<PAGE> 1
VANGUARD
VARIABLE INSURANCE
FUND
Semiannual Report - March 31, 1998
[THE VANGUARD GROUP LOGO]
<PAGE> 2
OUR CREW MAKES THE DIFFERENCE
Throughout our history, The Vanguard Group has received considerable attention
as the low-cost provider of mutual funds. While such accolades are gratifying,
we are most proud, not of our low operating expenses or the billions of dollars
we manage, but of our sterling reputation created by the Vanguard crew.
We recognize that it is our crew members--more than 7,000 highly
motivated men and women--who form the cornerstone of our operations. We could
not survive long--let alone prosper--without them. That's why we chose this
fiscal year's fund reports to celebrate the spirit, enthusiasm, and
achievements of our crew. (We call those who work at Vanguard crew members, not
employees, because they operate as a team to accomplish our mission of serving
you, our clients.)
But while we prize the collective contributions of our crew, we also
take time to recognize the importance of the individual. Each calendar quarter,
we present our Award For Excellence to a handful of crew members who have
demonstrated particular excellence in the performance of their jobs and who
embody "The Vanguard Spirit." Our report cover shows only a few of the more
than 300 crew members who have received this distinction since 1984.
They, along with the rest of our valiant crew, look forward to serving
you in the years ahead.
[PHOTO]
JOHN J. BRENNAN
Chairman & CEO
JOHN C. BOGLE
Senior Chairman
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
A MESSAGE TO OUR SHAREHOLDERS . . . . . . . . . . . . . . . . 1
THE MARKETS IN PERSPECTIVE . . . . . . . . . . . . . . . . . 5
REPORTS FROM THE ADVISERS . . . . . . . . . . . . . . . . . . 7
PORTFOLIO PROFILES . . . . . . . . . . . . . . . . . . . . . 16
PERFORMANCE SUMMARIES . . . . . . . . . . . . . . . . . . . . 27
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
All comparative mutual fund data are from Lipper Analytical Services, Inc., or
Morningstar unless otherwise noted.
<PAGE> 3
FELLOW SHAREHOLDER,
During the first half of Vanguard Variable Insurance Fund's fiscal
year, the U.S. stock market continued to power ahead, fixed-income investments
earned solid returns, and international stocks provided wildly uneven, but
modestly positive, results. The Fund's nine Portfolios reflected the financial
markets' varied returns for the six months ended March 31, 1998, and seven of
the nine outperformed comparable mutual funds.
The table at right presents the total return (capital change plus
reinvested dividends) of each Portfolio for the six-month period, along with
the results of the average comparable mutual fund and an appropriate unmanaged
market benchmark. The total return figures reflect the change in net asset
value for each Portfolio, adjusted to include the reinvestment of any income or
capital gains distributions. Performance Summaries for the Portfolios,
including a breakdown of each fiscal year's returns into their income and
capital components, begin on page 27.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
TOTAL RETURNS
SIX MONTHS ENDED
MARCH 31, 1998
- ------------------------------------------------------------------
<S> <C>
MONEY MARKET PORTFOLIO* + 2.8%
Average Money Market Fund* + 2.5
Salomon Three-Month
Treasury Index + 3.1
- ------------------------------------------------------------------
HIGH-GRADE BOND PORTFOLIO + 4.4%
Average Intermediate-Term
U.S. Government Fund + 3.9
Lehman Aggregate Bond Index + 4.5
- ------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO + 5.6%
Average High Yield Bond Fund + 5.5
Lehman High Yield Bond Index + 5.4
- ------------------------------------------------------------------
BALANCED PORTFOLIO +10.9%
Average Balanced Fund + 8.9
Composite Stock/Bond Index** +13.6
- ------------------------------------------------------------------
EQUITY INDEX PORTFOLIO +17.1%
Average Growth and Income Fund +13.0
- ------------------------------------------------------------------
EQUITY INCOME PORTFOLIO +17.1%
Average Equity Income Fund +12.9
- ------------------------------------------------------------------
GROWTH PORTFOLIO +20.4%
Average Growth Fund +11.6
S&P 500 Index +17.2%
- ------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO + 3.0%
Average Small Company Growth Fund + 5.2
Small Company Growth Fund
Stock Index+ + 5.7
- ------------------------------------------------------------------
INTERNATIONAL PORTFOLIO + 2.4%
Average International Stock Fund + 6.0
MSCI EAFE Index + 5.9
- ------------------------------------------------------------------
</TABLE>
*Money market funds do not assure a stable value of $1 per share, and, unlike
bank certificates of deposit, are not insured by the Federal Deposit
Insurance Corporation.
**65% S&P 500 Index, 35% Lehman Brothers Long Corporate AA or Better Bond
Index.
+Russell 2000 Index through July 1997; Small Company Growth Fund Stock Index
thereafter.
THE PERIOD IN REVIEW
The U.S. stock market flourished during the six months ended March 31 as the
economy grew at a solid pace, consumers were ebullient, inflation remained
dormant, and interest rates declined. Stocks stumbled early in the fiscal year
amid concerns that Asian economic problems would seriously dent the U.S.
economy and corporate earnings. But the decline was brief; after a negative
return of -3.3% in October, the Standard & Poor's 500 Composite Stock Price
Index chalked up gains in each of the five following months.
Gains were biggest for large-capitalization stocks. The S&P 500, which
is dominated by large-cap stocks, advanced +17.2% during the half-year, while
the rest of the stock market, as measured by the Wilshire 4500 Equity Index,
earned +10.0%. The S&P 500 Index's growth component gained
<PAGE> 4
+20.3%; the value component was up +14.0%. The Russell 2000 Index of small
stocks came in much lower, earning a return of +6.4%.
Foreign stock markets advanced +5.9%, on average, but performance was
decidedly mixed. Overall, bourses in continental Europe soared +20.4%,
surpassing even the stellar returns of the U.S. stock market. But the Pacific
region fell -18.2%, and many of Asia's emerging markets posted negative returns
in the double digits. Most foreign returns were diminished by the increasing
strength of the U.S. dollar relative to almost all other currencies.
Bond prices rose during the period, reflecting slightly lower interest
rates. The yield on the benchmark 30-year U.S. Treasury bond ended the fiscal
half-year at 5.93%, down from 6.40% at its starting point. Short-term rates
were up slightly; the yield on the three-month U.S. Treasury bill closed the
period at 5.12%, up 0.02 percentage point from its level on September 30. For
the six months, the Lehman Brothers Aggregate Bond Index, a good measure of the
U.S. bond market, posted a total return (including interest payments) of +4.5%,
a solid result for a brief period. Long-term bonds benefited the most from the
interest-rate decline--just as they suffer most when interest rates are
rising--and high-yield bonds were buoyed by the strength of the economy and of
corporate balance sheets.
The return earned by each of our Portfolios during the six months was
largely dictated by the type of assets it holds. A summary of our results
follows.
FIXED-INCOME PORTFOLIOS
The MONEY MARKET PORTFOLIO earned +2.8% during the first six months of the 1998
fiscal year, outdistancing the +2.5% return of our average peer. Our advantage
over our peers continues to be our rock-bottom expense ratio (expenses as a
percentage of average net assets), which at 0.19% is about one-fourth of the
0.83% in expenses charged by the average money market mutual fund.
Declining interest rates gave a boost to our HIGH-GRADE BOND
PORTFOLIO, which provided a return of +4.4% for the six months, above the +3.9%
return of the average intermediate-term U.S. government bond fund but a hair
behind the +4.5% return of the Lehman Aggregate Bond Index.
The HIGH YIELD BOND PORTFOLIO earned +5.6%, just ahead of the return
of our competitive benchmarks. Our low expense ratio, combined with the
relatively narrow spread between yields of high-quality bonds and lower-quality
issues, enabled our Portfolio to earn a return above that of the average
high-yield bond fund, despite our policy of emphasizing somewhat
higher-quality--and thus, lower-yielding--securities than the typical
competitor.
Though many of our competitors seek higher yields by investing in
lower-quality securities, we believe that over the long run our low expense
ratio (0.30% versus 1.34% for the average high-yield bond fund) allows us to
provide competitive yields and returns without taking undue risk.
BALANCED PORTFOLIO
In a period that was excellent for stocks and solid for bonds, our BALANCED
PORTFOLIO earned a return of +10.9%, a full 2 percentage points higher than
that of the average balanced fund. Our return, however, did not keep pace with
that of our unmanaged benchmark--a composite index weighted 65% in the S&P 500
and 35% in high-quality, long-term bonds. Our shortfall was due to our slight
defensive tilt and to the market's
2
<PAGE> 5
preference for growth stocks over the value stocks that the Balanced Portfolio
favors. Our Portfolio held about 62% of its assets in stocks, a slight
variation from its Index that had a relatively significant impact due to the
tremendous performance of the S&P 500 during the six months.
U.S. STOCK PORTFOLIOS
The EQUITY INDEX PORTFOLIO provided a return of +17.1%, more than 4 percentage
points higher than that of the average growth and income fund and just shy of
the +17.2% return of the benchmark S&P 500 Index. Our near-perfect match with
the Index is notable because the Index exists only "on paper" and bears none of
the operating expenses or transaction costs incurred by real-world funds. Our
expense ratio of 0.19% is more than 1 percentage point below that of the
average growth and income fund, an advantage that our average peer has found
difficult to overcome.
The return of our EQUITY INCOME PORTFOLIO matched that of our Equity
Index Portfolio and easily outdistanced the +12.9% return of its average peer.
Our near-exact match of the S&P 500 Index was a fine accomplishment given our
emphasis on value-oriented, high-yielding stocks, which, as a group,
significantly trailed lower-yielding growth stocks during the period. Because
of the Portfolio's focus on dividend-paying stocks, we had a heavy
concentration in the utilities sector, the S&P 500 Index's top-performing group
for the period, and no exposure to technology stocks, a market laggard.
The +20.4% return of our GROWTH PORTFOLIO was the highest among our
nine Portfolios, owing largely to the mighty performance of large growth
stocks, our bread and butter. Our return was nearly 9 percentage points above
that of the Portfolio's average peer and more than 3 percentage points higher
than that of the S&P 500 Index. Our advantage over the Index was due to
outstanding selection of stocks in the materials & processing sector, along
with a heavier weighting and fine stock picking in the health-care sector--the
Index's second-best performer for the six months.
The +3.0% return of our SMALL COMPANY GROWTH PORTFOLIO was well below
the +5.2% return of the average small company growth fund and the +5.7% return
of our benchmark index. Our shortfall versus the Index was due to our subpar
stock selection and our heavy weighting in the poorly performing technology
sector, which made up about 20% of the Portfolio's assets during the period.
INTERNATIONAL PORTFOLIO
The +2.4% earned by our INTERNATIONAL PORTFOLIO fell short of the +6.0% return
of the average international fund and the +5.9% return of the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index. As noted
earlier, the contrast between the returns of the Europe and Pacific regions was
stark. The dollar's rise against most currencies cut into Europe's fine returns
and worsened the negative returns from Asia. Relative to our benchmarks, our
heavier weighting in Japan and several Asian economies during part of the
period was a handicap.
IN SUMMARY
As demonstrated during the brief period covered in this report, the performance
of different segments of the financial markets can vary widely. It's important
to remember--especially after a period when one type of asset has been clearly
superior--that today's leaders may be tomorrow's laggards. That is why we do
not hesitate to repeat our call for investors to create and maintain a balanced
portfolio tailored to their individual objec-
3
<PAGE> 6
tives, investing time horizon, and tolerance for the volatility of the
financial markets. For investors who have chosen to include variable annuity or
variable life insurance contracts as part of a long-term portfolio, Vanguard
Variable Insurance Fund will continue to offer a diverse lineup of
high-quality, clearly defined investment options at a cost that is far lower
than that of similar investments elsewhere.
We look forward to reporting to you on the full 1998 fiscal year six
months hence.
