (A) ... 40,000 9,649,934
QIAGEN N.V. (A)* ....................... 45,300 3,422,302
R.T. - SET Real Time Synthesized
Entertainment Technology Ltd. (A) (B)* 60,000 1,057,665
Rhoen-Klinikum AG (A) .................. 49,800 1,830,969
Siemens AG (A) ......................... 33,000 4,198,326
Total ................................. 32,988,315
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Hong Kong - 1.25%
China Telecom (Hong Kong) Limited (A)* . 600,000 $ 3,743,487
Ireland - 0.51%
Bank of Ireland (The) (A) .............. 191,182 1,521,363
Israel - 0.82%
Partner Communications, ADR* ........... 95,000 2,464,062
Japan - 25.14%
Alpha Systems, Inc. (A) ................ 6,000 1,263,096
Benesse Corporation (A) ................ 10,000 2,408,695
FUJITSU LIMITED (A) .................... 160,000 7,300,499
Fujitsu Support and Service Inc. (A) ... 6,000 2,943,308
Hikari Tsushin, Inc. (A) ............... 1,800 3,613,042
Hitachi Software Engineering Co.,
Ltd. (A) .............................. 20,700 3,019,975
Keyence Corporation (A) ................ 13,000 5,282,483
Matsushita Communication Industrial
Co., Ltd. (A) ......................... 25,000 6,609,223
NTT Mobile Communications Network, Inc. (A) 210 8,080,877
Nippon Telegraph and
Telephone Corporation (A) ............. 350 5,997,258
Oracle Corporation Japan (A) ........... 3,000 1,395,280
ROHM CO., LTD. (A) ..................... 10,000 4,112,406
Ryohin Keikaku Co., Ltd. (A) ........... 11,000 2,209,047
SECOM Co., Ltd. (A) .................... 30,000 3,304,612
SOFTBANK CORP. (A) ..................... 5,000 4,788,015
Sony Corporation (A) ................... 14,000 4,153,530
TransCosmos Inc. (A) ................... 16,500 7,043,964
Trend Micro, Incorporated (A) .......... 7,500 1,894,644
Total ................................. 75,419,954
Netherlands - 6.77%
EQUANT N.V. (A)* ....................... 37,850 4,296,835
Fox Kids Europe NV (A) (B)* ............ 100,000 1,279,271
Getronics N.V. (A) ..................... 50,000 3,988,908
Koninklijke Philips Electronics N.V.,
Ordinary Shares (A) ................... 29,200 3,970,777
Ordina N.V. (A)* ....................... 87,609 2,753,355
United Pan-Europe Communications
N.V. (A)* ............................. 31,350 4,010,515
Total ................................. 20,299,661
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIODECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Portugal - 0.31%
Banco Portugues do Atlantico, S.A. (A) (B)* 229,500 $ 940,884
Spain - 0.35%
Tele Pizza, S.A. (A)* .................. 250,000 1,057,665
Sweden - 2.26%
Entra Data AB (A) ...................... 80,000 2,051,765
NetCom Systems AB, Class B (A)* ........ 26,000 1,829,176
Telefonaktiebolaget LM Ericsson,
Class B (A) ........................... 45,100 2,902,318
Total ................................. 6,783,259
Switzerland - 3.33%
Clariant Limited, Registered Shares (A) 3,700 1,762,789
4M Technologies Holding (A)* ........... 9,300 2,796,246
Julius Baer Holding AG (A) ............. 400 1,207,708
PubliGroupe SA (A) ..................... 1,340 1,324,776
Roche Holdings AG (A) .................. 245 2,906,597
Total ................................. 9,998,116
United Kingdom - 15.62%
Allied Zurich p.l.c. (A) ............... 200,000 2,358,338
Barclays PLC (A) ....................... 36,000 1,034,503
British Telecommunications plc (A) ..... 141,757 3,434,701
COLT Telecom Group plc, ADR* ........... 65,000 13,260,000
Energis plc (A)* ....................... 79,250 3,808,373
Independent Energy Holdings plc, ADS* .. 225,000 7,446,094
Invensys plc (A) ....................... 429,500 2,320,665
Kingfisher plc (A) ..................... 148,475 1,647,644
Lloyds TSB Group plc (A) ............... 55,564 691,094
Misys plc (A) .......................... 255,896 3,988,816
Reckitt Benckiser plc (A) .............. 150,980 1,419,370
Sema Group plc (A) ..................... 184,500 3,308,054
Telewest Communications plc (A)* ....... 400,000 2,132,196
Total ................................. 46,849,848
United States - 2.13%
Global TeleSystems Group, Inc.* ........ 126,500 4,380,062
Infonet Services Corporation* .......... 76,200 2,000,250
Total ................................. 6,380,312
TOTAL COMMON STOCKS - 90.31% $270,952,906
(Cost: $148,219,653)
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIODECEMBER 31, 1999
Shares Value
PREFERRED STOCKS
Brazil - 0.66%
Petroleo Brasileiro S.A. -
Petrobras (A) ......................... 7,800,000 $ 1,994,441
Germany - 4.08%
Fresenius Medical Care AG (A) .......... 5,000 916,643
MLP AG (A) ............................. 30,000 9,065,700
SAP AG (A) ............................. 3,750 2,258,870
Total ................................. 12,241,213
Spain - 0.81%
Telebras S.A., ADR ..................... 18,900 2,428,650
TOTAL PREFERRED STOCKS - 5.55% $ 16,664,304
(Cost: $6,376,345)
TOTAL SHORT-TERM SECURITIES - 4.03% $ 12,076,817
(Cost: $12,076,817)
TOTAL INVESTMENT SECURITIES - 99.89% $299,694,027
(Cost: $166,672,815)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.11% 335,336
NET ASSETS - 100.00% $300,029,363
See Notes to Schedules of Investments on page 89.
<PAGE>
LIMITED-TERM BOND PORTFOLIOMANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Limited-Term Bond Portfolio for the
fiscal year ended December 31, 1999. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
The U.S. economy is showing no signs of a slow down in growth, despite a 3/4
percent increase in short-term rates by the Federal Reserve, and long-term rates
close to 3-year highs. Consumer demand has led the expansion and continues to
remain strong, as brisk retail sales over the 1999 holidays season attest.
There is also little sign of weaker activity in interest rate sensitive areas
such as housing and autos, and private credit growth remains extremely strong.
Export growth is also picking up in response to an upturn in foreign economic
conditions. Even though interest rates are up, overall financial conditions
still appear to be very accommodative, mainly due to a buoyant stock market.
The market continues to provide considerable stimulus to the economy, both
directly and indirectly -- directly from the wealth effect of increasing stock
prices, and indirectly from the feeling of well being and confidence a bull
market imparts. There are still powerful structural forces helping to contain
inflation. However, cyclical forces have also been at work in the past year.
For example, the recovery in the global economy has ended the slide in traded
goods prices. Oil prices have more than doubled from their low point,
industrial commodity prices have increased by 10% since May, and Asian export
prices are now rising. As a result, U.S. inflation is no longer benefiting from
falling import prices.
Our management style attempts to identify value opportunities between sectors of
the market. Those sectors include Treasuries, agencies, corporates and
mortgage-backed securities. Based on our determination that agencies,
corporates and mortgages offered attractive yield spreads over Treasuries, we
over-weighted those sectors in the Portfolio. That decision, combined with the
short maturity of the Portfolio, helped relative performance for the quarter.
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.
Faced with continued strong growth, tight labor markets, and a cyclical up-tick
in inflation, we look for the Federal Reserve to continue to tighten. Although
the bond market has already discounted several Fed rate hikes, bond yields could
continue to move somewhat higher over the near terms until signs of a slowdown
begin to appear. Shorter-term securities would be most vulnerable to Fed rate
hikes, so we will be cautious going forward on duration and yield curve
decisions. We will look to take advantage of still attractive opportunities in
the corporate area.
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
12/31/99 13,790 14,065
+++++ Target/United Limited-Term Bond Portfolio* -- $13,790
..... Salomon Brothers Treasury/Government Sponsored/Corporate 1 - 5 Year
Index** -- $14,065
*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.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 1.74%
5 Years Ended
12/31/99 6.58%
5+ Years Ended
12/31/99++ 5.84%
+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 12-31-99.
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 PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.50%
Hertz Corporation (The),
7.375%, 6-15-01 ....................... $150 $ 150,873
Chemicals and Allied Products - 3.30%
American Home Products Corporation,
7.7%, 2-15-00 ......................... 100 100,192
Praxair, Inc.,
6.7%, 4-15-01 ......................... 100 99,189
Total ................................. 199,381
Communication - 1.70%
GTE Corporation,
9.375%, 12-1-00 ....................... 100 102,407
Depository Institutions - 10.69%
BankAmerica Corporation,
9.7%, 8-1-00 .......................... 100 101,749
Mercantile Bancorporation Inc.,
7.625%, 10-15-02 ...................... 217 219,335
Society National Bank,
6.75%, 6-15-03 ........................ 200 195,690
Wells Fargo & Company,
8.375%, 5-15-02 ....................... 125 128,587
Total ................................. 645,361
Electric, Gas and Sanitary Services - 5.96%
NorAm Energy Corp.,
6.375%, 11-1-03 ....................... 150 144,384
UtiliCorp United,
6.875%, 10-1-04 ....................... 100 96,354
Western Resources, Inc.,
7.25%, 8-15-02 ........................ 120 118,892
Total ................................. 359,630
Food and Kindred Products - 3.30%
Grand Metropolitan Investment Corp.,
7.125%, 9-15-04 ....................... 200 199,558
General Merchandise Stores - 2.31%
Penney (J.C.) Company, Inc.,
7.6%, 4-1-07 .......................... 150 139,431
Industrial Machinery and Equipment - 1.64%
Black & Decker Corp.,
7.5%, 4-1-03 .......................... 100 98,945
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Instruments and Related Products - 3.99%
Baxter International Inc.,
7.625%, 11-15-02 ...................... $100 $ 100,922
Raytheon Company,
6.75%, 8-15-07 ........................ 150 139,940
Total ................................. 240,862
Nondepository Institutions - 10.42%
American General Finance Corporation,
6.2%, 3-15-03 ......................... 150 145,206
Aristar, Inc.,
5.85%, 1-27-04 ........................ 150 140,570
Avco Financial Services, Inc.,
7.375%, 8-15-01 ....................... 140 140,900
General Motors Acceptance Corporation,
7.0%, 9-15-02 ......................... 203 202,572
Total ................................. 629,248
Petroleum and Coal Products - 3.29%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-04 ........................ 83 84,949
USX Corporation,
9.8%, 7-1-01 .......................... 110 113,764
Total ................................. 198,713
Radio and Television Broadcasting Stations - 1.69%
Westinghouse Electric Corporation,
8.875%, 6-1-01 ........................ 100 102,258
Railroad Transportation - 6.10%
Norfolk Southern Corporation,
7.35%, 5-15-07 ........................ 200 196,290
Union Pacific Corporation,
7.875%, 2-15-02 ....................... 170 172,222
Total ................................. 368,512
Security and Commodity Brokers - 1.66%
Salomon Inc.,
7.75%, 5-15-00 ........................ 100 100,482
Transportation Equipment - 2.53%
Lockheed Martin Corporation,
7.25%, 5-15-06 ........................ 160 152,618
TOTAL CORPORATE DEBT SECURITIES - 61.08% $3,688,279
(Cost: $3,777,266)
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIODECEMBER 31, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
5.33%, 10-8-02 ........................ $150 $ 144,468
7.0%, 5-15-05 ......................... 9 8,821
6.05%, 9-15-20 ........................ 101 99,618
Federal National Mortgage Association:
6.0%, 11-1-00 ......................... 27 26,593
6.4%, 12-27-04 ........................ 155 149,575
7.95%, 3-7-05 ......................... 100 99,609
6.21%, 8-15-05 ........................ 100 95,219
7.5%, 11-15-06 ........................ 100 98,016
6.5%, 12-1-10 ......................... 55 53,745
6.0%, 1-1-11 .......................... 52 49,235
6.5%, 2-1-11 .......................... 61 59,245
7.0%, 5-1-11 .......................... 48 47,595
7.0%, 7-1-11 .......................... 51 50,106
7.0%, 9-1-12 .......................... 62 60,976
6.0%, 11-1-13 ......................... 228 215,942
7.0%, 9-1-14 .......................... 148 146,324
11.0%, 10-1-20 ........................ 13 14,754
7.0%, 4-1-26 .......................... 61 58,677
Government National Mortgage Association:
7.0%, 9-15-08 ......................... 41 40,542
6.5%, 1-15-14 ......................... 121 116,956
7.0%, 7-15-29 ......................... 200 193,124
United States Treasury,
6.25%, 2-15-07 ........................ 150 147,587
TOTAL UNITED STATES GOVERNMENT SECURITIES - 32.73% $ 1,976,727
(Cost: $2,043,501)
TOTAL SHORT-TERM SECURITIES - 4.72% $ 285,000
(Cost: $285,000)
TOTAL INVESTMENT SECURITIES - 98.53% $5,950,006
(Cost: $6,105,767)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.47% 88,935
NET ASSETS - 100.00% $6,038,941
See Notes to Schedules of Investments on page 89.
