Scudder Variable Life
Investment Fund
Annual Report
December 31, 1996
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 ....................................... 55
International Portfolio .......................................... 64
Notes to Financial Statements ............................................... 74
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
LETTER FROM THE FUND'S PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholders,
Perhaps the most important lesson we learned from 1996 is to expect the
unexpected. After very strong domestic equity performance in 1995, stocks
delivered another year of outstanding results. However, this attractive
performance masked the challenging environment of conflicting economic signals
and rapid sector rotation that characterized much of the year.
Bond investors were challenged by rising U.S. interest rates in the first
half of the year which contributed to increased stock market volatility, as
stronger than expected economic growth raised fears of accelerating inflation.
Growth slowed in the second half of the year, relieving upward pressure on
interest rates, and permitting the stock rally to resume.
The U.S. stock market's upward march was fueled by strong corporate
earnings, benign inflation, and relatively low interest rates. Overseas, the
picture was significantly different. Many foreign economies continued to
struggle with slow economic growth, prompting governments to lower interest
rates to stimulate their economies. Selected markets responded by rebounding
strongly from depressed levels.
New Portfolio Added in 1996
Reflecting our continuing commitment to providing investors with a wide
range of investment choices, we introduced Global Discovery Portfolio in May.
This portfolio invests in small company stocks from around the world, with an
emphasis on individual stock selection. With more than two-thirds of the world's
stock market capitalization based outside the United States, we see many
investment opportunities among small, rapidly growing companies. Many of these
companies have not been well-covered by Wall Street and have accelerating growth
rates. Because their businesses are often tied more closely to local or regional
economies, they tend to offer an added element of diversification for U.S.
investors. Of course, investing overseas carries special risks and the potential
for greater price fluctuations, but we believe Global Discovery Portfolio can
provide the opportunity for valuable diversification and maximum capital
appreciation for long-term investors.
Scudder Variable Life Investment Fund provides a broad selection of
portfolios to fit your particular investment objectives. Combined with its
comparatively low fees, we believe the Fund can provide investors with a
powerful savings advantage over the long term.
Thank you for your continued investment in Scudder Variable Life Investment
Fund.
Sincerely,
/s/David B. Watts
David B. Watts
President,
Scudder Variable Life Investment Fund
2
<PAGE>
MONEY MARKET PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
In 1996, money market funds provided investors with respectable yields, as
well as a haven for those uncomfortable with stock and bond market gyrations.
Money Market Portfolio posted a 5.04% 7-day net annualized yield as of December
31, 1996. The Portfolio's total return was 5.09% for the full 12-month period.
Locating Opportunities
Money managers spent much of the year with their eyes on the Federal
Reserve, anticipating a potential interest rate hike. As a result, many money
funds defensively shortened their average maturities. Volatile sentiment in the
market caused us to keep Money Market Portfolio's average maturity in the 40-45
day range for much of the year, as investors prepared for potentially rising
short-term rates that never materialized. While the defensive position prepared
us for a rate increase, the tradeoff was the lost opportunity to capture the
superior yields offered by longer maturity instruments. After the September
meeting of the Federal Reserve in which no action was taken to raise short-term
interest rates, market sentiment shifted, prompting us to increase the
Portfolio's average maturity. As of December 31, the Portfolio's average
maturity stood at 58 days.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Interest rates generally
rose over the year for
money market instruments.
At the close of the period, 90% of the Portfolio was invested in commercial
paper. Commercial paper with one-year maturities also provided a boost to the
Portfolio's yield. The remainder of the Portfolio's assets was principally
invested in short-term notes. A small portion (5%) was invested in repurchase
agreements.
The Coming Months
Absent any unforeseen shocks, we believe 1997 should provide investors with
moderate economic growth, stable to higher stock prices, and stable to
moderately lower interest rates. While always a possibility, we don't expect the
Federal Reserve to lower short-term interest rates any time soon.
In this environment, we plan to favor money market securities at the longer
end of the maturity spectrum in order to lock in attractive yields. Our focus
will remain on quality as we select investments to maintain the Portfolio's
stable share price and competitive yield. We believe Money Market Portfolio
continues to offer a vehicle for meeting your short-term investment needs.
Sincerely,
Your Portfolio Management Team
/s/Stephen L. Akers /s/David Wines
Stephen L. Akers David Wines
Lead Portfolio Manager
/s/Debra A. Hanson /s/Nicca B. Alcantara
Debra A. Hanson Nicca B. Alcantara
3
<PAGE>
BOND PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
Stronger-than-expected economic growth in the first half of 1996 resulted
in higher interest rates and lower bond prices for the year. However, the
increase in rates from point-to-point did not fully reflect the increased price
volatility that pervaded the bond markets during the year. Despite this
challenging environment, Bond Portfolio provided a total return of 2.82% for the
12-month period ended December 31, 1996. For the same period, the unmanaged
Lehman Brothers Aggregate Bond Index returned 3.63%.
Bonds provided positive but modest total returns in 1996. Yields rose
during the first half of the year and eased in the second half, but still ended
the year higher. The economy turned out to be much stronger than expected,
causing yields to rise and bond prices to decline. Later in the year growth
moderated, enabling yields to ease and bond prices to recover, though not to
levels seen at the beginning of 1996.
During the 12-month period we managed the portfolio actively, seeking to
capitalize on shifts in relative valuation among the Treasury, mortgage, and
corporate sectors. Our strategy in this more volatile environment was a
defensive one. We attempted to reduce sensitivity to changes in interest rates
by shortening the Portfolio's duration. We achieved a shorter duration primarily
by reducing our holdings of Treasury securities, with most of the reduction
occurring during the first half of the year. We redeployed assets in several
areas, including corporate bonds, mortgage securities, and cash.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Rising interest rates
created a challenging
environment for bond
investors.
Corporate bonds turned out to be the strongest performing sector of the
bond market in 1996. We held an overweighted position in corporates at the
beginning of the year and continued to add to our position throughout 1996. We
maintained the Fund's high quality portfolio composition, closing the year with
an average quality rating of AA.
Mortgage securities also constituted an increasing share of the Portfolio
during the year. These securities, which typically offer a yield premium over
Treasuries, became increasingly attractive values as interest rates rose in the
first half of the year. We added mortgage securities to the Portfolio primarily
between March and July. These securities played a significant role in providing
stability, diversification, and attractive income to the Portfolio.
Heading into 1997, we anticipate at least a neutral environment for bond
investors. We expect economic growth to moderate and inflation to remain under
control. We believe this should help to relieve upward pressure on interest
rates. There are no major excesses in the corporate sector, and inventories are
being managed well. Longer term, if the current enthusiasm for the stock market
wanes, we could see renewed interest in bonds for their attractive yields and
relative price stability.
Sincerely,
Your Portfolio Management Team
/s/William M. Hutchinson /s/Ruth Heisler
William M. Hutchinson Ruth Heisler
Lead Portfolio Manager
4
<PAGE>
BOND PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BOND PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,282 2.82% 2.82%
5 Year $13,912 39.12% 6.83%
10 Year $21,071 110.71% 7.74%
LB AGGREGATE BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,363 3.63% 3.63%
5 Year $14,050 40.50% 7.03%
10 Year $22,547 125.47% 8.46%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Bond Portfolio
Year Amount
- ----------------------
86 $10,000
87 $10,122
88 $10,675
89 $11,918
90 $12,879
91 $15,147
92 $16,208
93 $18,214
94 $17,343
95 $20,494
96 $21,071
LB Aggregate Bond Index
Year Amount
- ----------------------
86 $10,000
87 $10,276
88 $11,086
89 $12,697
90 $13,834
91 $16,048
92 $17,236
93 $18,916
94 $18,365
95 $21,757
96 $22,547
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
- -------------------------------------------------------------------
By Quality
- -------------------
AAA 60%
AA 5% Shortening the portfolio's
A 21% duration helped to limit the
BBB 13% effects of higher interest
BB 1% rates.
----
100%
====
- -------------------
Average Quality: AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
EFFECTIVE MATURITY
- -------------------------------------------------------------------
- ---------------------------
Less than 1 year 11%
1 - 3 years 8%
3 - 7 years 35%
7 - 12 years 25%
12 years or greater 21%
----
100%
====
- ---------------------------
Weighted average effective maturity: 9 years
- -------------------------------------------------------------------
DIVERSIFICATION
- -------------------------------------------------------------------
- -----------------------------------
Corporate Bonds 34%
U.S. Government Agency 21%
U.S. Treasury Obligations 16%
Repurchase Agreement 12%
Asset-Backed Securities 7%
U.S. Government Guaranteed
Mortgages 7%
Foreign Bonds 3%
----
100%
====
- -----------------------------------
5
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
Investor concern over stronger than expected economic growth and the
possibility of accelerating inflation fueled an environment of volatile price
changes for stocks and bonds in 1996. Nevertheless, the stock market completed
its second consecutive year of strong overall performance as evidenced by the
22.96% total return of the S&P 500. In contrast, the bond market provided
positive but more modest total returns, as measured by the unmanaged Lehman
Brothers Aggregate Bond Index, which returned 3.63% for the year. Balanced
Portfolio's conservative approach to investing in stocks and bonds resulted in a
total return of 11.89% for the same period. At the end of the period, the
Portfolio's assets were allocated 59% in equities and 41% in fixed income
securities (including cash).
The Portfolio's equity holdings were invested with the expectation that the
economic environment would be lackluster, inflation would remain under control,
and rapid earnings growth would be increasingly hard to sustain for the more
cyclically sensitive companies and industries. While the Fund's sector breakdown
remained relatively unchanged during the period, we made some strategic shifts
within sectors such as technology.
Although the health care sector was a poor performer during 1996, we
maintained our exposure as we believed the stocks owned by the Portfolio were
among the best positioned in the sector. This proved a sensible strategy, as
health care was one of the Portfolio's best performing sectors later in the
year.
Over the 12 months covered by this report, our exposure to the
manufacturing sector increased. On more than one occasion during the period,
signs of a strengthening economy led investors toward manufacturing stocks,
which generally respond well to an acceleration of economic activity.
In the bond portion of the Portfolio we took an active approach seeking to
capitalize on shifts in relative valuation among the Treasury, mortgage, and
corporate sectors. We pursued a defensive strategy by shortening the duration of
our bond holdings in an effort to reduce sensitivity to changes in interest
rates. We achieved this primarily by trimming our holdings of Treasury
securities, with most of the reduction occurring during the first half of the
year. We redeployed assets in several areas including corporate bonds, mortgage
securities, and cash.
Looking ahead, we believe quality growth stocks and bonds should benefit
from the current environment of slower economic growth and low inflation. With
the probability of rapid economic expansion low at this stage of the cycle, we
believe that higher interest rates are less likely. This scenario is typically
viewed as positive by the stock and bond markets, and should particularly
benefit investors in the months ahead.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
The strong performance
of stocks more than offset
the effects of rising rates
on bonds.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter /s/William M. Hutchinson
Valerie F. Malter William M. Hutchinson
Lead Portfolio Manager
/s/Ruth Heisler
Ruth Heisler
6
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
BALANCED PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,189 11.89% 11.89%
5 Year $15,855 59.55% 9.79%
10 Year $26,655 166.55% 10.30%
S&P 500 INDEX (60%)
AND LBAB INDEX (40%)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,496 14.96% 14.96%
5 Year $17,583 75.89% 11.94%
10 Year $33,291 232.91% 12.77%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Balanced Portfolio
Year Amount
- ----------------------
86 $10,000
87 $ 9,632
88 $11,229
89 $13,419
90 $13,162
91 $16,706
92 $17,870
93 $19,202
94 $18,807
95 $23,823
96 $26,575
S&P 500 Index
Year Amount
- ----------------------
86 $10,000
87 $10,525
88 $12,273
89 $15,162
90 $15,660
91 $20,431
92 $21,988
93 $24,204
94 $24,524
95 $33,739
96 $41,485
LBAB Index
Year Amount
- ----------------------
86 $10,000
87 $10,276
88 $10,085
89 $12,697
90 $13,834
91 $16,040
92 $17,236
93 $18,916
94 $18,265
95 $21,757
96 $22,547
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 48.78% and 11.43%, respectively.
- -------------------------------------------------------------------
EQUITY HOLDINGS
- -------------------------------------------------------------------
Sector breakdown of the Five Largest Equity Holdings
Portfolio's equity holdings ----------------------------
- --------------------------- 1. PHILIP MORRIS COMPANIES INC.
Consumer Staples 21% Tobacco, food products and brewing
Health 17%
Technology 15% 2. COCA-COLA CO, INC.
Manufacturing 12% International soft drink company
Service Industries 9%
Financial 8% 3. GENERAL ELECTRIC CO.
Consumer Discretionary 8% Leading producer of electrical
Media 5% equipment
Durables 4%
Energy 1% 4. MERCK & CO. INC.
---- Leading drug manufacturer
100%
==== 5. COLGATE-PALMOLIVE CO.
- --------------------------- Manufacturer of household and
personal care products
- -------------------------------------------------------------------
FIXED INCOME HOLDINGS
- -------------------------------------------------------------------
By Asset Type By Quality
- ----------------------------------- -----------------
Corporate Bonds 26% AAA 70%
U.S. Treasury Obligations 25% AA 3%
U.S. Government Agency A 14%
Pass-Thrus 22% BBB 13%
Cash Equivalents 11% ----
U.S. Government Guaranteed 100%
Mortgages 8% ====
Asset-Backed Securities 7% -----------------
Foreign Bonds 1%
----
100%
====
- -----------------------------------
7
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
For the second year in a row, both the Dow Jones Industrial Average and the
S&P 500 reached new heights. Growth and Income Portfolio returned 22.17% for the
year versus a return of 22.96% for the market as represented by the unmanaged
S&P 500 Index. We are pleased with the Portfolio's return given the year's
challenging environment of conflicting economic signals and rapid sector
rotation.
Unlike 1995, when the market was driven largely by a one percentage point
drop in long-term interest rates and 18% growth in corporate profits, 1996
marked a slowing of corporate profit growth to 8% and a decidedly more volatile
bond market. Overall, the year was characterized by market forecasts which
seemed to flip-flop with each new release of corporate earnings or economic
data. In the end, however, nothing seemed to be able to hold back the market for
long.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Stocks posted a second
consecutive year of strong
performance despite
increased volatility.
Early in the year, portfolio changes were concentrated in the cyclical
area, where we used depressed valuations in chemicals, paper, and retailing as
an opportunity to increase holdings. At the same time, we scaled back more
defensive consumer products and health care stocks, which had outperformed
significantly.
During the fourth quarter, we accelerated our trimming of health care and
consumer staples. We used a portion of the proceeds from the sales to increase
the Portfolio's position in Regional Bell Operating Companies and domestic
electric utilities, where we have been underweighted. In the communications
sector, we initiated positions in BellSouth and Frontier, and increased our
weighting in Bell Atlantic and NYNEX. With respect to electric utilities, we
believe that while uncertainty remains in the restructuring of the industry, the
process is proceeding at an appropriate pace, with many states allowing
utilities ample time to make the transition. On the sell side, we eliminated
positions in Bausch & Lomb and Reader's Digest due to company fundamentals which
no longer supported a strong case for ownership in the Portfolio.
While we watch the endless stream of economic data and the trends in
corporate profit growth, and remain cautious with respect to the current level
of the stock market, we will not place large sector bets in the portfolio based
on financial market forecasts. We have seen, particularly in 1996, how
expectations can shift overnight, only to come full circle in a short a time
period. Rather than attempt to outguess the market, we remain focused on our
primary activity -- investing in undervalued securities with above-average
dividend yields -- which we believe is a superior strategy in almost any market
environment.
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
8
<PAGE>
GROWTH AND INCOME PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,217 22.17% 22.17%
Life of
Fund* $16,884 68.84% 21.69%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,295 22.96% 22.96%
Life of
Fund* $17,590 75.90% 23.57%
*The Fund commenced operations on May 2, 1994.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Growth and Income Portfolio
Year Amount
- ----------------------
5/2/94* $10,000
6/94 $ 9,854
9/94 $10,488
12/94 $10,235
3/95 $10,903
6/95 $11,817
9/95 $12,688
12/95 $13,483
3/96 $14,300
6/96 $14,645
9/96 $15,199
12/96 $16,472
S&P 500 Index
Year Amount
- ----------------------
5/2/94* $10,000
6/94 $ 9,915
9/94 $10,400
12/94 $10,398
3/95 $11,411
6/95 $12,500
9/95 $13,493
12/95 $14,305
3/96 $15,073
6/96 $15,750
9/96 $16,237
12/96 $17,590
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
- -------------------------------------------------------------------
- --------------------------- Sector breakdown of the
Equity Securities 95% Portfolio's equity holdings
Cash Equivalents 5% ---------------------------
---- Financial 21%
100% Manufacturing 17%
==== Consumer Staples 11%
- --------------------------- Health 8%
Energy 8%
A graph in the form of a pie chart Durables 8%
appears here, illustrating the Communications 7%
exact data points in the table Utilities 5%
to the right. Consumer Discretionary 4%
Other 6%
----
95%
====
Our value approach focused on
cyclicals early in the year
followed by emphasis on
Regional Bells and utilities.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (18% of Portfolio)
- -------------------------------------------------------------------
1. XEROX CORP.
Leading manufacturer of copiers and duplicators
2. PHILIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
3. STUDENT LOAN MARKETING ASSOCIATION
Student loan financing programs
4. TRW INC.
Defense electronics, automotive parts and systems
5. UNITED TECHNOLOGIES CORP.
Manufacturer of aerospace, climate control systems, and elevators
6. BANKERS TRUST NEW YORK CORP.
Commercial banking
7. H.J. HEINZ CO.
Major manufacturer of processed foods
8. CHASE MANHATTAN CORP.
Commercial banking
9. E.I du PONT DE NEMOURS & CO.
Chemical producer
10. SHERLING-PLOUGH CORP.
Pharmaceutical and consumer products
9
<PAGE>
CAPITAL GROWTH PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
The U.S. stock market completed a second consecutive year of strong
performance, with the S&P 500 climbing 22.96% for the 12-month period ended
December 31, 1996. However, the market environment was punctuated by rapid
sector rotation and increased volatility. In this changing environment, the
Portfolio returned 20.13%. The Portfolio's best performing groups included the
technology, consumer staples, finance, service, and manufacturing sectors.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
As stocks rose over
the year, we remained
committed to our criteria
of individual selection.