/s/ JOHN C. BOGLE /s/ JOHN J. BRENNAN
John C. Bogle John J. Brennan
Senior Chairman Chairman and
Chief Executive Officer
April 18, 1998
4
<PAGE> 7
THE MARKETS IN PERSPECTIVE
Six Months Ended March 31, 1998
The U.S. stock and bond markets benefited from a favorable, if rare,
combination of influences during the fiscal half-year ended March 31. Economic
growth was strong, inflationary forces were weak, interest rates were subdued,
and consumers were in an upbeat mood.
Asia's economic troubles--currency and banking crises afflicted
several nations--created anxiety and were largely blamed for a slump in stock
prices during October, when the S&P 500 Index declined by 7% in a single day.
However, a drumbeat of good news from the domestic economy soon restored the
spring to the markets' step. Economic growth continued to be robust. The U.S.
economy expanded at a 3.7% rate in the October-December quarter, job growth was
rapid, and the nation's unemployment rate was 4.7% in March. Despite the strong
growth, inflation was a virtual no-show, as consumer prices rose only 0.6%
during the half-year and were up a mere 1.4% for the 12 months ended March 31.
Prices were generally held in check by falling oil prices, improved
productivity, and a strengthening of the U.S. dollar, which has substantially
reduced the prices of imported products and materials. The combination of
plentiful jobs and low inflation helped to raise the spirits of consumers,
whose spending is the biggest force in the economy.
U.S. EQUITY MARKETS
Spirits were also high among investors in U.S. stocks, and they powered the
market averages to yet another impressive gain. The big blue chip stocks led
the advance, as the S&P 500 Index provided a total return of 17.2% during the
six months. Smaller stocks, as represented by the Russell 2000 Index, returned
6.4%.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998
-----------------------------------
6 MONTHS 1 YEAR 5 YEARS*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY
S&P 500 Index 17.2% 48.0% 22.4%
Russell 2000 Index 6.4 42.0 17.7
MSCI EAFE Index 5.9 18.9 12.2
- ----------------------------------------------------------------------------------------------
FIXED INCOME
Lehman Aggregate Bond Index 4.5% 12.0% 6.9%
Lehman 10-Year Municipal Bond Index 3.7 10.4 7.0
Salomon Brothers Three-Month
U.S. Treasury Bill Index 3.1 5.3 4.8
- ----------------------------------------------------------------------------------------------
OTHER
Consumer Price Index 0.6% 1.4% 2.5%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
Two key underpinnings of the stock market are corporate earnings and
interest rates. Investors hold stocks as long-term investments because they
expect the underlying earnings to grow over time, thereby making each share of
stock more valuable. Interest rates affect stocks in two ways. First, the
current level of interest rates represents the return an investor could get by
holding fixed-income securities instead of stocks. Second, the level of
interest rates reflects market expectations about inflation.
During the fiscal half-year, stock prices benefited from a moderate
decline in long-term interest rates and the low inflation rate. The news
concerning corporate earnings was more ambiguous. Security analysts'
expectations about earnings of stocks in the S&P 500
5
<PAGE> 8
Index began to decline in November and have continued to do so. However,
analysts still are forecasting gains in the high single digits for overall
profits in 1998. Despite the so-so news on profits, stock prices generally
advanced.
The best-performing market sectors during the six months appeared to
benefit from a combination of factors. One of these was concern about how much
Asia's economic troubles would affect the profits of U.S. companies. Another
was the confidence demonstrated by U.S. consumers, who continued to spend
freely. Primary beneficiaries of these influences were sectors unlikely to be
affected much by foreign competitors: utilities (which gained an extraordinary
36.6% for the six months), health care (up 28.2%), and consumer staples (up
20.6%).
The sectors that lagged were those considered to be particularly
vulnerable to price-cutting by foreign competition or to a downturn in demand
caused by slower economic growth. This group included oil service and
exploration companies (down 4.4%), integrated oil companies (up only 2.0%), and
the materials & processing, technology, and producer-durables groups (up,
respectively, by 4.3%, 5.4%, and 6.4%).
U.S. FIXED-INCOME MARKETS
Inflation--the enemy of the fixed-income investor--was extraordinarily
well-behaved during the first half of the fiscal year. Consequently, bond
prices rose and the total return of the Lehman Brothers Aggregate Bond Index, a
good measure of the overall market for taxable bonds, provided a 4.5% return
for the six months, bringing its return over the past 12 months to 12.0%, a
phenomenal inflation-adjusted return of more than 10%. The yield on the
benchmark 30-year U.S. Treasury bond declined from 6.40% on September 30, 1997,
to 5.93% on March 31.
Short-term interest rates were nearly unchanged, reflecting the stable
monetary policy of the Federal Reserve Board, whose policymakers seem to have
taken a "wait and see" approach to the question of how significantly the Asian
financial crisis will affect the U.S. economy.
INTERNATIONAL EQUITY MARKETS
Europe's stock markets generally rose during the first half of fiscal 1998,
while most Asian markets declined. Overall, the Morgan Stanley Capital
International Europe, Australasia, Far East Index gained 5.9% in U.S. dollar
terms. The Index returned 10.7% in local currency terms, but this was cut
nearly in half for U.S. investors by the dollar's strength (the U.S. currency
gained against every other key currency except the British pound).
The bull market in Europe was even more powerful than that on Wall
Street. European stocks returned more than 23% in local currency terms, which
translated to gains of 20.4% for the MSCI Europe Index in dollar terms. Stocks
were buoyed by signs that economic growth is accelerating throughout Europe and
by progress toward the planned adoption of a single European currency later in
1998.
The Pacific was a world away, economically as well as geographically,
from Europe. Although the emerging markets in Asia (Malaysia, Thailand, South
Korea) rebounded from their lows reached in late 1997, the overall downturn in
Pacific stocks was nearly as pronounced as the European upturn. Japan, the
Pacific Rim's largest market, returned -18.0%, and Hong Kong was hit even
harder (-28.1%). The Tokyo market was beset by fears about the soundness of
Japan's banking system and skepticism about the will and ability of Japan's
government to deal with the nation's financial problems.
6
<PAGE> 9
REPORT FROM VANGUARD FIXED INCOME GROUP
Money Market Portfolio and High-Grade Bond Portfolio
In the semiannual period ended March 31, 1998, money market interest
rates ended essentially unchanged from their level at the beginning of the six
months, while bond yields declined across the board, boosting the prices of
bonds. In particular, long- and intermediate-term interest rates declined by
almost half a percentage point, which contributed to the overall price
appreciation of the High-Grade Bond Portfolio. Inflation remains at
historically low levels relative to short-term interest rates, allowing money
market investors to continue to enjoy positive real rates of return.
MONEY MARKET PORTFOLIO
During the six-month period ended March 31, the Money Market Portfolio earned
2.8%. Although money market interest rates were virtually the same at the end
of the period as at its beginning, there was some volatility over the
half-year, with yields on three-month U.S. Treasury bills fluctuating from a
low of 4.97% in early October to a high of 5.47% just before Christmas.
Economic figures released during the past six months indicate the
economy has been growing at a remarkable pace. However, robust growth in
employment and the continued strength in housing demand have not caused an
acceleration in the inflation rate, as one would expect in the latter stages of
the business cycle. The Federal Reserve Board would undoubtedly be acting to
reduce demand by raising interest rates, were it not for the expectation that
the financial troubles in Asia will eventually slow U.S. economic growth.
Until the Fed's policymakers can determine whether the strength in the
domestic economy will overcome the effects of Asia's economic woes, it's likely
that they will be content to sit on the sidelines and leave monetary policy
unchanged. With this outlook in mind, we extended the average maturity of the
Money Market Portfolio from a bearish position to a neutral stance. This change
will allow the Portfolio to take advantage of the upward slope in the yield
curve until Fed policy changes.
As in the past, our conservative investment philosophy emphasizes the
purchase of only high-quality securities, while also maintaining one of the
lowest expense ratios in the industry. These two factors combined contribute
directly to the superior investment returns achieved. We believe our low-cost,
high-quality formula puts us at a distinct advantage over our competitors, some
of which are compelled to reach for higher yields to compensate for the higher
expenses they charge their shareholders. For instance, Japanese banks were
recently forced to pay a premium of up to 1 percentage point above market
levels to attract investors in their short-term debt. Undoubtedly, some of our
competitors purchased these
7
<PAGE> 10
riskier securities in an attempt to bridge the gap resulting from the higher
expenses they charge. But we believe that the incremental returns these
securities offer are not commensurate with the level of risk taken, and we
stayed clear of them. The minimal expense ratio of the Money Market Portfolio
allows us to continue to outperform the vast majority of our competitors while
holding securities of superior credit quality.
HIGH-GRADE BOND PORTFOLIO
The High-Grade Bond Portfolio, which is designed to closely replicate the
performance of the Lehman Aggregate Bond Index, earned 4.4% and 11.8% during
the six- and twelve-month periods ended March 31, 1998. The Index itself earned
4.5% and 12.0%, respectively, for these periods. When our earnings are adjusted
for the Portfolio's operating expenses and transaction costs, neither of which
affects the theoretical Index, the Portfolio outperformed the Index by 0.1% for
the half-year and 0.2% for the twelve months.
On balance during the six months, the bond market experienced a
moderate decline in yields, which provided a tailwind for bonds. The Treasury
yield curve flattened slightly, as yields on 2-year Treasuries declined by
about 20 basis points (0.2 percentage point) and yields on 30-year issues fell
by nearly 50 basis points. Yields declined primarily because the rate of
inflation declined from already-low levels.
For the full year ending March 31, 1998, yields on 2-year Treasury
bills declined by about 90 basis points while yields on 10- and 30-year bonds
declined by 125 and about 120 basis points, respectively.
Returns of the various sectors of the Lehman Aggregate Bond Index for
the six- and twelve-month periods ended March 31 are shown in the adjacent
table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
PERIODS ENDED MARCH 31, 1998
---------------------------------
SIX-MONTH TWELVE-MONTH
TOTAL RETURNS TOTAL RETURNS
- ---------------------------------------------------------------------------
<S> <C> <C>
Lehman Aggregate Bond Index 4.54% 11.99%
- ---------------------------------------------------------------------------
Government Sector 4.88% 12.15%
- ---------------------------------------------------------------------------
Corporate Sector 4.49% 13.05%
- ---------------------------------------------------------------------------
Mortgage-Backed Sector 4.04% 11.14%
- ---------------------------------------------------------------------------
</TABLE>
The best-performing category during the first half of fiscal 1998 was
government bonds. Price declines associated with a widening of the spread
between Treasuries and corporate bonds (primarily the result of a flight to
quality by investors in response to the Asian crisis) more than offset the
higher income paid by corporate securities. Mortgage-backed securities lagged
well behind the government sector because a substantial increase in mortgage
loan refinancing, triggered by declining interest rates, shortened the average
lives of mortgage securities. As mortgage loans are paid off early through
refinancing, the extra principal payments must be reinvested at lower average
coupon yields.
Over the twelve-month period since March 31, 1997, the additional
yield available from corporate bonds resulted in that sector's outperforming
both the government and mortgage-backed sectors.
As of March 31, the Portfolio comprised 34% government bonds, 31%
corporate bonds, 31% mortgage-backed securities, and 4% foreign bonds
denominated in U.S. dollars.
David R. Glocke, Principal
Kenneth E. Volpert, Principal
April 9, 1998
INVESTMENT PHILOSOPHY
MONEY MARKET PORTFOLIO
The adviser believes a portfolio can provide the highest level of current
income consistent with capital preservation and liquidity by holding
high-quality money market instruments issued by financial institutions,
nonfinancial corporations, and the U.S. government.
HIGH-GRADE BOND
PORTFOLIO
The adviser believes a portfolio can provide sustainable, high levels of
current income by holding an extremely well-diversified group of U.S.
government, corporate, and mortgage-backed bonds that parallels the performance
of the Lehman Brothers Aggregate Bond Index.
