<PAGE> 1
CHAIRMAN'S LETTER
DEAR PLANHOLDER:
A favorable turn in the tide of U.S. interest rates provided a generally
auspicious environment for Vanguard Variable Insurance Fund during the six
months ended March 31, the first half of our 1995 fiscal year. U.S. stock and
bond prices rose, and money market investments provided a reasonable rate of
return. The only area of disappointment was the international investment arena,
where returns were negative in most countries in spite of the benefit derived
from the weakness of the U.S. dollar.
INVESTMENT PERFORMANCE
The returns of the Fund's Portfolios reflect these overall market conditions.
The table below shows the total return (capital change plus income) of each
Portfolio relative to the benchmark we think is most appropriate for that
Portfolio:
<TABLE>
<CAPTION>
-----------------------------------------------------
Fund Total Return
------------------
Six Months Ended
March 31, 1995
-----------------------------------------------------
<S> <C>
MONEY MARKET PORTFOLIO + 2.8%
AVERAGE MONEY MARKET FUND + 2.5
-----------------------------------------------------
HIGH-GRADE BOND PORTFOLIO + 5.4%
LEHMAN AGGREGATE BOND INDEX + 5.5
-----------------------------------------------------
BALANCED PORTFOLIO + 6.8%
COMPOSITE INDEX* + 9.1
-----------------------------------------------------
EQUITY INDEX PORTFOLIO + 9.7%
EQUITY INCOME PORTFOLIO + 8.8
GROWTH PORTFOLIO +11.2
STANDARD & POOR'S 500 STOCK INDEX + 9.7
-----------------------------------------------------
INTERNATIONAL PORTFOLIO - 1.7%
MSCI EAFE Index + 1.0
-----------------------------------------------------
</TABLE>
*65% Standard & Poor's 500 Index, 35% Salomon High-Grade
Bond Index.
The total returns shown above reflect the change in net asset value for each
Portfolio adjusted to include the reinvestment of any income or capital gains
distributions. We also provide in the table that follows the actual returns to
investors in the Vanguard Variable Annuity Plan. These returns are, of course,
somewhat lower, as they take into account the expenses of the Plan itself (some
0.52% of net assets on an annual basis).
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Plan Total Return
-----------------
Six Months Ended
March 31, 1995
--------------------------------------------------------------------
<S> <C>
MONEY MARKET PORTFOLIO + 2.5%
HIGH-GRADE BOND PORTFOLIO + 5.1
BALANCED PORTFOLIO + 6.5
EQUITY INDEX PORTFOLIO + 9.4
EQUITY INCOME PORTFOLIO + 8.5
GROWTH PORTFOLIO +11.0
INTERNATIONAL PORTFOLIO - 1.9
--------------------------------------------------------------------
</TABLE>
FINANCIAL MARKETS REVIEW
As you will recall, the overall increase in interest rates during 1994 set the
tone for the year. The dramatic jump of almost 2% in the yield of the long-term
Treasury bond--from 6.0% to 7.8%--during our 1994 fiscal year proved
devastating to the bond market.
As fiscal 1995 began, bond yields climbed to 8.2%, and a near-term peak
seemed to have been reached. In fact, bond yields have since fallen to the
current level of 7.4%. This decline in rates, reflecting the market's
recognition that inflation remained largely under control, was good news for
our HIGH-GRADE BOND PORTFOLIO. Over the past six months, the Portfolio provided
a return (+5.4%) virtually identical to that of its unmanaged benchmark, the
Lehman Aggregate Bond Index (+5.5%).
While long-term bond yields were declining, short-term rates continued
to move upward. During the past half-year, the Federal Reserve Board raised
short-term interest rates on two separate occasions, and Treasury bill yields
rose from 4.7% to 5.9% over the period. As a result, the yield on our MONEY
MARKET PORTFOLIO has risen steadily, and stood at 5.9% on March 31, 1995.
The 1994 interest rate increases acted like an anchor on the U.S. stock
market last year; indeed, stock prices were either flat or negative in spite of
booming corporate earnings. The reversal in long-term rates since November 1994
seems to have signaled a "hoist anchor" command to the U.S. stock market, which
in the past three months has enjoyed one of the
1
<PAGE> 2
strongest quarters in recent history (+9.7% for the Standard & Poor's 500
Composite Stock Price Index). The major beneficiaries have been the larger
capitalization companies, which have outpaced smaller companies by a
significant margin. Since our three U.S. common stock Portfolios--EQUITY INDEX
(+9.7% for the six months), EQUITY INCOME (+8.8%), and GROWTH
(+11.2%)--emphasize larger companies, they have provided handsome returns, well
above those of the average general equity fund (+5.8%), which includes small
capitalization stock funds.
Our BALANCED PORTFOLIO, as expected, provided a return (+6.8%) in
between the returns of the stock and bond markets, reflecting its policy of
investing about 60% to 70% of assets in stocks with the remainder invested in
high-quality bonds.
In sharp contrast to the U.S. stock market, most major foreign stock
markets declined over the past six months in local currency terms.
Particularly hard hit were the Japanese (-15.6%) and Malaysian (-12.3%)
markets. Only the startling declines in the value of the U.S. dollar versus the
yen and the mark, along with other "hard currencies," saved the day for U.S.
investors in foreign markets. In local currency terms, the MSCI EAFE Index was
down -8.0%; however, given the weakness in the dollar, the loss was converted
to a gain of +1.0% in dollar terms.
Conditions in emerging markets were even more difficult, with the MSCI
Emerging Markets (Free) Index down -25.0% over the period. Mexico was the most
notable disappointment, as the currency devaluation beginning in December
sparked a stock market collapse. Overall, the Mexican market from a U.S.
investor's perspective has declined by -63.0% since September. Fortunately, our
INTERNATIONAL PORTFOLIO had only very modest holdings in emerging markets and
posted a marginally negative return for the six-month period (-1.7%).
A MILESTONE
On March 27, 1995, Vanguard Variable Insurance Fund celebrated a milestone when
assets hit $1 billion. While this marker may seem a modest one in the context
of a $2 trillion mutual fund industry, we believe that it conveys acceptance of
the Vanguard Variable Annuity Plan in the marketplace.
Our proposition behind the development of the Plan four years ago was
that we would offer a variable annuity that made economic sense for investors.
We were convinced that many annuities being offered in the marketplace at the
time incurred costs that were simply too high to make the investment
worthwhile. Our vision was of a program where the typical sales commission
could be essentially eliminated for those investors willing to evaluate for
themselves the benefits of an annuity. This view has enabled us to structure
our annuity at a cost level less than half of the industry standard (0.7% to
0.9% annually for Vanguard versus 2.0% for the average annuity).
We are pleased that the program has grown without a substantial
marketing effort. Indeed, we have engaged in very little advertising, and
certainly none of the customary hyperbole associated with annuities. So, the
Fund has found its own market largely through favorable press reports and
word-of-mouth recommendations from our clients.
As a result of Vanguard's corporate structure, the benefits of asset
growth flow through to our planholders. With a growing asset base we have been
able to cut the costs of the program and expand the number of Portfolios
offered to investors (from four originally to seven today). We look forward to
continued growth in the years ahead and continued excellent service to our
planholders.
Sincerely,
/s/ JOHN C. BOGLE
------------------------
John C. Bogle
Chairman of the Board
April 18, 1995
Note: Mutual fund data from Lipper Analytical Services, Inc.
2
<PAGE> 3
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
VANGUARD VARIABLE INSURANCE FUND VANGUARD VARIABLE ANNUITY PLAN
-----------------------------------------------------------------------------------------------------------------------------------
SEC SEC
TOTAL RETURN 30-DAY TOTAL RETURN 30-DAY
SIX MONTHS ENDED ANNUALIZED ACCUMULATED SIX MONTHS ENDED ANNUALIZED
PORTFOLIO (INCEPTION) MARCH 31, 1995 YIELD* UNIT VALUE MARCH 31, 1995 YIELD*
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MONEY MARKET (5/2/91) + 2.8% 5.94% $ 1.15 + 2.5% 5.42%
HIGH-GRADE BOND (4/29/91) + 5.4 7.14 12.86 + 5.1 6.62
BALANCED (5/23/91) + 6.8 4.43 13.85 + 6.5 3.91
EQUITY INDEX (4/29/91) + 9.7 2.56 14.49 + 9.4 2.04
EQUITY INCOME (6/7/93) + 8.8 4.44 11.32 + 8.5 3.92
GROWTH (6/7/93) +11.2 1.69 11.98 +11.0 1.17
INTERNATIONAL (6/3/94) - 1.7 N/A 10.09 - 1.9 N/A
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Yield for Money Market Portfolio is a 7-day yield.
3
<PAGE> 4
REPORT FROM THE VANGUARD FIXED INCOME GROUP
MARKET OVERVIEW
During the six-month period ended March 31, 1995, the fixed-income markets were
volatile. Bond values reached a low point in the bear market late in 1994,
which set the stage for a significant rally that left the overall bond market
with prices higher than at the start of the fiscal year. This welcome respite
from rising rates was caused by the bond market's improved expectations of
lower inflation.
During much of 1994, strong employment growth and shrinking production
capacity were interpreted by the bond markets as a formula for inflation.
Naturally, creditors demanded higher interest rates to compensate for the risk
that higher inflation would erode the value of future principal and interest
payments. However, the Federal Reserve (the "Fed") raised short-term interest
rates twice--once in November and again in February--for a total increase of
1.25%, increasing the costs of borrowing for businesses and consumers in an
effort to slow the economy's growth to a non-inflationary level.
The credibility of the Fed's resolve to fight inflation was bolstered by
these strong actions. Long-term interest rates fell as signs of moderate
economic growth caused some market participants to believe the Fed would
succeed in engineering a "soft landing"--a combination of sustained growth and
low inflation--for the economy.
While the Fed has done a credible job in recent years, monetary policy
is not precise enough to achieve a soft landing without a considerable dose of
good luck, and it remains to be seen whether or not the Fed will succeed.
MONEY MARKET PORTFOLIO
In a rare "win-win" situation, not only did investors in long-term bonds
achieve gains due to falling long-term rates, but money market investors
experienced higher returns from rising short-term interest rates during the
first half of the fiscal year. This event was caused by a "flattening" of the
yield curve, the line connecting prevailing market interest rates for
investments of varying maturities from short- to long-term.
Money market interest rates rose in step with the Fed's increases in the
Federal funds rate (the rate at which banks borrow and lend reserves among
themselves for short periods). The current yield on the Money Market Portfolio
is approximately 2.5 percentage points above the broadly measured inflation
rate. While there can be no assurance that this favorable condition will
persist, it compares well to the early 1990s when short-term investments
offered little or no premium over inflation.
Our strategy for managing the Money Market Portfolio has been to keep
its average weighted maturity at the lower end of the range allowed under our
investment policy. By managing the Portfolio in this manner, its assets turn
over more frequently, causing its yield to adjust to changes in market rates
more quickly. With a shorter term to maturity, the market value of the
Portfolio's assets are less sensitive to the negative effects of rising
interest rates.
As in prior periods, we have kept the credit quality of the Portfolio's
investments high--higher, in fact, than required under SEC guidelines. In
addition, we have not invested in risky or exotic derivative securities which
have caused highly publicized problems for several large money market funds. In
combination with our low cost of operation, our conservative investment
philosophy has offered our shareholders a very competitive return during a time
when riskier strategies have shown their shortcomings.
HIGH-GRADE BOND PORTFOLIO
Over the past six months, the bond market has seen a flattening in the Treasury
yield curve, with one-year rates rising by one-half of a percentage point and
10- to 30-year rates declining by about 0.4 percentage points. This flattening
is primarily associated with the belief that the Federal Reserve tightening is
largely complete and that economic growth is slowing.
The performance of the various sectors of the Lehman Aggregate Bond
Index for the six- and twelve-month periods ended March 31, 1995, are shown on
the following page:
4
<PAGE> 5
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Total Return
-------------------------------------
Periods Ended
March 31, 1995
-------------------------------------
Six Months Twelve Months
---------------------------------------------------------------------------------
<S> <C> <C>
LEHMAN AGGREGATE BOND INDEX +5.5% +5.0%
---------------------------------------------------------------------------------
GOVERNMENT SECTOR +5.1% +4.3%
CORPORATE SECTOR +6.4 +5.5
MORTGAGE-BACKED SECURITIES SECTOR +5.7 +6.0
---------------------------------------------------------------------------------
</TABLE>
The corporate sector (+6.4%) was the best-performing category for the six-month
period. This was largely caused by narrowing credit spreads resulting from
continued strong corporate earnings and the belief that the economy will
experience a soft landing. For the past twelve-month period, the
best-performing sector was the mortgage sector, with a return of +6.0%. The
average effective maturity of this sector has been shorter than that of the
other major sectors, resulting in lower interest rate risk and therefore a
lower price decline during the rising rate environment.
The High-Grade Bond Portfolio is designed to closely replicate the
performance of the Lehman Aggregate Bond Index. For the last six- and
twelve-month periods, the Portfolio's return was +5.4% and +4.9%, respectively.
Adjusted for expenses and transaction costs (neither of which affect the
theoretical Index), the Portfolio outperformed the Index by favorable margins
of +0.1% and +0.2%, respectively. As of March 31, 1995, the Portfolio was
composed of 35% government bonds, 31% corporate bonds, 31% mortgage-backed
securities, and 3% foreign bonds (dollar denominated).
Respectfully,
Ian A. MacKinnon
Senior Vice President
Kenneth E. Volpert
Vice President
High-Grade Bond Portfolio
John W. Hollyer
Assistant Vice President
Money Market Portfolio
Vanguard Fixed Income Group
April 7, 1995
5
<PAGE> 6
REPORT FROM WELLINGTON MANAGEMENT COMPANY
Robust stock market performance helped to raise the assets of the Vanguard
Variable Insurance Fund Balanced Portfolio to $239 million as of the end of
March. The Portfolio maintains its balanced approach, allocating 60% to 70% of
its net assets to equity investments and the remainder to long-term,
investment-grade fixed-income securities. Over the first half of the Fund's
fiscal year, the Portfolio increased in value by +6.8%.
With the exception of the recent drop in the dollar, our assumptions on
the economy, Federal Reserve policy, and the U.S. investment climate in general
have been on the mark and investment results are showing it. In expecting an
economic slowdown, we were prepared to see a shift in the equity marketplace
away from economically sensitive sectors. Unable to gauge how long such a shift
might last, we opted to stand firm with our 40% exposure to cyclical,
economically sensitive stocks and not risk a whipsaw, in light of our unchanged
upbeat view of industrial earnings prospects this year and next.
The drop in the dollar adds fuel to worries about the economy because it
raises the odds of more inflation and higher interest rates. However, because
we believe the drop is unwarranted and will be eventually recognized as such,
we are not changing our assumptions regarding key variables: inflation will
remain at tolerable levels, short- and long-term interest rates will not rise
and may even come down, and industrial earnings will be very strong. And, of
course, the positive aspect of the lower dollar is that it adds to an already
strong competitive position that U.S. companies have in world markets. This is
a healthy combination and, interim volatility aside, we believe stocks are
reasonably valued today and have ample room to move higher.
In the equity portfolio, our four main areas of focus are the following:
cyclicals, health care, banks, and energy. When individual holdings among our
cyclicals have come under particular pressure, like the autos and metals, we
have increased our positions. In the health care sector, our large positions
grew even larger through substantial price appreciation, and we reduced these
holdings. We believe banks remain undervalued--especially Citicorp, which is
being wrongly faulted for its (limited) exposure to Mexico and other Latin
American risks. We have sold stocks of banks that have either moved higher in
the valuation ladder or are not keeping up with the earnings pace of others.
Up to now, energy stocks, our fourth area of focus, have been delivering
dividends and slightly better-than-market price performance. However, we think
an even stronger case for them is building, not unlike the one we saw unfold in
papers, chemicals, and metals. With deceptively little excess capacity, oil and
gas prices around the world still flounder at low levels. The companies
implicitly capitulated by launching major cost reduction programs and probably
will complete them just as supply and demand converge a year or so from now,
and prices strengthen. The potential for better oil and gas results later in
1995 and 1996 is shaping up to be significant, although not as dramatic as the
margin and profit gains getting underway now among the basic materials
companies. We have added to these holdings and will add more if prices remain
reasonable. At the end of the quarter, energy accounted for 14% of the
Portfolio's equity assets as compared with 10% in the S&P 500 Index.
The Portfolio's bond component remains focused on long-term securities
with a high-quality profile. Currently, 95% of the bond portion is invested in
securities rated "A" or better. The current maturity of the Portfolio's bond
component, at 17.1 years, was moderately shortened over the past couple of
months after the recent rally in bonds.
The current allocation of the Portfolio is 65% of net assets in equity
investments, 32% in fixed-income investments, and 3% in cash. We believe the
Portfolio is well-positioned to take advantage of a positive economic
environment with improved industrial earnings.
