SCUDDER [LOGO]
Scudder Variable Life
Investment Fund
Semiannual Report
June 30, 1997
An open-end management investment company that offers shares of beneficial
interest in seven types of diversified portfolios.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Contents
Letter from the Fund's President ........................................... 2
Money Market Portfolio Management Discussion ............................... 3
Bond Portfolio Management Discussion ....................................... 4
Bond Portfolio Summary ..................................................... 5
Balanced Portfolio Management Discussion ................................... 6
Balanced Portfolio Summary ................................................. 7
Growth and Income Portfolio Management Discussion .......................... 8
Growth and Income Portfolio Summary ........................................ 9
Capital Growth Portfolio Management Discussion ............................. 10
Capital Growth Portfolio Summary ........................................... 11
Global Discovery Portfolio Management Discussion ........................... 12
Global Discovery Portfolio Summary ......................................... 13
International Portfolio Management Discussion .............................. 14
International Portfolio Summary ............................................ 15
Investment Portfolios, Financial Statements, and Financial Highlights
Money Market Portfolio ............................................ 16
Bond Portfolio .................................................... 22
Balanced Portfolio ................................................ 29
Growth and Income Portfolio ....................................... 38
Capital Growth Portfolio .......................................... 47
Global Discovery Portfolio ........................................ 56
International Portfolio ........................................... 66
Notes to Financial Statements .............................................. 76
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
We are witnessing a remarkable period in the U.S. stock market. The six
year rally in stocks continued over the first half of 1997, pausing only
momentarily in March to digest an increase in interest rates before resuming its
rise. Expanding corporate earnings, healthy economic growth, and benign
inflation reports were the primary drivers of the favorable environment, which
has been responsible for an unprecedented rise in stock prices -- especially for
larger capitalization issues.
It's possible that the market will continue to move ahead at full
throttle, especially if the inflationary data continues to support a thesis of
manageable economic growth. However, we would point out that the market appears
rather sensitive to new news, whether it be related to corporate earnings or
economic activity. Any reversal of the data, any major earnings disappointments,
or a renewed desire by the Federal Reserve to apply further restraint on the
economy -- and on the capital markets -- could add some bumps to the road ahead.
While current stock price valuations have risen dramatically, investors
should not lose sight of some basic fundamentals of investing --adequate
diversification, proper asset allocation, and investments that continue to match
long-term investment objectives. If you are comfortable that your investments
meet these requirements, then you will be best positioned to weather the
short-term and sometimes unpredictable movements of the markets.
The Fund's broad selection of portfolios with various investment
objectives offers diversification and flexibility, making it an attractive
choice for many investors in an uncertain market environment. A complete
discussion of each Portfolio's activities follows this letter.
Thank you for your continued investment in Scudder Variable Life
Investment Fund. We look forward to serving your needs for many years to come.
Sincerely,
/s/ David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
2
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Throughout the period, investors continued to grapple with an interesting
paradox: growth without inflation. After much interim volatility, fixed-income
investments rallied in the remaining weeks through June 30, as data began to
suggest that growth in the second quarter would slow. The Portfolio's
investments in ultra short-term, high-quality securities helped it successfully
navigate the changing tides of investor sentiment, as it maintained its $1.00
share price throughout the period. As interest rates edged higher, the Portfolio
was able to provide a higher level of income, contributing to a total return of
2.53% for the six months. The Portfolio's 30-day net annualized yield at the end
of June was 5.19%. Among its peers, the Portfolio ranked 3rd (top 3%) out of 107
underlying funds in the Variable Life Money Market category according to Lipper
Analytical Services, Inc.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
We shortened the Fund's
average maturity in
anticipation of rising rates.
Few tools are as important to the management of a money market portfolio
as its average maturity. As robust economic growth heightened concerns of
accelerating inflation and the possibility of rising short-term interest rates
during the first quarter of 1997, we began to shorten the Portfolio's average
maturity. When the Federal Reserve (the Fed) raised short-term rates on March
25, the Portfolio's shorter average maturity enabled us to quickly reinvest in
higher yielding money market instruments. At the end of June, the Portfolio's
average effective maturity stood at 47 days.
The six-year-old expansion may very well wind down, paving the way for
still lower interest rates and a sustained bond market rally. Also, at 5.5%, the
current federal funds rate does not constitute "easy money" in our view. But the
timing of an economic downturn is difficult to predict. For now, growth is
strong and reported profits continue to exceed expectations. Although the Fed
left interest rates unchanged at its May 20 and July 2 meetings, it may find
sufficient reason to raise rates later this year. Going forward, we believe the
Portfolio will continue to demonstrate the value of owning a short-term
investment vehicle as part of a well-diversified investment program.
Sincerely,
Your Portfolio Management Team
/s/ David Wines /s/ Debra A. Hanson
David Wines Debra A. Hanson
Lead Portfolio Manager
/s/ Nicca B. Alcantara
Nicca B. Alcantara
3
<PAGE>
BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
A combination of solid economic growth with low inflation provided an
overall favorable environment for bond investors for the semiannual period ended
June 30, 1997. In this environment, the Bond Portfolio provided a total return
of 3.08% for the six months. This performance was in keeping with the 3.11%
return of the unmanaged Lehman Brothers Aggregate Bond Index for the same time
period. Among its peers, the Portfolio ranked 7th (top 22%) out of 32 underlying
funds in the Variable Life Corporate Debt A-Rated category according to Lipper
Analytical Services, Inc.
In the first quarter of 1997, reports of unusually strong economic growth
spurred increased concerns about accelerating inflation. On March 25 the Federal
Reserve (the Fed) raised a key rate -- the Fed funds rate -- by a quarter of a
point from 5.25% to 5.50%. In response, bond yields rose and prices declined
slightly. Yields reversed in the second quarter, as several inflation measures
showed no acceleration and economic growth appeared to be moderating. In
addition, the Fed left rates unchanged at two subsequent meetings, causing
yields to retreat and bond prices to rally.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
With a neutral duration
strategy, we focused on
sector allocations.
In this environment our portfolio duration was essentially neutral at 4.6
years and we focused on sector allocations. During the first quarter, we
de-emphasized mortgage securities which typically have intermediate term (3-5
year) average effective maturities, and increased our "barbelled" strategy by
adding to holdings at the short and long ends of the maturity spectrum.
Mortgage securities provided very good performance for most of the period.
However, mortgages became "rich" in our opinion as many investors flocked to
them for their attractive yields. We reduced holdings of mortgages over the six
months and added to short-term securities, which provided a cushion to changes
in short-term interest rates. The investment grade corporate bond sector
provided returns that were in line with the performance of the broad market
indices for the six-month period. U.S. Treasury securities were weak performers
during the period and we remained underweighted in this area. At the end of the
period, the Portfolio maintained its high average quality rating of AA.
As we look forward to the remainder of 1997, we see few signs of concern
for bond investors. Leading economic indicators supply little evidence to
suggest that inflation will accelerate anytime soon -- the chief concern for
bond investors. While we expect market volatility may continue in the near term,
our long-term outlook is for slower growth with benign inflation. In this
environment, we believe your Fund should continue to provide attractive income,
relative stability and diversification -- important components of a
well-balanced investment portfolio.
Sincerely,
Your Portfolio Management Team
/s/ William M. Hutchinson /s/ Kelly D. Babson
William M. Hutchinson Kelly D. Babson
Lead Portfolio Manager
4
<PAGE>
BOND PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Bond Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $10,834 8.34% 8.34%
5 Year $14,097 40.97% 7.11%
10 Year $21,938 119.38% 8.17%
- ----------------------------------------
- ----------------------------------------
LB Aggregate Bond Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $10,816 8.16% 8.16%
5 Year $14,102 41.02% 7.11%
10 Year $23,276 132.76% 8.81%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
LB Aggregate Bond Index Bond Portfolio
----------------------- --------------
'87 10,000 10,000
'88 10,804 10,604
'89 12,124 11,577
'90 13,074 12,316
'91 14,471 13,550
'92 16,505 15,562
'93 18,451 17,765
'94 18,208 17,355
'95 20,494 19,337
'96 21,520 20,249
'97 23,276 21,938
Yearly periods ended June 30
The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate bond issues
and mortgage securities. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Bond
Portfolio.
- --------------------------------------------------------------------------------
ASSET QUALITY
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
- -------------------------------
AAA 51%
AA 5%
A 15% We maintained a barbelled
BBB 19% maturity structure
BB 6% throughout the period.
B 4%
----
100%
====
- ---------------------------
Average Quality: AA
- --------------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------------
- -------------------------------
Less than 1 year 23%
1 to 5 years 21%
5 to 8 years 9%
8 to 15 years 25%
15 years or greater 22%
----
100%
====
- -------------------------------
Weigted average effective
maturity: 9 years
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
- -----------------------------------------
Corporate Bonds 41%
Mortgages 19%
U.S. Treasury Obligations 15%
Repurchase Agreement 13%
Asset-Backed Securities 6%
Foreign Bonds - U.S.$ Denominated 6%
----
100%
====
- -----------------------------------------
5
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Over the first half of 1997, stocks recorded yet another period of
outstanding performance while bonds provided positive, but more modest total
returns. The Balanced Portfolio's approach to investing in a combination of
quality growth stocks and bonds resulted in a total return of 14.70% for the
six-month period ended June 30, 1997. Among its peers, the Portfolio ranked 1st
out of 39 underlying funds in the Variable Life Balanced category according to
Lipper Analytical Services, Inc.
Record corporate earnings, moderating but healthy economic growth, and
benign inflation sustained a very favorable environment for equity investors
over the first six months of 1997. The first quarter's robust 4.9% growth rate
gave rise to an increased possibility of accelerating inflation, which
encouraged the Federal Reserve (the Fed) to increase a key short-term interest
rate in March. While stocks and bonds initially declined on this news, the Fed
remained silent about raising rates at the two subsequent meetings. Investors
had built a rate increase into their thinking, and when it failed to
materialize, the stock and bond markets reacted favorably.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
An emphasis on stocks of
large growth companies
in the equity portion of
the Portfolio was an
important contributor to
performance.
The equity portion of the portfolio represented 61% of assets at the end
of the period. Particularly noteworthy performers over the period included Avon
Products and Revlon in the consumer staples sector, Pfizer, and Warner-Lambert
in healthcare, Clear Channel Communications in media, Corporate Express in
specialty retail, and finally, Applied Materials, Computer Associates, Microsoft
and Teradyne in the technology sector. Our decision to hold on to several
networking stocks also paid off, with 3Com and Cisco among the best performers
in the equity portion of the portfolio. Stocks which detracted from performance
included Federated Department Stores, Boston Scientific, EDS, AMD, and Intel.
Our relatively small holding in Intel actually contributed positively to
performance relative to the Portfolio's benchmark during this period.
As of the end of the six-month period, fixed income securities represented
39% of assets, including cash and equivalents. Our portfolio duration was
essentially neutral at 4.75 years, as we focused on allocating assets across
sectors of the fixed income market. During the first quarter, we de-emphasized
mortgage securities, which typically have intermediate term (3-5 year) average
effective maturities, and increased the "barbelling" of the Fund's maturity
structure by adding to holdings at the short and long ends of the spectrum. As
of the end of the period, the fixed income portion of the portfolio had
maintained its high average quality rating of AA.
Sincerely,
Your Portfolio Management Team
/s/ Valerie F. Malter /s/ William M. Hutchinson
Valerie F. Malter William M. Hutchinson
Lead Portfolio Manager
/s/ Kelly D. Babson
Kelly D. Babson
6
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Balanced Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $12,102 21.02% 21.02%
5 Year $18,609 86.09% 13.23%
10 Year $27,754 177.54% 10.75%
- ----------------------------------------
S&P 500 Index (60%)
and LBAB Index (40%)
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $12,364 23.64% 23.64%
5 Year $19,805 98.05% 14.64%
10 Year $32,599 225.99% 12.53%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
Balanced Portfolio S&P 500 Index LBAB Index
------------------ ------------- ----------
'87 10,000 10,000 10,000
'88 10,804 9,310 10,023
'89 12,124 11,221 11,636
'90 13,074 13,073 12,469
'91 14,471 14,037 12,751
'92 16,505 15,923 14,920
'93 18,451 18,094 16,574
'94 18,208 18,349 16,525
'95 20,494 23,130 19,680
'96 21,520 29,143 22,943
'97 23,276 39,260 27,764
Yearly periods ended June 30
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Over-The-Counter market and The Lehman Brothers
Aggregate Bond (LBAB) Index is an unmanaged market value-weighted measure of
treasury issues, agency issues, corporate bond issues and mortgage securities.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Balanced
Portfolio. The Balanced Portfolio, with its current name and investment
objective, commenced operations on May 1, 1993. Performance figures include the
performance of its predecessor, the Managed Diversified Portfolio. Since
adopting its current objectives, the cumulative and average annual returns are
70.63% and 13.68%, respectively.
- --------------------------------------------------------------------------------
EQUITY HOLDINGS
- --------------------------------------------------------------------------------
- -----------------------------
Sector breakdown of the
Portfolio's equity holdings
- -----------------------------
Consumer Staples 23%
Health 21%
Technology 17%
Consumer Discretionary 9%
Manufacturing 8%
Media 6%
Service Industries 5%
Financial 5%
Durables 5%
Construction 1%
----
100%
====
- -----------------------------
Five Largest Equity Holdings
- --------------------------------------------------------------------------------
1. Coca-Cola Co., Inc. International soft drink company
2. General Electric Co. Leading producer of electrical equipment
3. Merck & Co. Inc. Leading ethical drug manufacturer
4. Microsoft Corp. Computer operating systems software
5. Colgate-Palmolive Co. Manufacturer of household and personal care products
- --------------------------------------------------------------------------------
FIXED INCOME HOLDINGS
- --------------------------------------------------------------------------------
By Asset Type
- -----------------------------------------
Corporate Bonds 34%
Mortgages 26%
U.S. Government Agencies 17%
Cash Equivalents 16%
Asset-Backed Securities 6%
Foreign Bonds - U.S.$ Denominated 1%
----
100%
====
- -----------------------------------------
By Quality
- ---------------------------
AAA 64%
AA 5%
A 12%
BBB 19%
----
100%
====
- ---------------------------
7
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The Growth and Income Portfolio performed very well returning 18.55% for
the six-month period ended June 30, 1997, reflecting the favorable economic
environment and strong performance of stocks. Among its peers, the Portfolio
ranked 21st (top 21%) out of 101 underlying funds in the Variable Life Growth
and Income category according to Lipper Analytical Services, Inc.
Reports of strong corporate earnings and benign inflation have provided a
potent and positive environment for investing. The economy's robust 4.9% growth
rate during the first quarter raised concerns about accelerating inflation,
which encouraged the Federal Reserve (the Fed) to increase short-term interest
rates on March 25. While stocks and bonds initially declined on this news, the
Fed left rates unchanged and economic growth moderated. This backdrop during the
second quarter led to one of its strongest quarterly market performances in
history.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
The Portfolio's yield-
driven approach to
selecting value stocks led
to an emphasis in the
financial, manufacturing
and consumer staples
sectors.
The key driver of portfolio performance centered in the manufacturing
sector. For example, Xerox, the largest holding, rose 51% over the six-month
period. This was due to key company-specific events, namely an impressive new
product introduction in modular-based digital office copiers, and an
announcement that the company was acquiring the remaining 20% interest in Rank
Xerox. Another manufacturing stock, Philips Electronics, rose 83% for the
period, both on news that it had acquired Lucent's consumer communications
division and as investors began to believe that the company's plans for asset
restructuring would improve returns on capital and lead to better focus on their
core businesses.
Pharmaceutical stocks continued their frenzied flight upward, led by
Warner-Lambert. Earnings acceleration from new product introductions, favorable
long-term demographic trends, and seemingly inexhaustible streams of free cash
flow have made this group one of the strongest performing sectors in the market
for the last couple of years.
The Fund's finance holdings provided strong returns, but lagged the sector
average, due mainly to real estate investment trust (REIT) holdings which have
continued to lag banking and insurance stocks. We did, however, see admirable
returns in our insurance holdings, led by Exel Limited and Lincoln National, as
well as Sallie Mae, one of our top ten holdings.
Sincerely,
Your Portfolio Management Team
/s/ Robert T. Hoffman /s/ Kathleen T. Millard
Robert T. Hoffman Kathleen T. Millard
Lead Portfolio Manager
/s/ Benjamin W. Thorndike /s/ Lori J. Ensinger
Benjamin W. Thorndike Lori J. Ensinger
/s/ Deborah Chaplin
Deborah Chaplin
8
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Growth and Income Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,344 33.34% 33.34%
Life of
Fund* $20,016 100.16% 24.52%
- ----------------------------------------
- ----------------------------------------
S & P 500 Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,472 34.72% 34.72%
Life of
Fund* $21,214 112.14% 26.78%
- ----------------------------------------
*The Fund commenced operations on May 2, 1994.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
S&P 500 Index Growth and Income Portfolio
------------- ---------------------------
5/94 10,000 10,000
6/94 9,915 10,100
12/94 10,397 10,491
6/95 12,498 12,113
12/95 14,304 13,820
6/96 15,747 15,011
12/96 17,588 16,884
6/97 21,214 20,016
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns were higher due to maintenance of the
Fund's expenses. See Financial Highlights for the Growth and Income Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
- ------------------------------
Equity Securities 96%
Cash Equivalents 4%
----
100%
====
- ------------------------------
[The following table was represented as a pie graph in the printed material.]
- -----------------------------
Sector breakdown of the
Portfolio's equity holdings
- -----------------------------
Financial 19%
Manufacturing 18%
Consumer Staples 11% The manufacturing and
Health 8% healthcare sectors were two
Communications 7% areas that outperformed the
Durables 7% market
Utilities 7%
Energy 6%
Consumer Discretionary 5%
Other 8%
----
96%
====
- -----------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (22% of Portfolio)
- --------------------------------------------------------------------------------
1. Xerox Corp. Leading manufacturer of copiers and duplicators
2. Philips Electronics NV Manufacturer of electrical equipment
3. Philip Morris Companies Inc. Tobacco, food products and brewing
4. H.J. Heinz Co. Major manufacturer of processed foods
5. Student Loan Marketing Association Student loan financing programs
6. Unilever NV Diversified conglomerate
7. TRW Inc. Defense electronics, automotive parts and systems
8. Imperial Chemical Industries PLC Leading international chemical company
9. Shering-Plough Corp. Pharmaceutical and consumer products
10. Bristol-Myers Squibb Co. Diversified pharmaceutical and consumer products
company
9
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Investors continued to enjoy a near-perfect economic environment of
deflationary growth over the first six months of 1997 as the Capital Growth
Portfolio returned 24.02%, exceeding the 20.61% return of the unmanaged S&P 500
for the six-month period ended June 30, 1997. Among its peers, the Portfolio
ranked 1st out of 121 underlying funds in the Variable Life Growth category
according to Lipper Analytical Services, Inc.
High quality large-capitalization stocks have led the market for several
quarters, with investor's appetite for big blue chip companies accelerating
towards the end of the six-month period. While our valuation discipline has kept
us out of a few of the larger, better performing issues, such as Coca Cola and
Gillette, the portfolio's diversified holdings of technology, finance,
manufacturing, and healthcare stocks have kept pace with the market's advance.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Stocks of quality, blue
chip companies -- the
Portfolio's primary
emphasis -- led the
markets.
Technology stocks were among the leading issues. The rebound in
semiconductor capital equipment stocks was most impressive. For the industry
leaders, such as Applied Materials, Teradyne, and KLA/Tencor, the drop off in
equipment orders was less than expected and operating margins held up better
than expected. Demand for personal computers has been strong, resulting in
higher capital expenditure at Intel and other semiconductor companies. Compaq
was also a strong performer during the six-month period.
The Finance sector responded enthusiastically to the Federal Reserve's
decision not to raise rates in early April. Financial service companies American
International Group, Travelers Group and Associates First Capital were all up
sharply along with BankAmerica, a new addition to the portfolio, and American
Express, the largest holding at the end of the period.
Encouraging industrial production data drove manufacturing stocks higher.
Asea Brown Bovieri, General Electric and Ingersoll Rand experienced solid gains
during the period.
The healthcare sector was one of the strongest performing areas for the
first six months, and the Portfolio's holdings made positive contributions to
performance. A stream of positive clinical and prescription data on two new
drugs, Rezulin for diabetes, and Lipitor for cholesterol, resulted in a
significant rise in Warner-Lambert's stock price.
Our long-term portfolio strategy is to keep the average price earnings
ratio of your holdings below the overall market level in an effort to reduce the
risk of earnings disappointment and lower the volatility of the portfolio. We
believe our disciplined approach of buying and holding high quality companies,
with sustainable earnings growth and reasonable valuations will continue to
serve shareholders well. Diversification across industries also plays an
important role in the construction of the Portfolio.
Sincerely,
Your Portfolio Management Team
/s/ William F. Gadsden /s/ Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Lead Portfolio Manager
10
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Capital Growth Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,657 36.57% 36.57%
5 Year $23,179 131.79% 18.31%
10 Year $33,798 237.98% 12.95%
- ----------------------------------------
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,472 34.72% 34.72%
5 Year $24,657 146.57% 19.77%
10 Year $39,260 292.60% 14.64%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
S&P 500 Index Capital Growth Portfolio
------------- ------------------------
'87 10,000 10,000
'88 9,310 9,486
'89 11,221 11,090
'90 13,073 11,983
'91 14,037 12,313
'92 15,923 14,587
'93 18,094 17,232
'94 18,349 17,080
'95 23,130 20,549
'96 29,143 24,758
'97 39,260 33,811
Yearly periods ended June 30
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Capital
Growth Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
- ------------------------------
Equity Securities 97%
Cash Equivalents 3%
----
100%
====
- ------------------------------
[The following table was represented as a pie graph in the printed material.]
- ------------------------------
Sector breakdown of the
Portfolio's equity holdings
- ------------------------------ Our valuation discipline
Financial 20% kept us out of a few of
Technology 16% the larger, better
Manufacturing 13% performing issues,
Health 12% however, the portfolio's
Energy 10% diversified holdings of
Consumer Discretionary 9% technology, finance,
Consumer Staples 5% manufacturing and
Service Industries 5% healthcare stocks kept
Durables 3% pace with the market's
Other 4% advance.
----
97%
====
- ------------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (24% of Portfolio)
- --------------------------------------------------------------------------------
1. American Express Credit Corp. Travel and investment services, insurance, and
banking
2. EXEL, Ltd. (ADR) Provider of liability insurance
3. Compaq Computer Corp. Leading manufacturer of personal computers
4. Royal Dutch Petroleum Co. International energy company
5. American International Group, Inc. Major international insurance holding
company
6. Warner-Lambert Co. Drugs, toiletries, and food products
7. Intel Corp. Semiconductor memory circuits
8. Home Depot, Inc. Building supply/home improvement stores
9. Sun Microsystems, Inc. Producer of high-performance workstations, servers
and networking software
10. BankAmerica Corp. Commercial banking in California
11
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The positive performance of the global emerging growth stocks was
reflected in the Global Discovery Portfolio return of 10.00% for the six-month
period ended June 30, 1997, essentially in keeping with the 7.97% return of the
Salomon Brothers World Extended Market Index for the same period.
Stocks of smaller U.S. companies rebounded sharply during the second
quarter after a dismal first quarter, as fears of accelerating inflation and
higher interest rates disappeared and investors received further evidence of
moderating economic growth and strong corporate earnings.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
U.S. small-cap stocks
lagged large-caps for the
period, but global
small-caps remain
attractive values.
Performance for stocks domiciled in Europe was mixed. There has been some
limited market disturbance caused by the election of the 'left' in both France
and Britain, however, most markets reached new highs. Controversy surrounding a
unified currency weakened stock performance as measured in US dollars in most
countries. We hedged the Portfolio's exposure to European currencies, which was
a positive contributor to performance during the six months.
An important contributor to performance over the period was Billing
Information Concepts, the fifth largest holding, which was purchased in August
1996. We think the basic business, providing customer billing services to
telephone companies, is steady and predictable and prospects for adding
additional customers is favorable. Other strong contributors to performance
reflect the Portfolio's diversity and global nature. Jeronimo Martins, the
Portuguese supermarket/processed food manufacturer benefited from continuing
strong fundamentals, plus increased investor awareness, as Portugal is expected
to be recognized as a "developed" market later this year. Cintas, a
Cincinnati-based rental uniform company, has one of the most consistent records
of growth in the United States. The company's distinctive corporate culture
reflects a history of excellent management, which is the single most important
element of successful stock selection in the small company universe.
U.S. small-capitalization stocks have lagged the broad-based large-cap
market indices for the last twelve months, however, we do not expect this
disparity to continue indefinitely. Small-caps appear very attractively valued
both in the U.S. and abroad. In the months ahead, we will continue to pursue our
bottom up, individual selection of small companies from around the world.
Sincerely,
Your Portfolio Management Team
/s/ Gerald J. Moran /s/ Sewall F. Hodges
Gerald J. Moran Sewall F. Hodges
Lead Portfolio Manager
12
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Global Discovery Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,415 14.15% 14.15%
Life of
Fund* $11,605 16.05% 13.64%
- ----------------------------------------
- ----------------------------------------
Salomon Brothers World Equity EMI Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,070 10.70% 10.70%
Life of
Fund* $10,927 9.27% 8.53%
- ----------------------------------------
* The Fund commenced operations on
May 1, 1996. Index comparisons begin
May 31, 1996.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
Global Discovery Salomon Brothers World
Portfolio Equity EMI Index
---------------- ----------------------
5/96 10,000 10,000
6/96 9,967 9,871
9/96 10,180 9,870
12/96 10,343 10,120
3/97 10,015 9,820
6/97 11,378 10,927
The Salomon Brothers World Equity Extended Market Index is an unmanaged small
capitalization stock universe of 22 countries. Index returns assume reinvestment
of dividends and, unlike Fund Returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Global
Discovery Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
By Region
(Excluding 12% Cash Equivalents)
- --------------------------------
U.S. & Canada 47%
Europe 41%
Japan 8%
Latin America 2%
Pacific Basin 2%
----
100%
====
- --------------------------------
[The following table was represented as a pie graph in the printed material.]
By Sector
(Equity Holdings)
- ----------------------------
Financial 18%
Health 15%
Technology 14%
Service Industries 11%
Consumer Staples 8%
Consumer Discretionary 7%
Durables 6%
Manufacturing 6%
Energy 6%
Other 9%
----
100%
====
- ----------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (24% of Portfolio)
- --------------------------------------------------------------------------------
1. Marschollek Lautenschlaeger und Partner AG Leading independent life insurance
company in Germany
2. Jeronimo Martins SA Food producer and retailer in Portugal
3. Bank of Ireland PLC Bank
4. Shohkoh Fund & Co., Ltd. Finance company for small and medium-sized firms in
Japan
5. Billing Information Concepts Billing and information management services in
the United States
6. Octel Communications Corp. Manufacturer of voice processing systems in the
United States
7. Serco Group PLC Facilities management company in the United Kingdom
8. Fresenius AG Manufacturer and distributor of pharmaceutical and medical
systems products in Germany
9. HBO & Company, Inc. Designer of computerized information systems to the
healthcare industry in the United States
10. Network Appliance, Inc. Designer and manufacturer of network data storage
devices in the United States
13
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The International Portfolio returned 14.09% for the six-month period ended
June 30, 1997. Among its peers, the Portfolio ranked 22nd (top 28%) out of 79
underlying funds in the Variable Life International category according to Lipper
Analytical Services, Inc.
During this period, most global markets provided positive returns against
a strong global economic backdrop, a benign inflation environment, and optimism
that further monetary tightening in the US might be avoided. Despite a stronger
yen, Japanese stocks rallied, driven by signs of economic recovery and
diminished fears of interest rate hikes. In Europe, political uncertainty failed
to dampen investor enthusiasm, though a strong US dollar lessened returns for US
dollar-based investors. France shrugged off the unexpected victory of the
Socialist party, concluding that the new government would accept European
imperatives on European Monetary Union (EMU) and postpone left-wing reforms
discussed during the election period. Despite some volatility, the UK market
welcomed Mr. Blair's new Labour government.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
We remain cautious on
the smaller bourses of the
Pacific Rim, but Brazil
remains a favorite in the
emerging markets.
In Europe, we are seeing stronger than expected growth with domestic
demand, long dormant, finally showing signs of life. Japan's economy continues
to recover. Though consumption remains weak, there is some evidence of a revival
in domestic demand, deflation has abated, and residential land prices are
stabilizing. Smaller Asian equity markets have suffered over the last couple of
years as a conspiracy of cyclical forces combined to slow growth: restrictive
Asian central bank policy, economic weakness in major export markets Europe and
Japan, and a plunge in electronics and textile sectors. The outlook is mixed
looking forward.
The portfolio remains significantly underweight in Japan and overweight in
Europe. In Europe, we continue to seek companies which are restructuring and
focused on building value for shareholders such as Daimler Benz, Siemens, and
Volkswagen in Germany. We are also invested in companies with effective
strategies, positioning, and products in growth markets like telecommunications
infrastructure provider Nokia in Finland and information technology leader SAP
in Germany. In Japan, we continue to maintain a portfolio tilt towards
high-quality, technology-driven exporters such as Sony, Canon, Hitachi, and
Tokyo Electron.
Sincerely,
Your Portfolio Management Team
/s/ Irene T. Cheng /s/ Carol L. Franklin
Irene T. Cheng Carol L. Franklin
Lead Portfolio Manager
/s/ Nicholas Bratt /s/ Joan R. Gregory
Nicholas Bratt Joan R. Gregory
(signature unavailable) (signature unavailable)
Marc Joseph Sheridan Reilly
14
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
International Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,988 19.88% 19.88%
5 Year $18,929 89.29% 13.61%
10 Year $26,851 168.51% 10.38%
- ----------------------------------------
- ----------------------------------------
MSCI EAFE & Canada Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,351 13.51% 13.51%
5 Year $18,268 82.68% 12.80%
10 Year $18,984 89.84% 6.61%
- ----------------------------------------
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
International MSCI EAFE &
Portfolio Canada Index
------------- ------------
'87 10,000 10,000
'88 10,398 9,330
'89 11,400 11,154
'90 11,758 14,495
'91 10,473 13,029
'92 10,392 14,186
'93 12,419 15,472
'94 14,427 18,747
'95 14,755 19,238
'96 16,724 22,398
'97 18,984 26,851
Yearly periods ended June 30
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far East
(EAFE) & Canada Index is an unmanaged capitalization-weighted measure of stock
markets in Europe, Australia, the Far East and Canada. Index returns assume
dividends reinvested net of withholding tax and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the
International Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
By Region
(Excluding Cash Equivalents)
- -------------------------------
Europe 62%
Japan 16%
Latin America 10%
Pacific Basin 9%
Canada 3%
----
100%
====
- -------------------------------
[The following table was represented as a pie graph in the printed material.]