8
<PAGE> 11
REPORT FROM WELLINGTON MANAGEMENT COMPANY, LLP
High Yield Bond Portfolio
This is our fourth letter to shareholders since the High Yield Bond
Portfolio began operations on June 3, 1996. For the six- and twelve-month
periods just ended, the Portfolio earned 5.6% and 15.1%, respectively. Yields
on 10-year Treasury bonds have fallen by nearly 0.5 percentage point, or 50
basis points, since the end of our fiscal year last September 30, and by a
total of 125 basis points since March 31, 1997. As we mentioned in the annual
report last fall, the below-investment-grade bond market usually outperforms
higher-quality bonds in periods when investors are anticipating strong economic
growth and interest rates are rising moderately. During the first half of
fiscal 1998, we experienced strong growth amid falling long-term interest
rates--an unusual combination. An additional anomaly is that the high-yield
market outperformed the investment-grade market despite the fall in the general
level of rates.
The below-investment-grade market continues to be popular with
investors as the annual default rate by corporate issuers remains at
historically low levels. We expect economic growth to slow somewhat this year,
but not so much as to cause the default rate to rise sharply. Companies with
stable cash flows should outperform issuers that are more sensitive to the
economy's ups and downs. We do not anticipate any major problems in the economy
that would cause your Portfolio to suffer meaningful deterioration in credit
quality.
We remain very selective about credit quality when examining the large
number of new issues coming to market. With strong cash flows into high-yield
mutual funds, the quality and age of companies coming to market are shifting. A
larger percentage of new issues are not rated, which is typical of speculative
markets. Also, companies in the early stages of development, which previously
had to rely exclusively on public or private sales of stock for financing until
they reached a critical level of sales, are now able to raise money in the
high-yield bond market. We are avoiding the nonrated and smaller start-up
companies, and we continue to emphasize the higher-quality spectrum of the
below-investment-grade market.
We perform in-depth credit research on a company-by-company basis and
stress diversification. The Portfolio currently owns bonds issued by a broad
range of companies from diverse industries. Our holdings continue to be
dominated by cash-paying issues rated B or better.
Twenty percent of the total value of high-yield bonds issued last year
were Yankee bonds (debt from foreign issuers whose securities are denominated
in U.S. dollars). Forty-nine percent of the Yankee issuance originated from
governments or corporations in Latin America; two years ago, only 5 percent of
Yankee issuance came from Latin America. Your Portfolio owns no bonds from
Latin American issuers, as we continue to monitor such issuers' willingness and
ability to service their debts in a timely fashion.
Earl E. McEvoy, Senior Vice President and
Portfolio Manager
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes a diversified group of high-yielding, medium- and
low-quality corporate bonds--selected after rigorous credit assessment--can
provide sustainable, high current income as well as some potential for capital
growth.
9
<PAGE> 12
REPORT FROM WELLINGTON MANAGEMENT COMPANY, LLP
Balanced Portfolio
During the six months ended March 31, the Balanced Portfolio earned a
return of 10.9%. The stock market continued its strong advance, and
fixed-income securities also provided solid returns. The Portfolio's equity
segment, which accounts for 62% of assets, gained 13.9%. The fixed-income
portion (including cash reserves), which makes up the remainder of the
Portfolio, provided a return of 6.3% as interest rates declined moderately.
The equity portion of the Portfolio continues to have an above-average
exposure to the financial-services, basic-materials, industrial, and energy
sectors. The basic-materials and energy sectors were weak performers during the
period, mainly because of concern about the effect of the economic problems in
Asia. Our equity returns were also tempered by the Portfolio's conservative
approach to stock selection, emphasizing value and focusing on dividend yield.
On the positive side, the financial-services sector, which at 20% of equity
assets is the Portfolio's largest industry concentration, continued to do quite
well, while our large holding in Xerox partially offset our underrepresentation
in the technology sector, where most stocks' low dividend yields make them
unsuitable for the Portfolio.
During the six months, we increased some existing stock holdings,
including Amoco in the energy sector, CIGNA in the financial-services group,
and AMP in producer durables. We also added some new names, including Waste
Management, the waste collection and disposal company, and Security Capital
Pacific Trust, a real estate investment trust.
As mentioned in our letter six months ago, we continue to find the
yield provided by long-term bonds quite attractive, given the low rate of
inflation. Most observers of the economy do not foresee a meaningful pickup in
inflation in the near term, but we are concerned that later this year or in
1999 tight labor markets and a recovery in Asia will rekindle fears of price
increases. In the stock market, the growth of corporate profits is beginning
to slow, and at some point this will temper enthusiasm for stocks. As a
result, we expect to keep the equity allocation of the Portfolio toward the
lower end of our policy range of 60% to 70% of assets.
Given today's high level of the stock market, we believe that our
conservative approach to equity and bond investing is a sound way to
participate in the financial markets.
Ernst H. von Metzsch, Senior Vice President and
Portfolio Manager
Paul D. Kaplan, Senior Vice President and
Portfolio Manager
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes that a reasonable level of current income and long-term
growth in capital can be achieved without undue risk by holding 60% to 70% of
assets in common stocks and the balance in fixed-income securities. Consistent
with this approach, dividend-paying stocks dominate the equity segment of the
Portfolio, while long-term, high-quality corporate, U.S. Treasury, and
mortgage-backed securities make up the bond segment.
10
<PAGE> 13
REPORT FROM NEWELL ASSOCIATES
Equity Income Portfolio
The stock market raced ahead during the six months ended March 31,
1998. The Equity Income Portfolio's total return of 17.1% was in line with the
17.2% return of the S&P 500 Index during the half-year and significantly
outperformed the 12.9% gain of the average equity income fund (as we have since
the Portfolio's inception in 1993).
PORTFOLIO REVIEW
The large regional telephone operating companies--the third-largest industry
group in the Portfolio--were star performers during the half-year, producing a
total return more than double that of the S&P 500. These companies continue to
reduce costs and to find new avenues for earnings growth, even though they have
not yet made great progress in entering the long-distance phone business.
Bank, drug, and electric companies were also major contributors to our
performance. All three groups are weighted more heavily in the Portfolio than
in the Index, and all outperformed the Index during the period. The banking
system is the healthiest it has been since the industry was deregulated. Banks
and bank stocks have benefited greatly from the recent environment of solid
economic growth combined with low inflation. The major drug companies continue
to make good earnings progress. Electric companies have been investment
outcasts since regulatory authorities began five years ago to plan for the
industry's deregulation, but many electric utilities have made substantial
headway in preparing for competition, and investor interest in the group has
gradually been reviving.
Petroleum stocks significantly lagged the S&P 500 Index in the last
six months, suffering from low oil prices and worries that lower demand in Asia
will further depress prices. However, company balance sheets are generally
strong, and the Portfolio's large position in this sector is an important hedge
against any unexpected pickup in inflation.
A MARKET AWASH WITH CASH
The most important reason for the continued rapid rise of the stock market is
simply that it is deluged with cash. The market has become such a beguiling
engine of wealth creation that investors of every stripe--individual and
corporate, foreign and domestic--continue to pour money into it, almost without
regard to valuation. Whether this will change in the near future no one can
say, but it is unlikely that the market's pace during the first three months of
calendar year 1998, when the S&P 500 Index rose 13.9%, can be long sustained.
One ancient adage undoubtedly still holds true: Trees do not grow to the sky.
Roger D. Newell, Chairman
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes that a portfolio made up of undervalued stocks, whose
dividend yields compared to the overall market are above-average, both
currently and in relation to historical norms, can provide a high level of
current income, the potential for capital appreciation, and below-average price
volatility for a stock mutual fund.
11
<PAGE> 14
REPORT FROM LINCOLN CAPITAL MANAGEMENT COMPANY
Growth Portfolio
It was mostly fireworks and celebration as the domestic stock market
just roared ahead during the six months ended March 31, 1998.
Large-capitalization stocks again more than pulled their weight, and growth
issues in particular did well.
After lagging its competitive benchmarks during fiscal 1997, your
Portfolio performed more in line with expectations--that is, ahead of the
principal indexes and the average growth mutual fund. For the one-, two-, and
three-year periods ended March 31, 1998, your Portfolio and the S&P 500 Index
earned compound annual returns exceeding 30%. Wow!
In these semiannual reports we usually highlight significant changes
in the Portfolio's composition. Here are key changes made during the half-year:
SECTOR WEIGHTINGS. The proportion of the Portfolio's assets invested in
consumer issues declined 2 percentage points to 29%, while health-care holdings
rose 3 points to 21%. As is usually the case, the Portfolio's holdings by
industry sector are within shouting distance of the Index's industry
composition.
HOLDINGS. Our stake in Philip Morris was trimmed and our holdings in Merck and
Warner-Lambert grew. During the six-month period, we eliminated 10 stocks,
mostly because of erosion in earnings expectations, and added 21 names, making
it a particularly productive period. The annualized turnover rate was about
50%, somewhat higher than usual.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
COMPANY BUSINESS
- ------------------------------------------------------------------------
<S> <C>
1. Microsoft Corp. #1 Software Producer
2. Pfizer, Inc. Innovative Pharmaceutical Company
3. The Coca-Cola Co. #1 Soft Drinks Company
4. Monsanto Co. #1 Agricultural Biotech Company
5. General Electric Co. Diversified Manufacturer
(#1 In Most Segments)
6. Procter & Gamble Co. #1 Household Products Company
7. Merck & Co., Inc. #1 Pharmaceutical Company
8. Cisco Systems, Inc. #1 Provider of Routers
9. Dell Computer Corp. A Leading Manufacturer of
Computer Systems
10. Intel Corp. #1 Semiconductor Manufacturer
- ------------------------------------------------------------------------
</TABLE>
LARGE CONCENTRATIONS. Four issues, all held six months ago, rose into the
Portfolio's top ten: General Electric, Merck, Cisco Systems, and Dell Computer.
Holdings of Philip Morris, Bristol-Myers Squibb, PepsiCo, and Hewlett-Packard
were trimmed and thus dropped from our top ten holdings.
The character of the holdings, mostly large-cap, high-quality growth
companies with strong global franchises, remained consistent.
Our ten largest individual stock holdings are listed in the table
above.
Dave Fowler, Portfolio Manager
Parker Hall, Portfolio Manager
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by emphasizing investments in high-quality, established growth companies whose
stocks sell at reasonable prices considering their expected earnings and
compared to values in the broad stock market.
12
<PAGE> 15
REPORT FROM GRANAHAN INVESTMENT MANAGEMENT, INC.
Small Company Growth Portfolio
Small-capitalization stocks took longer than large-cap stocks to shake
off the initial psychological pressures from the Asian financial crisis last
fall. The Small Company Growth Portfolio drifted lower for the first four
months of the fiscal half-year ended March 31, then recovered. Unfortunately,
our 3.0% return for the six-month period lagged the 5.2% return from the
average small-company growth fund and the 5.7% return on our unmanaged
benchmark, the Small Company Growth Fund Stock Index.
KEY PORTFOLIO HOLDINGS
The three largest industry groups in the Portfolio during the period were
consumer, technology, and health care (23%, 20%, and 18% of assets,
respectively).
Our consumer-related stocks generally performed well during the past
six months, led by companies in manufactured housing such as Nobility Homes,
American Homestar, and Palm Harbor Homes. Other good performers included Family
Golf Centers (driving ranges and leisure centers), American Italian Pasta
(pasta producer), and Vistana (vacation timeshare properties). The outlook for
earnings varies with each company, of course; our goal is to emphasize those
with internal growth objectives based on company-specific factors, as opposed
to those whose growth depends on a continuation of the favorable consumer
environment.
Our technology stocks, on the other hand, provided mixed returns and
as a group detracted from the Portfolio's performance. Some performed very
well, including Advent Software (investment management software), Melita
International (telecommunications software), and Documentum (document
management). However, there were some dramatic declines for stocks whose
earnings expectations fell, including ANADIGICS (gallium arsenide chips),
Xionics (printer software), and Remedy (help desk software). Internet
technologies are creating new ways of doing business that can help companies
improve their productivity and competitiveness. The Portfolio's holdings
include several companies that are participating in this rapidly developing
industry: QuickResponse (electronic data interchange catalog), E*TRADE
(electronic trading), Object Design (object-oriented database software), and
Documentum.