Respectfully,
Vincent Bajakian, Senior Vice President
Portfolio Manager
Wellington Management Company
April 17, 1995
6
<PAGE> 7
REPORT FROM VANGUARD CORE MANAGEMENT GROUP
The Equity Index Portfolio tracked the performance of the S&P 500 Index quite
closely, lagging by less than the Portfolio's expense ratio. The total return
of the Portfolio was +9.67% during the first half of the fiscal year compared
to +9.71% for the Index. As stated in the past, the Portfolio is sufficiently
large that it should perform very similarly to the Index in the future.
After rather lackluster equity returns (+3.7%) in the 1994 fiscal year,
the stock market rebounded sharply in the first half of the 1995 fiscal year.
The market actually retreated during the first two months. But, shortly after
the Federal Reserve's sixth Federal funds rate increase (the rate at which
banks lend to each other) the market established a bottom. From this base the
market, as measured by the Standard & Poor's 500 Index, increased +12.4% on a
price change basis through March 31, 1995. For the entire first half of the
fiscal year, the total return of the S&P 500 Index was +9.7%, essentially the
same as the second fiscal quarter return.
Many market participants currently believe the Fed has engineered a
"soft landing," which entails moderate economic growth without escalating
inflation. If successful, this would be the second time in the last ten years
(and in history) that the Fed has been able to extend the normal business cycle
by controlling inflation while maintaining sufficient economic strength to
avoid a subsequent recession.
Given expectations of moderating growth, the bond market rallied
sharply, reducing the yield on the long-term Treasury bond from a high of 8.2%
to 7.4% by the end of the six-month period. The favorable bond market and
continued double-digit increases in corporate profits provided the impetus for
the strong stock market advance.
Although a collapsing currency can cause a great deal of economic pain,
as currently being experienced by Mexico, a more controlled decline can
actually increase domestic economic growth. Exports become cheaper and more
attractive to foreign consumers, while imports become more expensive and,
therefore, less attractive to Americans than domestically made products.
The combination of the U.S. dollar's significant depreciation against
the Japanese yen and the German deutsche mark and the increasing acceptance of
a soft landing reinforced expectations for further increases in corporate
profits, particularly among large, multi-national companies. This at least
partially explains the superior relative performance of large capitalization
stocks during the past six months. As measured by the Standard & Poor's 500
Index, large stocks provided a total return of +9.7% compared to a +2.7% return
for small capitalization stocks, as measured by the Russell 2000 Index.
Supported by extremely positive economic developments, the stock market
made a major move during the first calendar quarter of 1995. Since it is hard
to imagine as favorable an environment over the near term, it would be natural
for the market to consolidate after such a move. Longer term, we still expect
that financial assets will not provide the same historically high returns that
they did during the 1980s and early 1990s. More moderate expectations, of
probably less than the +10% annual stock market returns received over the past
seventy years, are prudent.
Respectfully,
George U. Sauter, Vice President
Vanguard Core Management Group
April 17, 1995
7
<PAGE> 8
REPORT FROM NEWELL ASSOCIATES
PERFORMANCE
The Equity Income Portfolio rose strongly during the past six months,
substantially outperforming the average equity income fund, but lagging the
Standard and Poor's 500 Stock Index by a fairly narrow margin.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Total Return
---------------------------------
Periods Ended
March 31, 1995
------------------------------------------------------------------------------------
Three Months Six Months
------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INCOME PORTFOLIO +10.0% +8.8%
AVERAGE EQUITY INCOME FUND + 7.4 +4.7
STANDARD & POOR'S 500 STOCK INDEX + 9.7 +9.7
------------------------------------------------------------------------------------
</TABLE>
THE RELATIVE YIELD STRATEGY
Like the S&P 500 Index, Newell Associates' Relative Yield Strategy invests
primarily in large U.S. companies. However, the Relative Yield Strategy charts
a very different course than that of the S&P 500 Index. We use the yield
history of stocks relative to the yield of the market to judge when stocks are
attractive for purchase and when they should be sold. We maintain the current
yield of the Portfolio between 50% and 100% higher than the yield of the S&P
500 Index. Currently, at 4.4%, the Portfolio's yield is 69% higher than that of
the Index.
Our investment process aims to buy the stocks of major U.S. companies
while they are temporarily out of favor, but have the potential for recovery to
higher valuation levels judged by relative yield. This strategy produces very
different company and industry weightings from those of the Index. Because of
the high average yield of our holdings, the Portfolio exhibits defensive
characteristics during periods of market weakness.
PERFORMANCE VERSUS COMPETITIVE FUNDS
Although it is not surprising that the characteristics of the Equity Income
Portfolio would differ from those of the S&P 500 Index, it is surprising that
there should be such a large performance difference between the Portfolio and
the average equity income fund as occurred in the last six months. A full
explanation is difficult, but we do know that in recent years some U.S. equity
managers have been on a grand tour of foreign markets, and that some have
ventured into various alternative investments, such as derivatives, as well. In
more than a few instances, these excursions produced performance problems.
INVESTORS RETURN TO LARGE U.S. STOCKS
Recently, some of the cash flow into foreign investments seems to have
reversed. Many observers expected that the money would have gone into growth
stocks, particularly small capitalization issues. However, this seems not to
have been the case in the last six months. Instead, money has been flowing into
a wide range of large capitalization stocks, including many that are not
traditional growth stocks. We believe this is an important factor in Equity
Income Portfolio's outperformance since last September.
PORTFOLIO MANAGEMENT ACTIVITY
In the latter part of 1994, the prices of regional bank stocks were quite weak
on earnings concerns, and we added to several of our positions at that time. We
also recently made additional purchases of two money center banks as their
prices were depressed by derivative worries.
Some of the electric utility stocks in the Portfolio have made very
significant price recoveries from their lows of last year, and in two cases
have moved into sale territory from a relative yield standpoint. We made
reductions in these holdings during the past six months.
For some time we believed that exercising patience was the best course
of action with respect to the Portfolio's holding of IBM, in the face of
dividend cuts and widely publicized troubles over the past several years.
However, as new management restored investor confidence in the company, we
gradually reduced our holdings and finished selling the stock by the end of
March. At that time, the price of the stock had more than doubled from its low
in 1993, and with a current yield below that of the market, we felt that
further retention was not warranted.
Respectfully,
Roger D. Newell, Chairman
Newell Associates April 11, 1995
8
<PAGE> 9
REPORT FROM LINCOLN CAPITAL MANAGEMENT COMPANY
The Growth Portfolio of Vanguard Variable Insurance Fund generated high
absolute and good relative returns in the six months ending March 31, 1995. The
stock market was strong and the growth sector provided an incremental tail
wind. Finally, a further margin was added by your manager, Lincoln Capital.
Overall, it was an especially fine period for planholders.
Those of you who have perused these reports recall that Lincoln
Capital's investment philosophy is to emphasize larger, more seasoned growth
stocks. By the nature of their business these companies provide an element of
stability; they are not "boom-or-bust" type investments. Because of this, we
tend to be longer-term investors, with changes in the Portfolio coming slowly
rather than rapidly.
For example, during the past six months, there were about a half dozen
new commitments and eliminations. In dollar terms, the largest purchases were
Philip Morris (new), AT&T, Wal-Mart, PepsiCo, and Intel. Sales included Toys R
Us and Medtronic (eliminations), American International Group, Fannie Mae, and
First Financial Management.
Changes in industry diversification have resulted in lower retail and
financial weightings, with a larger consumer and health care emphasis.
Short-term reserves remained at roughly 8% of net assets.
The following is a list of the ten largest commitments. These holdings
represent nearly 40% of the total Portfolio. New to this group of favorites are
AT&T, Intel, and PepsiCo, all large purchases. Although no longer in the top
ten, American International Group, Freddie Mac, and General Motors Class E do
remain among the top fifteen holdings, so there is unusual continuity.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Company Business
--------------------------------------------------------------------------------
<S> <C>
1. GENERAL ELECTRIC DIVERSIFIED MANUFACTURER
(#1 IN MOST SEGMENTS)
2. WAL-MART STORES #1 RETAILER
3. COCA-COLA #1 SOFT DRINK COMPANY
4. AT&T #1 LONG DISTANCE TELEPHONE COMPANY
5. INTEL #1 SEMICONDUCTOR MANUFACTURER
6. PROCTER & GAMBLE #1 HOUSEHOLD PRODUCTS COMPANY
7. GILLETTE #1 MANUFACTURER OF RAZORS
AND BLADES
8. AUTOMATIC DATA #1 PAYROLL SERVICES
9. PEPSICO #1 SNACK FOODS, #2 SOFT DRINKS
10. FANNIE MAE #1 MORTGAGE FINANCING COMPANY
--------------------------------------------------------------------------------
</TABLE>
Respectfully,
Dave Fowler and Parker Hall, Co-Managers
Lincoln Capital Management Company
April 7, 1995
9
<PAGE> 10
REPORT FROM SCHRODER CAPITAL MANAGEMENT INTERNATIONAL
The International Portfolio fell by -1.7% during the first half of the 1995
fiscal year. This return compares to a +1.0% rise over the same period in the
MSCI EAFE Index.
Six months ago, I reported that we appeared to be in a period of
consolidation for international stock markets and this has continued. The
Portfolio is invested on the belief that markets will emerge upwards, but I
remain aware that the outlook is risky.
The past six months have been dominated by two features: the strength
of most major foreign currencies against the U.S. dollar, and the collapse of
international confidence in Mexico. The former is a mixed blessing: it
increases the U.S. dollar value of foreign assets but, at the same time, erodes
the value of foreign holdings in local currency terms, as the profitability of
most businesses suffers directly or indirectly from increased competition.
Accordingly, a lowering of corporate profit growth expectations has depressed
most major markets in the past six months. In local currency terms, returns
were: France +1%, Netherlands 0%, Switzerland -1%, Germany -5%, and Japan -16%;
in U.S. dollar terms, returns were: France +11%, Netherlands +14%, Switzerland
+13%, Germany +8%, and Japan -3%.
The collapse of the Mexican stock market and currency had very little
direct impact on the Portfolio. Fortunately, we had less than 1% of the
Portfolio's net assets invested there before the crisis, so the subsequent
fall barely impacted our performance. However, indirectly, other emerging
markets were also affected, particularly in Latin America (2% of the
Portfolio). A cautious view of Latin America has been a feature of the
Portfolio since its launch in June 1994, with never more than 3% invested
there. This contrasts with our very positive long-term view of the high-growth
countries of Asia where 14% of the Portfolio is currently invested, a
proportion that we are looking to increase significantly in the coming months.
Japan is the last of the major world economies to enter a cyclical
upswing, and we have 28% of the Portfolio invested there. At this early stage
in the cycle, the Bank of Japan is likely to encourage growth with cheap money,
which is usually good for stock prices. Our emphasis is on manufacturing
companies, which are leveraged to a recovery in domestic demand. In several
consumer areas, such a pickup is already evident, but the strength of the yen
is hurting the export side of their businesses so that the overall recovery in
profits is reduced.
We have 34% of the Portfolio invested in continental Europe with a
particular focus on Dutch companies (10% of assets). The Netherlands is a
country at the heart of Europe, which is well placed to enjoy the success of
its two large neighbors, France and Germany, without the specific fiscal
problems that confront both. A total of 17% is invested in France, Switzerland,
and Germany, all countries whose currencies have been particularly strong. We
have been reducing our investments in countries whose governments may
increasingly have problems in financing their deficits and may suffer weaker
currencies as a consequence.
Finally, 17% of the Portfolio is invested in the United Kingdom, where
stocks are amongst the cheapest in Europe. U.K. companies are seeing strong
export demand as a result of the weakness of the pound. The prospect of the U.K.
maintaining a surplus in its balance of foreign payments is a particularly
important factor which we expect will both restore confidence in the currency
and stimulate the local stock market.
Respectfully,
Richard R. Foulkes
Schroder Capital Management International
April 11, 1995
10
<PAGE> 11
FINANCIAL STATEMENTS
(unaudited)
March 31, 1995
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
Face Market
Amount Value
MONEY MARKET PORTFOLIO (000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (2.6%)
--------------------------------------------------------------------------------
Federal National Mortgage Assn.
6.34%-6.669%, 4/20/95-6/29/95
(Cost $5,001) $ 5,030 $ 5,001
--------------------------------------------------------------------------------
COMMERCIAL PAPER (65.1%)
--------------------------------------------------------------------------------
BANK HOLDING COMPANY (3.7%)
J.P. Morgan & Co., Inc.
5.991%-6.191%, 4/4/95-6/12/95 2,000 1,987
Norwest Corp.
6.088%, 4/24/95 5,000 4,981
---------
GROUP TOTAL 6,968
---------
--------------------------------------------------------------------------------
FINANCE--AUTO (2.5%)
Daimler-Benz N.A.
5.997%, 4/4/95 1,000 999
Ford Credit Receivables Funding
6.102%, 4/11/95 857 856
Toyota Motor Credit
6.054%-6.831%, 4/5/95-7/10/95 2,900 2,882
---------
GROUP TOTAL 4,737
---------
--------------------------------------------------------------------------------
FINANCE--OTHER (12.8%)
American Express Credit Corp.
6.081%, 4/11/95 1,500 1,497
Associates Corp.
6.083%, 5/2/95 1,500 1,492
CIT Group Holdings Inc.
6.083%-6.091%, 4/7/95-5/2/95 3,500 3,490
Ciesco L.P.
6.081%, 4/10/95-4/18/95 3,000 2,994
Corporate Asset Funding Corp.
6.123%, 5/23/95 3,000 2,974
Eiger Capital Corp.
5.993%-5.995%, 4/3/95-4/5/95 4,000 3,998
General Electric Capital Corp.
6.062%-6.614%, 4/17/95-8/28/95 6,000 5,931
Transamerica Financial Corp.
6.111%, 4/14/95 2,000 1,996
---------
GROUP TOTAL 24,372
---------
--------------------------------------------------------------------------------
INDUSTRIAL (20.3%)
Campbell Soup Co.
6.056%, 4/4/95 2,000 1,999
The Coca-Cola Co.
6.062%, 5/1/95 2,000 1,990
The Dun & Bradstreet Corp.
6.372%, 5/16/95 2,000 1,985
H.J. Heinz Co.
6.048%, 5/8/95 2,600 2,584
Hewlett Packard Co.
6.064%-6.077%, 5/16/95-5/30/95 6,000 5,948
Kimberly-Clark Corp.
6.054%-6.061%, 4/5/95-5/9/95 4,719 4,699
Eli Lilly & Co.
6.158%-6.366%, 4/6/95-5/11/95 6,000 5,981
6.137%, 6/20/95 2,000 1,973
Mobil Australia Finance Co.
6.081%, 5/19/95 4,000 3,968
Schering Corp.
5.99%, 4/13/95 3,000 2,994
Warner-Lambert Co.
6.057%-6.105%, 5/10/95-6/19/95 4,678 4,634
---------
GROUP TOTAL 38,755
---------
--------------------------------------------------------------------------------
INSURANCE (5.9%)
AIG Funding Inc.
6.062%-6.388%, 4/17/95-5/1/95 3,000 2,987
MetLife Funding Corp.
6.059%, 5/22/95-5/26/95 3,193 3,165
Safeco Credit Corp.
6.163%-6.196%, 5/18/95-6/12/95 4,000 3,960
USAA Capital Corp.
5.982%, 4/5/95 1,100 1,099
---------
GROUP TOTAL 11,211
---------
--------------------------------------------------------------------------------
UTILITY (3.1%)
BellSouth Telecommunications Inc.
5.982%, 4/5/95 1,000 999
Citizens Utilities Co.
6.101%, 6/1/95 2,000 1,979
Southwestern Bell Telephone Co.
6.114%, 6/2/95 3,000 2,969
---------
GROUP TOTAL 5,947
---------
--------------------------------------------------------------------------------
OTHER (.5%)
Stanford Univ. Board of Trustees
6.309%, 8/10/95 1,000 978
---------
--------------------------------------------------------------------------------
FOREIGN--BANKS (6.5%)
Abbey National N.A.
6.733%, 6/13/95 1,000 987
Barclays U.S. Funding Corp.
6.005%, 4/12/95 2,000 1,996
Canadian Imperial Holdings Inc.
6.001%, 4/4/95 1,000 1,000
Commerzbank U.S. Finance Inc.
6.11%, 4/14/95 1,700 1,696
Toronto Dominion Holdings USA Inc.
6.04%-6.876%, 4/18/95-6/30/95 3,800 3,764
UBS Finance (Delaware) Inc.
6.004%, 4/12/95 3,000 2,995
---------
GROUP TOTAL 12,438
---------
--------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN GOVERNMENT (9.4%)
Province of Alberta
5.995%, 4/11/95 $ 2,500 $ 2,496
Australian Wheat Board
6.02%, 4/11/95 2,000 1,997
Province of British Columbia
5.778%-6.887%, 4/5/95-9/11/95 3,100 3,053
Caisse des Depots et Consignations
6.026%-6.076%, 4/6/95-4/12/95 5,000 4,994
Canadian Wheat Board
6.086%-6.244%, 5/8/95-6/12/95 3,300 3,264
KFW International Finance Inc.
6.004%, 4/7/95 2,000 1,998
---------
GROUP TOTAL 17,802
---------
--------------------------------------------------------------------------------
FOREIGN--OTHER (.4%)
Siemens Corp.