<PAGE>
MONEY MARKET PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report covers the operations of the Money Market Portfolio for the fiscal
year ended December 31, 1999. The following discussion and tables provide you
with information regarding the Portfolio's performance during that period.
The financial markets began to return to normal at the beginning of 1999,
following a tumultuous autumn due to world financial problems. Interest rates
remained stable, and inflation seemed to be a benign threat. However, by late
April world markets appeared to be recovering faster than expected, and talk of
an overheating U.S. economy became a topic of concern. The fixed income markets
began to price in the potential for a Federal Funds Rate increase. On June 30,
1999, the Federal Reserve did increase the rate 1/4% to 5.0% in an effort to
slow the U.S. economy. The Federal Reserve continued to "tighten" or increase
the Federal Funds Rate through year-end, making 1/4% increases at the August
24th and again at the November 16th meetings. In the midst of these interest
rate moves, the Federal Reserve pumped large amounts of money into the banking
system in preparation for Y2K, and the possibility of individuals increasing
cash held at year-end. At the same time, issuers of short term securities
structured their borrowings so as to not be in the market in the month
surrounding the turn of the year. This set the stage for rate volatility at
year-end. Interest rate increases throughout the later half of 1999, plus rate
volatility over year-end, helped the Portfolio's overall yield increase this
past fiscal year.
Early in 1999, we extended maturities of securities purchased in anticipation of
relatively stable interest rates due to continued world economic weakness and
little inflation on the U.S. economic horizon. However, when concern developed
about the potential for the U.S. economy to overheat and produce a future
increase in the rate of inflation, the outlook for short-term interest rates
changed from stable to higher rates. Portfolio assets were reinvested in
shorter-term maturities and floating rate notes to take advantage of upward
moves in interest rates. Securities were also purchased over year-end to take
advantage of higher yields being paid for securities maturing in Y2K.
Management style did not change materially in the past fiscal year, except for
some year-end positioning because of potential Y2K problems.
Short-term interest rates are poised to move higher in 2000. It seems
inevitable that the Federal Reserve will raise the Federal Funds Rate over the
first half of 2000. As rates increase, so should the yield on the Portfolio.
We will seek to maintain performance through security selection to maximize
yield while maintaining our low risk profile. The Portfolio's average maturity
will be kept shorter by investing in shorter maturities and variable rate
securities. This will best capture rate increases, which should translate into
higher yields for the Portfolio.
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, 1999
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit - 3.10%
Yankee
Bank Austria - New York,
5.11%, 4-25-00 ........................ $2,000 $ 1,998,261
Commercial Paper - 6.20%
Abbey National North America,
6.055%, 1-18-00 ....................... 2,500 2,492,852
Toronto-Dominion Holdings USA Inc.,
6.9%, 1-10-00 ......................... 1,500 1,497,412
Total ................................. 3,990,264
Notes - 4.66%
Banc One Corp.,
6.5188%, 1-10-00 ...................... 1,000 1,000,000
Harris Trust and Savings Bank,
5.05%, 2-17-2000 ...................... 2,000 1,999,865
Total ................................. 2,999,865
TOTAL BANK OBLIGATIONS - 13.96% $ 8,988,390
(Cost: $8,988,390)
CORPORATE OBLIGATIONS
Commercial Paper
Communication - 2.63%
U S WEST Communications Inc.,
7.1%, 1-13-00 ......................... 1,700 1,695,977
Electric, Gas and Sanitary Services - 6.96%
Bay State Gas Co.,
6.75%, 1-28-00 ........................ 3,000 2,984,812
Questar Corp.,
5.9%, 1-19-00 ......................... 1,000 997,050
Southern California Edison Co.,
7.0%, 1-24-00 ......................... 500 497,764
Total ................................. 4,479,626
Fabricated Metal Products - 5.00%
Danaher Corporation,
6.49%, Master Note .................... 3,219 3,219,000
Food and Kindred Products - 8.07%
General Mills, Inc.,
6.345%, Master Note ................... 3,215 3,215,000
Golden Peanut Co.,
5.93%, 2-29-00 ........................ 2,000 1,980,563
Total ................................. 5,195,563
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Nondepository Institutions - 5.08%
Associates First Capital B.V. (Associates
First Capital Corporation),
5.8%, 1-10-00 ......................... $ 1,000 $ 998,550
General Electric Capital Corporation,
5.93%, 3-7-00 ......................... 1,000 989,128
PACCAR Financial Corp.,
5.2757%, Master Note .................. 1,283 1,283,000
Total ................................. 3,270,678
Oil and Gas Extraction - 3.87%
Arco British Ltd. (Atlantic Richfield Co.),
6.05%, 1-21-00 ........................ 2,500 2,491,597
Personal Services - 4.02%
Block Financial Corp.:
6.15%, 1-12-00 ........................ 1,600 1,596,993
6.2%, 1-28-00 ......................... 1,000 995,350
Total ................................. 2,592,343
Total Commercial Paper - 35.63% 22,944,784
Notes
Amusement and Recreation Services - 3.33%
Walt Disney Company (The),
5.6%, 4-17-00 ......................... 2,145 2,147,092
Communication - 3.10%
AT&T Corp.,
6.1363%, 1-13-00 ...................... 2,000 1,999,576
Electric, Gas and Sanitary Services - 3.11%
Baltimore Gas and Electric Company,
6.11%, 3-1-00 ......................... 2,000 1,999,945
Food Stores - 3.10%
Albertson's Inc.,
6.4425%, 1-14-00 ...................... 2,000 1,999,574
General Merchandise Stores - 3.11%
Wal-Mart Stores, Inc.,
5.65%, 2-1-00 ......................... 2,000 2,000,701
Insurance Carriers - 2.33%
Atlantic American Corporation (Wachovia
Bank, N.A.),
6.49%, 1-5-00 ......................... 1,500 1,500,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Miscellaneous Retail - 2.33%
Todd Shopping Center, L.L.C., Taxable
Variable Rate Demand Bonds, Series 1999
(Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... $ 1,500 $ 1,500,000
Nondepository Institutions - 8.55%
Associates Corp. of North America,
6.4103%, 1-31-00 ...................... 1,500 1,499,557
Caterpillar Financial Services Corp.,
5.93%, 6-1-00 ......................... 1,000 998,960
Ford Motor Credit Company,
6.375%, 10-6-00 ....................... 1,000 1,001,548
General Motors Acceptance Corporation,
7.875%, 3-15-00 ....................... 1,000 1,005,350
Transamerica Finance Corporation,
6.215%, 3-2-00 ........................ 1,000 1,000,000
Total ................................. 5,505,415
Total Notes - 28.96% 18,652,303
TOTAL CORPORATE OBLIGATIONS - 64.59% $41,597,087
(Cost: $41,597,087)
MUNICIPAL OBLIGATIONS
California - 3.88%
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
6.20%, 1-19-00 ........................ 2,000 2,000,000
Oakland-Alameda County Coliseum Authority,
Lease Revenue Bonds (Oakland Coliseum
Arena Project), 1996 Series A-1 Variable Rate
Lease Revenue Bonds (Taxable),(Canadian
Imperial Bank of Commerce),
6.3%, 1-18-00 ......................... 500 500,000
Total ................................. 2,500,000
Indiana - 1.24%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
6.2%, 1-11-00 ......................... 800 800,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Louisiana - 6.36%
Industrial Development Board of the Parish
Of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable), (Westdeutsche
Landesbank Girozentrale),
6.0%, 1-20-00 ......................... $ 2,500 $ 2,500,000
Industrial District No. 3 of the Parish of West
Baton Rouge, State of Louisiana, Variable Rate
Demand Revenue Bonds, Series 1995 (Taxable),
(The Dow Chemical Company Project),
6.25%, 1-26-00 ........................ 800 800,000
Gulf Coast Industrial Development Authority,
Environmental Facilities Revenue Bonds
(CITGO Petroleum Corporation Project), Taxable
Series 1998 (Royal Bank of Canada),
6.25%, 1-26-00 ........................ 800 800,000
Total ................................. 4,100,000
Mississippi - 0.78%
Mississippi Business Finance Corporation,
Taxable Adjustable Mode, Industrial Development
Revenue Bonds (BenchCraft Project), Series 1999
(Wachovia Bank, N.A.),
6.49%, 1-5-00 ......................... 500 500,000
New Jersey - 0.22%
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),
6.71%, 1-5-00 ......................... 140 140,000
New York - 1.55%
Putnam Hospital Center, Multi-Mode Revenue Bonds,
Series 1999 (The Bank of New York),
6.5%, 1-5-00 .......................... 1,000 1,000,000
Pennsylvania - 2.47%
Schuylkill County Industrial Development
Authority, Commercial Development Revenue
Bonds (Midway Supermarket, Inc. Project),
Taxable Series of 1995 (First Union National Bank),
6.8%, 1-5-00 .......................... 1,390 1,390,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania (Continued)
Montgomery County Industrial Development
Authority, Taxable Fixed Rate/Variable
Rate Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(First Union National Bank),
6.8%, 1-5-00 .......................... $ 200 $ 200,000
Total ................................. 1,590,000
Texas - 0.77%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.635%, 3-7-00 ........................ 500 494,838
TOTAL MUNICIPAL OBLIGATIONS - 17.27% $11,124,838
(Cost: $11,124,838)
OTHER GOVERNMENT SECURITY - 3.86%
Commercial Paper (backed by irrevocable bank
letter of credit)
Mexico
United Mexican States (Barclays Bank PLC),
6.08%, 2-1-00 ......................... 2,500 $ 2,486,911
(Cost: $2,486,911)
UNITED STATES GOVERNMENT SECURITY - 1.55%
Federal Home Loan Bank,
6.163%, 1-5-00 ........................ 1,000 $ 1,000,000
(Cost: $1,000,000)
TOTAL INVESTMENT SECURITIES - 101.23% $65,197,226
(Cost: $65,197,226)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.23%) (795,135)
NET ASSETS - 100.00% $64,402,091
See Notes to Schedules of Investments on page 89.
<PAGE>
SCIENCE AND TECHNOLOGY PORTFOLIO
MANAGER'S LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Science and Technology Portfolio for
the fiscal year ended December 31, 1999. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
The U.S. economy grew roughly 4.0% in 1999, as measured by real Gross Domestic
Product, with inflation, defined by the Consumer Price Index, at 2.2%. This
compares to 1998 real GDP growth of 4.6% and CPI growth of 1.6%. Industrial
production grew roughly 3.6% for 1999, versus 4.3% last year, and real consumer
spending was a healthy 5.1% compared to the same level in 1998. The importance
of technology in this economic picture is broadening. Excluding technology-
related activity, industrial production would have been far weaker. New data
indicates that productivity is sharply accelerating in the 1990s. Investment in
the Internet and telecommunications sectors have proven to lead to further
productivity gains and technology has taken center stage accounting for most of
the financial market performance in 1999. It would be easy to dismiss this
technology stock phenomenon as a mania, but strong fundamental developments
underlying them argue for a continuation of a technology-centered market.