Stocks in the health-care sector performed well on balance over the
past six months, led by Sofamor Danek (spinal devices), Forest Labs
(pharmaceuticals), and Province Healthcare (owner-operator of rural hospitals).
Larger biotech stocks, such as Biogen and Genzyme, were good performers,
whereas stocks of small biotech companies like Cell Genesys and TheraTech
merely marked time, as the market emphasized reported earnings, not earnings
potential.
OVERVIEW
The Portfolio's holdings, as a group, are generating strong earnings growth. We
now expect our companies' earnings to increase at a somewhat faster pace than
the
13
<PAGE> 16
27% annual rate we forecast last September. If this expectation is met, our
stocks' earnings should compare quite favorably with the general trend in
corporate profits. Stock valuations, of course, are high generally; our
holdings now sell at an average price of about 25 times the latest 12 months'
earnings, about the same as the Russell 2000 Index of small-cap stocks.
John J. Granahan, Portfolio Manager
Gary C. Hatton, Assistant Portfolio Manager
Jane M. White, Assistant Portfolio Manager
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by emphasizing stocks of small and emerging companies (market capitalizations
of $100 million to $500 million) with favorable prospects for price
appreciation. While most of the companies have records of growth and strong
market positions, the Portfolio also invests in companies that are pioneering
new technologies or appear to be undervalued.
14
<PAGE> 17
REPORT FROM SCHRODER CAPITAL MANAGEMENT INTERNATIONAL
International Portfolio
The International Portfolio earned 2.4% during the six months ended
March 31. This return fell short of both of our benchmarks, the MSCI EAFE
Index, which rose by 5.9%, and the average international equity mutual fund,
which rose by 6.0%. In my letter six months ago, I reported a strong year
relative to the EAFE index; the latest half-year has eroded part of that
outperformance.
Our investment policy six months ago assumed that the financial crisis
in Southeast Asia would be limited. Taiwan's unnecessary and unexpected
devaluation in October changed all that, and the crisis extended to Hong Kong
and South Korea, which until then had not been affected. Indeed, the whole
world shuddered briefly as a consequence of the Asian crisis. Europe and the
United States regained their bullish trends within a month, but it took three
months and a much greater setback before some degree of confidence began to
return to Asia. The fall in Hong Kong, where 7% of the Portfolio was invested
six months ago, particularly hurt our performance.
I have maintained my confidence in the long-term future of Asia,
excepting Japan, and we have just under 10% of the Portfolio invested in the
region. This is down from 12.4% six months ago, but the decline was caused by
the fall in stock prices. In contrast, I reduced your Portfolio's Japanese
exposure significantly over the period, and Japanese equities now make up 16%
of net assets, down from 28% six months ago. This was largely achieved by
selling stocks that have done very well for the Portfolio. I reported to you
six months ago that your Japanese stocks had outperformed the local index by
30% in fiscal year 1997, and I believe that when Japan's market finally turns
upward, stocks such as those will not be leading the way.
The sale proceeds of the Japanese stocks were reinvested in Europe,
which now accounts for 67% of net assets. About 12% of the Portfolio's assets
are invested in the United Kingdom, which, like the United States, is at the
mature end of a long economic upswing but, unlike the United States, offers
relatively cheap stocks. The major part is invested in continental Europe,
which continues to be in an ideal economic position--early to midcycle in its
recovery, with easy monetary policy and strong growth in corporate profits. In
addition, companies continue to improve both structurally and financially. I
warned six months ago that stocks are not cheap, and they are now 20% higher.
The economic background remains supportive, but corporate results will have to
be very good to provide continued fuel to the bull market. In the coming
months, we shall probably be moving the Portfolio into more defensive European
companies.
Richard Foulkes
April 14, 1998
INVESTMENT PHILOSOPHY
The adviser believes that an international stock portfolio can achieve superior
long-term investment results by holding the stocks of non-U.S. companies with
the potential for above- average earnings growth. Particular emphasis is
placed on companies in countries with favorable business and market
environments.
15
<PAGE> 18
PORTFOLIO PROFILE
Money Market Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998. Key elements of this Profile are defined below and on page 17.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------------------
<S> <C>
Yield 5.4%
Average Maturity 61 days
Average Quality Aa1
Expense Ratio 0.19%*
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- -----------------------------------------------------
<S> <C>
Certificates of Deposit 31.1%
Commercial Paper 47.5
Other Notes 7.2
U.S. Government and Agency 14.2
- -----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------------
<S> <C>
Treasury/Agency 20.7%
Aaa 10.0
Aa 51.9
A 17.4
Baa 0.0
Ba 0.0
B 0.0
Not Rated 0.0
- -----------------------------------------------------
Total 100.0%
</TABLE>
AVERAGE COUPON. The average interest rate paid on the securities held by a
portfolio. It is expressed as a percentage of face value.
AVERAGE DURATION. An estimate of how much a bond portfolio's share price will
fluctuate in response to a change in interest rates. To see how the price
could shift, multiply the portfolio's duration by the change in rates. If
interest rates rise by one percentage point, the share price of a portfolio
with an average duration of five years would decline by about 5%. If rates
decrease by a percentage point, the portfolio's share price would rise by 5%.
AVERAGE MATURITY. The average length of time until bonds held by a portfolio
reach maturity (or are called) and are repaid. In general, the longer the
average maturity, the more a portfolio's share price will fluctuate in response
to changes in market interest rates.
AVERAGE QUALITY. An indicator of credit risk, this figure is the average of the
ratings assigned to a portfolio's securities holdings by credit-rating
agencies. The agencies make their judgment after appraising an issuer's ability
to meet its obligations. Quality is graded on a scale, with Aaa or AAA
indicating the most creditworthy bond issuers and A-1 or MIG-1 indicating the
most creditworthy corporate issuers of money market securities.
BETA. A measure of the magnitude of a portfolio's past share-price fluctuations
in relation to the ups and downs of the overall market (or appropriate market
index). The market (or index) is assigned a beta of 1.00, so a portfolio with a
beta of 1.20 would have seen its share price rise or fall by 12% when the
overall market rose or fell by 10%.
CASH RESERVES. The percentage of a portfolio's net assets invested in "cash
equivalents"--highly liquid, short-term, interest-bearing securities. This
figure does not include cash invested in futures contracts to simulate stock or
bond investment.
COUNTRY DIVERSIFICATION. The percentages of a portfolio's common stock invested
in securities of various countries.
16
<PAGE> 19
DISTRIBUTION BY CREDIT QUALITY. This breakdown of a portfolio's securities by
credit rating can help in gauging the risk that returns could be affected by
defaults or other credit problems.
DISTRIBUTION BY ISSUER. A breakdown of a portfolio's holdings by type of issuer
or type of instrument.
DISTRIBUTION BY MATURITY. An indicator of interest-rate risk. In general, the
higher the concentration of longer-maturity issues, the more a portfolio's
share price will fluctuate in response to changes in interest rates.
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
FOREIGN HOLDINGS. The percentage of a portfolio's net assets represented by
stocks or American Depositary Receipts of companies based outside the United
States.
INVESTMENT FOCUS. This grid indicates the focus of a portfolio in terms of two
attributes. For equity portfolios, the attributes are market capitalization
(large, medium, or small) and relative valuation (growth, value, or a blend).
For fixed-income portfolios, the attributes are average maturity (short,
medium, or long) and average credit quality (high, medium, or low).
MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalizations above the median, and the rest
are below it. PORTFOLIO ASSET ALLOCATION. This chart shows the proportions of
a portfolio's holdings allocated to different types of asset.
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, the weighted average price/book ratio of the
stocks it holds.
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a portfolio, the weighted average P/E of the
stocks it holds. P/E is an indicator of market expectations about corporate
prospects; the higher the P/E, the greater the expectations for a company's
future growth.
R-SQUARED. A measure of how much of a portfolio's past returns can be explained
by the returns from the overall market (or its benchmark index). If a
portfolio's total return were precisely synchronized with the overall market's
return, its R-squared would be 1.00. If a portfolio's returns bore no
relationship to the market's returns, its R-squared would be 0.
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a portfolio, the weighted average return
on equity for the companies whose stocks it holds.
SECTOR DIVERSIFICATION. The percentages of a portfolio's common stocks that
come from each of the major industry groups that compose the stock market.
TURNOVER RATE. An indication of trading activity during the period. Portfolios
with high turnover rates incur higher transaction costs and are more likely to
distribute capital gains (which are taxable to investors).
YIELD. A snapshot of a portfolio's income from interest and dividends. The
yield, expressed as a percentage of the portfolio's net asset value, is based
on income earned over the past 30 days (7 days for money market portfolios) and
is annualized, or projected forward for the coming year. The index yield is
based on the current annualized rate of dividends paid on stocks in the index.