By Sector
(Equity Holdings)
- ----------------------------
Manufacturing 22%
Financial 12%
Durables 11%
Communications 8%
Health 7%
Technology 7%
Utilities 7%
Metals & Minerals 5%
Energy 4%
Other 17%
----
100%
====
- ----------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (15% of Portfolio)
- --------------------------------------------------------------------------------
1. Telecomunicacoes Brasileiras S.A. Telecommunication services
2. Novartis AG Pharmaceutical company in Switzerland
3. Philips Electronics NV Leading manufacturer of electronic equipment in the
Netherlands
4. Skandia Foersaekrings AB Financial conglomerate in Sweden
5. ABB AG Manufacturer of electrical equipment in Switzerland
6. Companhia Energetica de Minas Gerais Electric power utility in Brazil
7. Portugal Telecom SA Telecommunication services
8. Volkswagen AG Leading automobile manufacturer in Germany
9. SmithKline Beecham PLC Manufacturer of drugs and healthcare products in the
United Kingdom
10. Bayerische Vereinsbank AG Commercial bank in Germany
15
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
3.7% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
3,859,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/30/97 at 5.9% to be repurchased
at $3,859,632 on 7/1/97, collateralized by a
$3,615,000 U.S. Treasury Note, 8.5%, 11/15/00
(Cost $3,859,000) ......................................... 3,859,000
----------
------------------------------------------------------------------------------------
86.9% COMMERCIAL PAPER
------------------------------------------------------------------------------------
Health 1.9%
Pharmaceuticals 2,000,000 Schering Corp., Discount Note, 10/7/97 ..................... 1,969,130
----------
Communications 7.5%
Telephone/
Communications 4,000,000 Ameritech Capital Funding Corp., Discount Note, 10/6/97 .... 3,939,860
4,000,000 Southwestern Bell Capital Corp., 7/29/97 ................... 3,982,858
----------
7,922,718
----------
Financial 62.5%
Banks 15.9% 5,000,000 Bank of Tokyo/Mitsubishi, Discount Note, 7/18/97 ........... 4,986,754
4,000,000 Deutsche Bank Financial Inc., Discount Note, 7/9/97 ........ 3,995,040
4,000,000 New Center Asset Trust, Discount Note, 8/28/97 ............. 3,963,976
4,000,000 Private Export Funding Corp., Discount Note, 12/23/97 ...... 3,892,472
----------
16,838,242
----------
Business Finance 7.9% 4,000,000 CIT Group Holdings Inc., Discount Note, 8/26/97 ............ 3,964,844
1,500,000 Prudential Funding Corp., Discount Note, 7/8/97 ............ 1,498,443
3,000,000 Prudential Funding Corp., Discount Note, 8/28/97 ........... 2,974,190
----------
8,437,477
----------
Consumer Finance 22.6% 4,000,000 A.I. Credit Corp., Discount Note, 7/15/97 .................. 3,991,336
4,000,000 Abbey National North America, 5.65%, 4/15/98 ............... 3,998,472
4,000,000 American Express Credit Corp., 7/10/97 ..................... 3,994,480
4,000,000 FCar Owner Trust I, Discount Note, 7/9/97 .................. 3,995,076
4,000,000 General Electric Capital Corp., Discount Note, 9/2/97 ...... 3,960,870
4,000,000 Household Finance Corp., Discount Note, 7/8/97 ............. 3,995,644
----------
23,935,878
----------
Other Financial
Companies 16.1% 4,000,000 ABN-Amro North America Finance Inc., 5.56%, 7/21/97 ........ 4,000,066
3,000,000 American General Finance Corp., Discount Note, 7/23/97 ..... 2,989,697
4,000,000 Associates Corp. of North America, Discount Note, 10/23/97 . 3,929,827
1,000,000 Centric Funding Corp., Discount Note, 7/29/97 .............. 995,917
1,552,000 Dean Witter, Discover & Co., Discount Note, 7/24/97 ........ 1,546,437
3,598,000 Matterhorn Capital Corp., Discount Note, 7/29/97 ........... 3,582,441
----------
17,044,385
----------
Service Industries 3.7%
Miscellaneous
Commercial Services 4,000,000 United Parcel Service, Discount Note, 7/7/97 ............... 3,996,500
----------
Durables 3.7%
Automobiles 4,000,000 Ford Motor Credit Co., Discount Note, 8/12/97 .............. 3,974,100
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufacturing 3.8%
Office Equipment/
Supplies 4,000,000 Pitney Bowes, Inc., Discount Note, 7/28/97 ................. 3,983,440
-----------
Utilities 3.8%
Electric Utilities 4,000,000 TECO Finance Inc., Discount Note, 7/22/97 .................. 3,986,863
-----------
Total Commercial Paper (Cost $92,088,733) .................. 92,088,733
-----------
------------------------------------------------------------------------------------
9.4% SHORT-TERM NOTES
------------------------------------------------------------------------------------
Financial
Banks 3,000,000 Bank One, Columbus, N.A., Floating Rate Note, 5.69%,
6/10/98 ................................................... 2,998,631
4,000,000 Bank of America NT&SA, 5.87%, 1/5/98 ....................... 4,000,000
3,000,000 FCC National Bank Note, 5.59%, 11/7/97 ..................... 2,999,644
-----------
Total Short-Term Notes (Cost $9,998,275) ................... 9,998,275
-----------
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $105,946,008) (a) .......... 105,946,008
===========
- ----------------------------------------------------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is $105,946,008.
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments securities (cost $105,946,008) ...................... $105,946,008
Cash ............................................................ 633
Interest receivable ............................................. 192,490
Receivable for Portfolio shares sold ............................ 678,217
Other assets .................................................... 1,953
------------
Total assets .............................................. 106,819,301
Liabilities
Payable for Portfolio shares redeemed ........................... $29,983
Accrued management fee .......................................... 32,270
-------
Total liabilities ............................................ 62,253
------------
Net assets, at value ............................................ $106,757,048
============
Net Assets Net assets consist of:
Accumulated net realized loss ................................ (1,567)
Paid-in capital .............................................. 106,758,615
------------
Net assets, at value ............................................ $106,757,048
============
Net asset value, offering and redemption price per share
($106,757,048/106,757,048 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 1.00
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ...................................................... $2,817,942
Expenses:
Management fee ............................................. $190,109
Custodian fees ............................................. 8,542
Accounting fees ............................................ 15,000
Trustees' fees and expenses ................................ 8,734
Reports to shareholders .................................... 822
Registration fees .......................................... 5,489
Legal ...................................................... 1,135
Auditing ................................................... 2,978
Other ...................................................... 1,823 234,632
-------- ----------
Net investment income ......................................... 2,583,310
----------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain from Investments ............................ 916
----------
Net increase in net assets resulting from operations ............. $2,584,226
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................. $ 2,583,310 $ 4,385,955
Net realized gain (loss) from investment transactions ............. 916 (917)
------------- -------------
Net increase in net assets resulting from operations .............. 2,584,226 4,385,038
------------- -------------
Distributions to shareholders from net investment income .......... (2,583,310) (4,385,955)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ...................................... 110,994,759 201,403,309
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment income .... 2,583,310 4,385,955
Cost of shares redeemed ........................................ (104,607,563) (187,750,612)
------------- -------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................ 8,970,506 18,038,652
------------- -------------
Increase (decrease) in net assets ................................. 8,971,422 18,037,735
Net assets at beginning of period ................................. 97,785,626 79,747,891
------------- -------------
Net assets at end of period ....................................... $ 106,757,048 $ 97,785,626
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 ---------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .. .025 .050 .055 .037 .025 .033 .057 .076 .088 .068 .060
Less distributions from
net investment income .. (.025) (.050) (.055) (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ......... 2.53** 5.09 5.65 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ........... 107 98 80 90 49 34 28 32 15 11 8
Ratio of operating expenses,
net to average daily net
assets (%) ............. .46* .46 .50 .56 .66 .64 .67 .69 .72 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ............. .46* .46 .50 .56 .66 .64 .67 .69 .81 1.04 1.12
Ratio of net investment
income to average daily
net assets (%) ......... 5.06* 4.98 5.51 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06
</TABLE>
* Annualized
** Not Annualized
21
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
12.7% REPURCHASE AGREEMENT
----------------------------------------------------------------------------------------
8,455,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $8,456,386
on 7/1/97 collateralized by a $8,346,000 U.S. Treasury
Note, 5.625%, 1/31/98 (Cost $8,455,000) .................... 8,455,000
---------
----------------------------------------------------------------------------------------
7.5% U. S. GOVERNMENT AGENCY OBLIGATIONS
----------------------------------------------------------------------------------------
5,000,000 Federal Home Loan Mortgage Corp. Discount
Note, 7/1/97 (Cost $5,000,000) ............................. 5,000,000
---------
----------------------------------------------------------------------------------------
6.4% U. S. GOVERNMENT & AGENCIES
----------------------------------------------------------------------------------------
1,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ......................... 996,560
3,000,000 U.S. Treasury Note, 5.625%, 11/30/00 ........................ 2,938,590
1,500,000 U.S Treasury Separate Trading Registered Interest and
Principal, Principal Payment, 9%, 11/15/18 ................. 342,945
---------
Total U.S. Government & Agencies
(Cost $4,373,399) .......................................... 4,278,095
---------
----------------------------------------------------------------------------------------
6.2% GOV'T NATIONAL MORTGAGE ASSOCIATION
----------------------------------------------------------------------------------------
1,244,321 Government National Mortgage Association Pass-thru
10%, 8/15/20 (a) ........................................... 1,370,221
2,641,367 Government National Mortgage Association Pass-thru
8.5%, 4/15/25 (a) .......................................... 2,746,176
---------
Total Gov't National Mortgage Association
(Cost $4,046,188) .......................................... 4,116,397
---------
----------------------------------------------------------------------------------------
12.5% U.S. GOVERNMENT AGENCY PASS-THRUS
----------------------------------------------------------------------------------------
1,535,894 Federal National Mortgage Association 8%, 12/1/09 (a) ....... 1,579,620
6,850,190 Federal National Mortgage Association 7% with various
maturities to, 7/1/26 (a) .................................. 6,721,749
---------
Total U.S. Government Agency Pass-thrus
(Cost $8,207,189) .......................................... 8,301,369
---------
----------------------------------------------------------------------------------------
0.9% COLLATERALIZED MORTGAGE OBLIGATIONS
----------------------------------------------------------------------------------------
590,321 Federal Home Loan Mortgage Corp. 8% with various
maturities to 4/1/08 (a) ................................... 604,748
228 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (a) ................................................ 227
---------
Total Collateralized Mortgage Obligations
(Cost $605,756) ............................................ 604,975
---------
----------------------------------------------------------------------------------------
5.5% FOREIGN BONDS - U. S. $ DENOMINATED
----------------------------------------------------------------------------------------
1,625,000 Fage Dairy Industry SA, 9%, 2/1/07 .......................... 1,547,813
1,000,000 Korea Development Bank, 9.6%, 12/1/00 ....................... 1,086,230
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 ........... 1,034,460
---------
Total Foreign Bonds - U.S.$ Denominated
(Cost $3,710,849) .......................................... 3,668,503
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
6.6% ASSET BACKED
---------------------------------------------------------------------------
Automobile Receivables 1.5% 1,000,000 Premier Auto Trust Asset Backed Certificate Series 1
996-3 A4, 6.75%, 11/6/00 .......................... 1,007,810
----------
Credit Card
Receivables 1.5% 1,000,000 Standard Credit Card Trust, Series 1990-3B, 9.85%,
7/10/97 ........................................... 1,000,620
----------
Home Equity Loans 2.6% 1,499,989 Contimortgage Home Equity Loan Trust, Series
1996-1 A2, 5.58%, 1/15/11 ......................... 1,494,829
244,310 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ................... 239,270
----------
1,734,099
----------
Manufactured Housing
Receivables 1.0% 650,000 Green Tree Financial Corp. Series 1997-1 B2, 7.76%,
3/15/28 ........................................... 640,199
----------
Total Asset Backed (Cost $4,515,718) ............... 4,382,728
----------
---------------------------------------------------------------------------
41.7% CORPORATE BONDS
---------------------------------------------------------------------------
Consumer Staples 1.7% 1,000,000 J. Seagram & Sons Inc., 9%, 8/15/21 ................ 1,146,060
----------
Financial 19.9% 2,000,000 Associates Corp. of North America, 6.625%, 5/15/01 . 1,994,000
1,000,000 BankAmerica Corp., 7.125%, 5/1/06 .................. 1,003,010
1,000,000 First Industrial LP, 7.6%, 5/15/07 ................. 1,016,900
1,750,000 First Union Capital II, 7.85%, 1/1/27 .............. 1,710,223
1,500,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ................ 1,454,145
750,000 People's Heritage Bank, 9.06%, 2/1/27 .............. 775,313
500,000 Security Capital Industrial Trust, 7.81%, 2/1/15 ... 519,656
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 .......... 726,023
1,000,000 Susa Partnership L.P., 7.125%, 11/1/03 ............. 994,440
1,000,000 Susa Partnership L.P., 8.2%, 6/1/17 ................ 1,025,610
500,000 Taubman Realty Group LP Medium Term Note, 8%,
7/30/01 ........................................... 513,410
1,500,000 US West Capital Funding Inc., 7.9%, 1/1/27 ......... 1,515,300
----------
13,248,030
----------
Media 4.7% 1,000,000 Outdoor Systems, Inc., 8.875%, 6/15/07 ............. 975,000
1,000,000 Tele-Communications, Inc., 8.65%, 9/15/04 .......... 1,055,320
1,000,000 Time Warner Inc., 9.125%, 1/15/13 .................. 1,105,720
----------
3,136,040
----------
Durables 3.2% 1,000,000 Lockheed Martin Corp., 9%, 1/15/22 ................. 1,150,570
1,000,000 Northrop Grumman Corp., 7.875%, 3/1/26 ............. 1,012,670
----------
2,163,240
----------
Manufacturing 2.2% 1,000,000 ARCO Chemical Co., 9.375%, 12/15/05 ................ 1,145,190
300,000 GFSI Inc., 9.625%, 3/1/07 .......................... 302,700
----------
1,447,890
----------
Technology 3.8% 500,000 Amphenol Corp., 9.875%, 5/15/07 .................... 515,750
1,000,000 International Business Machines Corp., 7%, 10/30/45 929,010
1,000,000 Loral Corp., 8.375%, 6/15/24 ....................... 1,089,130
----------
2,533,890
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy 1.6% 750,000 Barrett Resources Corp., 7.55%, 2/1/07 ............. 778,828
300,000 Dawson Production Services, Inc., 9.375%, 2/1/07 ... 303,000
----------
1,081,828
----------
Transportation 3.0% 675,000 Atlantic Express, Inc., 10.75%, 2/1/04 ............. 702,000
500,000 Newport News Shipbuilding Co., 8.625%, 12/1/06 ..... 517,500
750,000 Norfolk Southern Corp., 7.8%, 5/15/27 .............. 770,325
----------
1,989,825
----------
Service Industries/
Miscellaneous
Commercial Services 0.8% 500,000 Pierce Leahy Corp., 9.125%, 7/15/07 ................ 500,000
----------
Utilities 0.8% 500,000 Houston Light & Power Capital Corp., 8.257%,
2/1/37 ............................................ 531,250
Total Corporate Bonds (Cost $26,974,272) ........... 27,778,053
----------
- --------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $65,888,371) (b) ............................ 66,585,120
==========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective maturities will be shorter due to
prepayments.
(b) At July 30, 1997, the net unrealized appreciation on
investments based on cost for federal income tax
purposes of $65,896,264 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost ................................ $1,183,202
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over market value .................................. 494,346
----------
Net unrealized appreciation .......................... $ 688,856
==========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1997, aggregated $15,678,409 and $15,070,976, respectively. Purchases
and sales of U.S. Government securities for the six months ended June 30,
1997, aggregated $345,495 and $6,578,507, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1997, for the Bond Portfolio, was $128,899,607
and $128,899,607.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (including repurchase agreements of
$8,455,000) (identified cost $65,888,371) ..................... $66,585,120
Cash ............................................................. 1,662
Foreign currency, at value (cost $70) ............................ 65
Receivables:
Interest ...................................................... 792,863
Receivable for daily variation margin on open futures contracts 22,317
Portfolio shares sold ......................................... 21,843
Other assets .................................................. 1,174
-----------
Total assets ............................................... 67,425,044
Liabilities
Payables:
Investments purchased ......................................... $1,474,719
Portfolio shares redeemed ..................................... 72,660
Payable for daily variation margin on open futures contracts .. 15,491
Accrued management fee ........................................ 26,049
Other payables and accrued expenses ........................... 10,264
----------
Total liabilities .......................................... 1,599,183
-----------
Net assets, at market value ...................................... $65,825,861
===========
Net Assets
Net assets consist of:
Undistributed net investment income ........................... $ 1,072,996
Net unrealized appreciation (depreciation) on:
Investments ................................................ 696,749
Foreign currency related transactions ...................... (5)
Accumulated net realized gain (loss) .......................... (9,774)
Paid-in capital ............................................... 64,065,895
-----------
Net assets, at market value ...................................... $65,825,861
===========
Net asset value, offering and redemption price per share
($65,825,861 / 9,843,683 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 6.69
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ....................................................... $2,292,919
Expenses:
Management fee .............................................. $ 151,429
Custodian fees .............................................. 7,855
Accounting fees ............................................. 19,453
Reports to shareholders ..................................... 778
Trustees' fees .............................................. 8,753
Registration fees ........................................... 2,920
Auditing .................................................... 1,907
Other ....................................................... 3,537 196,632
--------- ----------
Net investment income .......................................... 2,096,287
----------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments ................................................. 43,537
Futures ..................................................... 46,886 90,423
--------- ----------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................. (218,992)
Foreign currency related transactions ....................... (5) (218,997)
--------- ----------
Net loss on investment transactions ............................ (128,574)
----------
Net increase in net assets resulting from operations .............. $1,967,713
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 2,096,287 $ 3,806,734
Net realized gain from investment transactions ................. 90,423 598,986
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. (218,997) (2,514,348)
------------ ------------
Net increase in net assets resulting from operations .............. 1,967,713 1,891,372
------------ ------------
Distributions to shareholders from:
Net investment income .......................................... (2,098,487) (5,405,378)
Net realized gains from investment transactions ................ (189,814) --
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ...................................... 6,658,288 27,555,910
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 2,288,301 5,405,378
Cost of shares redeemed ........................................ (8,569,561) (36,192,318)
------------ ------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................... 377,028 (3,231,030)
------------ ------------
Increase (Decrease) in net assets ................................. 56,440 (6,745,036)
Net assets at beginning of period ................................. 65,769,421 72,514,457
------------ ------------
Net assets at end of period (including undistributed net investment
income of $1,072,996 and $1,075,196, respectively) ............. $ 65,825,861 $ 65,769,421
============ ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ......................... 9,775,320 10,126,562
------------ ------------
Shares sold .................................................... 1,005,685 4,122,227
Shares issued to shareholders in reinvestment of distributions . 349,244 806,843
Shares redeemed ................................................ (1,286,566) (5,280,312)
------------ ------------
Net increase (decrease) in Portfolio shares .................... 68,363 (351,242)
------------ ------------
Shares outstanding at end of period ............................... 9,843,683 9,775,320
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 ------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988
----------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Income from investment
operations:
Net investment
income (a) ................. .22 .41 .44 .43 .48 .49 .52 .53 .54 .54
Net realized and
unrealized gain (loss)
on investment
transactions ............... (.02) (.22) .69 (.77) .38 (.02) .61 (.02) .18 (.19)
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total from investment
operations .................... .20 .19 1.13 (.34) .86 .47 1.13 .51 .72 .35
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Less distributions from:
Net investment income ......... (.22) (.62) (.45) (.43) (.48) (.46) (.47) (.50) (.39) (.43)
Net realized gains on
investment transactions ...... (.02) -- -- (.17) (.15) (.19) (.02) -- -- --
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total distributions ............. (.24) (.62) (.45) (.60) (.63) (.65) (.49) (.50) (.39) (.43)
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Net asset value,
end of period ................... $ 6.69 $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39
====== ====== ======= ====== ======= ====== ======= ====== ======= =======
Total Return (%) ................ 3.08** 2.82 18.17 (4.79) 12.38 7.01 17.61 8.06 11.65 5.46
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 66 66 73 142 129 113 74 42 22 3
Ratio of operating expenses,
net to average net
assets (%) .................... .62* .61 .56 .58 .61 .63 .69 .73 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... .62* .61 .56 .58 .61 .63 .69 .73 .84 1.40
Ratio of net investment
income to average
net assets (%) ................ 6.59* 6.20 6.29 6.43 6.59 6.89 7.51 8.05 8.04 7.86
Portfolio turnover rate (%) ..... 58.27* 85.11 177.21 96.55 125.15 87.00 115.86 71.02 103.41 245.23
</TABLE>
-----------
1987
-----------
Net asset value,
beginning of period .......... $ 6.67
-------
Income from investment
operations:
Net investment
income (a) ................. .49
Net realized and
unrealized gain (loss)
on investment
transactions ............... (.40)
-------
Total from investment
operations .................... .09
-------
Less distributions from:
Net investment income ......... (.29)
Net realized gains on
investment transactions ...... --
-------
Total distributions ............. (.29)
-------
Net asset value,
end of period ................... $ 6.47
=======
Total Return (%) ................ 1.22
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 3
Ratio of operating expenses,
net to average net
assets (%) .................... .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... 2.01
Ratio of net investment
income to average
net assets (%) ................ 7.53
Portfolio turnover rate (%) ..... 186.05
(a) Based on average shares outstanding during the period
* Annualized
** Not Annualized
28
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
6.2% REPURCHASE AGREEMENT
-----------------------------------------------------------------------
6,377,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $6,378,045
on 7/1/97, collateralized by a $5,921,000 U.S. Treasury
Note, 8.5%, 2/15/00 (Cost $6,377,000) ............. 6,377,000
-----------------------------------------------------------------------
6.8% U.S. GOVERNMENT & AGENCIES
-----------------------------------------------------------------------
1,200,000 U.S. Treasury Bond, 7.25%, 5/15/16 ................. 1,251,372
1,300,000 U.S. Treasury Bond, 6.25%, 8/15/23 ................. 1,203,514
1,000,000 U.S. Treasury Note, 5.25%, 7/31/98 ................. 993,750
2,000,000 U.S. Treasury Note, 5.75%, 12/31/98 ................ 1,994,060
500,000 U.S. Treasury Note, 6.125%, 7/31/00 ................ 498,280
1,150,000 U.S. Treasury Note, 5.625%, 11/30/00 ............... 1,126,460
------------
Total U.S. Government & Agencies (Cost $7,200,705) . 7,067,436
------------
-----------------------------------------------------------------------
2.5% GOVERNMENT NATIONAL MORTGAGE ASSOC.
-----------------------------------------------------------------------
461,056 Government National Mortgage Association Pass-thru
10%, 8/15/20 (a) .................................. 507,706
526,092 Government National Mortgage Association Pass-thru
8.75%, 12/15/24 (a) ............................... 544,010
1,522,732 Government National Mortgage Association Pass-thru
8.5% with various maturities to 9/15/26 (a) ....... 1,582,981
------------
Total Government National Mortgage Assoc.
(Cost $2,557,599) ................................. 2,634,697
------------
-----------------------------------------------------------------------
6.7% U. S. GOVERNMENT AGENCY PASS-THRUS
-----------------------------------------------------------------------
2,511,577 Federal National Mortgage Association 6.5% with various
maturities to 2/1/26 (a) .......................... 2,407,981
4,619,998 Federal National Mortgage Association 7% with various
maturities to 9/1/26 (a) .......................... 4,529,902
------------
Total U.S. Government Agency Pass-thrus
(Cost $6,885,674) ................................. 6,937,883
------------
-----------------------------------------------------------------------
1.0% COLLATERALIZED MORTGAGE OBLIGATIONS
-----------------------------------------------------------------------
983,868 Federal Home Loan Mortgage Corp. 8% with various
maturities to 4/1/08 (a) .......................... 1,007,913
228 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (a) ....................................... 227
------------
Total Collateralized Mortgage Obligations
(Cost $1,009,452) ................................. 1,008,140
------------
-----------------------------------------------------------------------
0.5% FOREIGN BONDS - U.S. $ DENOMINATED
-----------------------------------------------------------------------
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23 ................... 255,323
250,000 Seagram Co., Ltd., 6.875%, 9/1/23 .................. 229,238
------------
Total Foreign Bonds - U.S. $ Denominated Total
(Cost $461,469) ................................... 484,561
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
2.2% ASSET BACKED
-----------------------------------------------------------------------
Automobile
Receivables 0.6% 68,074 Premier Auto Trust Asset Backed Certificate
Series 1994-3, 6.8%, 12/2/99 ...................... 68,392
500,000 Premier Auto Trust Asset Backed Certificate
Series 1996-3, 6.5%, 3/6/00 ....................... 502,185
------------
570,577
------------
Credit Card Receivables 1.1% 850,000 Sears Credit Account Master Trust, Series 1995-4,
6.25%, 1/15/03 .................................... 851,590
250,000 Standard Credit Card Trust, Series 1990-6B,
9.625%, 9/10/97 ................................... 251,718
------------
1,103,308
------------
Home Equity Loans 0.5% 499,996 Contimortgage Home Equity Loan Trust, Series 1996-1A2,
5.58%, 1/15/11 .................................... 498,276
61,078 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ................... 59,818
------------
558,094
------------
Total Asset Backed (Cost $2,252,238) ............... 2,231,979
------------
-----------------------------------------------------------------------
13.1% CORPORATE BONDS
-----------------------------------------------------------------------
Consumer
Discretionary 0.2% 250,000 Price/Costco Inc., 7.125%, 6/15/05 ................. 247,995
------------
Consumer Staples 0.3% 270,000 J. Seagram & Sons Inc., 7%, 4/15/08 ................ 265,785
------------
Financial 6.8% 750,000 Associates Corp. of North America, 6.625%, 5/15/01 . 747,750
1,000,000 Deutsche Bank, 7.5%, 4/25/09 ....................... 1,022,930
1,000,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ................ 969,430
500,000 Midland Bank PLC, 6.95%, 3/15/11 ................... 480,905
250,000 NationsBank Corp., 7.25%, 10/15/25 ................. 239,558
1,000,000 Southern National Corp., 7.05%, 5/23/03 ............ 1,000,260
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 .......... 726,023
500,000 Susa Partnership L.P., 8.2%, 6/1/17 ................ 512,805
800,000 US West Capital Funding Inc., 7.9%, 1/1/27 ......... 808,160
500,000 Wells Fargo & Co., 6.875%, 4/1/06 .................. 490,895
------------
6,998,716
------------
Media 1.6% 500,000 Tele-Communications, Inc., 8.65%, 9/15/04 .......... 527,660
1,000,000 Time Warner Inc., 9.125%, 1/15/13 .................. 1,105,720
------------
1,633,380
Durables 0.8% 250,000 Lockheed Martin Corp., 9%, 1/15/22 ................. 287,643
500,000 Northrop Grumman Corp., 7.875%, 3/1/26 ............. 506,335
------------
793,978
------------
Manufacturing 0.3% 250,000 Corning Inc., 8.75%, 7/15/99 ....................... 260,660
------------
Technology 0.5% 500,000 Loral Corp., 8.375%, 6/15/24 ....................... 544,565
------------
Energy 0.8% 500,000 Atlantic Richfield Co., 8.25%, 2/1/22 .............. 539,750
250,000 Enron Corp., 10%, 6/1/98 ........................... 258,470
------------
798,220
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Metals & Minerals 0.9% 1,000,000 Potash Corp., 7.125%, 6/15/07 ...................... 995,900
------------
Transportation 0.7% 100,000 American Airlines, 8.8%, 9/16/15 ................... 107,418
100,000 American Airlines, 8.39%, 1/2/17 ................... 104,580
500,000 Norfolk Southern Corp., 7.8%, 5/15/27 .............. 513,550
------------
725,548
------------
Utilities 0.2% 250,000 Commonwealth Edison Co., 9.05%, 10/15/99 ........... 260,853
------------
Total Corporate Bonds (Cost $13,266,350) ........... 13,525,600
------------
-----------------------------------------------------------------------
61.0% COMMON STOCKS
-----------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
Consumer
Discretionary 5.7%
Department & Chain
Stores 4.3% 15,100 Federated Department Stores, Inc.* ................. 524,725
22,400 Home Depot, Inc. ................................... 1,544,200
31,100 Price/Costco Inc.* ................................. 1,022,413
39,700 Wal-Mart Stores Inc. ............................... 1,342,356
------------
4,433,694
------------
Hotels & Casinos 0.7% 41,400 Host Marriott Corp ................................. 737,438
------------
Specialty Retail 0.7% 53,300 Corporate Express, Inc. ............................ 769,519
------------
Consumer Staples 14.1%
Alcohol & Tobacco 1.8% 42,800 Philip Morris Companies Inc. ....................... 1,899,250
------------
Consumer Specialties 0.6% 13,700 Samsonite Corp. .................................... 604,513
------------
Food & Beverage 3.7% 44,700 Coca-Cola Co., Inc. ................................ 3,017,250
14,200 Interstate Bakeries Corp. .......................... 842,238
------------
3,859,488
------------
Package Goods/
Cosmetics 8.0% 20,700 Avon Products Inc. ................................ 1,460,644
30,800 Colgate-Palmolive Co. ............................. 2,009,700
17,945 Gillette Co. ...................................... 1,700,289
13,200 Procter & Gamble Co. .............................. 1,864,500
22,600 Revlon, Inc. "A" .................................. 1,170,963
------------
8,206,096
------------
Health 12.4%
Biotechnology 1.0% 12,300 Guidant Corp. ..................................... 1,045,500
------------
Health Industry
Services 0.7% 10,500 HBO & Company, Inc. ............................... 723,188
------------
Hospital Management 0.6% 21,100 Tenet Healthcare Corp. ............................ 623,769
------------
Medical Supply &
Specialty 0.6% 10,800 Boston Scientific Corp. ........................... 663,525
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 9.5% 15,058 Eli Lilly & Co. ................................... 1,646,028
24,000 Johnson & Johnson ................................. 1,545,000
21,700 Merck & Co. Inc. .................................. 2,245,950
12,000 Pfizer, Inc. ...................................... 1,434,000
17,700 SmithKline Beecham PLC (ADR) ...................... 1,621,763
10,900 Warner-Lambert Co. ................................ 1,354,315
------------
9,847,056
------------
Financial 3.2%
Banks 0.7% 11,900 NationsBank Corp. ................................. 767,550
------------
Insurance 1.8% 12,250 American International Group, Inc. ................ 1,829,844
------------
Other Financial
Companies 0.7% 15,600 Federal National Mortgage Association ............. 680,550
------------
Media 3.6%
Advertising 1.6% 14,300 Interpublic Group of Companies Inc. ............... 876,769
19,400 Outdoor Systems, Inc. ............................. 742,050
------------
1,618,819
------------
Broadcasting &
Entertainment 2.0% 23,300 Clear Channel Communications, Inc. ................ 1,432,950
8,000 Walt Disney Co. ................................... 642,000
------------
2,074,950
------------
Service Industries 3.3%
Edp Services 1.2% 29,400 Electronic Data Systems Corp. ..................... 1,205,400
------------
Miscellaneous Consumer
Services 1.4% 24,100 CUC International Inc. ............................ 622,081
25,600 Service Corp. International ....................... 841,600
------------
1,463,681
------------
Printing/Publishing 0.7% 11,800 Reuters Holdings PLC "B" (ADR) .................... 743,400
------------
Durables 2.8%
Aerospace 1.0% 11,700 Allied Signal Inc. ................................ 982,800
------------
Telecommunications
Equipment 1.8% 21,900 Ascend Communications, Inc.* ...................... 862,313
13,700 Nokia AB Oy "A" (ADR) ............................. 1,010,375
------------
1,872,688
------------
Manufacturing 4.8%
Diversified Manufacturing 45,400 General Electric Co. .............................. 2,968,025
9,100 Honeywell, Inc. ................................... 690,463
19,400 Textron, Inc. ..................................... 1,287,675
------------
4,946,163
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Technology 10.3%
Computer Software 3.4% 12,350 Computer Associates International, Inc. ........... 687,741
16,800 Microsoft Corp. ................................... 2,123,100
12,900 PeopleSoft Inc. ................................... 680,475
------------
3,491,316
------------
Diverse Electronic
Products 1.7% 14,900 Applied Materials, Inc.* .......................... 1,055,106
18,700 Teradyne Inc.* .................................... 733,975
------------
1,789,081
------------
Electronic Data
Processing 1.4% 16,200 Ceridian Corp. .................................... 684,450
7,400 Compaq Computer Corp.* ............................ 734,450
------------
1,418,900
------------
Office/Plant
Automation 1.4% 16,000 3Com Corp.* ....................................... 720,000
11,500 Cisco Systems, Inc.* .............................. 771,938
------------
1,491,938
------------
Semiconductors 2.4% 19,600 Advanced Micro Devices Inc.* ...................... 705,600
6,500 Intel Corp. ....................................... 921,781
27,500 National Semiconductor Corp. ...................... 842,188
------------
2,469,569
------------
Construction 0.8%
Building Products 18,200 American Standard Companies, Inc. ................. 814,450
------------
Total Common Stocks (Cost $44,345,512) ............ 63,074,135
------------
========================================================================================================================
Total Investment Portfolio -- 100.0%
(Cost $84,355,999) (b) ........................... 103,341,431
===========
========================================================================================================================
* Non-income producing security.
(a) Effective maturities will be shorter due to prepayments.
(b) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $84,367,911 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ...................................................... 19,918,587
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ............................................................ 945,067
------------
Net unrealized appreciation ....................................................................... $ 18,973,520
============
- ------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1997, aggregated $23,258,337 and $21,266,429, respectively. Sales of
U.S. Government securities for the six months ended June 30, 1997,
aggregated $1,643,054.