The Portfolio had superior results, with gains well in excess of 100%.
Investments in E-commerce grew. Many people shopped on the Internet and
businesses transacted commerce on-line. Once again, large capitalized stocks
outperformed smaller capitalized stocks. The Portfolio benefited from the
deregulation of the telecommunications industry combined with technological
innovation. As more sectors deregulate and adopt new technology strategies,
more companies may become growth vehicles. Now that Y2K fears have moderated,
the spending that normally would have occurred on web-enabled process should
happen. Difficult as it may seem, emphasis on networking and e-commerce will
intensify even more.
The strategies and techniques we applied resulted in the Portfolio significantly
outperforming the Goldman Sachs Technology Industry Composite Index charted
following this letter. The Goldman Sachs Tech Index reflects the performance of
securities that generally represent the technology sector of the stock market.
The Goldman Sachs Tech Index replaces the S&P 400 Industrials Index in this
year's report. We believe that the new index provides a more accurate basis for
comparing the Portfolio's performance to the types of securities in which the
Portfolio invests. Both indexes are presented in this year's report for
comparison purposes. The Portfolio exceeded both benchmarks because its large
positions in Internet and related issues outperformed, by a wide margin, other
stocks and sectors. The better-performing sectors were web-enabling software,
networking, especially optical networking stocks and their component suppliers,
business to business software and business to consumer software stocks.
The Year 2000 will bring political claims and promises as we look toward
ushering in a new President in 2001. The 1990s brought us unparalleled heights
in technology stocks, enormous initial public offerings, and wealth for millions
of people who participated in the markets. It is fair to ask whether the large
role that equities played in the 1990s will continue and whether technology will
still play the same or a more important role. A setback in stock prices may
occur and serious consideration should be given to its probability, timing and
triggers. However, the central role of technology, in our opinion, will stay
large and continue to grow because of the revolutionary capabilities it brings.
Sometimes an industry sector plays a decades-long role in the global economy.
The defense industry played an enormous role in the cold war period. The
automobile and its associated industries transformed economies and peoples'
lives for decades. We think such a period exists now for technology. We will
try to find companies that benefit from the above-mentioned trends and those
with the potential to create such trends in the future.
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,
The Goldman Sachs Technology Industry Composite Index
and The S&P 400 Industrials Index
Goldman
Sachs
Target/United Technology S&P
Science and Industry 400
Technology Composite Industrials
Portfolio Index Index
--------- --------- -----
4/4/97 Purchase $10,000 $10,000 $10,000
12/31/97 11,623 12,760 12,770
12/31/98 16,976 21,581 17,094
12/31/99 46,626 40,579 21,548
===== Target/United Science and Technology Portfolio* -- $46,626
***** Goldman Sachs Technology Industry Composite Index** -- $40,579
+++++ S&P 400 Industrials Index** -- $21,548
*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 indexes are
not available, investment in the indexes was effected as of March 31, 1997.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 174.66%
2+ Years Ended
12/31/99++ 75.31%
+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 12-31-99.
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, 1999
Shares Value
COMMON STOCKS
Business Services - 20.48%
Acxiom Corporation* .................... 60,000 $ 1,441,875
America Online, Inc.* .................. 40,000 3,017,500
Broadbase Software, Inc.* .............. 45,000 5,034,375
Clear Channel Communications, Inc.* .... 18,000 1,606,500
Critical Path, Inc.* ................... 28,000 2,644,250
Cysive, Inc.* .......................... 25,975 1,885,623
DoubleClick Inc.* ...................... 26,500 6,711,953
eBay Inc.* ............................. 15,000 1,878,281
Gerald Stevens, Inc.* .................. 100,000 834,375
Getty Images, Inc.* .................... 35,000 1,715,000
InterNAP Network Services Corporation* . 25,000 4,321,875
Lycos, Inc.* ........................... 30,000 2,387,813
MemberWorks Incorporated* .............. 31,000 1,027,844
Netcentives Inc.* ...................... 33,600 2,095,800
Portal Software, Inc.* ................. 38,500 3,953,469
Redback Networks* ...................... 20,000 3,543,125
S1 Corporation* ........................ 45,000 3,510,000
SunGard Data Systems, Inc.* ............ 55,000 1,306,250
TMP Worldwide Inc.* .................... 20,000 2,833,750
Total ................................. 51,749,658
Cable and Other Pay Television Services - 1.23%
EchoStar Communications Corporation,
Class A* .............................. 32,000 3,116,000
Chemicals and Allied Products - 1.19%
Albany Molecular Research, Inc.* ....... 55,000 1,708,438
Gilead Sciences* ....................... 24,000 1,297,500
Total ................................. 3,005,938
Communication - 4.00%
COLT Telecom Group plc, ADR* ........... 10,000 2,040,000
Illuminet Holdings, Inc.* .............. 40,000 2,198,750
Next Level Communications, Inc.* ....... 30,250 2,267,805
Nextel Communications, Inc.* ........... 35,000 3,608,281
Total ................................. 10,114,836
Communication Services - 0.39%
Metro One Telecommunications, Inc.* .... 75,000 979,687
Computer Integrated Systems Design - 6.26%
CacheFlow Inc.* ........................ 10,000 1,306,562
Inktomi Corporation* ................... 26,000 2,305,875
Netopia, Inc.* ......................... 30,000 1,637,812
Sanchez Computer Associates, Inc.* ..... 88,000 3,652,000
Yahoo! Inc.* ........................... 16,000 6,923,500
Total ................................. 15,825,749
Depository Institutions - 0.81%
Concord EFS, Inc.* ..................... 80,000 2,057,500
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO
DECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 16.00%
Broadcom Corporation, Class A* ......... 17,000 $ 4,629,844
Data Critical Corporation* ............. 50,000 746,875
Finisar Corporation* ................... 9,500 850,250
Gemstar International Group Limited* ... 60,000 4,271,250
Inet Technologies, Inc.* ............... 50,000 3,509,375
JDS Uniphase Corporation* .............. 52,000 8,388,250
Nokia Corporation, Series A, ADR ....... 18,000 3,420,000
Nortel Networks Corporation ............ 25,000 2,525,000
Rambus Inc.* ........................... 40,000 2,696,250
STMicroelectronics N.V., NY Shares ..... 20,000 3,028,750
Sycamore Networks, Inc.* ............... 10,000 3,048,125
Wink Communications, Inc.* ............. 55,000 3,301,719
Total ................................. 40,415,688
Engineering and Management Services - 2.70%
Incyte Pharmaceuticals, Inc.* .......... 37,000 2,188,781
MAXIMUS, Inc.* ......................... 30,000 1,018,125
Paychex, Inc. .......................... 50,000 1,998,437
Whittman-Hart, Inc.* ................... 30,000 1,609,688
Total ................................. 6,815,031
Industrial Machinery and Equipment - 4.13%
Apple Computer, Inc.* .................. 30,900 3,175,941
Crossroads Systems, Inc.* .............. 10,000 843,125
Foundry Networks, Inc.* ................ 10,000 3,016,250
Juniper Networks, Inc.* ................ 10,000 3,396,562
Total ................................. 10,431,878
Instruments and Related Products - 0.64%
VISX, Incorporated* .................... 31,000 1,605,219
Miscellaneous Retail - 0.90%
Amazon.com, Inc.* ...................... 30,000 2,284,688
Prepackaged Software - 27.63%
Allaire Corporation* ................... 24,500 3,592,313
Ariba, Inc.* ........................... 32,000 5,670,000
BroadVision, Inc.* ..................... 90,000 15,305,625
Citrix Systems, Inc.* .................. 30,000 3,689,063
E.piphany, Inc.* ....................... 11,100 2,483,625
eGain Communications Corporation* ...... 40,000 1,500,000
HNC Software Inc.* ..................... 25,000 2,649,219
iManage, Inc.* ......................... 51,400 1,678,531
Intuit Inc.* ........................... 70,000 4,193,437
Macromedia, Inc.* ...................... 35,100 2,566,687
NetIQ Corporation* ..................... 56,500 2,983,906
Phone.com, Inc.* ....................... 41,500 4,821,781
Transaction Systems Architects, Inc.,
Class A* .............................. 30,000 840,938
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE SCIENCE AND TECHNOLOGY PORTFOLIO
DECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software (Continued)
Veritas Software Corp.* ................ 45,000 $ 6,439,219
Vignette Corporation* .................. 70,000 11,407,812
Total ................................. 69,822,156
Wholesale Trade -- Durable Goods - 1.23%
Latitude Communications, Inc.* ......... 60,000 1,565,625
Somera Communications, Inc.* ........... 125,000 1,550,781
Total ................................. 3,116,406
Wholesale Trade -- Nondurable Goods - 1.75%
Chemdex Corporation* ................... 40,000 4,420,000
TOTAL COMMON STOCKS - 89.34% $225,760,434
(Cost: $89,710,739)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Depository Institutions - 1.19%
Deutsche Bank Financial Inc.,
6.75%, 1-6-00 ......................... $3,000 2,997,187
Electric, Gas and Sanitary Services - 3.16%
Bay State Gas Co.,
6.15%, 1-12-00 ........................ 8,000 7,984,967
Fabricated Metal Products - 1.73%
Danaher Corporation,
6.49%, Master Note .................... 4,377 4,377,000
Food and Kindred Products - 1.89%
General Mills, Inc.,
6.345%, Master Note ................... 4,779 4,779,000
Nondepository Institutions - 2.47%
PACCAR Financial Corp.,
5.2757%, Master Note .................. 6,239 6,239,000
TOTAL SHORT-TERM SECURITIES - 10.44% $ 26,377,154
(Cost: $26,377,154)
TOTAL INVESTMENT SECURITIES - 99.78% $252,137,588
(Cost: $116,087,893)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.22% 546,203
NET ASSETS - 100.00% $252,683,791
See Notes to Schedules of Investments on page 89.
<PAGE>
SMALL CAP PORTFOLIO
MANAGERS' LETTER
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
Dear Policyholder:
This report relates to the operation of the Small Cap Portfolio during the
fiscal year ended December 31, 1999. The following discussion, graphs and
tables provide you with information regarding the Portfolio's performance during
that period.
1999 was a remarkable year for the small cap growth market. The small cap
growth sector provided double digit returns, despite negative returns in the 1st
and 3rd quarters, while small cap value stocks turned in negative performance.
1999 highlighted the stark contrast between the performance of stocks associated
with the Old versus the New economy. While the former struggled with the tug-
of-war between rising interest rates and economic strength, the latter simply
soared.
The stellar performance of some stocks in the technology and telecommunications
sectors this past year caused much controversy. Simply put, many of the leading
gainers for the year had no profits or increasing losses. Promise, for the most
part, outperformed performance in 1999. Fortunately, we did not become overly
embroiled in this debate and, thereby, did not miss out on participating in some
of the returns afforded. We were able to capitalize on this opportunity largely
by utilizing initial public offerings (IPOs) as our entrance into these sectors.
We reasoned that risk would be somewhat mitigated by being in on the "ground
floor." We did, however, take profits and redeploy funds across a spectrum of
growth companies in an attempt to diversify the risks associated with investing
in this category of stocks.
The strategies and techniques we applied resulted in the Portfolio outperforming
the Russell 2000 Growth Index during the fiscal year, as charted on the
following page. The Russell 2000 Growth Index reflects the performance of
securities that generally represent the small companies sector of the stock
market. We have chosen to use the Russell 2000 Growth Index beginning with this
year's Annual Report, instead of the Nasdaq Industrials Index that had been
presented in prior years. The Naddaq Industrials Index has, in recent years,
become dominated by large cap securities in the technology sector. We believe
that the Russell 2000 Growth Index provides a more accurate basis for comparing
the Portfolio's performance to the performance of the types of securities in
which the Portfolio typically invests.
We suspect that returns for the year 2000 will be more evenly spread,
particularly if interest rates peak. This would most likely aid the majority of
small cap issues that declined in 1999.
Thank you very much for your continued support and confidence.