17
<PAGE> 20
PORTFOLIO PROFILE
High-Grade Bond Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------------------
<S> <C>
Number of Issues 665
Yield 6.0%
Yield to Maturity 6.3%
Average Coupon 7.5%
Average Maturity 8.7 years
Average Quality Aa1
Average Duration 4.5 years
Expense Ratio 0.27%*
Cash Reserves 1.0%
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------
HIGH-GRADE LEHMAN
BOND INDEX*
- -----------------------------------------------------
<S> <C> <C>
R-Squared 1.00 1.00
Beta 1.00 1.00
</TABLE>
*Lehman Aggregate Bond Index.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------------------
<S> <C>
Under 1 Year 4.1%
1-5 Years 40.6
5-10 Years 34.8
10-20 Years 4.0
20-30 Years 15.1
Over 30 Years 1.4
- -----------------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -----------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -----------------------------------------------------
<S> <C>
Treasury/Agency 64.7%
Aaa 3.7
Aa 6.5
A 15.7
Baa 9.4
Ba 0.0
B 0.0
Not Rated 0.0
- -----------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- -----------------------------------------------------
<S> <C>
Asset-Backed 3.3%
Finance 13.8
Foreign 3.4
Industrial 11.1
Mortgage 31.4
U.S. Government and Agency 1.3
U.S. Treasury 32.4
Utilities 3.3
- -----------------------------------------------------
Total 100.0%
</TABLE>
18
<PAGE> 21
PORTFOLIO PROFILE
High Yield Bond Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998. Key elements of this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
FINANCIAL ATTRIBUTES
- -----------------------------------------------
<S> <C>
Number of Issues 168
Yield 8.3%
Yield to Maturity 8.5%
Average Coupon 9.3%
Average Maturity 6.8 years
Average Quality B1
Average Duration 4.8 years
Expense Ratio 0.30%*
Cash Reserves 2.4%
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
DISTRIBUTION BY MATURITY (% OF PORTFOLIO)
- -----------------------------------------------
<S> <C>
Under 1 Year 1.2%
1-5 Years 20.6
5-10 Years 71.5
10-20 Years 6.7
20-30 Years 0.0
Over 30 Years 0.0
- -----------------------------------------------
Total 100.0%
</TABLE>
INVESTMENT FOCUS
- -----------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
DISTRIBUTION BY CREDIT QUALITY (% OF PORTFOLIO)
- -------------------------------------------------
<S> <C>
Treasury/Agency 0.9%
Aaa 0.0
Aa 0.0
A 0.0
Baa 0.0
Ba 35.1
B 64.0
Not Rated 0.0
- -------------------------------------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF PORTFOLIO)
- -------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 5.2
Foreign 0.0
Industrial 90.7
Mortgage 0.0
U.S. Government and Agency 0.0
U.S. Treasury 0.0
Utilities 4.1
- -------------------------------------------------
Total 100.0%
</TABLE>
19
<PAGE> 22
PORTFOLIO PROFILE
Balanced Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CHARACTERISTICS
- ----------------------------------------------
<S> <C>
Yield 3.5%
Turnover Rate 30%*
Expense Ratio 0.29%*
Cash Reserves 1.5%
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO VOLATILITY MEASURES
- ----------------------------------------------
BALANCED S&P 500
- ----------------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 0.66 1.00
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ASSET ALLOCATION
- ----------------------------------------------
<S> <C>
STOCK 62%
BONDS 37%
CASH RESERVES 1%
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST STOCKS (% OF EQUITIES)
- ----------------------------------------------
<S> <C>
Citicorp 2.9%
Ford Motor Co. 2.8
Xerox Corp. 2.6
Pharmacia & Upjohn, Inc. 2.6
U.S. Bancorp 2.3
CIGNA Corp. 2.2
E.I. du Pont de Nemours & Co. 2.1
Union Pacific Corp. 1.9
Dow Chemical Co. 1.9
General Electric Co. 1.8
- ----------------------------------------------
Top Ten 23.1%
- ----------------------------------------------
Top Ten as % of Total Net Assets 14.4%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ---------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
--------------------------------------
BALANCED BALANCED S&P 500
--------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . . . . . . 8.4% 8.8% 3.6%
Consumer Discretionary . . . . . . . . . 3.1 4.3 10.0
Consumer Staples . . . . . . . . . . . . 3.3 2.8 10.9
Financial Services . . . . . . . . . . . 19.7 19.7 17.9
Health Care . . . . . . . . . . . . . . 12.5 12.4 11.7
Integrated Oils . . . . . . . . . . . . 9.5 9.1 6.7
Other Energy . . . . . . . . . . . . . . 0.0 0.6 1.2
Materials & Processing . . . . . . . . . 20.1 16.9 5.6
Producer Durables . . . . . . . . . . . 8.0 10.0 4.1
Technology . . . . . . . . . . . . . . . 0.0 1.0 12.0
Utilities . . . . . . . . . . . . . . . 8.4 9.1 10.7
Other . . . . . . . . . . . . . . . . . 7.0 5.3 5.6
- ---------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EQUITY CHARACTERISTICS
- ------------------------------------------------------------
BALANCED S&P 500
- ------------------------------------------------------------
<S> <C> <C>
Number of Stocks 103 500
Median Market Cap $21.9B $41.7B
Price/Earnings Ratio 20.2x 24.5x
Price/Book Ratio 3.3x 4.6x
Dividend Yield 2.1% 1.4%
Return on Equity 17.2% 20.7%
Earnings Growth Rate 13.2% 17.2%
Foreign Holdings 8.4% 1.9%
</TABLE>
EQUITY INVESTMENT FOCUS
- ------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
FIXED-INCOME CHARACTERISTICS
- ------------------------------------------------------------
<S> <C>
Number of Bonds 101
Yield to Maturity 6.5%
Average Coupon 7.1%
Average Maturity 19.3 years
Average Quality Aa2
Average Duration 9.5 years
</TABLE>
FIXED-INCOME INVESTMENT FOCUS
- ------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
DISTRIBUTION BY ISSUER (% OF BONDS)
- ------------------------------------------------------------
<S> <C>
Asset-Backed 0.0%
Finance 16.2
Foreign 8.1
Industrial 27.4
Mortgage 1.0
U.S. Government and Agency 0.5
U.S. Treasury 31.7
Utilities 15.1
- ------------------------------------------------------------
Total 100.0%
</TABLE>
DISTRIBUTION BY CREDIT QUALITY (% OF BONDS)
- ------------------------------------------------------------
Treasury/Agency 32.2%
Aaa 7.5
Aa 17.4
A 32.2
Baa 10.7
Ba 0.0
B 0.0
Not Rated 0.0
- ------------------------------------------------------------
Total 100.0%
21
<PAGE> 24
PORTFOLIO PROFILE
Equity Index Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------
EQUITY INDEX S&P 500
- --------------------------------------------------------------------
<S> <C> <C>
Number of Stocks 515 500
Median Market Cap $41.7B $41.7B
Price/Earnings Ratio 24.5x 24.5x
Price/Book Ratio 4.6x 4.6x
Yield 1.4% 1.4%
Return on Equity 20.7% 20.7%
Earnings Growth Rate 17.2% 17.2%
Foreign Holdings 1.9% 1.9%
Turnover Rate 1%* --
Expense Ratio 0.19%* --
Cash Reserves 0% --
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- --------------------------------------------------------------------
EQUITY INDEX S&P 500
- --------------------------------------------------------------------
<S> <C> <C>
R-Squared 1.00 1.00
Beta 1.00 1.00
</TABLE>
INVESTMENT FOCUS
- --------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -----------------------------------------------------------------------
<S> <C>
General Electric Co. 3.2%
Microsoft Corp. 2.5
The Coca-Cola Co. 2.2
Exxon Corp. 1.9
Merck & Co., Inc. 1.7
Pfizer, Inc. 1.4
Intel Corp. 1.4
Royal Dutch Petroleum Co. ADR 1.4
Wal-Mart Stores, Inc. 1.3
Procter & Gamble Co. 1.3
- -----------------------------------------------------------------------
Top Ten 18.3%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ---------------------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
----------------------------------------------
EQUITY INDEX EQUITY INDEX S&P 500
----------------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . . . . . . . . . . . . . 3.7% 3.6% 3.6%
Consumer Discretionary . . . . . . . . . . . . . . . . 9.7 10.0 10.0
Consumer Staples . . . . . . . . . . . . . . . . . . . 12.1 10.9 10.9
Financial Services . . . . . . . . . . . . . . . . . . 16.2 17.9 17.9
Health Care . . . . . . . . . . . . . . . . . . . . . 10.6 11.7 11.7
Integrated Oils . . . . . . . . . . . . . . . . . . . 8.2 6.7 6.7
Other Energy . . . . . . . . . . . . . . . . . . . . . 1.2 1.2 1.2
Materials & Processing . . . . . . . . . . . . . . . . 6.9 5.6 5.6
Producer Durables . . . . . . . . . . . . . . . . . . 4.6 4.1 4.1
Technology . . . . . . . . . . . . . . . . . . . . . . 11.5 12.0 12.0
Utilities . . . . . . . . . . . . . . . . . . . . . . 9.8 10.7 10.7
Other . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.6 5.6
- ---------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
PORTFOLIO PROFILE
Equity Income Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ------------------------------------------------------------------
EQUITY INCOME S&P 500
- ------------------------------------------------------------------
<S> <C> <C>
Number of Stocks 103 500
Median Market Cap $25.2B $41.7B
Price/Earnings Ratio 21.0x 24.5x
Price/Book Ratio 3.6x 4.6x
Yield 2.5% 1.4%
Return on Equity 18.9% 20.7%
Earnings Growth Rate 9.9% 17.2%
Foreign Holdings 2.0% 1.9%
Turnover Rate 1%* --
Expense Ratio 0.35%* --
Cash Reserves 1.0% --
</TABLE>
*Annualized.
INVESTMENT FOCUS
- ------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- ------------------------------------------------------------------
EQUITY INCOME S&P 500
- ------------------------------------------------------------------
<S> <C> <C>
R-Squared 0.86 1.00
Beta 0.70 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ------------------------------------------------------------------
<S> <C>
Bell Atlantic Corp. 3.2%
Exxon Corp. 2.8
Bristol-Myers Squibb Co. 2.7
American Home Products Corp. 2.6
Philip Morris Cos., Inc. 2.4
Mobil Corp. 2.4
Chevron Corp. 2.4
AT&T Corp. 2.3
Ameritech Corp. 2.2
GTE Corp. 2.2
- ------------------------------------------------------------------
Top Ten 25.2%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ---------------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
----------------------------------------------
EQUITY INCOME EQUITY INCOME S&P 500
---------------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . . . . . . . . . . 2.5% 3.1% 3.6%
Consumer Discretionary . . . . . . . . . . . . . 4.3 5.6 10.0
Consumer Staples . . . . . . . . . . . . . . . . 9.7 8.2 10.9
Financial Services . . . . . . . . . . . . . . . 17.7 19.6 17.9
Health Care . . . . . . . . . . . . . . . . . . 13.7 11.5 11.7
Integrated Oils . . . . . . . . . . . . . . . . 17.3 16.3 6.7
Other Energy . . . . . . . . . . . . . . . . . . 0.0 0.0 1.2
Materials & Processing . . . . . . . . . . . . . 5.0 4.6 5.6
Producer Durables . . . . . . . . . . . . . . . 1.6 1.8 4.1
Technology . . . . . . . . . . . . . . . . . . . 0.0 0.0 12.0
Utilities . . . . . . . . . . . . . . . . . . . 25.3 26.7 10.7
Other . . . . . . . . . . . . . . . . . . . . . 2.9 2.6 5.6
- -----------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
PORTFOLIO PROFILE
Growth Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -----------------------------------------------------------------
GROWTH S&P 500
- -----------------------------------------------------------------
<S> <C> <C>
Number of Stocks 68 500
Median Market Cap $66.3B $41.7B
Price/Earnings Ratio 33.6x 24.5x
Price/Book Ratio 8.5x 4.6x
Yield 0.6% 1.4%
Return on Equity 25.3% 20.7%
Earnings Growth Rate 20.8% 17.2%
Foreign Holdings 5.0% 1.9%
Turnover Rate 49%* --
Expense Ratio 0.36%* --
Cash Reserves 3.3% --
</TABLE>
*Annualized.
INVESTMENT FOCUS
- ------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -----------------------------------------------------------------
GROWTH S&P 500
- -----------------------------------------------------------------
<S> <C> <C>
R-Squared 0.89 1.00
Beta 0.99 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -----------------------------------------------------------------
<S> <C>
Microsoft Corp. 5.5%
Pfizer, Inc. 4.8
The Coca-Cola Co. 4.4
Monsanto Co. 4.4
General Electric Co. 4.0
Procter & Gamble Co. 3.3
Merck & Co., Inc. 3.1
Cisco Systems, Inc. 2.9
Dell Computer Corp. 2.8
Intel Corp. 2.7
- -----------------------------------------------------------------
Top Ten 37.9%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ------------------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
--------------------------------------------------
GROWTH GROWTH S&P 500
-------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . . . . . . . . . . 0.0% 0.0% 3.6%
Consumer Discretionary . . . . . . . . . . . . . 13.8 11.3 10.0
Consumer Staples . . . . . . . . . . . . . . . . 24.9 19.2 10.9
Financial Services . . . . . . . . . . . . . . . 12.9 12.2 17.9
Health Care . . . . . . . . . . . . . . . . . . 18.3 21.8 11.7
Integrated Oils . . . . . . . . . . . . . . . . 0.2 0.0 6.7
Other Energy . . . . . . . . . . . . . . . . . . 2.2 0.2 1.2
Materials & Processing . . . . . . . . . . . . . 7.6 8.4 5.6
Producer Durables . . . . . . . . . . . . . . . 4.2 2.0 4.1
Technology . . . . . . . . . . . . . . . . . . . 15.3 18.6 12.0
Utilities . . . . . . . . . . . . . . . . . . . 0.0 0.0 10.7
Other . . . . . . . . . . . . . . . . . . . . . 0.6 6.3 5.6
- ------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
PORTFOLIO PROFILE
Small Company Growth Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------------
SMALL COMPANY RUSSELL
GROWTH 2000
- ----------------------------------------------------------------
<S> <C> <C>
Number of Stocks 108 1,853
Median Market Cap $0.5B $0.8B
Price/Earnings Ratio 24.2x 22.1x
Price/Book Ratio 4.0x 3.0x
Yield 0.4% 1.2%
Return on Equity 19.4% 13.5%
Earnings Growth Rate 24.1% 14.9%
Foreign Holdings 1.2% 0%
Turnover Rate 115%* --
Expense Ratio 0.39%* --
Cash Reserves 4.2% --
</TABLE>
*Annualized.