In the technology area we continued to be broadly diversified, emphasizing
high quality market leaders such as Intel. The company's dominance in
microprocessors seems to be unchallenged at this juncture. Applied Materials,
the leading supplier of semiconductor manufacturing equipment, also turned in
good performance, especially during the fourth quarter.
Consistent with our view of slowing economic growth and little pressure on
interest rates, the Portfolio held a number of finance issues. In a relatively
expensive stock market many of these issues trade at a discount to both the S&P
500 and their growth rates. In this category we include a number of specialty
names such as insurance companies American International Group and Excel Ltd.
With health care costs rising at the rate of inflation, political pressure
to regulate the industry may have diminished. The Portfolio holds issues of a
number of leading pharmaceutical companies that have strong product pipelines
which we expect should drive sustainable earnings growth. One of our better
performers in this area was Warner Lambert, which rose on news of FDA approval
of two of its new products, troglidazone and atorvastatin.
Significant exposure to the energy sector was also maintained. We believe
that stock prices in this sector have yet to reflect the increase in oil prices
over the last year, and the more favorable supply and demand environment. Exxon
was among the strongest issues in the Portfolio, with Amoco and Royal Dutch
Petroleum also performing well.
In view of high consumer debt levels, we have consistently maintained a
relatively modest exposure to consumer discretionary stocks. The few issues in
the Portfolio did not add to performance. J.C. Penney declined, reflecting the
challenging retail environment. Despite inroads overseas, McDonalds has had a
particularly hard time getting its domestic business to show growth.
Our strategy remains focused on buying stocks with sustainable earnings
growth at reasonable valuations. We intend to maintain a broadly diversified
portfolio with balanced sector representation in the months ahead.
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 December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
CAPITAL GROWTH PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,013 20.13% 20.13%
5 Year $17,959 79.59% 12.42%
10 Year $34,095 240.95% 13.05%
S&P 500 INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,296 22.96% 22.96%
5 Year $20,305 103.05% 15.20%
10 Year $41,485 314.85% 15.26%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Capital Growth Portfolio
Year Amount
- ----------------------
86 $10,000
87 $10,525
88 $12,273
89 $16,162
90 $15,660
91 $20,431
92 $21,988
93 $24,204
94 $24,524
95 $33,739
96 $41,485
S&P 500 Index
Year Amount
- ----------------------
86 $10,000
87 $ 9,811
88 $11,975
89 $14,699
90 $13,604
91 $18,985
92 $20,204
93 $24,423
94 $22,061
95 $29,381
96 $34,095
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
- -------------------------------------------------------------------
- --------------------------- Sector breakdown of the
Equity Securities 97% Portfolio's equity holdings
Cash Equivalents 3% ---------------------------
---- Financial 18%
100% Technology 16%
==== Health 14%
- --------------------------- Energy 13%
Manufacturing 12%
A graph in the form of a pie chart Consumer Discretionary 6%
appears here, illustrating the Consumer Staples 6%
exact data points in the table Durables 5%
to the right. Service Industries 4%
Other 3%
----
97%
====
The portfolio's
diversification helped to
mitigate increased
volatility and sector
rotation in 1996
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (25% of Portfolio)
- -------------------------------------------------------------------
1. FEDERAL NATIONAL MORTGAGE ASSOCIATION
Insurer and holder of mortgage loans
2. INTEL CORP.
Semiconductor memory circuits
3. CITICORP
Provider of a broad range of financial services,
including banking and consumer finance
4. AMERICAN EXPRESS CREDIT CORP.
Travel and investment services, insurance, and banking
5. COLUMBIA/HCA HEALTHCARE CORP.
Leading hospital management company
6. ROYAL DUTCH PETROLEUM CO.
International energy company
7. WARNER-LAMBERT CO.
Drugs, toiletries, and food products
8. AMERICAN INTERNATIONAL GROUP, INC.
Major international insurance holding company
9. MBIA, INC.
Insurer of municipal bonds
10. GENERAL MOTORS CORP. "H"
Producer of high technology electronics
11
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
For the eight months from the Portfolio's inception to the end of the
fiscal period May 1 to December 31, 1996, Global Discovery Portfolio provided a
total return of 5.50%. This performance exceeded the total return of the Fund's
benchmark, the unmanaged Salomon Brothers World Equity Extended Market Index,
which returned 1.20% for the same period. With the notable exception of Japan,
performance of the major international equity markets was generally robust. In
the United States, the prolonged expansion of the economy continued as did the
domestic stock market's upward swing, despite periods of volatility brought on
by investor fears of accelerating inflation.
There were a number of changes in the Portfolio's top holdings of small
company stocks. Notable in their departure were German-based software company
SAP and U.S.-based semiconductor producer Atmel. Both had reached "oversized"
status after contributing significantly to the Portfolio's past performance.
Replacing SAP and Atmel as top portfolio holdings are IHC/Caland NV, the
Netherlands-based manufacturer of dredgers and offshore production platforms for
the oil industry, and the U.S.-based HBO & Co., the leading consolidator in the
booming hospital information systems industry.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
Strong performance was
evident in the United
States and abroad with
the exception of Japan.
Our approach to portfolio management focuses on individual stock selection.
The country or regional decision is secondary to this "bottom up" emphasis on
companies with good management, solid balance sheets and, above all, excellent
prospects for above average growth. We think this is appropriate because the
domicile of the company headquarters is becoming less relevant to the investment
decision. For example, two of the leading holdings, CETV and Benton Oil, are
classified as "developed" country holdings with corporate headquarters located
in the U.K. and California, respectively. Despite its London base, the major
earnings asset of CETV is a television station in Prague. Benton's profits are
entirely derived from its drilling operations in Venezuela. Both of these
companies, therefore, depend entirely on earnings from "developing" nations.
Regardless of how the portfolio is constructed, it can be viewed from a
"top down" perspective. From this standpoint, the portfolio is overweighted in
Europe and substantially underweighted in Japan. Moreover, we have restructured
our Japanese holdings so as to concentrate on consumer stocks with strongly
defined niches and good growth prospects.
In the U.S., health care stocks have been emphasized as the virtual
revolution in this sector of the economy continues unabated. Consolidation will
provide many opportunities in the areas of kidney dialysis services and
physician practice. We believe growth prospects for hospital information
services are excellent.
While we continue to be cautious regarding the level of markets, we think
that there are many companies already in the Portfolio that have the
characteristics to weather whatever storms arise.
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 December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
GLOBAL DISCOVERY PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
Life of
Fund* $10,550 5.5% --
SALOMON BROTHERS WORLD EQUITY EMI INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
Life of
Fund* $10,120 1.20% --
*The Fund commenced operations on May 1, 1996.
Index comparisons begin May 31, 1996.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
Global Discovery Portfolio
Year Amount
- ----------------------
5/96* $10,000
6/96 $ 9,857
7/96 $ 9,592
8/96 $ 9,886
9/96 $10,190
10/96 $10,147
11/96 $10,943
12/96 $10,343
Salomon Brothers World Equity EMI Index
Year Amount
- ----------------------
5/96* $10,000
6/96 $ 9,671
7/96 $ 9,337
8/96 $ 9,637
9/96 $ 9,670
10/96 $ 9,626
11/96 $10,136
12/96 $10,120
The Salomon Brothers World Equity EMI Index is an unmanaged small capitalization
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
- -------------------------------------------------------------------
By Region By Sector
(Excluding 6% Cash Equivalents) (Equity Holdings)
- ---------------------------- ---------------------------
Europe 43% Financial 16%
U.S. & Canada 41% Health 16%
Japan 10% Service Industries 13%
Latin America 4% Consumer Staples 11%
Pacific Basin 1% Technology 10%
Other 1% Energy 9%
---- Manufacturing 7%
100% Consumer Discretionary 5%
==== Durables 5%
Other 8%
----
100%
====
Graphs in the form of pie charts appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (25% of Portfolio)
- -------------------------------------------------------------------
1. IHC CALAND N.V
Dredging and offshore services in the Netherlands
2. SERCO GROUP PLC
Facilities management company in the United Kingdom
3. MARSCHOLLCK LAUTENSCHLAGER UND PARTNER AG
Leading independent life insurance company in Germany
4. BANK OF IRELAND PLC
Bank in Ireland
5. CENTRAL EUROPEAN MEDIA ENTERPRISE LTD.
Owner and operator of national and regional private commercial
television stations in Central Europe and Germany
6. AUTOLLV AG.
Manufacturer of automobile safety bags in Sweden
7. JERONIMO MARTINS
Food producer and retailer in Portugal
8. HBO & COMPANY
Designer of computerized information systems to the healthcare
industry in the United States
9. BILLING INFORMATION CONCEPTS
Billing and information management services in the United States
10. SHOHKOH FUND & CO., LTD.
Finance Company for small and medium-sized firms in Japan
13
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
For the 12 months ended December 31, 1996, International Portfolio provided
a total return of 14.78%, comparing very favorably to the performance of the
unmanaged MSCI EAFE and Canada Index, which returned 6.87% for the same period.
The Portfolio's performance was aided by an underweighting in Japan, one of the
worst performing markets over the period, as well as good stock selection in
Europe.
[CALLOUT NEXT TO PRECEDING PARAGRAPH]
We continue to focus on
companies in Europe with
sound management
strategies.
Falling interest rates, ongoing corporate restructuring, takeover activity,
and greater management focus on shareholder value propelled European markets
upwards. German equities were particular beneficiaries of corporate
restructuring, including portfolio holdings Hoechst, BASF, and Daimler Benz.
Japan's market faltered over the period, as concerns developed over the feeble
economic recovery and domestic investors remained absent from the market. Korean
equities traded lower as well, troubled by weak corporate earnings, a widening
trade gap, a depreciating currency, and the collapse in semiconductor prices.
The Hong Kong market rallied towards the end of the year as concerns about the
1997 hand-over to China faded. Brazil was a standout among Latin American
markets, driven by continued progress on the privatization front and the
perception that, for the first time since the 1940s, Brazilians are likely to
experience an extended period of low, even single digit, inflation.
In Europe, we continue to focus on companies with sound management
strategies positioned to benefit from the important changes taking place today
in the region. The drive for growth at any cost has been supplanted at many
companies by the desire to generate returns for shareholders. Though the
restructuring theme is most notable in Germany at present, it is also evident
elsewhere in Europe. Industry consolidation continues to be a successful theme
in the portfolio as well. In Japan, we continue to seek out domestic companies
with a unique franchise (Nichiei) and high quality global blue chip stocks
benefiting from a weaker yen (Canon). Elsewhere in Asia, our strategy is to
identify dominant regional companies, low-cost producers, and companies that
stand to benefit from the region's rising disposable income.
Looking ahead, while there may be transitional jitters in Europe from time
to time, the potential rewards to investors from the favorable changes underway
there are exciting. In Japan, there is evidence of momentum in selected areas of
the economy: interest rates are at record lows; valuation criteria are
attractive by historical standards; and currency depreciation has boosted
corporate earnings. Our outlook for Japan is tempered, however, by the continued
absence of domestic participation in the market and the slow pace of
deregulation in an economy impeded by structural imbalances. Going forward,
International Portfolio will seek to continue to provide important exposure to
the many opportunities for capital appreciation to be found overseas.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
Lead Portfolio Manager
/s/Joan R. Gregory
Joan R. Gregory
14
<PAGE>
INTERNATIONAL PORTFOLIO
PORTFOLIO SUMMARY as of December 31, 1996
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
INTERNATIONAL PORTFOLIO
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,478 14.78% 14.78%
5 Year $16,890 68.90% 11.05%
Life of
Fund* $24,966 149.86% 9.93%
MSCI EAFE & CANADA INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,687 6.87% 6.87%
5 Year $14,817 48.17% 8.17%
Life of
Fund* $16,574 65.74% 5.41%
*The Fund commenced operations on May 1, 1987.
Index comparisons begin May 31, 1987.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
YEARLY PERIODS ENDED DECEMBER 31
International Portfolio
Year Amount
- ----------------------
5/31/87* $10,000
87 $ 8,997
88 $10,502
89 $14,470
90 $13,363
91 $14,893
92 $14,433
93 $19,891
94 $19,723
95 $21,915
96 $25,154
MSCI EAFE & Canada Index
Year Amount
- ----------------------
5/31/87* $10,000
87 $ 9,138
88 $11,682
89 $12,968
90 $ 9,980
91 $11,186
92 $ 9,824
93 $12,961
94 $13,915
95 $15,509
96 $16,574
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 witholding 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
- -------------------------------------------------------------------
By Region By Sector
(Excluding Cash Equivalents) (Equity Holdings)
- ---------------------------- ---------------------------
Europe 59% Manufacturing 23%
Japan 18% Financial 11%
Pacific Basin 14% Durables 8%
Latin America 6% Communications 7%
Canada 3% Utilities 7%
---- Metals & Minerals 7%
100% Service Industries 8%
==== Health 8%
Technology 8%
Other 22%
----
100%
====
Graphs in the form of pie charts appears here,
illustrating the exact data points in the above table.
- -------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS (13% of Portfolio)
- -------------------------------------------------------------------
1. HOSCHET AG
Chemical producer in Germany
2. NOVARTIS AG
Pharmaceutical company in Switzerland
3. VEBA AG
Electric utility and distributor of oil and chemicals in Germany
4. HUTCHISON WHAMPOA, LTD.
Container terminal and real estate company in Hong Kong
5. CARREFOUR HYPERMARKET
Hypermarket operator and food retailer in France.
6. AUTOLIV AB
Manufacturer of automoblie safety bags in Sweden
7. MANNESMANN AG
Diversified construction and technology company in Germany
8. PORTUGAL TELECOM SA
Telecommunication services
9. SMITHKLINE BEECHAM PLC
Manufacturer of drugs and healthcare products in the United Kingdom
10. MATSUSHITA ELECTRICAL INDUSTRIAL CO., LTD.
Leading manufacturer of consumer electronic products in Japan
15
<PAGE>
MONEY MARKET PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.6% REPURCHASE AGREEMENT
4,355,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at
$4,356,621 on 1/2/97, collateralized by a $4,284,000
U.S. Treasury Note, 5.875%, 7/31/97 (Cost $4,355,000) ..... 4,355,000
----------
90.3% COMMERCIAL PAPER
Financial 82.9%
Banks 8.4% 4,000,000 Deutsche Bank Financial Inc., 5.23%, 3/4/97 ................ 3,963,698
4,000,000 Prudential Funding Corp., 5.26%, 2/25/97 ................... 3,967,550
----------
7,931,248
----------
Business Finance 6.3% 3,000,000 New Center Asset Trust, 5.21%, 2/19/97 ..................... 2,978,440
3,000,000 Norwest Corp., 5.26%, 3/11/97 .............................. 2,969,640
----------
5,948,080
----------
Consumer Finance 23.8% 3,500,000 American Express Credit Corp., 5.11%, 1/23/97 .............. 3,488,600
4,000,000 Bell Atlantic Financial Services Inc., 5.26%, 1/27/97 ...... 3,984,284
4,000,000 Beneficial Corp., 5.41%, 6/25/97 ........................... 3,896,945
2,300,000 Ford Motor Credit Corp., 4.65%, 1/8/97 ..................... 2,297,625
2,000,000 Ford Motor Credit Corp., 5.19%, 2/4/97 ..................... 1,989,951
3,700,000 General Electric Capital Corp., 5.16%, 1/30/97 ............. 3,684,143
3,000,000 Household Finance Corp., 4.44%, 1/6/97 ..................... 2,997,779
----------
22,339,327
----------
Other Financial
Companies 44.4% 4,000,000 Abbey National North America, 5.30%, 3/11/97 ............... 3,959,213
3,000,000 American General Finance Corp., 5.32%, 4/24/97 ............. 2,950,280
4,000,000 Ameritech Corp., 5.29%, 3/31/97 ............................ 3,947,787
1,600,000 Associates Corp. of North America, 4.94%, 1/14/97 .......... 1,596,932
3,000,000 Associates Corp. of North America, 5.34%, 4/7/97 ........... 2,957,440
3,000,000 Centric Funding Corp., 5.41%, 3/25/97 ...................... 2,962,581
3,500,000 Ciesco L.P., 4.96%, 1/15/97 ................................ 3,492,786
2,000,000 Dresdner U.S. Finance, 5.19%, 2/4/97 ....................... 1,989,951
4,000,000 Matterhorn Capital Corp., 5.17%, 1/16/97 ................... 3,990,833
3,000,000 Preferred Receivables Funding Corp., 4.44%, 1/6/97 ......... 2,997,779
4,000,000 Private Export Funding Corp., 5.20%, 2/11/97 ............... 3,975,901
3,000,000 Receivables Capital Corp., 5.32%, 2/28/97 .................. 2,974,093
4,000,000 UBS Finance (DE) INC., 5.30%, 1/21/97 ...................... 3,987,667
----------
41,783,243
----------
Manufacturing 4.2%
Chemicals 4,000,000 E.I. du Pont de Nemours & Co., 5.13%, 1/23/97 .............. 3,986,922
----------
Utilities 3.2%
Electric Utilities 3,000,000 Virginia Electric & Power Co., 5.26%, 2/13/97 .............. 2,980,829
Total Commercial Paper (Cost $84,969,649) .................. 84,969,649
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Value ($)
Portfolio Amount ($) (Note A)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.1% SHORT-TERM NOTES
1,000,000 Bank of America Illinois, 5.700%, 5/28/97 .................. 999,569
3,000,000 FCC National Bank Note, 5.590%, 11/7/97 .................... 2,999,145
750,000 General Electric Capital Corp., 5.290%, 1/13/97 ............ 749,983
----------
Total Short-Term Notes (Cost $4,748,697) ................... 4,748,697
----------
Total Investment Portfolio-- 100.0% (Cost $94,073,346) (a) ................ 94,073,346
==========
(a) Cost for federal income tax purposes is $94,073,346.