Respectfully,
Mark G. Seferovich
Grant P. Sarris
Managers, Small Cap Portfolio
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Target/United Small Cap Portfolio,
The Russell 2000 Growth Index and
The Nasdaq Industrials Index
Target/United Russell 2000 Nasdaq
Small Cap Growth Industrials
Portfolio Index Index
---------- ------------ -----------
05/03/94 Purchase $10,000 $10,000 $10,000
12/31/94 12,091 10,137 9,862
12/31/95 15,999 13,274 12,620
12/31/96 17,360 14,756 14,517
12/31/97 22,834 16,663 15,974
12/31/98 25,315 16,869 17,063
12/31/99 38,537 24,136 29,293
----- Target/United Small Cap Portfolio* -- $38,537
..... Russell 2000 Growth Index** -- $24,136
+++++ Nasdaq Industrials Index** -- $29,293
*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
are not available, investment in the indexes was effected as of April 30,
1994.
Average Annual Total Return+
----------------------------
Year Ended
12/31/99 52.23%
5 Years Ended
12/31/99 26.09%
5+ Years Ended
12/31/99++ 26.88%
+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 12-31-99.
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, 1999
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 1.37%
O'Reilly Automotive, Inc.* ............. 200,000 $ 4,356,250
Business Services - 22.51%
Acxiom Corporation* .................... 386,900 9,297,691
CheckFree Holdings Corporation* ........ 155,000 16,313,750
FactSet Research Systems, Inc. ......... 67,000 5,334,875
Getty Images, Inc.* .................... 238,300 11,676,700
MemberWorks Incorporated* .............. 196,700 6,521,834
Primark Corporation* ................... 152,900 4,252,531
S1 Corporation* ........................ 85,000 6,630,000
USINTERNETWORKING, Inc.* ............... 165,300 11,540,006
Total ................................. 71,567,387
Chemicals and Allied Products - 1.89%
Pharmacyclics, Inc.* ................... 145,500 6,020,062
Communication - 12.01%
Illuminet Holdings, Inc.* .............. 29,100 1,599,591
Intermedia Communications Inc.* ........ 180,000 6,975,000
RCN Corporation* ....................... 125,000 6,058,594
VoiceStream Wireless Corporation* ...... 100,000 14,209,375
Western Wireless Corporation,
Class A* .............................. 140,000 9,336,250
Total ................................. 38,178,810
Computer Integrated Systems Design - 4.55%
Cerner Corporation* .................... 260,200 5,114,556
Sanchez Computer Associates, Inc.* ..... 90,000 3,735,000
Shared Medical Systems Corporation ..... 110,000 5,603,125
Total ................................. 14,452,681
Eating and Drinking Places - 1.64%
Papa John's International, Inc.* ....... 200,000 5,218,750
Electronic and Other Electric Equipment - 5.83%
Advanced Fibre Communications, Inc.* ... 271,900 12,184,519
Rambus Inc.* ........................... 94,000 6,336,187
Total ................................. 18,520,706
Engineering and Management Services - 6.65%
Incyte Pharmaceuticals, Inc.* .......... 240,000 14,197,500
MAXIMUS, Inc.* ......................... 205,000 6,957,187
Total ................................. 21,154,687
Food and Kindred Products - 2.05%
American Italian Pasta Company, Class A* 211,500 6,503,625
Health Services - 0.90%
American Healthcorp, Inc.* ............. 210,000 997,500
Amsurg Corp., Class A* ................. 282,000 1,850,625
Total ................................. 2,848,125
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1999
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 2.88%
Lunar Corporation* ..................... 200,000 $ 1,400,000
VISX, Incorporated* .................... 150,000 7,767,188
Total ................................. 9,167,188
Personal Services - 0.45%
Stewart Enterprises, Inc., Class A ..... 300,000 1,434,375
Prepackaged Software - 9.44%
Best Software, Inc.* ................... 125,500 3,698,328
Citrix Systems, Inc.* .................. 79,500 9,776,016
Dendrite International, Inc.* .......... 225,000 7,579,688
NEON Systems, Inc.* .................... 100,000 3,887,500
Transaction Systems Architects, Inc.,
Class A* .............................. 180,600 5,062,444
Total ................................. 30,003,976
Radio and Television Broadcasting Stations - 3.92%
Emmis Communications Corporation* ...... 100,000 12,465,625
Stone, Clay and Glass Products - 0.71%
Department 56, Inc.* ................... 100,000 2,262,500
Transportation by Air - 1.73%
Midwest Express Holdings, Inc.* ........ 172,300 5,492,062
Transportation Equipment - 2.39%
Gentex Corporation* .................... 272,500 7,595,938
Wholesale Trade -- Durable Goods - 1.25%
MSC Industrial Direct Co., Inc.,
Class A* .............................. 300,000 3,975,000
TOTAL COMMON STOCKS - 82.17% $261,217,747
(Cost: $164,168,540)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Depository Institutions - 5.34%
Deutsche Bank Financial Inc.,
6.75%, 1-6-00 ......................... $ 5,000 4,995,312
Dresdner U.S. Finance Inc.,
6.23%, 1-10-00 ........................ 5,000 4,992,213
Westpac Capital Corp.,
5.5%, 1-10-00 ......................... 7,000 6,990,375
Total ................................. 16,977,900
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services - 2.54%
Detroit Edison Co.,
6.75%, 1-13-00 ........................ $ 4,000 $ 3,991,000
Public Service Electric & Gas Co.,
7.5%, 1-14-00 ......................... 4,100 4,088,896
Total ................................. 8,079,896
Fabricated Metal Products - 1.97%
Danaher Corporation,
6.49%, Master Note .................... 6,251 6,251,000
Food and Kindred Products - 0.04%
General Mills, Inc.,
6.345%, Master Note ................... 117 117,000
Nondepository Institutions - 2.68%
Associates First Capital B.V. (Associates
First Capital Corporation),
6.0%, 1-10-00 ......................... 1,685 1,682,472
PACCAR Financial Corp.,
5.2757%, Master Note .................. 6,856 6,856,000
Total ................................. 8,538,472
Transportation Equipment - 3.14%
Dana Corp.,
6.75%, 1-12-00 ........................ 10,000 9,979,375
Total Commercial Paper - 15.71% 49,943,643
Commercial Paper (backed by irrevocable bank letter
of credit) - 1.35%
Nondepository Institutions
Agway Financial Corp. (Rabobank Nederland N.V.),
5.0%, 1-5-00 .......................... 4,300 4,297,611
Municipal Obligation - 1.42%
Michigan
Michigan Strategic Fund, Variable Rate
Demand Limited Obligation Revenue Bonds,
Series 1998 (Bosal Industries Project),
5.55%, 1-5-00 ......................... 4,500 4,500,000
See Notes to Schedules of Investments on page 89.
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1999
Value
TOTAL SHORT-TERM SECURITIES - 18.48% $ 58,741,254
(Cost: $58,741,254)
TOTAL INVESTMENT SECURITIES - 100.65% $319,959,001
(Cost: $222,909,794)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.65%) (2,058,820)
NET ASSETS - 100.00% $317,900,181
See Notes to Schedules of Investments on page 89.
<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) 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, 1999, the value of
these securities amounted to $2,547,975, $9,653,971 and $23,037,168,
respectively, or 2.31%, 8.00% and 7.68%, respectively, of the total net
assets in the Bond Portfolio, High Income Portfolio and International
Portfolio, respectively.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(D) Each unit of AirGate PCS, Inc. consists of $1,000 principal amount of 13.5%
senior subordinated discount notes due 2009 and one warrant to purchase
2.148 shares of common stock, par value $0.01 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, 1999
(In Thousands, Except for Per Share Amounts)
Asset
Strategy Balanced Bond
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $21,569 $117,161 $109,066
Cash ................. 1 2 ---
Receivables:
Investment securities
sold ............... --- 88 ---
Fund shares sold ..... --- 32 31
Dividends and interest 25 809 1,512
Prepaid insurance
premium .............. --- 1 1
------- -------- --------
Total assets ....... 21,595 118,093 110,610
Liabilities ------- -------- --------
Payable for investment
securities purchased . --- 805 ---
Payable to Fund
shareholders ......... 1 24 37
Accrued service
fee (Note 2) ......... 4 23 22
Accrued accounting
services fee (Note 2). 1 3 3
Accrued management
fee (Note 2) ......... --- 2 2
Due to custodian ...... --- --- 8
Other ................. 2 3 2
------- -------- --------
Total liabilities .. 8 860 74
------- -------- --------
Total net assets .. $21,587 $117,233 $110,536
Net Assets ======= ======== ========
$0.001 par value capital stock (Note 6):
Capital stock ........ $ 3 $ 16 $ 22
Additional paid-in
capital ............ 18,475 103,735 115,799
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated net realized gain
(loss) on investment
transactions ....... --- --- (1,858)
Net unrealized appreciation
(depreciation) of
investments 3,109 13,482 (3,427)
------- -------- --------
Net assets applicable to
outstanding units
of capital ........ $21,587 $117,233 $110,536
======= ======== ========
Net asset value, redemption
and offering price per share $6.2625 $7.3120 $5.0497
======= ======= =======
Capital shares outstanding 3,447 16,033 21,890
Capital shares authorized 50,000 50,000 100,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(In Thousands, Except for Per Share Amounts)
Growth High Income Income
Portfolio Portfolio Portfolio
Assets ------------ ------------ -----------
Investment securities--at
value (Notes 1 and 3) $1,168,768 $118,910 $938,344
Cash ................. 12 1 3
Receivables:
Investment securities
sold ............... 6,998 --- 1,711
Fund shares sold ..... 639 9 342
Dividends and interest 395 1,884 642
Prepaid insurance
premium .............. 5 1 4
---------- -------- --------
Total assets ....... 1,176,817 120,805 941,046
Liabilities ---------- -------- --------
Payable for investment
securities purchased . 13,666 --- ---
Payable to Fund
shareholders ......... 132 74 291
Accrued service
fee (Note 2) ......... 231 24 186
Accrued accounting
services fee (Note 2). 8 3 7
Accrued management
fee (Note 2) ......... 22 2 18
Due to custodian ...... --- --- ---
Other ................. 10 3 9
---------- -------- --------
Total liabilities .. 14,069 106 511
---------- -------- --------
Total net assets .. $1,162,748 $120,699 $940,535
Net Assets ========== ======== ========
$0.001 par value capital stock (Note 6):
Capital stock ........ $ 107 $ 29 $ 73
Additional paid-in
capital ............ 785,693 129,746 656,818
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated net realized gain
(loss) on investment
transactions ....... --- (8,314) ---
Net unrealized appreciation
(depreciation) of
investments 376,948 (762) 283,644
---------- -------- --------
Net assets applicable to
outstanding units
of capital ........ $1,162,748 $120,699 $940,535
========== ======== ========
Net asset value, redemption
and offering price per share $10.8751 $4.1691 $12.9609
======== ======= ========
Capital shares outstanding 106,918 28,951 72,567
Capital shares authorized 150,000 100,000 100,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(In Thousands, Except for Per Share Amounts)
International Limited-Term Money Market
Portfolio Bond Portfolio Portfolio
Assets ------------- ------------ -----------
Investment securities--at
value (Notes 1 and 3) $299,694 $5,950 $65,197
Cash ................. 2 1 3
Receivables:
Investment securities
sold ............... 8 --- ---
Fund shares sold ..... 199 --- 203
Dividends and interest 269 90 490
Prepaid insurance
premium .............. 1 --- 1
-------- ------ -------
Total assets ....... 300,173 6,041 65,894
Liabilities -------- ------ -------
Payable for investment
securities purchased . --- --- ---
Payable to Fund
shareholders ......... 27 --- 1,474
Accrued service
fee (Note 2) ......... 53 1 13
Accrued accounting
services fee (Note 2). 4 --- 3
Accrued management
fee (Note 2) ......... 7 --- 1
Due to custodian ...... --- --- ---
Other ................. 53 1 1
-------- ------ -------
Total liabilities .. 144 2 1,492
-------- ------ -------
Total net assets .. $300,029 $6,039 $64,402
Net Assets ======== ====== =======
$0.001 par value capital stock (Note 6):
Capital stock ........ $ 25 $ 1 $ 64
Additional paid-in
capital ............ 167,194 6,201 64,338
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- --- ---
Accumulated net realized gain
(loss) on investment
transactions ....... (212) (7) ---
Net unrealized appreciation
(depreciation) of
investments 133,022 (156) ---
-------- ------ -------
Net assets applicable to
outstanding units