6.045%, 4/3/95 800 800
---------
--------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost $124,008) 124,008
--------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.8%)
--------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
U.S. BRANCHES (17.3%)
ABN AMRO
6.08%, 4/6/95 3,000 3,000
Bank of Montreal
6.07%, 4/17/95 3,000 3,000
Bank of Nova Scotia
6.01%, 4/3/95 1,000 1,000
Bayerische Hypo Bank
6.02%, 4/20/95 3,000 3,000
Bayerische Vereinsbank
6.06%-6.07%, 4/7/95-5/22/95 4,000 4,000
Caisse Nationale de Credit Agricole
6.17%-6.35%, 4/5/95-6/30/95 4,000 4,000
Credit Suisse
6.03%, 4/7/95 2,000 2,000
Dresdner Bank
5.45%, 6/21/95 2,000 1,994
National Westminster Bank
6.07%, 4/28/95 2,000 2,000
Rabobank Nederlanden
6.18%-6.75%, 5/16/95-6/5/95 5,000 5,000
Societe Generale
6.20%, 6/13/95 2,000 2,000
Westdeutsche Landesbank
6.24%, 4/10/95 2,000 2,000
---------
GROUP TOTAL 32,994
---------
--------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--
CANADIAN BRANCHES (.5%)
Barclays Bank
6.132%, 5/5/95 1,000 994
---------
--------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $33,988) 33,988
--------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT(4.7%)
--------------------------------------------------------------------------------
Abbey National
6.22%, 6/12/95 3,000 3,000
Bayerische Landesbank
6.13%, 6/1/95 1,000 1,000
Deutsche Bank
6.37%-6.82%, 7/10/95-8/8/95 5,000 5,000
--------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES
OF DEPOSIT (Cost $9,000) 9,000
--------------------------------------------------------------------------------
BANKERS ACCEPTANCE (1.0%)
--------------------------------------------------------------------------------
Swiss Bank
6.82%, 6/22/95
(Cost $1,970) 2,000 1,970
---------
--------------------------------------------------------------------------------
BANK NOTES (2.6%)
--------------------------------------------------------------------------------
National Bank of Detroit
6.30%, 9/20/95 1,000 1,000
Wachovia Bank of North Carolina
6.01%, 4/19/95 4,000 4,000
--------------------------------------------------------------------------------
TOTAL BANK NOTES
(Cost $5,000) 5,000
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT (6.0%)
--------------------------------------------------------------------------------
Lehman Government Securities Inc.
6.25%, 4/3/95
(Collateralized by U.S. Treasury Note
7.875%, 7/31/96 and U.S. Treasury
Bond 9.375%, 2/15/06)
(Cost $11,369) 11,369 11,369
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(Cost $190,336) 190,336
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.2%)
--------------------------------------------------------------------------------
Other Assets--Note C 1,204
Liabilities (916)
---------
288
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 190,626,173 outstanding
shares of beneficial interest (unlimited
authorization--no par value) $ 190,624
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $1.00
================================================================================
</TABLE>
+ See Note A to Financial Statements.
12
<PAGE> 13
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $190,626 $1.00
Undistributed Net
Investment Income -- --
Accumulated Net Realized Losses (2) --
Unrealized Appreciation of
Investments -- --
--------------------------------------------------------------------------------
NET ASSETS $190,624 $1.00
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face Market
Amount Value
HIGH-GRADE BOND PORTFOLIO (000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (30.9%)
--------------------------------------------------------------------------------
U.S. Treasury Bonds
7.875%, 2/15/21 $ 2,290 $ 2,363
8.125%, 8/15/19 2,000 2,117
8.50%, 2/15/20 1,870 2,058
8.75%, 5/15/17 640 719
8.875%, 8/15/17-2/15/19 3,405 3,874
10.375%, 11/15/12 440 542
10.75%, 8/15/05 400 498
11.625%, 11/15/02 1,000 1,255
14.00%, 11/15/11 1,565 2,359
U.S. Treasury Notes
5.125%, 4/30/98 1,025 974
5.375%, 5/31/98 550 525
5.75%, 8/15/03 430 390
5.875%, 2/15/04 600 547
6.25%, 2/15/03 45 42
6.375%, 1/15/99-1/15/00 1,225 1,197
6.75%, 2/28/97-5/31/99 1,900 1,895
6.875%, 7/31/99 1,750 1,736
7.00%, 4/15/99 2,210 2,210
7.25%, 5/15/04-8/15/04 1,550 1,550
7.50%, 10/31/99 675 686
7.75%, 11/30/99-2/15/01 1,590 1,591
7.875%, 1/15/98-8/15/01 1,265 1,305
8.00%, 8/15/99-5/15/01 440 458
8.50%, 7/15/97 225 233
8.625%, 8/15/97 150 156
8.75%, 8/15/00 225 241
8.875%, 11/15/98 150 159
--------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $32,303) 31,680
--------------------------------------------------------------------------------
FEDERAL AGENCY OBLIGATIONS (4.1%)
--------------------------------------------------------------------------------
Federal National Mortgage Assn.
4.95%, 9/30/98 700 654
5.30%, 3/11/98 525 497
5.35%, 8/12/98 700 662
5.80%, 12/10/03 600 535
7.00%, 8/12/02 900 874
8.625%, 9/10/96 1,000 1,026
--------------------------------------------------------------------------------
TOTAL FEDERAL AGENCY OBLIGATIONS
(Cost $4,215) 4,248
--------------------------------------------------------------------------------
MORTGAGE PASS-THROUGH SECURITIES (30.3%)
--------------------------------------------------------------------------------
U.S. GOVERNMENT (29.8%)
FEDERAL HOME LOAN MORTGAGE CORP.
5.50%, 12/1/98-11/1/08 180 168
6.00%, 7/1/98-1/1/24 889 829
6.50%, 4/1/98-6/1/24 2,258 2,118
7.00%, 1/1/98-6/1/24 2,353 2,257
</TABLE>
13
<PAGE> 14
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
7.50%, 4/1/98-4/1/24 $ 1,505 $ 1,476
8.00%, 6/1/96-2/1/25 1,237 1,231
8.50%, 3/1/96-1/1/25 571 578
9.00%, 11/1/05-6/1/22 785 807
9.50%, 12/1/05-1/1/25 371 387
10.00%, 3/1/17-11/1/19 174 183
Federal National Mortgage Assn.
5.50%, 3/1/01 95 90
6.00%, 11/15/98-3/1/24 769 716
6.50%, 3/1/00-7/1/24 2,229 2,080
7.00%, 5/1/00-9/1/24 2,511 2,396
7.50%, 4/1/99-8/1/24 1,773 1,731
8.00%, 2/1/00-1/1/25 1,707 1,701
8.50%, 11/1/06-1/15/25 985 998
9.00%, 3/1/20-7/1/22 581 597
9.50%, 6/1/01-9/1/19 324 337
10.00%, 8/1/20-8/1/21 248 263
10.50%, 8/1/20 67 72
Government National Mortgage Assn.
6.00%, 3/15/09-1/15/24 195 176
6.50%, 10/15/08-5/15/24 874 799
7.00%, 10/15/08-5/15/24 1,433 1,631
7.50%, 5/15/08-1/15/24 1,629 1,578
8.00%, 3/15/08-11/15/24 1,656 1,644
8.50%, 12/15/16-2/15/25 929 942
9.00%, 4/15/16-8/15/21 1,348 1,389
9.50%, 4/15/17-7/15/21 930 974
10.00%, 5/15/20-8/15/20 199 213
10.50%, 5/15/19 29 32
11.00%, 10/15/15 55 60
11.50%, 2/15/13 94 104
---------
GROUP TOTAL 30,557
---------
--------------------------------------------------------------------------------
PRIVATE (.5%)
Resolution Trust Corp.
7.75%-10.40%, 12/25/18-8/25/21 579 582
---------
--------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGH
SECURITIES
(Cost $32,102) 31,139
--------------------------------------------------------------------------------
CORPORATE BONDS (30.2%)
--------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.9%)
Chase Manhattan Credit Card Trust
7.40%, 5/15/00 300 301
8.75%, 8/15/99 300 305
First Chicago Master Trust
6.25%, 8/15/99 450 440
8.40%, 6/15/98 450 456
MBNA Credit Card Trust
6.20%, 8/15/99 450 440
7.75%, 10/15/98 300 302
Sears Credit Card Account Trust
5.90%, 11/15/98 250 248
7.75%, 9/15/98 300 303
Standard Credit Card Trust
8.00%, 10/7/97 450 455
8.50%, 8/7/97 450 457
9.375%, 8/10/96 300 302
---------
GROUP TOTAL 4,009
---------
--------------------------------------------------------------------------------
FINANCE (12.7%)
Associates Corp.
8.75%, 9/4/96 600 611
AVCO Financial Services
7.50%, 11/15/96 200 201
8.85%, 2/1/96 420 426
BankAmerica Corp.
9.625%, 2/13/01 500 538
10.00%, 2/1/03 200 222
Bankers Trust New York Corp.
8.25%, 7/2/96 400 405
Bear Stearns Cos.
6.625%, 1/15/04 200 179
CIT Group Holdings
5.65%, 11/15/95 450 447
Chase Manhattan Corp.
8.50%, 3/1/96 500 506
Chemical Banking Corp.
6.625%, 1/15/98 250 245
7.375%, 6/15/97 300 300
Commercial Credit Corp.
6.75%, 1/15/97 450 446
CoreStates Capital
9.375%, 4/15/03 250 269
Countrywide Funding Corp.
7.31%, 8/28/00 600 585
Dean Witter Discover & Co.
6.00%, 3/1/98 510 490
First Interstate Bancorp
8.625%, 4/1/99 500 516
Ford Motor Credit Corp.
7.875%, 1/15/97 950 960
8.25%, 7/15/96 300 304
General Motors Acceptance Corp.
5.50%, 12/15/01 750 655
7.75%, 4/15/97 400 403
International Lease Finance
7.90%, 10/1/96 600 607
Manufacturers Hanover Corp.
8.50%, 2/15/99 500 512
Mellon Finance Corp.
6.125%, 11/15/95 400 399
7.625%, 11/15/99 200 200
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Merrill Lynch & Co., Inc.
7.25%, 5/15/97 $ 400 $ 399
Morgan Stanley Group Inc.
9.25%, 3/1/98 200 208
NationsBank Inc.
5.375%, 12/1/95 425 421
7.75%, 8/15/04 500 492
NCNB Corp.
9.50%, 6/1/04 150 164
Norwest Financial
7.10%, 11/15/96 450 450
Paine Webber Inc.
7.00%, 3/1/00 150 142
Transamerica Financial Corp.
8.375%, 2/15/98 325 333
---------
GROUP TOTAL 13,035
---------
--------------------------------------------------------------------------------
INDUSTRIAL (9.4%)
American Brands Inc.
7.875%, 1/15/23 100 95
Anheuser-Busch Co., Inc.
7.375%, 7/1/23 75 69
8.625%, 12/1/16 150 154
Applied Materials
8.00%, 9/1/04 100 100
Archer-Daniels-Midland Co.
8.875%, 4/15/11 180 195
Auburn Hills
12.00%, 5/1/20 115 159
Boeing Co.
8.375%, 3/1/96 450 456
British Petroleum
7.875%, 5/15/02 200 203
9.50%, 1/1/98 500 526
Chrysler Corp.
10.40%, 8/1/99 300 318
CSX Corp.
8.25%, 11/1/96 350 356
8.40%, 8/1/96 150 152
8.625%, 5/15/22 50 52
Conrail Corp.
9.75%, 6/15/20 100 116
Deere & Co.
8.50%, 1/9/22 100 104
Federal Express
10.00%, 9/1/98 400 427
Ford Capital B.V.
9.00%, 6/1/96 225 230
Ford Holdings
9.25%, 7/15/97 500 520
Ford Motor Corp.
9.95%, 2/15/32 65 76
General Motors
7.625%, 2/15/97 500 502
W.R. Grace & Co.
7.40%, 2/1/00 400 391
Grand Metropolitan Corp.
9.00%, 8/15/11 150 162
ITT Corp.
7.25%, 11/15/96 450 451
International Paper Co.
7.625%, 1/15/07 100 98
May Department Stores Co.
9.75%, 5/16/06 100 113
McDonald's Corp.
6.75%, 2/15/03 230 217
Mobil Corp.
7.625%, 2/23/33 200 188
PepsiCo Inc.
5.00%, 2/24/97 500 481
6.125%, 1/15/98 200 194
Philip Morris Co., Inc.
8.25%, 10/15/03 150 152
Sears, Roebuck & Co.
9.25%, 8/1/97 300 311
Tenneco Inc.
10.00%, 8/1/98 500 533
Texaco Capital Corp.
8.875%, 9/1/21 150 163
Union Carbide
7.875%, 4/1/23 125 117
Union Oil of California
9.125%, 2/15/06 115 124
9.25%, 2/1/03 80 86
Union Pacific
8.625%, 5/15/22 175 176
Waste Management, Inc.
7.875%, 8/15/96 275 278
Whirlpool Corp.
9.00%, 3/1/03 150 161
Xerox Corp.
9.625%, 10/15/00 400 405
---------
GROUP TOTAL 9,611
---------
--------------------------------------------------------------------------------
UTILITY (4.2%)
Alabama Power Co.
8.75%, 12/1/21 129 131
Arizona Public Service
8.00%, 2/1/25 150 140
Carolina Power & Light
6.875%, 8/15/23 175 150
Enron Corp.
9.65%, 5/15/01 450 490
Georgia Power Co.
9.23%, 12/1/19 45 47
</TABLE>
15
<PAGE> 16
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Houston Lighting & Power Co.
8.75%, 3/1/22 $ 100 $ 103
MCI Communications
7.50%, 8/20/04 250 246
Michigan Bell Telephone
7.50%, 2/15/23 175 165
New York Telephone
7.00%, 8/15/25 175 150
Pacific Bell Corp.
7.25%, 7/1/02 225 220
Southern Bell Telephone Co.
7.625%, 3/15/13 450 425
Southwestern Bell Corp.
7.625%, 10/1/13 125 118
7.625%, 3/1/23 300 281
Texas Utilities Corp.
7.125%, 6/1/97 600 596
7.375%, 8/1/01 250 244
7.875%, 3/1/23 110 102
U.S. West Inc.