INVESTMENT FOCUS
- ------------------------------------------------------------------
[GRAPHIC]
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- ----------------------------------------------------------------
<S> <C>
QuickResponse Services, Inc. 2.6%
Synopsys, Inc. 2.4
Genzyme Corp. 2.4
General Cable Corp. 2.3
Concord EFS, Inc. 2.2
Pinnacle Systems, Inc. 2.1
Biogen, Inc. 2.1
Remedy Corp. 2.1
Comdisco, Inc. 2.0
Advent Software, Inc. 1.9
- ----------------------------------------------------------------
Top Ten 22.1%
</TABLE>
<TABLE>
<CAPTION>
SECTOR DIVERSIFICATION (% OF COMMON STOCKS)
- ------------------------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
---------------------------------------------------
SMALL COMPANY SMALL COMPANY RUSSELL
GROWTH GROWTH 2000
---------------------------------------------------
<S> <C> <C> <C>
Auto & Transportation . . . . . . . . . . . . . 7.7% 5.6% 4.2%
Consumer Discretionary . . . . . . . . . . . . . 14.0 23.8 17.4
Consumer Staples . . . . . . . . . . . . . . . . 0.7 0.8 2.8
Financial Services . . . . . . . . . . . . . . . 15.0 14.4 24.6
Health Care . . . . . . . . . . . . . . . . . . 17.7 17.9 9.6
Integrated Oils . . . . . . . . . . . . . . . . 0.0 0.0 0.4
Other Energy . . . . . . . . . . . . . . . . . . 1.8 0.2 3.3
Materials & Processing . . . . . . . . . . . . . 2.1 7.7 9.5
Producer Durables . . . . . . . . . . . . . . . 11.8 12.5 7.8
Technology . . . . . . . . . . . . . . . . . . . 23.6 15.8 11.9
Utilities . . . . . . . . . . . . . . . . . . . 0.8 0.9 7.3
Other . . . . . . . . . . . . . . . . . . . . . 4.8 0.4 1.2
- ------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
PORTFOLIO PROFILE
International Portfolio
This Profile provides a snapshot of the Portfolio's characteristics as of March
31, 1998, compared where appropriate to an unmanaged index. Key elements of
this Profile are defined on pages 16 and 17.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
- -------------------------------------------------------------
INTERNATIONAL MSCI EAFE
- -------------------------------------------------------------
<S> <C> <C>
Number of Stocks 130 1,109
Turnover Rate 33%* --
Expense Ratio 0.47%* --
Cash Reserves 3.8% --
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
VOLATILITY MEASURES
- -------------------------------------------------------------
INTERNATIONAL MSCI EAFE
- -------------------------------------------------------------
<S> <C> <C>
R-Squared 0.88 1.00
Beta 0.97 1.00
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
- -------------------------------------------------------------
<S> <C>
Novartis AG (Registered) 5.2%
ING Groep NV 4.5
Fuji Photo Film Co., Ltd. 3.2
Elf Aquitaine SA 2.8
Philips Electronics NV 2.4
Compagnie Generale des Eaux SA 2.3
ABB AG (Bearer) 2.1
Endesa SA 2.0
Zurich Insurance Co. (Registered) 1.9
British Petroleum Co., PLC 1.9
- -------------------------------------------------------------
Top Ten 28.3%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ALLOCATION
- -------------------------------------------------------------
<S> <C>
EUROPE 70%
JAPAN 17%
PACIFIC (MINUS JAPAN) 8%
EMERGING MARKETS 5%
</TABLE>
<TABLE>
<CAPTION>
COUNTRY DIVERSIFICATION (% OF COMMON STOCKS)
- -------------------------------------------------------------
INTERNATIONAL MSCI EAFE
- -------------------------------------------------------------
<S> <C> <C>
Argentina 0.2% 0.0%
Australia 0.0 2.6
Belgium 1.0 1.5
Brazil 2.2 0.0
Chile 0.2 0.0
Denmark 0.9 1.1
Finland 0.0 0.9
France 9.0 8.7
Germany 8.4 10.0
Hong Kong 4.9 2.4
Indonesia 0.2 0.0
Ireland 0.4 0.5
Italy 4.3 4.9
Japan 16.6 22.3
Malaysia 1.5 0.9
Mexico 0.6 0.0
Netherlands 14.5 5.6
Norway 0.0 0.6
Philippines 0.9 0.0
Portugal 0.0 0.7
Singapore 1.6 0.8
South Korea 0.8 0.0
Spain 2.1 3.2
Sweden 2.7 3.1
Switzerland 14.3 7.9
Thailand 0.1 0.0
United Kingdom 12.6 21.8
Other 0.0 0.5
- -------------------------------------------------------------
Total 100.0% 100.0%
</TABLE>
26
<PAGE> 29
PERFORMANCE SUMMARIES
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely, so an investment in the
Portfolio could lose money. An investment in a money market fund is neither
insured nor guaranteed by the U.S. government, and there is no assurance that
the fund will be able to maintain a stable net asset value of $1 per share.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
TOTAL INVESTMENT RETURNS: MAY 2, 1991-MARCH 31, 1998
- -------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO AVERAGE
FUND*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991 0.0% 2.3% 2.3% 2.3%
1992 0.0 4.1 4.1 3.8
1993 0.0 3.1 3.1 2.6
1994 0.0 3.6 3.6 3.1
1995 0.0 5.8 5.8 5.3
1996 0.0 5.5 5.5 4.9
1997 0.0 5.5 5.5 4.9
1998** 0.0 2.8 2.8 2.5
- -------------------------------------------------------------------------------------
</TABLE>
*Average Money Market Fund.
**Six months ended March 31, 1998.
See Financial Highlights table on page 40 for dividend information for the past
five years.
<TABLE>
<CAPTION>
HIGH-GRADE BOND PORTFOLIO
TOTAL INVESTMENT RETURNS: APRIL 29, 1991-MARCH 31, 1998
- -------------------------------------------------------------------------------------
HIGH-GRADE BOND PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991 2.4% 3.1% 5.5% 6.2%
1992 4.2 7.3 11.5 12.6
1993 3.3 6.3 9.6 10.0
1994 -8.9 5.6 -3.3 -3.2
1995 6.6 7.2 13.8 14.1
1996 -1.7 6.5 4.8 4.9
1997 2.7 6.9 9.6 9.7
1998** 1.2 3.2 4.4 4.5
- -------------------------------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
**Six months ended March 31, 1998.
See Financial Highlights table on page 41 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 5/2/1991 5.61% 4.93% 0.00% 4.73% 4.73%
High-Grade Bond Portfolio 4/29/1991 11.77 6.81 1.30 6.69 7.99
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely, so an investment in the
Portfolios could lose money.
<TABLE>
<CAPTION>
HIGH YIELD BOND PORTFOLIO
TOTAL INVESTMENT RETURNS: JUNE 3, 1996-MARCH 31, 1998
- ----------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1.5% 3.1% 4.6% 3.7%
1997 4.4 9.7 14.1 14.5
1998** 1.2 4.4 5.6 5.4
- ----------------------------------------------------------------------------
</TABLE>
*Lehman High Yield Bond Index.
**Six months ended March 31, 1998.
See Financial Highlights table on page 41 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
TOTAL INVESTMENT RETURNS: MAY 23, 1991-MARCH 31, 1998
- ----------------------------------------------------------------------------------
BALANCED PORTFOLIO COMPOSITE
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991 2.5% 0.0% 2.5% 2.8%
1992 5.7 4.6 10.3 12.3
1993 7.2 6.9 14.1 13.7
1994 -0.8 3.5 2.7 -0.4
1995 18.5 5.2 23.7 26.6
1996 11.1 4.2 15.3 14.3
1997 26.0 1.6 27.6 30.2
1998** 7.2 3.7 10.9 13.6
- ---------------------------------------------------------------------------------
</TABLE>
*65% S&P 500 Index, 35% Lehman Long Corporate AA or Better Bond Index.
**Six months ended March 31, 1998.
See Financial Highlights table on page 42 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998
- ---------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High Yield Bond Portfolio 6/3/1996 15.14% -- 3.91% 9.59% 13.50%
Balanced Portfolio 5/23/1991 32.06 16.93% 11.03 4.38 15.41
- ---------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely, so an investment in the
Portfolios could lose money.
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
TOTAL INVESTMENT RETURNS: APRIL 29, 1991-MARCH 31, 1998
- ---------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1991 4.5% 0.0% 4.5% 5.4%
1992 8.3 2.4 10.7 11.1
1993 9.5 3.2 12.7 13.0
1994 1.6 1.9 3.5 3.7
1995 26.6 2.9 29.5 29.7
1996 17.8 2.4 20.2 20.3
1997 38.9 1.4 40.3 40.4
1998* 15.5 1.6 17.1 17.2
- ---------------------------------------------------------------------------
</TABLE>
*Six months ended March 31, 1998.
See Financial Highlights table on page 42 for dividend and capital gains
information for the past five years.
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
TOTAL INVESTMENT RETURNS: JUNE 7, 1993-MARCH 31, 1998
- ----------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 5.7% 1.1% 6.8% 3.4%
1994 -4.8 3.2 -1.6 3.7
1995 20.0 5.7 25.7 29.7
1996 14.8 4.3 19.1 20.3
1997 36.6 1.5 38.1 40.4
1998* 14.5 2.6 17.1 17.2
- ----------------------------------------------------------------------------
</TABLE>
*Six months ended March 31, 1998.
See Financial Highlights table on page 43 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998
- ------------------------------------------------------------------------------------------
INCEPTION SINCE INCEPTION
---------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Index Portfolio 4/29/1991 47.85% 22.21% 17.14% 2.48% 19.62%
Equity Income Portfolio 6/7/1993 43.05 -- 17.44 3.94 21.38
- ------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
PERFORMANCE SUMMARIES (continued)
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolios. Note, too,
that both share price and return can fluctuate widely, so an investment in the
Portfolios could lose money.
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: JUNE 7, 1993-MARCH 31, 1998
- ---------------------------------------------------------------------------
GROWTH PORTFOLIO S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 2.6% 0.0% 2.6% 3.4%
1994 5.2 0.7 5.9 3.7
1995 30.7 1.3 32.0 29.7
1996 26.4 1.4 27.8 20.3
1997 27.4 1.4 28.8 40.4
1998* 19.2 1.2 20.4 17.2
- ---------------------------------------------------------------------------
</TABLE>
*Six months ended March 31, 1998.
See Financial Highlights table on page 43 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH PORTFOLIO
TOTAL INVESTMENT RETURNS: JUNE 3, 1996-MARCH 31, 1998
- ---------------------------------------------------------------------------
SMALL COMPANY SMALL
GROWTH PORTFOLIO COMPANY
INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 -1.6% 0.0% -1.6% -4.4%
1997 21.6 0.6 22.2 33.5
1998** 2.7% 0.3% 3.0% 5.7%
- ---------------------------------------------------------------------------
</TABLE>
*Russell 2000 Index through July 1997; Small Company Growth Fund Stock Index
thereafter.
**Six months ended March 31, 1998.
See Financial Highlights table on page 44 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Portfolio 6/7/1993 45.28% 22.99% 1.23% 24.22%
Small Company Growth Portfolio 6/3/1996 39.36 11.98 0.47 12.45
- --------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
All of the data on this page represent past performance, which cannot be used
to predict future returns that may be achieved by the Portfolio. Note, too,
that both share price and return can fluctuate widely, so an investment in the
Portfolio could lose money.
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
TOTAL INVESTMENT RETURNS: JUNE 3, 1994-MARCH 31, 1998
- ----------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO MSCI EAFE
FISCAL CAPITAL INCOME TOTAL TOTAL
YEAR RETURN RETURN RETURN RETURN
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 3.1% 0.0% 3.1% 0.1%
1995 10.6 0.6 11.2 6.1
1996 11.8 1.6 13.4 8.9
1997 17.2 1.4 18.6 12.5
1998* 1.0 1.4 2.4 5.9
- ----------------------------------------------------------------------------
</TABLE>
*Six months ended March 31, 1998.
See Financial Highlights table on page 44 for dividend and capital gains
information since the Portfolio's inception.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED MARCH 31, 1998
- -----------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International Portfolio 6/3/1994 14.60% 11.35% 1.31% 12.66%
- -----------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
FINANCIAL STATEMENTS
March 31, 1998 (unaudited)
The Statements of Net Assets, integral parts of the Financial Statements for
each of the Vanguard Variable Insurance Fund Portfolios, are included as an
insert to this report.