of capital ........ $300,029 $6,039 $64,402
======== ====== =======
Net asset value, redemption
and offering price per share $11.9354 $5.0405 $1.0000
======== ======= =======
Capital shares outstanding 25,138 1,198 64,402
Capital shares authorized 100,000 50,000 100,000
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
(In Thousands, Except for Per Share Amounts)
Science and
Technology Small Cap
Portfolio Portfolio
Assets ------------- -------------
Investment securities--at
value (Notes 1 and 3) $252,138 $319,959
Cash ................. 2 2
Receivables:
Investment securities
sold ............... --- ---
Fund shares sold ..... 566 324
Dividends and interest 58 98
Prepaid insurance
premium .............. 1 1
-------- --------
Total assets ....... 252,765 320,384
Liabilities -------- --------
Payable for investment
securities purchased . --- 2,394
Payable to Fund
shareholders ......... 26 16
Accrued service
fee (Note 2) ......... 43 59
Accrued accounting
services fee (Note 2). 4 4
Accrued management
fee (Note 2) ......... 6 7
Due to custodian ...... --- ---
Other ................. 2 4
-------- --------
Total liabilities .. 81 2,484
-------- --------
Total net assets .. $252,684 $317,900
Net Assets ======== ========
$0.001 par value capital stock (Note 6):
Capital stock ........ $ 11 $ 27
Additional paid-in
capital ............ 116,622 220,824
Accumulated undistributed gain (loss):
Accumulated undistributed net
investment income .. --- ---
Accumulated net realized gain
(loss) on investment
transactions ....... 1 ---
Net unrealized appreciation
(depreciation) of
investments 136,050 97,049
-------- --------
Net assets applicable to
outstanding units
of capital ........ $252,684 $317,900
======== ========
Net asset value, redemption
and offering price per share $22.4087 $11.6130
======== =======
Capital shares outstanding 11,276 27,374
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, 1999
(In Thousands)
Asset
Strategy Balanced Bond
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income (Loss)
Income (Note 1B):
Interest and
amortization ........ $ 425 $ 2,897 $ 7,464
Dividends ............ 70 711 ---
------ ------- -------
Total income ....... 495 3,608 7,464
------ ------- -------
Expenses (Note 2):
Investment management
fee ................ 126 664 593
Service fee .......... 41 247 272
Accounting services
fee ................ 10 37 40
Custodian fees ....... 7 12 9
Audit fees ........... 6 7 7
Legal fees ........... --- 2 2
Other ................ 1 5 6
------ ------- -------
Total .............. 191 974 929
Less expenses in
excess of voluntary
waiver of management
fee (Note 2)....... (66) --- ---
------ ------- -------
Total expenses..... 125 974 929
------ ------- -------
Net investment
income (loss) ... 370 2,634 6,535
------ ------- -------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 807 5,102 (452)
Realized net loss
on foreign currency
transactions ......... --- (1) ---
------ ------- -------
Realized net gain (loss)
on investments ..... 807 5,101 (452)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 2,695 2,691 (7,745)
------ ------- -------
Net gain (loss) on
investments ....... 3,502 7,792 (8,197)
------ ------- -------
Net increase (decrease)
in net assets
resulting from
operations $3,872 $10,426 $(1,662)
====== ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
Growth High Income Income
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income (Loss)
Income (Note 1B):
Interest and
amortization ........ $ 3,531 $12,313 $ 12,199
Dividends ............ 5,913 145 6,701
-------- ------- --------
Total income ....... 9,444 12,458 18,900
-------- ------- --------
Expenses (Note 2):
Investment management
fee ................ 6,469 778 5,984
Service fee .......... 2,251 295 2,071
Accounting services
fee ................ 87 40 85
Custodian fees ....... 46 7 55
Audit fees ........... 8 7 8
Legal fees ........... 17 3 16
Other ................ 44 7 42
-------- ------- --------
Total .............. 8,922 1,137 8,261
Less expenses in
excess of voluntary
waiver of management
fee (Note 2)....... --- --- ---
-------- ------- -------
Total expenses ..... 8,922 1,137 8,261
-------- ------- --------
Net investment
income (loss) ... 522 11,321 10,639
-------- ------- --------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 150,006 (7,976) 51,643
Realized net loss
on foreign currency
transactions ......... --- --- (4)
-------- ------- --------
Realized net gain (loss)
on investments ..... 150,006 (7,976) 51,639
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 142,019 1,657 42,185
-------- ------- --------
Net gain (loss) on
investments ....... 292,025 (6,319) 93,824
-------- ------- --------
Net increase (decrease)
in net assets
resulting from
operations $292,547 $5,002 $104,463
======== ====== ========
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
International Limited-Term Money Market
Portfolio Bond Portfolio Portfolio
--------------- ---------- ----------
Investment Income (Loss)
Income (Note 1B):
Interest and
amortization ........ $ 687 $354 $3,043
Dividends ............ 1,765 --- ---
-------- ---- ------
Total income ....... 2,452 354 3,043
-------- ---- ------
Expenses (Note 2):
Investment management
fee ................ 1,607 29 254
Service fee .......... 468 14 139
Accounting services
fee ................ 42 --- 30
Custodian fees ....... 235 2 8
Audit fees ........... 8 5 4
Legal fees ........... 3 --- 4
Other ................ 9 1 3
-------- ---- ------
Total .............. 2,372 51 442
Less expenses in
excess of voluntary
waiver of management
fee (Note 2)....... --- (15) ---
------ ------- -------
Total expenses ..... 2,372 36 442
-------- ---- ------
Net investment
income (loss) ... 80 318 2,601
-------- ---- ------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 23,371 (7) ---
Realized net loss
on foreign currency
transactions ......... (292) --- ---
-------- ---- ------
Realized net gain (loss)
on investments ..... 23,079 (7) ---
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 94,082 (217) ---
-------- ---- ------
Net gain (loss) on
investments ....... 117,161 (224) ---
-------- ---- ------
Net increase (decrease)
in net assets
resulting from
operations $117,241 $ 94 $ 2,601
======== ==== ======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
Science and
Technology Small Cap
Portfolio Portfolio
------------- -------------
Investment Income (Loss)
Income (Note 1B):
Interest and
amortization ........ $ 650 $ 3,323
Dividends ............ 14 158
-------- --------
Total income ....... 664 3,481
-------- --------
Expenses (Note 2):
Investment management
fee ................ 739 1,771
Service fee .......... 221 506
Accounting services
fee ................ 32 47
Custodian fees ....... 9 18
Audit fees ........... 6 7
Legal fees ........... 1 4
Other ................ 5 10
-------- -------
Total .............. 1,013 2,363
Less expenses in
excess of voluntary
waiver of management
fee (Note 2)....... --- ---
-------- --------
Total expenses ..... 1,013 2,363
-------- --------
Net investment
income (loss) ... (349) 1,118
-------- --------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net gain (loss)
on securities ........ 3,893 11,157
Realized net loss
on foreign currency
transactions ......... --- (7)
-------- --------
Realized net gain (loss)
on investments ..... 3,893 11,150
Unrealized appreciation
(depreciation) in value
of investments during
the period ........... 127,861 93,399
-------- --------
Net gain (loss) on
investments ....... 131,754 104,549
-------- --------
Net increase
in net assets
resulting from
operations $131,405 $105,667
======== ========
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
Asset
Strategy Balanced Bond
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ...... $ 370 $ 2,634 $ 6,535
Realized net gain (loss)
on investments ..... 807 5,101 (452)
Unrealized appreciation
(depreciation) ..... 2,695 2,691 (7,745)
------- -------- --------
Net increase (decrease)
in net assets
resulting from
operations......... 3,872 10,426 (1,662)
------- -------- --------
Dividends to shareholders (Note 1E):*
from net investment
income................ (370) (2,633) (6,535)
from realized gains on
security transactions. (807) (5,102) ---
------- -------- --------
(1,177) (7,735) (6,535)
------- -------- --------
Capital share
transactions** ....... 4,802 22,322 4,437
------- -------- --------
Total increase
(decrease) ....... 7,497 25,013 (3,760)
Net Assets
Beginning of period 14,090 92,220 114,296
------- -------- --------
End of period ......... $21,587 $117,233 $110,536
======= ======== ========
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 979 3,789 3,554
Shares issued from reinvest-
ment of dividends and/or
capital gains distribution 188 1,058 1,294
Shares redeemed ......... (336) (1,788) (3,949)
---- ------ ------
Increase in outstanding
capital shares ......... 831 3,059 899
==== ===== ======
Value issued from sale
of shares ............. $5,534 $27,717 $19,146
Value issued from reinvest-
ment of dividends and/or
capital gains distribution 1,177 7,735 6,535
Value redeemed .......... (1,909) (13,130) (21,244)
------ ------- -------
Increase in outstanding
capital ............... $4,802 $22,322 $4,437
====== ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
Growth High Income Income
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ...... $ 522 $ 11,321 $ 10,639
Realized net gain (loss)
on investments ..... 150,006 (7,976) 51,639
Unrealized appreciation
(depreciation) ..... 142,019 1,657 42,185
--------- -------- --------
Net increase (decrease)
in net assets
resulting from
operations......... 292,547 5,002 104,463
--------- -------- --------
Dividends to shareholders (Note 1E):*
from net investment
income................ (522) (11,321) (10,635)
from realized gains on
security transactions. (150,006) --- (51,643)
--------- -------- --------
(150,528) (11,321) (62,278)
--------- -------- --------
Capital share
transactions** ....... 195,614 665 87,016
---------- -------- --------
Total increase
(decrease) ...... 337,633 (5,654) 129,201
Net Assets
Beginning of period 825,115 126,353 811,334
---------- -------- --------
End of period ......... $1,162,748 $120,699 $940,535
========== ======== ========
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 12,932 3,202 9,942
Shares issued from reinvest-
ment of dividends and/or
capital gains distribution 13,841 2,715 4,805
Shares redeemed ......... (8,588) (5,590) (7,954)
------ ------ ------
Increase in outstanding
capital shares ......... 18,185 327 6,793
====== ====== ======
Value issued from sale
of shares ............. $133,490 $14,259 $126,991
Value issued from reinvest-
ment of dividends and/or
capital gains distribution 150,528 11,321 62,278
Value redeemed .......... (88,404) (24,915) (102,253)
-------- ------- -------
Increase in outstanding
capital ............... $195,614 $ 665 $87,016
======== ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
International Limited-Term Money Market
Portfolio Bond Portfolio Portfolio
-------------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ...... $ 80 $ 318 $ 2,601
Realized net gain (loss)
on investments ..... 23,079 (7) ---
Unrealized appreciation
(depreciation) ..... 94,082 (217) ---
-------- ------ -------
Net increase (decrease)
in net assets
resulting from
operations......... 117,241 94 2,601
-------- ------ -------
Dividends to shareholders (Note 1E):*
from net investment
income................ --- (318) (2,601)
from realized gains on
security transactions. (23,371) --- ---
------- -------- --------
(23,371) (318) (2,601)
------- -------- --------
Capital share
transactions** ....... 37,198 1,744 10,379
-------- ------ -------
Total increase
(decrease) ...... 131,068 1,520 10,379
Net Assets
Beginning of period 168,961 4,519 54,023
-------- ------ -------
End of period ......... $300,029 $6,039 $64,402
======== ====== =======
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 3,867 554 322,588
Shares issued from reinvest-
ment of dividends and/or
capital gains distribution 1,958 63 2,601
Shares redeemed ......... (2,300) (283) (314,810)
------ ---- --------
Increase in outstanding
capital shares ......... 3,525 334 10,379
====== ==== ========
Value issued from sale
of shares ............. $33,901 $2,914 $322,588
Value issued from reinvest-
ment of dividends and/or
capital gains distribution 23,371 318 2,601
Value redeemed .......... (20,074) (1,488) (314,810)
------- ------ --------
Increase in outstanding