</TABLE>
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $84,355,999) ............ $ 103,341,431
Cash ............................................................ 692
Foreign Currency, at value (cost $63) ........................... 56
Receivables:
Dividends and interest ....................................... 448,465
Portfolio shares sold ........................................ 73,160
Foreign taxes recoverable .................................... 177
Other assets ................................................. 1,704
-------------
Total assets .............................................. 103,865,685
Liabilities
Payables:
Portfolio shares redeemed .................................... $35,305
Accrued management fee ....................................... 40,570
Other payables and accrued expenses .......................... 23,092
--------
Total liabilities ......................................... 98,967
-------------
Net assets, at market value ..................................... $ 103,766,718
=============
Net Assets
Net assets consist of:
Undistributed net investment income .......................... $ 747,979
Net unrealized appreciation (depreciation) on:
Investments ............................................... 18,985,432
Foreign currency related transactions ..................... (7)
Accumulated net realized gain ................................ 3,261,196
Paid-in capital .............................................. 80,772,118
-------------
Net assets, at market value ..................................... $ 103,766,718
=============
Net asset value, offering and redemption price per share
($103,766,718/8,344,085 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 12.44
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Interest .................................................. $ 1,334,846
Dividends (net of foreign taxes withheld of $4,181) ....... 288,951
-------------
1,623,797
Expenses:
Management fee ............................................ $224,141
Custodian fees ............................................ 10,583
Accounting fees ........................................... 19,173
Trustees' fees ............................................ 8,923
Auditing .................................................. 5,950
Legal ..................................................... 1,578
Registration fees ......................................... 1,125
Reports to shareholders ................................... 407
Other ..................................................... 4,901 276,781
-------- -------------
Net investment income ........................................ 1,347,016
-------------
Net ealized and unrealized gain on investment transactions
Net realized gain from:
Investments ............................................... 3,414,942
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................... 8,428,580
Foreign currency related transactions ..................... (7) 8,428,573
-------- -------------
Net gain on investment transactions .......................... 11,843,515
-------------
Net increase in net assets resulting from operations ............ $ 13,190,531
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 1,347,016 $ 2,208,747
Net realized gain from investment transactions ............... 3,414,942 4,899,761
Net unrealized appreciation on investment transactions
during the period ......................................... 8,428,573 1,635,671
------------- ------------
Net increase in net assets resulting from operations ............ 13,190,531 8,744,179
------------- ------------
Distributions to shareholders from:
Net investment income ........................................ (1,271,214) (2,028,500)
------------- ------------
Net realized gains from investment transactions .............. (4,951,322) (1,925,657)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold .................................... 12,069,718 25,991,787
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 6,222,536 3,954,157
Cost of shares redeemed ...................................... (9,836,368) (14,318,918)
------------- ------------
Net increase in net assets from portfolio share transactions .... 8,455,886 15,627,026
------------- ------------
Increase in net assets .......................................... 15,423,881 20,417,048
Net assets at beginning of period ............................... 88,342,837 67,925,789
------------- ------------
Net assets at end of period (including undistributed net
investment income of $747,979 and $672,177, respectively) .... $ 103,766,718 $ 88,342,837
============= ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ....................... 7,608,722 6,206,064
------------- ------------
Shares sold .................................................. 1,037,941 2,336,334
Shares issued to shareholders in reinvestment of distributions 541,838 360,527
Shares redeemed .............................................. (844,416) (1,294,203)
------------- ------------
Net increase in Portfolio shares ............................. 735,363 1,402,658
------------- ------------
Shares outstanding at end of period ............................. 8,344,085 7,608,722
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 -----------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ....... $11.61 $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35
Income from
investment operations:
Net investment
income (a) ............... .17 .31 .30 .29 .30 .29 .35 .42 .40 .33 .34
Net realized and unrealized
gain (loss) on investment
transactions ............. 1.46 .95 2.04 (.48) .42 .36 1.77 (.59) 1.06 .64 (.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations ................ 1.63 1.26 2.34 (.19) .72 .65 2.12 (.17) 1.46 .97 (.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Less distributions from:
Net investment income ..... (.16) (.30) (.30) (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23)
Net realized gains on
investment transactions .. (.64) (.30) (.06) (.77) (.23) (.19) -- (.05) -- -- (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions ......... (.80) (.60) (.36) (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value,
end of period ............. $12.44 $11.61 $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ............ 14.70** 11.89 26.67 (2.05) 7.45 6.96 26.93 (1.91) 19.50 14.21 (1.68)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ....... 104 88 68 46 45 37 25 16 18 11 12
Ratio of operating
expenses, net to
average net assets (%) .... .59* .60 .65 .75 .75 .75 .75 .75 .75 .75 .75
Ratio of operating
expense before expense
reductions, to average
daily net assets .......... .59* .60 .65 .75 .75 .75 .81 .75 .89 1.14 1.20
Ratio of net investment
income to average net
assets (%) ................ 2.87* 2.82 3.01 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42
Portfolio turnover rate (%) . 52.27* 67.56 87.98 101.64 133.95*** 51.66 62.03 49.03 77.98 109.95 111.00
Average commission
rate paid (b) ............. $.0538 $.0535 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
* Annualized
** Not Annualized
*** On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income, as well as long-term
preservation of capital, from a diversified portfolio of equity and fixed
income securities. Prior to that date, the Portfolio was known as the
Managed Diversified Portfolio and its investment objective was to realize
a high level of long-term total rate of return consistent with prudent
investment risk. The portfolio turnover rate increased due to implementing
the present investment objective. Financial highlights for the seven
periods ended December 31, 1993 should not be considered representative of
the present Portfolio.
37
<PAGE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
3.6% REPURCHASE AGREEMENT
-------------------------------------------------------------------------------
4,534,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9%to be repurchased at $4,534,743
on 7/1/97, collateralized by a $4,276,000 U.S. Treasury
Note, 9.25%, 8/15/98 (Cost $4,534,000) ............... 4,534,000
---------
-------------------------------------------------------------------------------
0.9% CONVERTIBLE BONDS
-------------------------------------------------------------------------------
Health 0.2%
Pharmaceuticals 140,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 .................. 209,300
---------
Financial 0.1%
Other Financial
Companies 40,000 First Financial Management Corp., 5%, 12/15/99 ........ 81,250
---------
Service Industries 0.0%
Miscellaneous
Commercial Services 54,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 ......... 66,420
---------
Energy 0.6%
Oil Companies 34,500 Atlantic Richfield Co., 9% Exchange Note .............. 741,750
---------
Total Convertible Bonds (Cost $1,150,927) ............. 1,098,720
---------
-------------------------------------------------------------------------------
2.0% CONVERTIBLE PREFERRED STOCKS
-------------------------------------------------------------------------------
Shares
-------------------------------------------------------------------------------
Consumer Discretionary 0.7%
Department &
Chain Stores 15,700 Kmart 7.75% ........................................... 861,538
---------
Financial 0.4%
Consumer Finance 0.3% 10,400 Advanta Corp. 6.75% ................................... 356,200
---------
Real Estate 0.1% 6,300 Security Capital Industrial Trust "B", 7% ............. 175,613
---------
Manufacturing 0.9%
Containers & Paper 0.7% 31,000 Boise Cascade Corp. "G", Cum $1.58 .................... 883,500
---------
Industrial Specialty 0.2% 10,000 Cooper Industries, Inc. 6% ............................ 230,000
---------
Total Convertible Preferred Stocks (Cost $2,434,104) .. 2,506,851
---------
-------------------------------------------------------------------------------
93.5% COMMON STOCKS
-------------------------------------------------------------------------------
Consumer Discretionary 4.1%
Department &
Chain Stores 4.1% 24,400 J.C. Penney Co., Inc. ................................ 1,273,375
17,600 May Department Stores ................................ 831,600
2,100 Mercantile Stores, Inc. .............................. 132,169
32,300 Rite Aid Corp. ....................................... 1,610,963
25,500 Sears, Roebuck & Co. ................................. 1,370,625
---------
5,218,732
---------
Hotels & Casinos 0.0% 3,563 Homestead Village, Inc. Warrants * (Expires 10/29/97). 30,285
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Consumer Staples 11.0%
Alcohol & Tobacco 3.5% 22,400 Anheuser-Busch Companies, Inc. ................. 939,400
68,400 Philip Morris Companies Inc. ................... 3,035,250
15,080 RJR Nabisco Holdings Corp. ..................... 497,640
-----------
4,472,290
-----------
Consumer Electronic &
Photographic Products 1.2% 28,300 Whirlpool Corp. ................................ 1,544,119
-----------
Food & Beverage 5.0% 16,600 General Mills, Inc. ............................ 1,081,075
60,000 H.J. Heinz Co. ................................. 2,767,500
11,600 Unilever NV (New York shares) .................. 2,528,800
-----------
6,377,375
-----------
Package Goods/
Cosmetics 1.3% 33,100 Kimberly-Clark Corp. ........................... 1,646,725
-----------
Health 8.1%
Pharmaceuticals 20,100 American Home Products Corp. ................... 1,537,650
30,000 Baxter International Inc. ...................... 1,567,500
26,600 Bristol-Myers Squibb Co. ....................... 2,154,600
45,700 Schering-Plough Corp. .......................... 2,187,888
10,900 SmithKline Beecham PLC (ADR) ................... 998,713
5,300 Warner-Lambert Co. ............................. 658,525
18,200 Zeneca Group PLC ............................... 601,926
6,100 Zeneca Group PLC (Sponsored ADR) ............... 604,663
-----------
10,311,465
-----------
Communications 7.3%
Telephone/
Communications 39,900 Alltel Corp. ................................... 1,334,156
20,400 Bell Atlantic Corp. ............................ 1,547,850
24,100 BellSouth Corp. ................................ 1,117,638
27,100 Frontier Corp. ................................. 540,306
43,800 GTE Corp. ...................................... 1,921,725
22,400 NYNEX Corp. .................................... 1,290,800
25,800 Sprint Corp. ................................... 1,357,725
33,000 Telecom Corp. of New Zealand ................... 168,114
-----------
9,278,314
-----------
Financial 18.2%
Banks 7.5% 25,600 Banc One Corp. ................................. 1,240,000
14,300 Bankers Trust New York Corp. ................... 1,244,100
18,400 Chase Manhattan Corp. .......................... 1,785,950
25,100 CoreStates Financial Corp. ..................... 1,349,125
14,900 First Bank System Inc. ......................... 1,272,088
13,400 J.P. Morgan & Co., Inc. ........................ 1,398,625
22,800 KeyCorp ........................................ 1,273,950
-----------
9,563,838
-----------
Insurance 4.0% 27,400 EXEL, Ltd. ..................................... 1,445,350
27,700 Lincoln National Corp. ......................... 1,783,188
15,100 Mid Ocean, Ltd.* ............................... 791,806
22,300 Safeco Corp. ................................... 1,041,131
-----------
5,061,475
-----------
Other Financial
Companies 3.1% 25,500 Federal National Mortgage Association .......... 1,112,438
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
21,700 Student Loan Marketing Association ............. 2,755,900
-----------
3,868,338
-----------
Real Estate 3.6% 6,800 Developers Diversified Realty Corp. ............ 272,000
10,200 General Growth Properties, Inc. (REIT) ......... 341,700
20,500 Health Care Property Investment Inc. (REIT) .... 722,625
20,400 Meditrust SBI (REIT) ........................... 813,450
31,400 Nationwide Health Properties Inc. (REIT) ....... 690,800
47,900 Security Capital Atlantic Inc. ................. 1,146,606
27,541 Security Capital Industrial Trust (REIT) ....... 592,132
-----------
4,579,313
-----------
Durables 6.8%
Aerospace 2.8% 9,788 Lockheed Martin Corp. .......................... 1,013,670
24,300 Rockwell International Corp. (New) ............. 1,433,700
13,600 United Technologies Corp. ...................... 1,128,800
-----------
3,576,170
-----------
Automobiles 3.2% 34,000 Dana Corp. ..................................... 1,292,000
10,100 Eaton Corp. .................................... 881,856
49,200 Ford Motor Co. ................................. 1,857,300
-----------
4,031,156
-----------
Construction/
Agricultural Equipment 0.8% 23,000 PACCAR, Inc. ................................... 1,068,063
-----------
Manufacturing 17.4%
Chemicals 4.9% 10,100 Dow Chemical Co. ............................... 879,963
14,000 E.I. du Pont de Nemours & Co. .................. 880,250
22,200 Eastman Chemical Co. ........................... 1,409,700
43,400 Imperial Chemical Industries PLC (ADR) (New) ... 2,468,375
24,200 Lyondell Petrochemical Co. ..................... 527,863
-----------
6,166,151
-----------
Containers & Paper 0.7% 28,300 Westvaco Corp. ................................. 889,681
-----------
Diversified
Manufacturing 2.9% 29,500 Olin Corp. ..................................... 1,152,344
43,900 TRW Inc. ....................................... 2,494,069
-----------
3,646,413
-----------
Electrical Products 3.6% 48,100 Philips Electronics NV (New York shares) ....... 3,457,188
20,800 Thomas & Betts Corp. ........................... 1,093,300
-----------
4,550,488
-----------
Office Equipment/
Supplies 3.4% 54,600 Xerox Corp. .................................... 4,306,575
-----------
Specialty Chemicals 1.9% 17,400 BetzDearborn Inc. .............................. 1,148,400
33,000 Witco Corp ..................................... 1,251,938
-----------
2,400,338
-----------
Technology 0.5%
Electronic Components/
Distributors 13,900 AMP Inc. ....................................... 580,325
-----------
Energy 5.8%
Oil Companies 13,400 Exxon Corp. .................................... 824,100
21,600 Royal Dutch Petroleum Co. (New) ................ 1,174,500
30,156 Societe Nationale Elf Aquitaine (ADR) .......... 1,641,617
9,900 Texaco Inc. .................................... 1,076,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25,266 Total SA (ADR) ................................. 1,279,091
45,100 YPF S.A. "D" (ADR) ............................. 1,386,825
-----------
7,382,758
-----------
Metals & Minerals 2.5%
Steel & Metals 48,452 Allegheny Teledyne Inc. ........................ 1,308,204
33,700 Freeport McMoRan Copper & Gold, Inc. "A" ....... 985,725
13,500 Oregon Steel Mills, Inc. ....................... 269,156
6,700 Phelps Dodge Corp. ............................. 570,756
-----------
3,133,841
-----------
Construction 2.7%
Building Materials 0.4% 13,938 Martin Marietta Materials, Inc. ................ 451,243
-----------
Forest Products 2.3% 17,600 Georgia Pacific Corp. .......................... 1,502,600
25,500 Louisiana-Pacific Corp. ........................ 538,688
16,700 Weyerhaeuser Co. ............................... 868,400
-----------
2,909,688
-----------
Transportation 2.4%
Railroads 26,200 CSX Corp. ...................................... 1,454,100
15,700 Canadian National Railway ...................... 684,413
12,600 Union Pacific Corp. ............................ 888,300
-----------
3,026,813
-----------
Utilities 6.7%
Electric Utilities 6.0% 10,100 Boston Edison Co. .............................. 266,388
13,200 CINergy Corp. .................................. 459,525
38,636 Duke Power Co. ................................. 1,852,113
22,100 National Power PLC (GDR) ....................... 777,644
44,600 P G & E Corp. .................................. 1,081,550
21,500 PacifiCorp ..................................... 473,000
20,800 PowerGen PLC (ADR) ............................. 1,008,800
13,000 Southern Company ............................... 284,375
38,900 Unicom Corp. ................................... 865,525
20,600 Wisconsin Energy Corp. ......................... 512,425
-----------
7,581,345
-----------
Natural Gas
Distribution 0.7% 29,500 MCN Energy Group, Inc. ......................... 903,431
-----------
Total Common Stocks (Cost $88,665,114) ......... 118,556,748
-----------
===================================================================================================================
Total Investment Portfolio -- 100.0%
(Cost $96,784,145) (a) ........................ 126,696,319
===========
===================================================================================================================
* Non-income producing security.
(a) At June 30, 1997, the net unrealized appreciation of investments based on
cost for federal income tax purposes of $96,800,144 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost .................................................. $ 30,341,990
Aggregate gross unrealized depreciation for all investments in which there
is an excess of tax cost over market value .................................................. 445,815
------------
Net unrealized appreciation ................................................................... $ 29,896,175
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1997, aggregated
$30,630,484 and $11,448,730, respectively.
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $96,784,145) ............ $ 126,696,319
Cash ............................................................ 555
Foreign currency, at value (cost $2,374) ........................ 2,353
Receivables:
Dividends and interest ....................................... 340,224
Foreign taxes recoverable .................................... 49,980
Other assets .................................................... 1,503
-------------
Total assets .............................................. 127,090,934
Liabilities
Payables:
Investments purchased ........................................ $ 1,208,173
Accrued management fee ....................................... 48,090
Other payables and accrued expenses .......................... 36,697
------------
Total liabilities ......................................... 1,292,960
-------------
Net assets, at market value ..................................... $ 125,797,974
=============
Net Assets
Net assets consist of:
Undistributed net investment income .......................... $ 866,166
Net unrealized appreciation (depreciation) on:
Investments ............................................... 29,912,174
Foreign currency .......................................... (14)
Accumulated net realized gain ................................ 2,425,355
Paid-in capital .............................................. 92,594,293
-------------
Net assets, at market value ..................................... $ 125,797,974
=============
Class A
Net asset value, offering and redemption price per share
($124,592,75011,815,252 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 10.55
=============
Class B
Net asset value, offering and redemption price per share
($1,205,224114,306 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 10.54
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $18,874) ...... $ 1,714,204
Interest .................................................. 116,899
-------------
1,831,103
Expenses:
Management fee ............................................ $ 249,481
Accounting fees ........................................... 26,356
Trustees' fees ............................................ 9,232
Distribution fees ......................................... 137
Custodian fees ............................................ 19,051
Auditing .................................................. 4,764
Registration fees ......................................... 922
Legal ..................................................... 1,642
Other ..................................................... 7,276 318,861
------------ -------------
Net investment income ........................................ 1,512,242
-------------
Net realized and unrealized gain on investment transactions
Net realized gain from:
Investments ............................................... 2,509,901
Foreign currency related transactions ..................... 176 2,510,077
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................... 14,285,845
Foreign currency related transactions ..................... (25) 14,285,820
------------ -------------
Net gain on investment transactions .......................... 16,795,897
-------------
Net increase in net assets resulting from operations ............ $ 18,308,139
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 1,512,242 $ 2,155,282
Net realized gain from investment transactions ............... 2,510,077 3,798,567
Net unrealized appreciation on investment
transactions during the period ............................ 14,285,820 7,841,874
------------ -------------
Net increase in net assets resulting from operations ............ 18,308,139 13,795,723
------------ -------------
Distributions to shareholders from:
Net investment income (Class A) .............................. (1,359,555) (1,781,057)
------------ -------------
Net realized gains from investment transactions (Class A) .... (3,884,391) (729,093)
------------ -------------
Portfolio share transactions:
Class A
Proceeds from shares sold .................................... 29,256,818 48,549,524
Net asset value of shares issued to shareholders
in reinvestment of distributions .......................... 5,243,946 2,510,150
Cost of shares redeemed ...................................... (14,032,129) (23,216,134)
------------ -------------
Net increase in net assets from Portfolio share transactions .... 20,468,635 27,843,540
------------ -------------
Class B*
Proceeds from shares sold .................................... 1,203,470 --
Cost of shares redeemed ...................................... (29,871) --
------------ -------------
Net increase in net assets from Portfolio share transactions .... 1,173,599 --
------------ -------------
Increase in net assets .......................................... 34,706,427 39,129,113
Net assets at beginning of period ............................... 91,091,547 51,962,434
------------ -------------
Net assets at end of period (including undistributed net
investment income of $866,166 and $713,479, respectively) .... $125,797,974 $ 91,091,547
============ =============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ....................... 9,724,734 6,510,714
------------ -------------
Shares sold .................................................. 3,015,565 5,669,994
Shares issued to shareholders in reinvestment of distributions 549,163 301,924
Shares redeemed .............................................. (1,474,210) (2,757,898)
------------ -------------
Net increase in Portfolio shares ............................. 2,090,518 3,214,020
------------ -------------
Shares outstanding at end of period ............................. 11,815,252 9,724,734
============ =============
Class B*
Shares outstanding at beginning of period ....................... -- --
------------ -------------
Shares sold .................................................. 117,263 --
------------ -------------
Shares redeemed .............................................. (2,957) --
------------ -------------
Net increase in Portfolio shares ............................. 114,306 --
------------ -------------
Shares outstanding at end of period 114,306 --
============ =============
</TABLE>
* For the period May 2, 1997 (commencement of sale of Class B shares) to June
30, 1997.
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Class A(d) May 2, 1994
- ---------- Six Months Ended (commencement
June 30, Years Ended December 31, of operations)
1997 ------------------------ to December 31,
(Unaudited) 1996 1995 1994
----------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 9.37 $ 7.98 $ 6.26 $ 6.00(b)
--------- --------- --------- ---------
Income from investment operations:
Net investment income (a) .............................. .14 .27 .23 .13
Net realized and unrealized gain on investment
transactions .......................................... 1.54 1.46 1.72 .17
--------- --------- --------- ---------
Total from investment operations ......................... 1.68 1.73 1.95 .30
--------- --------- --------- ---------
Less distributions from:
Net investment income .................................. (.13) (.23) (.19) (.04)
Net realized gains on investment transactions .......... (.37) (.11) (.04) --
--------- --------- --------- ---------
Total distributions ...................................... (.50) (.34) (.23) (.04)
--------- --------- --------- ---------
Net asset value, end of period ........................... $ 10.55 $ 9.37 $ 7.98 $ 6.26
========= ========= ========= =========
Total Return (%) ......................................... 18.55** 22.17 31.74 4.91**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................... 125 91 52 20
Ratio of operating expenses, net to average net assets (%) .61* .66 .75 .75*
Ratio of operating expenses, before reductions, to average
daily net assets (%) ................................... .61* .66 .75 .1.62*
Ratio of net investment income to average net assets (%) . 2.90* 3.14 3.183 .63*
Portfolio turnover rate (%) .............................. 22.67* 32.18 24.33 28.41*
Average commission rate paid (c) ......................... $ .0462 $ .0502 $ -- $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Original capital
(c) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
(d) On May 2, 1997 existing shares were designated as Class "A" shares.
* Annualized
** Not Annualized
45
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
May 2, 1997
Class B (commencement of
- ------- sale of Class
B shares)
to June 30, 1997
----------------
Net asset value, beginning of period ........................ $ 9.56
---------
Income from investment operations:
Net investment income (a) ................................. .04
Net realized and unrealized gain on investment transactions .94
---------
Total from investment operations ............................ .98
---------
Net asset value, end of period .............................. $ 10.54
=========
Total Return (%) ............................................ 10.25**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ...................... 1
Ratio of operating expenses, net to average net assets (%) .. .91*
Ratio of net investment income to average net assets (%) .... 2.82*
Portfolio turnover rate (%) ................................. 22.67*
Average commission rate paid (b) ............................ $ .0462
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities.
* Annualized
** Not Annualized
46
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
3.3% REPURCHASE AGREEMENT
---------------------------------------------------------------------------------------------
18,906,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $18,909,098
on 7/1/97, collateralized by a $18,807,000 U.S. Treasury
Note, 5.75%, 9/30/97 (Cost $18,906,000) ..................... 18,906,000
----------
---------------------------------------------------------------------------------------------
96.7% COMMON STOCKS
---------------------------------------------------------------------------------------------
Shares
---------------------------------------------------------------------------------------------
Consumer Discretionary 9.1%
Apparel &
Shoes 1.4% 135,000 Nike, Inc. "B" .............................................. 7,880,625
----------
Department &
Chain Stores 5.5% 160,000 Gap Inc. ..................................................... 6,220,000
180,000 Home Depot, Inc. ............................................. 12,408,750
180,000 Price/Costco Inc. ............................................ 5,917,500
120,000 Walgreen Co. ................................................. 6,435,000
----------
30,981,250
----------
Hotels & Casinos 0.9% 200,000 Mirage Resorts Inc.* ......................................... 5,050,000
----------
Specialty Retail 1.3% 155,000 Tiffany & Co. ................................................ 7,159,063
----------
Consumer Staples 5.0%
Alcohol & Tobacco 1.5% 196,400 Anheuser-Busch Companies, Inc. ............................... 8,236,525
----------
Food & Beverage 2.1% 150,000 H.J. Heinz Co. ............................................... 6,918,750
125,000 Sara Lee Corp. ............................................... 5,203,125
----------
12,121,875
----------
Package Goods/
Cosmetics 1.4% 57,500 Procter & Gamble Co. ......................................... 8,121,875
----------
Health 12.2%
Hospital Management 1.9% 275,600 Columbia/HCA Healthcare Corp. ................................ 10,834,525
----------
Medical Supply &
Specialty 1.4% 155,000 Becton, Dickinson & Co. ...................................... 7,846,875
----------
Pharmaceuticals 8.9% 70,000 American Home Products Corp. ................................. 5,355,000
90,000 Johnson & Johnson ............................................ 5,793,750
50,000 Merck & Co. Inc. ............................................. 5,175,000
101,000 Novartis AG (ADR) ............................................ 8,092,625
68,600 Pfizer, Inc. ................................................. 8,197,700
94,000 Schering-Plough Corp. ........................................ 4,500,250
104,500 Warner-Lambert Co. ........................................... 12,984,124
==========
50,098,449
----------
Financial 19.9%
Banks 4.7% 175,200 BankAmerica Corp. ............................................ 11,311,350
90,000 Citicorp ..................................................... 10,850,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40,000 J.P. Morgan & Co., Inc. ...................................... 4,175,000
----------
26,336,975
----------
Insurance 7.8% 90,000 American International Group, Inc. ........................... 13,443,750
110,000 Conseco Inc. ................................................. 4,070,000
278,400 EXEL, Ltd. (ADR) ............................................. 14,685,600
170,000 Hartford Life, Inc. "A" ...................................... 6,375,000
48,000 MBIA Inc. .................................................... 5,415,000
----------
43,989,350
----------
Consumer Finance 1.5% 152,100 Associates First Capital Corp. ............................... 8,441,550
----------
Other Financial
Companies 5.9% 212,500 American Express Credit Corp. ................................ 15,831,250
204,000 Federal National Mortgage Association ........................ 8,899,500
140,000 Travelers Group, Inc. ........................................ 8,828,750
----------
33,559,500
----------
Media 2.0%
Advertising 1.1% 102,500 Omnicom Group, Inc. .......................................... 6,316,563
----------
Cable Television 0.9% 210,000 Tele-Comm Liberty Media Group "A" ............................ 4,987,500
----------
Service Industries 4.6%
Investment 3.4% 148,950 Franklin Resources Inc. ...................................... 10,808,184
140,400 Merrill Lynch & Co., Inc. .................................... 8,371,350
----------
19,179,534
----------
Miscellaneous
Commercial Services 1.2% 148,000 Manpower, Inc. ............................................... 6,586,000
----------
Durables 3.4%
Aerospace 2.8% 110,000 Rockwell International Corp. (New) ........................... 6,490,000
115,000 United Technologies Corp. .................................... 9,545,000
----------
16,035,000
----------
Telecommunications
Equipment 0.6% 83,000 Ascend Communications, Inc.* ................................. 3,268,125
----------
Manufacturing 12.8%
Chemicals 3.4% 130,000 E.I. du Pont de Nemours & Co. ................................ 8,173,750
103,900 Praxair Inc. ................................................. 5,818,400
150,000 Sigma-Aldrich Corp. .......................................... 5,259,375
----------
19,251,525
----------
Diversified
Manufacturing 4.5% 150,000 Dresser Industries Inc. ...................................... 5,587,500
71,200 General Electric Co. ......................................... 4,654,700
120,000 TRW Inc. ..................................................... 6,817,500
130,000 Textron, Inc. ................................................ 8,628,750
----------
25,688,450
----------
Electrical Products 1.8% 37,500 ABB AB (ADR) ................................................. 5,235,938
90,000 Emerson Electric Co. ......................................... 4,955,625
----------
10,191,563
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Machinery/Components/
Controls 3.1% 100,000 Ingersoll-Rand Co. ........................................... 6,175,000
186,000 Parker-Hannifin Group ........................................ 11,287,875
-----------
17,462,875
-----------
Technology 15.9%
Diverse Electronic
Products 5.8% 150,000 Applied Materials, Inc.* ..................................... 10,621,875
180,000 General Motors Corp. "H" ..................................... 10,395,000
110,000 KLA Instruments Corp.* ....................................... 5,362,500
160,000 Teradyne Inc.* ............................................... 6,280,000
-----------
32,659,375
-----------
Electronic Data
Processing 7.3% 146,000 Compaq Computer Corp.* ....................................... 14,490,500
150,500 Hewlett-Packard Co. .......................................... 8,428,000
80,000 International Business Machines Corp. ........................ 7,215,000
305,000 Sun Microsystems, Inc. ....................................... 11,351,719
-----------
41,485,219
-----------
Office/Plant
Automation 0.6% 53,400 Cisco Systems, Inc.* ......................................... 3,584,475
-----------
Semiconductors 2.2% 88,500 Intel Corp. .................................................. 12,550,406
-----------
Energy 10.4%
Oil Companies 8.5% 63,100 Amoco Corp. .................................................. 5,485,756
100,000 Atlantic Richfield Co. ....................................... 7,050,000
155,200 Exxon Corp. .................................................. 9,544,800
89,200 Mobil Corp. .................................................. 6,232,850
125,000 Repsol SA (ADR) .............................................. 5,304,688
260,000 Royal Dutch Petroleum Co. (New) .............................. 14,137,500
-----------
47,755,594
-----------
Oil/Gas Transmission 1.3% 110,000 Enron Corp. .................................................. 4,489,375
65,000 Williams Cos., Inc. .......................................... 2,843,750
-----------
7,333,125
-----------
Oilfield Services/
Equipment 0.6% 100,000 Santa Fe International Corp. ................................. 3,400,000
-----------
Transportation 1.0%
Airlines 60,000 AMR Corp.* ................................................... 5,550,000
-----------
Utilities 0.4%
Electric Utilities 50,000 Eastern Utilities Association ................................ 912,500
60,000 Unicom Corp. ................................................. 1,335,000
-----------
2,247,500
-----------
Total Common Stocks (Cost $389,896,128) ...................... 546,191,266
===========
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $408,802,128) (a) ..................................... 565,097,266
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Non-income producing security.
(a) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $408,830,055 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ........................................ $159,939,073
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value .............................................. 3,671,862
------------
Net unrealized appreciation $156,267,211
============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1997, aggregated
$121,126,028 and $105,859,678, respectively.
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $408,802,128) .......... $ 565,097,266
Cash ........................................................... 1,778
Foreign currency at value (cost $146) .......................... 123
Receivables:
Investments sold ............................................ 1,555,448
Dividends and interest ...................................... 308,313
Other assets ................................................ 7,764
-------------
Total assets ............................................. 566,970,692
Liabilities
Payables:
Accrued management fee ...................................... $ 218,403
Other payables and accrued expenses ......................... 63,143
------------
Total liabilities ........................................ 281,546
-------------
Net assets, at market value .................................... $ 566,689,146
=============
Net Assets
Net assets consist of:
Undistributed net investment income ......................... $ 1,310,663
Net unrealized appreciation (depreciation) on:
Investments .............................................. 156,295,138
Foreign currency related transactions .................... (23)
Accumulated net realized gain ............................... 20,015,376
Paid-in capital ............................................. 389,067,992
-------------
Net assets, at market value .................................... $ 566,689,146
=============
Class A
Net asset value, offering and redemption price per share
($566,569,401 / 29,934,111 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) ................................................. $18.93
======
Class B
Net asset value, offering and redemption price per share
($119,745 / 6,327 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) ................................................. $18.93
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $66,768) .............. $ 3,472,568
Interest .......................................................... 364,193
------------
3,836,761
Expenses:
Management fee .................................................... $ 1,170,977
Accounting fees ................................................... 39,638
Trustees' fees .................................................... 9,892
Distribution fees ................................................. 20
Custodian fees .................................................... 27,622
Auditing .......................................................... 18,475
Legal ............................................................. 4,966
Registration fees ................................................. 7,149
Other ............................................................. 13,440 1,292,179
---------- ------------
Net investment income ................................................ 2,544,582
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ....................................................... 20,207,383
Foreign currency related transactions ............................. (2,209) 20,205,174
----------
Net unrealized appreciation (depreciation) during the period on:
Investments ....................................................... 84,683,851
Foreign currency related transactions ............................. (70) 84,683,781
---------- ------------
Net gain on investment transactions .................................. 104,888,955
------------
Net increase in net assets resulting from operations .................... $107,433,537
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (unaudited) 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 2,544,582 $ 4,993,004
Net realized gain from investment transactions ................. 20,205,174 33,857,212
Net unrealized appreciation on investment
transactions during the period .............................. 84,683,781 33,028,817
------------- -------------
Net increase in net assets resulting from operations .............. 107,433,537 71,879,033
------------- -------------
Distributions to shareholders from:
Net investment income (Class A) ................................ (2,799,908) (4,669,020)
------------- -------------
Net realized gain from investment transactions (Class A) ....... (33,950,004) (28,547,850)
------------- -------------
Portfolio share transactions:
Class A
Proceeds from shares sold ...................................... 79,508,396 176,019,020
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 36,749,912 33,216,870
Cost of shares redeemed ........................................ (60,847,857) (145,085,225)
------------- -------------
Net increase in net assets from Portfolio share transactions ...... 55,410,451 64,150,665
------------- -------------
Class B*
Proceeds from shares sold ...................................... 113,878 --
Cost of shares redeemed ........................................ (116) --
------------- -------------
Net increase in net assets from Portfolio share transactions ...... 113,762 --
------------- -------------
Increase in net assets ............................................ 126,207,838 102,812,828
Net assets at beginning of period ................................. 440,481,308 337,668,480
------------- -------------
Net assets at end of period (including undistributed net
investment income of $1,310,663 and $1,565,989, respectively) .. $ 566,689,146 $ 440,481,308
============= =============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ......................... 26,691,077 22,392,030
------------- -------------
Shares sold .................................................... 4,651,527 11,627,337
Shares issued to shareholders in reinvestment of distributions . 2,199,908 2,233,815
Shares redeemed ................................................ (3,608,401) (9,562,105)
------------- -------------
Net increase in Portfolio shares ............................... 3,243,034 4,299,047
------------- -------------
Shares outstanding at end of period ............................... 29,934,111 26,691,077
============= =============
Class B*
Shares outstanding at beginning of period ......................... -- --
------------- -------------
Shares sold .................................................... 6,333 --
Shares redeemed ................................................ (6) --
------------- -------------
Net increase in Portfolio shares ............................... 6,327 --
------------- -------------
Shares outstanding at end of period ............................... 6,327 --
============= =============
</TABLE>
*For the period May 13, 1997 (commencement of sale of Class B shares) to June
30, 1997.