STATEMENT OF OPERATIONS
This Statement shows dividend and interest income earned by each Portfolio
during the reporting period, and details the operating expenses charged to the
Portfolio. This Statement also shows any Net Gain (Loss) realized on the sale
of investments, and the increase or decrease in the Unrealized Appreciation
(Depreciation) on investments during the period. If a Portfolio invested in
futures contracts during the period, the results of these investments are shown
separately. The International Portfolio's realized and unrealized gains
(losses) on investment securities include the effect of foreign currency
movements on security values. Currency gains (losses) on the translation of
other assets and liabilities, combined with the results of any investments in
forward currency contracts during the period, are shown separately.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MONEY HIGH-GRADE HIGH YIELD
MARKET BOND BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends -- -- -- $ 3,419
Interest $11,508 $6,963 $4,639 6,336
-----------------------------------------------------------
Total Income 11,508 6,963 4,639 9,755
-----------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 26 13 33 249
Performance Adjustment -- -- -- (31)
The Vanguard Group--Note C
Management and Administrative 262 222 105 432
Marketing and Distribution 73 19 9 45
Custodian Fees 10 28 1 3
Auditing Fees 5 5 5 5
Shareholders' Reports 5 3 2 7
Annual Meeting and Proxy Costs 3 2 1 5
Trustees' Fees and Expenses -- -- -- 1
-----------------------------------------------------------
Total Expenses 384 292 156 716
Expenses Paid Indirectly--Note D -- -- (1) (27)
-----------------------------------------------------------
Net Expenses 384 292 155 689
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 11,124 6,671 4,484 9,066
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (5) 338 932 17,787
Futures Contracts -- -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (5) 338 932 17,787
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- 1,863 325 26,182
Futures Contracts -- -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- 1,863 325 26,182
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $11,119 $8,872 $5,741 $53,035
===============================================================================================================
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SMALL
EQUITY EQUITY COMPANY
INDEX INCOME GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------
(000) (000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 5,930 $ 4,773 $ 2,322 $ 327
Interest 748 113 522 274
-----------------------------------------------------------
Total Income 6,678 4,886 2,844 601
-----------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 7 165 381 102
Performance Adjustment -- -- -- (30)
The Vanguard Group--Note C
Management and Administrative 648 346 449 164
Marketing and Distribution 71 28 48 13
Custodian Fees 6 9 6 4
Auditing Fees 6 5 6 5
Shareholders' Reports 8 5 8 3
Annual Meeting and Proxy Costs 6 4 5 2
Trustees' Fees and Expenses 1 -- 1 --
-----------------------------------------------------------
Total Expenses 753 562 904 263
Expenses Paid Indirectly--Note D -- -- -- --
-----------------------------------------------------------
Net Expenses 753 562 904 263
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,925 4,324 1,940 338
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 1,811 659 16,236 (4,155)
Futures Contracts 2,616 -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 4,427 659 16,236 (4,155)
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 120,490 48,211 77,931 7,449
Futures Contracts 737 -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 121,227 48,211 77,931 7,449
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $131,579 $53,194 $96,107 $3,632
===============================================================================================================
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (continued)
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL
PORTFOLIO
-----------------
SIX MONTHS ENDED
MARCH 31, 1998
-----------------
(000)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends* $ 756
Interest 334
-----------------
Total Income 1,090
-----------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 139
Performance Adjustment 39
The Vanguard Group--Note C
Management and Administrative 245
Marketing and Distribution 24
Custodian Fees 68
Auditing Fees 5
Shareholders' Reports 6
Annual Meeting and Proxy Costs 4
Trustees' Fees and Expenses --
-----------------
Total Expenses 530
Expenses Paid Indirectly--Note D --
-----------------
Net Expenses 530
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 560
- -----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (1,244)
Futures Contracts --
Foreign Currencies and Forward Currency Contracts 1,243
- -----------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (1)
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 3,088
Futures Contracts --
Foreign Currencies and Forward Currency Contracts (11)
- -----------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 3,077
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,636
===========================================================================================================
</TABLE>
*Dividends for the International Portfolio are net of foreign withholding taxes
of $123,000.
34
<PAGE> 37
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each Portfolio's total net assets changed during the
two most recent reporting periods. The Operations section summarizes
information detailed in the Statement of Operations. Because the Money Market,
High-Grade Bond, and High Yield Bond Portfolios distribute their income to
shareholders each day, the amounts of Distributions--Net Investment Income
generally equal the net income earned as shown under the Operations section.
The other Portfolios' amounts of Distributions--Net Investment Income, and all
Portfolios' amounts of Distributions--Realized Capital Gain, may not match the
amounts shown in the Operations section, because distributions are determined
on a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the amount shareholders invested in
the Portfolio, either by purchasing shares or by reinvesting distributions, as
well as the amounts redeemed. The corresponding numbers of Shares Issued and
Redeemed are shown at the end of the Statement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET HIGH-GRADE
PORTFOLIO BOND PORTFOLIO
--------------------------------- -------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAR. 31, 1998 SEP. 30, 1997 MAR. 31, 1998 SEP. 30, 1997
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 11,124 $ 19,140 $ 6,671 $ 10,507
Realized Net Gain (Loss) (5) -- 338 45
Change in Unrealized Appreciation (Depreciation) -- -- 1,863 4,504
------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 11,119 19,140 8,872 15,056
------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (11,124) (19,140) (6,671) (10,507)
Realized Capital Gain -- -- -- --
------------------------------------------------------------------------------
Total Distributions (11,124) (19,140) (6,671) (10,507)
------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 434,394 816,202 65,085 72,451
Issued in Lieu of Cash Distributions 11,124 19,140 6,671 10,507
Redeemed (392,739) (727,724) (25,079) (39,093)
------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 52,779 107,618 46,677 43,865
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 52,774 107,618 48,878 48,414
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 392,599 284,981 187,890 139,476
------------------------------------------------------------------------------
End of Period $445,373 $392,599 $236,768 $187,890
==================================================================================================================================
(1) Shares Issued (Redeemed)
Issued 434,394 816,202 6,080 6,960
Issued in Lieu of Cash Distributions 11,124 19,140 623 1,007
Redeemed (392,739) (727,724) (2,344) (3,751)
------------------------------------------------------------------------------
Net Increase (Decrease) in Shares Outstanding 52,779 107,618 4,359 4,216
==================================================================================================================================
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BALANCED
BOND PORTFOLIO PORTFOLIO
--------------------------------- -------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAR. 31, 1998 SEP. 30, 1997 MAR. 31, 1998 SEP. 30, 1997
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 4,484 $ 4,575 $ 9,066 $ 15,492
Realized Net Gain (Loss) 932 125 17,787 23,864
Change in Unrealized Appreciation (Depreciation) 325 2,050 26,182 55,895
------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 5,741 6,750 53,035 95,251
------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (4,484) (4,575) (15,773) (4,238)
Realized Capital Gain (124) (25) (21,821) (12,490)
------------------------------------------------------------------------------
Total Distributions (4,608) (4,600) (37,594) (16,728)
------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 59,246 81,826 69,488 109,112
Issued in Lieu of Cash Distributions 4,608 4,600 37,594 16,728
Redeemed (20,667) (25,934) (36,876) (66,658)
------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 43,187 60,492 70,206 59,182
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 44,320 62,642 85,647 137,705
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 84,887 22,245 467,779 330,074
------------------------------------------------------------------------------
End of Period $129,207 $84,887 $553,426 $467,779
==================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,569 7,895 3,998 6,790
Issued in Lieu of Cash Distributions 433 443 2,290 1,151
Redeemed (1,944) (2,512) (2,128) (4,193)
------------------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 4,058 5,826 4,160 3,748
==================================================================================================================================
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX EQUITY INCOME
PORTFOLIO PORTFOLIO
--------------------------------- -------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAR. 31, 1998 SEP. 30, 1997 MAR. 31, 1998 SEP. 30, 1997
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 5,925 $ 9,698 $ 4,324 $ 6,170
Realized Net Gain (Loss) 4,427 6,531 659 5,925
Change in Unrealized Appreciation (Depreciation) 121,227 166,268 48,211 51,449
------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 131,579 182,497 53,194 63,544
------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (9,840) (4,266) (6,052) (1,585)
Realized Capital Gain (6,946) (2,021) (5,674) (1,796)
------------------------------------------------------------------------------
Total Distributions (16,786) (6,287) (11,726) (3,381)
------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 146,886 247,088 96,373 107,054
Issued in Lieu of Cash Distributions 16,786 6,287 11,726 3,381
Redeemed (71,124) (117,809) (30,285) (41,578)
------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 92,548 135,566 77,814 68,857
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 207,341 311,776 119,282 129,020
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 717,671 405,895 271,209 142,189
------------------------------------------------------------------------------
End of Period $925,012 $717,671 $ 390,491 $271,209
==================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,660 11,303 5,107 6,672
Issued in Lieu of Cash Distributions 699 341 677 244
Redeemed (2,760) (5,455) (1,604) (2,626)
------------------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 3,599 6,189 4,180 4,290
==================================================================================================================================
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
GROWTH SMALL COMPANY
PORTFOLIO GROWTH PORTFOLIO
--------------------------------- -------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAR. 31, 1998 SEP. 30, 1997 MAR. 31, 1998 SEP. 30, 1997
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,940 $ 4,179 $ 338 $ 463
Realized Net Gain (Loss) 16,236 12,234 (4,155) (558)
Change in Unrealized Appreciation (Depreciation) 77,931 75,855 7,449 20,663
------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 96,107 92,268 3,632 20,568
------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (4,303) (2,913) (483) (190)
Realized Capital Gain (12,264) (11,246) -- --
------------------------------------------------------------------------------
Total Distributions (16,567) (14,159) (483) (190)
------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 80,989 189,268 51,488 99,236
Issued in Lieu of Cash Distributions 16,567 14,159 483 190
Redeemed (53,050) (96,819) (43,126) (30,861)
------------------------------------------------------------------------------
Net Increase (Decrease) from
Capital Share Transactions 44,506 106,608 8,845 68,565
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 124,046 184,717 11,994 88,943
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 460,319 275,602 133,122 44,179
------------------------------------------------------------------------------
End of Period $584,365 $460,319 $145,116 $133,122
==================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 3,642 9,841 4,509 9,757
Issued in Lieu of Cash Distributions 810 846 42 20
Redeemed (2,424) (4,969) (3,866) (3,146)
------------------------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 2,028 5,718 685 6,631
==================================================================================================================================
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
PORTFOLIO
-----------------------------------------
SIX MONTHS YEAR
ENDED ENDED
MAR. 31, 1998 SEP. 30, 1997
(000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 560 $ 2,863
Realized Net Gain (Loss) (1) 2,489
Change in Unrealized Appreciation (Depreciation) 3,077 28,331
-----------------------------------------
Net Increase in Net Assets Resulting from Operations 3,636 33,683
-----------------------------------------
DISTRIBUTIONS
Net Investment Income (3,016) (1,802)
Realized Capital Gain (2,345) (4,118)
-----------------------------------------
Total Distributions (5,361) (5,920)
-----------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 39,219 107,424
Issued in Lieu of Cash Distributions 5,361 5,920
Redeemed (52,536) (56,513)
-----------------------------------------
Net Increase (Decrease) from Capital Share Transactions (7,956) 56,831
- --------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) (9,681) 84,594
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 246,116 161,522
-----------------------------------------
End of Period $236,435 $246,116
====================================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,915 7,928
Issued in Lieu of Cash Distributions 412 489
Redeemed (3,976) (4,189)
-----------------------------------------
Net Increase (Decrease) in Shares Outstanding (649) 4,228
====================================================================================================================
</TABLE>
39
<PAGE> 42
FINANCIAL HIGHLIGHTS
This table summarizes each Portfolio's investment results and distributions to
shareholders on a per-share basis. It also presents the Portfolio's Total
Return and shows net investment income and expenses as percentages of average
net assets. These data will help you assess: the variability of the Portfolio's
net income and total returns from year to year; the relative contributions of
net income and capital gains to the Portfolio's total return; and how much it
costs to operate the Portfolio.