capital ............... $37,198 $1,744 $ 10,379
======= ====== ========
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1999
(In Thousands)
Science and
Technology Small Cap
Portfolio Portfolio
----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ...... $ (349) $ 1,118
Realized net gain (loss)
on investments ..... 3,893 11,150
Unrealized appreciation
(depreciation) ..... 127,861 93,399
-------- --------
Net increase (decrease)
in net assets
resulting from
operations......... 131,405 105,667
-------- --------
Dividends to shareholders (Note 1E):*
from net investment
income................ --- (1,111)
from realized gains on
security transactions. (3,543) (9,869)
-------- --------
(3,543) (10,980)
-------- --------
Capital share
transactions** ....... 90,227 42,644
-------- --------
Total increase
(decrease) ...... 218,089 137,331
Net Assets
Beginning of period 34,595 180,569
-------- --------
End of period ......... $252,684 $317,900
======== ========
Undistributed net investment
income ............. $--- $---
==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 7,622 6,127
Shares issued from reinvest-
ment of dividends and/or
capital gains distribution 158 945
Shares redeemed ......... (685) (2,549)
----- ------
Increase in outstanding
capital shares ......... 7,095 4,523
===== ======
Value issued from sale
of shares ............. $95,174 53,564
Value issued from reinvest-
ment of dividends and/or
capital gains distribution 3,543 10,980
Value redeemed .......... (8,490) (21,900)
------- -------
Increase in outstanding
capital ............... $90,227 $42,644
======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
Asset
Strategy Balanced Bond
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............ $ 344 $ 2,337 $ 6,300
Realized net gain (loss)
on investments ..... 460 758 783
Unrealized appreciation
(depreciation) ..... 225 3,437 369
------- ------- --------
Net increase
in net assets
resulting from
operations......... 1,029 6,532 7,452
------- ------- --------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (342) (2,334) (6,300)
From realized gains on
security transactions (462) (761) ---
In excess of realized
capital gains ...... --- --- ---
------- ------- --------
(804) (3,095) (6,300)
------- ------- --------
Capital share
transactions** ....... 4,055 21,024 13,655
------- ------- --------
Total increase .... 4,280 24,461 14,807
Net Assets
Beginning of period ... 9,810 67,759 99,489
------- ------- --------
End of period ......... $14,090 $92,220 $114,296
======= ======= ========
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 783 3,612 4,066
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 149 436 1,157
Shares redeemed ......... (204) (1,085) (2,764)
--- ----- -----
Increase in
outstanding capital
shares ................. 728 2,963 2,459
=== ===== =====
Value issued from sale
of shares ............. $4,385 $25,583 $22,739
Value issued from reinvest-
ment of dividends and/or
distributions ......... 804 3,095 6,300
Value redeemed .......... (1,134) (7,654) (15,384)
------ ------- -------
Increase in
outstanding capital ... $4,055 $21,024 $13,655
====== ======= =======
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
High
Growth Income Income
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............ $ 3,876 $ 10,944 $ 9,832
Realized net gain (loss)
on investments ..... 24,895 (338) 110,690
Unrealized appreciation
(depreciation) ..... 146,953 (8,207) 16,851
-------- -------- --------
Net increase
in net assets
resulting from
operations......... 175,724 2,399 137,373
-------- -------- --------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (3,904) (10,944) (9,799)
From realized gains on
security transactions (24,867) --- (110,723)
In excess of realized
capital gains ...... --- --- ---
-------- -------- --------
(28,771) (10,944) (120,522)
-------- -------- --------
Capital share
transactions** ....... 38,803 15,374 157,579
-------- -------- --------
Total increase .... 185,756 6,829 174,430
Net Assets
Beginning of period ... 639,359 119,524 636,904
-------- -------- --------
End of period ......... $825,115 $126,353 $811,334
======== ======== ========
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 10,497 4,966 9,126
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 3,094 2,479 9,771
Shares redeemed ......... (9,341) (4,037) (6,369)
----- ----- ------
Increase in
outstanding capital
shares ................. 4,250 3,408 12,528
===== ===== ======
Value issued from sale
of shares ............. $88,088 $24,022 $122,003
Value issued from reinvest-
ment of dividends and/or
distributions ......... 28,771 10,944 120,522
Value redeemed .......... (78,056) (19,592) (84,946)
------- ------- --------
Increase in
outstanding capital ... $38,803 $15,374 $157,579
======= ======= ========
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
International Limited-Term Money Market
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 814 $ 240 $ 2,230
Realized net gain (loss)
on investments ..... 13,612 9 ---
Unrealized appreciation
(depreciation) ..... 25,132 18 ---
-------- ------ -------
Net increase
in net assets
resulting from
operations......... 39,558 267 2,230
-------- ------ -------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (698) (240) (2,230)
From realized gains on
security transactions (13,728) (9) ---
In excess of realized
capital gains ...... --- --- ---
-------- ------ -------
(14,426) (249) (2,230)
-------- ------ -------
Capital share
transactions** ....... 29,198 249 10,723
-------- ------ -------
Total increase .... 54,330 267 10,723
Net Assets
Beginning of period ... 114,631 4,252 43,300
-------- ------ -------
End of period ......... $168,961 $4,519 $54,023
======== ====== =======
Undistributed net investment
income ............. $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 3,799 376 261,150
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 1,846 48 2,230
Shares redeemed ......... (1,987) (379) (252,657)
----- --- -------
Increase in
outstanding capital
shares ................. 3,658 45 10,723
===== === =======
Value issued from sale
of shares ............. $30,196 $2,035 $261,150
Value issued from reinvest-
ment of dividends and/or
distributions ......... 14,426 249 2,230
Value redeemed .......... (15,424) (2,035) (252,657)
------- ------ --------
Increase in
outstanding capital ... $29,198 $ 249 $ 10,723
======= ====== ========
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1998
(In Thousands)
Science and
Technology Small Cap
Portfolio Portfolio
----------- -----------
Increase in Net Assets
Operations:
Net investment
income ............. $ 13 $ 1,558
Realized net gain (loss)
on investments ..... 624 23,232
Unrealized appreciation
(depreciation) ..... 7,947 (8,246)
------- --------
Net increase
in net assets
resulting from
operations......... 8,584 16,544
------- --------
Dividends to shareholders (Note 1E):*
From net investment
income ............. (13) (1,558)
From realized gains on
security transactions (624) (23,232)
In excess of realized
capital gains ...... --- (1,288)
------- --------
(637) (26,078)
------- --------
Capital share
transactions** ....... 16,441 41,865
------- --------
Total increase .... 24,388 32,331
Net Assets
Beginning of period ... 10,207 148,238
------- --------
End of period ......... $34,595 $180,569
======= ========
Undistributed net investment
income ............. $--- $---
==== ====
*See "Financial Highlights" on pages 98 - 108.
**Shares issued from sale
of shares ............. 2,835 3,803
Shares issued from reinvest-
ment of dividends and/or
distributions ......... 77 3,300
Shares redeemed ......... (499) (2,044)
----- -----
Increase in
outstanding capital
shares ................. 2,413 5,059
===== =====
Value issued from sale
of shares ............. $19,146 $33,860
Value issued from reinvest-
ment of dividends and/or
distributions ......... 637 26,079
Value redeemed .......... (3,342) (18,074)
------- -------
Increase in
outstanding capital ... $16,441 41,865
======= =======
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
1999 1998 1997 1996 12/31/95*
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.3868 $5.1969 $5.1343 $5.0137 $5.0000
------- ------- ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.1138 0.1391 0.1915 0.1814 0.0717
Net realized and
unrealized gain
on investments .. 1.1232 0.3779 0.5277 0.1206 0.0193
------- ------- ------- ------- -------
Total from investment
operations ....... 1.2370 0.5170 0.7192 0.3020 0.0910
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.1136)(0.1391) (0.1919)(0.1814) (0.0713)
From capital gains (0.2477)(0.1880) (0.4647)(0.0000) (0.0060)
------- ------- ------- ------- -------
Total distributions (0.3613)(0.3271) (0.6566)(0.1814) (0.0773)
------- ------- ------- ------- -------
Net asset value,
end of period .... $6.2625 $5.3868 $5.1969 $5.1343 $5.0137
======= ======= ======= ======= =======
Total return........ 22.96% 9.95% 14.01% 6.05% 1.80%
Net assets, end of
period (in
millions) ........ $22 $14 $10 $8 $4
Ratio of expenses
to average net
assets ............ 0.73% 1.07% 0.93% 0.93% 0.91%
Ratio of net investment
income to average
net assets ....... 2.18% 2.97% 3.55% 3.92% 4.42%
Portfolio turnover
rate ............. 179.63% 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 BALANCED PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------ ------- ------- -------
Net asset value,
beginning of
period ........... $7.1081 6.7686 $6.1967 $5.9000 $4.9359
------- ------ ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.1760 0.1865 0.1805 0.1594 0.1333
Net realized and
unrealized gain
on investments .. 0.5446 0.4003 0.9650 0.5003 1.0611
------- ------ ------- ------- -------
Total from investment
operations ....... 0.7206 0.5868 1.1455 0.6597 1.1944
------- ------ ------- ------- -------
Less distributions:
From net investment
income .......... (0.1759)(0.1865) (0.1805)(0.1594) (0.1333)
From capital gains (0.3408)(0.0608) (0.3931)(0.2036) (0.0970)
------- ------ ------- ------- -------
Total distributions (0.5167)(0.2473) (0.5736)(0.3630) (0.2303)
------- ------ ------- ------- -------
Net asset value,
end of period .... $7.3120 $7.1081 $6.7686 $6.1967 $5.9000
======= ======= ======= ======= =======
Total return........ 10.14% 8.67% 18.49% 11.19% 24.19%
Net assets, end of period
(in millions) .... $117 $92 $68 $42 $24
Ratio of expenses
to average net
assets ............ 0.95% 0.74% 0.67% 0.70% 0.72%
Ratio of net investment
income to average
net assets ....... 2.56% 2.92% 3.06% 3.18% 3.22%
Portfolio turnover
rate ............. 62.90% 54.62% 55.66% 44.23% 62.87%
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,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.4451 $5.3686 $5.2004 $5.3592 $4.7393
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.3173 0.3180 0.3400 0.3407 0.3556
Net realized and
unrealized gain
(loss) on
investments ..... (0.3954) 0.0765 0.1682 (0.1588) 0.6202
------- ------- ------- ------- -------
Total from investment
operations ....... (0.0781) 0.3945 0.5082 0.1819 0.9758
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.3173)(0.3180) (0.3400)(0.3407) (0.3559)
From capital gains (0.0000)(0.0000) (0.0000)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions. (0.3173)(0.3180) (0.3400)(0.3407) (0.3559)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.0497 $5.4451 $5.3686 $5.2004 $5.3592
======= ======= ======= ======= =======
Total return ....... -1.44% 7.35% 9.77% 3.43% 20.56%
Net assets, end of
period (in
millions) ........ $111 $114 $99 $92 $89
Ratio of expenses
to average net
assets ............ 0.81% 0.67% 0.58% 0.59% 0.60%
Ratio of net investment
income to average
net assets ....... 5.73% 5.99% 6.35% 6.39% 6.73%
Portfolio turnover
rate ............. 47.27% 32.75% 36.81% 64.02% 71.17%
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,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $ 9.2989 $7.5679 $6.7967 $6.8260 $5.8986
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0056 0.0456 0.0574 0.0990 0.0903
Net realized and
unrealized gain
on investments .. 3.1886 2.0215 1.4003 0.7478 2.1842
-------- ------- ------- ------- -------
Total from investment
operations ....... 3.1942 2.0671 1.4577 0.8468 2.2745
-------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.0056)(0.0456) (0.0570)(0.0990) (0.0903)
From capital gains (1.6124)(0.2905) (0.6295)(0.7771) (1.2568)
-------- ------- ------- ------- -------
Total distributions. (1.6180)(0.3361) (0.6865)(0.8761) (1.3471)
-------- ------- ------- ------- -------