The accompanying notes are an integral part of the financial statements.
53
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A (c) Six Months
- ----------------- Ended June 30, Years Ended December 31,
1997 ---------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........... $16.50 $15.08 $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) ..... .09 .19 .14 .06 .06 .11 .16 .25 .35 .16 .15
Net realized and unrealized
gain (loss) on investment
transactions ................. 3.68 2.68 3.25 (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................... 3.77 2.87 3.39 (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income ......... (.10) (.19) (.11) (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09)
Net realized gains on
investment transactions ...... (1.24) (1.26) (.43) (1.31) (.27) (.23) -- (.23) -- -- (.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ............. (1.34) (1.45) (.54) (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ................. $18.93 $16.50 $15.08 $12.23 $14.95 $12.71 $12.28 $8.99 $10.21 $ 8.53 $ 7.06
====== ====== ====== ====== ====== ====== ====== ===== ====== ====== ======
Total Return (%) ................ 24.02** 20.13 28.65 (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 567 440 338 257 257 167 108 45 45 17 10
Ratio of operating expenses,
net to average net
assets (%) .................... .53* .53 .57 .58 .60 .63 .71 .72 .75 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... .53* .53 .57 .58 .60 .63 .71 .72 .85 1.11 1.24
Ratio of net investment income
to average net assets (%) ..... 1.04* 1.27 1.06 .47 .46 .95 1.49 2.71 3.51 2.17 1.68
Portfolio turnover rate (%) ..... 44.29* 65.56 119.41 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34
Average commission
rate paid (b) ................. $.0554 $.0585 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
(c) On May 13, 1997 existing shares were designated as Class "A" shares.
* Annualized
** Not Annualized
54
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Class B May 13, 1997
- ----------------- (commencement
sale of Class B shares)
to June 30,
1997
------
<S> <C>
Net asset value, beginning of period ................................. $17.45
------
Income from investment operations:
Net investment income (a) .......................................... .01
Net realized and unrealized gain on investment transactions ........ 1.47
------
Total from investment operations ..................................... 1.48
------
Net asset value, end of period ....................................... $18.93
======
Total Return (%) ..................................................... 8.48**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................... .12
Ratio of operating expenses, net to average net assets (%) ........... .76*
Ratio of net investment income to average net assets (%) ............. .47*
Portfolio turnover rate (%) .......................................... 44.29*
Average commission rate paid ......................................... $.0554
</TABLE>
(a) Based on average shares outstanding during the period.
* Annualized
** Not Annualized
55
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount (b) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
11.7% REPURCHASE AGREEMENT
-------------------------------------------------------------------------------------------
2,253,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $2,253,369
on 7/1/97 collateralized by a $2,279,000 U.S. Treasury
Note, 4.75%, 9/30/98 (Cost $2,253,000) .......................... 2,253,000
-----------
-------------------------------------------------------------------------------------------
88.3% COMMON STOCKS
-------------------------------------------------------------------------------------------
Shares
-------------------------------------------------------------------------------------------
Argentina 0.6%
48,300 Dalmine Siderca (Steel producer) ................................. 125,116
-----------
Austria 0.5%
1,000 VAE Eisenbahnsysteme AG (Manufacturer of electronic
railroad control systems) ....................................... 98,911
-----------
Brazil 1.1%
13,000,000 Banco Bradesco S.A. (pfd.) (Commercial bank) ..................... 131,014
1,500,000 Lojas Renner S.A. (pfd.) (Specialty retailer of apparel,
cosmetics, electronics, household appliances and
furniture) ...................................................... 76,909
-----------
207,923
-----------
Canada 0.4%
19,000 Canadian 88 Energy Corp. (Oil and natural gas exploration
and production) ................................................. 77,048
-----------
Czech Republic 1.6%
11,900 Central European Media Enterprises Ltd. "A"* (Owner and
operator of national and regional private commercial
television stations in central Europe and Germany) .............. 309,400
-----------
Finland 0.5%
2,300 Orion-yhtyma Oy "B" (Developer and producer of
pharmaceuticals, bulk drug substances and other
health care products) ........................................... 87,168
-----------
France 2.2%
2,700 Dassault Systemes SA* (Computer aided design,
manufacturing and engineering software products) ................ 191,587
635 Essilor International (Manufacturer of various types of
lenses, eyeglasses, contact lenses and optical measuring
instruments) .................................................... 171,265
7,300 Group AB SA (ADR)* (Producer and distributor of television
programming) .................................................... 62,050
-----------
424,902
-----------
Germany 7.2%
1,800 Fresenius AG (pfd.) (Manufacturer and distributor of
pharmaceutical and medical systems products) .................... 408,692
2,860 Marschollek Lautenschlaeger und Partner AG (pfd.)
(Leading independent life insurance company) .................... 680,523
2,300 Moebel Walther AG (pfd.) (Furniture retailer) 134,511
5,200 Pfeifer Vacuum Technology AG (Manufacturer of various
pumps and vacuum systems) ....................................... 151,450
-----------
1,375,176
-----------
Hungary 0.9%
2,000 Richter Gedeon Rt (Pharmaceutical company) ....................... 183,000
-----------
Ireland 5.1%
42,600 Bank of Ireland PLC (Bank) ....................................... 467,599
8,800 Irish Continental Group PLC (Transport of passengers,
freight and containers between Ireland, the U.K. and the
continent) ...................................................... 99,924
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
37,700 Irish Life PLC (Provider of life and disability insurance and
pensions) ....................................................... 194,065
8,600 Irish Permanent PLC (Retail financial services group) ............ 80,075
24,100 Jury's Hotel Group PLC (Hotel operator) .......................... 133,179
-----------
974,842
-----------
Italy 3.6%
30,000 Bulgari SpA (Manufacturer and retailer of fine jewelry,
luxury watches and perfumes) .................................... 169,775
3,400 Gucci Group (New York Shares) (Designer and producer of
personal luxury accessories and apparel) ........................ 218,875
10,300 Saes Getters SpA di Risparmio (Manufacturer of getters,
refined chemicals used in cathode ray tubes and other
monitors) ....................................................... 99,280
39,500 Saipem SpA (International contractor in oil and gas
exploration and drilling, construction of refineries and
pipelines) ...................................................... 202,159
-----------
690,089
-----------
Japan 6.9%
9,000 Albis Co Limited (Food wholesaler) ............................... 78,527
4,000 Ariake Japan Co., Ltd. (Leading maker of natural
seasonings made from meat extracts) ............................. 152,866
6,000 Nippon Electric Glass Co., Ltd. (Leading producer of
cathode-ray tube glass) ......................................... 104,175
2,400 Riso Kagaku Corp. (Manufacturer of copying machines) ............. 196,841
6,300 Sagami Chain Co., Ltd. (Operator of noodle restaurant
chain) .......................................................... 98,395
1,500 Shohkoh Fund & Co., Ltd. (Finance company for small and
medium-sized firms) ............................................. 454,149
4,900 Square Co., Ltd. (Producer of software for video games) .......... 241,558
400 Sundrug Co., Ltd. (Operator of outlet drug store chain) .......... 8,725
-----------
1,335,236
-----------
Luxembourg 1.9%
7,500 Millicom International Cellular SA* (Developer and operator
of cellular telephone networks) ................................. 358,125
-----------
Malaysia 1.4%
30,000 Arab Malaysian Finance Bhd. (Foreign registered)
(Licensed finance company) ...................................... 64,184
53,000 Arab-Malaysian Corp. (Investment holding company with
interests in financial services, infrastructure and property) ... 197,385
-----------
261,569
-----------
Netherlands 2.1%
2,400 De Telegraaf Holding NV (Leading publisher of newspapers,
magazines and books) ............................................ 51,842
5,000 IHC Caland NV (Dredging and offshore services) ................... 273,320
1,600 Qiagen NV* (Biopharmaceutical company) ........................... 77,100
-----------
402,262
-----------
Portugal 3.1%
7,099 Jeronimo Martins SA (Food producer and retailer) ................. 495,950
591 Jeromino Martins SA Warrants* (expires 9/15/03) .................. 17,488
950 Telecel-Comunicacoes Pessoais, SA (Cellular
communication services) ......................................... 78,811
-----------
592,249
-----------
Singapore 0.3%
17,500 GP Batteries International, Ltd. (Manufacturer of batteries
and related products) ........................................... 52,144
-----------
Sweden 1.7%
8,500 Autoliv AB (Manufacturer of automobile safety bags) .............. 332,563
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Switzerland 1.5%
327 Phoenix Mecano AG (Bearer) (Manufacturer of housings
and components for computers) ................................... 170,161
100 Schindler Holdings AG (PC) (Leading elevator and escalator
manufacturer) ................................................... 124,957
-----------
295,118
-----------
United Kingdom 6.3%
21,900 Avis Europe PLC (Car rental services) ............................ 49,599
10,100 Brake Brothers PLC (Specialist supplier of frozen foods to
the catering industry) .......................................... 84,098
14,500 Expro International Group PLC (Provider of oilfield
services) ....................................................... 109,868
10,000 KBC Advanced Technologies PLC (Specialized engineering
support and consultant services for oil refiners) ............... 40,300
28,800 Provident Financial PLC (Personal finance group) ................. 268,580
35,400 Serco Group PLC (Facilities management company) .................. 412,662
26,500 Tibbett and Britten Group PLC (Transportation services for
manufacturing and retail industries) ............................ 240,511
-----------
1,205,618
-----------
United States 39.4%
4,700 Aptargroup, Inc. (Manufacturer of packaging equipment
components) ..................................................... 212,675
4,900 Axogen Ltd. Units* (Future development of therapeutic
products for treatment of neurological disorders) ............... 156,800
5,400 BE Aerospace* (Airline audio/video control systems) .............. 170,775
3,700 Barrett Resources Corp.* (Oil and gas exploration and
production) ..................................................... 110,769
10,300 Benton Oil & Gas Co.* (Oil and gas exploration,
development and production) ..................................... 154,500
12,700 Billing Information Concepts* (Billing and information
management services) ............................................ 442,913
7,900 CapMAC Holdings Inc (Provider of financial guaranty
insurance) ...................................................... 265,638
2,800 Cintas Corp. (Uniform rentals) ................................... 192,500
11,700 Consolidated Freightways Corp. (Less-than-truckload
shipping services) .............................................. 191,588
5,300 ContiFinancial Corp.* (Provider of financing for a broad
range of loans) ................................................. 193,450
10,000 Corporate Express, Inc. (Retailer of office supply products
through telephone ordering system, fax and electronic
datainterchange) ................................................ 144,375
9,100 CytoTherapeutics, Inc.* (Developer of therapeutic products
for treatment of certain chronic and disabling diseases) ........ 48,913
4,000 DuPont Photomasks, Inc. (Manufacturer of photomasks
used in semiconductor production) ............................... 216,000
6,400 Fiserv Inc.* (Data processing services) .......................... 285,600
5,800 HBO & Company, Inc. (Designer of computerized
information systems to the healthcare industry) ................. 399,475
1,000 Hertz Corp. (Leading car rental company) ......................... 6,000
1,800 IDX Systems Corp. (Provider of health care information
systems to physician groups and academic
medical centers) ................................................ 62,100
11,800 IGEN Inc.* (Producer of medical supplies) ........................ 88,500
4,700 Karrington Health, Inc.* (Owner and operator of private pay
assisted living residences) ..................................... 70,500
4,900 Matrix Pharmaceutical, Inc.* (Developer of site-specific
treatments for cancer and serious skin diseases) ................ 32,769
4,650 Midwest Express Holding, Inc.* (Operator of passenger
airline catering to business travelers) ......................... 127,294
10,400 Network Appliance, Inc.* (Designer and manufacturer of
network data storage devices) ................................... 395,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,800 Neurogen Corp.* (Developer of biopharmaceuticals for
treatment of psychiatric and neurological disorders) ............ 109,200
6,300 OccuSystems Inc.* (Provider of primary care physician
and case management services) ................................... 182,700
18,500 Octel Communications Corp.* (Manufacturer of voice
processing systems) ............................................. 433,594
7,900 Parametric Technology Corp.* (Mechanical design software
producer) ....................................................... 336,244
4,200 PHAMIS, Inc.* (Developer and installer of patient-centered
healthcare information systems) ................................. 103,950
3,400 R.P. Scherer Corp.* (Manufacturer of drug delivery
system) ......................................................... 175,525
5,300 Ribozyme Pharmaceuticals, Inc.* (Developer of human
therapeutics) ................................................... 46,375
13,000 Sitel Corp. (Nebraska based telemarketing company for
major credit-card and insurance companies) ...................... 268,125
5,800 Sola International, Inc. (Manufacturer of plastic eyeglass
lenses) ......................................................... 194,300
11,225 Sterling Commerce, Inc. (Producer of electronic data
interchange products and services) .............................. 369,022
5,800 Sterling Software Inc. (Computer software products) .............. 181,250
2,800 Suiza Foods Corp.* (Food distributor) ............................ 114,800
5,000 Tech Data Corp. (Distributor of microcomputers, hardware
and software) ................................................... 157,188
4,400 Tiffany & Co. (Retailer of jewelry and gift items) ............... 203,225
4,000 Total Renal Care Holdings, Inc.* (Dialysis services for
treatment of chronic kidney failure) ............................ 160,750
5,200 Triton Energy Ltd.* (Independent oil and gas exploration
and production company) ......................................... 238,225
1,000 Vincam Group Inc.* (Provider of solutions to complexities
and costs of employment and personnel) .......................... 37,250
8,350 Vitesse Semiconductor Corp. (Manufacturer of digital
integrated circuits) ............................................ 272,941
-----------
7,582,998
-----------
Total Common Stocks (Cost $14,786,524) ........................... 16,971,457
-----------
===================================================================================================================================
Total Investment Portfolio -- 100.0%
(Cost $17,039,524) (a) .......................................... 19,224,457
===========
===================================================================================================================================
<CAPTION>
<S> <C>
* Non-income producing security.
(a) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $17,077,795 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an
excess of market value over tax cost ........................................................................... $ 2,918,368
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ........................................................................... 771,706
------------
Net unrealized appreciation ..................................................................................... $ 2,146,662
============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term investments),
for the six months ended June 30, 1997, aggregated $5,431,109 and $5,776,539,
respectively.
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Forward Currency Exchange Contracts:
As of June 30, 1997, the Global Discovery Portfolio entered into the
following forward foreign currency exchange contracts resulting in net
unrealized appreciation of $28,425.
Net Unrealized
Appreciation/
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
----------------------------------- -------------------------------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C>
German Deutchmark 797,560 U.S. Dollars 469,982 8/12/97 11,265
Netherland Guilder 899,630 U.S. Dollars 471,010 8/12/97 11,312
Swiss Franc 190,000 U.S. Dollars 132,594 8/14/97 1,802
French Franc 1,057,000 U.S. Dollars 184,442 8/14/97 4,046
------
28,425
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (including repurchase agreements of $2,253,000)
(identified cost $17,039,524) ..................................... $ 19,224,457
Cash .................................................................. 692
Net receivable on closed forward currency exchange contracts .......... 7,515
Unrealized appreciation on forward currency exchange contracts ........ 28,425
Receivables:
Investments sold ................................................... 124,511
Foreign taxes recoverable .......................................... 3,062
Dividends and interest ............................................. 14,575
--------------
Total assets .................................................... 19,403,237
Liabilities
Payables:
Investments purchased .............................................. $ 158,694
Other payables and accrued expenses ................................ 36,040
-----------
Total liabilities ............................................... 194,734
--------------
Net assets, at market value ........................................... $ 19,208,503
==============
Net Assets
Net assets consist of:
Accumulated net investment loss .................................... $ (30,959)
Net unrealized appreciation on:
Investments ..................................................... 2,184,933
Foreign currency related transactions ........................... 28,278
Accumulated net realized loss ...................................... (6,477)
Paid-in capital .................................................... 17,032,728
--------------
Net assets, at market value ........................................... $ 19,208,503
==============
Class A
Net asset value, offering and redemption price per share
($18,105,939 / 2,613,391 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ..... $6.93
=====
Class B
Net asset value, offering and redemption price per share
($1,102,564 / 159,100 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ..... $6.93
=====
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $9,165) ............. $ 75,840
Interest ........................................................ 33,577
------------
109,417
Expenses:
Management fee .................................................. $ 83,748
Trustees' fees .................................................. 9,359
Accounting fees ................................................. 27,750
Distribution fees ............................................... 50
Custodian fees .................................................. 26,014
Auditing ........................................................ 4,155
Legal ........................................................... 1,365
Other ........................................................... 5,962
------------
Total expenses before reductions ................................ 158,403
Expense reductions .............................................. 29,509
------------
Expenses, net ...................................................... 128,894
------------
Net investment loss ................................................ (19,477)
------------
Net realized and unrealized gain on investment transactions
Net realized gain (loss) from:
Investments ..................................................... (53,422)
Foreign currency related transactions ........................... 93,936 40,514
------------
Net unrealized appreciation during the period on:
Investments ..................................................... 1,524,812
Foreign currency related transactions ........................... 11,611 1,536,423
------------ ------------
Net gain on investment transactions ................................ 1,576,937
------------
Net increase in net assets resulting from operations .................. $ 1,557,460
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
May 1, 1996
Six Months (commence-
Ended ment of
June 30, operations) to
Increase (Decrease) in Net Assets 1997 December 31,
(unaudited) 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment loss ............................................... $ (19,477) $ (11,146)
Net realized gain from investment transactions .................... 40,514 36,987
Net unrealized appreciation on investment
transactions during the period ................................. 1,536,423 676,788
------------- ------------
Net increase in net assets resulting from operations ................. 1,557,460 702,629
------------- ------------
Distributions to shareholders from:
Net investment income (Class A) ................................... (56,210) --
------------- ------------
Net realized gains from investment transactions (Class A) ......... (28,105) --
------------- ------------
Portfolio share transactions:
Class A
Proceeds from shares sold ......................................... 4,294,824 18,871,561
Net asset value of shares issued to shareholders
in reinvestment of distributions ............................... 84,315 --
Cost of shares redeemed ........................................... (4,491,503) (2,817,526)
------------- ------------
Net increase (decrease) in net assets from Portfolio share
transactions ...................................................... (112,364) 16,054,035
------------- ------------
Class B*
Proceeds from shares sold ......................................... 1,092,196 --
Cost of shares redeemed ........................................... (1,738) --
------------- ------------
Net increase in net assets from Portfolio share transactions ......... 1,090,458 --
------------- ------------
Increase in net assets ............................................... 2,451,239 16,756,664
Net assets at beginning of period .................................... 16,757,264 600
------------- ------------
Net assets at end of period (including accumulated net investment
loss of $30,959 and undistributed net investment income of
$44,728) .......................................................... $ 19,208,503 $ 16,757,264
============= ============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ......................... 2,647,089 100
------------- ------------
Shares sold ....................................................... 667,603 3,107,414
Shares issued to shareholders in reinvestment of distributions .... 13,469 --
Shares redeemed ................................................... (714,770) (460,425)
------------- ------------
Net increase (decrease) in Portfolio shares ....................... (33,698) 2,646,989
------------- ------------
Shares outstanding at end of period .................................. 2,613,391 2,647,089
============= ============
Class B*
Shares outstanding at beginning of period ......................... -- --
------------- ------------
Shares sold ....................................................... 159,354 --
------------- ------------
Shares redeemed ................................................... (254) --
------------- ------------
Net increase in Portfolio shares .................................. 159,100 --
------------- ------------
Shares outstanding at end of period .................................. 159,100 --
============= ============
</TABLE>
* For the period May 5, 1997 (commencement of sale of Class B shares) to June
30, 1997.
The accompanying notes are an integral part of the financial statements.
63
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Class A Six Months May 1, 1996
- ----------------- Ended (commencement
June 30, of operations)
1997(d) to December 31,
(Unaudited) 1996
-------------- ---------------
<S> <C> <C>
Net asset value, beginning of period ................................................ $ 6.33 $ 6.00(c)
------- ------
Income from investment operations:
Net investment loss (a) ........................................................... (.01) (.01)
Net realized and unrealized gain on investment transactions ....................... .64 .34
------- ------
Total from investment operations .................................................... .63 .33
------- ------
Less distributions from:
Net investment income ............................................................. (.02) --
Net realized gains on investment transactions ..................................... (.01) --
------- ------
Total distributions ................................................................. (.03) --
------- ------
Net asset value, end of period ...................................................... $ 6.93 $ 6.33
======= ======
Total Return (%) (e) ................................................................ 10.00** 5.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................................. 18 17
Ratio of operating expenses, net to average net assets (%) .......................... 1.50* 1.50*
Ratio of operating expenses before expense reductions, to average daily
net assets (%) .................................................................... 1.84* 2.32*
Ratio of net investment loss to average net assets (%) .............................. (.23)* (.13)*
Portfolio turnover rate (%) ......................................................... 67.53* 50.31*
Average commission rate paid (b) .................................................... $.0344 $.0029
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks.
(c) Original capital
(d) On May 5, 1997 existing shares were designated as Class "A" shares.
(e) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not Annualized
64
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Class B May 5, 1997
- ----------------- (commencement of
sale of Class B shares
to June 30,
1997
--------
<S> <C>
Net asset value, beginning of period ............................................... $ 6.32
------
Income from investment operations:
Net investment loss (a) .......................................................... (.00)
Net realized and unrealized gain on investment transactions ...................... .61
------
Total from investment operations ................................................... .61
------
Net asset value, end of period ..................................................... $ 6.93
======
Total Return (%) (c) ............................................................... 9.65**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................. 1
Ratio of operating expenses, net to average net assets (%) ......................... 1.75*
Ratio of operating expenses, before reductions, to average daily net assets (%) .... 2.21*
Ratio of net investment loss to average net assets (%) ............................. (.10)*
Portfolio turnover rate (%) ........................................................ 67.53*
Average commission rate paid (b) ................................................... $.0344
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks.
(c) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not Annualized
65
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
6.5% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
U.S.$ 57,063,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/30/97 at 5.9%, to be repurchased
at $57,072,352 on 7/1/97, collateralized by a
$34,544,000 U.S. Treasury Note, 6.75%, 6/30/99 and
$22,276,000 U.S. Treasury Note, 5.75%, 9/30/97
(Cost $57,063,000) ...................................... 57,063,000
------------
------------------------------------------------------------------------------------
0.4% CONVERTIBLE BONDS
------------------------------------------------------------------------------------
Japan 0.4%
JPY 400,000,000 Softbank Corp., 0.5%, 3/29/02 ............................ 3,612,250
------------
Malaysia 0.0%
MYR 420,000 Renong Berhad ICUL, 4%, 5/21/01 (Holding company
involved in engineering and construction, financial
services, telecommunications and information
technology) ............................................. 130,838
------------
Total Convertible Bonds (Cost $4,152,237) ................ 3,743,088
------------
------------------------------------------------------------------------------------
93.1% COMMON STOCKS
------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------
Argentina 0.6% 170,000 YPF S.A. "D" (Sponsored ADR) (Petroleum company) ....... 5,227,500
------------
Brazil 7.6% 18,978,870 Centrais Eletricas Brasileiras S.A. "B" (pfd.)
(Electric utility) .................................... 11,335,142
5,086,206 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) ............................. 3,873,945
237,000,000 Companhia Energetica de Minas Gerais (pfd.) (Electric
power utility) ........................................ 12,217,630
219,880 Companhia Vale do Rio Doce (pfd.) (Diverse mining and
industrial complex) ................................... 4,911,865
30,000,000 Petroleo Brasileiro S.A. (pfd.) (Petroleum company) .... 8,332,064
119,560,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) .......................... 18,135,007
748,000 Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Steel
manufacturer) ......................................... 8,330,411
------------
67,136,064
------------
Canada 1.8% 206,500 Canadian National Railway (Major railroad operator) .... 9,001,991
255,411 Canadian Pacific Ltd. (Transportation and natural
resources) ............................................ 7,268,646
------------
16,270,637
------------
China 0.5% 191,837 Guangshen Railway Co. Ltd. (ADR)* (Operator of only
railroad in the Pearl River delta) .................... 4,196,434
------------
Finland 1.6% 116,000 Nokia AB Oy "A" (Leading manufacturer of
telecommunications equipment and cellular
telephones) ........................................... 8,665,235
192,000 Pohjola Insurance Co., Ltd. "B" (Insurance company) .... 5,694,093
------------
14,359,328
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
France 9.3% 78,857 AXA S.A. (Insurance group providing insurance,
finance and real estate services) ..................... 4,904,493
84,402 Alcatel Alsthom (Manufacturer of transportation,
telecommunication and energy equipment) ............... 10,570,537
13,950 Carrefour (Hypermarket operator and food retailer) ..... 10,131,298
57,453 Compagnie Financiere de Paribas* (Finance and
investment company) ................................... 3,969,220
48,000 Compagnie Generale des Eaux (Water utility) ............ 6,150,391
48,000 Compagnie Generale des Eaux Warrants*
(Expires 5/2/01) ...................................... 28,751
55,000 Lafarge S.A. (Producer of cement, concrete and
aggregates) ........................................... 3,420,712
128,898 Michelin "B" (Leading tire manufacturer) ............... 7,740,416
13,128 Pinault-Printemps, S.A. (Distributor of consumer goods) 6,308,553
192,853 Rhone-Poulenc S.A. "A" (Medical, agricultural and
consumer chemicals) ................................... 7,875,971
132,055 Schneider S.A. (Manufacturer of electronic components
and automated manufacturing systems) .................. 7,028,911
74,425 Total S.A. "B" (International oil and gas exploration,
development and production) ........................... 7,522,666
97,609 Valeo S.A. (Automobile and truck components
manufacturer) ......................................... 6,062,464
------------
81,714,383
------------
Germany 12.7% 214,000 BASF AG (Leading international chemical producer) ...... 7,907,975
190,000 Bayer AG (Leading chemical producer) ................... 7,301,072
278,800 Bayerische Vereinsbank AG (Commercial bank) ............ 11,397,535
393,400 Commerzbank AG (Worldwide multi-service bank) .......... 11,142,687
101,000 Daimler-Benz AG (Automobile and truck manufacturer) .... 8,194,198
257,000 Hoechst AG (Chemical producer) ......................... 10,901,244
20,360 Mannesmann AG (Bearer) (Diversified construction and
technology company) ................................... 9,070,420
185,000 RWE AG (pfd.) (Producer and marketer of petroleum and
chemical products) .................................... 6,438,564
22,500 SAP AG (pfd.) (Computer software manufacturer) ......... 4,670,030
69,000 Schering AG (Pharmaceutical and chemical producer) ..... 7,372,370
112,000 Siemens AG (Leading electrical engineering and
electronics company) .................................. 6,649,619
171,200 VEBA AG (Electric utility, distributor of oil and
chemicals) ............................................ 9,619,632
15,000 Volkswagen AG (Leading automobile manufacturer) ........ 11,498,767
------------
112,164,113
------------
Hong Kong 4.3% 4,341,545 First Pacific Co., Ltd. (International management and
investment company) ................................... 5,547,906
1,197,000 Great Eagle Holdings Ltd. (Property development) ....... 3,947,614
221,198 HSBC Holdings Ltd. (Bank) .............................. 6,652,528
938 Hong Kong & China Gas Co., Ltd. (Gas utility) .......... 1,877
1,182,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company) ....................................... 10,260,284
2,013,000 Kerry Properties Ltd.* (Real estate company) ........... 4,884,850
1,510,000 Television Broadcasts, Ltd. (Television broadcasting) .. 6,782,750
------------
38,077,809
------------
Indonesia 0.3% 21,100 Asia Pacific Resources International Holdings Ltd.*
(Manufacturer of rayon fiber for Asian textile markets,
owner of world's leading paper pulp mill) ............. 102,863
1,708,800 Indah Kiat Pulp & Paper (Foreign registered) (Producer
of pulp and paper) .................................... 1,001,250
1,537,920 Indah Kiat Pulp & Paper Rights*(a) ..................... 316,536
</TABLE>
The accompanying notes are an integral part of the financial statements.
67
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
400,000 Indocement Tunggal Prakarsa Foreign Registered
(Multi-business group with three major divisions namely
cement, food and property) ............................ 620,888
924,570 Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper
factory) .............................................. 1,073,976
------------
3,115,513
------------
Italy 1.7% 65,000 Luxottica Group SpA (ADR) (Manufacturer and
marketer of eyeglasses) ............................... 4,407,813
3,310,000 Telecom Italia Mobile SpA (Cellular telecommunication
services) ............................................. 10,709,454
------------
15,117,267
------------
Japan 15.0% 112,000 Advantest Corp. (Producer of measuring instruments
and semiconductor testing devices) .................... 8,599,599
330,000 Bridgestone Corp. (Leading automobile tire
manufacturer) ......................................... 7,659,018
358,000 Canon Inc. (Leading producer of visual image and
information equipment) ................................ 9,745,746
640 DDI Corp. (Long distance telephone and cellular
operator) ............................................. 4,724,195
740,000 Fujitsu Ltd. (Leading manufacturer of computers) ....... 10,266,120
190,000 Hitachi Construction Machinery Co., Ltd. (Leading
maker of hydraulic shovels) ........................... 1,840,154
917,000 Hitachi Ltd. (General electronics manufacturer) ........ 10,241,340
125,000 Jusco Co., Ltd. (Major supermarket operator) ........... 4,220,836
58,300 Keyence Corp. (Specialized manufacturer of sensors) .... 8,647,587
115,000 Kokuyo (Leading manufacturer of paper stationery) ...... 3,110,549
520,000 Matsushita Electric Industrial Co., Ltd. (Leading
manufacturer of consumer electronic products) ......... 10,480,761
280,000 Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment) ............ 3,175,988
47,000 Nichiei Co., Ltd. (Finance company for small and
medium-sized firms) ................................... 5,454,149
200,000 Pioneer Electronics Corp. (Leading manufacturer of
audio equipment) ...................................... 4,851,235
390,000 Ricoh Co., Ltd. (Leading maker of copiers and
information equipment) ................................ 5,104,267
72,000 Secom Co., Ltd. (Electronic security system operator) .. 5,283,309
521,000 Shiseido Co., Ltd. (Leading cosmetic producer) ......... 8,591,659
93,000 Sony Corp. (Consumer electronic products
manufacturer) ......................................... 8,106,361
1,710,000 Sumitomo Metal Industries, Ltd. (Leading integrated
crude steel producer) ................................. 4,863,973
165,000 Tokyo Electron Ltd. (Leading semiconductor production
equipment manufacturer) ............................... 7,889,364
------------
132,856,210
------------
Korea 0.4% 7,870 Pohang Iron & Steel Co., Ltd. (Leading steel
producer) (b) ......................................... 800,400
93,400 Pohang Iron & Steel Co., Ltd. (ADR) (Leading steel
producer) ............................................. 2,988,800
2 Samsung Electronics Co., Ltd. (Major electronics
manufacturer) ......................................... 116
1 Samsung Electronics Co., Ltd. (Non-voting GDS) ......... 27
------------
3,789,343
------------
Malaysia 1.4% 540,000 Arab-Malaysian Corp. (Investment holding company with
interests in financial services, infrastructure and
property) ............................................. 2,011,094
275,000 Malayan Banking Berhad (Leading banking and
financial services group) ............................. 2,887,282
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
723,000 Malaysian Airline System Berhad (Air transportation and
related services) ..................................... 1,804,636
2,100,000 Renong Berhad (Holding company involved in
engineering, construction, financial services, tele-
communication and information technology) ............. 2,745,642
400,000 United Engineers (Malaysia) Bhd. (Leading
comprehensive contractor) ............................. 2,884,311
------------
12,332,965
------------
Mexico 0.8% 155,000 Telefonos de Mexico S.A. de C.V. "L" (ADR)
(Telecommunication services) .......................... 7,401,250
------------
Netherlands 5.3% 130,000 AEGON Insurance Group NV (Insurance company) ........... 9,073,310
24,000 Akzo-Nobel NV (Chemical producer) ...................... 3,289,011
204,870 Elsevier NV (International publisher of scientific,
professional, business, and consumer information
books) ................................................ 3,423,372
186,304 Getronics NV (Provider of computer installation and
maintenance services) ................................. 6,017,461
43,750 Heineken Holdings NV "A" (Brewery) ..................... 6,797,977
204,800 Philips Electronics NV (Leading manufacturer of
electrical equipment) ................................. 14,669,560
26,935 Wolters Kluwer CVA (Publisher) ......................... 3,279,569
------------
46,550,260
------------
Norway 0.6% 271,889 Saga Petroleum AS "A" (Oil and gas exploration and
production) ........................................... 5,156,439
------------
Philippines 1.3% 675,000 Ayala Land, Inc. "B" (Real estate and land developer) .. 620,593
9,312,000 C & P Homes, Inc. (Home construction company) .......... 3,495,177
929,483 Manila Electric Co. "B" (Electric utility) ............. 4,581,164
129,047 Metropolitan Bank and Trust Company (Commercial
bank and trust company) ............................... 2,739,851
------------
11,436,785
------------
Portugal 1.9% 60,384 Jeronimo Martins S.A. (Food producer and retailer) ..... 4,218,542
301,000 Portugal Telecom S.A. (Telecommunication services) ..... 12,143,304
------------
16,361,846
------------
Spain 2.5% 60,440 Acerinox, S.A. (Stainless steel producer) .............. 11,325,065
363,400 Compania Telefonica Nacional de Espana S.A.