8.85%, 9/20/99 500 522
Virginia Electric Power
6.625%, 4/1/03 200 187
---------
GROUP TOTAL 4,317
---------
--------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $31,876) 30,972
--------------------------------------------------------------------------------
FOREIGN BONDS (3.1%)
--------------------------------------------------------------------------------
CANADA (1.4%)
Province of British Columbia
7.00%, 1/15/03 170 164
Province of Manitoba
8.75%, 5/15/01 500 524
9.25%, 4/1/20 120 133
9.50%, 10/1/00 130 140
Province of Ontario
7.375%, 1/27/03 110 108
7.75%, 6/4/02 200 200
Province of Saskatchewan
7.125%, 3/15/08 200 186
---------
GROUP TOTAL 1,455
---------
--------------------------------------------------------------------------------
WORLD BANKS (.6%)
European Investment Bank
8.875%, 3/1/01 225 240
InterAmerican Development Bank
8.50%, 3/15/11 130 137
International Bank for Reconstruction
and Development
12.375%, 10/15/02 175 222
---------
GROUP TOTAL 599
---------
--------------------------------------------------------------------------------
OTHER (1.1%)
KFW International Finance
8.85%, 6/15/99 425 446
9.125%, 5/15/01 200 215
New Zealand Government
9.875%, 1/15/11 175 206
Republic of Portugal
5.75%, 10/8/03 250 219
---------
GROUP TOTAL 1,086
---------
--------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $3,259) 3,140
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.0%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account, 6.27%, 4/3/95
(Cost $1,011) 1,011 1,011
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.6%)
(Cost $104,766) 102,190
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (.4%)
--------------------------------------------------------------------------------
Other Assets--Notes C and F 3,303
Liabilities--Note F (2,870)
---------
433
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 10,251,237 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $102,623
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.01
================================================================================
</TABLE>
+ See Note A to Financial Statements.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $106,069 $10.35
Undistributed Net Investment
Income -- --
Accumulated Net Realized
Losses--Note D (870) (.09)
Unrealized Depreciation of
Investments--Note E (2,576) (.25)
--------------------------------------------------------------------------------
NET ASSETS $102,623 $10.01
--------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Market
Value
BALANCED PORTFOLIO Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (63.0%)
--------------------------------------------------------------------------------
BASIC MATERIALS (12.3%)
Aluminum Co. of America 67,000 $ 2,772
British Steel PLC ADR 57,400 1,507
Cabot Corp. 22,600 833
Dow Chemical 36,000 2,628
E.I. du Pont de Nemours & Co. 53,300 3,225
Eastman Chemical 6,025 335
Georgia-Pacific Corp. 25,200 2,010
International Paper Co. 24,500 1,841
J&L Specialty Steel Inc. 37,000 735
Kimberly-Clark Corp. 56,600 2,943
Norsk Hydro AS ADR 19,900 741
PPG Industries, Inc. 47,200 1,782
Rayonier Inc. 10,000 311
Reynolds Metals Co. 24,700 1,217
Temple-Inland Inc. 39,000 1,750
USX-U.S. Steel Group 24,900 840
Westvaco Corp. 37,300 1,548
Willamette Industries, Inc. 25,400 1,365
Witco Chemical Corp. 40,000 1,175
---------
GROUP TOTAL 29,558
---------
--------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (5.5%)
General Electric Co. 89,600 4,850
Honeywell, Inc. 76,800 2,870
Northrop Grumman Corp. 65,500 3,201
Thomas & Betts Corp. 8,200 531
United Technologies Corp. 20,800 1,438
WMX Technologies Inc. 10,000 275
---------
GROUP TOTAL 13,165
---------
--------------------------------------------------------------------------------
CONSUMER CYCLICAL (6.2%)
Brunswick Corp. 62,000 1,248
Eastman Kodak Co. 20,100 1,068
Ford Motor Co. 109,500 2,956
General Motors Corp. 87,000 3,850
May Department Stores Co. 37,800 1,398
J.C. Penney Co., Inc. 40,000 1,795
Sears, Roebuck & Co. 45,052 2,405
---------
GROUP TOTAL 14,720
---------
--------------------------------------------------------------------------------
CONSUMER STAPLES (.6%)
SuperValu, Inc. 49,900 1,335
---------
--------------------------------------------------------------------------------
ENERGY (8.9%)
Amerada Hess Corp. 38,000 1,876
Amoco Corp. 10,400 662
Ashland Inc. 15,400 549
Atlantic RichPeld Co. 18,000 2,070
Chevron Corp. 19,600 941
Exxon Corp. 50,300 3,357
Kerr-McGee Corp. 20,200 1,030
Mobil Corp. 31,900 2,955
Pennzoil Co. 10,700 507
Phillips Petroleum Co. 30,800 1,128
Repsol SA ADR 40,400 1,172
Royal Dutch Petroleum Co. ADR 13,700 1,644
Texaco, Inc. 25,000 1,663
USX-Marathon Group 22,200 388
Unocal Corp. 50,500 1,452
---------
GROUP TOTAL 21,394
---------
--------------------------------------------------------------------------------
FINANCIAL (13.0%)
Allstate Corp. 100,000 2,875
Banc One Corp. 105,247 3,000
The Bank of New York Co., Inc. 118,400 3,892
BankAmerica Corp. 35,000 1,689
Citicorp 79,000 3,358
CoreStates Financial Corp. 67,540 2,161
First Bank System, Inc. 87,000 3,513
First Union Corp. 24,532 1,064
General Re Corp. 29,700 3,920
Keycorp 50,136 1,416
Norwest Corp. 84,600 2,147
Wachovia Corp. 59,800 2,123
---------
GROUP TOTAL 31,158
---------
--------------------------------------------------------------------------------
HEALTH CARE (7.7%)
Abbott Laboratories, Inc. 64,600 2,301
American Home Products Corp. 41,000 2,921
C.R. Bard, Inc. 3,000 83
Baxter International, Inc. 87,100 2,852
Bristol-Myers Squibb Co. 36,200 2,281
Johnson & Johnson 50,000 2,975
Pfizer, Inc. 49,500 4,245
Zeneca Group ADR 16,399 695
---------
GROUP TOTAL 18,353
---------
--------------------------------------------------------------------------------
TECHNOLOGY (1.5%)
Xerox Corp. 30,000 3,521
---------
--------------------------------------------------------------------------------
TRANSPORT & SERVICES (3.0%)
British Airways PLC ADR 33,250 2,186
Canadian Pacific Ltd. 125,500 1,869
Norfolk Southern Corp. 15,400 1,030
Union Pacific Corp. 35,800 1,969
---------
GROUP TOTAL 7,054
---------
--------------------------------------------------------------------------------
UTILITIES (2.7%)
AT&T Corp. 25,000 1,294
Bell Atlantic Corp. 10,000 528
Entergy Corp. 37,000 772
NYNEX Corp. 17,600 697
Pacific Telesis Group 13,300 402
</TABLE>
17
<PAGE> 18
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
PECO Energy Corp. 25,100 $ 631
SBC Communications, Inc. 29,200 1,230
U.S. West Inc. 24,100 964
---------
GROUP TOTAL 6,518
---------
--------------------------------------------------------------------------------
MISCELLANEOUS (1.6%)
Hanson PLC ADR 113,000 2,133
Minnesota Mining &
Manufacturing Co. 30,400 1,767
---------
GROUP TOTAL 3,900
---------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $130,931) 150,676
--------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (1.7%)
--------------------------------------------------------------------------------
Alumax Inc. $4.00 6,334 730
Bethlehem Steel Corp. $3.50 10,000 458
Cyprus Amax $4.00 11,666 723
Ford Motor Co. $4.20 6,900 605
Norwest Corp. $3.50 12,500 866
Reynolds Metals $3.31 16,100 763
--------------------------------------------------------------------------------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $3,741) 4,145
--------------------------------------------------------------------------------
CORPORATE BONDS (18.4%)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
---------
<S> <C> <C>
ASSET-BACKED (.4%)
Sears Roebuck & Co.
8.60%, 5/15/98 $ 822 836
---------
--------------------------------------------------------------------------------
FINANCE (4.0%)
American Express Credit
5.375%, 7/16/01 1,000 904
Associates Corp.
5.25%, 9/1/98 1,000 934
BankAmerica Corp.
7.20%, 4/15/06 1,000 936
Chase Manhattan Corp.
7.75%, 11/1/99 1,000 997
Chemical Bank
8.625%, 5/1/02 1,000 1,036
Countrywide Funding MTN
5.14%, 3/29/96 1,000 984
Dean Witter Discover & Co.
6.75%, 10/15/13 1,000 842
General Motors Acceptance
Corp. MTN
8.50%, 1/1/03 1,000 1,026
Salomon Inc. MTN
6.55%, 12/26/95 1,000 996
Wells Fargo & Co.
6.125%, 11/1/03 1,000 885
---------
GROUP TOTAL 9,540
---------
--------------------------------------------------------------------------------
INDUSTRIAL (8.3%)
American Home Products
7.25%, 3/1/23 1,000 903
Baxter International
9.25%, 9/15/96 1,000 1,026
British Petroleum
7.875%, 5/15/02 1,000 1,016
Coca-Cola Enterprises, Inc.
8.50%, 2/1/22 1,000 1,036
Exxon Capital Corp.
6.00%, 7/1/05 1,000 890
Georgia Pacific
9.625%, 3/15/22 1,000 1,056
Harsco Corp.
8.75%, 5/15/96 1,000 1,016
International Business
Machines Corp.
6.375%, 11/1/97 1,000 980
International Paper Co.
6.125%, 11/1/03 1,000 897
McDonald's Corp.
7.375%, 7/15/33 1,000 913
J.C. Penney Co., Inc.
6.00%, 5/1/06 1,000 865
Philips Electronics
7.75%, 4/15/04 1,000 982
Procter & Gamble
9.36%, 1/1/21 1,000 1,129
Sears, Roebuck & Co.
9.375%, 11/1/11 1,000 1,101
TRW Inc.
9.375%, 4/15/21 1,000 1,122
Temple Inland
9.00%, 5/1/01 1,000 1,052
United Parcel Service
8.375%, 4/1/20 2,000 2,093
WMX Technologies
6.375%, 12/1/03 1,000 908
Wal-Mart Stores, Inc.
7.25%, 6/1/13 1,000 931
---------
GROUP TOTAL 19,916
---------
--------------------------------------------------------------------------------
UTILITIES (5.7%)
AT&T Corp.
7.75%, 3/1/07 1,000 1,002
Baltimore Gas & Electric
5.50%, 4/15/04 1,000 850
BellSouth Telecommunications
7.50%, 6/15/33 1,000 912
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Carolina Power & Light
6.75%, 10/1/02 $ 1,000 $ 949
Duke Power Co.
7.00%, 7/1/33 1,000 857
Illinois Bell Telephone Co.
6.625%, 2/1/25 1,000 823
New Jersey Bell Telephone
8.00%, 6/1/22 1,000 997
New York Telephone
7.25%, 2/15/24 1,000 880
Pacific Gas & Electric
6.25%, 8/1/03 1,000 905
Southern California Gas
5.75%, 11/15/03 1,000 873
Texas Utilities Co.
7.875%, 4/1/24 1,000 925
US West Communications
6.875%, 9/15/33 1,000 833
Union Electric Co.
7.375%, 12/15/04 1,000 971
Virginia Electric & Power
8.00%, 3/1/04 1,000 1,016
Wisconsin Electric Power
7.70%, 12/15/27 1,000 943
---------
GROUP TOTAL 13,736
---------
--------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $46,013) 44,028
--------------------------------------------------------------------------------
FOREIGN BONDS (.7%)
--------------------------------------------------------------------------------
Italy Global Bond
6.875%, 9/27/23 1,000 803
Toronto Dominion Bank
6.45%, 1/15/09 1,000 867
--------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(Cost $1,911) 1,670
--------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (13.1%)
--------------------------------------------------------------------------------
Federal Home Loan Bank
7.66%, 7/20/04 1,000 1,010
U.S. Treasury Bonds
7.125%, 2/15/23 11,000 10,483
7.25%, 5/15/16 500 483
7.50%, 11/15/16 8,000 7,939
U.S. Treasury Notes
7.25%, 8/15/04 2,000 2,000
7.75%, 12/31/99 5,000 5,129
7.875%, 11/15/04 4,000 4,172
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (Cost $32,289) 31,216
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.6%)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account, 6.27%, 4/3/95
(Cost $3,950) 3,950 3,950
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (98.5%)
(Cost $218,835) 235,685
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (1.5%)
--------------------------------------------------------------------------------
Other Assets--Notes C and F 10,665
Liabilities--Note F (7,183)
---------
3,482
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 20,352,629 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $239,167
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.75
================================================================================
</TABLE>
+ See Note A to Financial Statements.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $221,115 $10.86
Undistributed Net
Investment Income 2,552 .13
Accumulated Net
Realized Losses (1,350) (.07)
Unrealized Appreciation
of Investments--Note E 16,850 .83
--------------------------------------------------------------------------------
NET ASSETS $239,167 $11.75
--------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 20
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
EQUITY INDEX PORTFOLIO Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.7%)(1)
--------------------------------------------------------------------------------
General Electric Co. 93,612 $ 5,067
Exxon Corp. 67,994 4,539
AT&T Corp. 85,487 4,424
The Coca-Cola Co. 70,374 3,976
Royal Dutch Petroleum Co. ADR 29,373 3,525
Wal-Mart Stores, Inc. 125,734 3,206
Philip Morris Cos., Inc. 46,952 3,064
Merck & Co., Inc. 68,725 2,929
International Business
Machines Corp. 32,143 2,632
Procter & Gamble Co. 37,486 2,483
* Microsoft Corp. 31,900 2,265
E.I. du Pont de Nemours & Co. 37,242 2,253
Johnson & Johnson 35,234 2,096
Mobil Corp. 21,704 2,010
Intel Corp. 22,600 1,915
General Motors Corp. 41,101 1,819
American International Group, Inc. 17,287 1,802
Motorola, Inc. 32,156 1,757
Bristol-Myers Squibb Co. 27,852 1,755
GTE Corp. 52,639 1,750
Amoco Corp. 27,110 1,725
Chevron Corp. 35,714 1,714
PepsiCo, Inc. 43,476 1,696
Hewlett-Packard Co. 13,895 1,673
BellSouth Corp. 27,065 1,610
Abbott Laboratories, Inc. 44,216 1,575
The Walt Disney Co. 28,440 1,518
Ford Motor Co. 55,668 1,503
Pfizer, Inc. 17,161 1,472
SBC Communications, Inc. 32,700 1,377
Minnesota Mining &
Manufacturing Co. 22,982 1,336
McDonald's Corp. 38,136 1,301
Bell Atlantic Corp. 23,786 1,255
Ameritech Corp. 30,156 1,244
Federal National Mortgage Assn. 14,947 1,216
American Home Products Corp. 16,728 1,192
Eli Lilly & Co. 16,087 1,176
Unilever NV ADR 8,720 1,145
Sears, Roebuck & Co. 21,187 1,131
Dow Chemical Co. 15,140 1,105
Home Depot, Inc. 24,712 1,094
Atlantic RichPeld Co. 8,823 1,015
The Boeing Co. 18,687 1,007
U.S. West Inc. 24,930 997
Eastman Kodak Co. 18,649 991
Gillette Co. 12,036 982
BankAmerica Corp. 20,341 981
American Express Co. 27,672 965
Texaco, Inc. 14,117 939
NYNEX Corp. 23,198 919
Citicorp 21,465 912
Columbia/HCA Healthcare Corp. 19,700 847
Anheuser-Busch Co., Inc. 14,164 830
Viacom International Class B 18,444 825
Chrysler Corp. 19,450 814
Emerson Electric Co. 12,247 814
Schlumberger Ltd. 13,277 792
Time Warner, Inc. 20,860 787
Schering-Plough Corp. 10,354 770
NationsBank, Inc. 15,125 768
MCI Communications Corp. 37,012 759
Capital Cities/ABC, Inc. 8,440 745
* Airtouch Communications 27,098 738
* Oracle Systems Corp. 23,304 725
WMX Technologies Inc. 26,375 725
Southern Co. 35,564 725
Kellogg Co. 12,082 705
* Tele-Communications Inc. Class A 33,386 697
Pacific Telesis Group 22,998 696
Sara Lee Corp. 26,424 690
Travelers Inc. 17,613 680
Xerox Corp. 5,785 679
* Lockheed Martin Corp. 12,469 659
Campbell Soup Co. 13,506 653
The Seagram Co. Ltd. 20,352 646
J.P. Morgan & Co., Inc. 10,406 635
Banc One Corp. 22,028 628
Union Pacific Corp. 11,200 616
Caterpillar, Inc. 11,004 612
Allied-Signal, Inc. 15,540 610
Federal Home Loan Mortgage Corp. 9,900 599
ITT Corp. 5,829 598
General Re Corp. 4,475 591
Pacific Gas & Electric Co. 23,443 583
Sprint Corp. 19,129 579
Warner-Lambert Co. 7,369 577
J.C. Penney Co., Inc. 12,666 568
* Cisco Systems, Inc. 14,200 540
Phillips Petroleum Co. 14,419 528
Archer-Daniels-Midland Co. 28,262 526
Northern Telecom Ltd. 13,887 526
Colgate-Palmolive Co. 7,966 526
H.J. Heinz Co. 13,614 524
Computer Associates
International, Inc. 8,765 520
General Mills, Inc. 8,630 515
Chemical Banking Corp. 13,624 514
International Paper Co. 6,819 512
Baxter International, Inc. 15,572 510
Monsanto Co. 6,353 510
May Department Stores Co. 13,692 507
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Raytheon Co. 6,762 $ 493
The Dun & Bradstreet Corp. 9,358 492
Automatic Data Processing, Inc. 7,778 490
Norfolk Southern Corp. 7,315 489
* COMPAQ Computer Corp. 14,013 483
* Amgen, Inc. 7,200 483
Barrick Gold Corp. 19,000 475
United Technologies Corp. 6,843 473
Rockwell International Corp. 11,973 467
Tenneco, Inc. 9,847 464
Enron Corp. 13,904 459
The Limited, Inc. 19,721 456
Wells Fargo & Co. 2,903 454
Kimberly-Clark Corp. 8,720 453
Albertson's, Inc. 13,936 449
Corning, Inc. 12,470 449
CSX Corp. 5,697 449
Texas Instruments, Inc. 5,064 448
ConAgra, Inc. 13,417 444
Merrill Lynch & Co., Inc. 10,302 439
CPC International, Inc. 8,102 439
PPG Industries, Inc. 11,524 435
United Healthcare Corp. 9,300 435
Medtronic, Inc. 6,240 433
American Brands, Inc. 10,997 432
Weyerhaeuser Co. 11,103 432
Norwest Corp. 16,934 430
Duke Power Co. 11,105 428
Micron Technology Inc. 5,500 418
First Union Corp. 9,618 417
Gannett Co., Inc. 7,720 412
AMP, Inc. 11,424 411
Aluminum Co. of America 9,740 403
* Toys R Us, Inc. 15,376 394
Texas Utilities Co. 12,399 394
Georgia-Pacific Corp. 4,874 389
Unocal Corp. 13,469 387
U.S. Healthcare, Inc. 8,700 383
SCEcorp 24,374 381
* Novell, Inc. 20,100 379
Dean Witter Discover & Co. 9,308 379
Deere & Co. 4,652 378
American General Corp. 11,676 377
The Chubb Corp. 4,764 376
Occidental Petroleum Corp. 17,091 374
KeyCorp 13,202 373
FPL Group, Inc. 10,216 372
Public Service Enterprise Group Inc. 13,436 368
Browning-Ferris Industries, Inc. 10,806 367
Scott Paper Co. 4,047 362
The Chase Manhattan Corp. 10,136 361
McDonnell Douglas Corp. 6,431 359
Aetna Life & Casualty Co. 6,122 349
Consolidated Edison Co.