Net asset value,
end of period .... $10.8751 $9.2989 $7.5679 $6.7967 $6.8260
======== ======= ======= ======= =======
Total return ....... 34.35% 27.31% 21.45% 12.40% 38.57%
Net assets, end of
period (in
millions) ........ $1,163 $825 $639 $513 $419
Ratio of expenses
to average net
assets ............ 0.96% 0.80% 0.72% 0.73% 0.75%
Ratio of net investment
income to average
net assets ....... 0.06% 0.55% 0.75% 1.44% 1.35%
Portfolio turnover
rate ............. 65.82% 75.58% 162.41% 243.00% 245.80%
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,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.4143 $4.7402 $4.5750 $4.4448 $4.1118
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.4313 0.4185 0.4098 0.4216 0.4165
Net realized and
unrealized gain
(loss) on
investments ..... (0.2452)(0.3259) 0.2324 0.1302 0.3330
------- ------- ------- ------- -------
Total from investment
operations ....... 0.1861 0.0926 0.6422 0.5518 0.7495
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.4313)(0.4185) (0.4098)(0.4216) (0.4165)
From capital gains (0.0000)(0.0000) (0.0672)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions (0.4313)(0.4185) (0.4770)(0.4216) (0.4165)
------- ------- ------- ------- -------
Net asset value,
end of period .... $4.1691 $4.4143 $4.7402 $4.5750 $4.4448
======= ======= ======= ======= =======
Total return ....... 4.22% 1.95% 14.04% 12.46% 18.19%
Net assets, end of
period (in
millions) ........ $121 $126 $120 $97 $87
Ratio of expenses
to average net
assets ............ 0.92% 0.77% 0.70% 0.71% 0.72%
Ratio of net investment
income to average
net assets ....... 9.17% 8.76% 8.79% 9.10% 9.25%
Portfolio turnover
rate ............. 87.84% 63.64% 65.28% 58.91% 41.78%
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,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $12.3351$11.9615 $10.1373$ 8.6756 $6.7689
---------------- ---------------- -------
Income from investment
operations:
Net investment
income .......... 0.1571 0.1752 0.0916 0.0856 0.0839
Net realized and
unrealized gain
on investments .. 1.3879 2.3532 2.5598 1.6280 2.0525
---------------- ---------------- -------
Total from investment
operations ....... 1.5450 2.5284 2.6514 1.7136 2.1364
---------------- ---------------- -------
Less distributions:
From net investment
income .......... (0.1570)(0.1752) (0.0915)(0.0856) (0.0839)
From capital gains (0.7622)(1.9796) (0.7357)(0.1663) (0.1457)
In excess of
capital gains ... (0.0000)(0.0000) (0.0000)(0.0000) (0.0001)
---------------- ---------------- -------
Total distributions. (0.9192)(2.1548) (0.8272)(0.2519) (0.2297)
-------- ------- ---------------- -------
Net asset value,
end of period .... $12.9609$12.3351 $11.9615$10.1373 $8.6756
================ ================ =======
Total return........ 12.52% 21.14% 26.16% 19.75% 31.56%
Net assets, end of
period (in
millions) ........ $941 $811 $637 $462 $331
Ratio of expenses
to average net
assets ............ 0.96% 0.80% 0.72% 0.73% 0.77%
Ratio of net investment
income to average
net assets ....... 1.23% 1.35% 0.80% 0.97% 1.13%
Portfolio turnover
rate ............. 70.20% 62.84% 36.61% 22.95% 15.00%
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 December 31,
---------------------------------------
1999 1998 1997 1996 1995
------ ------ ------- --------------
Net asset value,
beginning of
period ........... $ 7.8176 $6.3842 $5.9990 $5.2790 $4.9926
-------- ------- ------- ------- -------
Income from investment operations:
Net investment
income .......... 0.0032 0.0353 0.0485 0.0644 0.0846
Net realized and
unrealized gain
on investments... 5.1235 2.1283 0.9534 0.7329 0.2790
-------- ------- ------- ------- -------
Total from investment
operations ....... 5.1267 2.1636 1.0019 0.7973 0.3636
-------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.0000)(0.0353) (0.0463)(0.0644) (0.0772)
From capital gains (1.0089)(0.6949) (0.5704)(0.0129) (0.0000)
-------- ------- ------- ------- -------
Total distributions. (1.0089)(0.7302) (0.6167)(0.0773) (0.0772)
-------- ------- ------- ------- -------
Net asset value,
end of period .... $11.9354 $7.8176 $6.3842 $5.9990 $5.2790
======== ======= ======= ======= =======
Total return........ 65.58% 33.89% 16.70% 15.11% 7.28%
Net assets, end of
period (in
millions) ........ $300 $169 $115 $80 $50
Ratio of expenses
to average net
assets ............ 1.21% 1.02% 0.98% 1.00% 1.02%
Ratio of net investment
income to average
net assets ....... 0.04% 0.47% 0.79% 1.42% 1.99%
Portfolio turnover
rate ............. 118.71% 88.84% 117.37% 75.01% 34.93%
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 December 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.2292 $5.1882 $5.1639 $5.2521 $4.8611
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.2799 0.2935 0.3086 0.2842 0.2841
Net realized and
unrealized gain (loss)
on investments .. (0.1887) 0.0522 0.0451 (0.0870) 0.4122
------- ------- ------- ------- -------
Total from investment
operations ....... 0.0912 0.3457 0.3537 0.1972 0.6963
------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.2799)(0.2935) (0.3086)(0.2842) (0.2841)
From capital gains (0.0000)(0.0112) (0.0208)(0.0012) (0.0212)
------- ------- ------- ------- -------
Total distributions (0.2799)(0.3047) (0.3294)(0.2854) (0.3053)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.0405 $5.2292 $5.1882 $5.1639 $5.2521
======= ======= ======= ======= =======
Total return........ 1.74% 6.66% 6.85% 3.79% 14.29%
Net assets, end of
period (in
millions) ........ $6 $5 $4 $4 $3
Ratio of expenses to
average net assets 0.64% 0.79% 0.73% 0.76% 0.71%
Ratio of net investment
income to average
net assets ....... 5.63% 5.65% 5.93% 5.92% 6.22%
Portfolio turnover
rate ............. 22.81% 47.11% 35.62% 15.81% 18.16%
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,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment
income ........... 0.0450 0.0492 0.0503 0.0486 0.0542
Less dividends
declared ......... (0.0450)(0.0492) (0.0503)(0.0486) (0.0542)
------- ------- ------- ------- -------
Net asset value,
end of period .... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total return ....... 4.62% 5.04% 5.13% 5.01% 5.56%
Net assets, end of
period (in
millions) ........ $64 $54 $43 $37 $37
Ratio of expenses
to average net
assets ............ 0.77% 0.68% 0.58% 0.61% 0.62%
Ratio of net investment
income to average
net assets ....... 4.51% 4.90% 5.04% 4.87% 5.42%
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
year ended For the
December 31, period
--------------- ended
1999 1998 12/31/97*
------- ------- ----------
Net asset value,
beginning of
period ........... $ 8.2750 $5.7726 $5.0000
-------- ------- -------
Income from investment operations:
Net investment
income (loss) ... (0.0309) 0.0032 0.0146
Net realized and
unrealized gain
on investments .. 14.4840 2.6551 0.7971
-------- ------- -------
Total from investment
operations ....... 14.4531 2.6583 0.8117
-------- ------- -------
Less distributions:
From net investment
income .......... (0.0000)(0.0032) (0.0146)
From capital gains (0.3194)(0.1527) (0.0245)
-------- ------- -------
Total distributions (0.3194)(0.1559) (0.0391)
-------- ------- -------
Net asset value,
end of period .... $22.4087 $8.2750 $5.7726
======== ======= =======
Total return........ 174.66% 46.05% 16.24%
Net assets, end of
period (in
millions) ........ $253 $35 $10
Ratio of expenses
to average net
assets ............ 1.10% 0.92% 0.94%
Ratio of net investment
income (loss) to average
net assets ....... -0.38% 0.07% 0.64%
Portfolio turnover
rate ............. 47.36% 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 SMALL CAP PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net asset value, beginning
of period ........ $ 7.9019 $8.3316 $8.0176 $7.6932 $5.9918
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0423 0.0798 0.0279 0.0170 0.0900
Net realized and
unrealized gain
on investments .. 4.0847 0.8255 2.5004 0.6367 1.8470
-------- ------- ------- ------- -------
Total from investment
operations ....... 4.1270 0.9053 2.5283 0.6537 1.9370
-------- ------- ------- ------- -------
Less distributions:
From net investment
income .......... (0.0421)(0.0798) (0.0282)(0.0170) (0.0900)
From capital gains (0.3738)(1.2027) (2.1861)(0.3123) (0.1456)
In excess of realized
capital gains ... (0.0000)(0.0525) (0.0000)(0.0000) (0.0000)
-------- ------- ------- ------- -------
Total distributions (0.4159)(1.3350) (2.2143)(0.3293) (0.2356)
-------- ------- ------- ------- -------
Net asset value,
end of period .... $11.6130 $7.9019 $8.3316 $8.0176 $7.6932
======== ======= ======= ======= =======
Total return........ 52.23% 10.87% 31.53% 8.50% 32.32%
Net assets, end of period
(in millions) .... $318 $181 $148 $97 $56
Ratio of expenses
to average net
assets ............ 1.12% 0.97% 0.90% 0.91% 0.96%
Ratio of net investment
income to average
net assets ....... 0.53% 0.94% 0.32% 0.25% 1.77%
Portfolio turnover
rate ............. 130.99% 177.32% 211.46% 133.77% 43.27%
See notes to financial statements.
<PAGE>
TARGET/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 Asset Strategy Portfolio, the Balanced Portfolio, the Bond Portfolio, the
Growth Portfolio, the High Income Portfolio, the Income Portfolio, the
International Portfolio, the Limited-Term Bond Portfolio, the Money Market
Portfolio, the Science and Technology Portfolio and the Small Cap 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 (loss), 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 $85,487. 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, 1999, International Growth Portfolio and
Science and Technology Portfolio reclassified $212,039 and 348,762,
respectively, between accumulated undistributed net investment income and
accumulated undistributed net realized gain on investment transactions.
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
is payable by each Portfolio at the following annual rates:
Annual
Fund Net Asset Breakpoints Rate
------------------------------------------------------------------
Asset Strategy Portfolio Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
Balanced Portfolio Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
Bond Portfolio Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
Growth Portfolio Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
High Income Portfolio Up to $500 Million .625%
Over $500 Million up to $1 Billion .600%
Over $1 Billion up to $1.5 Billion .550%
Over $1.5 Billion .500%
Income Portfolio Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
International Portfolio Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
Limited-Term Bond Up to $500 Million .500%
Portfolio Over $500 Million up to $1 Billion .450%
Over $1 Billion up to $1.5 Billion .400%
Over $1.5 Billion .350%
Money Market Portfolio All Net Assets .400%
Science and Technology Up to $1 Billion .850%
Portfolio Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
Small Cap Portfolio Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
However, Waddell & Reed Investment Company ("WRIMCO"), the Fund's
investment manager, has agreed to waive a Portfolio's management fee on any day
that the Portfolio's net assets are less than $25 million, subject to its right
to change or modify this waiver.
Prior to June 30, 1999, the fee consisted 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: Asset Strategy Portfolio - .30% of net assets; Balanced
Portfolio - .10% of net assets; Bond Portfolio - .03% of net assets; Growth
Portfolio - .20% of net assets; High Income Portfolio - .15% of net assets;
Income Portfolio - .20% of net assets; International Portfolio - .30% of net
assets; Limited-Term Bond Portfolio - .05% of net assets; Money Market Portfolio
- - none; Science and Technology Portfolio - .20% of net assets; Small Cap
Portfolio - .35% of net assets and (ii) a base fee computed each day on the
combined net asset values of all of the Portfolios 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"), 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 $89,385, 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,
1999 are summarized as follows:
Asset Strategy Balanced Bond
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
obligations $25,806,243 $ 66,463,487 $ 20,807,660
Purchases of U.S. Government
obligations 6,013,906 4,129,375 37,428,183
Purchases of short-term
securities 27,207,584 413,844,337 254,402,854
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government obligations 16,555,287 51,079,103 22,622,336
Proceeds from maturities
and sales of U.S.