(Telecommunication services) .......................... 10,506,169
------------
21,831,234
------------
Sweden 4.5% 254,000 AGA AB "B" (Free) (Producer and distributor of
industrial and medical gases) ......................... 3,382,070
202,000 Autoliv AB (Manufacturer of automobile safety bags) .... 7,903,250
256,400 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment) ......... 10,095,750
144,000 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) . 3,723,095
398,000 Skandia Foersaekrings AB (Free) (Financial
conglomerate) ......................................... 14,663,564
------------
39,767,729
------------
Switzerland 7.6% 8,180 ABB AG (Bearer) (Manufacturer of electrical equipment) . 12,377,816
5 ABB AG (Registered) .................................... 1,472
43,039 Ciba Specialty Chemical (Registered) (Manufacturer of
chemical products for plastics, coatings, fibers and
fabrics) .............................................. 3,978,271
12,671 Clariant AG (Registered) (Manufacturer of color
chemicals) ............................................ 8,198,627
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
60,000 Credit Suisse Group (Registered) (Provider of bank
services, management services and life insurance) ..... 7,702,841
9,500 Holderbank Financiere Glaris AG (Bearer) (Cement
producer) ............................................. 8,969,872
5,013 Novartis AG (Bearer) (Pharmaceutical company) .......... 8,004,325
6,300 Novartis AG (Registered) ............................... 10,067,922
872 Roche Holdings AG (PC) (Producer of drugs and
medicines) ............................................ 7,884,122
------------
67,185,268
------------
United Kingdom 11.3% 1,695,000 Avis Europe PLC (Car rental services) .................. 3,838,852
426,774 BOC Group PLC (Producer of industrial gases) ........... 7,416,230
633,679 British Petroleum PLC (Major integrated world oil
company) .............................................. 7,882,840
890,000 Carlton Communications PLC (Television post
production products and services) ..................... 7,536,570
1,100,000 General Electric Co., PLC (Manufacturer of power,
communications and defense equipment and other
various electrical components) ........................ 6,576,274
375,636 Glaxo Wellcome PLC (Pharmaceutical company) ............ 7,772,422
575,000 Pearson PLC (Diversified media and entertainment
holding company) ...................................... 6,664,535
846,128 PowerGen PLC (Electric utility) ........................ 10,060,673
440,059 RTZ Corp., PLC4 (Mining and finance company) ........... 7,669,074
489,200 Reuters Holdings PLC (International news agency) ....... 5,156,831
620,046 SmithKline Beecham PLC (Manufacturer of ethical
drugs and healthcare products) ........................ 11,414,987
1,890,000 WPP Group PLC (Advertising agency) ..................... 7,726,914
300,000 Zeneca Group PLC (Holding company: manufacturing
and marketing of pharmaceutical and agrochemical
products and specialty chemicals) ..................... 9,921,864
------------
99,638,066
------------
Total Common Stocks (Cost $580,721,155) ................ 821,686,443
------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $641,936,392) (c) ............................... 882,492,531
============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) Security valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $316,536 (.04% of net assets). The
value has been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, the estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. There was no
cost allocated to the security at June 30, 1997. The security may also
have certain restrictions as to resale.
(b) Securities that have met the foreign-ownership limitation valued at a
premium in good faith by the Valuation Committee of the Board of Trustees.
The cost of the security at June 30, 1997 was $736,139. The aggregate
premium ($176,363) over the local share price ($624,037) for the security
valued by the Valuation Committee was approximately .02% of the
Portfolio's net assets at June 30, 1997.
(c) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $641,990,345 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of market value over tax cost ............................. $248,043,709
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over market value ............................. 7,541,523
------------
Net unrealized appreciation ............................... $240,502,186
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1997, aggregated
$167,571,279 and $104,178,357, respectively.
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $641,936,392) ...... $882,492,531
Foreign currency, at value, (cost $5,707,714) .............. 5,690,126
Receivables:
Foreign taxes recoverable ................................ 1,205,214
Dividends and interest ................................... 1,834,940
Other assets ............................................. 12,321
------------
Total assets ........................................... 891,235,132
Liabilities
Payables:
Investments purchased .................................... $8,449,985
Accrued management fee ................................... 579,228
Other payables and accrued expenses ...................... 387,345
----------
Total liabilities ...................................... 9,416,558
------------
Net assets, at market value ................................ $881,818,574
============
Net Assets
Net assets consist of:
Undistributed net investment income ...................... $ 5,504,856
Net unrealized appreciation (depreciation) on:
Investments ............................................ 240,556,138
Foreign currency related transactions .................. (64,611)
Accumulated net realized loss ............................ (5,339,013)
Paid-in capital .......................................... 641,161,204
------------
Net assets, at market value ................................ $881,818,574
============
Class A
Net asset value, offering and redemption
price per share ($881,735,733 / 59,763,371
outstanding shares of beneficial interest, no
par value, unlimited number of shares authorized) ........ $14.75
======
Class B
Net asset value, offering and redemption
price per share ($82,841 / 5,618 outstanding
shares of beneficial interest, no par value,
unlimited number of shares authorized) ................... $14.75
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $686,095) .............. $ 8,654,288
Interest (net of foreign taxes withheld of $1,117) ................. 1,605,858
------------
10,260,146
Expenses:
Management fee ..................................................... $ 3,207,240
Custodian fees ..................................................... 383,576
Accounting fees .................................................... 204,847
Distribution fees .................................................. 17
Trustees' fees ..................................................... 9,608
Auditing ........................................................... 27,808
Registration fees .................................................. 16,601
Legal .............................................................. 19,720
Other .............................................................. 38,434 3,907,851
----------- ------------
Net investment income ................................................ 6,352,295
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ........................................................ (5,698,742)
Foreign currency related transactions .............................. (233,502) (5,922,244)
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ 105,770,462
Foreign currency related transactions .............................. (73,015) 105,697,447
----------- ------------
Net gain on investment transactions .................................. 99,775,203
------------
Net increase in net assets resulting from operations ................... $106,127,498
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 6,352,295 $ 6,138,762
Net realized gain (loss) from investment transactions .... (5,922,244) 28,242,210
Net unrealized appreciation on investment
transactions during the period ......................... 105,697,447 55,234,650
------------- -------------
Net increase in net assets resulting from operations ....... 106,127,498 89,615,622
------------- -------------
Distributions to shareholders from:
Net investment income (Class A) .......................... (11,550,387) (13,901,339)
------------- -------------
Net realized gain from investment transactions
(Class A) ............................................... (6,050,202) --
------------- -------------
Portfolio share transactions:
Class A
Proceeds from shares sold ................................ 149,031,567 250,971,681
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 17,600,589 13,901,339
Cost of shares redeemed .................................. (99,458,568) (162,751,269)
------------- -------------
Net increase in net assets from Portfolio share
transactions ............................................ 67,173,588 102,121,751
------------- -------------
Class B*
Proceeds from shares sold ................................ 79,624 --
Cost of shares redeemed .................................. (74) --
------------- -------------
Net increase in net assets from Portfolio share
transactions ............................................ 79,550 --
------------- -------------
Increase in net assets ..................................... 155,780,047 177,836,034
Net assets at beginning of period .......................... 726,038,527 548,202,493
------------- -------------
Net assets at end of period (including undistributed net
investment income of $5,504,856 and $10,702,948,
respectively) ............................................ $ 881,818,574 $ 726,038,527
============= =============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period .................. 54,809,210 46,398,169
------------- -------------
Shares sold .............................................. 10,949,269 20,288,490
Shares issued to shareholders in reinvestment of
distributions ........................................... 1,330,354 1,166,953
Shares redeemed .......................................... (7,325,462) (13,044,402)
------------- -------------
Net increase in Portfolio shares ......................... 4,954,161 8,411,041
------------- -------------
Shares outstanding at end of period ........................ 59,793,371 54,809,210
============= =============
Shares outstanding at beginning of period .................. -- --
------------- -------------
Shares sold .............................................. 5,623 --
Shares redeemed .......................................... (5) --
------------- -------------
Net increase in Portfolio shares ......................... 5,618 --
------------- -------------
Shares outstanding at end of period ........................ 5,618 --
============= =============
</TABLE>
* For the period May 9, 1997 (commencement of sale of Class B shares)
to June 30, 1997.
The accompanying notes are an integral part of the financial statements.
73
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A(e) Six Months
- --------------------------- Ended
June 30, Years Ended December 31,
1997(a) ----------------------------------------------------------------------------------
(Unaudited) 1996(a) 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988
--------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period .................... $13.25 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Income from investment
operations:
Net investment income ..... .11 .12 .11 .06 .09 .10 .12 .25 .10 .09
Net realized and unrealized
gain (loss) on investment
transactions ............. 1.71 1.60 1.07 (.15) 2.90 (.36) .77 (.89) 2.22(d) .79
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total from investment
operations .................. 1.82 1.72 1.18 (.09) 2.99 (.26) .89 (.64) 2.32 .88
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Less distributions:
From net investment
income ................... (.21) (.29) (.01) (.07) (.14) (.09) (.20) (.04) -- --
In excess of net
investment income ........ -- -- -- -- (.12) -- -- -- --
From net realized
gains on investment
transactions ............. (.11) -- (.04) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total distributions ......... (.32) (.29) (.05) (.07) (.26) (.09) (.20) (.04) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Net asset value, end
of period ................... $14.75 $13.25 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $6.14
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total Return (%) ............ 14.09** 14.78 11.11 (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ................ 882 726 548 472 238 65 41 35 17 3
Ratio of operating expenses,
net to average net assets
(%) ....................... 1.03* 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.50 1.50
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ................ 1.03* 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.80 4.15
Ratio of net investment
income to average
net assets (%) ............ 1.67* .95 .95 .57 .91 1.23 1.43 2.89 1.30 1.59
Portfolio turnover rate (%) . 29.21* 32.63 45.76 33.52 20.36 34.42 45.01 26.67 57.69 110.42
Average commission
rate paid (b) ............. $.0007 $.0002 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
<CAPTION>
For the Period
Class A(e) May 1, 1987
- ----------------------------- (commencement
of operations) to
December 31,
1987
-----------------
<S> <C>
Net asset value,
beginning of
period .................... $ 6.00(c)
-------
Income from investment
operations:
Net investment income ..... --
Net realized and unrealized
gain (loss) on investment
transactions ............. (.64)
-------
Total from investment
operations .................. (.64)
-------
Less distributions:
From net investment
income ................... --
In excess of net
investment income ........ --
From net realized
gains on investment
transactions ............. (.10)
-------
Total distributions ......... (.10)
-------
Net asset value, end
of period ................... $ 5.26
=======
Total Return (%) ............ (10.64)**
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ................ 2
Ratio of operating expenses,
net to average net assets
(%) ....................... 1.50*
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ................ 4.06*
Ratio of net investment
income to average
net assets (%) ............ .02*
Portfolio turnover rate (%) . 146.08*
Average commission
rate paid (b) ............. $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities is
calculated for fiscal years beginning on or after September 1, 1995.
(c) Original capital
(d) Includes provision for federal income tax of $.03 per share.
(e) On May 9, 1997 existing shares were designated as Class "A" shares.
* Annualized
** Not Annualized
74
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
May 9, 1997
(commencement of
Class B sale of Class B shares)
- ------------- to June 30,
1997
-----------
Net asset value, beginning of period ....................... $13.87
------
Income from investment operations:
Net investment income (a) ................................ .03
Net realized and unrealized gain on investment
transactions ............................................ .85
------
Total from investment operations ........................... .88
------
Net asset value, end of period ............................. $14.75
======
Total Return (%) ........................................... 6.35**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... .08
Ratio of operating expenses, net to average net assets (%) . 1.36*
Ratio of net investment income to average net assets (%) ... 2.41*
Portfolio turnover rate (%) ................................ 29.21*
Average commission rate paid (b) ........................... $.0007
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities.
* Annualized
** Not Annualized
75
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
A. Significant Accounting Policies
- --------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares are divided into seven separate diversified series, called
"Portfolios." The Portfolios are comprised of the Money Market Portfolio, Bond
Portfolio, Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio, Global Discovery Portfolio, and International Portfolio.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
June 30, 1997, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:
<TABLE>
<CAPTION>
Portfolios
-------------------------------------------------------------------
Growth Global
Participating Money and Capital Discov- Interna-
Insurance Companies Market Bond Balanced Income Growth ery tional
- ------------------------------------------ -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. ....... --% --% --% --% --% --% 46.6%
American Maturity Life Insurance Co. ..... 0.1 0.1 -- 0.1 -- -- --
Banner Life Insurance Co. ................ 1.1 2.2 6.8 5.3 2.1 6.7 0.6
Charter National Life Insurance Co. ...... 52.7 31.7 57.8 83.8 24.5 87.5 12.4
Fortis Benefits Insurance Co. ............ -- -- -- -- -- -- 0.6
Lincoln Benefit Life Co. ................. -- 4.6 7.5 -- -- -- --
Mutual of America Life Insurance Co. ..... -- 41.4 -- -- 57.0 -- 23.0
Paragon Life Insurance Co. ............... 0.2 0.2 0.5 0.1 0.2 -- 0.1
Providentmutual Life and
Annuity Co. of America ................... -- 10.0 -- 8.3 -- -- 1.1
Southwestern Life Insurance Co. .......... -- -- -- -- 1.4 -- --
Washington National Life
Insurance Co. ............................ 0.4 8.8 -- 1.4 5.6 -- --
Safeco Life Insurance Co. ................ -- -- 27.4 -- -- -- 4.0
Security First Life Insurance Co. ........ -- -- -- -- -- -- 0.5
Union Central Life Insurance Co. ......... 41.9 -- -- -- 6.4 -- 8.1
United Companies Life Insurance Co. ...... 3.4 -- -- -- -- -- 0.3
United of Omaha Life Insurance Co. ....... 0.1 1.0 -- 1.0 -- 5.8 2.7
WM Life Insurance Co. .................... 0.1 -- -- -- -- -- --
USAA Life Insurance Co. .................. -- -- -- -- 2.8 -- --
----------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ====== ======
</TABLE>
Multiple Classes Of Shares Of Beneficial Interest. The Fund offers one class of
shares for the Money Market Portfolio and two classes of shares (Class A shares
and Class B shares) for the other Portfolios. Class B shares are subject to a
12b-1 fee under the Investment Company Act of 1940, equal to an annual rate of
up to 0.25% of the average daily net asset value of the Class B shares of the
applicable Portfolio. Class A shares are not subject to such fees. Expenses are
borne pro-rata on the basis of relative net assets by the holders of all classes
of shares except that each class bears expenses unique to that class (including
the applicable 12b-1 fee). In accordance with the Master Distribution Plan, the
12b-1 fees are remitted to the Participating Insurance Companies for various
costs incurred or paid by the Participating Insurance Companies in connection
with the distribution of Class B shares.
76
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios.
Security Valuation. The Money Market Portfolio values all securities utilizing
the amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Portfolio
must adhere to certain conditions. Under this method, which does not take into
account unrealized gains or losses on securities, an instrument is initially
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.
Securities in each of the remaining Portfolios are valued in the following
manner:
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees. Their values have been estimated by
the Board of Trustees in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the difference could be material.
Futures Contracts. The non-money market Portfolios may enter into futures
contracts. A futures contract is an agreement between a buyer or seller and an
established futures exchange or its clearinghouse in which the buyer or seller
agrees to take or make a delivery of a specific amount of an item at a specified
price on a specific date (settlement date). During the period, the Bond
Portfolio sold interest rate futures to hedge against declines in the value of
portfolio securities. Also, during the period, the Bond Portfolio purchased
interest rate futures to manage the duration of the Portfolio.
Upon entering into a futures contract, the Portfolio is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Portfolio. When entering into a closing transaction, the Portfolio will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Portfolio's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge, the Portfolio gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
77
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Foreign Currency Translations. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
non-money market Portfolios utilized forward contracts as a hedge in connection
with portfolio purchases and sales of securities denominated in foreign
currencies and the Global Discovery Portfolio and the International Portfolio
utilized forward contracts as a hedge against changes in exchange rates relating
to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.
Distribution of Income and Gains. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July, October
and January. All of the net investment income of the Global Discovery Portfolio
and the International Portfolio normally will be declared and distributed as a
dividend annually. During any particular year, net realized gains from
investment transactions for each Portfolio, in excess of available capital loss
carryforwards, would be taxable to the Portfolio if not distributed and,
therefore, will be distributed to the Participating Insurance Companies.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting
78
<PAGE>
NOTES TO FINANCIAL STATEMENTS
principles. The differences primarily relate to investments in forward
contracts, passive foreign investment companies, post October loss deferral,
non-taxable distributions, and certain securities sold at a loss. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period.
Accordingly, the Portfolios may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of each
Portfolio.
The Portfolios use the specific identification method for determining realized
gain or loss on investments for both financial and federal income tax reporting
purposes.
Expenses. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.
B. Related Parties
- --------------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of .370% for the
Money Market Portfolio, .475% for the Bond Portfolio, .475% for the Balanced
Portfolio, .475% for the Growth and Income Portfolio, .475% for the Capital
Growth Portfolio, .975% for the Global Discovery Portfolio, and .875% for the
first $500,000,000, .77% over $500,000,000 for the International Portfolio.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder Fund
Accounting Corp., a subsidiary of the Adviser, for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund.
Related fees for such services are detailed in each Portfolio's statement of
operations.
Until April 30, 1998, the Adviser has agreed to waive part or all of its fees
for the Global Discovery Portfolio to the extent that the Portfolio's expenses
will be maintained at 1.50% of average annual net assets.
The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $14,000 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not affiliated
with the Adviser and who is a Trustee of other Scudder affiliated funds $8,750
annually plus specified amounts for attended board and committee meetings.
Allocated Trustees' fees for each Portfolio for the six months ended June 30,
1997 are detailed in each Portfolio's statement of operations.
C. Lines of Credit
- --------------------------------------------------------------------------------
The International Portfolio and several other Funds (the "Participants") share
in a $500 million revolving credit facility for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. The Participants are charged an annual
commitment fee which is allocated among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The
International Portfolio may borrow up to a maximum of 25 percent of its net
assets under the agreement. In addition, the International Portfolio also
maintains an uncommitted line of credit.
79
<PAGE>
Celebrating Over 75 Years of Serving Investors
- --------------------------------------------------------------------------------
Established in 1919 by Theodore
Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the
first independent investment counsel firm
in the United States. Since its birth,
Scudder's pioneering spirit and commitment
to professional long-term investment
management have helped shape the
investment industry. In 1928, we
introduced the nation's first no-load
mutual fund. Today we offer over 40 pure
no load(TM) funds, including the first
international mutual fund offered to U.S.
investors.
Over the years, Scudder's global
investment perspective and dedication to
research and fundamental investment
disciplines have helped Scudder become one
of the largest and most respected
investment managers in the world. Though
times have changed since our beginnings,
we remain committed to our long-standing
principles: managing money with integrity
and distinction; keeping the interests of
our clients first; providing access to
investments and markets that may not be
easily available to individuals; and
making investing as simple and convenient
as possible through friendly,
comprehensive service.
An investment in the Money Market
Portfolio is neither insured nor
guaranteed by the United States
Government and there can be no assurance
that the Portfolio will be able to
maintain a stable net asset value of
$1.00 per share.
This information must be preceded or
accompanied by a current prospectus.
Portfolio changes should not be
considered recommendations for action by
individual investors.
SCUDDER [LOGO]
<PAGE>
SCUDDER [LOGO]
Scudder Variable Life
Investment Fund
Semiannual Report
June 30, 1997
An open-end management investment company that offers shares of beneficial
interest in five types of diversified portfolios.
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Contents
Letter from the Fund's President ........................................... 2
Money Market Portfolio Management Discussion ............................... 3
Bond Portfolio Management Discussion ....................................... 4
Bond Portfolio Summary ..................................................... 5
Balanced Portfolio Management Discussion ................................... 6
Balanced Portfolio Summary ................................................. 7
Capital Growth Portfolio Management Discussion ............................. 8
Capital Growth Portfolio Summary ........................................... 9
International Portfolio Management Discussion .............................. 10
International Portfolio Summary ............................................ 11
Investment Portfolios, Financial Statements, and Financial Highlights
Money Market Portfolio ............................................ 12
Bond Portfolio .................................................... 18
Balanced Portfolio ................................................ 25
Capital Growth Portfolio .......................................... 34
International Portfolio ........................................... 43
Notes to Financial Statements .............................................. 53
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
We are witnessing a remarkable period in the U.S. stock market. The six
year rally in stocks continued over the first half of 1997, pausing only
momentarily in March to digest an increase in interest rates before resuming its
rise. Expanding corporate earnings, healthy economic growth, and benign
inflation reports were the primary drivers of the favorable environment, which
has been responsible for an unprecedented rise in stock prices -- especially for
larger capitalization issues.
It's possible that the market will continue to move ahead at full
throttle, especially if the inflationary data continues to support a thesis of
manageable economic growth. However, we would point out that the market appears
rather sensitive to new news, whether it be related to corporate earnings or
economic activity. Any reversal of the data, any major earnings disappointments,
or a renewed desire by the Federal Reserve to apply further restraint on the
economy -- and on the capital markets -- could add some bumps to the road ahead.
While current stock price valuations have risen dramatically, investors
should not lose sight of some basic fundamentals of investing --adequate
diversification, proper asset allocation, and investments that continue to match
long-term investment objectives. If you are comfortable that your investments
meet these requirements, then you will be best positioned to weather the
short-term and sometimes unpredictable movements of the markets.
The Fund's broad selection of portfolios with various investment
objectives offers diversification and flexibility, making it an attractive
choice for many investors in an uncertain market environment. A complete
discussion of each Portfolio's activities follows this letter.
Thank you for your continued investment in Scudder Variable Life
Investment Fund. We look forward to serving your needs for many years to come.
Sincerely,
/s/ David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
2
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Throughout the period, investors continued to grapple with an interesting
paradox: growth without inflation. After much interim volatility, fixed-income
investments rallied in the remaining weeks through June 30, as data began to
suggest that growth in the second quarter would slow. The Portfolio's
investments in ultra short-term, high-quality securities helped it successfully
navigate the changing tides of investor sentiment, as it maintained its $1.00
share price throughout the period. As interest rates edged higher, the Portfolio
was able to provide a higher level of income, contributing to a total return of
2.53% for the six months. The Portfolio's 30-day net annualized yield at the end
of June was 5.19%. Among its peers, the Portfolio ranked 3rd (top 3%) out of 107
underlying funds in the Variable Life Money Market category according to Lipper
Analytical Services, Inc.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
We shortened the Fund's
average maturity in
anticipation of rising rates.
Few tools are as important to the management of a money market portfolio
as its average maturity. As robust economic growth heightened concerns of
accelerating inflation and the possibility of rising short-term interest rates
during the first quarter of 1997, we began to shorten the Portfolio's average
maturity. When the Federal Reserve (the Fed) raised short-term rates on March
25, the Portfolio's shorter average maturity enabled us to quickly reinvest in
higher yielding money market instruments. At the end of June, the Portfolio's
average effective maturity stood at 47 days.
The six-year-old expansion may very well wind down, paving the way for
still lower interest rates and a sustained bond market rally. Also, at 5.5%, the
current federal funds rate does not constitute "easy money" in our view. But the
timing of an economic downturn is difficult to predict. For now, growth is
strong and reported profits continue to exceed expectations. Although the Fed
left interest rates unchanged at its May 20 and July 2 meetings, it may find
sufficient reason to raise rates later this year. Going forward, we believe the
Portfolio will continue to demonstrate the value of owning a short-term
investment vehicle as part of a well-diversified investment program.
Sincerely,
Your Portfolio Management Team
/s/ David Wines /s/ Debra A. Hanson
David Wines Debra A. Hanson
Lead Portfolio Manager
/s/ Nicca B. Alcantara
Nicca B. Alcantara
3
<PAGE>
BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
A combination of solid economic growth with low inflation provided an
overall favorable environment for bond investors for the semiannual period ended
June 30, 1997. In this environment, the Bond Portfolio provided a total return
of 3.08% for the six months. This performance was in keeping with the 3.11%
return of the unmanaged Lehman Brothers Aggregate Bond Index for the same time
period. Among its peers, the Portfolio ranked 7th (top 22%) out of 32 underlying
funds in the Variable Life Corporate Debt A-Rated category according to Lipper
Analytical Services, Inc.
In the first quarter of 1997, reports of unusually strong economic growth
spurred increased concerns about accelerating inflation. On March 25 the Federal
Reserve (the Fed) raised a key rate -- the Fed funds rate -- by a quarter of a
point from 5.25% to 5.50%. In response, bond yields rose and prices declined
slightly. Yields reversed in the second quarter, as several inflation measures
showed no acceleration and economic growth appeared to be moderating. In
addition, the Fed left rates unchanged at two subsequent meetings, causing
yields to retreat and bond prices to rally.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
With a neutral duration
strategy, we focused on
sector allocations.
In this environment our portfolio duration was essentially neutral at 4.6
years and we focused on sector allocations. During the first quarter, we
de-emphasized mortgage securities which typically have intermediate term (3-5
year) average effective maturities, and increased our "barbelled" strategy by
adding to holdings at the short and long ends of the maturity spectrum.
Mortgage securities provided very good performance for most of the period.
However, mortgages became "rich" in our opinion as many investors flocked to
them for their attractive yields. We reduced holdings of mortgages over the six
months and added to short-term securities, which provided a cushion to changes
in short-term interest rates. The investment grade corporate bond sector
provided returns that were in line with the performance of the broad market
indices for the six-month period. U.S. Treasury securities were weak performers
during the period and we remained underweighted in this area. At the end of the
period, the Portfolio maintained its high average quality rating of AA.
As we look forward to the remainder of 1997, we see few signs of concern
for bond investors. Leading economic indicators supply little evidence to
suggest that inflation will accelerate anytime soon -- the chief concern for
bond investors. While we expect market volatility may continue in the near term,
our long-term outlook is for slower growth with benign inflation. In this
environment, we believe your Fund should continue to provide attractive income,
relative stability and diversification -- important components of a
well-balanced investment portfolio.
Sincerely,
Your Portfolio Management Team
/s/ William M. Hutchinson /s/ Kelly D. Babson
William M. Hutchinson Kelly D. Babson
Lead Portfolio Manager
4
<PAGE>
BOND PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Bond Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $10,834 8.34% 8.34%
5 Year $14,097 40.97% 7.11%
10 Year $21,938 119.38% 8.17%
- ----------------------------------------
- ----------------------------------------
LB Aggregate Bond Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $10,816 8.16% 8.16%
5 Year $14,102 41.02% 7.11%
10 Year $23,276 132.76% 8.81%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
LB Aggregate Bond Index Bond Portfolio
----------------------- --------------
'87 10,000 10,000
'88 10,804 10,604
'89 12,124 11,577
'90 13,074 12,316
'91 14,471 13,550
'92 16,505 15,562
'93 18,451 17,765
'94 18,208 17,355
'95 20,494 19,337
'96 21,520 20,249
'97 23,276 21,938
Yearly periods ended June 30
The Lehman Brothers (LB) Aggregate Bond Index is an unmanaged market
value-weighted measure of treasury issues, agency issues, corporate bond issues
and mortgage securities. Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Bond
Portfolio.
- --------------------------------------------------------------------------------
ASSET QUALITY
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
- -------------------------------
AAA 51%
AA 5%
A 15% We maintained a barbelled
BBB 19% maturity structure
BB 6% throughout the period.
B 4%
----
100%
====
- ---------------------------
Average Quality: AA
- --------------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------------
- -------------------------------
Less than 1 year 23%
1 to 5 years 21%
5 to 8 years 9%
8 to 15 years 25%
15 years or greater 22%
----
100%
====
- -------------------------------
Weigted average effective
maturity: 9 years
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
- -----------------------------------------
Corporate Bonds 41%
Mortgages 19%
U.S. Treasury Obligations 15%
Repurchase Agreement 13%
Asset-Backed Securities 6%
Foreign Bonds - U.S.$ Denominated 6%
----
100%
====
- -----------------------------------------
5
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Over the first half of 1997, stocks recorded yet another period of
outstanding performance while bonds provided positive, but more modest total
returns. The Balanced Portfolio's approach to investing in a combination of
quality growth stocks and bonds resulted in a total return of 14.70% for the
six-month period ended June 30, 1997. Among its peers, the Portfolio ranked 1st
out of 39 underlying funds in the Variable Life Balanced category according to
Lipper Analytical Services, Inc.
Record corporate earnings, moderating but healthy economic growth, and
benign inflation sustained a very favorable environment for equity investors
over the first six months of 1997. The first quarter's robust 4.9% growth rate
gave rise to an increased possibility of accelerating inflation, which
encouraged the Federal Reserve (the Fed) to increase a key short-term interest
rate in March. While stocks and bonds initially declined on this news, the Fed
remained silent about raising rates at the two subsequent meetings. Investors
had built a rate increase into their thinking, and when it failed to
materialize, the stock and bond markets reacted favorably.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
An emphasis on stocks of
large growth companies
in the equity portion of
the Portfolio was an
important contributor to
performance.
The equity portion of the portfolio represented 61% of assets at the end
of the period. Particularly noteworthy performers over the period included Avon
Products and Revlon in the consumer staples sector, Pfizer, and Warner-Lambert
in healthcare, Clear Channel Communications in media, Corporate Express in
specialty retail, and finally, Applied Materials, Computer Associates, Microsoft
and Teradyne in the technology sector. Our decision to hold on to several
networking stocks also paid off, with 3Com and Cisco among the best performers
in the equity portion of the portfolio. Stocks which detracted from performance
included Federated Department Stores, Boston Scientific, EDS, AMD, and Intel.
Our relatively small holding in Intel actually contributed positively to
performance relative to the Portfolio's benchmark during this period.
As of the end of the six-month period, fixed income securities represented
39% of assets, including cash and equivalents. Our portfolio duration was
essentially neutral at 4.75 years, as we focused on allocating assets across
sectors of the fixed income market. During the first quarter, we de-emphasized
mortgage securities, which typically have intermediate term (3-5 year) average
effective maturities, and increased the "barbelling" of the Fund's maturity
structure by adding to holdings at the short and long ends of the spectrum. As
of the end of the period, the fixed income portion of the portfolio had
maintained its high average quality rating of AA.
Sincerely,
Your Portfolio Management Team
/s/ Valerie F. Malter /s/ William M. Hutchinson
Valerie F. Malter William M. Hutchinson
Lead Portfolio Manager
/s/ Kelly D. Babson
Kelly D. Babson
6
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Balanced Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $12,102 21.02% 21.02%
5 Year $18,609 86.09% 13.23%
10 Year $27,754 177.54% 10.75%
- ----------------------------------------
S&P 500 Index (60%)
and LBAB Index (40%)
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $12,364 23.64% 23.64%
5 Year $19,805 98.05% 14.64%
10 Year $32,599 225.99% 12.53%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
Balanced Portfolio S&P 500 Index LBAB Index
------------------ ------------- ----------
'87 10,000 10,000 10,000
'88 10,804 9,310 10,023
'89 12,124 11,221 11,636
'90 13,074 13,073 12,469
'91 14,471 14,037 12,751
'92 16,505 15,923 14,920
'93 18,451 18,094 16,574
'94 18,208 18,349 16,525
'95 20,494 23,130 19,680
'96 21,520 29,143 22,943
'97 23,276 39,260 27,764
Yearly periods ended June 30
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Over-The-Counter market and The Lehman Brothers
Aggregate Bond (LBAB) Index is an unmanaged market value-weighted measure of
treasury issues, agency issues, corporate bond issues and mortgage securities.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Balanced
Portfolio. The Balanced Portfolio, with its current name and investment
objective, commenced operations on May 1, 1993. Performance figures include the
performance of its predecessor, the Managed Diversified Portfolio. Since
adopting its current objectives, the cumulative and average annual returns are
70.63% and 13.68%, respectively.