of New York, Inc. 12,757 348
UST, Inc. 10,928 347
SunTrust Banks, Inc. 6,454 345
First Data Corp. 6,600 342
First Interstate Bancorp. 4,324 342
Kmart Corp. 24,800 341
Dominion Resources, Inc. 9,409 339
Upjohn Co. 9,454 338
The Bank of New York Co., Inc. 10,200 335
Marsh & McLennan Cos., Inc. 4,047 332
Wachovia Corp. 9,300 330
Walgreen Co. 6,746 325
Air Products & Chemicals, Inc. 6,224 324
Mellon Bank Corp. 7,932 323
Alcan Aluminium Ltd. 12,048 321
American Electric Power Co., Inc. 10,069 320
Placer Dome Group, Inc. 13,073 319
International Flavors &
Fragrances, Inc. 6,128 316
PNC Bank Corp. 12,880 314
Pitney Bowes, Inc. 8,614 310
Hercules, Inc. 6,582 307
PECO Energy Corp. 12,131 305
Mattel, Inc. 12,247 302
Lowes Cos., Inc. 8,692 300
Illinois Tool Works, Inc. 6,120 299
The Goodyear Tire & Rubber Co. 8,134 299
PacifiCorp 15,306 297
ALLTEL Corp. 10,300 296
CIGNA Corp. 3,944 295
Nike, Inc. Class B 3,950 295
Rubbermaid, Inc. 8,920 294
* Digital Equipment Corp. 7,744 293
R.R. Donnelley & Sons Co. 8,410 289
Burlington Northern, Inc. 4,852 288
Burlington Resources, Inc. 6,900 281
Wm. Wrigley, Jr. Co. 6,334 281
The Gap, Inc. 7,884 280
Unicom Corp. 11,725 278
NBD Bancorp, Inc. 8,519 277
Houston Industries, Inc. 7,256 277
Textron, Inc. 4,871 276
W.R. Grace & Co. 5,172 275
Westinghouse Electric Corp. 19,483 275
USX-Marathon Group 15,709 275
Dayton-Hudson Corp. 3,842 275
* AMR Corp. 4,235 274
* Silicon Graphics, Inc. 7,700 273
Nucor Corp. 4,772 268
Sysco Corp. 10,070 264
</TABLE>
21
<PAGE> 22
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Genuine Parts Co. 6,629 $ 264
Ralston-Purina Group 5,523 264
Honeywell, Inc. 6,984 261
Entergy Corp. 12,176 254
Central & South West Corp. 10,376 252
Union Carbide Corp. 8,152 250
TRW, Inc. 3,622 249
* Applied Materials, Inc. 4,500 248
First Chicago Corp. 4,932 247
Eastman Chemical 4,412 245
Quaker Oats Co. 7,404 245
Amerada Hess Corp. 4,962 245
Cooper Industries, Inc. 6,319 245
CoreStates Financial Corp. 7,618 244
Fleet Financial Group, Inc. 7,519 243
H & R Block, Inc. 5,612 243
Hershey Foods Corp. 4,681 239
Barnett Banks, Inc. 5,327 242
Marriott International 6,887 239
Conrail, Inc. 4,262 239
Masco Corp. 8,596 237
Great Lakes Chemical Corp. 3,800 237
MBNA Corp. 8,100 235
Morton International, Inc. 8,088 235
Household International, Inc. 5,342 232
Carolina Power & Light Co. 8,522 231
Avon Products, Inc. 3,814 231
Eaton Corp. 4,236 230
Halliburton Co. 6,314 230
Apple Computer, Inc. 6,534 230
Transamerica Corp. 4,053 230
St. Paul Cos., Inc. 4,568 228
Bankers Trust New York Corp. 4,362 228
Whirlpool Corp. 4,139 227
Champion International Corp. 5,186 224
Phelps Dodge Corp. 3,938 224
First Fidelity Bancorp. 4,519 224
CBS, Inc. 3,495 224
Winn Dixie Stores, Inc. 3,955 221
Newell Co. 8,638 220
Alco Standard Corp. 2,982 216
Fluor Corp. 4,461 215
Becton, Dickinson & Co. 3,952 214
Rohm & Haas Co. 3,633 214
Detroit Edison Co. 7,794 213
National City Corp. 8,000 213
Lincoln National Corp. 5,266 212
Tyco International Ltd. 3,994 211
* Federal Express Corp. 3,107 210
* Crown Cork & Seal Co., Inc. 4,774 209
Melville Corp. 5,606 209
Dresser Industries, Inc. 9,768 208
Newmont Mining Corp. 4,836 207
* Promus Co. Inc. 5,509 207
Tribune Co. 3,728 206
* DSC Communications Corp. 6,262 204
Dover Corp. 3,122 202
American Stores Co. 7,876 202
Tandy Corp. 4,175 199
CINergy Corp. 7,946 198
Salomon, Inc. 5,822 197
Dow Jones & Co., Inc. 5,202 197
Loral Corp. 4,602 196
Union Electric Corp. 5,500 195
Union Camp Corp. 3,737 194
McGraw-Hill, Inc. 2,698 194
Hilton Hotels Corp. 2,595 192
Safeco Corp. 3,526 192
Consolidated Natural Gas Co. 4,972 192
UNUM Corp. 4,200 190
Providian Corp. 5,380 189
Ingersoll-Rand Co. 5,708 188
VF Corp. 3,514 187
Baltimore Gas & Electric Co. 7,850 185
Santa Fe Pacific Corp. 8,030 185
Panhandle Eastern Corp. 7,980 184
General Public Utilities Corp. 6,300 183
* Sun Microsystems, Inc. 5,200 179
* Advanced Micro Devices, Inc. 5,265 178
Shawmut National Corp. 6,753 178
* Boston Scientific Corp. 7,232 178
The Mead Corp. 3,317 178
Nordstrom, Inc. 4,364 176
Clorox Co. 2,908 174
Bank of Boston Corp. 5,848 174
* Price/Costco Inc. 11,856 173
* National Medical Enterprises, Inc. 10,918 173
Inco Ltd. 6,209 173
Louisiana-Pacific Corp. 6,216 172
Pioneer Hi Bred International 4,800 172
Boatmen's Bancshares, Inc. 5,650 171
W.W. Grainger, Inc. 2,708 171
Delta Air Lines, Inc. 2,699 169
Praxair, Inc. 7,252 169
* The Kroger Co. 6,372 168
Reebok International Ltd. 4,681 167
Dillard Department Stores Class A 6,022 166
Ohio Edison Co. 8,305 166
Jefferson-Pilot Corp. 2,805 166
Sherwin-Williams Co. 4,873 165
Williams Cos., Inc. 5,366 164
Torchmark Corp. 3,954 164
Knight-Ridder, Inc. 2,899 164
Reynolds Metals Co. 3,319 163
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Sun Co., Inc. 5,713 $163
Harcourt General, Inc. 4,139 161
Coastal Corp. 5,607 161
Hasbro, Inc. 4,769 161
Interpublic Group of Cos., Inc. 4,300 161
Northern States Power Co.
of Minnesota 3,625 160
Baker Hughes, Inc. 7,775 158
General Dynamics Corp. 3,366 158
Premark International, Inc. 3,522 155
Westvaco Corp. 3,731 155
Mallinckrodt Group, Inc. 4,550 154
Engelhard Corp. 4,999 148
* Computer Sciences Corp. 2,996 148
Sonat, Inc. 4,772 143
Kerr-McGee Corp. 2,798 143
Cyprus Amax Minerals Co. 5,015 142
Circuit City Stores, Inc. 5,384 142
USX-U.S. Steel Group 4,201 142
Service Corp. International 5,036 141
Temple-Inland Inc. 3,110 140
U.S. Bancorp 5,331 139
Dana Corp. 5,364 137
Northrop Grumman Corp. 2,794 137
Great Western Financial Corp. 7,257 136
Pall Corp. 6,462 136
Homestake Mining Co. 7,298 135
Southwest Airlines Co. 7,500 134
Times Mirror Co. Class A 6,957 134
Black & Decker Corp. 4,623 133
Woolworth Corp. 7,259 133
Laidlaw Inc. Class B 15,000 131
Golden West Financial Corp. 3,427 131
The Dial Corp. 5,158 131
New York Times Co. Class A 5,652 131
Nalco Chemical Co. 3,838 129
Avery Dennison Corp. 3,224 129
Deluxe Corp. 4,469 127
Cooper Tire & Rubber Co. 4,464 127
Brown-Forman Corp. Class B 3,765 126
* FMC Corp. 2,070 125
* Western Atlas Inc. 2,784 120
Echlin, Inc. 3,112 120
American Greetings Corp. Class A 4,026 120
Parker Hannifin Corp. 2,696 119
James River Corp. 4,563 119
Ashland Inc. 3,315 118
Pennzoil Co. 2,480 117
Comcast Corp. Class A 7,531 117
H.F. Ahmanson & Co. 6,433 116
Pacific Enterprises 4,641 115
Rite Aid Corp. 4,666 114
Beneficial Corp. 2,904 114
* Stone Container Corp. 4,954 113
Autodesk, Inc. 2,698 113
* National Semiconductor Corp. 6,407 112
Bausch & Lomb, Inc. 3,118 111
Whitman Corp. 5,806 111
* St. Jude Medical, Inc. 2,594 111
Johnson Controls, Inc. 2,179 111
Allergan, Inc. 3,700 109
Manor Care Inc. 3,514 107
SuperValu, Inc. 3,951 106
Niagara Mohawk Power Corp. 7,672 105
Moore Corp. Ltd. 5,392 105
Ryder System, Inc. 4,347 104
Harris Corp. 2,178 104
* Biomet, Inc. 6,224 104
Roadway Services, Inc. 2,177 104
The Stanley Works 2,584 102
Maytag Corp. 5,912 101
Cummins Engine Co., Inc. 2,260 101
Raychem Corp. 2,475 101
Brunswick Corp. 4,977 100
Sigma Aldrich Corp. 2,600 100
Pep Boys (Manny, Moe & Jack) 3,211 100
* Tandem Computers, Inc. 6,413 99
Scientific-Atlanta, Inc. 4,234 99
Worthington Industries, Inc. 4,877 96
* ALZA Corp. 4,530 96
General Signal Corp. 2,678 95
* Bethlehem Steel Corp. 5,852 94
* Lotus Development Corp. 2,485 94
Wendy's International, Inc. 5,694 93
Mercantile Stores Co., Inc. 2,074 93
Ecolab, Inc. 3,794 92
Paccar, Inc. 2,148 90
Armstrong World Industries Inc. 1,974 90
Boise Cascade Corp. 2,576 90
* Varity Corp. 2,349 89
* Santa Fe Pacific Gold Corp. 7,047 89
Comcast Corp. Class A Special 5,715 89
* Andrew Corp. 2,185 88
Polaroid Corp. 2,500 87
Millipore Corp. 1,556 87
* Owens-Corning Fiberglas Corp. 2,281 82
* Unisys Corp. 8,724 81
E-Systems, Inc. 1,762 80
Snap-On Inc. 2,183 80
Bemis Co., Inc. 2,702 79
McDermott International, Inc. 2,888 79
* Clark Equipment Co. 935 77
* Columbia Gas Systems, Inc. 2,601 77
Teledyne Inc. 2,911 76
</TABLE>
23
<PAGE> 24
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
* Ceridian Corp. 2,285 $ 76
C.R. Bard, Inc. 2,706 75
Giant Food, Inc. Class A 3,118 75
Liz Claiborne, Inc. 4,170 74
* Amdahl Corp. 6,720 74
* King World Productions, Inc. 1,876 74
Thomas & Betts Corp. 1,134 74
NICOR, Inc. 2,916 73
Perkin-Elmer Corp. 2,466 72
USF&G Corp. 5,068 71
Russell Corp. 2,381 71
United States Surgical Corp. 3,100 71
Foster Wheeler Corp. 2,071 70
Louisiana Land & Exploration Co. 1,856 70
Harnischfeger Industries Inc. 2,463 69
* Oryx Energy Co. 5,459 69
Federal Paper Board Co., Inc. 2,380 68
* Inland Steel Industries, Inc. 2,462 68
National Service Industries, Inc. 2,499 68
Potlatch Corp. 1,558 66
ASARCO, Inc. 2,482 66
The BF Goodrich Co. 1,451 64
Echo Bay Mines Ltd. 6,098 63
Tektronix, Inc. 1,558 62
* Beverly Enterprises Inc. 4,246 62
Fleetwood Enterprises, Inc. 2,488 59
Pittston Services Group 2,075 57
Alexander & Alexander Services, Inc. 2,381 56
Ogden Corp. 2,785 56
The Timkin Co. 1,559 55
* Continental Corp. 2,809 55
Briggs & Stratton Corp. 1,458 54
Crane Co. 1,763 54
Ball Corp. 1,544 53
Consolidated Freightways, Inc. 1,970 53
* Navistar International Corp. 4,080 52
USLIFE Corp. 1,346 51
Jostens Inc. 2,581 51
ENSERCH Corp. 3,430 51
Trinova Corp. 1,656 51
TJX Cos., Inc. 3,840 51
Safety-Kleen Corp. 2,812 50
Great Atlantic & Pacific Tea Co., Inc. 2,176 49
Alberto-Culver Co. Class B 1,657 49
* Viacom International Class A 1,056 48
EG & G, Inc. 3,212 48
Shared Medical Systems Corp. 1,245 46
Peoples Energy Corp. 1,766 44
Meredith Corp. 1,668 43
* Santa Fe Energy Resources Inc. 4,428 43
Fleming Cos., Inc. 1,861 42
Longs Drug Stores, Inc. 1,240 41
Cincinnati Milacron, Inc. 1,755 40
Centex Corp. 1,660 40
NorAm Energy Corp. 7,130 38
John H. Harland Co. 1,675 38
Maxus Energy Corp. 6,800 38
Helmerich & Payne, Inc. 1,349 37
Stride Rite Corp. 2,802 35
Eastern Enterprises 1,245 35
Pulte Corp. 1,447 34
Adolph Coors Co. Class B 2,075 34
Bruno's Inc. 3,750 34
* Armco, Inc. 4,877 34
Community Psychiatric Centers 2,594 33
* Intergraph Corp. 2,796 33
* Rowan Cos., Inc. 5,045 33
Springs Industries Inc. Class A 835 31
Luby's Cafeterias, Inc. 1,455 31
Giddings & Lewis, Inc. 1,800 31
Charming Shoppes, Inc. 5,600 30
First Mississippi Corp. 1,039 27
* Cray Research, Inc. 1,453 27
Outboard Marine Corp. 1,239 26
* Bally Entertainment Corp. 2,861 24
Brown Group, Inc. 835 24
ONEOK, Inc. 1,253 24
Yellow Corp. 1,456 23
NACCO Industries, Inc. Class A 418 23
Kaufman & Broad Home Corp. 1,855 22
* Ryan's Family Steak Houses, Inc. 3,205 22
* Shoney's Inc. 1,977 21
* Zenith Electronics Corp. 2,358 18
* USAir Group, Inc. 2,890 18
* Data General Corp. 2,361 18
Bassett Furniture Industries, Inc. 652 17
* M/A-Com, Inc. 1,648 16
Handleman Co. 1,466 16
Cox Communications Class A 905 15
Zurn Industries, Inc. 625 12
* Morrison-Knudsen Co., Inc. 1,846 11
Skyline Corp. 622 11
Oshkosh B Gosh, Inc. Class A 729 10
* Hartmarx Corp. 1,740 9
SPX Corp. 528 8
Strattec Strategy Corp. 291 3
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $171,130) 200,740
--------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Face Market
Amount Value
(000) (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (5.3%)
--------------------------------------------------------------------------------
U.S. TREASURY BILL--Note E
5.77%, 6/22/95 $ 600 $ 592
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
6.27%, 4/3/95 10,638 10,638
--------------------------------------------------------------------------------
TOTAL TEMPORARY CASH
INVESTMENTS (Cost $11,230) 11,230
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $182,360) 211,970
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Other Assets--Notes C and F 1,036
Liabilities--Note F (970)
---------
66
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 15,851,378 outstanding
shares of beneficial interest
(unlimited authorization-no par value) $ 212,036
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $13.38
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
(1) The combined market value of common stocks and Standard & Poor's 500
Index Futures Contracts represents 100.0% of net assets.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $180,109 $11.36
Undistributed Net
Investment Income 1,841 .12
Accumulated Net
Realized Gains 298 .02
Unrealized Appreciation of
Investments--Note E 29,788 1.88
--------------------------------------------------------------------------------
NET ASSETS $212,036 $13.38
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
EQUITY INCOME PORTFOLIO Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.6%)
--------------------------------------------------------------------------------
BASIC MATERIALS (5.6%)
ARCO Chemical Co. 23,600 $ 1,050
Dow Chemical Co. 20,200 1,475
E.I. du Pont de Nemours & Co. 6,800 411
Monsanto Co. 7,500 602
Potlatch Corp. 3,600 152
Union Camp Corp. 8,100 420
Weyerhaeuser Co. 1,600 62
---------
GROUP TOTAL 4,172
---------
--------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (.6%)
Thomas & Betts Corp. 6,500 421
---------
--------------------------------------------------------------------------------
CONSUMER CYCLICALS (8.3%)
Deluxe Corp. 10,800 308
The Dun & Bradstreet Corp. 21,500 1,131
Eastman Kodak Co. 26,700 1,418
John H. Harland Co. 16,200 367
Kmart Corp. 85,000 1,169
McGraw-Hill, Inc. 4,000 287
Melville Corp. 8,500 317
National Service Industries, Inc. 5,400 146
J.C. Penney Co., Inc. 7,500 337
Woolworth Corp. 37,300 685
---------
GROUP TOTAL 6,165
---------
--------------------------------------------------------------------------------
CONSUMER STAPLES (7.2%)
American Brands, Inc. 42,500 1,668
Clorox Co. 7,000 420
General Mills, Inc. 2,400 143
H.J. Heinz Co. 9,100 350
Philip Morris Cos., Inc. 29,700 1,938
SuperValu, Inc. 5,800 155
Tambrands, Inc. 12,600 562
UST, Inc. 4,500 143
---------
GROUP TOTAL 5,379
---------
--------------------------------------------------------------------------------
ENERGY (15.9%)
Amoco Corp. 11,800 751
Atlantic RichPeld Co. 16,300 1,875
Chevron Corp. 37,300 1,790
Exxon Corp. 29,000 1,936
Mobil Corp. 20,600 1,908
Royal Dutch Petroleum Co. ADR 3,900 468
Sun Co., Inc. 22,800 650
Texaco, Inc. 27,600 1,835
USX-Marathon Group 32,300 565
---------
GROUP TOTAL 11,778
---------
--------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 26
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL (15.1%)
Aetna Life & Casualty Co. 16,400 $ 935
H.F. Ahmanson & Co. 39,000 702
American Express Co. 18,600 649
American General Corp. 16,700 539
Banc One Corp. 12,900 368
BankAmerica Corp. 1,600 77
Bankers Trust New York Corp. 12,600 658
Barnett Banks, Inc. 4,200 191
Boatmen's Bancshares, Inc. 10,500 318
CIGNA Corp. 21,700 1,622
* Continental Corp. 21,700 426
CoreStates Financial Corp. 15,300 490
First Union Corp. 8,100 351
Great Western Financial Corp. 56,800 1,065
Lincoln National Corp. 6,500 262
Mellon Bank Corp. 6,350 259
J.P. Morgan & Co., Inc. 11,600 708
NBD Bancorp, Inc. 9,600 312
NationsBank, Inc. 5,600 284
PNC Bank Corp. 24,100 587
U.S. Bancorp 7,400 192
Wachovia Corp. 6,300 224
---------
GROUP TOTAL 11,219
---------
--------------------------------------------------------------------------------
HEALTH CARE (12.9%)
American Home Products Corp. 27,600 1,967
Baxter International, Inc. 10,800 354
Bristol-Myers Squibb Co. 35,300 2,224
Eli Lilly & Co. 30,400 2,223
Merck & Co., Inc. 22,300 951
Upjohn Co. 38,800 1,387
Warner-Lambert Co. 5,700 446
---------
GROUP TOTAL 9,552
---------
--------------------------------------------------------------------------------
UTILITIES (28.2%)
Allegheny Power System, Inc. 24,700 559
Ameritech Corp. 38,400 1,584
Baltimore Gas & Electric Co. 23,700 560
Bell Atlantic Corp. 27,200 1,435
BellSouth Corp. 18,400 1,095
Central & South West Corp. 18,600 451
Consolidated Edison Co.