Government obligations 11,774,115 3,570,109 28,085,525
Proceeds from maturities
and sales of short-term
securities 26,661,712 411,993,689 257,435,324
High
Growth Income Income
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
obligations $687,993,523 $103,540,844 $439,652,972
Purchases of U.S. Government
obligations --- --- 129,121,067
Purchases of short-term
securities 1,877,295,055 215,465,170 2,527,272,290
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government obligations 572,175,503 102,128,778 290,475,382
Proceeds from maturities
and sales of U.S.
Government obligations --- --- 246,548,458
Proceeds from maturities
and sales of short-term
securities 1,944,071,948 219,070,921 2,526,722,461
Limited- Science and
International Term Bond Technology
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
obligations $233,850,471 $2,087,187 $106,163,538
Purchases of U.S. Government
obligations --- 800,874 ---
Purchases of short-term
securities 518,597,127 4,516,168 327,820,146
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government obligations 213,016,412 892,308 39,378,062
Proceeds from maturities
and sales of U.S.
Government obligations 6,281,727 308,213 ---
Proceeds from maturities
and sales of short-term
securities 522,177,072 4,444,822 309,135,000
Small Cap
Portfolio
-----------
Purchases of investment
securities, excluding short-
term and U.S. Government
obligations $ 229,791,759
Purchases of U.S. Government
obligations ---
Purchases of short-term
securities 1,538,285,019
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government obligations 197,519,284
Proceeds from maturities
and sales of U.S.
Government obligations ---
Proceeds from maturities
and sales of short-term
securities 1,542,683,333
For Federal income tax purposes, cost of investments owned at December 31,
1999, and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
CostAppreciationDepreciation(Depreciation)
------------------------------------------------
Asset Strategy Portfolio$ 18,499,341$ 3,859,054$ (789,730)$ 3,069,324
Balanced Portfolio 103,836,767 16,746,814 (3,422,252) 13,324,562
Bond Portfolio 112,859,698 424,408 (4,218,214) (3,793,806)
Growth Portfolio 791,987,587 395,272,754(18,492,460) 376,780,294
High Income Portfolio 119,674,781 5,928,487 (6,692,831) (764,344)
Income Portfolio 654,698,479 312,446,884(28,801,645) 283,645,239
International Portfolio166,689,421136,627,016 (3,622,410) 133,004,606
Limited-Term Bond Portfolio6,105,767 2,431 (158,192) (155,761)
Money Market Portfolio 65,197,226 --- --- ---
Science and Technology
Portfolio 116,087,893 138,792,748 (2,743,053) 136,049,695
Small Cap Portfolio 222,909,794 108,421,681(11,372,474) 97,049,207
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, Balanced, Growth and Income Portfolios realized
capital gain net income of $5,259,986, $150,137,791 and $51,642,656,
respectively, during the year ended December 31, 1999. For Federal income tax
purposes, Asset Strategy, International and Science and Technology Portfolios
realized capital gain net income of $854,740, $23,584,801, and $3,955,213,
respectively, during the year ended December 31, 1999, which included the effect
of certain losses deferred into the next fiscal year (see discussion below).
For Federal income tax purposes, Small Cap Portfolio realized capital gain net
income of $9,864,410 during the year ended December 31, 1999, which included the
effect of certain losses recognized from the prior year (see discussion below).
For Federal income tax purposes, Bond Portfolio realized capital gains of
$51,938 during the year ended December 31, 1999, which included the effect of
certain losses deferred into the next fiscal year (see discussion below). This
capital gain net income was entirely offset by capital loss carryovers.
Remaining capital loss carryovers of Bond Portfolio aggregated $1,354,032 as of
December 31, 1999, and are available to offset future realized capital gain net
income for Federal income tax purposes but, if not utilized, will expire as
follows: $1,337,336 by December 31, 2002 and $16,696 by December 31, 2004. For
Federal income tax purposes, High Income Portfolio realized capital losses of
$6,542,253 for the year ended December 31, 1999, 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). Capital loss
carryovers aggregated $6,607,695 at December 31, 1999, and are available to
offset future realized capital gain net income for Federal income tax purposes
but, if not utilized, will expire as follows: $65,442 by December 31, 2006 and
$6,542,253 by December 31, 2007. For Federal income tax purposes, Limited-Term
Bond Portfolio realized capital losses of $649 for the year ended December 31,
1999, 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). These losses are available to offset future realized capital
gain net income for Federal income tax purposes but, if not utilized, will
expire at December 31, 2007. A portion of capital gain net income on Balanced,
Growth, Income, Asset Strategy, International and Science and Technology
Portfolios was paid to shareholders during the year ended December 31, 1999.
Remaining capital gain net income will be distributed to each Portfolio's
shareholders. The capital gain net income on Small Cap Portfolio was paid to
shareholders during the year ended December 31, 1999.
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, 1999 through December 31, 1999, Asset Strategy, International,
Science and Technology, Bond, High Income and Limited-Term Bond Portfolios
incurred net capital losses of $19,493, $196,730, $62,851, $137,277, $1,703,678
and $5,884, respectively, which have been deferred to the fiscal year ending
December 31, 2000. In addition, during the year ended December 31, 1999, Small
Cap, High Income and Limited-Term Bond Portfolios recognized post-October losses
of $1,287,773, $273,055 and $211, respectively, that had been deferred from the
year ended December 31, 1998.
Note 5 -- Securities Loaned
On December 31, 1999, there were no securities outstanding on loan. If
securities were on loan, however, the aggregate amount of such loans must be
secured by 100% of the market value of the securities loaned. The Portfolio
derives income from its securities lending activities. These agreements may be
terminated by the borrower or the Portfolio upon proper notice. In the event
the borrower fails to deliver the securities within five business days, the
Portfolio has the right to use the collateral to purchase similar or other
securities. During the period ended December 31, 1999, the Income Portfolio
derived approximately $94,702 of income, net of related expenses, from its
securities lending activities.
Note 6 -- Change in Par Value of Common Stock
At a special meeting of shareholders of the fund held on June 22, 1999, the
Articles of Incorporation of the Fund were amended to change the par value of
the Fund's common stock from $0.01 to $0.001. This change became effective June
30, 1999.
<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 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, (collectively the
"Portfolios") comprising Target/United Funds, Inc. as of December 31, 1999, 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 Portfolios' 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, 1999, 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,
1999, the results of their operations for the fiscal year then ended, the
changes in their 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, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
<PAGE>
Shareholder Meeting Results
A special meeting of Target/United Funds, Inc. was held on June 22, 1999. The
matters voted upon by the shareholders and the resulting votes for each matter
are presented below.
Item 1. To elect the Board of Directors:
For Withheld
J. Concannon 321,048,148 8,108,699
J. Dillingham 320,864,775 8,292,072
D. Gardner 320,081,666 9,075,181
L. Graves 320,977,973 8,178,874
J. Harroz, Jr. 319,827,683 9,329,164
J. Hayes 320,477,648 8,679,199
R. Hechler 320,213,903 8,942,944
H. Herrmann 320,175,652 8,981,195
G. Johnson 320,296,358 8,860,489
W. Morgan 320,662,571 8,494,276
R. Reimer 320,005,837 9,151,010
F. Ross, Jr. 321,059,625 8,097,222
E. Schwartz 320,883,083 8,273,764
K. Tucker 321,027,737 8,129,110
F. Vogel III 320,990,051 8,166,796
Item 2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year:
For Against Abstain
315,789,330 2,663,020 10,704,497
Item 3. To approve or disapprove the amendment to the Fund's investment
management agreement with Waddell & Reed Investment Management Company:
For Against Abstain
Asset Strategy Portfolio 2,492,800 173,274 113,086
Balanced Portfolio 12,254,949 838,672 403,862
Bond Portfolio 19,521,370 947,993 894,851
Growth Portfolio 82,041,246 4,402,774 2,833,334
High Income Portfolio 26,081,202 908,722 1,312,377
Income Portfolio 60,915,366 3,304,866 2,357,112
International Portfolio 20,383,542 1,136,563 569,696
Limited-Term Bond Portfolio 971,307 24,340 35,801
Money Market Portfolio 49,749,559 1,868,356 3,867,971
Science and Technology Portfolio4,837,845325,048 218,438
Small Cap Portfolio 21,369,200 1,232,139 769,186
Item 4. To approve or disapprove amendment of the Fund's policy regarding
securities lending:
For Against Abstain
Asset Strategy Portfolio 2,557,194 104,885 117,081
Balanced Portfolio 12,392,131 636,259 469,093
Bond Portfolio 19,675,367 597,681 1,091,166
Growth Portfolio 82,347,732 3,195,972 3,733,650
High Income Portfolio 26,039,201 696,173 1,566,927
Income Portfolio 61,193,339 2,421,579 2,962,426
International Portfolio 20,658,058 703,102 728,641
Limited-Term Bond Portfolio 978,956 15,760 36,732
Money Market Portfolio 50,456,866 1,030,538 3,998,482
Science and Technology Portfolio4,918,571210,548 252,212
Small Cap Portfolio 21,650,369 849,713 870,443
Item 5. To approve or disapprove the Fund's Articles of Incorporation to
change the par value of Fund shares to $0.001:
For Against Abstain
302,425,873 8,042,499 18,688,475
<PAGE>
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, San Mateo, 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
Thomas A. Mengel, Vice President
William M. Nelson, Vice President
Cynthia P. Prince-Fox, Vice President
Kristen A. Richards, Vice President and Secretary
Philip J. Sanders, Vice President
Grant P. Sarris, Vice President
Daniel C. Schulte, Vice President
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
Mira Stevovich, 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:
ASSET STRATEGY Portfolio
Goal: To seek high total return over the long term.
Invested In: An allocation of its assets among stocks, bonds(of any quality),
and short-term instruments.
BALANCED Portfolio
Goal: To seek current income with a secondary goal of long-term appreciation
of capital.
Invested in: Primarily a mix of stocks, fixed-income securities and cash,
depending on market conditions.
BOND Portfolio
Goal: To seek a reasonable return with more emphasis on preservation of
capital.
Invested In: Primarily domestic debt securities, usually of investment grade.
GROWTH Portfolio
Goal: To seek capital growth with income as a secondary goal.
Invested In: Primarily common stocks of U.S. and foreign companies with market
capitalization of at least $1 billion representing faster growing
sectors of the economy, such as the technology, health care and
consumer-oriented sectors.
HIGH INCOME Portfolio
Goal: To seek a high level of current income with a secondary goal of capital
growth when consistent with its primary goal.
Invested In: Primarily high-yield, high-risk, fixed income securities of U.S.
and foreign issuers.
INCOME Portfolio
Goal: To seek maintenance of current income, subject to market conditions,
with capital growth as a secondary goal.
Invested In: Primarily common stocks of large U.S. and foreign companies that
have a record of paying regular dividends or have the potential for
capital appreciation.
INTERNATIONAL Portfolio
Goal: To seek long-term appreciation of capital with a secondary goal of
current income.
Invested in: Primarily common stocks of foreign companies that the Manager
believes have the potential for long-term growth.
LlMITED-TERM BOND Portfolio
Goal: To seek a high level of current income consistent with preservation of
capital.
Invested in: Primarily investment-grade debt securities of U.S. issuers,
including U.S. Government securities. The Portfolio maintains a
dollar-weighted average maturity of 2-5 years.
MONEY MARKET Portfolio
Goal: To seek maximum current income consistent with stability of principal.
Invested In: U.S. dollar-denominated, high-quality money market obligations and
instruments.
SCIENCE AND TECHNOLOGY Portfolio
Goal: To seek long-term capital growth.
Invested in: Primarily science and technology securities of U.S. and foreign
companies whose products, processes or services are expected to be
significantly benefited by the use or application of scientific or
technological discoveries or developments.
SMALL CAP Portfolio
Goal: To seek capital growth.
Invested in: Primarily common stocks of relatively new or unseasoned companies,
companies in their early stages of development or smaller companies
positioned in new or in emerging industries where the opportunity
for rapid growth is above average.
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(12-99)
printed on recycled paper