- --------------------------------------------------------------------------------
EQUITY HOLDINGS
- --------------------------------------------------------------------------------
- -----------------------------
Sector breakdown of the
Portfolio's equity holdings
- -----------------------------
Consumer Staples 23%
Health 21%
Technology 17%
Consumer Discretionary 9%
Manufacturing 8%
Media 6%
Service Industries 5%
Financial 5%
Durables 5%
Construction 1%
----
100%
====
- -----------------------------
Five Largest Equity Holdings
- --------------------------------------------------------------------------------
1. Coca-Cola Co., Inc. International soft drink company
2. General Electric Co. Leading producer of electrical equipment
3. Merck & Co. Inc. Leading ethical drug manufacturer
4. Microsoft Corp. Computer operating systems software
5. Colgate-Palmolive Co. Manufacturer of household and personal care products
- --------------------------------------------------------------------------------
FIXED INCOME HOLDINGS
- --------------------------------------------------------------------------------
By Asset Type
- -----------------------------------------
Corporate Bonds 34%
Mortgages 26%
U.S. Government Agencies 17%
Cash Equivalents 16%
Asset-Backed Securities 6%
Foreign Bonds - U.S.$ Denominated 1%
----
100%
====
- -----------------------------------------
By Quality
- ---------------------------
AAA 64%
AA 5%
A 12%
BBB 19%
----
100%
====
- ---------------------------
7
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Investors continued to enjoy a near-perfect economic environment of
deflationary growth over the first six months of 1997 as the Capital Growth
Portfolio returned 24.02%, exceeding the 20.61% return of the unmanaged S&P 500
for the six-month period ended June 30, 1997. Among its peers, the Portfolio
ranked 1st out of 121 underlying funds in the Variable Life Growth category
according to Lipper Analytical Services, Inc.
High quality large-capitalization stocks have led the market for several
quarters, with investor's appetite for big blue chip companies accelerating
towards the end of the six-month period. While our valuation discipline has kept
us out of a few of the larger, better performing issues, such as Coca Cola and
Gillette, the portfolio's diversified holdings of technology, finance,
manufacturing, and healthcare stocks have kept pace with the market's advance.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Stocks of quality, blue
chip companies -- the
Portfolio's primary
emphasis -- led the
markets.
Technology stocks were among the leading issues. The rebound in
semiconductor capital equipment stocks was most impressive. For the industry
leaders, such as Applied Materials, Teradyne, and KLA/Tencor, the drop off in
equipment orders was less than expected and operating margins held up better
than expected. Demand for personal computers has been strong, resulting in
higher capital expenditure at Intel and other semiconductor companies. Compaq
was also a strong performer during the six-month period.
The Finance sector responded enthusiastically to the Federal Reserve's
decision not to raise rates in early April. Financial service companies American
International Group, Travelers Group and Associates First Capital were all up
sharply along with BankAmerica, a new addition to the portfolio, and American
Express, the largest holding at the end of the period.
Encouraging industrial production data drove manufacturing stocks higher.
Asea Brown Bovieri, General Electric and Ingersoll Rand experienced solid gains
during the period.
The healthcare sector was one of the strongest performing areas for the
first six months, and the Portfolio's holdings made positive contributions to
performance. A stream of positive clinical and prescription data on two new
drugs, Rezulin for diabetes, and Lipitor for cholesterol, resulted in a
significant rise in Warner-Lambert's stock price.
Our long-term portfolio strategy is to keep the average price earnings
ratio of your holdings below the overall market level in an effort to reduce the
risk of earnings disappointment and lower the volatility of the portfolio. We
believe our disciplined approach of buying and holding high quality companies,
with sustainable earnings growth and reasonable valuations will continue to
serve shareholders well. Diversification across industries also plays an
important role in the construction of the Portfolio.
Sincerely,
Your Portfolio Management Team
/s/ William F. Gadsden /s/ Bruce F. Beaty
William F. Gadsden Bruce F. Beaty
Lead Portfolio Manager
8
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
Capital Growth Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,657 36.57% 36.57%
5 Year $23,179 131.79% 18.31%
10 Year $33,798 237.98% 12.95%
- ----------------------------------------
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $13,472 34.72% 34.72%
5 Year $24,657 146.57% 19.77%
10 Year $39,260 292.60% 14.64%
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
S&P 500 Index Capital Growth Portfolio
------------- ------------------------
'87 10,000 10,000
'88 9,310 9,486
'89 11,221 11,090
'90 13,073 11,983
'91 14,037 12,313
'92 15,923 14,587
'93 18,094 17,232
'94 18,349 17,080
'95 23,130 20,549
'96 29,143 24,758
'97 39,260 33,811
Yearly periods ended June 30
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the Capital
Growth Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
- ------------------------------
Equity Securities 97%
Cash Equivalents 3%
----
100%
====
- ------------------------------
[The following table was represented as a pie graph in the printed material.]
- ------------------------------
Sector breakdown of the
Portfolio's equity holdings
- ------------------------------ Our valuation discipline
Financial 20% kept us out of a few of
Technology 16% the larger, better
Manufacturing 13% performing issues,
Health 12% however, the portfolio's
Energy 10% diversified holdings of
Consumer Discretionary 9% technology, finance,
Consumer Staples 5% manufacturing and
Service Industries 5% healthcare stocks kept
Durables 3% pace with the market's
Other 4% advance.
----
97%
====
- ------------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (24% of Portfolio)
- --------------------------------------------------------------------------------
1. American Express Credit Corp. Travel and investment services, insurance, and
banking
2. EXEL, Ltd. (ADR) Provider of liability insurance
3. Compaq Computer Corp. Leading manufacturer of personal computers
4. Royal Dutch Petroleum Co. International energy company
5. American International Group, Inc. Major international insurance holding
company
6. Warner-Lambert Co. Drugs, toiletries, and food products
7. Intel Corp. Semiconductor memory circuits
8. Home Depot, Inc. Building supply/home improvement stores
9. Sun Microsystems, Inc. Producer of high-performance workstations, servers
and networking software
10. BankAmerica Corp. Commercial banking in California
9
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
The International Portfolio returned 14.09% for the six-month period ended
June 30, 1997. Among its peers, the Portfolio ranked 22nd (top 28%) out of 79
underlying funds in the Variable Life International category according to Lipper
Analytical Services, Inc.
During this period, most global markets provided positive returns against
a strong global economic backdrop, a benign inflation environment, and optimism
that further monetary tightening in the US might be avoided. Despite a stronger
yen, Japanese stocks rallied, driven by signs of economic recovery and
diminished fears of interest rate hikes. In Europe, political uncertainty failed
to dampen investor enthusiasm, though a strong US dollar lessened returns for US
dollar-based investors. France shrugged off the unexpected victory of the
Socialist party, concluding that the new government would accept European
imperatives on European Monetary Union (EMU) and postpone left-wing reforms
discussed during the election period. Despite some volatility, the UK market
welcomed Mr. Blair's new Labour government.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
We remain cautious on
the smaller bourses of the
Pacific Rim, but Brazil
remains a favorite in the
emerging markets.
In Europe, we are seeing stronger than expected growth with domestic
demand, long dormant, finally showing signs of life. Japan's economy continues
to recover. Though consumption remains weak, there is some evidence of a revival
in domestic demand, deflation has abated, and residential land prices are
stabilizing. Smaller Asian equity markets have suffered over the last couple of
years as a conspiracy of cyclical forces combined to slow growth: restrictive
Asian central bank policy, economic weakness in major export markets Europe and
Japan, and a plunge in electronics and textile sectors. The outlook is mixed
looking forward.
The portfolio remains significantly underweight in Japan and overweight in
Europe. In Europe, we continue to seek companies which are restructuring and
focused on building value for shareholders such as Daimler Benz, Siemens, and
Volkswagen in Germany. We are also invested in companies with effective
strategies, positioning, and products in growth markets like telecommunications
infrastructure provider Nokia in Finland and information technology leader SAP
in Germany. In Japan, we continue to maintain a portfolio tilt towards
high-quality, technology-driven exporters such as Sony, Canon, Hitachi, and
Tokyo Electron.
Sincerely,
Your Portfolio Management Team
/s/ Irene T. Cheng /s/ Carol L. Franklin
Irene T. Cheng Carol L. Franklin
Lead Portfolio Manager
/s/ Nicholas Bratt /s/ Joan R. Gregory
Nicholas Bratt Joan R. Gregory
(signature unavailable) (signature unavailable)
Marc Joseph Sheridan Reilly
10
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of June 30, 1997
- ----------------------------------------
International Portfolio
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,988 19.88% 19.88%
5 Year $18,929 89.29% 13.61%
10 Year $26,851 168.51% 10.38%
- ----------------------------------------
- ----------------------------------------
MSCI EAFE & Canada Index
- ----------------------------------------
Total Return
Period Growth --------------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- ----------------------------------------
1 Year $11,351 13.51% 13.51%
5 Year $18,268 82.68% 12.80%
10 Year $18,984 89.84% 6.61%
- ----------------------------------------
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[The following table was represented as a line graph in the printed material.]
International MSCI EAFE &
Portfolio Canada Index
------------- ------------
'87 10,000 10,000
'88 10,398 9,330
'89 11,400 11,154
'90 11,758 14,495
'91 10,473 13,029
'92 10,392 14,186
'93 12,419 15,472
'94 14,427 18,747
'95 14,755 19,238
'96 16,724 22,398
'97 18,984 26,851
Yearly periods ended June 30
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far East
(EAFE) & Canada Index is an unmanaged capitalization-weighted measure of stock
markets in Europe, Australia, the Far East and Canada. Index returns assume
dividends reinvested net of withholding tax and, unlike Fund returns, do not
reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. Total returns in some periods were higher due to
maintenance of the Fund's expenses. See Financial Highlights for the
International Portfolio.
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
[The following table was represented as a pie graph in the printed material.]
By Region
(Excluding Cash Equivalents)
- -------------------------------
Europe 62%
Japan 16%
Latin America 10%
Pacific Basin 9%
Canada 3%
----
100%
====
- -------------------------------
[The following table was represented as a pie graph in the printed material.]
By Sector
(Equity Holdings)
- ----------------------------
Manufacturing 22%
Financial 12%
Durables 11%
Communications 8%
Health 7%
Technology 7%
Utilities 7%
Metals & Minerals 5%
Energy 4%
Other 17%
----
100%
====
- ----------------------------
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (15% of Portfolio)
- --------------------------------------------------------------------------------
1. Telecomunicacoes Brasileiras S.A. Telecommunication services
2. Novartis AG Pharmaceutical company in Switzerland
3. Philips Electronics NV Leading manufacturer of electronic equipment in the
Netherlands
4. Skandia Foersaekrings AB Financial conglomerate in Sweden
5. ABB AG Manufacturer of electrical equipment in Switzerland
6. Companhia Energetica de Minas Gerais Electric power utility in Brazil
7. Portugal Telecom SA Telecommunication services
8. Volkswagen AG Leading automobile manufacturer in Germany
9. SmithKline Beecham PLC Manufacturer of drugs and healthcare products in the
United Kingdom
10. Bayerische Vereinsbank AG Commercial bank in Germany
11
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
3.7% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
3,859,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/30/97 at 5.9% to be repurchased
at $3,859,632 on 7/1/97, collateralized by a
$3,615,000 U.S. Treasury Note, 8.5%, 11/15/00
(Cost $3,859,000) ......................................... 3,859,000
----------
------------------------------------------------------------------------------------
86.9% COMMERCIAL PAPER
------------------------------------------------------------------------------------
Health 1.9%
Pharmaceuticals 2,000,000 Schering Corp., Discount Note, 10/7/97 ..................... 1,969,130
----------
Communications 7.5%
Telephone/
Communications 4,000,000 Ameritech Capital Funding Corp., Discount Note, 10/6/97 .... 3,939,860
4,000,000 Southwestern Bell Capital Corp., 7/29/97 ................... 3,982,858
----------
7,922,718
----------
Financial 62.5%
Banks 15.9% 5,000,000 Bank of Tokyo/Mitsubishi, Discount Note, 7/18/97 ........... 4,986,754
4,000,000 Deutsche Bank Financial Inc., Discount Note, 7/9/97 ........ 3,995,040
4,000,000 New Center Asset Trust, Discount Note, 8/28/97 ............. 3,963,976
4,000,000 Private Export Funding Corp., Discount Note, 12/23/97 ...... 3,892,472
----------
16,838,242
----------
Business Finance 7.9% 4,000,000 CIT Group Holdings Inc., Discount Note, 8/26/97 ............ 3,964,844
1,500,000 Prudential Funding Corp., Discount Note, 7/8/97 ............ 1,498,443
3,000,000 Prudential Funding Corp., Discount Note, 8/28/97 ........... 2,974,190
----------
8,437,477
----------
Consumer Finance 22.6% 4,000,000 A.I. Credit Corp., Discount Note, 7/15/97 .................. 3,991,336
4,000,000 Abbey National North America, 5.65%, 4/15/98 ............... 3,998,472
4,000,000 American Express Credit Corp., 7/10/97 ..................... 3,994,480
4,000,000 FCar Owner Trust I, Discount Note, 7/9/97 .................. 3,995,076
4,000,000 General Electric Capital Corp., Discount Note, 9/2/97 ...... 3,960,870
4,000,000 Household Finance Corp., Discount Note, 7/8/97 ............. 3,995,644
----------
23,935,878
----------
Other Financial
Companies 16.1% 4,000,000 ABN-Amro North America Finance Inc., 5.56%, 7/21/97 ........ 4,000,066
3,000,000 American General Finance Corp., Discount Note, 7/23/97 ..... 2,989,697
4,000,000 Associates Corp. of North America, Discount Note, 10/23/97 . 3,929,827
1,000,000 Centric Funding Corp., Discount Note, 7/29/97 .............. 995,917
1,552,000 Dean Witter, Discover & Co., Discount Note, 7/24/97 ........ 1,546,437
3,598,000 Matterhorn Capital Corp., Discount Note, 7/29/97 ........... 3,582,441
----------
17,044,385
----------
Service Industries 3.7%
Miscellaneous
Commercial Services 4,000,000 United Parcel Service, Discount Note, 7/7/97 ............... 3,996,500
----------
Durables 3.7%
Automobiles 4,000,000 Ford Motor Credit Co., Discount Note, 8/12/97 .............. 3,974,100
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufacturing 3.8%
Office Equipment/
Supplies 4,000,000 Pitney Bowes, Inc., Discount Note, 7/28/97 ................. 3,983,440
-----------
Utilities 3.8%
Electric Utilities 4,000,000 TECO Finance Inc., Discount Note, 7/22/97 .................. 3,986,863
-----------
Total Commercial Paper (Cost $92,088,733) .................. 92,088,733
-----------
------------------------------------------------------------------------------------
9.4% SHORT-TERM NOTES
------------------------------------------------------------------------------------
Financial
Banks 3,000,000 Bank One, Columbus, N.A., Floating Rate Note, 5.69%,
6/10/98 ................................................... 2,998,631
4,000,000 Bank of America NT&SA, 5.87%, 1/5/98 ....................... 4,000,000
3,000,000 FCC National Bank Note, 5.59%, 11/7/97 ..................... 2,999,644
-----------
Total Short-Term Notes (Cost $9,998,275) ................... 9,998,275
-----------
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $105,946,008) (a) .......... 105,946,008
===========
- ----------------------------------------------------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is $105,946,008.
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments securities (cost $105,946,008) ...................... $105,946,008
Cash ............................................................ 633
Interest receivable ............................................. 192,490
Receivable for Portfolio shares sold ............................ 678,217
Other assets .................................................... 1,953
------------
Total assets .............................................. 106,819,301
Liabilities
Payable for Portfolio shares redeemed ........................... $29,983
Accrued management fee .......................................... 32,270
-------
Total liabilities ............................................ 62,253
------------
Net assets, at value ............................................ $106,757,048
============
Net Assets Net assets consist of:
Accumulated net realized loss ................................ (1,567)
Paid-in capital .............................................. 106,758,615
------------
Net assets, at value ............................................ $106,757,048
============
Net asset value, offering and redemption price per share
($106,757,048/106,757,048 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 1.00
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ...................................................... $2,817,942
Expenses:
Management fee ............................................. $190,109
Custodian fees ............................................. 8,542
Accounting fees ............................................ 15,000
Trustees' fees and expenses ................................ 8,734
Reports to shareholders .................................... 822
Registration fees .......................................... 5,489
Legal ...................................................... 1,135
Auditing ................................................... 2,978
Other ...................................................... 1,823 234,632
-------- ----------
Net investment income ......................................... 2,583,310
----------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain from Investments ............................ 916
----------
Net increase in net assets resulting from operations ............. $2,584,226
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................. $ 2,583,310 $ 4,385,955
Net realized gain (loss) from investment transactions ............. 916 (917)
------------- -------------
Net increase in net assets resulting from operations .............. 2,584,226 4,385,038
------------- -------------
Distributions to shareholders from net investment income .......... (2,583,310) (4,385,955)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ...................................... 110,994,759 201,403,309
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment income .... 2,583,310 4,385,955
Cost of shares redeemed ........................................ (104,607,563) (187,750,612)
------------- -------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................ 8,970,506 18,038,652
------------- -------------
Increase (decrease) in net assets ................................. 8,971,422 18,037,735
Net assets at beginning of period ................................. 97,785,626 79,747,891
------------- -------------
Net assets at end of period ....................................... $ 106,757,048 $ 97,785,626
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 ---------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .. .025 .050 .055 .037 .025 .033 .057 .076 .088 .068 .060
Less distributions from
net investment income .. (.025) (.050) (.055) (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ......... 2.53** 5.09 5.65 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ........... 107 98 80 90 49 34 28 32 15 11 8
Ratio of operating expenses,
net to average daily net
assets (%) ............. .46* .46 .50 .56 .66 .64 .67 .69 .72 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ............. .46* .46 .50 .56 .66 .64 .67 .69 .81 1.04 1.12
Ratio of net investment
income to average daily
net assets (%) ......... 5.06* 4.98 5.51 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06
</TABLE>
* Annualized
** Not Annualized
17
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
12.7% REPURCHASE AGREEMENT
----------------------------------------------------------------------------------------
8,455,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $8,456,386
on 7/1/97 collateralized by a $8,346,000 U.S. Treasury
Note, 5.625%, 1/31/98 (Cost $8,455,000) .................... 8,455,000
---------
----------------------------------------------------------------------------------------
7.5% U. S. GOVERNMENT AGENCY OBLIGATIONS
----------------------------------------------------------------------------------------
5,000,000 Federal Home Loan Mortgage Corp. Discount
Note, 7/1/97 (Cost $5,000,000) ............................. 5,000,000
---------
----------------------------------------------------------------------------------------
6.4% U. S. GOVERNMENT & AGENCIES
----------------------------------------------------------------------------------------
1,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ......................... 996,560
3,000,000 U.S. Treasury Note, 5.625%, 11/30/00 ........................ 2,938,590
1,500,000 U.S Treasury Separate Trading Registered Interest and
Principal, Principal Payment, 9%, 11/15/18 ................. 342,945
---------
Total U.S. Government & Agencies
(Cost $4,373,399) .......................................... 4,278,095
---------
----------------------------------------------------------------------------------------
6.2% GOV'T NATIONAL MORTGAGE ASSOCIATION
----------------------------------------------------------------------------------------
1,244,321 Government National Mortgage Association Pass-thru
10%, 8/15/20 (a) ........................................... 1,370,221
2,641,367 Government National Mortgage Association Pass-thru
8.5%, 4/15/25 (a) .......................................... 2,746,176
---------
Total Gov't National Mortgage Association
(Cost $4,046,188) .......................................... 4,116,397
---------
----------------------------------------------------------------------------------------
12.5% U.S. GOVERNMENT AGENCY PASS-THRUS
----------------------------------------------------------------------------------------
1,535,894 Federal National Mortgage Association 8%, 12/1/09 (a) ....... 1,579,620
6,850,190 Federal National Mortgage Association 7% with various
maturities to, 7/1/26 (a) .................................. 6,721,749
---------
Total U.S. Government Agency Pass-thrus
(Cost $8,207,189) .......................................... 8,301,369
---------
----------------------------------------------------------------------------------------
0.9% COLLATERALIZED MORTGAGE OBLIGATIONS
----------------------------------------------------------------------------------------
590,321 Federal Home Loan Mortgage Corp. 8% with various
maturities to 4/1/08 (a) ................................... 604,748
228 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (a) ................................................ 227
---------
Total Collateralized Mortgage Obligations
(Cost $605,756) ............................................ 604,975
---------
----------------------------------------------------------------------------------------
5.5% FOREIGN BONDS - U. S. $ DENOMINATED
----------------------------------------------------------------------------------------
1,625,000 Fage Dairy Industry SA, 9%, 2/1/07 .......................... 1,547,813
1,000,000 Korea Development Bank, 9.6%, 12/1/00 ....................... 1,086,230
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 ........... 1,034,460
---------
Total Foreign Bonds - U.S.$ Denominated
(Cost $3,710,849) .......................................... 3,668,503
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------
6.6% ASSET BACKED
---------------------------------------------------------------------------
Automobile Receivables 1.5% 1,000,000 Premier Auto Trust Asset Backed Certificate Series 1
996-3 A4, 6.75%, 11/6/00 .......................... 1,007,810
----------
Credit Card
Receivables 1.5% 1,000,000 Standard Credit Card Trust, Series 1990-3B, 9.85%,
7/10/97 ........................................... 1,000,620
----------
Home Equity Loans 2.6% 1,499,989 Contimortgage Home Equity Loan Trust, Series
1996-1 A2, 5.58%, 1/15/11 ......................... 1,494,829
244,310 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ................... 239,270
----------
1,734,099
----------
Manufactured Housing
Receivables 1.0% 650,000 Green Tree Financial Corp. Series 1997-1 B2, 7.76%,
3/15/28 ........................................... 640,199
----------
Total Asset Backed (Cost $4,515,718) ............... 4,382,728
----------
---------------------------------------------------------------------------
41.7% CORPORATE BONDS
---------------------------------------------------------------------------
Consumer Staples 1.7% 1,000,000 J. Seagram & Sons Inc., 9%, 8/15/21 ................ 1,146,060
----------
Financial 19.9% 2,000,000 Associates Corp. of North America, 6.625%, 5/15/01 . 1,994,000
1,000,000 BankAmerica Corp., 7.125%, 5/1/06 .................. 1,003,010
1,000,000 First Industrial LP, 7.6%, 5/15/07 ................. 1,016,900
1,750,000 First Union Capital II, 7.85%, 1/1/27 .............. 1,710,223
1,500,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ................ 1,454,145
750,000 People's Heritage Bank, 9.06%, 2/1/27 .............. 775,313
500,000 Security Capital Industrial Trust, 7.81%, 2/1/15 ... 519,656
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 .......... 726,023
1,000,000 Susa Partnership L.P., 7.125%, 11/1/03 ............. 994,440
1,000,000 Susa Partnership L.P., 8.2%, 6/1/17 ................ 1,025,610
500,000 Taubman Realty Group LP Medium Term Note, 8%,
7/30/01 ........................................... 513,410
1,500,000 US West Capital Funding Inc., 7.9%, 1/1/27 ......... 1,515,300
----------
13,248,030
----------
Media 4.7% 1,000,000 Outdoor Systems, Inc., 8.875%, 6/15/07 ............. 975,000
1,000,000 Tele-Communications, Inc., 8.65%, 9/15/04 .......... 1,055,320
1,000,000 Time Warner Inc., 9.125%, 1/15/13 .................. 1,105,720
----------
3,136,040
----------
Durables 3.2% 1,000,000 Lockheed Martin Corp., 9%, 1/15/22 ................. 1,150,570
1,000,000 Northrop Grumman Corp., 7.875%, 3/1/26 ............. 1,012,670
----------
2,163,240
----------
Manufacturing 2.2% 1,000,000 ARCO Chemical Co., 9.375%, 12/15/05 ................ 1,145,190
300,000 GFSI Inc., 9.625%, 3/1/07 .......................... 302,700
----------
1,447,890
----------
Technology 3.8% 500,000 Amphenol Corp., 9.875%, 5/15/07 .................... 515,750
1,000,000 International Business Machines Corp., 7%, 10/30/45 929,010
1,000,000 Loral Corp., 8.375%, 6/15/24 ....................... 1,089,130
----------
2,533,890
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Energy 1.6% 750,000 Barrett Resources Corp., 7.55%, 2/1/07 ............. 778,828
300,000 Dawson Production Services, Inc., 9.375%, 2/1/07 ... 303,000
----------
1,081,828
----------
Transportation 3.0% 675,000 Atlantic Express, Inc., 10.75%, 2/1/04 ............. 702,000
500,000 Newport News Shipbuilding Co., 8.625%, 12/1/06 ..... 517,500
750,000 Norfolk Southern Corp., 7.8%, 5/15/27 .............. 770,325
----------
1,989,825
----------
Service Industries/
Miscellaneous
Commercial Services 0.8% 500,000 Pierce Leahy Corp., 9.125%, 7/15/07 ................ 500,000
----------
Utilities 0.8% 500,000 Houston Light & Power Capital Corp., 8.257%,
2/1/37 ............................................ 531,250
Total Corporate Bonds (Cost $26,974,272) ........... 27,778,053
----------
- --------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $65,888,371) (b) ............................ 66,585,120
==========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Effective maturities will be shorter due to
prepayments.
(b) At July 30, 1997, the net unrealized appreciation on
investments based on cost for federal income tax
purposes of $65,896,264 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of market
value over tax cost ................................ $1,183,202
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over market value .................................. 494,346
----------
Net unrealized appreciation .......................... $ 688,856
==========
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1997, aggregated $15,678,409 and $15,070,976, respectively. Purchases
and sales of U.S. Government securities for the six months ended June 30,
1997, aggregated $345,495 and $6,578,507, respectively.
- --------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the
six months ended June 30, 1997, for the Bond Portfolio, was $128,899,607
and $128,899,607.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (including repurchase agreements of
$8,455,000) (identified cost $65,888,371) ..................... $66,585,120
Cash ............................................................. 1,662
Foreign currency, at value (cost $70) ............................ 65
Receivables:
Interest ...................................................... 792,863
Receivable for daily variation margin on open futures contracts 22,317
Portfolio shares sold ......................................... 21,843
Other assets .................................................. 1,174
-----------
Total assets ............................................... 67,425,044
Liabilities
Payables:
Investments purchased ......................................... $1,474,719
Portfolio shares redeemed ..................................... 72,660
Payable for daily variation margin on open futures contracts .. 15,491
Accrued management fee ........................................ 26,049
Other payables and accrued expenses ........................... 10,264
----------
Total liabilities .......................................... 1,599,183
-----------
Net assets, at market value ...................................... $65,825,861
===========
Net Assets
Net assets consist of:
Undistributed net investment income ........................... $ 1,072,996
Net unrealized appreciation (depreciation) on:
Investments ................................................ 696,749
Foreign currency related transactions ...................... (5)
Accumulated net realized gain (loss) .......................... (9,774)
Paid-in capital ............................................... 64,065,895
-----------
Net assets, at market value ...................................... $65,825,861
===========
Net asset value, offering and redemption price per share
($65,825,861 / 9,843,683 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 6.69
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ....................................................... $2,292,919
Expenses:
Management fee .............................................. $ 151,429
Custodian fees .............................................. 7,855
Accounting fees ............................................. 19,453
Reports to shareholders ..................................... 778
Trustees' fees .............................................. 8,753
Registration fees ........................................... 2,920
Auditing .................................................... 1,907
Other ....................................................... 3,537 196,632
--------- ----------
Net investment income .......................................... 2,096,287
----------
Net realized and unrealized gain (loss) on investment
transactions
Net realized gain (loss) from:
Investments ................................................. 43,537
Futures ..................................................... 46,886 90,423
--------- ----------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................. (218,992)
Foreign currency related transactions ....................... (5) (218,997)
--------- ----------
Net loss on investment transactions ............................ (128,574)
----------
Net increase in net assets resulting from operations .............. $1,967,713
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 2,096,287 $ 3,806,734
Net realized gain from investment transactions ................. 90,423 598,986
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. (218,997) (2,514,348)
------------ ------------
Net increase in net assets resulting from operations .............. 1,967,713 1,891,372
------------ ------------
Distributions to shareholders from:
Net investment income .......................................... (2,098,487) (5,405,378)
Net realized gains from investment transactions ................ (189,814) --
------------ ------------
Portfolio share transactions:
Proceeds from shares sold ...................................... 6,658,288 27,555,910
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 2,288,301 5,405,378
Cost of shares redeemed ........................................ (8,569,561) (36,192,318)
------------ ------------
Net increase (decrease) in net assets from Portfolio share
transactions ................................................... 377,028 (3,231,030)
------------ ------------
Increase (Decrease) in net assets ................................. 56,440 (6,745,036)
Net assets at beginning of period ................................. 65,769,421 72,514,457
------------ ------------
Net assets at end of period (including undistributed net investment
income of $1,072,996 and $1,075,196, respectively) ............. $ 65,825,861 $ 65,769,421
============ ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ......................... 9,775,320 10,126,562
------------ ------------
Shares sold .................................................... 1,005,685 4,122,227
Shares issued to shareholders in reinvestment of distributions . 349,244 806,843
Shares redeemed ................................................ (1,286,566) (5,280,312)
------------ ------------
Net increase (decrease) in Portfolio shares .................... 68,363 (351,242)
------------ ------------
Shares outstanding at end of period ............................... 9,843,683 9,775,320
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 ------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988
----------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Income from investment
operations:
Net investment
income (a) ................. .22 .41 .44 .43 .48 .49 .52 .53 .54 .54
Net realized and
unrealized gain (loss)
on investment
transactions ............... (.02) (.22) .69 (.77) .38 (.02) .61 (.02) .18 (.19)
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total from investment
operations .................... .20 .19 1.13 (.34) .86 .47 1.13 .51 .72 .35
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Less distributions from:
Net investment income ......... (.22) (.62) (.45) (.43) (.48) (.46) (.47) (.50) (.39) (.43)
Net realized gains on
investment transactions ...... (.02) -- -- (.17) (.15) (.19) (.02) -- -- --
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total distributions ............. (.24) (.62) (.45) (.60) (.63) (.65) (.49) (.50) (.39) (.43)
------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Net asset value,
end of period ................... $ 6.69 $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39
====== ====== ======= ====== ======= ====== ======= ====== ======= =======
Total Return (%) ................ 3.08** 2.82 18.17 (4.79) 12.38 7.01 17.61 8.06 11.65 5.46
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 66 66 73 142 129 113 74 42 22 3
Ratio of operating expenses,
net to average net
assets (%) .................... .62* .61 .56 .58 .61 .63 .69 .73 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... .62* .61 .56 .58 .61 .63 .69 .73 .84 1.40
Ratio of net investment
income to average
net assets (%) ................ 6.59* 6.20 6.29 6.43 6.59 6.89 7.51 8.05 8.04 7.86
Portfolio turnover rate (%) ..... 58.27* 85.11 177.21 96.55 125.15 87.00 115.86 71.02 103.41 245.23
</TABLE>
-----------
1987
-----------
Net asset value,
beginning of period .......... $ 6.67
-------
Income from investment
operations:
Net investment
income (a) ................. .49
Net realized and
unrealized gain (loss)
on investment
transactions ............... (.40)
-------
Total from investment
operations .................... .09
-------
Less distributions from:
Net investment income ......... (.29)
Net realized gains on
investment transactions ...... --
-------
Total distributions ............. (.29)
-------
Net asset value,
end of period ................... $ 6.47
=======
Total Return (%) ................ 1.22
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 3
Ratio of operating expenses,
net to average net
assets (%) .................... .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... 2.01
Ratio of net investment
income to average
net assets (%) ................ 7.53
Portfolio turnover rate (%) ..... 186.05
(a) Based on average shares outstanding during the period
* Annualized
** Not Annualized
24
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
6.2% REPURCHASE AGREEMENT
-----------------------------------------------------------------------
6,377,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $6,378,045
on 7/1/97, collateralized by a $5,921,000 U.S. Treasury
Note, 8.5%, 2/15/00 (Cost $6,377,000) ............. 6,377,000
-----------------------------------------------------------------------
6.8% U.S. GOVERNMENT & AGENCIES
-----------------------------------------------------------------------
1,200,000 U.S. Treasury Bond, 7.25%, 5/15/16 ................. 1,251,372
1,300,000 U.S. Treasury Bond, 6.25%, 8/15/23 ................. 1,203,514
1,000,000 U.S. Treasury Note, 5.25%, 7/31/98 ................. 993,750
2,000,000 U.S. Treasury Note, 5.75%, 12/31/98 ................ 1,994,060
500,000 U.S. Treasury Note, 6.125%, 7/31/00 ................ 498,280
1,150,000 U.S. Treasury Note, 5.625%, 11/30/00 ............... 1,126,460
------------
Total U.S. Government & Agencies (Cost $7,200,705) . 7,067,436
------------
-----------------------------------------------------------------------
2.5% GOVERNMENT NATIONAL MORTGAGE ASSOC.