of New York, Inc. 15,500 422
Consolidated Natural Gas Co. 25,800 996
Dominion Resources, Inc. 9,700 349
Duke Power Co. 6,500 250
FPL Group, Inc. 18,700 680
GTE Corp. 53,300 1,772
NICOR, Inc. 11,300 282
NorAm Energy Corp. 34,400 185
Northern States Power Co.
of Minnesota 7,500 330
NYNEX Corp. 41,100 1,628
Oklahoma Gas & Electric Co. 15,900 545
Pacific Enterprises 15,800 391
Pacific Telesis Group 16,200 490
PacifiCorp 55,900 1,083
Pennsylvania Power and Light Co. 16,200 318
Potomac Electric Power Co. 26,300 496
Public Service Enterprise Group Inc. 25,500 698
SCEcorp 45,600 713
SCANA Corp. 10,700 447
Southern New England
Telecom Corp. 8,000 267
TECO Energy, Inc. 14,100 296
Texas Utilities Co. 18,400 584
Union Electric Corp. 9,700 343
U.S. West Inc. 33,700 1,348
Wisconsin Energy Corp. 11,400 309
---------
GROUP TOTAL 20,906
---------
--------------------------------------------------------------------------------
MISCELLANEOUS (2.8%)
Hanson PLC ADR 48,500 915
Minnesota Mining &
Manufacturing Co. 3,400 198
Ogden Corp. 48,400 974
---------
GROUP TOTAL 2,087
---------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $70,303) 71,679
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.4%)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
----------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 6.27%, 4/3/95
(Cost $2,529) $ 2,529 $ 2,529
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Market
Value
(000)+
--------------------------------------------------------------------------------
<S> <C>
(Cost $72,832) 74,208
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Other Assets--Note C 463
Liabilities (467)
---------
(4)
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 7,003,404 outstanding
shares of beneficial interest
(unlimited authorization--
no par value) $74,204
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.60
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $71,745 $10.24
Undistributed Net Investment
Income 895 .13
Accumulated Net Realized Gains 188 .03
Unrealized Appreciation of
Investments--Note E 1,376 .20
--------------------------------------------------------------------------------
NET ASSETS $74,204 $10.60
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
GROWTH PORTFOLIO Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (92.4%)
--------------------------------------------------------------------------------
BASIC MATERIALS (1.0%)
Morton International, Inc. 38,700 $ 1,122
---------
--------------------------------------------------------------------------------
CAPITAL GOODS & CONSTRUCTION (7.7%)
Duracell International, Inc. 38,200 1,710
General Electric Co. 102,600 5,553
Honeywell, Inc. 18,400 688
Illinois Tool Works, Inc. 14,700 718
---------
GROUP TOTAL 8,669
---------
--------------------------------------------------------------------------------
CONSUMER CYCLICALS (16.2%)
Carnival Cruise Lines, Inc. 48,600 1,136
The Walt Disney Co. 51,700 2,759
Home Depot, Inc. 31,800 1,407
Lowes Cos., Inc. 51,600 1,780
May Department Stores Co. 41,000 1,517
McDonald's Corp. 94,700 3,232
* Mirage Resorts, Inc. 13,000 364
Nordstrom, Inc. 7,100 286
* Promus Co. Inc. 10,200 382
Wal-Mart Stores, Inc. 217,600 5,549
---------
GROUP TOTAL 18,412
---------
--------------------------------------------------------------------------------
CONSUMER STAPLES (19.7%)
The Coca-Cola Co. 94,800 5,356
Colgate-Palmolive Co. 13,500 891
Gillette Co. 47,400 3,869
Kellogg Co. 9,700 566
PepsiCo, Inc. 93,500 3,646
Philip Morris Cos., Inc. 44,200 2,884
Procter & Gamble Co. 61,900 4,101
Ralston-Purina Group 7,100 339
Unilever NV ADR 5,300 696
---------
GROUP TOTAL 22,348
---------
--------------------------------------------------------------------------------
ENERGY (1.5%)
* Renaissance Energy Ltd. 44,200 923
* Talisman Energy, Inc. 45,600 822
---------
GROUP TOTAL 1,745
---------
--------------------------------------------------------------------------------
FINANCIAL (10.8%)
AMBAC, Inc. 5,700 231
American International Group, Inc. 27,500 2,867
Chemical Banking Corp. 29,500 1,114
Federal Home Loan Mortgage Corp. 54,500 3,297
Federal National Mortgage Assn. 44,300 3,605
First Financial Management 5,200 376
Norwest Corp. 27,500 698
---------
GROUP TOTAL 12,188
---------
--------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE (9.9%)
Abbott Laboratories, Inc. 57,400 $ 2,045
American Home Products Corp. 7,700 548
Columbia/HCA Healthcare Corp. 11,600 499
Glaxo Holdings PLC ADR 24,600 563
Johnson & Johnson 38,700 2,303
Eli Lilly & Co. 17,200 1,258
Merck & Co., Inc. 26,100 1,113
Pfizer, Inc. 33,500 2,872
---------
GROUP TOTAL 11,201
---------
--------------------------------------------------------------------------------
TECHNOLOGY (17.9%)
AMP, Inc. 49,000 1,764
Automatic Data Processing, Inc. 61,100 3,849
* Cisco Systems, Inc. 65,300 2,482
General Motors Corp. Class E 75,500 2,935
Hewlett-Packard Co. 20,900 2,516
Intel Corp. 52,900 4,483
* Oracle Systems Corp. 28,400 884
Reuters Holdings PLC ADR 31,000 1,418
---------
GROUP TOTAL 20,331
---------
--------------------------------------------------------------------------------
UTILITIES (4.9%)
AT&T Corp. 86,700 4,487
MCI Communications Corp. 51,300 1,051
---------
GROUP TOTAL 5,538
---------
--------------------------------------------------------------------------------
MISCELLANEOUS (2.8%)
Alco Standard Corp. 8,800 638
Minnesota Mining &
Manufacturing Co. 42,900 2,494
---------
GROUP TOTAL 3,132
---------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $91,337) 104,686
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (10.6%)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
----------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account 6.27%, 4/3/95
(Cost $12,011) $12,011 12,011
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (103.0%)
(Cost $103,348) 116,697
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Value
(000)+
--------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-3.0%)
--------------------------------------------------------------------------------
Other Assets--Notes C and F $ 2,608
Liabilities--Note F (5,953)
---------
(3,345)
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 9,537,416 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $113,352
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $11.88
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ADR--American Depository Receipt.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
---------- ----------
<S> <C> <C>
Paid in Capital $100,148 $10.50
Undistributed Net Investment
Income 790 .08
Accumulated Net Realized
Losses--Note D (935) (.10)
Unrealized Appreciation of
Investments--Note E 13,349 1.40
--------------------------------------------------------------------------------
NET ASSETS $113,352 $11.88
--------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Market
Value
INTERNATIONAL PORTFOLIO Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (97.0%)
--------------------------------------------------------------------------------
AUSTRALIA (1.4%)
Broken Hill Proprietary Ltd. 30,000 $ 388
Mayne Nickless Ltd. 22,000 95
News Corp. Ltd. 38,000 180
News Corp. Ltd. Pfd. 19,000 81
Normandy Poseidon Ltd. 32,000 36
Western Mining Corp. 25,000 124
Woodside Petroleum Ltd. 24,000 94
---------
GROUP TOTAL 998
---------
--------------------------------------------------------------------------------
BRAZIL (1.1%)
Telebras ADR 15,341 441
Usinas Sid Minas Gerais
Usiminas ADS 30,000 344
---------
GROUP TOTAL 785
---------
--------------------------------------------------------------------------------
CHILE (.3%)
Compania de Telefonos de Chile ADR 3,200 214
---------
--------------------------------------------------------------------------------
FINLAND (.7%)
Kymmene Oy 6,000 155
Metsa Serla Oy B 3,000 110
Repola Oy 15,000 248
---------
GROUP TOTAL 513
---------
--------------------------------------------------------------------------------
FRANCE (6.4%)
Air Liquide 2,750 449
Cardif 3,200 390
Carrefour 1,400 702
Eaux (Cie Generale) 2,430 245
Paribas Compagnie Financiere A 10,000 594
Primagaz 2,000 376
Societe National Elf Aquitaine 23,750 1,848
---------
GROUP TOTAL 4,604
---------
--------------------------------------------------------------------------------
GERMANY (5.5%)
Buderus 520 271
Friedrich Grohe AG Pfd. 430 138
Muenchener Ruckver 130 235
SAP AG Pfd. 1,250 970
Veba AG 4,500 1,621
Wella AG Pfd. 1,000 688
---------
GROUP TOTAL 3,923
---------
--------------------------------------------------------------------------------
HONG KONG (5.5%)
Cheung Kong Holdings Ltd. 96,000 419
Hong Kong Electric Holdings Ltd. 155,000 496
HSBC Holdings PLC 50,000 564
Hutchison Whampoa Ltd. 159,000 701
Mandarin Oriental
International Ltd. 204,000 272
Sun Hung Kai Properties Ltd. 95,000 648
Swire Pacific Ltd. A 84,000 573
Wharf Holdings Ltd. 86,000 281
---------
GROUP TOTAL 3,954
---------
--------------------------------------------------------------------------------
INDONESIA (1.2%)
Indocement (Foreign) 57,000 180
* Indonesia Satellite ADR 9,000 317
Kalbe Farma (Foreign) 30,000 115
Perusahaan Gudang Garam 8,000 45
* Wicaksana Overseas
International (Foreign) 90,000 205
---------
GROUP TOTAL 862
---------
--------------------------------------------------------------------------------
ITALY (3.5%)
Fiat SPA 170,000 636
* Montedison SPA 1,000,000 636
* Parmalat SPA 186,000 147
Telecom Italia 452,000 1,054
---------
GROUP TOTAL 2,473
---------
--------------------------------------------------------------------------------
JAPAN (28.4%)
Anritsu Corp. 20,000 227
Bridgestone Corp. 55,000 814
Casio Computer Co. 58,000 605
Dai-Nippon Printing Co. Ltd. 30,000 464
Daini Den Den Corp. 260 224
East Japan Railway 11,000 536
Eisai Co., Ltd. 20,000 344
Heiwa Real Estate 50,000 378
Hitachi Ltd. 122,000 1,259
Hoya Corp. 15,000 413
Ito-Yokado Co. 35,000 1,726
Keyence Inc. 6,000 628
Kuraray 35,000 405
Kyocera Corp. 4,000 296
Mabuchi Motors 9,000 604
Matsushita Electric
Industrial Co. Ltd. 50,000 803
Mitsubishi Corp. 60,000 722
Mitsui & Co., Ltd. 100,000 780
Murata Manufacturing Co. Ltd. 34,000 1,314
Nippon Shinpan Co. 35,000 245
Nishimatsu Construction 33,000 370
Nissei Sangyo 40,000 463
Nomura Securities Co. Ltd. 46,000 855
Orix Corp. 10,000 398
Sankyo Co., Ltd. 22,000 505
Seino Transportation Co. Ltd. 45,000 769
Sekisui House Ltd. 50,000 642
Sharp Corp. 35,000 566
Shin-Etsu Chemical Co. Ltd. 18,000 336
Showa Shell Sekiyu 48,000 534
Skylark Co., Ltd. 22,000 356
</TABLE>
29
<PAGE> 30
STATEMENT OF NET ASSETS (continued)
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Tokio Marine & Fire Insurance Ltd. 40,000 $ 452
Tokyo Electron Inc. 7,000 212
Tokyo Style Co. 15,000 239
Toyota Motor Corp. 40,000 812
---------
GROUP TOTAL 20,296
---------
--------------------------------------------------------------------------------
MALAYSIA (2.4%)
Edaran Otomobil 64,000 467
Genting Bhd. 56,500 508
Malayan Banking Bhd. 60,000 405
Malaysian Helicopter Services 24,000 43
Technology Resources
Industries Bhd. 60,000 172
Telekom Malaysian Bhd. 20,000 138
---------
GROUP TOTAL 1,733
---------
--------------------------------------------------------------------------------
MEXICO (.2%)
Cifra SA de CV `C' 65,000 79
Grupo Financiero Banamex L 30,000 34
Tolmex SA de CV B2 15,000 34
---------
GROUP TOTAL 147
---------
--------------------------------------------------------------------------------
NETHERLANDS (9.6%)
ABN AMRO Holding NV 14,280 523
Cap Volmac Group NV 13,000 195
Getronics NV 20,000 795
Heineken NV 11,000 1,860
International Nederlanden Groep 20,125 990
Oce van der Grinten 15,000 762
Philips Electronics NV
(Non-Voting) 42,000 1,423
Samas Groep 8,000 328
---------
GROUP TOTAL 6,876
---------
--------------------------------------------------------------------------------
NORWAY (1.2%)
Norsk Hydro 23,000 857
---------
--------------------------------------------------------------------------------
PHILIPPINES (1.4%)
Ayala Land Inc. `B' 225,000 267
Manila Electric B 28,000 289
Philippine Long Distance Telephone 2,000 120
Philippine National Bank Class B 2,879 24
* SM Prime Holdings 942,000 286
---------
GROUP TOTAL 986
---------
--------------------------------------------------------------------------------
SINGAPORE (1.7%)
DBS Land 45,000 119
Development Bank of
Singapore (Foreign) 20,000 209
Jurong Shipyard 26,000 222
Keppel Corp. 41,000 330
Overseas Chinese Banking
Corp. (Foreign) 12,000 120
Singapore Press Holdings
Ltd. (Foreign) 11,000 185
---------
GROUP TOTAL 1,185
---------
--------------------------------------------------------------------------------
SWEDEN (1.4%)
Astra AB Series B 14,300 369
SKF AB Series B 10,000 166
Stora Kopparberg Series A 2,600 153
Volvo AB Series B 16,500 283
---------
GROUP TOTAL 971
---------
--------------------------------------------------------------------------------
SWITZERLAND (5.5%)
BBC Brown Boveri (Bearer) 1,000 945
CS Holdings (Bearer) 900 366
Ciba Geigy AG (Bearer) 1,000 661
Nestle SA (Registered) 800 776
Sandoz AG (Registered) 990 634
Societe Generale de
Surveillance Holdings SA (Bearer) 350 549
---------
GROUP TOTAL 3,931
---------
--------------------------------------------------------------------------------
THAILAND (2.2%)
Land & House Co. Ltd. (Foreign) 29,000 494
Siam Cement Co., Ltd. (Foreign) 4,000 230
* TelecomAsia Corp. (Foreign) 66,000 249
Thai Farmers Bank Ltd. (Foreign) 68,000 574
---------
GROUP TOTAL 1,547
---------
--------------------------------------------------------------------------------
UNITED KINGDOM (17.4%)
Allied Domecq PLC 60,000 510
Asda Group PLC 600,000 718
Barclays PLC 60,000 605
BOC Group 50,000 564
Bowater PLC 40,000 291
British Airways PLC 115,000 758
British Land Co., PLC 72,000 440
British Petroleum Co. 80,000 554
British Steel 200,000 520
Cable and Wireless PLC 110,000 692
Courtaulds PLC 12,000 84
Daily Mail & General Class A 30,000 529
English China Clays 45,000 261
Fisons 60,000 172
Glaxo Holdings PLC 40,000 457
Grand Metropolitan PLC 60,000 388
Guinness PLC 15,000 113
MFI Furniture Group 600,000 1,145
Peninsular & Orient Steam
Navigation Co. 52,000 497
Rank Organisation Ltd. 106,000 689
Reuters Holdings PLC 80,000 614
Rolls Royce PLC 80,000 209
Thorn EMI PLC 40,000 707
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
Market
Value
Shares (000)+
--------------------------------------------------------------------------------
<S> <C> <C>
Vodafone Group PLC 200,000 643
Zeneca Group PLC 20,000 282
---------
GROUP TOTAL 12,442
---------
--------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $69,637) 69,297
--------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.0%)
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
(000)
----------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash
Account 6.27%, 4/3/95
(Cost $2,113) $2,113 2,113
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $71,750) 71,410
--------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Other Assets--Notes C and F 10,716
Liabilities--Note F (10,724)
---------
(8)
---------
--------------------------------------------------------------------------------
NET ASSETS (100%)
--------------------------------------------------------------------------------
Applicable to 7,080,827 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $71,402
--------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $10.08
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non-Income Producing Security.