</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>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments securities (cost $94,073,346) (Note A) ........................ $ 94,073,346
Cash ...................................................................... 526
Interest receivable ....................................................... 72,784
Receivable for Portfolio shares sold ...................................... 4,093,556
------------
Total assets ........................................................ 98,240,212
Liabilities
Dividends payable ......................................................... $ 407,369
Payable for Portfolio shares redeemed ..................................... 17,495
Accrued management fee (Note B) ........................................... 29,722
------------
Total liabilities ...................................................... 454,586
------------
Net assets, at value ...................................................... $ 97,785,626
============
Net Assets
Net assets consist of:
Accumulated net realized loss .......................................... (2,483)
Paid-in capital ........................................................ 97,788,109
------------
Net assets, at value ...................................................... $ 97,785,626
============
Net asset value, offering and redemption price per share
($97,785,626/97,786,551 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>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ............................................................... $ 4,794,163
Expenses (Note A):
Management fee (Note B) ............................................. $ 325,791
Custodian and accounting fees (Note B) ............................. 46,495
Trustees' fees and expenses (Note B) ............................... 16,326
Legal ............................................................... 2,425
Auditing ............................................................ 10,145
Other .................................................................. 7,026 408,208
------------ ------------
Net investment income .................................................. 4,385,955
------------
Net realized loss from Investments ..................................... (917)
------------
Net increase in net assets resulting from operations ...................... $ 4,385,038
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................... $ 4,385,955 $ 4,571,604
Net realized loss from investment transactions ........................... (917) --
------------- -------------
Net increase in net assets resulting from operations ..................... 4,385,038 4,571,604
------------- -------------
Distributions to shareholders from net investment income ................. (4,385,955) (4,571,604)
------------- -------------
Portfolio share transactions at net asset value of $1.00 per share:
Proceeds from shares sold ............................................. 201,403,309 148,542,887
Net asset value of shares issued to shareholders in
reinvestment of distributions from net investment income ........... 4,385,955 4,571,604
Cost of shares redeemed ............................................... (187,750,612) (163,864,512)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions 18,038,652 (10,750,021)
------------- -------------
Increase (decrease) in net assets ........................................ 18,037,735 (10,750,021)
Net assets at beginning of period ........................................ 79,747,891 90,497,912
------------- -------------
Net assets at end of period .............................................. $ 97,785,626 $ 79,747,891
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
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>
Years Ended December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ................. .050 .055 .037 .025 .033 .057 .076 .088 .068 .060
Less distributions from
net investment income .... (.050) (.055) (.037) (.025) (.033) (.057) (.076) (.088) (.068) (.060)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period .............. $ 1.00 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ........... 5.09 5.65 3.72 2.54 3.33 5.81 7.83 8.84 7.08 5.95
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ...... 98 80 90 49 34 28 32 15 11 8
Ratio of operating
expenses, net to
average daily net
assets (%) ............... .46 .50 .56 .66 .64 .67 .69 .72 .75 .75
Ratio of operating expenses
before expense reductions,
to average daliy net
assets (%) ............... .46 .50 .56 .66 .64 .67 .69 .81 1.04 1.12
Ratio of net
investment income
to average daily
net assets (%) ........... 4.98 5.51 3.80 2.55 3.26 5.67 7.57 8.53 6.99 6.06
</TABLE>
21
<PAGE>
BOND PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11.9% REPURCHASE AGREEMENT
7,959,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette dated
12/31/96 at 6.7% to be repurchased at $7,961,962
on 1/2/97 collateralized by a $7,632,000 U.S. Treasury
Note, 7.75%, 11/30/99 (Cost $7,959,000) .............. 7,959,000
----------
15.8% U.S. TREASURY OBLIGATIONS
1,000,000 U.S. Treasury Note, 6.125%, 7/31/00 ..................... 1,000,000
9,750,000 U.S. Treasury Note, 5.625%, 11/30/00 .................... 9,573,233
----------
Total U.S. Treasury Obligations (Cost $10,807,479) .... 10,573,233
----------
6.9% U.S. GOV'T GUARANTEED MORTGAGES
1,444,741 Government National Mortgage Association
10%, 8/15/20 (a) ..................................... 1,589,894
2,928,088 Government National Mortgage Association
8.5%, 4/15/25 (a) .................................... 3,036,955
----------
Total U.S. Gov't Guaranteed
Mortgages (Cost $4,555,736) ......................... 4,626,849
----------
20.9% U.S. GOVERNMENT AGENCY PASS-THRUS
655,216 Federal Home Loan Mortgage Corp., 8%, 4/1/08 (a) ........ 674,564
1,954,508 Federal National Mortgage Association 6.5%, 2/1/26 (a) .. 1,866,555
3,015,599 Federal National Mortgage Association 7%, 7/1/26 (a) .... 2,948,682
1,698,829 Federal National Mortgage Association, 8%, 12/1/09 (a) .. 1,749,913
1,996,810 Federal National Mortgage Association, 6.5%, 3/1/26 (a) . 1,904,458
4,941,162 Federal National Mortgage Association, 7%, 4/1/26 (a) ... 4,831,518
----------
Total U.S. Government Agency Pass-Thrus
(Cost $13,914,092) ................................... 13,975,690
----------
0.1% COLLATERALIZED MORTGAGE OBLIGATIONS
32,214 Federal National Mortgage Association, REMIC,
8.5%, 4/25/18 (Cost $30,583) ......................... 32,153
----------
3.2% FOREIGN BONDS-U.S. $ DENOMINATED
1,000,000 Korea Development Bank, 9.6%, 12/1/00 ................... 1,101,110
1,000,000 Nippon Telegraph & Telephone Corp., 9.5%, 7/27/98 ....... 1,050,980
----------
Total Foreign Bonds-U.S. $ Denominated
(Cost $2,118,349) .................................... 2,152,090
----------
7.2% ASSET-BACKED SECURITIES
Automobile Receivables 1.5%
1,000,000 Premier Auto Trust Asset Backed Certificate Series 1996-
A4, 6.75%, 11/6/00 ................................... 1,011,250
----------
Credit Card Receivables 1.5%
1,000,000 Standard Credit Card Trust, Series 1990-3B, 9.85%,
7/10/97 .............................................. 1,018,750
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Home Equity Loans 2.7%
1,499,989 Contimortgage Home Equity Loan Trust, Series 1996-1 A2,
5.58%, 1/15/11 ....................................... 1,489,207
307,952 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ...................... 302,707
----------
1,791,914
----------
Manufactured Housing
Receivables 1.5%
964,749 Green Tree Financial Corp., Securitized NIM Series
1994-B, 7.85%, 7/15/04 ............................... 973,492
----------
Total Asset-Backed Securities (Cost $4,894,031) ....... 4,795,406
----------
34.0% CORPORATE BONDS
Consumer Staples 1.7%
1,000,000 J. Seagram & Sons Inc., 9%, 8/15/21 ..................... 1,159,270
----------
Financial 14.1%
2,000,000 Associates Corp. of North America, 6.625%, 5/15/01 ...... 1,999,160
1,000,000 BankAmerica Corp., 7.125%, 5/1/06 ....................... 1,005,450
1,750,000 First Union Capital II, 7.85%, 1/1/27 ................... 1,734,023
1,500,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ..................... 1,479,330
1,500,000 Midland Bank PLC, 6.95%, 3/15/11 ........................ 1,447,185
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 ............... 744,375
1,000,000 Susa Partnership L.P., 7.125%, 11/1/03 .................. 992,850
----------
9,402,373
----------
Media 3.1%
1,000,000 Tele-Communications, Inc., 8.65%, 9/15/04 ............... 1,004,910
1,000,000 Time Warner Inc., 9.125%, 1/15/13 ....................... 1,091,700
----------
2,096,610
----------
Durables 3.9%
1,000,000 Lockheed Martin Corp., 9%, 1/15/22 ...................... 1,156,540
1,500,000 Northrop Grumman Corp., 7.875%, 3/1/26 .................. 1,503,495
----------
2,660,035
----------
Manufacturing 4.3%
1,000,000 ARCO Chemical Co., 9.375%, 12/15/05 ..................... 1,159,110
1,000,000 Monsanto Co., 8.7%, 10/15/21 ............................ 1,143,550
500,000 Newport News Shipbuilding Co., 8.625%, 12/1/06 .......... 512,500
----------
2,815,160
----------
Technology 1.7%
1,000,000 Loral Corp., 8.375%, 6/15/24 ............................ 1,107,010
----------
Energy 3.4%
1,000,000 Atlantic Richfield Co., 9.125%, 8/1/31 .................. 1,211,550
1,000,000 Enron Corp., 10%, 6/1/98 ................................ 1,050,400
----------
2,261,950
----------
Transportation 1.8%
600,000 American Airlines, 8.8%, 9/16/15 ........................ 654,894
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
BOND PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
575,000 American Airlines, 8.39%, 1/2/17 ........................ 608,810
----------
1,263,704
----------
Total Corporate Bonds (Cost $21,685,522) .............. 22,766,112
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $65,964,792) (b) ............................... 66,880,533
==========
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Effective maturities will be shorter due to prepayments.
(b) At December 31, 1996, the net unrealized appreciation on investments based on cost for federal
income tax purposes of $65,972,685 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market $ 1,414,221
value over tax cost
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax (506,373)
---------------
cost over market value
Net unrealized appreciation $ 907,848
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and U.S. Government securities), for the year
ended December 31, 1996, aggregated $35,306,379 and $18,229,980, respectively. Purchases and sales of U.S. Government
securities for the year ended December 31, 1996, aggregated $13,912,703 and $60,025,147, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
The aggregate face value of futures contracts opened and closed during the year ended December 31, 1996, for the Bond
Portfolio, was $227,390,005 and $227,390,005.
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
BOND PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (including repurchase agreements of
$7,959,000)(identified cost $65,964,792) (Note A) ...................... $ 66,880,533
Cash ...................................................................... 779
Receivables:
Interest ............................................................... 658,959
Portfolio shares sold .................................................. 50,332
------------
Total assets ........................................................ 67,590,603
Liabilities
Payables:
Investments purchased .................................................. $ 1,753,343
Portfolio shares redeemed .............................................. 25,442
Accrued management fee (Note B) ........................................ 26,968
Other accrued expenses (Note B) ........................................ 15,429
------------
Total liabilities ................................................... 1,821,182
------------
Net assets, at market value ............................................... $ 65,769,421
============
Net Assets
Net assets consist of:
Undistributed net investment income .................................... $ 1,075,196
Net unrealized appreciation on investments ............................. 915,741
Accumulated net realized gain .......................................... 89,617
Paid-in capital ........................................................ 63,688,867
------------
Net assets, at market value ............................................... $ 65,769,421
============
Net asset value, offering and redemption price per share
($65,769,4219,775,320 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ............ $ 6.73
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ............................................................... $ 4,183,772
Expenses (Note A):
Management fee (Note B) ............................................. $ 291,740
Custodian and accounting fees (Note B) .............................. 53,210
Trustees' fees (Note B) ............................................. 15,916
Auditing ............................................................ 6,818
Legal ............................................................... 3,046
Other .................................................................. 6,308 377,038
------------ ------------
Net investment income .................................................. 3,806,734
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ......................................................... 199,592
Futures ............................................................. 306,666
Foreign currency related transactions ............................... 92,728 598,986
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... (2,534,446)
Foreign currency related transactions .................................. 20,098 (2,514,348)
------------ ------------
Net loss on investment transactions .................................... (1,915,362)
------------
Net increase in net assets resulting from operations ...................... $ 1,891,372
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 3,806,734 $ 8,707,166
Net realized gain from investment transactions ......................... 598,986 5,636,324
Net unrealized appreciation (depreciation) on investment
transactions during the period ...................................... (2,514,348) 8,197,950
Net increase in net assets resulting from operations ...................... 1,891,372 22,541,440
------------- -------------
Distributions to shareholders from net investment income .................. (5,405,378) (9,011,114)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold .............................................. 27,555,910 57,366,869
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................................... 5,405,378 9,011,114
Cost of shares redeemed ................................................ (36,192,318) (149,798,464)
------------- -------------
Net decrease in net assets from Portfolio share transactions .............. (3,231,030) (83,420,481)
------------- -------------
Decrease in net assets .................................................... (6,745,036) (69,890,155)
Net assets at beginning of period ......................................... 72,514,457 142,404,612
------------- -------------
Net assets at end of period (including undistributed net investment
income of $1,075,196 and $2,587,204, respectively) ..................... $ 65,769,421 $ 72,514,457
============= =============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ................................. 10,126,562 21,973,579
------------- -------------
Shares sold ............................................................ 4,122,227 8,433,349
Shares issued to shareholders in reinvestment of distributions ......... 806,843 1,343,624
Shares redeemed ........................................................ (5,280,312) (21,623,990)
------------- -------------
Net decrease in Portfolio shares ....................................... (351,242) (11,847,017)
------------- -------------
Shares outstanding at end of period ....................................... 9,775,320 10,126,562
============= =============
</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>
Years Ended December 31, (a)
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47 $ 6.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment
income ............... .41 .44 .43 .48 .49 .52 .53 .54 .54 .49
Net realized and
unrealized gain
(loss) on
investment
transactions ........... (.22) .69 (.77) .38 (.02) .61 (.02) .18 (.19) (.40)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. .19 1.13 (.34) .86 .47 1.13 .51 .72 .35 .09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income ................. (.62) (.45) (.43) (.48) (.46) (.47) (.50) (.39) (.43) (.29)
Net realized gains
on investment
transactions ........... -- -- (.17) (.15) (.19) (.02) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (.62) (.45) (.60) (.63) (.65) (.49) (.50) (.39) (.43) (.29)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period .............. $ 6.73 $ 7.16 $ 6.48 $ 7.42 $ 7.19 $ 7.37 $ 6.73 $ 6.72 $ 6.39 $ 6.47
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ........... 2.82 18.17 (4.79) 12.38 7.01 17.61 8.06 11.65 5.46 1.22
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) ...... 66 73 142 129 113 74 42 22 3 3
Ratio of operating
expenses, net to
average net
assets (%) ............... .61 .56 .58 .61 .63 .69 .73 .75 .75 .75
Ratio of operating expenses
before expense reductions,
to average daliy net
assets (%) ............... .61 .56 .58 .61 .63 .69 .73 .84 1.40 2.01
Ratio of net investment
income to average
net assets (%) ........... 6.2 6.29 6.43 6.59 6.89 7.51 8.05 8.04 7.86 7.53
Portfolio turnover
rate (%) ................. 85.11 177.21 96.55 125.15 87.00 115.86 71.02 103.41 245.23 186.05
(a) Based on monthly average shares outstanding during the period.