-----------------------------------------------------------------------
461,056 Government National Mortgage Association Pass-thru
10%, 8/15/20 (a) .................................. 507,706
526,092 Government National Mortgage Association Pass-thru
8.75%, 12/15/24 (a) ............................... 544,010
1,522,732 Government National Mortgage Association Pass-thru
8.5% with various maturities to 9/15/26 (a) ....... 1,582,981
------------
Total Government National Mortgage Assoc.
(Cost $2,557,599) ................................. 2,634,697
------------
-----------------------------------------------------------------------
6.7% U. S. GOVERNMENT AGENCY PASS-THRUS
-----------------------------------------------------------------------
2,511,577 Federal National Mortgage Association 6.5% with various
maturities to 2/1/26 (a) .......................... 2,407,981
4,619,998 Federal National Mortgage Association 7% with various
maturities to 9/1/26 (a) .......................... 4,529,902
------------
Total U.S. Government Agency Pass-thrus
(Cost $6,885,674) ................................. 6,937,883
------------
-----------------------------------------------------------------------
1.0% COLLATERALIZED MORTGAGE OBLIGATIONS
-----------------------------------------------------------------------
983,868 Federal Home Loan Mortgage Corp. 8% with various
maturities to 4/1/08 (a) .......................... 1,007,913
228 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (a) ....................................... 227
------------
Total Collateralized Mortgage Obligations
(Cost $1,009,452) ................................. 1,008,140
------------
-----------------------------------------------------------------------
0.5% FOREIGN BONDS - U.S. $ DENOMINATED
-----------------------------------------------------------------------
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23 ................... 255,323
250,000 Seagram Co., Ltd., 6.875%, 9/1/23 .................. 229,238
------------
Total Foreign Bonds - U.S. $ Denominated Total
(Cost $461,469) ................................... 484,561
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
2.2% ASSET BACKED
-----------------------------------------------------------------------
Automobile
Receivables 0.6% 68,074 Premier Auto Trust Asset Backed Certificate
Series 1994-3, 6.8%, 12/2/99 ...................... 68,392
500,000 Premier Auto Trust Asset Backed Certificate
Series 1996-3, 6.5%, 3/6/00 ....................... 502,185
------------
570,577
------------
Credit Card Receivables 1.1% 850,000 Sears Credit Account Master Trust, Series 1995-4,
6.25%, 1/15/03 .................................... 851,590
250,000 Standard Credit Card Trust, Series 1990-6B,
9.625%, 9/10/97 ................................... 251,718
------------
1,103,308
------------
Home Equity Loans 0.5% 499,996 Contimortgage Home Equity Loan Trust, Series 1996-1A2,
5.58%, 1/15/11 .................................... 498,276
61,078 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ................... 59,818
------------
558,094
------------
Total Asset Backed (Cost $2,252,238) ............... 2,231,979
------------
-----------------------------------------------------------------------
13.1% CORPORATE BONDS
-----------------------------------------------------------------------
Consumer
Discretionary 0.2% 250,000 Price/Costco Inc., 7.125%, 6/15/05 ................. 247,995
------------
Consumer Staples 0.3% 270,000 J. Seagram & Sons Inc., 7%, 4/15/08 ................ 265,785
------------
Financial 6.8% 750,000 Associates Corp. of North America, 6.625%, 5/15/01 . 747,750
1,000,000 Deutsche Bank, 7.5%, 4/25/09 ....................... 1,022,930
1,000,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ................ 969,430
500,000 Midland Bank PLC, 6.95%, 3/15/11 ................... 480,905
250,000 NationsBank Corp., 7.25%, 10/15/25 ................. 239,558
1,000,000 Southern National Corp., 7.05%, 5/23/03 ............ 1,000,260
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 .......... 726,023
500,000 Susa Partnership L.P., 8.2%, 6/1/17 ................ 512,805
800,000 US West Capital Funding Inc., 7.9%, 1/1/27 ......... 808,160
500,000 Wells Fargo & Co., 6.875%, 4/1/06 .................. 490,895
------------
6,998,716
------------
Media 1.6% 500,000 Tele-Communications, Inc., 8.65%, 9/15/04 .......... 527,660
1,000,000 Time Warner Inc., 9.125%, 1/15/13 .................. 1,105,720
------------
1,633,380
Durables 0.8% 250,000 Lockheed Martin Corp., 9%, 1/15/22 ................. 287,643
500,000 Northrop Grumman Corp., 7.875%, 3/1/26 ............. 506,335
------------
793,978
------------
Manufacturing 0.3% 250,000 Corning Inc., 8.75%, 7/15/99 ....................... 260,660
------------
Technology 0.5% 500,000 Loral Corp., 8.375%, 6/15/24 ....................... 544,565
------------
Energy 0.8% 500,000 Atlantic Richfield Co., 8.25%, 2/1/22 .............. 539,750
250,000 Enron Corp., 10%, 6/1/98 ........................... 258,470
------------
798,220
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Metals & Minerals 0.9% 1,000,000 Potash Corp., 7.125%, 6/15/07 ...................... 995,900
------------
Transportation 0.7% 100,000 American Airlines, 8.8%, 9/16/15 ................... 107,418
100,000 American Airlines, 8.39%, 1/2/17 ................... 104,580
500,000 Norfolk Southern Corp., 7.8%, 5/15/27 .............. 513,550
------------
725,548
------------
Utilities 0.2% 250,000 Commonwealth Edison Co., 9.05%, 10/15/99 ........... 260,853
------------
Total Corporate Bonds (Cost $13,266,350) ........... 13,525,600
------------
-----------------------------------------------------------------------
61.0% COMMON STOCKS
-----------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
Consumer
Discretionary 5.7%
Department & Chain
Stores 4.3% 15,100 Federated Department Stores, Inc.* ................. 524,725
22,400 Home Depot, Inc. ................................... 1,544,200
31,100 Price/Costco Inc.* ................................. 1,022,413
39,700 Wal-Mart Stores Inc. ............................... 1,342,356
------------
4,433,694
------------
Hotels & Casinos 0.7% 41,400 Host Marriott Corp ................................. 737,438
------------
Specialty Retail 0.7% 53,300 Corporate Express, Inc. ............................ 769,519
------------
Consumer Staples 14.1%
Alcohol & Tobacco 1.8% 42,800 Philip Morris Companies Inc. ....................... 1,899,250
------------
Consumer Specialties 0.6% 13,700 Samsonite Corp. .................................... 604,513
------------
Food & Beverage 3.7% 44,700 Coca-Cola Co., Inc. ................................ 3,017,250
14,200 Interstate Bakeries Corp. .......................... 842,238
------------
3,859,488
------------
Package Goods/
Cosmetics 8.0% 20,700 Avon Products Inc. ................................ 1,460,644
30,800 Colgate-Palmolive Co. ............................. 2,009,700
17,945 Gillette Co. ...................................... 1,700,289
13,200 Procter & Gamble Co. .............................. 1,864,500
22,600 Revlon, Inc. "A" .................................. 1,170,963
------------
8,206,096
------------
Health 12.4%
Biotechnology 1.0% 12,300 Guidant Corp. ..................................... 1,045,500
------------
Health Industry
Services 0.7% 10,500 HBO & Company, Inc. ............................... 723,188
------------
Hospital Management 0.6% 21,100 Tenet Healthcare Corp. ............................ 623,769
------------
Medical Supply &
Specialty 0.6% 10,800 Boston Scientific Corp. ........................... 663,525
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceuticals 9.5% 15,058 Eli Lilly & Co. ................................... 1,646,028
24,000 Johnson & Johnson ................................. 1,545,000
21,700 Merck & Co. Inc. .................................. 2,245,950
12,000 Pfizer, Inc. ...................................... 1,434,000
17,700 SmithKline Beecham PLC (ADR) ...................... 1,621,763
10,900 Warner-Lambert Co. ................................ 1,354,315
------------
9,847,056
------------
Financial 3.2%
Banks 0.7% 11,900 NationsBank Corp. ................................. 767,550
------------
Insurance 1.8% 12,250 American International Group, Inc. ................ 1,829,844
------------
Other Financial
Companies 0.7% 15,600 Federal National Mortgage Association ............. 680,550
------------
Media 3.6%
Advertising 1.6% 14,300 Interpublic Group of Companies Inc. ............... 876,769
19,400 Outdoor Systems, Inc. ............................. 742,050
------------
1,618,819
------------
Broadcasting &
Entertainment 2.0% 23,300 Clear Channel Communications, Inc. ................ 1,432,950
8,000 Walt Disney Co. ................................... 642,000
------------
2,074,950
------------
Service Industries 3.3%
Edp Services 1.2% 29,400 Electronic Data Systems Corp. ..................... 1,205,400
------------
Miscellaneous Consumer
Services 1.4% 24,100 CUC International Inc. ............................ 622,081
25,600 Service Corp. International ....................... 841,600
------------
1,463,681
------------
Printing/Publishing 0.7% 11,800 Reuters Holdings PLC "B" (ADR) .................... 743,400
------------
Durables 2.8%
Aerospace 1.0% 11,700 Allied Signal Inc. ................................ 982,800
------------
Telecommunications
Equipment 1.8% 21,900 Ascend Communications, Inc.* ...................... 862,313
13,700 Nokia AB Oy "A" (ADR) ............................. 1,010,375
------------
1,872,688
------------
Manufacturing 4.8%
Diversified Manufacturing 45,400 General Electric Co. .............................. 2,968,025
9,100 Honeywell, Inc. ................................... 690,463
19,400 Textron, Inc. ..................................... 1,287,675
------------
4,946,163
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Technology 10.3%
Computer Software 3.4% 12,350 Computer Associates International, Inc. ........... 687,741
16,800 Microsoft Corp. ................................... 2,123,100
12,900 PeopleSoft Inc. ................................... 680,475
------------
3,491,316
------------
Diverse Electronic
Products 1.7% 14,900 Applied Materials, Inc.* .......................... 1,055,106
18,700 Teradyne Inc.* .................................... 733,975
------------
1,789,081
------------
Electronic Data
Processing 1.4% 16,200 Ceridian Corp. .................................... 684,450
7,400 Compaq Computer Corp.* ............................ 734,450
------------
1,418,900
------------
Office/Plant
Automation 1.4% 16,000 3Com Corp.* ....................................... 720,000
11,500 Cisco Systems, Inc.* .............................. 771,938
------------
1,491,938
------------
Semiconductors 2.4% 19,600 Advanced Micro Devices Inc.* ...................... 705,600
6,500 Intel Corp. ....................................... 921,781
27,500 National Semiconductor Corp. ...................... 842,188
------------
2,469,569
------------
Construction 0.8%
Building Products 18,200 American Standard Companies, Inc. ................. 814,450
------------
Total Common Stocks (Cost $44,345,512) ............ 63,074,135
------------
========================================================================================================================
Total Investment Portfolio -- 100.0%
(Cost $84,355,999) (b) ........................... 103,341,431
===========
========================================================================================================================
* Non-income producing security.
(a) Effective maturities will be shorter due to prepayments.
(b) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $84,367,911 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ...................................................... 19,918,587
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value ............................................................ 945,067
------------
Net unrealized appreciation ....................................................................... $ 18,973,520
============
- ------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments and U.S. Government securities), for the six months ended June
30, 1997, aggregated $23,258,337 and $21,266,429, respectively. Sales of
U.S. Government securities for the six months ended June 30, 1997,
aggregated $1,643,054.
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $84,355,999) ............ $ 103,341,431
Cash ............................................................ 692
Foreign Currency, at value (cost $63) ........................... 56
Receivables:
Dividends and interest ....................................... 448,465
Portfolio shares sold ........................................ 73,160
Foreign taxes recoverable .................................... 177
Other assets ................................................. 1,704
-------------
Total assets .............................................. 103,865,685
Liabilities
Payables:
Portfolio shares redeemed .................................... $35,305
Accrued management fee ....................................... 40,570
Other payables and accrued expenses .......................... 23,092
--------
Total liabilities ......................................... 98,967
-------------
Net assets, at market value ..................................... $ 103,766,718
=============
Net Assets
Net assets consist of:
Undistributed net investment income .......................... $ 747,979
Net unrealized appreciation (depreciation) on:
Investments ............................................... 18,985,432
Foreign currency related transactions ..................... (7)
Accumulated net realized gain ................................ 3,261,196
Paid-in capital .............................................. 80,772,118
-------------
Net assets, at market value ..................................... $ 103,766,718
=============
Net asset value, offering and redemption price per share
($103,766,718/8,344,085 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 12.44
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Interest .................................................. $ 1,334,846
Dividends (net of foreign taxes withheld of $4,181) ....... 288,951
-------------
1,623,797
Expenses:
Management fee ............................................ $224,141
Custodian fees ............................................ 10,583
Accounting fees ........................................... 19,173
Trustees' fees ............................................ 8,923
Auditing .................................................. 5,950
Legal ..................................................... 1,578
Registration fees ......................................... 1,125
Reports to shareholders ................................... 407
Other ..................................................... 4,901 276,781
-------- -------------
Net investment income ........................................ 1,347,016
-------------
Net ealized and unrealized gain on investment transactions
Net realized gain from:
Investments ............................................... 3,414,942
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................... 8,428,580
Foreign currency related transactions ..................... (7) 8,428,573
-------- -------------
Net gain on investment transactions .......................... 11,843,515
-------------
Net increase in net assets resulting from operations ............ $ 13,190,531
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
BALANCED PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 1,347,016 $ 2,208,747
Net realized gain from investment transactions ............... 3,414,942 4,899,761
Net unrealized appreciation on investment transactions
during the period ......................................... 8,428,573 1,635,671
------------- ------------
Net increase in net assets resulting from operations ............ 13,190,531 8,744,179
------------- ------------
Distributions to shareholders from:
Net investment income ........................................ (1,271,214) (2,028,500)
------------- ------------
Net realized gains from investment transactions .............. (4,951,322) (1,925,657)
------------- ------------
Portfolio share transactions:
Proceeds from shares sold .................................... 12,069,718 25,991,787
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 6,222,536 3,954,157
Cost of shares redeemed ...................................... (9,836,368) (14,318,918)
------------- ------------
Net increase in net assets from portfolio share transactions .... 8,455,886 15,627,026
------------- ------------
Increase in net assets .......................................... 15,423,881 20,417,048
Net assets at beginning of period ............................... 88,342,837 67,925,789
------------- ------------
Net assets at end of period (including undistributed net
investment income of $747,979 and $672,177, respectively) .... $ 103,766,718 $ 88,342,837
============= ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ....................... 7,608,722 6,206,064
------------- ------------
Shares sold .................................................. 1,037,941 2,336,334
Shares issued to shareholders in reinvestment of distributions 541,838 360,527
Shares redeemed .............................................. (844,416) (1,294,203)
------------- ------------
Net increase in Portfolio shares ............................. 735,363 1,402,658
------------- ------------
Shares outstanding at end of period ............................. 8,344,085 7,608,722
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1997 -----------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ....... $11.61 $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88 $ 7.35
Income from
investment operations:
Net investment
income (a) ............... .17 .31 .30 .29 .30 .29 .35 .42 .40 .33 .34
Net realized and unrealized
gain (loss) on investment
transactions ............. 1.46 .95 2.04 (.48) .42 .36 1.77 (.59) 1.06 .64 (.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations ................ 1.63 1.26 2.34 (.19) .72 .65 2.12 (.17) 1.46 .97 (.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Less distributions from:
Net investment income ..... (.16) (.30) (.30) (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23)
Net realized gains on
investment transactions .. (.64) (.30) (.06) (.77) (.23) (.19) -- (.05) -- -- (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions ......... (.80) (.60) (.36) (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value,
end of period ............. $12.44 $11.61 $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ............ 14.70** 11.89 26.67 (2.05) 7.45 6.96 26.93 (1.91) 19.50 14.21 (1.68)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ....... 104 88 68 46 45 37 25 16 18 11 12
Ratio of operating
expenses, net to
average net assets (%) .... .59* .60 .65 .75 .75 .75 .75 .75 .75 .75 .75
Ratio of operating
expense before expense
reductions, to average
daily net assets .......... .59* .60 .65 .75 .75 .75 .81 .75 .89 1.14 1.20
Ratio of net investment
income to average net
assets (%) ................ 2.87* 2.82 3.01 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42
Portfolio turnover rate (%) . 52.27* 67.56 87.98 101.64 133.95*** 51.66 62.03 49.03 77.98 109.95 111.00
Average commission
rate paid (b) ............. $.0538 $.0535 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
* Annualized
** Not Annualized
*** On May 1, 1993, the Portfolio adopted its present name and investment
objective which is a balance of growth and income, as well as long-term
preservation of capital, from a diversified portfolio of equity and fixed
income securities. Prior to that date, the Portfolio was known as the
Managed Diversified Portfolio and its investment objective was to realize
a high level of long-term total rate of return consistent with prudent
investment risk. The portfolio turnover rate increased due to implementing
the present investment objective. Financial highlights for the seven
periods ended December 31, 1993 should not be considered representative of
the present Portfolio.
33
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
3.3% REPURCHASE AGREEMENT
---------------------------------------------------------------------------------------------
18,906,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 6/30/97 at 5.9% to be repurchased at $18,909,098
on 7/1/97, collateralized by a $18,807,000 U.S. Treasury
Note, 5.75%, 9/30/97 (Cost $18,906,000) ..................... 18,906,000
----------
---------------------------------------------------------------------------------------------
96.7% COMMON STOCKS
---------------------------------------------------------------------------------------------
Shares
---------------------------------------------------------------------------------------------
Consumer Discretionary 9.1%
Apparel &
Shoes 1.4% 135,000 Nike, Inc. "B" .............................................. 7,880,625
----------
Department &
Chain Stores 5.5% 160,000 Gap Inc. ..................................................... 6,220,000
180,000 Home Depot, Inc. ............................................. 12,408,750
180,000 Price/Costco Inc. ............................................ 5,917,500
120,000 Walgreen Co. ................................................. 6,435,000
----------
30,981,250
----------
Hotels & Casinos 0.9% 200,000 Mirage Resorts Inc.* ......................................... 5,050,000
----------
Specialty Retail 1.3% 155,000 Tiffany & Co. ................................................ 7,159,063
----------
Consumer Staples 5.0%
Alcohol & Tobacco 1.5% 196,400 Anheuser-Busch Companies, Inc. ............................... 8,236,525
----------
Food & Beverage 2.1% 150,000 H.J. Heinz Co. ............................................... 6,918,750
125,000 Sara Lee Corp. ............................................... 5,203,125
----------
12,121,875
----------
Package Goods/
Cosmetics 1.4% 57,500 Procter & Gamble Co. ......................................... 8,121,875
----------
Health 12.2%
Hospital Management 1.9% 275,600 Columbia/HCA Healthcare Corp. ................................ 10,834,525
----------
Medical Supply &
Specialty 1.4% 155,000 Becton, Dickinson & Co. ...................................... 7,846,875
----------
Pharmaceuticals 8.9% 70,000 American Home Products Corp. ................................. 5,355,000
90,000 Johnson & Johnson ............................................ 5,793,750
50,000 Merck & Co. Inc. ............................................. 5,175,000
101,000 Novartis AG (ADR) ............................................ 8,092,625
68,600 Pfizer, Inc. ................................................. 8,197,700
94,000 Schering-Plough Corp. ........................................ 4,500,250
104,500 Warner-Lambert Co. ........................................... 12,984,124
==========
50,098,449
----------
Financial 19.9%
Banks 4.7% 175,200 BankAmerica Corp. ............................................ 11,311,350
90,000 Citicorp ..................................................... 10,850,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
40,000 J.P. Morgan & Co., Inc. ...................................... 4,175,000
----------
26,336,975
----------
Insurance 7.8% 90,000 American International Group, Inc. ........................... 13,443,750
110,000 Conseco Inc. ................................................. 4,070,000
278,400 EXEL, Ltd. (ADR) ............................................. 14,685,600
170,000 Hartford Life, Inc. "A" ...................................... 6,375,000
48,000 MBIA Inc. .................................................... 5,415,000
----------
43,989,350
----------
Consumer Finance 1.5% 152,100 Associates First Capital Corp. ............................... 8,441,550
----------
Other Financial
Companies 5.9% 212,500 American Express Credit Corp. ................................ 15,831,250
204,000 Federal National Mortgage Association ........................ 8,899,500
140,000 Travelers Group, Inc. ........................................ 8,828,750
----------
33,559,500
----------
Media 2.0%
Advertising 1.1% 102,500 Omnicom Group, Inc. .......................................... 6,316,563
----------
Cable Television 0.9% 210,000 Tele-Comm Liberty Media Group "A" ............................ 4,987,500
----------
Service Industries 4.6%
Investment 3.4% 148,950 Franklin Resources Inc. ...................................... 10,808,184
140,400 Merrill Lynch & Co., Inc. .................................... 8,371,350
----------
19,179,534
----------
Miscellaneous
Commercial Services 1.2% 148,000 Manpower, Inc. ............................................... 6,586,000
----------
Durables 3.4%
Aerospace 2.8% 110,000 Rockwell International Corp. (New) ........................... 6,490,000
115,000 United Technologies Corp. .................................... 9,545,000
----------
16,035,000
----------
Telecommunications
Equipment 0.6% 83,000 Ascend Communications, Inc.* ................................. 3,268,125
----------
Manufacturing 12.8%
Chemicals 3.4% 130,000 E.I. du Pont de Nemours & Co. ................................ 8,173,750
103,900 Praxair Inc. ................................................. 5,818,400
150,000 Sigma-Aldrich Corp. .......................................... 5,259,375
----------
19,251,525
----------
Diversified
Manufacturing 4.5% 150,000 Dresser Industries Inc. ...................................... 5,587,500
71,200 General Electric Co. ......................................... 4,654,700
120,000 TRW Inc. ..................................................... 6,817,500
130,000 Textron, Inc. ................................................ 8,628,750
----------
25,688,450
----------
Electrical Products 1.8% 37,500 ABB AB (ADR) ................................................. 5,235,938
90,000 Emerson Electric Co. ......................................... 4,955,625
----------
10,191,563
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Machinery/Components/
Controls 3.1% 100,000 Ingersoll-Rand Co. ........................................... 6,175,000
186,000 Parker-Hannifin Group ........................................ 11,287,875
-----------
17,462,875
-----------
Technology 15.9%
Diverse Electronic
Products 5.8% 150,000 Applied Materials, Inc.* ..................................... 10,621,875
180,000 General Motors Corp. "H" ..................................... 10,395,000
110,000 KLA Instruments Corp.* ....................................... 5,362,500
160,000 Teradyne Inc.* ............................................... 6,280,000
-----------
32,659,375
-----------
Electronic Data
Processing 7.3% 146,000 Compaq Computer Corp.* ....................................... 14,490,500
150,500 Hewlett-Packard Co. .......................................... 8,428,000
80,000 International Business Machines Corp. ........................ 7,215,000
305,000 Sun Microsystems, Inc. ....................................... 11,351,719
-----------
41,485,219
-----------
Office/Plant
Automation 0.6% 53,400 Cisco Systems, Inc.* ......................................... 3,584,475
-----------
Semiconductors 2.2% 88,500 Intel Corp. .................................................. 12,550,406
-----------
Energy 10.4%
Oil Companies 8.5% 63,100 Amoco Corp. .................................................. 5,485,756
100,000 Atlantic Richfield Co. ....................................... 7,050,000
155,200 Exxon Corp. .................................................. 9,544,800
89,200 Mobil Corp. .................................................. 6,232,850
125,000 Repsol SA (ADR) .............................................. 5,304,688
260,000 Royal Dutch Petroleum Co. (New) .............................. 14,137,500
-----------
47,755,594
-----------
Oil/Gas Transmission 1.3% 110,000 Enron Corp. .................................................. 4,489,375
65,000 Williams Cos., Inc. .......................................... 2,843,750
-----------
7,333,125
-----------
Oilfield Services/
Equipment 0.6% 100,000 Santa Fe International Corp. ................................. 3,400,000
-----------
Transportation 1.0%
Airlines 60,000 AMR Corp.* ................................................... 5,550,000
-----------
Utilities 0.4%
Electric Utilities 50,000 Eastern Utilities Association ................................ 912,500
60,000 Unicom Corp. ................................................. 1,335,000
-----------
2,247,500
-----------
Total Common Stocks (Cost $389,896,128) ...................... 546,191,266
===========
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $408,802,128) (a) ..................................... 565,097,266
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
CAPITAL GROWTH PORTFOLIO
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
* Non-income producing security.
(a) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $408,830,055 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
is an excess of market value over tax cost ........................................ $159,939,073
Aggregate gross unrealized depreciation for all investments in which there is an
excess of tax cost over market value .............................................. 3,671,862
------------
Net unrealized appreciation $156,267,211
============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1997, aggregated
$121,126,028 and $105,859,678, respectively.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $408,802,128) .......... $ 565,097,266
Cash ........................................................... 1,778
Foreign currency at value (cost $146) .......................... 123
Receivables:
Investments sold ............................................ 1,555,448
Dividends and interest ...................................... 308,313
Other assets ................................................ 7,764
-------------
Total assets ............................................. 566,970,692
Liabilities
Payables:
Accrued management fee ...................................... $ 218,403
Other payables and accrued expenses ......................... 63,143
------------
Total liabilities ........................................ 281,546
-------------
Net assets, at market value .................................... $ 566,689,146
=============
Net Assets
Net assets consist of:
Undistributed net investment income ......................... $ 1,310,663
Net unrealized appreciation (depreciation) on:
Investments .............................................. 156,295,138
Foreign currency related transactions .................... (23)
Accumulated net realized gain ............................... 20,015,376
Paid-in capital ............................................. 389,067,992
-------------
Net assets, at market value .................................... $ 566,689,146
=============
Class A
Net asset value, offering and redemption price per share
($566,569,401 / 29,934,111 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) ................................................. $18.93
======
Class B
Net asset value, offering and redemption price per share
($119,745 / 6,327 outstanding shares of beneficial
interest, no par value, unlimited number of shares
authorized) ................................................. $18.93
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $66,768) .............. $ 3,472,568
Interest .......................................................... 364,193
------------
3,836,761
Expenses:
Management fee .................................................... $ 1,170,977
Accounting fees ................................................... 39,638
Trustees' fees .................................................... 9,892
Distribution fees ................................................. 20
Custodian fees .................................................... 27,622
Auditing .......................................................... 18,475
Legal ............................................................. 4,966
Registration fees ................................................. 7,149
Other ............................................................. 13,440 1,292,179
---------- ------------
Net investment income ................................................ 2,544,582
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ....................................................... 20,207,383
Foreign currency related transactions ............................. (2,209) 20,205,174
----------
Net unrealized appreciation (depreciation) during the period on:
Investments ....................................................... 84,683,851
Foreign currency related transactions ............................. (70) 84,683,781
---------- ------------
Net gain on investment transactions .................................. 104,888,955
------------
Net increase in net assets resulting from operations .................... $107,433,537
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (unaudited) 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 2,544,582 $ 4,993,004
Net realized gain from investment transactions ................. 20,205,174 33,857,212
Net unrealized appreciation on investment
transactions during the period .............................. 84,683,781 33,028,817
------------- -------------
Net increase in net assets resulting from operations .............. 107,433,537 71,879,033
------------- -------------
Distributions to shareholders from:
Net investment income (Class A) ................................ (2,799,908) (4,669,020)
------------- -------------
Net realized gain from investment transactions (Class A) ....... (33,950,004) (28,547,850)
------------- -------------
Portfolio share transactions:
Class A
Proceeds from shares sold ...................................... 79,508,396 176,019,020
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 36,749,912 33,216,870
Cost of shares redeemed ........................................ (60,847,857) (145,085,225)
------------- -------------
Net increase in net assets from Portfolio share transactions ...... 55,410,451 64,150,665
------------- -------------
Class B*
Proceeds from shares sold ...................................... 113,878 --
Cost of shares redeemed ........................................ (116) --
------------- -------------
Net increase in net assets from Portfolio share transactions ...... 113,762 --
------------- -------------
Increase in net assets ............................................ 126,207,838 102,812,828
Net assets at beginning of period ................................. 440,481,308 337,668,480
------------- -------------
Net assets at end of period (including undistributed net
investment income of $1,310,663 and $1,565,989, respectively) .. $ 566,689,146 $ 440,481,308
============= =============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period ......................... 26,691,077 22,392,030
------------- -------------
Shares sold .................................................... 4,651,527 11,627,337
Shares issued to shareholders in reinvestment of distributions . 2,199,908 2,233,815
Shares redeemed ................................................ (3,608,401) (9,562,105)
------------- -------------
Net increase in Portfolio shares ............................... 3,243,034 4,299,047
------------- -------------
Shares outstanding at end of period ............................... 29,934,111 26,691,077
============= =============
Class B*
Shares outstanding at beginning of period ......................... -- --
------------- -------------
Shares sold .................................................... 6,333 --
Shares redeemed ................................................ (6) --
------------- -------------
Net increase in Portfolio shares ............................... 6,327 --
------------- -------------
Shares outstanding at end of period ............................... 6,327 --
============= =============
</TABLE>
*For the period May 13, 1997 (commencement of sale of Class B shares) to June
30, 1997.
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A (c) Six Months
- ----------------- Ended June 30, Years Ended December 31,
1997 ---------------------------------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........... $16.50 $15.08 $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06 $ 7.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) ..... .09 .19 .14 .06 .06 .11 .16 .25 .35 .16 .15
Net realized and unrealized
gain (loss) on investment
transactions ................. 3.68 2.68 3.25 (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................... 3.77 2.87 3.39 (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income ......... (.10) (.19) (.11) (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09)
Net realized gains on
investment transactions ...... (1.24) (1.26) (.43) (1.31) (.27) (.23) -- (.23) -- -- (.39)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ............. (1.34) (1.45) (.54) (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ................. $18.93 $16.50 $15.08 $12.23 $14.95 $12.71 $12.28 $8.99 $10.21 $ 8.53 $ 7.06
====== ====== ====== ====== ====== ====== ====== ===== ====== ====== ======
Total Return (%) ................ 24.02** 20.13 28.65 (9.67) 20.88 6.42 39.56 (7.45) 22.75 22.07 (1.88)
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ........... 567 440 338 257 257 167 108 45 45 17 10
Ratio of operating expenses,
net to average net
assets (%) .................... .53* .53 .57 .58 .60 .63 .71 .72 .75 .75 .75
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................... .53* .53 .57 .58 .60 .63 .71 .72 .85 1.11 1.24
Ratio of net investment income
to average net assets (%) ..... 1.04* 1.27 1.06 .47 .46 .95 1.49 2.71 3.51 2.17 1.68
Portfolio turnover rate (%) ..... 44.29* 65.56 119.41 66.44 95.31 56.29 58.88 61.39 63.96 129.75 113.34
Average commission
rate paid (b) ................. $.0554 $.0585 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities
is calculated for fiscal years beginning on or after September 1, 1995.
(c) On May 13, 1997 existing shares were designated as Class "A" shares.
* Annualized
** Not Annualized
41
<PAGE>
CAPITAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
Class B May 13, 1997
- ----------------- (commencement
sale of Class B shares)
to June 30,
1997
------
<S> <C>
Net asset value, beginning of period ................................. $17.45
------
Income from investment operations:
Net investment income (a) .......................................... .01
Net realized and unrealized gain on investment transactions ........ 1.47
------
Total from investment operations ..................................... 1.48
------
Net asset value, end of period ....................................... $18.93
======
Total Return (%) ..................................................... 8.48**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................... .12
Ratio of operating expenses, net to average net assets (%) ........... .76*
Ratio of net investment income to average net assets (%) ............. .47*
Portfolio turnover rate (%) .......................................... 44.29*
Average commission rate paid ......................................... $.0554
</TABLE>
(a) Based on average shares outstanding during the period.
* Annualized
** Not Annualized
42
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------
6.5% REPURCHASE AGREEMENT
------------------------------------------------------------------------------------
U.S.$ 57,063,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 6/30/97 at 5.9%, to be repurchased
at $57,072,352 on 7/1/97, collateralized by a
$34,544,000 U.S. Treasury Note, 6.75%, 6/30/99 and
$22,276,000 U.S. Treasury Note, 5.75%, 9/30/97
(Cost $57,063,000) ...................................... 57,063,000
------------
------------------------------------------------------------------------------------
0.4% CONVERTIBLE BONDS
------------------------------------------------------------------------------------
Japan 0.4%
JPY 400,000,000 Softbank Corp., 0.5%, 3/29/02 ............................ 3,612,250
------------
Malaysia 0.0%
MYR 420,000 Renong Berhad ICUL, 4%, 5/21/01 (Holding company
involved in engineering and construction, financial
services, telecommunications and information
technology) ............................................. 130,838
------------
Total Convertible Bonds (Cost $4,152,237) ................ 3,743,088
------------
------------------------------------------------------------------------------------
93.1% COMMON STOCKS
------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------
Argentina 0.6% 170,000 YPF S.A. "D" (Sponsored ADR) (Petroleum company) ....... 5,227,500
------------
Brazil 7.6% 18,978,870 Centrais Eletricas Brasileiras S.A. "B" (pfd.)