ADR--American Depository Receipt.
ADS--American Depository Share.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
AT MARCH 31, 1995,
NET ASSETS CONSISTED OF:
--------------------------------------------------------------------------------
Amount Per
(000) Share
--------- ---------
<S> <C> <C>
Paid in Capital $72,158 $10.19
Undistributed Net
Investment Income 277 .04
Accumulated Net
Realized Losses (565) (.08)
Unrealized Depreciation
of Investments--Note E (468) (.07)
--------------------------------------------------------------------------------
NET ASSETS $71,402 $10.08
--------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
MONEY HIGH-GRADE
MARKET BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended
March 31, 1995 March 31, 1995 March 31, 1995
(000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- $ 2,485
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,146 $3,049 2,868
------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . 5,146 3,049 5,353
------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5 114
Performance Adjustments . . . . . . . . . . . . . . . . . . . . . . -- -- --
The Vanguard Group--Note C . . . . . . . . . . . . . . . . . . . . . .
Management and Administrative . . . . . . . . . . . . . . . . . . . 105 59 158
Marketing and Distribution . . . . . . . . . . . . . . . . . . . . . 23 7 18
Custodians' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 18 1
Auditing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4 5
Shareholders' Reports . . . . . . . . . . . . . . . . . . . . . . . . 2 3 11
Annual Meeting and Proxy Costs . . . . . . . . . . . . . . . . . . . . 1 1 2
Trustees' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . 161 97 309
------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . 4,985 2,952 5,044
------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . . . . . . . . . . . (1) (233) (1,245)
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Forward Currency Contracts . . . . . . . . . . . . . . . . . . . . . . -- -- --
------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . . . . . . . . . . . (1) (233) (1,245)
------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . -- 2,138 11,430
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Forward Currency Contracts . . . . . . . . . . . . . . . . . . . . . . -- -- --
------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . . . . . . . . . . . -- 2,138 11,430
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . . . . . . . . . . . $4,984 $4,857 $15,229
==============================================================================================================================
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EQUITY EQUITY
INDEX INCOME GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Six Months Ended Six Months Ended
March 31, 1995 March 31, 1995 March 31, 1995 March 31, 1995
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends(1) . . . . . . . . . . . . . . . . . . . $ 2,544 $ 1,676 $ 784 $ 380
Interest . . . . . . . . . . . . . . . . . . . 239 33 249 101
------------------------------------------------------------------------------------------------------------------------------
Total Income . . . . . . . . . . . . . . . 2,783 1,709 1,033 481
------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees . . . . . . . . . . . . . . . . . . . 10 35 74 44
Performance Adjustments . . . . . . . . . . . . -- -- -- --
The Vanguard Group--Note C
Management and Administrative . . . . . . . . . 142 48 77 56
Marketing and Distribution . . . . . . . . . . . 15 6 7 4
Custodians' Fees . . . . . . . . . . . . . . . . . 1 8 8 20
Auditing Fees . . . . . . . . . . . . . . . . . . 5 4 4 4
Shareholders' Reports . . . . . . . . . . . . . . 9 5 6 4
Annual Meeting and Proxy Costs . . . . . . . . . . 2 1 1 1
Trustees' Fees and Expenses . . . . . . . . . . . -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total Expenses . . . . . . . . . . . . . . 184 107 177 133
------------------------------------------------------------------------------------------------------------------------------
Net Investment Income . . . . . . . . . . 2,599 1,602 856 348
------------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold . . . . . . . . . . . . (99) 187 (46) (303)
Futures Contracts . . . . . . . . . . . . . . . . 370 -- -- --
Forward Currency Contracts . . . . . . . . . . . . -- -- -- (267)
------------------------------------------------------------------------------------------------------------------------------
Realized Net Gain (Loss) . . . . . . . . 271 187 (46) (570)
------------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities . . . . . . . . . . . . . . 15,255 4,082 9,822 (1,065)
Futures Contracts . . . . . . . . . . . . . . . . 323 -- -- --
Forward Currency Contracts . . . . . . . . . . . . -- -- -- (103)
------------------------------------------------------------------------------------------------------------------------------
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . 15,578 4,082 9,822 (1,168)
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . . . . $18,448 $ 5,871 $10,632 $(1,390)
==============================================================================================================================
</TABLE>
(1) Dividends for the International Portfolio are net of foreign withholding
taxes of $82,000.
33
<PAGE> 34
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET HIGH-GRADE BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year SIX MONTHS Year SIX MONTHS Year
ENDED Ended ENDED Ended ENDED Ended
MARCH 31, Sept. 30, MARCH 31, Sept. 30, MARCH 31, Sept. 30,
1995 1994 1995 1994 1995 1994
(000) (000) (000) (000) (000) (000)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . $ 4,985 $ 5,231 $ 2,952 $ 5,047 $ 5,044 $ 9,163
Realized Net Gain (Loss) . . . . . . . . . (1) (1) (233) (534) (1,245) 2,529
Change in Unrealized Appreciation
(Depreciation) . . . . . . . . . . . . -- -- 2,138 (7,468) 11,430 (6,551)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations . . . . 4,984 5,230 4,857 (2,955) 15,229 5,141
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS(1)
Net Investment Income . . . . . . . . . . (4,985) (5,231) (2,952) (5,047) (4,954) (7,649)
Realized Net Gain . . . . . . . . . . . . -- -- -- (1,239) (1,616) (2,895)
-----------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . (4,985) (5,231) (2,952) (6,286) (6,570) (10,544)
-----------------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS (CHARGES)--Note A . -- -- -- -- (6) 182
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . 132,779 348,060 29,176 41,578 21,144 97,152
--In Lieu of Cash Distributions . 4,985 5,231 2,952 6,286 6,570 10,542
Redeemed . . . . . . . . . . . . . . . . . (118,305) (295,746) (11,769) (43,481) (26,808) (64,162)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . 19,459 57,545 20,359 4,383 906 43,532
-----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . 19,458 57,544 22,264 (4,858) 9,559 38,311
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . 171,166 113,622 80,359 85,217 229,608 191,297
-----------------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . $ 190,624 $ 171,166 $102,623 $ 80,359 $239,167 $229,608
===================================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . $.027 $.035 $.326 $.619 $.25 $.39
Realized Net Gain . . . . . . . . . -- -- -- $.154 $.08 $.16
-----------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . 132,779 348,060 2,972 3,978 1,895 8,513
Issued in Lieu of Cash
Distributions . . . . . . . . . . 4,985 5,231 300 608 598 934
Redeemed . . . . . . . . . . . . . . (118,305) (295,746) (1,201) (4,192) (2,412) (5,695)
-----------------------------------------------------------------------------------------------------------------------------------
19,459 57,545 2,071 394 81 3,752
-----------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income . . . . . . . . -- -- -- -- $ 2,552 $ 2,468
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EQUITY INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year SIX MONTHS Year
ENDED Ended ENDED Ended
MARCH 31, Sept. 30, MARCH 31, Sept. 30,
1995 1994 1995 1994
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . $ 2,599 $ 4,629 $ 1,602 $ 3,061
Realized Net Gain (Loss) . . . . . . . . . . . . . . 271 1,247 187 332
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . . . . 15,578 52 4,082 (4,564)
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . . . . . 18,448 5,928 5,871 (1,171)
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . (2,871) (3,274) (1,756) (2,251)
Realized Net Gain . . . . . . . . . . . . . . . . . (1,197) (1,383) (338) (66)
------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (4,068) (4,657) (2,094) (2,317)
------------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS (CHARGES)--Note A . . . . . . -- -- 12 99
------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . 29,413 66,892 10,577 60,416
--In Lieu of Cash Distributions . . . . . . 4,068 4,657 2,094 2,312
Redeemed . . . . . . . . . . . . . . . . . . . (21,771) (51,790) (10,227) (40,943)
------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . . . . 11,710 19,759 2,444 21,785
------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . 26,090 21,030 6,233 18,396
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . 185,946 164,916 67,971 49,575
------------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . $212,036 $185,946 $ 74,204 $ 67,971
==============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $.19 $.23 $.26 $.33
Realized Net Gain . . . . . . . . . . . . . . . $.08 $.10 $.05 $.01
------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . 2,344 5,400 1,063 5,951
Issued in Lieu of Cash Distributions . . . . . . 332 379 213 232
Redeemed . . . . . . . . . . . . . . . . . . . . (1,737) (4,195) (1,038) (4,109)
------------------------------------------------------------------------------------------------------------------------------
939 1,584 238 2,074
------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income . . . . . . . . . . . . . $ 1,841 $ 2,113 $ 895 $ 1,037
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS Year SIX MONTHS
ENDED Ended ENDED June 3 to
MARCH 31, Sept. 30, MARCH 31, Sept. 30,
1995 1994 1995 1994
(000) (000) (000) (000)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . $ 856 $ 993 $ 348 $ 325
Realized Net Gain (Loss) . . . . . . . . . . . . . . (46) (768) (570) 5
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . . . . 9,822 2,947 (1,168) 700
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations . . . . . . . 10,632 3,172 (1,390) 1,030
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS (1)
Net Investment Income . . . . . . . . . . . . . . . (861) (342) (396) --
Realized Net Gain . . . . . . . . . . . . . . . . . -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . (861) (342) (396) --
------------------------------------------------------------------------------------------------------------------------------
NET EQUALIZATION CREDITS (CHARGES)--Note A . . . . . . -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (2)
Issued --Regular . . . . . . . . . . . . . . . . . 30,678 66,763 27,184 64,245
--In Lieu of Cash Distributions . . . . . . 861 342 396 --
Redeemed . . . . . . . . . . . . . . . . . . . (9,886) (23,735) (16,896) (2,771)
------------------------------------------------------------------------------------------------------------------------------
Net Increase from
Capital Share Transactions . . . . . . . . 21,653 43,370 10,684 61,474
------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) . . . . . . . . . . . 31,424 46,200 8,898 62,504
------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period . . . . . . . . . . . . . . . . 81,928 35,728 62,504 --
------------------------------------------------------------------------------------------------------------------------------
End of Period (3) . . . . . . . . . . . . . . . . . $113,352 $ 81,928 $ 71,402 $62,504
==============================================================================================================================
(1) Distributions Per Share
Net Investment Income . . . . . . . . . . . . . $.11 $.07 $.06 --
Realized Net Gain . . . . . . . . . . . . . . . -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
(2) Shares Issued and Redeemed
Issued . . . . . . . . . . . . . . . . . . . 2,756 6,333 2,697 6,328
Issued in Lieu of Cash Distributions . . . . . 81 33 38 --
Redeemed . . . . . . . . . . . . . . . . . . . . (896) (2,253) (1,714) (268)
------------------------------------------------------------------------------------------------------------------------------
1,941 4,113 1,021 6,060
------------------------------------------------------------------------------------------------------------------------------
(3) Undistributed Net
Investment Income . . . . . . . . . . . . . $ 790 $ 795 $ 277 $ 325
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, May 2+ to
SIX MONTHS ENDED ----------------------------------- Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .027 .035 .030 .040 .023
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . -- -- -- -- --
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS . . . . . .027 .035 .030 .040 .023
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.027) (.035) (.030) (.040) (.023)
Distributions from Realized Capital Gains . . . . -- -- -- -- --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.027) (.035) (.030) (.040) (.023)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +2.77% +3.63% +3.05% +4.11% +2.35%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . $191 $171 $114 $71 $27
Ratio of Expenses to Average Net Assets . . . . . . . .23%* .23% .29% .33% .34%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 5.55%* 3.66% 3.00% 3.90% 5.50%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . N/A N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
37
<PAGE> 38
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
HIGH-GRADE BOND PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, April 29+ to
SIX MONTHS ENDED ------------------------------------ Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $9.82 $10.94 $10.64 $10.24 $10.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .326 .619 .636 .705 .299
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . .190 (.966) .349 .427 .240
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .516 (.347) .985 1.132 .539
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.326) (.619) (.636) (.705) (.299)
Distributions from Realized Capital Gains . . . . -- (.154) (.049) (.027) --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.326) (.773) (.685) (.732) (.299)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $10.01 $9.82 $10.94 $10.64 $10.24
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +5.37% 3.31% +9.64% +11.47% +5.48%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . $103 $80 $85 $52 $16
Ratio of Expenses to Average Net Assets . . . . . . . .24%* .24% .29% .32% .40%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 6.71%* 5.98% 5.92% 6.66% 6.89%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 31%* 46% 73% 31% 9%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
38
<PAGE> 39
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, May 23+ to
SIX MONTHS ENDED ------------------------------------ Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $11.33 $11.58 $10.83 $10.25 $10.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .25 .46 .50 .51 .19
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . .50 (.16) .97 .52 .06
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . .75 .30 1.47 1.03 .25
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.25) (.39) (.69) (.45) --
Distributions from Realized Capital Gains . . . . (.08) (.16) (.03) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.33) (.55) (.72) (.45) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $11.75 $11.33 $11.58 $10.83 $10.25
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +6.80% +2.67% +14.10% +10.29% +2.50%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . $239 $230 $191 $76 $13
Ratio of Expenses to Average Net Assets . . . . . . . .34%* .34% .39% .42% .51%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 4.43%* 4.11% 4.45% 4.77% 5.24%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 28%* 42% 41% 15% 3%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
39
<PAGE> 40
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30, April 29+ to
SIX MONTHS ENDED ------------------------------------ Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . $12.47 $12.37 $11.32 $10.45 $10.00
------ ------ ------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . .17 .31 .34 .26 .08
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . 1.01 .12 1.07 .85 .37
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . 1.18 .43 1.41 1.11 .45
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . (.19) (.23) (.34) (.24) --
Distributions from Realized Capital Gains . . . . (.08) (.10) (.02) -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . (.27) (.33) (.36) (.24) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . $13.38 $12.47 $12.37 $11.32 $10.45
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . +9.67% +3.53% +12.68% +10.74% +4.50%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . $212 $186 $165 $85 $24
Ratio of Expenses to Average Net Assets . . . . . . . .24%* .24% .29% .32% .45%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . 2.68%* 2.60% 2.63% 2.84% 3.22%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . 1%* 7% 16% 1% 5%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
40
<PAGE> 41
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended June 7+ to
SIX MONTHS ENDED Sept. 30, Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $10.05 $10.57 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . .24 .45 .14
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . . .62 (.63) .54
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . .86 (.18) .68
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . (.26) (.33) (.11)
Distributions from Realized Capital Gains . . . . . . . . . . . . (.05) (.01) --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . (.31) (.34) (.11)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . $10.60 $10.05 $10.57
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . +8.82% 1.64% +6.81%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . $74 $68 $50
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . .34%* .34% .39%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . 4.64%* 4.57% 4.30%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . 11%* 18% 2%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
41
<PAGE> 42
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------
Year Ended June 7+ to
SIX MONTHS ENDED Sept. 30, Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994 1993
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . $10.79 $10.26 $10.00
------ ------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . .08 .14 .04
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . . 1.12 .46 .22
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . 1.20 .60 .26
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . (.11) (.07) --
Distributions from Realized Capital Gains . . . . . . . . . . . . -- -- --
------ ------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . (.11) (.07) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . $11.88 $10.79 $10.26
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . +11.23% +5.87% +2.60%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . $113 $82 $36
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . .38%* .38% .43%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . 1.79%* 1.55% 1.63%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . 29%* 34% 10%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
42
<PAGE> 43
<TABLE>
<CAPTION>
International Portfolio
------------------------------------------------------------------------------------------------------------------------------
June 3+ to
SIX MONTHS ENDED Sept. 30,
For a Share Outstanding Throughout Each Period MARCH 31, 1995 1994
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . $10.31 $10.00
------ ------
INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .05 .05
Net Realized and Unrealized Gain
(Loss) on Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.22) .26
------ ------
TOTAL FROM INVESTMENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . (.17) .31
------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . (.06) --
Distributions from Realized Capital Gains . . . . . . . . . . . . . . . . . . . . . . -- --
------ ------
TOTAL DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.06) --
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10.08 $10.31
==============================================================================================================================
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.66% +3.10%
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Period (Millions) . . . . . . . . . . . . . . . . . . . . . . . . . . $71 $63
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . .38%* .30%*
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99%* 1.91%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26%* 0%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Commencement of Operations.