</TABLE>
28
<PAGE>
BALANCED PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.5% REPURCHASE AGREEMENT
4,003,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at $4,004,490
on 1/2/97, collateralized by a $3,703,000 U.S. Treasury
Note, 8.5%, 11/15/00 (Cost $4,003,000) ............... 4,003,000
----------
10.2% U.S. GOVERNMENT & AGENCIES
1,200,000 U.S. Treasury Bond, 7.25%, 5/15/16 .................... 1,267,128
300,000 U.S. Treasury Bond, 8.125%, 5/15/21 ................... 348,093
1,850,000 U.S. Treasury Bond, 6.25%, 8/15/23 .................... 1,734,375
550,000 U.S. Treasury Note, 4.75%, 2/15/97 .................... 549,400
250,000 U.S. Treasury Note, 6.125%, 5/31/97 ................... 250,703
1,000,000 U.S. Treasury Note, 5.25%, 7/31/98 .................... 991,720
2,000,000 U.S. Treasury Note, 5.75%, 12/31/98 ................... 1,995,320
500,000 U.S. Treasury Note, 6.125%, 7/31/00 ................... 500,000
1,150,000 U.S. Treasury Note, 5.625%, 11/30/00 .................. 1,129,150
800,000 U.S. Treasury Separate Trading Registered Interest and
Principal Securities, 11/15/10 (6.75%)** ............. 318,624
----------
Total U.S. Government & Agencies (Cost $9,081,356) .... 9,084,513
----------
3.1% U.S. GOV'T GUARANTEED MORTGAGES
535,318 Government National Mortgage Association, 10%,
8/15/20 (a) .......................................... 589,101
528,233 Government National Mortgage Association, 8.75%,
12/15/24 (a) ......................................... 544,739
1,567,723 Government National Mortgage Association, 8.5%,
with various maturities to 9/15/26 (a) ............... 1,625,742
----------
Total U.S. Gov't Guaranteed Mortgages (Cost $2,685,721) 2,759,582
----------
9.3% U.S. GOVERNMENT AGENCY PASS-THRUS
1,092,026 Federal Home Loan Mortgage Corp., 8%, 4/1/08 (a) ...... 1,124,273
2,577,568 Federal National Mortgage Association, 6.5%, with
various maturities to 2/1/26 (a) ..................... 2,461,576
2,471,628 Federal National Mortgage Association, 7%, 4/1/26 (a) . 2,416,782
2,259,913 Federal National Mortgage Association, 7%, 9/1/26 (a) 2,209,765
----------
Total U.S. Government Agency Pass-Thrus
(Cost $8,177,335) .................................... 8,212,396
----------
0.0% COLLATERALIZED MORTGAGE OBLIGATIONS
32,214 Federal National Mortgage Association, REMIC, 8.5%,
4/25/18 (Cost $30,945) ............................... 32,153
----------
0.5% FOREIGN BONDS - U.S. $ DENOMINATED
250,000 ABN-AMRO Bank NV, 7.75%, 5/15/23 ...................... 257,010
250,000 Seagram Co., Ltd., 6.875%, 9/1/23 ..................... 230,900
----------
Total Foreign Bonds - U.S. $ Denominated
(Cost $461,469) ....................................... 487,910
----------
2.8% ASSET-BACKED SECURITIES
Automobile Receivables 0.7% 98,937 Premier Auto Trust Asset Backed Certificate Series
1994-3, 6.8%, 12/2/99 99,400
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE>
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
500,000 Premier Auto Trust Asset Backed Certificate Series
1996-3, 6.5%, 3/6/00 ................................. 503,435
----------
602,835
----------
Credit Card Receivables 1.3% 850,000 Sears Credit Account Master Trust, Series 1995-4, 6.25%,
1/15/03 .............................................. 853,451
250,000 Standard Credit Card Trust, Series 1990-6B, 9.625%,
9/10/97 .............................................. 255,703
----------
1,109,154
----------
Home Equity Loans 0.7% 499,996 Contimortgage Home Equity Loan Trust, Series 1996-1 A2,
5.58%, 1/15/11 ........................................ 496,402
76,988 United Companies Financial Corp., Home Equity Loan
Series 1993-B1, 6.075%, 7/25/14 ...................... 75,676
----------
.................................................................................................................. 572,078
----------
Manufactured Housing
Receivables 0.1% 119,990 Green Tree Financial Corp. Series 1995-7 A1, 6%, 10/15/26 120,027
----------
Total Asset-Backed Securities (Cost $2,418,966) ....... 2,404,094
----------
10.9% CORPORATE BONDS
Consumer Discretionary 0.3% 250,000 Price/Costco Inc., 7.125%, 6/15/05 .................... 250,030
----------
Consumer Staples 0.3% 270,000 J. Seagram & Sons Inc., 7%, 4/15/08 ................... 266,406
----------
Financial 5.3% 750,000 Associates Corp. of North America, 6.625%, 5/15/01 .... 749,685
1,000,000 Highwoods/Forsyth L.P., 7%, 12/1/06 ................... 986,220
500,000 Midland Bank PLC, 6.95%, 3/15/11 ...................... 482,395
250,000 NationsBank Corp., 7.25%, 10/15/25 .................... 240,265
1,000,000 Southern National Corp., 7.05%, 5/23/03 ............... 1,009,060
750,000 Spieker Properties, Inc., 7.875%, 12/1/16 ............. 744,375
500,000 Wells Fargo & Co., 6.875%, 4/1/06 ..................... 491,665
----------
4,703,665
----------
Media 1.8% 500,000 Tele-Communications, Inc., 8.65%, 9/15/04 ............. 502,455
1,000,000 Time Warner Inc., 9.125%, 1/15/13 ..................... 1,091,700
----------
1,594,155
----------
Durables 0.9% 250,000 Lockheed Martin Corp., 9%, 1/15/22 .................... 289,135
500,000 Northrop Grumman Corp., 7.875%, 3/1/26 ................ 501,165
----------
790,300
----------
Manufacturing 0.3% 250,000 Corning Inc., 8.75%, 7/15/99 .......................... 261,308
----------
Technology 0.6% 500,000 Loral Corp., 8.375%, 6/15/24 .......................... 553,505
----------
Energy 0.9% 500,000 Atlantic Richfield Co., 8.25%, 2/1/22 ................. 550,965
250,000 Enron Corp., 10%, 6/1/98 .............................. 262,600
----------
813,565
----------
Transportation 0.2% 100,000 American Airlines, 8.8%, 9/16/15 ...................... 109,149
100,000 American Airlines, 8.39%, 1/2/17 ...................... 105,880
----------
215,029
----------
Utilities 0.3% 250,000 Commonwealth Edison Co., 9.05%, 10/15/99 .............. 263,093
----------
Total Corporate Bonds (Cost $9,479,915) ............... 9,711,056
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
58.7% COMMON STOCKS
Consumer Discretionary 4.8%
Department &
Chain Stores 3.2% 14,200 Federated Department Stores, Inc.* .................... 484,575
10,300 Home Depot, Inc. ...................................... 516,288
38,900 Price/Costco Inc.* .................................... 977,363
37,400 Wal-Mart Stores Inc. .................................. 855,525
----------
2,833,751
----------
Hotels & Casinos 0.7% 39,000 Host Marriott Corp. ................................... 624,000
----------
Specialty Retail 0.9% 26,800 Corporate Express, Inc.* .............................. 788,925
----------
Consumer Staples 12.1%
Alcohol & Tobacco 3.6% 27,000 Anheuser-Busch Companies, Inc. ........................ 1,080,000
18,400 Philip Morris Companies Inc. .......................... 2,072,300
----------
3,152,300
----------
Consumer Electronic &
Photographic Products 0.7%
8,900 Duracell International Inc. ........................... 621,888
----------
Food & Beverage 2.2% 37,300 Coca-Cola Co., Inc. ................................... 1,962,913
----------
Package Goods/
Cosmetics 5.6% 19,500 Avon Products Inc. .................................... 1,113,938
14,500 Colgate-Palmolive Co. ................................. 1,337,625
8,900 Gillette Co. .......................................... 691,975
12,400 Procter & Gamble Co. .................................. 1,333,000
18,700 Revlon, Inc. "A"* ..................................... 558,662
----------
5,035,200
----------
Health 9.9%
Biotechnology 0.7% 11,900 Amgen Inc.* ........................................... 647,063
----------
Health Industry Services 1.3% 9,900 HBO & Company ......................................... 587,813
12,200 United Healthcare Corp. ............................... 549,000
----------
1,136,813
----------
Medical Supply &
Specialty 0.9% 11,700 Medtronic Inc. ........................................ 795,600
----------
Pharmaceuticals 7.0% 9,900 American Home Products Corp. .......................... 580,387
8,058 Eli Lilly & Co. ....................................... 588,234
22,600 Johnson & Johnson ..................................... 1,124,350
17,900 Merck & Co. Inc. ...................................... 1,418,575
10,000 Novartis AG (ADR) ..................................... 571,875
13,100 Pfizer, Inc. .......................................... 1,085,662
12,700 SmithKline Beecham PLC (ADR) .......................... 863,600
----------
6,232,683
----------
Financial 5.0%
Banks 1.5% 5,600 NationsBank Corp. ..................................... 547,400
</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>
12,400 State Street Boston Corp. ............................. 799,800
----------
1,347,200
----------
Insurance 2.4% 11,550 American International Group, Inc. .................... 1,250,288
8,400 MBIA Inc. ............................................. 850,500
----------
2,100,788
----------
Consumer Finance 0.5% 9,500 Associates First Capital Corp. ........................ 419,188
----------
Other Financial
Companies 0.6% 14,700 Federal National Mortgage Association ................. 547,575
----------
Media 3.0%
Advertising 1.2% 21,900 Interpublic Group of Companies Inc. ................... 1,040,250
----------
Broadcasting &
Entertainment 1.8% 29,800 Clear Channel Communications, Inc.* ................... 1,076,525
7,500 Walt Disney Co. ....................................... 522,188
----------
1,598,713
----------
Service Industries 5.1%
Electronic Data
Processing Services 2.2% 27,700 Electronic Data Systems Corp. ......................... 1,198,025
20,200 First Data Corp. ...................................... 737,300
----------
1,935,325
----------
Environmental Services 0.3% 10,000 U.S. Filter Corp.* .................................... 317,500
----------
Miscellaneous Commercial
Services 0.5% 24,800 Sensormatic Electronics Corp. ......................... 415,400
----------
Miscellaneous Consumer
Services 1.4% 22,700 CUC International Inc.* ............................... 539,125
24,100 Service Corp. International ........................... 674,800
----------
1,213,925
----------
Printing/Publishing 0.7% 8,800 Reuters Holdings PLC "B" (ADR) ........................ 673,200
----------
Durables 2.1%
Telecommunications
Equipment 11,200 Ascend Communications, Inc.* .......................... 695,800
6,900 Cascade Communications Corp.* ......................... 380,363
12,900 Nokia AB Oy (ADR) ..................................... 743,363
----------
1,819,526
----------
Manufacturing 7.2%
Chemicals 1.7% 24,300 Monsanto Co. .......................................... 944,663
12,500 Praxair Inc. .......................................... 576,563
----------
1,521,226
----------
Diversified
Manufacturing 2.6% 18,100 General Electric Co. .................................. 1,789,638
8,600 Honeywell, Inc. ....................................... 565,450
----------
2,355,088
----------
Electrical Products 1.9% 12,000 Emerson Electric Co. .................................. 1,161,000
14,900 FORE Systems, Inc.* ................................... 489,838
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,650,838
----------
Office Equipment/
Supplies 1.0% 16,800 Xerox Corp. ........................................... 884,100
----------
Technology 8.6%
Computer Software 3.3% 11,650 Computer Associates International, Inc. ............... 579,588
28,600 Informix Corp.* ....................................... 582,725
15,800 Microsoft Corp.* ...................................... 1,305,475
10,200 Oracle Systems Corp.* ................................. 425,850
----------
2,893,638
----------
Electronic Data
Processing 0.7% 15,300 Ceridian Corp.* ....................................... 619,650
----------
Office/Plant Automation 2.4% 7,400 3Com Corp.* ........................................... 542,975
23,400 Cabletron Systems Inc.* ............................... 778,050
13,100 Cisco Systems, Inc.* .................................. 833,488
----------
2,154,513
----------
Semiconductors 2.2% 21,500 Advanced Micro Devices Inc.* .......................... 553,625
18,600 Atmel Corp.* .......................................... 616,125
6,100 Intel Corp. ........................................... 798,718
----------
1,968,468
----------
Energy 0.9%
Oil/Gas Transmission 17,900 Enron Corp. ........................................... 771,938
----------
Total Common Stocks (Cost $41,878,330) ................ 52,079,185
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $78,217,037) (b) ............................... 88,773,889
==========
- ------------------------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
** Yield; bond equivalent yield to maturity; not a coupon rate (unaudited).
(a) Effective maturities will be shorter due to prepayments.
(b) At December 31, 1996, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $78,237,142 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market ......... 11,609,029
value over tax cost
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax ............ (1,072,282)
---------------
cost over market value
Net unrealized appreciation ............................................................................... $ 10,536,747
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments and U.S. Government securities), for the year
ended December 31, 1996, aggregated $56,672,487 and $39,756,709, respectively. Purchases and sales of U.S. Government
securities for the year ended December 31, 1996, aggregated $5,463,914 and $8,207,745, respectively.
</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>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $78,217,037) (Note A) $ 88,773,889
Cash 1,306
Receivables:
Dividends and interest 437,539
Portfolio shares sold 340,753
------------
Total assets 89,553,487
Liabilities
Payables:
Investments purchased $ 1,150,199
Accrued management fee (Note B) 35,508
Other accrued expenses (Note B) 24,943
------------
Total liabilities 1,210,650
------------
Net assets, at market value $ 88,342,837
============
Net Assets
Net assets consist of:
Undistributed net investment income $ 672,177
Net unrealized appreciation on investments 10,556,852
Accumulated net realized gain 4,797,576
Paid-in capital 72,316,232
------------
Net assets, at market value $ 88,342,837
============
Net asset value, offering and redemption price per share
($88,342,837/7,608,722 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) $ 11.61
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Interest ............................................................ $ 2,099,138
Dividends (net of foreign taxes withheld of $5,019) ................. 580,951
------------
2,680,089
Expenses (Note A):
Management fee (Note B) ............................................. $ 372,176
Custodian and accounting fees (Note B) .............................. 60,938
Trustees' fees (Note B) ............................................. 16,326
Auditing ............................................................ 9,672
Legal ............................................................... 388
Registration fees ................................................... 4,946
Other ............................................................... 6,896 471,342
------------ ------------
Net investment income .................................................. 2,208,747
------------
Net realized and unrealized gain on investment transactions
Net realized gain from:
Investments ......................................................... 4,867,034
Foreign currency related transactions ............................... 32,727 4,899,761
------------
Net unrealized appreciation during the period on:
Investments ......................................................... 1,629,706
Foreign currency related transactions ............................... 5,965 1,635,671
------------ ------------
Net gain on investment transactions .................................... 6,535,432
------------
Net increase in net assets resulting from operations ...................... $ 8,744,179
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE>
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 2,208,747 $ 1,709,893
Net realized gain from investment transactions ......................... 4,899,761 2,307,029
Net unrealized appreciation on investment transactions
during the period ................................................... 1,635,671 9,159,100
------------ ------------
Net increase in net assets resulting from operations ...................... 8,744,179 13,176,022
------------ ------------
Distributions to shareholders from:
Net investment income .................................................. (2,028,500) (1,673,390)
------------ ------------
Net realized gains from investment transactions ........................ (1,925,657) (316,977)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold .............................................. 25,991,787 16,676,142
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................................... 3,954,157 1,990,367
Cost of shares redeemed ................................................ (14,318,918) (7,450,950)
------------ ------------
Net increase in net assets from portfolio share transactions .............. 15,627,026 11,215,559
------------ ------------
Increase in net assets .................................................... 20,417,048 22,401,214
Net assets at beginning of period ......................................... 67,925,789 45,524,575
------------ ------------
Net assets at end of period (including undistributed net
investment income of $672,177 and $483,837, respectively) .............. $ 88,342,837 $ 67,925,789
============ ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ................................. 6,206,064 5,076,236
------------ ------------
Shares sold ............................................................ 2,336,334 1,667,336
Shares issued to shareholders in reinvestment of distributions ......... 360,527 204,454
Shares redeemed ........................................................ (1,294,203) (741,962)
------------ ------------
Net increase in Portfolio shares ....................................... 1,402,658 1,129,828
------------ ------------
Shares outstanding at end of period ....................................... 7,608,722 6,206,064
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
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>
Years Ended December 31, (a)
---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $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 ...... .31 .30 .29 .30 .29 .35 .42 .40 .33 .34
Net realized and unrealized
gain (loss) on investment
transactions ............. .95 2.04 (.48) .42 .36 1.77 (.59) 1.06 .64 (.45)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. 1.26 2.34 (.19) .72 .65 2.12 (.17) 1.46 .97 (.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income ...... (.30) (.30) (.30) (.28) (.29) (.37) (.43) (.33) (.23) (.23)
Net realized gains on
investment transactions .. (.30) (.06) (.77) (.23) (.19) -- (.05) -- -- (.13)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .......... (.60) (.36) (1.07) (.51) (.48) (.37) (.48) (.33) (.23) (.36)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period .............. $11.61 $10.95 $ 8.97 $10.23 $10.02 $ 9.85 $ 8.10 $ 8.75 $ 7.62 $ 6.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return (%) ............. 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) ........ 88 68 46 45 37 25 16 18 11 12
Ratio of operating expenses,
net to average net
assets (%) ................. .60 .65 .75 .75 .75 .75 .75 .75 .75 .75
Ratio of operating expense
before expense reductions,
to average daily net assets .60 .65 .75 .75 .75 .81 .75 .89 1.14 1.20
Ratio of net investment income
to average net assets (%) .. 2.82 3.01 3.19 3.01 3.01 4.00 5.15 4.74 4.48 4.42
Portfolio turnover rate (%) .. 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) .............. $.0535 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
(a) Based on monthly 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.
* 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.