(Electric utility) .................................... 11,335,142
5,086,206 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) ............................. 3,873,945
237,000,000 Companhia Energetica de Minas Gerais (pfd.) (Electric
power utility) ........................................ 12,217,630
219,880 Companhia Vale do Rio Doce (pfd.) (Diverse mining and
industrial complex) ................................... 4,911,865
30,000,000 Petroleo Brasileiro S.A. (pfd.) (Petroleum company) .... 8,332,064
119,560,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) .......................... 18,135,007
748,000 Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Steel
manufacturer) ......................................... 8,330,411
------------
67,136,064
------------
Canada 1.8% 206,500 Canadian National Railway (Major railroad operator) .... 9,001,991
255,411 Canadian Pacific Ltd. (Transportation and natural
resources) ............................................ 7,268,646
------------
16,270,637
------------
China 0.5% 191,837 Guangshen Railway Co. Ltd. (ADR)* (Operator of only
railroad in the Pearl River delta) .................... 4,196,434
------------
Finland 1.6% 116,000 Nokia AB Oy "A" (Leading manufacturer of
telecommunications equipment and cellular
telephones) ........................................... 8,665,235
192,000 Pohjola Insurance Co., Ltd. "B" (Insurance company) .... 5,694,093
------------
14,359,328
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
France 9.3% 78,857 AXA S.A. (Insurance group providing insurance,
finance and real estate services) ..................... 4,904,493
84,402 Alcatel Alsthom (Manufacturer of transportation,
telecommunication and energy equipment) ............... 10,570,537
13,950 Carrefour (Hypermarket operator and food retailer) ..... 10,131,298
57,453 Compagnie Financiere de Paribas* (Finance and
investment company) ................................... 3,969,220
48,000 Compagnie Generale des Eaux (Water utility) ............ 6,150,391
48,000 Compagnie Generale des Eaux Warrants*
(Expires 5/2/01) ...................................... 28,751
55,000 Lafarge S.A. (Producer of cement, concrete and
aggregates) ........................................... 3,420,712
128,898 Michelin "B" (Leading tire manufacturer) ............... 7,740,416
13,128 Pinault-Printemps, S.A. (Distributor of consumer goods) 6,308,553
192,853 Rhone-Poulenc S.A. "A" (Medical, agricultural and
consumer chemicals) ................................... 7,875,971
132,055 Schneider S.A. (Manufacturer of electronic components
and automated manufacturing systems) .................. 7,028,911
74,425 Total S.A. "B" (International oil and gas exploration,
development and production) ........................... 7,522,666
97,609 Valeo S.A. (Automobile and truck components
manufacturer) ......................................... 6,062,464
------------
81,714,383
------------
Germany 12.7% 214,000 BASF AG (Leading international chemical producer) ...... 7,907,975
190,000 Bayer AG (Leading chemical producer) ................... 7,301,072
278,800 Bayerische Vereinsbank AG (Commercial bank) ............ 11,397,535
393,400 Commerzbank AG (Worldwide multi-service bank) .......... 11,142,687
101,000 Daimler-Benz AG (Automobile and truck manufacturer) .... 8,194,198
257,000 Hoechst AG (Chemical producer) ......................... 10,901,244
20,360 Mannesmann AG (Bearer) (Diversified construction and
technology company) ................................... 9,070,420
185,000 RWE AG (pfd.) (Producer and marketer of petroleum and
chemical products) .................................... 6,438,564
22,500 SAP AG (pfd.) (Computer software manufacturer) ......... 4,670,030
69,000 Schering AG (Pharmaceutical and chemical producer) ..... 7,372,370
112,000 Siemens AG (Leading electrical engineering and
electronics company) .................................. 6,649,619
171,200 VEBA AG (Electric utility, distributor of oil and
chemicals) ............................................ 9,619,632
15,000 Volkswagen AG (Leading automobile manufacturer) ........ 11,498,767
------------
112,164,113
------------
Hong Kong 4.3% 4,341,545 First Pacific Co., Ltd. (International management and
investment company) ................................... 5,547,906
1,197,000 Great Eagle Holdings Ltd. (Property development) ....... 3,947,614
221,198 HSBC Holdings Ltd. (Bank) .............................. 6,652,528
938 Hong Kong & China Gas Co., Ltd. (Gas utility) .......... 1,877
1,182,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company) ....................................... 10,260,284
2,013,000 Kerry Properties Ltd.* (Real estate company) ........... 4,884,850
1,510,000 Television Broadcasts, Ltd. (Television broadcasting) .. 6,782,750
------------
38,077,809
------------
Indonesia 0.3% 21,100 Asia Pacific Resources International Holdings Ltd.*
(Manufacturer of rayon fiber for Asian textile markets,
owner of world's leading paper pulp mill) ............. 102,863
1,708,800 Indah Kiat Pulp & Paper (Foreign registered) (Producer
of pulp and paper) .................................... 1,001,250
1,537,920 Indah Kiat Pulp & Paper Rights*(a) ..................... 316,536
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
400,000 Indocement Tunggal Prakarsa Foreign Registered
(Multi-business group with three major divisions namely
cement, food and property) ............................ 620,888
924,570 Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper
factory) .............................................. 1,073,976
------------
3,115,513
------------
Italy 1.7% 65,000 Luxottica Group SpA (ADR) (Manufacturer and
marketer of eyeglasses) ............................... 4,407,813
3,310,000 Telecom Italia Mobile SpA (Cellular telecommunication
services) ............................................. 10,709,454
------------
15,117,267
------------
Japan 15.0% 112,000 Advantest Corp. (Producer of measuring instruments
and semiconductor testing devices) .................... 8,599,599
330,000 Bridgestone Corp. (Leading automobile tire
manufacturer) ......................................... 7,659,018
358,000 Canon Inc. (Leading producer of visual image and
information equipment) ................................ 9,745,746
640 DDI Corp. (Long distance telephone and cellular
operator) ............................................. 4,724,195
740,000 Fujitsu Ltd. (Leading manufacturer of computers) ....... 10,266,120
190,000 Hitachi Construction Machinery Co., Ltd. (Leading
maker of hydraulic shovels) ........................... 1,840,154
917,000 Hitachi Ltd. (General electronics manufacturer) ........ 10,241,340
125,000 Jusco Co., Ltd. (Major supermarket operator) ........... 4,220,836
58,300 Keyence Corp. (Specialized manufacturer of sensors) .... 8,647,587
115,000 Kokuyo (Leading manufacturer of paper stationery) ...... 3,110,549
520,000 Matsushita Electric Industrial Co., Ltd. (Leading
manufacturer of consumer electronic products) ......... 10,480,761
280,000 Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment) ............ 3,175,988
47,000 Nichiei Co., Ltd. (Finance company for small and
medium-sized firms) ................................... 5,454,149
200,000 Pioneer Electronics Corp. (Leading manufacturer of
audio equipment) ...................................... 4,851,235
390,000 Ricoh Co., Ltd. (Leading maker of copiers and
information equipment) ................................ 5,104,267
72,000 Secom Co., Ltd. (Electronic security system operator) .. 5,283,309
521,000 Shiseido Co., Ltd. (Leading cosmetic producer) ......... 8,591,659
93,000 Sony Corp. (Consumer electronic products
manufacturer) ......................................... 8,106,361
1,710,000 Sumitomo Metal Industries, Ltd. (Leading integrated
crude steel producer) ................................. 4,863,973
165,000 Tokyo Electron Ltd. (Leading semiconductor production
equipment manufacturer) ............................... 7,889,364
------------
132,856,210
------------
Korea 0.4% 7,870 Pohang Iron & Steel Co., Ltd. (Leading steel
producer) (b) ......................................... 800,400
93,400 Pohang Iron & Steel Co., Ltd. (ADR) (Leading steel
producer) ............................................. 2,988,800
2 Samsung Electronics Co., Ltd. (Major electronics
manufacturer) ......................................... 116
1 Samsung Electronics Co., Ltd. (Non-voting GDS) ......... 27
------------
3,789,343
------------
Malaysia 1.4% 540,000 Arab-Malaysian Corp. (Investment holding company with
interests in financial services, infrastructure and
property) ............................................. 2,011,094
275,000 Malayan Banking Berhad (Leading banking and
financial services group) ............................. 2,887,282
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
723,000 Malaysian Airline System Berhad (Air transportation and
related services) ..................................... 1,804,636
2,100,000 Renong Berhad (Holding company involved in
engineering, construction, financial services, tele-
communication and information technology) ............. 2,745,642
400,000 United Engineers (Malaysia) Bhd. (Leading
comprehensive contractor) ............................. 2,884,311
------------
12,332,965
------------
Mexico 0.8% 155,000 Telefonos de Mexico S.A. de C.V. "L" (ADR)
(Telecommunication services) .......................... 7,401,250
------------
Netherlands 5.3% 130,000 AEGON Insurance Group NV (Insurance company) ........... 9,073,310
24,000 Akzo-Nobel NV (Chemical producer) ...................... 3,289,011
204,870 Elsevier NV (International publisher of scientific,
professional, business, and consumer information
books) ................................................ 3,423,372
186,304 Getronics NV (Provider of computer installation and
maintenance services) ................................. 6,017,461
43,750 Heineken Holdings NV "A" (Brewery) ..................... 6,797,977
204,800 Philips Electronics NV (Leading manufacturer of
electrical equipment) ................................. 14,669,560
26,935 Wolters Kluwer CVA (Publisher) ......................... 3,279,569
------------
46,550,260
------------
Norway 0.6% 271,889 Saga Petroleum AS "A" (Oil and gas exploration and
production) ........................................... 5,156,439
------------
Philippines 1.3% 675,000 Ayala Land, Inc. "B" (Real estate and land developer) .. 620,593
9,312,000 C & P Homes, Inc. (Home construction company) .......... 3,495,177
929,483 Manila Electric Co. "B" (Electric utility) ............. 4,581,164
129,047 Metropolitan Bank and Trust Company (Commercial
bank and trust company) ............................... 2,739,851
------------
11,436,785
------------
Portugal 1.9% 60,384 Jeronimo Martins S.A. (Food producer and retailer) ..... 4,218,542
301,000 Portugal Telecom S.A. (Telecommunication services) ..... 12,143,304
------------
16,361,846
------------
Spain 2.5% 60,440 Acerinox, S.A. (Stainless steel producer) .............. 11,325,065
363,400 Compania Telefonica Nacional de Espana S.A.
(Telecommunication services) .......................... 10,506,169
------------
21,831,234
------------
Sweden 4.5% 254,000 AGA AB "B" (Free) (Producer and distributor of
industrial and medical gases) ......................... 3,382,070
202,000 Autoliv AB (Manufacturer of automobile safety bags) .... 7,903,250
256,400 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment) ......... 10,095,750
144,000 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) . 3,723,095
398,000 Skandia Foersaekrings AB (Free) (Financial
conglomerate) ......................................... 14,663,564
------------
39,767,729
------------
Switzerland 7.6% 8,180 ABB AG (Bearer) (Manufacturer of electrical equipment) . 12,377,816
5 ABB AG (Registered) .................................... 1,472
43,039 Ciba Specialty Chemical (Registered) (Manufacturer of
chemical products for plastics, coatings, fibers and
fabrics) .............................................. 3,978,271
12,671 Clariant AG (Registered) (Manufacturer of color
chemicals) ............................................ 8,198,627
</TABLE>
The accompanying notes are an integral part of the financial statements.
46
<PAGE>
INTERNATIONAL PORTFOLIO
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
60,000 Credit Suisse Group (Registered) (Provider of bank
services, management services and life insurance) ..... 7,702,841
9,500 Holderbank Financiere Glaris AG (Bearer) (Cement
producer) ............................................. 8,969,872
5,013 Novartis AG (Bearer) (Pharmaceutical company) .......... 8,004,325
6,300 Novartis AG (Registered) ............................... 10,067,922
872 Roche Holdings AG (PC) (Producer of drugs and
medicines) ............................................ 7,884,122
------------
67,185,268
------------
United Kingdom 11.3% 1,695,000 Avis Europe PLC (Car rental services) .................. 3,838,852
426,774 BOC Group PLC (Producer of industrial gases) ........... 7,416,230
633,679 British Petroleum PLC (Major integrated world oil
company) .............................................. 7,882,840
890,000 Carlton Communications PLC (Television post
production products and services) ..................... 7,536,570
1,100,000 General Electric Co., PLC (Manufacturer of power,
communications and defense equipment and other
various electrical components) ........................ 6,576,274
375,636 Glaxo Wellcome PLC (Pharmaceutical company) ............ 7,772,422
575,000 Pearson PLC (Diversified media and entertainment
holding company) ...................................... 6,664,535
846,128 PowerGen PLC (Electric utility) ........................ 10,060,673
440,059 RTZ Corp., PLC4 (Mining and finance company) ........... 7,669,074
489,200 Reuters Holdings PLC (International news agency) ....... 5,156,831
620,046 SmithKline Beecham PLC (Manufacturer of ethical
drugs and healthcare products) ........................ 11,414,987
1,890,000 WPP Group PLC (Advertising agency) ..................... 7,726,914
300,000 Zeneca Group PLC (Holding company: manufacturing
and marketing of pharmaceutical and agrochemical
products and specialty chemicals) ..................... 9,921,864
------------
99,638,066
------------
Total Common Stocks (Cost $580,721,155) ................ 821,686,443
------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $641,936,392) (c) ............................... 882,492,531
============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) Security valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $316,536 (.04% of net assets). The
value has been estimated by the Board of Trustees in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, the estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. There was no
cost allocated to the security at June 30, 1997. The security may also
have certain restrictions as to resale.
(b) Securities that have met the foreign-ownership limitation valued at a
premium in good faith by the Valuation Committee of the Board of Trustees.
The cost of the security at June 30, 1997 was $736,139. The aggregate
premium ($176,363) over the local share price ($624,037) for the security
valued by the Valuation Committee was approximately .02% of the
Portfolio's net assets at June 30, 1997.
(c) At June 30, 1997, the net unrealized appreciation on investments based on
cost for federal income tax purposes of $641,990,345 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there is an excess
of market value over tax cost ............................. $248,043,709
Aggregate gross unrealized depreciation for
all investments in which there is an excess
of tax cost over market value ............................. 7,541,523
------------
Net unrealized appreciation ............................... $240,502,186
============
- --------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term
investments), for the six months ended June 30, 1997, aggregated
$167,571,279 and $104,178,357, respectively.
The accompanying notes are an integral part of the financial statements.
47
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $641,936,392) ...... $882,492,531
Foreign currency, at value, (cost $5,707,714) .............. 5,690,126
Receivables:
Foreign taxes recoverable ................................ 1,205,214
Dividends and interest ................................... 1,834,940
Other assets ............................................. 12,321
------------
Total assets ........................................... 891,235,132
Liabilities
Payables:
Investments purchased .................................... $8,449,985
Accrued management fee ................................... 579,228
Other payables and accrued expenses ...................... 387,345
----------
Total liabilities ...................................... 9,416,558
------------
Net assets, at market value ................................ $881,818,574
============
Net Assets
Net assets consist of:
Undistributed net investment income ...................... $ 5,504,856
Net unrealized appreciation (depreciation) on:
Investments ............................................ 240,556,138
Foreign currency related transactions .................. (64,611)
Accumulated net realized loss ............................ (5,339,013)
Paid-in capital .......................................... 641,161,204
------------
Net assets, at market value ................................ $881,818,574
============
Class A
Net asset value, offering and redemption
price per share ($881,735,733 / 59,763,371
outstanding shares of beneficial interest, no
par value, unlimited number of shares authorized) ........ $14.75
======
Class B
Net asset value, offering and redemption
price per share ($82,841 / 5,618 outstanding
shares of beneficial interest, no par value,
unlimited number of shares authorized) ................... $14.75
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $686,095) .............. $ 8,654,288
Interest (net of foreign taxes withheld of $1,117) ................. 1,605,858
------------
10,260,146
Expenses:
Management fee ..................................................... $ 3,207,240
Custodian fees ..................................................... 383,576
Accounting fees .................................................... 204,847
Distribution fees .................................................. 17
Trustees' fees ..................................................... 9,608
Auditing ........................................................... 27,808
Registration fees .................................................. 16,601
Legal .............................................................. 19,720
Other .............................................................. 38,434 3,907,851
----------- ------------
Net investment income ................................................ 6,352,295
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ........................................................ (5,698,742)
Foreign currency related transactions .............................. (233,502) (5,922,244)
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ 105,770,462
Foreign currency related transactions .............................. (73,015) 105,697,447
----------- ------------
Net gain on investment transactions .................................. 99,775,203
------------
Net increase in net assets resulting from operations ................... $106,127,498
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................... $ 6,352,295 $ 6,138,762
Net realized gain (loss) from investment transactions .... (5,922,244) 28,242,210
Net unrealized appreciation on investment
transactions during the period ......................... 105,697,447 55,234,650
------------- -------------
Net increase in net assets resulting from operations ....... 106,127,498 89,615,622
------------- -------------
Distributions to shareholders from:
Net investment income (Class A) .......................... (11,550,387) (13,901,339)
------------- -------------
Net realized gain from investment transactions
(Class A) ............................................... (6,050,202) --
------------- -------------
Portfolio share transactions:
Class A
Proceeds from shares sold ................................ 149,031,567 250,971,681
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 17,600,589 13,901,339
Cost of shares redeemed .................................. (99,458,568) (162,751,269)
------------- -------------
Net increase in net assets from Portfolio share
transactions ............................................ 67,173,588 102,121,751
------------- -------------
Class B*
Proceeds from shares sold ................................ 79,624 --
Cost of shares redeemed .................................. (74) --
------------- -------------
Net increase in net assets from Portfolio share
transactions ............................................ 79,550 --
------------- -------------
Increase in net assets ..................................... 155,780,047 177,836,034
Net assets at beginning of period .......................... 726,038,527 548,202,493
------------- -------------
Net assets at end of period (including undistributed net
investment income of $5,504,856 and $10,702,948,
respectively) ............................................ $ 881,818,574 $ 726,038,527
============= =============
Other Information
Increase (decrease) in Portfolio shares
Class A
Shares outstanding at beginning of period .................. 54,809,210 46,398,169
------------- -------------
Shares sold .............................................. 10,949,269 20,288,490
Shares issued to shareholders in reinvestment of
distributions ........................................... 1,330,354 1,166,953
Shares redeemed .......................................... (7,325,462) (13,044,402)
------------- -------------
Net increase in Portfolio shares ......................... 4,954,161 8,411,041
------------- -------------
Shares outstanding at end of period ........................ 59,793,371 54,809,210
============= =============
Shares outstanding at beginning of period .................. -- --
------------- -------------
Shares sold .............................................. 5,623 --
Shares redeemed .......................................... (5) --
------------- -------------
Net increase in Portfolio shares ......................... 5,618 --
------------- -------------
Shares outstanding at end of period ........................ 5,618 --
============= =============
</TABLE>
* For the period May 9, 1997 (commencement of sale of Class B shares)
to June 30, 1997.
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Class A(e) Six Months
- --------------------------- Ended
June 30, Years Ended December 31,
1997(a) ----------------------------------------------------------------------------------
(Unaudited) 1996(a) 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988
--------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period .................... $13.25 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Income from investment
operations:
Net investment income ..... .11 .12 .11 .06 .09 .10 .12 .25 .10 .09
Net realized and unrealized
gain (loss) on investment
transactions ............. 1.71 1.60 1.07 (.15) 2.90 (.36) .77 (.89) 2.22(d) .79
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total from investment
operations .................. 1.82 1.72 1.18 (.09) 2.99 (.26) .89 (.64) 2.32 .88
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Less distributions:
From net investment
income ................... (.21) (.29) (.01) (.07) (.14) (.09) (.20) (.04) -- --
In excess of net
investment income ........ -- -- -- -- (.12) -- -- -- --
From net realized
gains on investment
transactions ............. (.11) -- (.04) -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Total distributions ......... (.32) (.29) (.05) (.07) (.26) (.09) (.20) (.04) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
Net asset value, end
of period ................... $14.75 $13.25 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $6.14
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total Return (%) ............ 14.09** 14.78 11.11 (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ................ 882 726 548 472 238 65 41 35 17 3
Ratio of operating expenses,
net to average net assets
(%) ....................... 1.03* 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.50 1.50
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ................ 1.03* 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.80 4.15
Ratio of net investment
income to average
net assets (%) ............ 1.67* .95 .95 .57 .91 1.23 1.43 2.89 1.30 1.59
Portfolio turnover rate (%) . 29.21* 32.63 45.76 33.52 20.36 34.42 45.01 26.67 57.69 110.42
Average commission
rate paid (b) ............. $.0007 $.0002 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
<CAPTION>
For the Period
Class A(e) May 1, 1987
- ----------------------------- (commencement
of operations) to
December 31,
1987
-----------------
<S> <C>
Net asset value,
beginning of
period .................... $ 6.00(c)
-------
Income from investment
operations:
Net investment income ..... --
Net realized and unrealized
gain (loss) on investment
transactions ............. (.64)
-------
Total from investment
operations .................. (.64)
-------
Less distributions:
From net investment
income ................... --
In excess of net
investment income ........ --
From net realized
gains on investment
transactions ............. (.10)
-------
Total distributions ......... (.10)
-------
Net asset value, end
of period ................... $ 5.26
=======
Total Return (%) ............ (10.64)**
Ratios and
Supplemental Data
Net assets, end of period
($ millions) ................ 2
Ratio of operating expenses,
net to average net assets
(%) ....................... 1.50*
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) ................ 4.06*
Ratio of net investment
income to average
net assets (%) ............ .02*
Portfolio turnover rate (%) . 146.08*
Average commission
rate paid (b) ............. $ --
</TABLE>
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities is
calculated for fiscal years beginning on or after September 1, 1995.
(c) Original capital
(d) Includes provision for federal income tax of $.03 per share.
(e) On May 9, 1997 existing shares were designated as Class "A" shares.
* Annualized
** Not Annualized
51
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements.
For the Period
May 9, 1997
(commencement of
Class B sale of Class B shares)
- ------------- to June 30,
1997
-----------
Net asset value, beginning of period ....................... $13.87
------
Income from investment operations:
Net investment income (a) ................................ .03
Net realized and unrealized gain on investment
transactions ............................................ .85
------
Total from investment operations ........................... .88
------
Net asset value, end of period ............................. $14.75
======
Total Return (%) ........................................... 6.35**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................... .08
Ratio of operating expenses, net to average net assets (%) . 1.36*
Ratio of net investment income to average net assets (%) ... 2.41*
Portfolio turnover rate (%) ................................ 29.21*
Average commission rate paid (b) ........................... $.0007
(a) Based on average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred securities.
* Annualized
** Not Annualized
52
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
A. Significant Accounting Policies
- --------------------------------------------------------------------------------
Scudder Variable Life Investment Fund (the "Fund") is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end, diversified management investment company.
Its shares are divided into seven separate diversified series, called
"Portfolios." The Portfolios are comprised of the Money Market Portfolio, Bond
Portfolio, Balanced Portfolio, Growth and Income Portfolio, Capital Growth
Portfolio, Global Discovery Portfolio, and International Portfolio.
The Fund is intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies ("Participating Insurance Companies"). As of
June 30, 1997, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:
<TABLE>
<CAPTION>
Portfolios
-------------------------------------------------------------------
Growth Global
Participating Money and Capital Discov- Interna-
Insurance Companies Market Bond Balanced Income Growth ery tional
- ------------------------------------------ -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. ....... --% --% --% --% --% --% 46.6%
American Maturity Life Insurance Co. ..... 0.1 0.1 -- 0.1 -- -- --
Banner Life Insurance Co. ................ 1.1 2.2 6.8 5.3 2.1 6.7 0.6
Charter National Life Insurance Co. ...... 52.7 31.7 57.8 83.8 24.5 87.5 12.4
Fortis Benefits Insurance Co. ............ -- -- -- -- -- -- 0.6
Lincoln Benefit Life Co. ................. -- 4.6 7.5 -- -- -- --
Mutual of America Life Insurance Co. ..... -- 41.4 -- -- 57.0 -- 23.0
Paragon Life Insurance Co. ............... 0.2 0.2 0.5 0.1 0.2 -- 0.1
Providentmutual Life and
Annuity Co. of America ................... -- 10.0 -- 8.3 -- -- 1.1
Southwestern Life Insurance Co. .......... -- -- -- -- 1.4 -- --
Washington National Life
Insurance Co. ............................ 0.4 8.8 -- 1.4 5.6 -- --
Safeco Life Insurance Co. ................ -- -- 27.4 -- -- -- 4.0
Security First Life Insurance Co. ........ -- -- -- -- -- -- 0.5
Union Central Life Insurance Co. ......... 41.9 -- -- -- 6.4 -- 8.1
United Companies Life Insurance Co. ...... 3.4 -- -- -- -- -- 0.3
United of Omaha Life Insurance Co. ....... 0.1 1.0 -- 1.0 -- 5.8 2.7
WM Life Insurance Co. .................... 0.1 -- -- -- -- -- --
USAA Life Insurance Co. .................. -- -- -- -- 2.8 -- --
----------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ====== ======
</TABLE>
Multiple Classes Of Shares Of Beneficial Interest. The Fund offers one class of
shares for the Money Market Portfolio and two classes of shares (Class A shares
and Class B shares) for the other Portfolios. Class B shares are subject to a
12b-1 fee under the Investment Company Act of 1940, equal to an annual rate of
up to 0.25% of the average daily net asset value of the Class B shares of the
applicable Portfolio. Class A shares are not subject to such fees. Expenses are
borne pro-rata on the basis of relative net assets by the holders of all classes
of shares except that each class bears expenses unique to that class (including
the applicable 12b-1 fee). In accordance with the Master Distribution Plan, the
12b-1 fees are remitted to the Participating Insurance Companies for various
costs incurred or paid by the Participating Insurance Companies in connection
with the distribution of Class B shares.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of the financial statements for its Portfolios.
Security Valuation. The Money Market Portfolio values all securities utilizing
the amortized cost method permitted in accordance with Rule 2a-7 under the
Investment Company Act of 1940, as amended, and pursuant to which the Portfolio
must adhere to certain conditions. Under this method, which does not take into
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS
account unrealized gains or losses on securities, an instrument is initially
valued at its cost and thereafter assumes a constant accretion/amortization to
maturity of any discount/premium.
Securities in each of the remaining Portfolios are valued in the following
manner:
Portfolio securities which are traded on U.S. or foreign stock exchanges are
valued at the most recent sale price reported on the exchange on which the
security is traded most extensively. If no sale occurred, the security is then
valued at the calculated mean between the most recent bid and asked quotations.
If there are no such bid and asked quotations, the most recent bid quotation is
used. Securities quoted on the National Association of Securities Dealers
Automatic Quotation ("NASDAQ") System, for which there have been sales, are
valued at the most recent sale price reported on such system. If there are no
such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Trustees. Their values have been estimated by
the Board of Trustees in the absence of readily ascertainable market values.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the difference could be material.
Futures Contracts. The non-money market Portfolios may enter into futures
contracts. A futures contract is an agreement between a buyer or seller and an
established futures exchange or its clearinghouse in which the buyer or seller
agrees to take or make a delivery of a specific amount of an item at a specified
price on a specific date (settlement date). During the period, the Bond
Portfolio sold interest rate futures to hedge against declines in the value of
portfolio securities. Also, during the period, the Bond Portfolio purchased
interest rate futures to manage the duration of the Portfolio.
Upon entering into a futures contract, the Portfolio is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Portfolio each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Portfolio. When entering into a closing transaction, the Portfolio will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Portfolio's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge, the Portfolio gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
Foreign Currency Translations. The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Portfolios do not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
non-money market Portfolios utilized forward contracts as a hedge in connection
with portfolio purchases and sales of securities denominated in foreign
currencies and the Global Discovery Portfolio and the International Portfolio
utilized forward contracts as a hedge against changes in exchange rates relating
to foreign currency denominated assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. Each Portfolio is treated as a single corporate taxpayer
as provided for in the Internal Revenue Code of 1986, as amended. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
which are applicable to regulated investment companies and to distribute all of
its investment company taxable income to the separate accounts of the
Participating Insurance Companies which hold its shares. Accordingly, the
Portfolios paid no federal income taxes and no provision for federal income
taxes was required.
Distribution of Income and Gains. All of the net investment income of the Money
Market Portfolio is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. Dividends from
the Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, and the
Capital Growth Portfolio are declared and paid quarterly in April, July, October
and January. All of the net investment income of the Global Discovery Portfolio
and the International Portfolio normally will be declared and distributed as a
dividend annually. During any particular year, net realized gains from
investment transactions for each Portfolio, in excess of available capital loss
carryforwards, would be taxable to the Portfolio if not distributed and,
therefore, will be distributed to the Participating Insurance Companies.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to investments in forward contracts, passive foreign investment
companies, post October loss deferral, non-taxable distributions, and certain
securities sold at a loss. As a result, net investment income (loss) and net
realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Accordingly, the Portfolios may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of each
Portfolio.
The Portfolios use the specific identification method for determining realized
gain or loss on investments for both financial and federal income tax reporting
purposes.
Expenses. Each Portfolio is charged for those expenses which are directly
attributable to it, such as management fees and custodian fees, while other
expenses (reports to shareholders, legal and audit fees) are allocated based on
relative net asset value among the Portfolios.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. All original
issue discounts are accreted for both tax and financial reporting purposes.
B. Related Parties
- --------------------------------------------------------------------------------
Under the Fund's Investment Advisory Agreement (the "Agreement") with Scudder,
Stevens and Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a
fee, based on average daily net assets, equal to an annual rate of .370% for the
Money Market Portfolio, .475% for the Bond Portfolio, .475% for the Balanced
Portfolio, .475% for the Growth and Income Portfolio, .475% for the Capital
Growth Portfolio, .975% for the Global Discovery Portfolio, and .875% for the
first $500,000,000, .77% over $500,000,000 for the International Portfolio.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
The Trustees authorized the Fund on behalf of each Portfolio to pay Scudder Fund
Accounting Corp., a subsidiary of the Adviser, for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund.
Related fees for such services are detailed in each Portfolio's statement of
operations.
Until April 30, 1998, the Adviser has agreed to waive part or all of its fees
for the Global Discovery Portfolio to the extent that the Portfolio's expenses
will be maintained at 1.50% of average annual net assets.
The Fund pays each Trustee not affiliated with the Adviser and not a Trustee of
other Scudder affiliated funds $14,000 annually plus specified amounts for
attended board and committee meetings. The Fund pays each Trustee not affiliated
with the Adviser and who is a Trustee of other Scudder affiliated funds $8,750
annually plus specified amounts for attended board and committee meetings.
Allocated Trustees' fees for each Portfolio for the six months ended June 30,
1997 are detailed in each Portfolio's statement of operations.
C. Lines of Credit
- --------------------------------------------------------------------------------
The International Portfolio and several other Funds (the "Participants") share
in a $500 million revolving credit facility for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. The Participants are charged an annual
commitment fee which is allocated among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The
International Portfolio may borrow up to a maximum of 25 percent of its net
assets under the agreement. In addition, the International Portfolio also
maintains an uncommitted line of credit.
56
<PAGE>
Celebrating Over 75 Years of Serving Investors
- --------------------------------------------------------------------------------
Established in 1919 by Theodore
Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the
first independent investment counsel firm
in the United States. Since its birth,
Scudder's pioneering spirit and commitment
to professional long-term investment
management have helped shape the
investment industry. In 1928, we
introduced the nation's first no-load
mutual fund. Today we offer over 40 pure
no load(TM) funds, including the first
international mutual fund offered to U.S.
investors.
Over the years, Scudder's global
investment perspective and dedication to
research and fundamental investment
disciplines have helped Scudder become one
of the largest and most respected
investment managers in the world. Though
times have changed since our beginnings,
we remain committed to our long-standing
principles: managing money with integrity
and distinction; keeping the interests of
our clients first; providing access to
investments and markets that may not be
easily available to individuals; and
making investing as simple and convenient
as possible through friendly,
comprehensive service.
An investment in the Money Market
Portfolio is neither insured nor
guaranteed by the United States
Government and there can be no assurance
that the Portfolio will be able to
maintain a stable net asset value of
$1.00 per share.
This information must be preceded or
accompanied by a current prospectus.
Portfolio changes should not be
considered recommendations for action by
individual investors.
SCUDDER [LOGO]