* Annualized.
43
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
Vanguard Variable Insurance Fund is registered under the Investment Company Act
of 1940 as a diversified open-end investment company and consists of the Money
Market, High-Grade Bond, Balanced, Equity Index, Equity Income, Growth, and
International Portfolios. Shares of the Fund are currently offered only to
National Home Life Assurance Company Separate Account IV and Separate Account B
for the Vanguard Variable Annuity Plan Contract.
Certain investments of the Money Market, High-Grade Bond and Balanced
Portfolios are in corporate debt instruments; the issuers' abilities to meet
their obligations may be affected by economic developments in their respective
industries. The International Portfolio invests in securities of foreign
issuers which may subject the Portfolio to investment risks not normally
associated with investing in securities of United States corporations.
A. The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such
policies are consistently followed by the Fund in the preparation of financial
statements.
1. SECURITY VALUATION: Money Market Portfolio: securities are stated at
amortized cost which approximates market value. Other Portfolios:
common stocks listed on the New York Stock Exchange or other U.S.
exchanges are valued at the latest quoted sales prices as of the close
of the New York Stock Exchange (generally 4:00 PM) on the valuation
date; such securities not traded are valued at the mean of the latest
quoted bid and asked prices; those securities not listed are valued at
the latest quoted bid prices. Securities listed on foreign exchanges
are valued at the latest quoted sales prices. Securities not listed
are valued at the latest quoted bid prices. Bonds are valued utilizing
the latest bid prices and on the basis of a matrix system (which
considers such factors as security prices, yields, maturities and
ratings), both as furnished by independent pricing services. Temporary
cash investments are valued at amortized cost, which approximates
market value. Foreign currency amounts are translated into U.S.
dollars at the bid prices of such currencies against U.S. dollars
quoted by major banks as of 4:00 PM London Time.
2. FEDERAL INCOME TAXES: Each Portfolio of the Fund intends to continue
to qualify as a regulated investment company and distribute all of its
taxable income. Accordingly, no provision for Federal income taxes is
required in the financial statements.
3. EQUALIZATION: The Balanced and Equity Income Portfolios follow the
accounting practice known as "equalization," under which a portion of
the price of capital shares issued and redeemed, equivalent to
undistributed net investment income per share on the date of the
transaction, is credited or charged to undistributed income. As a
result, undistributed income per share is unaffected by Portfolio
share sales or redemptions.
4. REPURCHASE AGREEMENTS: The Fund, along with other members of The
Vanguard Group of Investment Companies, transfers uninvested cash
balances into a Pooled Cash Account, the daily aggregate of which is
invested in repurchase agreements secured by U.S. Government
obligations. Securities pledged as collateral for repurchase
agreements are held by the Fund's custodian banks until maturity of
each repurchase agreement. Provisions of the agreement ensure that the
market value of the collateral is sufficient in the event of default;
however, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be
subject to legal proceedings.
5. FUTURES: The Equity Index Portfolio utilizes Standard & Poor's 500
Index futures contracts to a limited extent, with the objectives of
maintaining full exposure to the stock market, enhancing returns,
maintaining liquidity, and minimizing transaction costs. The Portfolio
may purchase futures contracts to immediately position incoming cash
in the market, thereby simulating a fully invested position in the
underlying index while
44
<PAGE> 45
maintaining a cash balance for liquidity. In the event of redemptions,
the Portfolio may pay departing shareholders from its cash balance and
reduce its futures position accordingly. Returns may be enhanced by
using futures contracts instead of the underlying securities when
futures are believed to be priced more attractively than the
underlying securities. The primary risks associated with the use of
futures contracts are imperfect correlation between changes in market
values of stocks held by the Portfolio and the prices of futures
contracts, and the possibility of an illiquid market.
The International Portfolio enters into forward foreign currency
contracts to protect securities and related receivables and payables
against changes in future foreign exchange rates. Risks associated
with forward currency contracts include movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the
counterparty to fulfill its obligations under the contract.
Futures and forward currency contracts are valued based upon their
quoted daily settlement prices. Fluctuations in the values of such
contracts are recorded as unrealized appreciation (depreciation) until
terminated at which time realized gains (losses) are recognized.
Unrealized appreciation (depreciation) related to open futures and
forward currency contracts is required to be treated as realized gain
(loss) for Federal income tax purposes.
6. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized
gains and losses on the sale of investment securities are those of
specific securities sold. Discounts and premiums on securities
purchased are amortized to interest income over the lives of the
respective securities. Distributions of net investment income to
shareholders of the Money Market and High-Grade Bond Portfolios are
declared on a daily basis payable on the first business day of the
following month. Dividend income and distributions to shareholders of
the Balanced, Equity Index, Equity Income, Growth, and International
Portfolios are recorded on the ex-dividend date.
B. Under the terms of advisory contracts, investment advisory fee
payments are calculated at an annual percentage rate of average net assets of
the following Portfolios:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Contract
Investment Expiration
Portfolio Adviser Date
----------------------------------------------------------------------------------------
<S> <C> <C>
BALANCED WELLINGTON MANAGEMENT APRIL 30, 1996
COMPANY
EQUITY INCOME NEWELL ASSOCIATES MAY 31, 1996
GROWTH LINCOLN CAPITAL MAY 31, 1996
MANAGEMENT COMPANY
INTERNATIONAL SCHRODER CAPITAL MARCH 31, 1996
MANAGEMENT INTERNATIONAL
----------------------------------------------------------------------------------------
</TABLE>
The basic fee thus computed for the Balanced Portfolio is subject to quarterly
adjustments based on performance relative to a combined index comprised of the
Standard & Poor's 500 Stock Index and the Salomon Brothers High Grade Corporate
Bond Index. For the six months ended March 31, 1995, the investment advisory
fee of the Balanced Portfolio represented an effective annual rate of .10 of 1%
of average net assets. No performance adjustment was required during the
period. The advisory fees of the Equity Income, Growth, and International
Portfolios represented effective annual rates of .10 of 1%, .15 of 1% and .13
of 1%, respectively, of average net assets.
The Vanguard Group, Inc. furnishes investment advisory services to the Money
Market, High-Grade Bond, and Equity Index Portfolios on an at-cost basis.
C. The Vanguard Group, Inc. furnishes at cost corporate management,
administrative, marketing and distribution services. The costs of such services
are allocated to each Portfolio of the Fund under methods approved by the Board
of Trustees. At March 31, 1995, the Fund had contributed capital of $145,000 to
Vanguard (included in Other Assets), representing .7% of Vanguard's
capitalization. The Fund's trustees and officers are also directors and
officers of Vanguard.
45
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (continued)
D. During the six months ended March 31, 1995, purchases and sales of
investment securities, other than U.S. Government securities and temporary cash
investments, were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(000)
----------------------------
Portfolio Purchases Sales
----------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-GRADE BOND $ 9,234 $ 1,132
BALANCED 15,466 23,317
EQUITY INDEX 8,365 915
EQUITY INCOME 4,113 3,717
GROWTH 32,098 12,569
INTERNATIONAL 22,310 8,660
----------------------------------------------------------------------------------------
</TABLE>
Purchases and sales of U.S. Government securities were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(000)
----------------------------
Portfolio Purchases Sales
----------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-GRADE BOND $26,574 $12,793
BALANCED 15,807 13,847
----------------------------------------------------------------------------------------
</TABLE>
At September 30, 1994, the Fund had available realized capital losses to offset
future net capital gains through the following fiscal year ends:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Expiration
Fiscal Year(s) Ending Amount
Portfolio September 30, (000)
----------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-GRADE BOND 2003 $637
GROWTH 2002-2003 889
----------------------------------------------------------------------------------------
</TABLE>
E. At March 31, 1995, unrealized appreciation (depreciation) of investment
securities for financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(000)
--------------------------------------------------------------
Net
Unrealized
Appreciated Depreciated Appreciation
Portfolio Securities Securities (Depreciation)
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH-GRADE BOND $ 520 $ (3,096) $(2,576)
BALANCED 23,231 (6,381) 16,850
EQUITY INDEX 34,927 (5,317) 29,610
EQUITY INCOME 5,822 (4,446) 1,376
GROWTH 13,691 (342) 13,349
INTERNATIONAL 4,163 (4,503) (340)
----------------------------------------------------------------------------------------
</TABLE>
At March 31, 1995, the aggregate settlement value of open Standard & Poor's 500
Index futures contracts expiring in June 1995 held by the Equity Index
Portfolio, the related unrealized appreciation, and the market value of
securities deposited as initial margin for such contracts were $11,349,000,
$178,000, and $592,000, respectively.
Under the terms of open forward currency exchange contracts at March 31, 1995,
the International Portfolio was obligated to deliver 260,000,000 Japanese yen
in exchange for $3,036,000 on June 19, 1995. Unrealized depreciation related to
the open forward currency exchange contract at March 31, 1995, was $128,000.
F. The market value of securities on loan to broker/dealers at March 31, 1995,
and collateral received with respect to such loans were:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(000)
-----------------------------------
Market Value Cash
of Loaned Collateral
Portfolio Securities Received
----------------------------------------------------------------------------------------
<S> <C> <C>
HIGH-GRADE BOND $1,106 $1,132
BALANCED 4,291 4,410
EQUITY INDEX 71 102
GROWTH 1,418 1,519
INTERNATIONAL 9,768 10,233
----------------------------------------------------------------------------------------
</TABLE>
Security loans are required to be secured at all times by collateral at least
equal to the market value of securities loaned; however, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
46
<PAGE> 47
TRUSTEES AND OFFICERS
JOHN C. BOGLE, Chairman and Chief Executive Officer
Chairman and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
JOHN J. BRENNAN, President
President and Director of The Vanguard Group, Inc., and of each of the
investment companies in The Vanguard Group.
ROBERT E. CAWTHORN, Chairman of Rhone-Poulenc Rorer, Inc.;
Director of Sun Company, Inc.
BARBARA BARNES HAUPTFUHRER, Director of The Great Atlantic and Pacific Tea
Company, Alco Standard Corp., Raytheon Company, Knight-Ridder, Inc., and
Massachusetts Mutual Life Insurance Co.
BRUCE K. MACLAURY, President of The Brookings Institution; Director of American
Express Bank Ltd., The St. Paul Companies, Inc., and Scott Paper Company.
BURTON G. MALKIEL, Chemical Bank Chairman's Professor of Economics, Princeton
University; Director of Prudential Insurance Co. of America, Amdahl
Corporation, Baker Fentress & Co., The Jeffrey Co., and Southern New England
Communications Company.
ALFRED M. RANKIN, JR., Chairman, President, and Chief Executive Officer of
NACCO Industries, Inc.; Director of NACCO Industries, The BFGoodrich
Company, Reliance Electric Company, and The Standard Products Company.
JOHN C. SAWHILL, President and Chief Executive Officer of The Nature
Conservancy; formerly, Director and Senior Partner of McKinsey & Co. and
President of New York University; Director of Pacific Gas and Electric
Company and NACCO Industries.
JAMES O. WELCH, JR., Retired Chairman of Nabisco Brands, Inc.; retired Vice
Chairman and Director of RJR Nabisco; Director of TECO Energy, Inc.
J. LAWRENCE WILSON, Chairman and Chief Executive Officer of Rohm & Haas
Company; Director of Cummins Engine Company; Trustee of Vanderbilt University
and the Culver Educational Foundation.
OTHER FUND OFFICERS
RICHARD F. HYLAND, Treasurer; Treasurer of The Vanguard Group, Inc.,
and of each of the investment companies in The Vanguard Group.
RAYMOND J. KLAPINSKY, Secretary; Senior Vice President
and Secretary of The Vanguard Group, Inc.; Secretary of each
of the investment companies in The Vanguard Group.
KAREN E. WEST, Controller; Vice President of The Vanguard Group, Inc.;
Controller of each of the investment companies in The Vanguard Group.
OTHER VANGUARD GROUP OFFICERS
ROBERT A. DISTEFANO VINCENT S. MCCORMACK
Senior Vice President Senior Vice President
Information Technology Operations
JEREMY G. DUFFIELD F. WILLIAM MCNABB III
Senior Vice President Senior Vice President
Planning & Development Institutional
JAMES H. GATELY RALPH K. PACKARD
Senior Vice President Senior Vice President
Individual Investor Group Chief Financial Officer
IAN A. MACKINNON
Senior Vice President
Fixed Income Group
47
<PAGE> 48
THE VANGUARD FAMILY OF FUNDS
FIXED INCOME FUNDS
MONEY MARKET FUNDS
Vanguard Admiral Funds
U.S. Treasury Money
Market Portfolio
Vanguard Money Market Reserves
TAX-EXEMPT MONEY MARKET FUNDS
Vanguard Municipal Bond Fund
Money Market Portfolio
Vanguard State Tax-Free Funds
Money Market Portfolios
(CA, NJ, OH, PA)
TAX-EXEMPT INCOME FUNDS
Vanguard Municipal Bond Fund
Vanguard State Tax-Free Funds
Insured Longer-Term Portfolios
(CA, FL, NJ, NY, OH, PA)
INCOME FUNDS
Vanguard Admiral Funds
Vanguard Fixed Income
Securities Fund
Vanguard Preferred Stock Fund
EQUITY AND BALANCED FUNDS
GROWTH AND INCOME FUNDS
Vanguard Convertible
Securities Fund
Vanguard Equity Income Fund
Vanguard Quantitative Portfolios
Vanguard/Trustees' Equity Fund
U.S. Portfolio
Vanguard/Windsor Fund
Vanguard/Windsor II
BALANCED FUNDS
Vanguard Asset Allocation Fund
Vanguard LifeStrategy Funds
Income Portfolio
Conservative Growth Portfolio
Moderate Growth Portfolio
Growth Portfolio
Vanguard STAR Fund
Vanguard/Wellesley Income Fund
Vanguard/Wellington Fund
GROWTH FUNDS
Vanguard/Morgan Growth Fund
Vanguard/PRIMECAP Fund
Vanguard U.S. Growth Portfolio
AGGRESSIVE GROWTH FUNDS
Vanguard Explorer Fund
Vanguard Specialized Portfolios
INTERNATIONAL FUNDS
Vanguard International
Growth Portfolio
Vanguard/Trustees' Equity Fund
International Portfolio
INDEX FUNDS
Vanguard Index Trust
Total Stock Market Portfolio
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Value Portfolio
Small Capitalization Stock Portfolio
Vanguard International Equity
Index Fund
European Portfolio
Pacific Portfolio
Emerging Markets Portfolio
Vanguard Bond Index Fund
Vanguard Tax-Managed Fund
Vanguard Balanced Index Fund
VARIABLE ANNUITY
Vanguard Variable Annuity Plan
[THE VANGUARD GROUP LOGO]
Vanguard Financial Center Valley Forge, Pennsylvania 19482
New Account Information: Shareholder Account Services:
1-(800) 662-7447 1-(800) 662-2739
This Report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus. All Funds in the
Vanguard Family are offered by prospectus only.
Q642-4/95
[VANGUARD VARIABLE INSURANCE FUND LOGO]
SEMI-ANNUAL REPORT
MARCH 31, 1995