</TABLE>
37
<PAGE>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.6% REPURCHASE AGREEMENT
4,176,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7%to be repurchased at $4,177,554
on 1/2/97, collateralized by a $4,005,000 U.S. Treasury
Note, 7.75%, 11/30/99 (Cost $4,176,000) .................. 4,176,000
----------
1.2% CONVERTIBLE BONDS
Health 0.2%
Pharmaceuticals 140,000 Sandoz Capital BVI Ltd., 2%, 10/6/02 ....................... 150,500
----------
Financial 0.1%
Other Financial
Companies 40,000 First Financial Management Corp., 5%, 12/15/99 ............. 70,300
----------
Service Industries 0.3%
Miscellaneous
Commercial Services 335,000 ADT Operations Inc. LYON, 7/6/10 ........................... 216,494
54,000 Jardine Strategic Holdings Ltd., 7.5%, 5/7/49 .............. 64,800
----------
281,294
----------
Energy 0.6%
Oil Companies 25,000 Atlantic Richfield Co. 9% Exchange Note 9/15/97 ............ 537,500
----------
Total Convertible Bonds (Cost $1,078,290) .................. 1,039,594
----------
2.7% CONVERTIBLE PREFERRED STOCKS
Shares
Consumer Discretionary 0.4%
Department & Chain
Stores 7,400 K mart 7.75% ............................................... 360,750
----------
Financial 0.7%
Consumer Finance 0.5% 10,400 Advanta Corp. 6.75% ........................................ 421,200
----------
Real Estate 0.2% 5,000 Security Capital Industrial Trust "B", 7% .................. 136,250
----------
Manufacturing 1.6%
Containers & Paper 1.3% 25,600 Boise Cascade Corp. "G", Cum $1.58 ......................... 668,800
10,800 Bowater, Inc. "B", 7% ...................................... 329,400
4,500 International Paper Co. 5.25% .............................. 205,875
----------
1,204,075
----------
Industrial Specialty 0.2% 10,000 Cooper Industries, Inc. 6% ................................. 193,750
Wholesale Distributors 0.1% 1,400 Alco Standard Corp. 6.5% ................................... 133,700
----------
Total Convertible Preferred Stocks (Cost $2,457,717) ....... 2,449,725
----------
91.5% COMMON STOCKS
Consumer Discretionary 3.9%
Department &
Chain Stores 3.8% 19,200 J.C. Penney Co., Inc. ...................................... 936,000
11,500 May Department Stores ...................................... 537,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
30,600 Rite Aid Corp. ............................................. 1,216,350
----------
16,700 Sears, Roebuck & Co. ....................................... 770,288
----------
3,460,263
Hotels & Casinos 0.1% 5,311 Homestead Village, Inc.* ................................... 95,596
3,563 Homestead Village, Inc. Warrants* (Expires 10/29/97) ....... 28,949
----------
124,545
----------
Consumer Staples 10.5%
Alcohol & Tobacco 3.8% 24,800 Anheuser-Busch Companies, Inc. ............................. 992,000
17,300 Philip Morris Companies Inc. ............................... 1,948,413
15,080 RJR Nabisco Holdings Corp. ................................. 512,720
----------
3,453,133
----------
Consumer Electronic &
Photographic Products 1.0% 18,900 Whirlpool Corp. ............................................ 881,213
Food & Beverage 3.6% 13,000 General Mills, Inc. ........................................ 823,875
37,500 H.J. Heinz Co. ............................................. 1,340,625
6,400 Unilever NV (New York shares) .............................. 1,121,600
----------
3,286,100
----------
Package Goods/
Cosmetics 2.1% 4,400 Avon Products Inc. ......................................... 251,350
13,100 Kimberly-Clark Corp. ....................................... 1,247,775
9,500 Tambrands Inc. ............................................. 388,313
----------
1,887,438
----------
Health 8.1%
Pharmaceuticals 16,500 American Home Products Corp. ............................... 967,313
29,100 Baxter International Inc. .................................. 1,193,100
11,300 Bristol-Myers Squibb Co. ................................... 1,228,875
19,900 Schering-Plough Corp. ...................................... 1,288,525
10,900 SmithKline Beecham PLC (ADR) ............................... 741,200
16,600 Warner-Lambert Co. ......................................... 1,245,000
18,200 Zeneca Group PLC ........................................... 512,556
1,300 Zeneca Group PLC (ADR) ..................................... 109,200
----------
7,285,769
----------
Communications 7.1%
Telephone/Communications 23,800 Alltel Corp. ............................................... 746,725
16,100 Bell Atlantic Corp. ........................................ 1,042,475
14,000 BellSouth Corp. ............................................ 565,250
21,100 Frontier Corp. ............................................. 477,388
22,100 GTE Corp. .................................................. 1,005,550
12,300 Koninklijke PTT Nederland .................................. 469,188
20,900 NYNEX Corp. ................................................ 1,005,813
22,700 Sprint Corp. ............................................... 905,163
33,000 Telecom Corp. of New Zealand ............................... 168,438
----------
6,385,990
----------
Financial 20.0%
Banks 7.9% 14,200 Banc One Corp. ............................................. 610,600
15,800 Bankers Trust New York Corp. ............................... 1,362,750
15,000 Chase Manhattan Corp. ...................................... 1,338,750
15,900 CoreStates Financial Corp. ................................. 824,813
12,400 First Bank System Inc. ..................................... 846,300
12,400 J.P. Morgan & Co., Inc. .................................... 1,210,550
18,300 KeyCorp .................................................... 924,150
----------
7,117,913
----------
</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> <C>
Insurance 3.3% 20,200 EXEL, Ltd. ................................................. 765,075
6,900 Hartford Steam Boiler Inspection & Insurance Co. ........... 319,988
21,800 Lincoln National Corp. ..................................... 1,144,500
12,900 Mid Ocean Limited* ......................................... 677,250
900 Transamerica Corp. ......................................... 71,100
----------
2,977,913
----------
Other Financial
Companies 2.9% 22,200 Federal National Mortgage Association ...................... 826,950
19,200 Student Loan Marketing Association ......................... 1,788,000
----------
2,614,950
----------
Real Estate 5.9% 1,100 Charles E. Smith Residential Realty, Inc. (REIT) ........... 32,175
3,900 Developers Diversified Realty Corp. ........................ 144,788
8,300 Equity Residential Properties Trust (REIT) ................. 342,375
10,200 General Growth Properties, Inc. (REIT) ..................... 328,950
20,500 Health Care Property Investment Inc. (REIT) ................ 717,500
20,400 Meditrust SBI (REIT) ....................................... 816,000
31,400 Nationwide Health Properties Inc. (REIT) ................... 761,450
7,800 Omega Healthcare Investors (REIT) .......................... 259,350
47,900 Security Capital Atlantic Inc. ............................. 1,173,550
16,141 Security Capital Industrial Trust (REIT) ................... 345,014
15,096 Simon DeBartolo Group, Inc. ................................ 467,976
----------
5,389,128
----------
Durables 7.6%
Aerospace 4.2% 865 Boeing Co. ................................................. 92,014
10,288 Lockheed Martin Corp. ...................................... 941,352
1,400 Northrop Grumman Corp. ..................................... 115,850
20,600 Rockwell International Corp.(New) .......................... 1,254,025
21,400 United Technologies Corp. .................................. 1,412,400
----------
3,815,641
----------
Automobiles 2.7% 21,100 Dana Corp. ................................................. 688,388
10,100 Eaton Corp. ................................................ 704,475
22,300 Ford Motor Co. ............................................. 710,813
8,200 Genuine Parts Co. .......................................... 364,900
----------
2,468,576
----------
Construction/
Agricultural Equipment 0.7% 9,900 PACCAR, Inc. ............................................... 673,200
----------
Manufacturing 15.6%
Chemicals 5.0% 15,200 DSM NV (ADR) ............................................... 374,300
8,300 Dow Chemical Co. ........................................... 650,513
13,800 E.I. du Pont de Nemours & Co. .............................. 1,302,375
17,700 Eastman Chemical Co. ....................................... 977,925
15,700 Imperial Chemical Industries PLC (ADR) (New) ............... 816,400
16,200 Lyondell Petrochemical Co. ................................. 356,400
----------
4,477,913
----------
Containers & Paper 1.1% 28,800 Stone Container Corp. ...................................... 428,400
19,300 Westvaco Corp. ............................................. 554,875
----------
983,275
----------
Diversified
Manufacturing 2.8% 6,600 Dresser Industries Inc. .................................... 204,600
14,400 Olin Corp. ................................................. 541,800
35,600 TRW Inc. ................................................... 1,762,200
----------
2,508,600
----------
Electrical Products 2.2% 29,100 Philips NV (New York shares) ............................... 1,164,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
18,500 Thomas & Betts Corp. ....................................... 820,938
----------
1,984,938
----------
Office Equipment/
Supplies 3.2% 54,900 Xerox Corp. ................................................ 2,889,113
Specialty Chemicals 1.3% 14,400 BetzDearborn Inc. .......................................... 842,400
9,900 Witco Corp. ................................................ 301,950
----------
1,144,350
----------
Energy 7.5%
Oil & Gas Production 0.2% 5,081 Union Pacific Resources Group .............................. 148,619
Oil Companies 7.1% 6,700 Exxon Corp. ................................................ 656,600
15,900 Murphy Oil Corp. ........................................... 884,438
9,600 Pennzoil Co. ............................................... 542,400
11,100 Repsol SA (ADR) ............................................ 423,188
5,000 Royal Dutch Petroleum Co. (New York shares) ................ 853,750
19,556 Societe Nationale Elf Aquitaine (ADR) ...................... 884,909
4,300 Texaco Inc. ................................................ 421,938
22,366 Total SA (ADR) ............................................. 900,232
33,300 YPF S.A. "D" (ADR) ......................................... 840,825
----------
6,408,280
----------
Oil/Gas Transmission 0.2% 4,500 PanEnergy Corp. ............................................ 202,500
----------
Metals & Minerals 2.6%
Steel & Metals 39,152 Allegheny Teledyne Inc. .................................... 900,496
28,000 Freeport McMoRan Copper & Gold, Inc. "A" ................... 787,500
13,500 Oregon Steel Mills, Inc. ................................... 226,125
6,700 Phelps Dodge Corp. ......................................... 452,250
----------
2,366,371
----------
Construction 2.2%
Building Materials 0.3% 10,638 Martin Marietta Materials, Inc. ............................ 247,334
Forest Products 1.9% 11,100 Georgia Pacific Corp. ...................................... 799,200
25,500 Louisiana-Pacific Corp. .................................... 538,688
8,700 Weyerhaeuser Co. ........................................... 412,163
----------
1,750,051
----------
Transportation 1.6%
Railroads 10,700 CSX Corp. .................................................. 452,075
15,700 Canadian National Railway Co. .............................. 597,211
6,000 Union Pacific Corp. ........................................ 360,750
----------
1,410,036
----------
Utilities 4.8%
Electric Utilities 3,200 Boston Edison Co. .......................................... 86,000
9,800 CINergy Corp. .............................................. 327,075
2,600 Duke Power Co. ............................................. 120,250
22,100 National Power PLC (ADR) ................................... 748,638
15,400 PacifiCorp ................................................. 315,700
37,100 Pacific Gas & Electric Co. ................................. 779,100
20,800 PowerGen PLC (Sponsored ADR) ............................... 821,600
13,000 Southern Company ........................................... 294,125
----------
3,100 Texas Utilities Co., Inc. .................................. 126,325
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE>
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
26,900 Unicom Corp. ............................................... 729,652
----------
4,348,465
----------
Total Common Stocks (Cost $67,018,600) ..................... 82,691,617
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $74,730,607) (a) ................................... 90,356,936
==========
* Non-income producing security.
(a) At December 31, 1996, the net unrealized appreciation of investments based on cost for
federal income tax purposes of $74,727,583 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess
of market value over tax cost ........................................................................ $16,326,918
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost over
market value ......................................................................................... (697,565)
------------
Net unrealized appreciation .............................................................................. $15,629,353
===========
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the year ended December 31, 1996,
aggregated $47,137,445 and $21,525,631, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
42
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $74,730,607) (Note A) .......... $ 90,356,936
Cash ................................................................... 850
Foreign currency, at value (cost $2,214) ............................... 2,216
Receivables:
Investments sold ................................................... 267,502
Dividends and interest ............................................. 260,160
Portfolio shares sold .............................................. 331,847
Foreign taxes recoverable .......................................... 20,010
------------
Total assets ................................................... 91,239,521
Liabilities
Payables:
Investments purchased .............................................. $ 76,620
Portfolio shares redeemed .......................................... 99
Accrued management fee (Note B) .................................... 35,291
Other accrued expenses (Note B) .................................... 35,964
------------
Total liabilities .............................................. 147,974
------------
Net assets, at market value ............................................ $ 91,091,547
============
Net Assets
Net assets consist of:
Undistributed net investment income ................................ $ 713,479
Net unrealized appreciation on:
Investments .................................................... 15,626,329
Foreign currency related transactions .......................... 11
Accumulated net realized gain ...................................... 3,799,669
Paid-in capital .................................................... 70,952,059
------------
Net assets, at market value ............................................ $ 91,091,547
============
Net asset value, offering and redemption price per share
($91,091,5479,724,734 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ..... $ 9.37
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE>
GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $52,815) ........... $ 2,451,899
Interest ....................................................... 154,234
------------
2,606,133
Expenses (Note A):
Management fee (Note B) ........................................ $ 326,033
Custodian and accounting fees (Note B) ......................... 83,934
Trustees' fees (Note B) ........................................ 16,634
Auditing ....................................................... 10,677
Registration fees .............................................. 9,697
Legal .......................................................... 203
Other .......................................................... 3,673 450,851
------------ ------------
Net investment income .............................................. 2,155,282
------------
Net realized and unrealized gain on investment transactions
Net realized gain from:
Investments .................................................... 3,798,564
Foreign currency related transactions .......................... 3 3,798,567
------------
Net unrealized appreciation during the period on:
Investments .................................................... 7,841,863
Foreign currency related transactions .......................... 11 7,841,874
------------ ------------
Net gain on investment transactions ................................ 11,640,441
Net increase in net assets resulting from operations ................... $ 13,795,723
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .............................................. $ 2,155,282 $ 1,140,276
Net realized gain from investment transactions ..................... 3,798,567 685,486
Net unrealized appreciation on investment
transactions during the period ................................. 7,841,874 8,112,233
------------ ------------
Net increase in net assets resulting from operations ................... 13,795,723 9,937,995
------------ ------------
Distributions to shareholders from:
Net investment income .............................................. (1,781,057) (895,880)
------------ ------------
Net realized gains from investment transactions .................... (729,093) (150,289)
------------ ------------
Portfolio share transactions:
Proceeds from shares sold .......................................... 48,549,524 29,272,260
Net asset value of shares issued to shareholders
in reinvestment of distributions ............................... 2,510,150 1,046,169
Cost of shares redeemed ............................................ (23,216,134) (7,322,663)
------------ ------------
Net increase in net assets from Portfolio share transactions ........... 27,843,540 22,995,766
------------ ------------
Increase in net assets ................................................. 39,129,113 31,887,592
Net assets at beginning of period ...................................... 51,962,434 20,074,842
------------ ------------
Net assets at end of period (including undistributed net
investment income of $713,479 and $403,970, respectively) .......... $ 91,091,547 $ 51,962,434
============ ============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .............................. 6,510,714 3,204,882
------------ ------------
Shares sold ........................................................ 5,669,994 4,166,992
Shares issued to shareholders in reinvestment of distributions ..... 301,924 151,454
Shares redeemed .................................................... (2,757,898) (1,012,614)
------------ ------------
Net increase in Portfolio shares ................................... 3,214,020 3,305,832
------------ ------------
Shares outstanding at end of period .................................... 9,724,734 6,510,714
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
45
<PAGE>
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
May 2, 1994
(commencement
Years Ended December 31, of operations)
------------------------- to December 31,
1996 1995 1994
------------------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............................................ $ 7.98 $ 6.26 $ 6.00(b)
-------- -------- --------
Income from investment operations:
Net investment income ......................................................... .27 .23 .13
Net realized and unrealized gain on investment transactions ................... 1.46 1.72 .17(d)
-------- -------- --------
Total from investment operations ................................................ 1.73 1.95 .30
-------- -------- --------
Less distributions from:
Net investment income ......................................................... (.23) (.19) (.04)
Net realized gains on investment transactions ................................. (.11) (.04) --
-------- --------
Total distributions ............................................................. (.34) (.23) (.04)
-------- -------- --------
Net asset value, end of period .................................................. $ 9.37 $ 7.98 $ 6.26
======== ======== ========
Total Return (%) ................................................................ 22.17 31.74 4.91**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 91 52 20
Ratio of operating expenses, net to average net assets (%) ...................... .66 .75 .75*
Ratio of operating expenses, before reductions, to average daily net assets (%) . .66 .75 .1.62*
Ratio of net investment income to average net assets (%) ........................ 3.14 3.18 3.63*
Portfolio turnover rate (%) ..................................................... 32.18 24.33 28.41*
Average commission rate paid (c) ................................................ $ .0502 $ -- $ --
(a) Based on monthly 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) The amount shown for a share outstanding throughout the period does not accord with the change in the aggregate gains and
losses in the portfolio securities during the period because of the timing of sales and purchases of Portfolio shares in
relation to fluctuating market values during the period.
* Annualized
** Not annualized
</TABLE>
46
<PAGE>
CAPITAL GROWTH PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.2% REPURCHASE AGREEMENT
14,154,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at $14,159,268
on 1/2/97, collateralized by a $14,070,000 U.S. Treasury
Note, 6.125%, 9/30/00 (Cost $14,154,000) 14,154,000
------------
96.8% COMMON STOCKS
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 6.0%
Department &
Chain Stores 4.0% 95,000 Home Depot, Inc. .......................................... 4,761,875
75,000 J.C. Penney Co., Inc. ..................................... 3,656,250
90,000 May Department Stores ..................................... 4,207,500
120,000 Walgreen Co. .............................................. 4,800,000
----------
17,425,625
----------
Restaurants 1.0% 101,400 McDonald's Corp. .......................................... 4,588,350
----------
Specialty Retail 1.0% 120,000 Tiffany & Co. ............................................. 4,395,000
----------
Consumer Staples 5.5%
Alcohol & Tobacco 1.8% 196,400 Anheuser-Busch Companies, Inc. ............................ 7,856,000
----------
Food & Beverage 1.1% 100,000 ConAgra Inc. .............................................. 4,975,000
----------
Package Goods/
Cosmetics 2.6% 60,000 Clorox Co. ................................................ 6,022,500
50,000 Procter & Gamble Co. ...................................... 5,375,000
----------
11,397,500
----------
Health 13.6%
Hospital Management 2.5% 275,600 Columbia/HCA Healthcare Corp. ............................. 11,230,700
----------
Medical Supply &
Specialty 2.7% 155,000 Becton, Dickinson & Co. ................................... 6,723,125
120,000 STERIS Corp.* ............................................. 5,220,000
------------
11,943,125
------------
Pharmaceuticals 8.4%
70,000 American Home Products Corp. .............................. 4,103,750
90,000 Johnson & Johnson ......................................... 4,477,500
50,000 Merck & Co. Inc. .......................................... 3,962,500
101,000 Novartis AG (ADR) ......................................... 5,775,938
68,600 Pfizer, Inc. .............................................. 5,685,225
47,000 Schering-Plough Corp. ..................................... 3,043,250
130,000 Warner-Lambert Co. ........................................ 9,750,000
------------
36,798,163
------------
Financial 17.5%
Banks 4.5%
112,500 Citicorp .................................................. 11,587,500
40,000 J.P. Morgan & Co., Inc. ................................... 3,905,000
100,000 Norwest Corp. ............................................. 4,350,000
------------
19,842,500
------------
Insurance 6.0% 90,000 American International Group, Inc. ........................ 9,742,500
</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>
210,000 EXEL, Ltd. ................................................ 7,953,750
85,000 MBIA Inc. ................................................. 8,606,250
------------
26,302,500
------------
Consumer Finance 1.1% 110,100 Associates First Capital Corp. ............................ 4,858,163
----------
Other Financial
Companies 5.9% 205,000 American Express Credit Corp. ............................. 11,582,500
384,000 Federal National Mortgage Association ..................... 14,304,000
------------
25,886,500
------------
Media 1.0%
Advertising 92,500 Omnicom Group, Inc. ....................................... 4,231,875
------------
Service Industries 4.3%
Investment 2.7% 92,500 Franklin Resources Inc. ................................... 6,324,688
70,200 Merrill Lynch & Co., Inc. ................................. 5,721,300
------------
12,045,988
------------
Miscellaneous
Commercial Services 1.6% 148,000 Manpower, Inc. ............................................ 4,810,000
83,100 Sabre Group Holdings Inc.* ................................ 2,316,413
------------
7,126,413
------------
Durables 5.4%
Aerospace 4.7% 74,414 Lockheed Martin Corp. ..................................... 6,808,881
110,000 Rockwell International Corp. (New)* ....................... 6,696,250
110,000 United Technologies Corp. ................................. 7,260,000
------------
20,765,131
------------
Telecommunications
Equipment 0.7% 50,000 Ascend Communications, Inc.* .............................. 3,106,250
------------
Manufacturing 11.6%
Chemicals 3.6% 65,000 E.I. du Pont de Nemours & Co. ............................. 6,134,375
103,900 Praxair Inc. .............................................. 4,792,388
75,000 Sigma-Aldrich Corp. ....................................... 4,682,813
------------
15,609,576
------------
Diversified
Manufacturing 3.5% 35,600 General Electric Co. ...................................... 3,519,950
120,000 TRW Inc. .................................................. 5,940,000
65,000 Textron, Inc. ............................................. 6,126,250
------------
15,586,200
------------
Electrical Products 1.9% 37,500 ABB AB (ADR) .............................................. 4,190,625
45,000 Emerson Electric Co. ...................................... 4,353,750
------------
8,544,375
------------
Machinery/
Components/ Controls 2.6% 100,000 Ingersoll-Rand Co. ........................................ 4,450,000
176,000 Parker-Hannifin Group ..................................... 6,820,000
------------
11,270,000
------------
Technology 16.2%
Diverse Electronic
Products 3.7% 215,000 Applied Materials, Inc.* .................................. 7,726,563
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
48
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
150,000 General Motors Corp. "H" .................................. 8,437,500
------------
16,164,063
------------
Electronic Data
Processing 5.8% 100,000 Compaq Computer Corp.* .................................... 7,425,000
143,000 Hewlett-Packard Co. ....................................... 7,185,750
25,000 International Business Machines Corp. ..................... 3,775,000
280,000 Sun Microsystems, Inc.* ................................... 7,192,500
------------
25,578,250
------------
Military Electronics 0.8% 75,000 Raytheon Co. .............................................. 3,609,375
------------
Office/Plant
Automation 1.5% 90,000 Cabletron Systems Inc.* ................................... 2,992,500
53,400 Cisco Systems, Inc.* ...................................... 3,397,575
------------
6,390,075
------------
Semiconductors 4.4% 175,000 Atmel Corp.* .............................................. 5,796,875
105,000 Intel Corp. ............................................... 13,748,438
------------
19,545,313
------------
Energy 12.6%
Engineering 0.8% 55,000 Fluor Corp. ............................................... 3,451,250
----------
Oil & Gas Production 0.6% 58,800 Triton Energy Ltd.* ....................................... 2,851,800
----------
Oil Companies 9.7% 62,800 Amoco Corp. ............................................... 5,055,400
57,500 Atlantic Richfield Co. .................................... 7,618,750
77,600 Exxon Corp. ............................................... 7,604,800
52,600 Mobil Corp. ............................................... 6,430,350
125,000 Repsol SA (ADR) ........................................... 4,765,625
65,000 Royal Dutch Petroleum Co. (New York shares) ............... 11,098,750
------------
42,573,675
------------
Oil/Gas Transmission 1.5% 110,000 Enron Corp. ............................................... 4,743,750
52,500 Williams Companies., Inc. ................................. 1,968,750
------------
6,712,500
------------
Transportation 2.0%
Airlines 1.2% 60,000 AMR Corp.* ................................................ 5,287,500
------------
Railroads 0.8% 125,000 Canadian Pacific Ltd. ..................................... 3,312,500
------------
Utilities 1.1%
Electric Utilities 9,300 CILCORP, Inc. ............................................. 340,613
50,000 Eastern Utilities Association ............................. 868,750
50,000 National Power PLC ........................................ 417,728
155,000 PowerGen PLC .............................................. 1,517,860
60,000 Unicom Corp. .............................................. 1,627,495
------------
4,772,446
------------
Total Common Stocks (Cost $354,422,394) ................... 426,033,681
------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $368,576,394) (a) .................................. 440,187,681
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
* Non-income producing security.
(a) At December 31, 1996, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $368,676,915 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market
value over tax cost ....................................................................................... $ 76,489,565
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax cost
over market value ......................................................................................... (4,978,799)
---------------
Net unrealized appreciation ............................................................................... $ 71,510,766
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the year ended
December 31, 1996, aggregated $291,221,742 and $248,397,136, respectively.
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $368,576,394) (Note A) ............ $440,187,681
Cash ...................................................................... 839
Foreign currency, at value, (cost $20,844) ................................ 20,838
Receivables:
Investments sold ....................................................... 1,948,303
Portfolio shares sold .................................................. 425,009
Dividends and interest ................................................. 345,170
Foreign taxes recoverable .............................................. 4,910
------------
Total assets ........................................................ 442,932,750
Liabilities
Payables:
Portfolio shares redeemed .............................................. $ 2,229,711
Accrued management fee (Note B) ........................................ 175,385
Other accrued expenses (Note B) ........................................ 46,346
------------
Total liabilities ................................................... 2,451,442
------------
Net assets, at market value ............................................... $440,481,308
============
Net Assets
Net assets consist of:
Undistributed net investment income .................................... $ 1,565,989
Net unrealized appreciation on:
Investments ......................................................... 71,611,287
Foreign currency related transactions ............................... 47
Accumulated net realized gain .......................................... 33,760,206
Paid-in capital ........................................................ 333,543,779
------------
Net assets, at market value ............................................... $440,481,308
============
Net asset value, offering and redemption price per share
($440,481,30826,691,077 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ......... $ 16.50
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $163,344) ............... $ 6,354,599
Interest ............................................................ 723,916
------------
7,078,515
Expenses (Note A):
Management fee (Note B) ............................................. $ 1,870,361
Custodian and accounting fees (Note B) .............................. 115,868
Trustees' fees (Note B) ............................................. 18,813
Auditing ............................................................ 40,672
Legal ............................................................... 2,513
Registration fees ................................................... 19,999
Other ............................................................... 17,285 2,085,511
------------ ------------
Net investment income .................................................. 4,993,004
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain (loss) from:
Investments ......................................................... 33,866,057
Foreign currency related transactions ............................... (8,845) 33,857,212
------------
Net unrealized appreciation during the period on:
Investments ......................................................... 33,028,791
Foreign currency related transactions ............................... 26 33,028,817
------------ ------------
Net gain on investment transactions .................................... 66,886,029
------------
Net increase in net assets resulting from operations ...................... $ 71,879,033
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 4,993,004 $ 3,089,532
Net realized gain from investment transactions ......................... 33,857,212 28,439,406
Net unrealized appreciation on investment
transactions during the period ...................................... 33,028,817 40,615,497
------------- -------------
Net increase in net assets resulting from operations ...................... 71,879,033 72,144,435
------------- -------------
Distributions to shareholders from:
Net investment income .................................................. (4,669,020) (2,245,727)
------------- -------------
Net realized gain from investment transactions ......................... (28,547,850) (8,804,833)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold .............................................. 176,019,020 125,834,281
Net asset value of shares issued to shareholders in
reinvestment of distributions ....................................... 33,216,870 11,050,560
Cost of shares redeemed ................................................ (145,085,225) (116,840,991)
------------- -------------
Net increase in net assets from Portfolio share transactions .............. 64,150,665 20,043,850
------------- -------------
Increase in net assets .................................................... 102,812,828 81,137,725
Net assets at beginning of period ......................................... 337,668,480 256,530,755
------------- -------------
Net assets at end of period (including undistributed net
investment income of $1,565,989 and $1,250,850, respectively) .......... $ 440,481,308 $ 337,668,480
============= =============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ................................. 22,392,030 20,979,934
------------- -------------
Shares sold ............................................................ 11,627,337 9,213,682
Shares issued to shareholders in reinvestment of distributions ......... 2,233,815 896,773
Shares redeemed ........................................................ (9,562,105) (8,698,359)
------------- -------------
Net increase in Portfolio shares ....................................... 4,299,047 1,412,096
------------- -------------
Shares outstanding at end of period ....................................... 26,691,077 22,392,030
============= =============
</TABLE>
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>
Years Ended December 31, (a)
---------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $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 ....... .19 .14 .06 .06 .11 .16 .25 .35 .16 .15
Net realized and unrealized
gain (loss) on investment
transactions .............. 2.68 3.25 (1.42) 2.52 .66 3.35 (1.00) 1.58 1.40 (.28)
Total from investment
operations .................. 2.87 3.39 (1.36) 2.58 .77 3.51 (.75) 1.93 1.56 (.13)
Less distributions from:
Net investment income ....... (.19) (.11) (.05) (.07) (.11) (.22) (.24) (.25) (.09) (.09)
Net realized gains on
investment transactions ... (1.26) (.43) (1.31) (.27) (.23) -- (.23) -- -- (.39)
Total distributions ........... (1.45) (.54) (1.36) (.34) (.34) (.22) (.47) (.25) (.09) (.48)
Net asset value,
end of period ............... $16.50 $15.08 $12.23 $14.95 $12.71 $12.28 $ 8.99 $10.21 $ 8.53 $ 7.06
Total Return (%) .............. 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) ......... 440 338 257 257 167 108 45 45 17 10
Ratio of operating expenses,
net to average net
assets (%) .................. .53 .57 .58 .60 .63 .71 .72 .75 .75 .75
Ratio of operating expenses
before expense reductions, to
average daily net assets (%) .53 .57 .58 .60 .63 .71 .72 .85 1.11 1.24
Ratio of net investment income
to average net assets (%) ... 1.27 1.06 .47 .46 .95 1.49 2.71 3.51 2.17 1.68
Portfolio turnover rate (%) ... 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) ............... $.0585 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
(a) Based on monthly 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.
</TABLE>
54
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.1% REPURCHASE AGREEMENT
1,031,000 Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 12/31/96 at 6.7% to be repurchased at $1,031,384
on 1/2/97, collateralized by a $1,032,000 U.S. Treasury
Note, 6.25%, 5/31/00 (Cost $1,031,000) .................... 1,031,000
----------
0.2% BONDS
Portugal
591 Jeronimo Martins, 9/15/03 (Cost $30,750) (a) .............. 29,224
----------
4.2% PREFERRED STOCKS
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Germany
768 Fresenius AG (Manufacturer and distributor of
pharmaceutical and medical systems products) .............. 158,654
2,860 Marschollek Lautenschlaeger und Partner AG (Leading
independent life insurance company) ....................... 397,596
2,300 Moebel Walther AG (Furniture retailer) .................... 150,908
----------
Total Preferred Stocks (Cost $576,250) 707,158
----------
89.5% COMMON STOCKS
Argentina 0.8%
48,300 Dalmine Siderca (Steel producer) .......................... 88,164
6,200 Quilmes Industrial S.A. (Leading beer distributor) ........ 49,600
1,932 Siderar SAIC (Manufacturer of hot and cold rolled sheets
of steel) ................................................. 5,565
----------
143,329
----------
Austria 0.7%
1,000 VAE Eisenbahnsysteme AG (Manufacturer of electronic
railroad control systems) ................................. 113,465
----------
Bermuda 0.9%
7,000 Terra Nova (Bermuda) Holdings Ltd. "A" (Property,
casualty and marine insurance and reinsurance
company) .................................................. 150,500
----------
Brazil 1.0%
13,000,000 Banco Bradesco S.A. (pfd.) (Commercial bank) .............. 94,207
1,500,000 Lojas Renner S.A. (pfd.) (Specialty retailer of apparel,
cosmetics, electronics, household appliances and
furniture) ................................................ 69,291
----------
163,498
----------
Chile 0.8%
6,000 Santa Isabel S.A. (Supermarket chain) ..................... 135,750
----------
Czech Republic 2.2%
11,900 Central European Media Enterprises Ltd. "A"* (Owner
and operator of national and regional private
commercial television stations in Central Europe and
Germany) .................................................. 377,825
----------
Finland 0.9%
3,800 Orion-yhtyma Oy "B" (Developer and producer of
pharmaceuticals, bulk drug substances and other
health care products) ..................................... 146,217
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
55
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
France 2.6%
3,171 Dassault Systemes SA*(Computer aided design,
manufacturing and engineering software products) .......... 146,293
635 Essilor International (Manufacturer of various types of
lenses, eyeglasses, contact lenses and optical measuring
instruments) .............................................. 192,814
7,300 Group AB SA (ADR)* (Producer and distributor of television
programming) ............................................. 104,952
----------
444,059
----------
Hong Kong 0.2%
29,600 Jinhui Shipping & Transportation Ltd. (ADR) (Operator of
fleet transporting steel, iron ore and non-ferrous metals,
agricultural products) .................................... 29,600
----------
Indonesia 0.4%
8,000 Modern Photo Film Co.(Foreign registered)
(Photographic film distributor) ........................... 25,402
34,500 Mustika Ratu (Foreign registered) (Consumer cosmetics
producer) (a) ............................................. 46,740
----------
72,142
----------
Ireland 4.0%
42,600 Bank of Ireland PLC (Bank) ................................ 388,359
6,000 Irish Continental Group PLC (Transport of passengers,
freight and containers between Ireland, the U.K. and the
continent) ................................................ 42,701
37,700 Irish Life PLC (Provider of life and disability insurance
and pensions) ............................................. 174,719
8,600 Irish Permanent PLC (Retail financial services group) ..... 70,678
----------
676,457
----------
Italy 4.1%
7,500 Bulgari SpA (Manufacturer and retailer of fine jewelry,
luxury watches and perfumes) .............................. 152,128
3,400 Gucci Group (New York Shares) (Designer and producer of
personal luxury accessories and apparel) .................. 217,175
1,300 Luxottica Group SpA (ADR)(Manufacturer and marketer of
eyeglasses) ............................................... 67,600
6,50 Saes Getters SpA di Risparmio (Manufacturer of getters,
refined chemicals used in cathode ray tubes and other
monitors) ................................................. 79,278
39,500 Saipem SpA (International contractor in oil and gas
exploration and drilling, construction of refineries and
pipelines) ................................................ 181,573
----------
697,754
----------
Japan 9.6%
9,000 Albis Co Limited (Food wholesaler) (a) .................... 108,022
4,000 Ariake Japan Co., Ltd. (Leading maker of natural
seasonings made from meat extracts) (a) ................... 128,486
2,000 Japan Associated Finance Co. (Venture capital company) .... 158,017
5,200 Matsumotokiyoshi (Operator of supermarket chain) .......... 170,624
11,000 Nippon Electric Glass Co., Ltd. (Leading producer of
cathode-ray tube glass) ................................... 169,070
2,400 Riso Kagaku Corp. (Manufacturer of copying machines) ...... 154,184
6,000 Sagami Chain Co., Ltd. (Operator of noodle restaurant
chain) .................................................... 101,546
1,500 Shohkoh Fund & Co., Ltd. (Finance company for small
and medium-sized firms) ................................... 326,397
4,900 Square Co., Ltd. (Producer of software for video games) ... 247,517
2,000 Sundrug Co., Ltd. (Operator of outlet drug store chain) ... 66,488
----------
1,630,351
----------
Luxembourg 1.1%
5,900 Millicom International Cellular SA* (Developer and
operator of cellular telephone networks) ................. 189,538
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mexico 0.8%
6,800 Grupo Casa Autrey SA (ADR) (Consumer specialty
manufacturer) ............................................. 132,600
----------
Netherlands 5.9%
12,500 Boskalis Westminster NV (International contractor
specializing in dredging activities) ...................... 253,241
2,400 De Telegraaf Holding NV (Leading publisher of
newspapers, magazines and books) .......................... 50,567
11,300 IHC Caland NV (Dredging and offshore services) ............ 645,583
1,600 Qiagen NV* (Biopharmaceutical company) .................... 41,200
----------
990,591
----------
Portugal 2.2%
3,550 Jeronimo Martins (Food producer and retailer) ............. 183,098
3,549 Jeronimo Martins (New) (a) ................................ 182,775
591 Jeronimo Martins Warrants * (Expires 9/15/03) (a) ......... 2,032
----------
367,905
----------
Singapore 0.3%
17,500 GP Batteries International, Ltd. (Developer, manufacturer
and distributor of batteries and battery-related products)
58,275
South Africa 0.3%
16,000 Metro Cash and Carry Ltd. (Wholesale cash and carry
distributor) ............................................. 53,008
----------
Spain 0.5%
1,300 Mapfre Vida Seguros (Life insurance) ...................... 90,121
----------
Sweden 2.2%
8,500 Autoliv AB (Manufacturer of automobile safety bags) ....... 372,684
----------
Switzerland 1.7%
327 Phoenix Mecano AG (Bearer) (Manufacturer of housings
and components for computers) ............................. 170,885
100 Schindler Holdings AG (PC) (Leading elevator and escalator
manufacturer) ............................................. 108,623
----------
279,508
----------
United Kingdom 8.0%
10,100 Brake Brothers PLC (Specialist supplier of frozen foods
to the catering industry) ................................. 95,275
14,500 Expro International Group PLC (Provider of oilfield services) 117,914
32,700 Hardy Oil & Gas PLC (Oil and gas exploration and
development) .............................................. 167,387
7,000 Pace Micro Technology PLC* (Develops, manufactures
and distributes analog and digital receivers) ............. 27,563
32,500 Provident Financial PLC (Personal finance group) .......... 278,756
35,400 Serco Group PLC (Facilities management company) ........... 407,870
23,200 Tibbett and Britten Group PLC (Transportation services for
manufacturing and retail industries) ...................... 254,198
----------
1,348,963
----------
United States 38.3%
3,000 Alaska Air Group Inc.* (Scheduled and charter airline
services) ................................................. 63,000
6,500 Applied Analytical Industries, Inc.* (Provides product
development and support services to the worldwide
pharmaceutical and biotechnology industries) .............. 124,313
4,700 Aptargroup, Inc. (Manufacturer of packaging equipment
components) ............................................... 165,675
4,900 Axogen Ltd. Units* (Future development of therapeutic
products for treatment of neurological disorders) ......... 115,150
5,400 BE Aerospace * (Airline audio/video control systems) ...... 146,475
3,700 Barrett Resources Corp.* (Oil and gas exploration and
production) ............................................... 157,713
4,900 Bell & Howell Holdings Co.* (Information access and
dissemination services) ................................... 116,375
</TABLE>
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10,300 Benton Oil & Gas Co.* (Oil and gas exploration,
development and production) ............................... 233,038
11,600 Billing Information Concepts* (Billing and information
management services) ...................................... 333,500
7,900 CapMAC Holdings Inc. (Provider of financial guaranty
insurance) ................................................ 261,688
2,800 Cintas Corp. (Uniform rentals) ............................ 164,500
3,900 ContiFinancial Corp.* (Provider of financing for a broad
range of loans) ........................................... 140,888
9,100 CytoTherapeutics, Inc.* (Developer of therapeutic products
for treatment of certain chronic and disabling diseases) .. 81,900
6,000 Enron Global Power & Pipelines L.L.C. (Owner and
manager of power plants and a natural gas pipeline
system) ................................................... 162,000
500 Factset Research Systems Inc.* (Provides on-line integrated
financial database services) .............................. 10,500
6,400 Fiserv Inc.* (Data processing services) ................... 235,200
5,800 HBO & Company (Designer of computerized information
systems to the heathcare industry) ........................ 344,375
14,300 IGEN Inc.* (Producer of medical supplies) ................. 71,500
4,700 Karrington Health, Inc.* (Owner and operator of private pay
assisted living residences) ............................... 58,750
4,900 Matrix Pharmaceutical, Inc.* (Developer of site-specific
treatments for cancer and serious skin diseases) .......... 30,013
3,100 Midwest Express Holding, Inc.* (Operator of passenger
airline catering to business travelers) ................... 111,600
3,400 National Processing, Inc.* (Low-cost, high-volume card
and check transaction processing) ......................... 54,400
6,400 Network Appliance, Inc.* (Designer and manufacturer of
network data storage devices) ............................. 325,600
4,800 Neurogen Corp.* (Developer of biopharmaceuticals for
treatment of psychiatric and neurological disorders) ...... 92,400
1,000 Nordson Corp. (Industrial application equipment) .......... 63,750
6,300 OccuSystems Inc.* (Provider of primary care physician and
case management services) ................................. 170,100
14,300 Octel Communications Corp.* (Manufacturer of voice
processing systems) ....................................... 250,250
4,200 PHAMIS, Inc.* (Developer and installer of patient-centered
healthcare information systems) ........................... 54,075
3,400 R.P. Scherer Corp.* (Manufacturer of drug delivery system) 170,850
9,100 Raytel Medical Corp.* (Provider of healthcare services) ... 100,100
5,300 Ribozyme Pharmaceuticals, Inc.* (Developer of human
therapeutics) ............................................. 58,300
8,700 Silicon Valley Group Inc.* (Manufacturer of equipment for
semiconductor industry) ................................... 175,088
4,700 Somatogen Inc.* (Developer of human blood substitute) ..... 51,700
9,025 Sterling Commerce, Inc.* (Producer of electronic data
interchange products and services) ........................ 318,131
5,800 Sterling Software Inc. (Computer software products) ....... 183,425
2,300 Sunrise Assisted Living, Inc.* (Provider of assisted living to
the elderly) .............................................. 64,113
5,000 Tech Data Corp.* (Distributor of microcomputers, hardware
and software) ............................................. 136,875
4,000 Thomas Nelson, Inc. (Publisher) ........................... 59,500
4,400 Tiffany & Co. (Retailer of jewelry and gift items) ........ 161,150
4,000 Total Renal Care Holdings, Inc.* (Dialysis services for
treatment of chronic kidney failure) ...................... 145,000
3,400 Triton Energy Ltd.* (Independent oil and gas exploration
and production company) ................................... 164,900
1,000 Vincam Group Inc.* (Provider of solutions to complexities
and costs of employment and personnel) .................... 43,875
2,700 Vitesse Semiconductor Corp.* (Manufacturer of digital
integrated circuits) ...................................... 122,850
5,500 Vivra, Inc.* (Provider of dialysis services) .............. 151,938
</TABLE>
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,200 Wandel & Goltermann Technologies, Inc.* (Manufacturer
of test, measurement, diagnostic and monitoring
products for local and wide area networks) ................ 122,850
2,300 Watson Pharmaceuticals, Inc.* (Producer of medications
and drug delivery systems) ................................ 103,352
----------
6,472,725
----------
Total Common Stocks (Cost $14,606,126) (b) ................ 15,136,865
----------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $16,244,126) (b) .................................... 16,904,247
- ------------------------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
(a) Securities valued in good faith by the Valuation Committee of the Board of Directors at fair value
amounted to $497,279 (2.97% of net assets). Their values have been estimated by the Board of
Directors 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.
The cost of these securities at December 31, 1996 aggregated $439,559. These securities may also have
certain restrictions as to resale.
(b) At December 31, 1996, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $16,282,387 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market
value over tax cost $ 1,668,712
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over market value (1,046,852)
--------------
Net unrealized appreciation $ 621,860
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the year ended December 31, 1996,
aggregated $19,160,797 and $3,966,432, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
Sector breakdown of the Global Discovery Portfolio's equity securities is noted on the Portfolio Summary.
- ------------------------------------------------------------------------------------------------------------------------------------
Forward Currency Exchange Contracts:
As of December 31, 1996, the Global Discovery Portfolio entered into the following forward foreign currency exchange
contracts resulting in net unrealized appreciation of $16,537.
Net Unrealized
Appreciation/
Settlement Depreciation
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------------- -------------------------------------- ---------------------- ---------------------------
Japanese Yen 29,688,000 U.S. Dollars 273,076 1/8/97 16,537
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $16,244,126) (Note A) ............ $ 16,904,247
Cash ...................................................................... 371
Net receivable on closed forward currency exchange contracts (Note A) ..... 11,864
Unrealized appreciation on forward currency exchange contracts (Note A) ... 16,537
Receivables:
Investments sold ....................................................... 232,522
Portfolio shares sold .................................................. 27,030
Foreign taxes recoverable .............................................. 658
Dividends and interest ................................................. 7,539
------------
Total assets ........................................................ 17,200,768
Liabilities
Payables:
Investments purchased .................................................. $ 363,526
Portfolio shares redeemed .............................................. 25,328
Accrued expenses (Note B) .............................................. 54,369
Other payables ......................................................... 281
------------
Total liabilities ................................................... 443,504
------------
Net assets, at market value ............................................... $ 16,757,264
============
Net Assets
Net assets consist of:
Undistributed net investment income .................................... $ 44,728
Net unrealized appreciation on:
Investments ......................................................... 660,121
Foreign currency related transactions ............................... 16,667
Accumulated net realized loss .......................................... (18,886)
Paid-in capital ........................................................ 16,054,634
------------
Net assets, at market value ............................................... $ 16,757,264
============
Net asset value, offering and redemption price per share
($16,757,264/2,647,089 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ......... $ 6.33
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
for the period May 1, 1996
(commencement of operations) to December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Interest ........................................................................... $ 73,358
Dividends (net of foreign taxes withheld of $3,176) ................................ 39,856
------------
113,214
Expenses (Note A):
Management fee (Note B) ............................................. $ 80,681
Trustees' fees (Note B) ............................................. 11,152
Custodian and accounting fees ....................................... 77,659
Auditing ............................................................ 4,312
Legal ............................................................... 3,643
Registration fees ................................................... 4,887
Other ............................................................... 10,100
------------
Total expenses before reductions .................................... 192,434
Expense reductions .................................................. (68,074)
------------
Expenses, net .......................................................... 124,360
------------
Net investment loss .................................................... (11,146)
------------
Net realized and unrealized gain on investment transactions
Net realized gain from:
Investments ......................................................... 18,758
Foreign currency related transactions ............................... 18,229 36,987
------------
Net unrealized appreciation during the period on:
Investments ......................................................... 660,121
Foreign currency related transactions ............................... 16,667 676,788
------------ ------------
Net gain on investment transactions .................................... 713,775
------------
Net increase in net assets resulting from operations ...................... $ 702,629
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
GLOBAL DISCOVERY PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
May 1, 1996
(commencement
of operations) to
December 31,
Increase (Decrease) in Net Assets 1996
- ----------------------------------------------------------------------------------------------
<S> <C>
Operations:
Net investment loss .................................................... $ (11,146)
Net realized gain from investment transactions ......................... 36,987
Net unrealized appreciation on investment
transactions during the period ...................................... 676,788
------------
Net increase in net assets resulting from operations ...................... 702,629
------------
Portfolio share transactions:
Proceeds from shares sold .............................................. 18,871,561
Cost of shares redeemed ................................................ (2,817,526)
------------
Net increase in net assets from Portfolio share transactions .............. 16,054,035
------------
Increase in net assets .................................................... 16,756,664
Net assets at beginning of period ......................................... 600
------------
Net assets at end of period (including undistributed net investment
income of $44,728) ..................................................... $ 16,757,264
============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period .............................. 100
------------
Shares sold ............................................................ 3,107,414
Shares redeemed ........................................................ (460,425)
------------
Net increase in Portfolio shares ....................................... 2,646,989
------------
Shares outstanding at end of period ....................................... 2,647,089
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
62
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
For the Period
May 1, 1996
(commencement
of operations)
to December 31,
1996
---------------
Net asset value, beginning of period ............................ $ 6.00(c)
--------
Income from investment operations:
Net investment loss ........................................... (.01)
Net realized and unrealized gain on investment transactions ... .34
--------
Total from investment operations ................................ .33
--------
Net asset value, end of period .................................. $ 6.33
========
Total Return (%) ................................................ 5.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................... 17
Ratio of operating expenses, net to average net assets (%) ...... 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) .................................. 2.32*
Ratio of net investment loss to average net assets (%) .......... (.13)*
Portfolio turnover rate (%) ..................................... 50.31*
Average commission rate paid (b) ................................ $ .0029
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks.
(c) Original capital
* Annualized
**Not annualized
63
<PAGE>
INTERNATIONAL PORTFOLIO
INVESTMENT PORTFOLIO as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.4% REPURCHASE AGREEMENT
U.S.$ 60,487,000 Repurchase Agreement with Donaldson, Lufkin &
Jenrette dated 12/31/96 at 6.7%, to be repurchased
at $60,509,515 on 1/2/97, collateralized by a
$48,029,000 U.S. Treasury Bond, 8.875%, 8/15/17
(Cost $60,487,000) ........................................ 60,487,000
----------
0.5% CONVERTIBLE BONDS
Japan 0.4%
JPY 400,000,000 Softbank Corp., 0.5%, 3/29/02 ............................. 3,212,158
----------
Malaysia 0.1%
MYR 420,000 Renong Berhad. (ICUL), 4%, 5/21/01 ........................ 176,282
----------
Total Convertible Bonds (Cost $4,152,237) ................. 3,388,440
----------
1.3% PREFERRED STOCKS
Shares
------------------------------------------------------------------------------------------------
Germany
185,000 RWE AG (Producer and marketer of petroleum and
chemical products) ....................................... 6,249,391
22,500 SAP AG (Computer software manufacturer) ................... 3,142,560
----------
Total Preferred Stocks (Cost $5,594,617) .................. 9,391,951
----------
89.9% COMMON STOCKS
Argentina 0.6%
170,000 YPF S.A. "D" (ADR) (Petroleum company) .................... 4,292,500
----------
Australia 0.9%
342,535 National Australia Bank, Ltd. (Commercial bank) ........... 4,029,506
1,824,340 Normandy Mining Ltd. (Invests in mining and oil
enterprises in Australia) ................................. 2,523,133
----------
6,552,639
----------
Brazil 4.6%
8,578,870 Centrais Eletricas Brasileiras S/A "B" (pfd.)
(Electric utility) ........................................ 3,186,838
5,086,206 Companhia Cervejaria Brahma (pfd.) (Leading beer
producer and distributor) ................................. 2,780,257
237,000,000 Companhia Energetica de Minas Gerais (pfd.)
(Electric power utility) .................................. 8,074,103
124,880 Companhia Vale do Rio Doce (pfd.) (Diverse mining
and industrial complex) ................................... 2,427,655
30,000,000 Petroleo Brasileiro S/A (pfd.) (Petroleum company) ........ 4,778,173
65,040,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) .............................. 5,007,410
6,530,000,000 Usinas Siderurgicas de Minas Gerais S/A (pfd.)
(Non-coated flat products and electrolytic galvanized
products) ................................................ 6,661,342
----------
32,915,778
----------
Canada 2.9%
160,000 Barrick Gold Corp. (Gold exploration and production
in North and South America) ............................... 4,585,113
296,000 Battle Mountain Canada (Gold and silver mining) ........... 2,053,079
206,500 Canadian National Railway Co. (Operator of one of
Canada's two principal railroads) ......................... 7,855,036
</TABLE>
The accompanying notes are an integral part of the financial statements.
64
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
255,411 Canadian Pacific Ltd. (Ord.) (Transportation and
natural resource conglomerate) ............................ 6,722,559
----------
21,215,787
----------
China 0.6%
191,837 Guangshen Railway Co. Ltd. (ADR)* (Operator of only
railroad in the Pearl River delta) ........................ 3,956,638
----------
Finland 1.3%
116,000 Nokia AB Oy "A" (Leading manufacturer of
cellular telephones) ...................................... 6,728,000
132,000 Outokumpu Oy "A" (Metals and minerals) .................... 2,252,609
----------
8,980,609
----------
France 7.9%
78,857 AXA SA (Insurance group providing insurance,
finance and real estate services) ......................... 5,016,929
13,950 Carrefour (Hypermarket operator and food retailer) ........ 9,079,468
57,453 Compagnie Financiere de Paribas* (Finance and
investment company) ....................................... 3,886,689
48,000 Compagnie Generale des Eaux (Water utility) ............... 5,950,260
12,000 LVMH Moet-Hennessy Louis Vuitton SA (Producer of
wines, spirits and luxury products) ....................... 3,352,227
55,000 Lafarge SA (Leading producer of cement, concrete and
aggregates) ............................................... 3,300,848
128,898 Michelin "B" (Leading tire manufacturer) .................. 6,960,542
13,128 Pinault-Printemps, SA (Distributor of consumer goods) ..... 5,208,680
20,335 Rhone-Poulenc SA "A" (Medical, agricultural and
consumer chemicals) ....................................... 693,515
132,055 Schneider SA* (Manufacturer of electronic components
and automated manufacturing systems) ...................... 6,107,576
74,425 Total SA "B" (International oil and gas exploration,
development and production) ............................... 6,055,013
26,872 Valeo SA (Automobile and truck components manufacturer) ... 1,657,806
----------
57,269,553
----------
Germany 11.0%
214,000 BASF AG (Leading international chemical producer) ......... 8,241,089
190,000 Bayer AG (Leading chemical producer) ...................... 7,751,324
148,000 Bayerische Vereinsbank AG (Commercial bank) ............... 6,076,331
210,000 Commerzbank AG* (Worldwide multi-service bank) ............ 5,334,070
101,000 Daimler-Benz AG (Automobile and truck manufacturer) ....... 6,954,884
70,744 Deutsche Telekom AG (Telecommunication services) .......... 1,491,307
94,542 Deutsche Telekom AG (ADR)* (Telecommunication
services) ................................................. 1,926,293
257,000 Hoechst AG (Chemical producer) ............................ 12,137,526
20,360 Mannesmann AG (Bearer) (Diversified construction
and technology company) ................................... 8,821,983
69,000 Schering AG (Pharmaceutical and chemical producer) ........ 5,822,652
101,270 Siemens AG (Leading electrical engineering and
electronics company) ...................................... 4,769,594
171,200 VEBA AG (Electric utility and distributor of oil and
chemicals) ................................................ 9,898,204
----------
79,225,257
----------
Hong Kong 5.2%
4,341,545 First Pacific Co., Ltd. (International management and
investment company) ....................................... 5,641,286
217,376 HSBC Holdings Ltd. (Bank) ................................. 4,651,332
3,240,181 Hong Kong & China Gas Co., Ltd. (Gas utility) ............. 6,283,886
270,015 Hong Kong & China Gas Co., Ltd. Warrants*
(Expires 9/30/97) ......................................... 150,115
1,182,000 Hutchison Whampoa, Ltd. (Container terminal and real
estate company) ........................................... 9,283,923
2,013,000 Kerry Properties Ltd.* (Real estate company) .............. 5,517,564
1,510,000 Television Broadcasts, Ltd. (Television broadcasting) ..... 6,032,581
37,560,687
</TABLE>
The accompanying notes are an integral part of the financial statements.
65
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indonesia 1.0%
21,100 Asia Pacific Resources International Holdings Ltd.*
(Manufacturer of rayon fiber for Asian textile markets,
owner of world's leading paper pulp mill) ................. 118,688
56,340 Asia Pulp & Paper Co., Ltd. (ADR) (Producer of pulp
and paper)* ............................................... 640,868
740,000 HM Sampoerna (Foreign registered) (Tobacco company) ....... 3,947,502
1,525,500 Indah Kiat Pulp & Paper (Foreign registered)* (Producer
of pulp and paper) ........................................ 1,114,093
183,300 Indah Kiat Pulp & Paper Warrants* (Expires 4/13/01) ....... 56,263
400,000 Indocement Tunggal Prakarsa (Foreign Registered)
(Multi-business group with three major divisions namely
cement, food and property) ................................ 609,653
924,570 Pabrik Kertas Tjiwi Kimia (Operator of pulp and
paper factory) ............................................ 919,873
----------
7,406,940
----------
Italy 1.6%
65,000 Luxottica Group SpA (ADR) (Manufacturer and marketer
of eyeglasses) ............................................ 3,380,000
3,310,000 Telecom Italia Mobile SpA (Cellular telecommunication
services) ................................................. 8,359,714
----------
11,739,714
----------
Japan 16.0%
330,000 Bridgestone Corp. (Leading automobile tire manufacturer) .. 6,268,889
358,000 Canon Inc. (Leading producer of visual image and
information equipment) .................................... 7,913,652
640 DDI Corp. (Long distance telephone and cellular operator) . 4,233,140
205,000 Fujitsu Ltd. (Leading manufacturer of computers) .......... 1,911,752
190,000 Hitachi Construction Machinery Co., Ltd. (Leading
maker of hydraulic shovels) ............................... 2,001,554
697,000 Hitachi Ltd. (General electronics manufacturer) ........... 6,499,957
180,000 Honda Motor Co., Ltd. (Leading automobile and
motorcycle manufacturer) .................................. 5,144,633
10,000 Horipro Inc. (Growing entertainment production company) ... 95,847
625,000 Ishikawajima-Harima Heavy Industries Co., Ltd. ............
(Comprehensive heavy machinery manufacturer in
aerospace and defense fields) ............................. 2,779,337
20,000 Ito-Yokado Co., Ltd. (Leading supermarket operator) ....... 870,391
465,000 Itochu Corp. (Leading general trading company) ............ 2,497,453
28,000 Japan Associated Finance Co. (Venture capital company) .... 2,212,244
125,000 Jusco Co., Ltd. (Major supermarket operator) .............. 4,241,862
250,000 Kajima Corp. (Leading contractor engaged in
large-scale civil engineering projects) ................... 1,787,410
53,000 Keyence Corp. (Specialized manufacturer of sensors) ....... 6,544,340
115,000 Kokuyo (Leading manufacturer of paper stationery) ......... 2,839,997
103,000 Kyocera Corp. (Leading ceramic package manufacturer) ...... 6,421,380
37,000 Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) ....... 1,862,620
520,000 Matsushita Electric Industrial Co., Ltd. (Leading
manufacturer of consumer electronic products) ............. 8,486,314
280,000 Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment) ................ 2,410,500
620,000 Mitsubishi Heavy Industries, Ltd. (Diversified heavy
machinery manufacturer and leading shipbuilder) ........... 4,925,309
47,000 Nichiei Co., Ltd. (Finance company for small and
medium-sized firms) ....................................... 3,469,908
50,000 Nippon Electric Glass Co., Ltd. (Leading producer of
cathode-ray tube glass) ................................... 768,500
200,000 Pioneer Electronics Corp. (Leading manufacturer of
audio equipment) .......................................... 3,816,596
390,000 Ricoh Co., Ltd. (Leading maker of copiers and
information equipment) .................................... 4,478,888
81,500 SMC Corp. (Leading maker of pneumatic equipment) .......... 5,482,126
50,000 Secom Co., Ltd. (Electronic security system operator) ..... 3,026,509
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
48,400 Seven-Eleven Japan Co., Ltd. (Leading convenience
store operator) ........................................... 2,833,538
250,000 ShinMaywa Industries, Ltd. (Leading maker of dump
trucks and other specialty vehicles) ...................... 1,841,378
1,710,000 Sumitomo Metal Industries, Ltd (Leading integrated crude
steel producer). .......................................... 4,208,186
560,000 Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and
copper mining company) .................................... 3,776,531
----------
115,650,741
----------
Korea 0.3%
7,870 Pohang Iron & Steel Co., Ltd. (Leading steel producer) (b) 465,727
93,400 Pohang Iron & Steel Co., Ltd. (ADR) ....................... 1,891,350
1 Samsung Electronics Co., Ltd. (Major electronics
manufacturer) ............................................. 41
1 Samsung Electronics Co., Ltd. (1/2 Voting GDR)(New 1)
(Major electronics manufacturer) .......................... 38
1 Samsung Electronics Co., Ltd. (Non-voting GDS)(New)
(Major electronics manufacturer) .......................... 18
----------
2,357,174
----------
Malaysia 1.2%
275,000 Malayan Banking Berhad (Leading banking and financial
services group) ........................................... 3,048,901
723,000 Malaysian Airline System Berhad (Air transportation and
related services) ......................................... 1,875,134
2,100,000 Renong Berhad (Holding company involved in
engineering, construction, financial services,
telecommunication and information technology) ............. 3,725,203
----------
8,649,238
----------
Mexico 0.7%
155,000 Telefonos de Mexico S.A. de C.V. "L" (ADR)
(Telecommunication services) .............................. 5,115,000
----------
Netherlands 4.9%
130,000 AEGON Insurance Group NV (Insurance company) .............. 8,284,904
24,000 Akzo-Nobel NV (Chemical producer) ......................... 3,278,537
204,870 Elsevier NV (International publisher of scientific,
professional, business, and consumer information books) ... 3,462,725
186,304 Getronics NV (Provider of computer installation and
maintenance services) ..................................... 5,057,686
43,750 Heineken Holdings NV "A" (Brewery) ........................ 6,837,520
114,000 Philips Electronics NV (Leading manufacturer of
electrical equipment) ..................................... 4,619,125
26,935 Wolters Kluwer CVA (Publisher) ............................ 3,578,133
----------
35,118,630
----------
New Zealand 0.9%
1,200,000 Telecom Corp. of New Zealand (Telecommunication
services) ................................................. 6,125,016
----------
Norway 0.6%
271,889 Saga Petroleum AS "A" (Oil and gas
exploration and production) ............................... 4,545,640
----------
Philippines 2.3%
2,700,000 Ayala Land, Inc. "B" (Real estate and land developer) ..... 3,079,848
9,312,000 C & P Homes, Inc. (Home construction company) ............. 4,779,924
714,987 Manila Electric Co. "B" (Electric utility) ................ 5,844,951
125,000 Metropolitan Bank and Trust Company (Commercial
bank and trust company) ................................... 3,089,354
----------
16,794,077
----------
Portugal 1.6%
30,192 Jeronimo Martins (Food producer and retailer) ............. 1,557,210
30,192 Jeronimo Martins (New)* (a) ............................... 1,554,898
301,000 Portugal Telecom SA (Telecommunication services) .......... 8,580,587
----------
11,692,695
----------
</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>
Spain 2.5%
51,140 Acerinox, S.A. (Stainless steel producer) ................. 7,389,843
22,000 Banco Popular Espanol, S.A. (Retail bank) ................. 4,321,202
280,000 Compania Telefonica Nacional de Espana S.A ................
(Telecommunication services) .............................. 6,502,600
-----------
18,213,645
-----------
Sweden 4.3%
211,000 AGA AB "B" (Free) (Producer and distributor of
industrial and medical gases) ............................. 3,155,973
202,000 Autoliv AB (Manufacturer of automobile safety bags) ....... 8,856,726
256,400 L.M. Ericsson Telephone Co. "B" (ADR) (Leading
manufacturer of cellular telephone equipment) ............. 7,740,075
144,000 S.K.F. AB "B" (Free) (Manufacturer of roller bearings) .... 3,410,246
270,000 Skandia Foersaekrings AB (Free) (Financial conglomerate) .. 7,641,379
-----------
30,804,399
-----------
Switzerland 5.0%
5,180 ABB AG (Bearer) (Manufacturer of electrical equipment) .... 6,438,746
5 ABB AG (Registered) ....................................... 1,209
60,000 CS Holdings (Registered) (Provider of bank services,
management services and life insurance) ................... 6,159,015
12,671 Clariant AG (Registered)(Manufacturer of color chemicals) . 5,420,293
5,013 Novartis AG (Bearer) (Pharmaceutical company) ............. 5,733,420
5,000 Novartis AG (Registered) (Pharmaceutical company) ......... 5,722,284
2,610 SGS Holdings SA (Bearer) (Trade inspection company) ....... 6,410,526
-----------
35,885,493
-----------
Thailand 0.0%
65,652 Thai Farmers Bank PCL Warrants, * (Expire 9/15/02)
(Commercial bank) ......................................... 62,078
-----------
United Kingdom 12.0%
420,000 BOC Group PLC (Producer of industrial gases) .............. 6,284,411
622,082 British Petroleum PLC (Major integrated world oil company) 7,455,033
890,000 Carlton Communications PLC (Television post
production products and services) ......................... 7,795,152
1,100,000 General Electric Co., PLC (Manufacturer of power,
communications and defense equipment and other
various electrical components) ............................ 7,212,658
370,000 Glaxo Wellcome PLC (Pharmaceutical company) ............... 6,017,682
575,000 Pearson PLC (Diversified media and entertainment
holding company) .......................................... 7,333,782
655,128 PowerGen PLC (Electric utility) ........................... 6,415,434
440,059 RTZ Corp., PLC (Mining and finance company) ............... 7,066,716
489,200 Reuters Holdings PLC (International news agency) .......... 6,285,517
618,320 SmithKline Beecham PLC (Manufacturer of ethical drugs
and healthcare products) .................................. 8,553,198
1,890,000 WPP Group PLC (Advertising agency) ........................ 8,186,273
300,000 Zeneca Group PLC (Holding company: manufacturing
and marketing of pharmaceutical and agrochemical
products and specialty chemicals) ......................... 8,448,712
-----------
87,054,568
-----------
Total Common Stocks (Cost $517,432,357) ................... 649,184,496
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $587,666,211) (c) ................................... 722,451,887
===========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
68
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
* Non-income producing security.
(a) Securities valued in good faith by the Valuation Committee of the Board of Trustees at fair value
amounted to $1,554,898 (.22% of net assets). 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.
The cost of these securities at December 31, 1996 aggregated $249,296. These securities 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 these securities at December 31, 1996 was
$736,139. The aggregate premium ($125,780) over the local share price ($339,947) for these securities
valued by the Valuation Committee was approximately 0.01% of the Portfolio's net assets at December
31, 1996.
(c) At December 31, 1996, the net unrealized appreciation on investments based on cost for federal income
tax purposes of $587,720,164 was as follows:
Aggregate gross unrealized appreciation for all investments in which there is an excess of market
value over tax cost .................................................................................... $ 152,896,529
Aggregate gross unrealized depreciation for all investments in which there is an excess of tax
cost over market value ................................................................................. (18,164,806)
---------------
Net unrealized appreciation ............................................................................ $ 134,731,723
==============
- ------------------------------------------------------------------------------------------------------------------------------------
Purchases and sales of investment securities (excluding short-term investments), for the year ended December 31, 1996,
aggregated $276,115,066 and $195,075,817, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
Sector breakdown of the International Portfolio's equity securities is noted on the Portfolio Summary.
</TABLE>
The accompanying notes are an integral part of the financial statements.
69
<PAGE>
INTERNATIONAL PORTFOLIO
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $587,666,211) (Note A) ........... $722,451,887
Cash ..................................................................... 431
Foreign currency, at value, (cost $4,591,190) ............................ 4,606,023
Net receivable on closed forward currency exchange contracts ............. 642,355
Receivables:
Investments sold ...................................................... 446,785
Portfolio shares sold ................................................. 592,374
Foreign taxes recoverable ............................................. 635,158
Dividends and interest ................................................ 681,621
------------
Total assets ....................................................... 730,056,634
Liabilities
Payables:
Investments purchased ................................................. $ 1,838,662
Portfolio shares redeemed ............................................. 1,376,946
Accrued management fee (Note B) ....................................... 500,960
Other accrued expenses (Note B) ....................................... 265,265
Other payables ........................................................ 36,274
------------
Total liabilities .................................................. 4,018,107
------------
Net assets, at market value .............................................. $726,038,527
============
Net Assets
Net assets consist of:
Undistributed net investment income ................................... $ 10,702,948
Net unrealized appreciation on:
Investments ........................................................ 134,785,676
Foreign currency related transactions .............................. 8,404
Accumulated net realized gain ......................................... 6,633,433
Paid-in capital ....................................................... 573,908,066
------------
Net assets, at market value .............................................. $726,038,527
============
Net asset value, offering and redemption price per share
($726,038,527 54,809,210 outstanding shares of beneficial
interest, no par value, unlimited number of shares authorized) ........ $ 13.25
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
70
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Income:
Dividends (net of foreign taxes withheld of $1,429,380) ............ $ 10,364,446
Interest (net of foreign taxes withheld of $2,537) ................. 2,548,158
------------
12,912,604
Expenses (Note A):
Management fee (Note B) ............................................ $ 5,590,601
Custodian and accounting fees (Note B) ............................. 974,459
Trustees' fees (Note B) ............................................ 21,062
Auditing ........................................................... 68,095
Registration fees .................................................. 38,239
Legal .............................................................. 12,988
Other .............................................................. 68,398 6,773,842
------------ ------------
Net investment income ................................................. 6,138,762
------------
Net realized and unrealized gain (loss) on investment transactions
Net realized gain from:
Investments ........................................................ 14,588,107
Foreign currency related transactions .............................. 13,654,103 28,242,210
------------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ 62,989,856
Foreign currency related transactions .............................. (7,755,206) 55,234,650
------------ ------------
Net gain on investment transactions ................................... 83,476,860
------------
Net increase in net assets resulting from operations ..................... $ 89,615,622
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
71
<PAGE>
INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Increase (Decrease) in Net Assets 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 6,138,762 $ 4,713,698
Net realized gain (loss) from investment transactions ................. 28,242,210 (7,926,588)
Net unrealized appreciation on investment
transactions during the period ..................................... 55,234,650 56,119,932
------------- -------------
Net increase in net assets resulting from operations ..................... 89,615,622 52,907,042
------------- -------------
Distributions to shareholders from:
Net investment income ................................................. (13,901,339) (572,293)
------------- -------------
Net realized gain from investment transactions ........................ -- (1,628,833)
------------- -------------
Portfolio share transactions:
Proceeds from shares sold ............................................. 250,971,681 383,866,201
Net asset value of shares issued to shareholders in
reinvestment of distributions ...................................... 13,901,339 2,201,126
Cost of shares redeemed ............................................... (162,751,269) (360,607,349)
------------- -------------
Net increase in net assets from Portfolio share transactions ............. 102,121,751 25,459,978
------------- -------------
Increase in net assets ................................................... 177,836,034 76,165,894
Net assets at beginning of period ........................................ 548,202,493 472,036,599
------------- -------------
Net assets at end of period (including undistributed net
investment income of $10,702,948 and $5,598,231, respectively) ........ $ 726,038,527 $ 548,202,493
============= =============
Other Information
Increase (decrease) in Portfolio shares
Shares outstanding at beginning of period ................................ 46,398,169 44,139,826
------------- -------------
Shares sold ........................................................... 20,288,490 34,890,301
Shares issued to shareholders in reinvestment of distributions ........ 1,166,953 216,220
Shares redeemed ....................................................... (13,044,402) (32,848,178)
------------- -------------
Net increase in Portfolio shares ...................................... 8,411,041 2,258,343
------------- -------------
Shares outstanding at end of period ...................................... 54,809,210 46,398,169
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
72
<PAGE>
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
May 1, 1987
(commencement
Years Ended December 31, of operations) to
---------------------------------------------------------------------------------------- December 31,
1996(a) 1995(a) 1994(a) 1993(a) 1992(a) 1991(a) 1990(a) 1989(a) 1988 1987
---------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ............... $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26 $ 6.00(c)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income ............. .12 .11 .06 .09 .10 .12 .25 .10 .09 --
Net realized and
unrealized gain
(loss) on investment
transactions ....... 1.60 1.07 (.15) 2.90 (.36) .77 (.89) 2.22(d) .79 (.64)
Total from investment
operations ........... 1.72 1.18 (.09) 2.99 (.26) .89 (.64) 2.32 .88 (.64)
Less distributions:
From net investment
income ............. (.29) (.01) (.07) (.14) (.09) (.20) (.04) -- -- --
In excess of net
investment income .. -- -- -- (.12) -- -- -- -- -- --
From net realized
gains on investment
transactions ....... -- (.04) -- -- -- -- -- -- -- (.10)
Total distributions .. (.29) (.05) (.07) (.26) (.09) (.20) (.04) -- -- (.10)
Net asset value, end
of period ............ $13.25 $11.82 $10.69 $10.85 $ 8.12 $ 8.47 $ 7.78 $ 8.46 $ 6.14 $ 5.26
Total Return (%) ....... 14.78 11.11 (.85) 37.82 (3.08) 11.45 (7.65) 37.79 16.73 (10.64)**
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) .. 726 548 472 238 65 41 35 17 3 2
Ratio of operating
expenses, net to
average net assets
(%) .................. 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.50 1.50 1.50*
Ratio of operating
expenses before
expense reductions,
to average daily net
assets (%) ........... 1.05 1.08 1.08 1.20 1.31 1.39 1.38 1.80 4.15 4.06*
Ratio of net investment
income to average
net assets (%) ....... .95 .95 .57 .91 1.23 1.43 2.89 1.30 1.59 .02*
Portfolio turnover
rate (%) ............. 32.63 45.76 33.52 20.36 34.42 45.01 26.67 57.69 110.42 146.08*
Average commission
rate paid (b) ........ $.0002 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
(a) Based on monthly 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.
* Annualized
**Not annualized
73
<PAGE>
SCUDDER VARIABLE LIFE INVESTMENT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 (which commenced operations on May 1,
1996), and International Portfolio. Effective May 1, 1996, 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 by the holders of all classes of shares except that
each class bears expenses unique to that class (including the applicable 12b-1
fee). Shares of each class would receive their pro-rata share of net assets if
the Fund were liquidated. As of December 31, 1996, there have been no sales of
class B shares.
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
December 31, 1996, ownership breakdown of the Portfolios by each Participating
Insurance Company is as follows:
<TABLE>
<CAPTION>
Portfolios
-----------------------------------------------------------------------------------------
Growth
Participating Money and Capital Global
Insurance Companies Market Bond Balanced Income Growth Discovery International
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aetna Life Insurance & Annuity Co. ..... -- % -- % -- % -- % -- % -- % 46.9%
Banner Life Insurance Co. .............. 1.3 2.0 7.1 5.0 2.1 4.4 0.7
Charter National Life Insurance Co. .... 51.7 30.9 57.7 79.3 23.7 83.4 11.8
Companion Life Insurance Co. ........... -- 0.3 -- -- -- -- --
of New York
Fortis Benefits Insurance Co. .......... -- -- -- -- -- -- 0.4
Intramerica Life Insurance Co. ......... 4.4 3.0 4.6 8.7 2.1 12.2 1.3
Lincoln Benefit Life Co. ............... -- 4.1 6.8 -- -- -- --
Mutual of America Life Insurance Co. ... -- 40.3 -- -- 55.9 -- 23.5
Paragon Life Insurance Co. ............. -- 0.2 0.4 0.1 0.2 -- 0.1
Providentmutual Life and Annuity ....... -- 9.3 -- 5.6 -- -- 0.8
Co. of America
Southwestern Life Insurance Co. ........ -- -- -- -- 1.5 -- --
Washington National Life Insurance Co. . 0.5 9.3 -- 1.3 6.0 -- --
Safeco Life Insurance Co. .............. -- -- 23.4 -- -- -- 3.7
Security First Life Insurance Co. ...... -- -- -- -- -- -- 0.3
Union Central Life Insurance Co. ....... 39.7 -- -- -- 6.2 -- 8.2
United Companies Life Insurance Co. .... 2.4 -- -- -- -- -- 0.2
United of Omaha Life Insurance Co. ..... -- 0.6 -- -- -- -- 2.1
USAA Life Insurance Co. ................ -- -- -- -- 2.3 -- --
-----------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ======== ======== ========
</TABLE>
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
74
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
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.
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SCUDDER VARIABLE LIFE INVESTMENT FUND
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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 on behalf of each Portfolio may enter into
repurchase agreements with U.S. and foreign 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 and the underlying collateral, is equal
to at least 100.5% of the resale 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. 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.
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NOTES TO FINANCIAL STATEMENTS
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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 0.37% for the
Money Market Portfolio, 0.475% for the Bond Portfolio, 0.475% for the Balanced
Portfolio, 0.475% for the Growth and Income Portfolio, 0.475% for the Capital
Growth Portfolio, 0.975% for the Global Discovery Portfolio, and 0.875% for the
International Portfolio.
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 May 1, 1996, for a period of five years from the date of execution of a
Participation Agreement with the Fund, and from year to year thereafter as
agreed by the Fund and the Participating Insurance Companies, each of the
Participating Insurance Companies had agreed to reimburse the Fund to the extent
that the annual operating expenses of any Portfolio of the Fund, other than the
Global Discovery Portfolio and the International Portfolio, exceeded
three-quarters of one percent (0.75 of 1%) of that Portfolio's average annual
net assets. The Participating Insurance Companies had agreed to reimburse the
Fund to the extent that such expenses of the International Portfolio exceeded
one and one-half percent (1.50 of 1%) of the Portfolio's average annual net
assets. The Trustees of the Fund approved a new form of Participation Agreement
effective May 1, 1996, which no longer requires the Participating Insurance
Companies to reimburse the Fund as described above. 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 year ended December 31, 1996
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.
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SCUDDER VARIABLE LIFE INVESTMENT FUND
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Shareholders of Scudder Variable Life Investment Fund:
We have audited the accompanying statements of assets and liabilities of Scudder
Variable Life Investment Fund (comprised of the seven Portfolios identified in
Note A), including the investment portfolios, as of December 31, 1996, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for each of the periods indicated herein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Variable Life Investment Fund (comprised of the seven Portfolios
identified in Note A) as of December 31, 1996, the results of their operations,
the changes in their net assets, and their financial highlights for each of the
periods indicated herein conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 7, 1997
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TAX INFORMATION
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The Balanced Portfolio, Capital Growth Portfolio, and Growth and Income
Portfolio paid distributions of $0.125, $0.595, and $0.09 per share,
respectively, from net long-term capital gains during the year ended December
31, 1996.
Pursuant to section 852 of the Internal Revenue Code, the Balanced Portfolio,
Bond Portfolio, Capital Growth Portfolio, Growth and Income Portfolio, and
International Portfolio designate $4,985,685, $201,136, $20,148,284, $3,659,155,
and $5,991,078, respectively, as capital gain dividends for the year ended
December 31, 1996.
Pursuant to section 854 of the Internal Revenue Code, the percentages of income
dividends paid in calendar year 1996 which qualify for the dividends received
deduction for corporations are as follows: Balanced Portfolio 26.7%, Capital
Growth Portfolio 88.7%, and Growth and Income Portfolio 100.0%.
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Celebrating Over 75 Years of Serving Investors
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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
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