The table also shows the Portfolio Turnover Rate, a measure of trading
activity. A turnover rate of 100% means that the average security is held in
the Portfolio for one year. Money market portfolios are not required to report
a Portfolio Turnover Rate. Finally, the table lists the Portfolio's Average
Commission Rate Paid, a disclosure required by the Securities and Exchange
Commission beginning in 1996 for portfolios that invest in equity securities.
This rate is calculated by dividing total commissions paid on portfolio
securities by the total number of shares purchased and sold on which
commissions were charged.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED SEPTEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ----------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .027 .054 .054 .056 .035 .030
Net Realized and Unrealized Gain (Loss)
on Investments -- -- -- -- -- --
---------------------------------------------------------------------------
Total from Investment Operations .027 .054 .054 .056 .035 .030
---------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.027) (.054) (.054) (.056) (.035) (.030)
Distributions from Realized Capital Gains -- -- -- -- -- --
---------------------------------------------------------------------------
Total Distributions (.027) (.054) (.054) (.056) (.035) (.030)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================================================
TOTAL RETURN 2.78% 5.48% 5.49% 5.77% 3.63% 3.05%
=================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $445 $393 $285 $218 $171 $114
Ratio of Total Expenses to
Average Net Assets 0.19%* 0.21% 0.19% 0.23% 0.23% 0.29%
Ratio of Net Investment Income to
Average Net Assets 5.51%* 5.36% 5.36% 5.66% 3.66% 3.00%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
40
<PAGE> 43
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
HIGH-GRADE BOND PORTFOLIO
YEAR ENDED SEPTEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -----------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.57 $10.29 $10.47 $ 9.82 $10.94 $10.64
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .333 .678 .670 .663 .619 .636
Net Realized and Unrealized Gain (Loss)
on Investments .130 .280 (.180) .650 (.966) .349
---------------------------------------------------------------------------
Total from Investment Operations .463 .958 .490 1.313 (.347) .985
---------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.333) (.678) (.670) (.663) (.619) (.636)
Distributions from Realized Capital Gains -- -- -- -- (.154) (.049)
---------------------------------------------------------------------------
Total Distributions (.333) (.678) (.670) (.663) (.773) (.685)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.70 $10.57 $10.29 $10.47 $ 9.82 $10.94
============================================================================================================================
TOTAL RETURN 4.42% 9.60% 4.80% 13.83% -3.31% 9.64%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $237 $188 $139 $120 $80 $85
Ratio of Total Expenses to
Average Net Assets 0.27%* 0.29% 0.25% 0.29% 0.24% 0.29%
Ratio of Net Investment Income to
Average Net Assets 6.25%* 6.51% 6.43% 6.58% 5.98% 5.92%
Portfolio Turnover Rate 49%* 40% 56% 29% 46% 73%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING SIX MONTHS ENDED YEAR ENDED JUN. 3* TO
THROUGHOUT EACH PERIOD MARCH 31, 1998 SEP. 30,1997 SEP. 30, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.59 $10.15 $10.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .455 .922 .299
Net Realized and Unrealized Gain (Loss) on Investments .125 .450 .150
-------------------------------------------
Total from Investment Operations .580 1.372 .449
-------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.455) (.922) (.299)
Distributions from Realized Capital Gains (.015) (.010) --
-------------------------------------------
Total Distributions (.470) (.932) (.299)
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.70 $10.59 $10.15
=========================================================================================================
TOTAL RETURN 5.59% 14.12% 4.56%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $129 $85 $22
Ratio of Total Expenses to Average Net Assets 0.30%** 0.31% 0.32%**
Ratio of Net Investment Income to Average Net Assets 8.58%** 8.88% 9.29%**
Portfolio Turnover Rate 42%** 30% 8%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
41
<PAGE> 44
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
YEAR ENDED SEPTEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ------------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $17.97 $14.81 $13.33 $11.33 $11.58 $10.83
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .30 .60 .565 .51 .46 .50
Net Realized and Unrealized Gain (Loss)
on Investments 1.49 3.31 1.420 2.07 (.16) .97
-----------------------------------------------------------------------------
Total from Investment Operations 1.79 3.91 1.985 2.58 .30 1.47
-----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.60) (.19) (.505) (.50) (.39) (.69)
Distributions from Realized Capital Gains (.83) (.56) -- (.08) (.16) (.03)
-----------------------------------------------------------------------------
Total Distributions (1.43) (.75) (.505) (.58) (.55) (.72)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.33 $17.97 $14.81 $13.33 $11.33 $11.58
============================================================================================================================
TOTAL RETURN 10.89% 27.60% 15.26% 23.65% 2.67% 14.10%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $553 $468 $330 $280 $230 $191
Ratio of Total Expenses to
Average Net Assets 0.29%* 0.32% 0.31% 0.36% 0.34% 0.39%
Ratio of Net Investment Income to
Average Net Assets 3.63%* 3.96% 4.04% 4.25% 4.11% 4.45%
Portfolio Turnover Rate 30%* 25% 36% 26% 42% 41%
Average Commission Rate Paid $.0414 $.0462 $.0393 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
YEAR ENDED SEPTEMBER 30,
FOR A SHARE OUTSTANDING SIX MONTHS ENDED ------------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $25.32 $18.32 $15.69 $12.47 $12.37 $11.32
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .18 .34 .34 .33 .31 .34
Net Realized and Unrealized Gain (Loss)
on Investments 4.04 6.94 2.75 3.26 .12 1.07
-------------------------------------------------------------------------------
Total from Investment Operations 4.22 7.28 3.09 3.59 .43 1.41
-------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.34) (.19) (.33) (.29) (.23) (.34)
Distributions from Realized Capital Gains (.24) (.09) (.13) (.08) (.10) (.02)
-------------------------------------------------------------------------------
Total Distributions (.58) (.28) (.46) (.37) (.33) (.36)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $28.96 $25.32 $18.32 $15.69 $12.47 $12.37
============================================================================================================================
TOTAL RETURN 17.14% 40.31% 20.19% 29.51% 3.53% 12.68%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $925 $718 $406 $276 $186 $165
Ratio of Total Expenses to
Average Net Assets 0.19%* 0.23% 0.22% 0.28% 0.24% 0.29%
Ratio of Net Investment Income to
Average Net Assets 1.50%* 1.78% 2.13% 2.53% 2.60% 2.63%
Portfolio Turnover Rate 1%* 1% 2% 2% 7% 16%
Average Commission Rate Paid $.0136 $.0160 $.0203 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized.
42
<PAGE> 45
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
YEAR ENDED SEPTEMBER 30, JUN. 7* TO
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 SEP. 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.50 $13.71 $12.00 $10.05 $10.57 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .220 .42 .48 .46 .45 .14
Net Realized and Unrealized Gain (Loss)
on Investments 2.785 4.69 1.75 2.02 (.63) .54
-----------------------------------------------------------------------------
Total from Investment Operations 3.005 5.11 2.23 2.48 (.18) .68
-----------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.400) (.15) (.46) (.48) (.33) (.11)
Distributions from Realized Capital Gains (.375) (.17) (.06) (.05) (.01) --
-----------------------------------------------------------------------------
Total Distributions (.775) (.32) (.52) (.53) (.34) (.11)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $20.73 $18.50 $13.71 $12.00 $10.05 $10.57
=============================================================================================================================
TOTAL RETURN 17.07% 38.05% 19.07% 25.69% -1.64% 6.81%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $390 $271 $142 $91 $68 $50
Ratio of Total Expenses to
Average Net Assets 0.35%** 0.37% 0.35% 0.39% 0.34% 0.39%**
Ratio of Net Investment Income to
Average Net Assets 2.70%** 3.11% 3.69% 4.28% 4.57% 4.30%**
Portfolio Turnover Rate 1%** 8% 8% 10% 18% 2%
Average Commission Rate Paid $0571 $0558 $0583 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
YEAR ENDED SEPTEMBER 30, JUN. 7* TO
FOR A SHARE OUTSTANDING SIX MONTHS ENDED --------------------------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 1994 SEP. 30, 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $21.51 $17.58 $14.10 $10.79 $10.26 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .08 .190 .18 .16 .14 .04
Net Realized and Unrealized Gain (Loss)
on Investments 4.13 4.615 3.65 3.26 .46 .22
---------------------------------------------------------------------------------
Total from Investment Operations 4.21 4.805 3.83 3.42 .60 .26
---------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.20) (.180) (.16) (.11) (.07) --
Distributions from Realized Capital Gains (.57) (.695) (.19) -- -- --
---------------------------------------------------------------------------------
Total Distributions (.77) (.875) (.35) (.11) (.07) --
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $24.95 $21.51 $17.58 $14.10 $10.79 $10.26
=============================================================================================================================
TOTAL RETURN 20.36% 28.76% 27.79% 32.02% 5.87% 2.60%
=============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $584 $460 $276 $162 $82 $36
Ratio of Total Expenses to
Average Net Assets 0.36%** 0.38% 0.39% 0.47% 0.38% 0.43%**
Ratio of Net Investment Income to
Average Net Assets 0.77%** 1.12% 1.29% 1.64% 1.55% 1.63%**
Portfolio Turnover Rate 49%** 38% 42% 32% 34% 10%
Average Commission Rate Paid $.0492 $.0498 $.0499 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
43
<PAGE> 46
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
YEAR ENDED JUN. 3* TO
FOR A SHARE OUTSTANDING SIX MONTHS ENDED --------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 SEP. 30,1997 SEP. 30, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.97 $ 9.84 $10.00
- ---------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .03 .04 .04
Net Realized and Unrealized Gain (Loss) on Investments .33 2.13 (.20)
-------------------------------------------
Total from Investment Operations .36 2.17 (.16)
-------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.04) (.04) --
Distributions from Realized Capital Gains -- -- --
-------------------------------------------
Total Distributions (.04) (.04) --
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.29 $11.97 $ 9.84
=========================================================================================================
TOTAL RETURN 3.03% 22.16% -1.60%
=========================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $145 $133 $44
Ratio of Total Expenses to Average Net Assets 0.39%** 0.39% 0.45%**
Ratio of Net Investment Income to Average Net Assets 0.50%** 0.67% 1.42%**
Portfolio Turnover Rate 115%** 72% 18%
Average Commission Rate Paid $.0534 $.0472 $.0600
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
YEAR ENDED SEPTEMBER 30, JUN. 3* TO
FOR A SHARE OUTSTANDING SIX MONTHS ENDED -------------------------------------------
THROUGHOUT EACH PERIOD MARCH 31, 1998 1997 1996 1995 SEP. 30, 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.55 $12.74 $11.40 $10.31 $10.00
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04 .17 .14 .16 .05
Net Realized and Unrealized Gain (Loss) on Investments .27 2.10 1.36 .99 .26
------------------------------------------------------
Total from Investment Operations .31 2.27 1.50 1.15 .31
------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.18) (.14) (.16) (.06) --
Distributions from Realized Capital Gains (.14) (.32) -- -- --
------------------------------------------------------
Total Distributions (.32) (.46) (.16) (.06) --
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.54 $14.55 $12.74 $11.40 $10.31
==================================================================================================================
TOTAL RETURN 2.39% 18.55% 13.36% 11.21% 3.10%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $236 $246 $162 $90 $63
Ratio of Total Expenses to Average Net Assets 0.47%** 0.46% 0.49% 0.54% 0.30%**
Ratio of Net Investment Income to Average Net Assets 0.50%** 1.43% 1.42% 1.67% 1.91%**
Portfolio Turnover Rate 33%** 22% 19% 27% 0%
Average Commission Rate Paid $.0222 $.0327 $.0403 N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Annualized.
44
<PAGE> 47
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 comprises the Money
Market, High-Grade Bond, High Yield Bond, Balanced, Equity Index, Equity
Income, Growth, Small Company Growth, and International Portfolios.
Certain investments of the Money Market, High-Grade Bond, High Yield 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 U.S. corporations.
A. The following significant accounting policies conform to generally accepted
accounting principles for mutual funds. The Fund consistently follows such
policies in preparing its financial statements.
1. SECURITY VALUATION: Money Market Portfolio: Investment securities are
valued at amortized cost, which approximates market value. Other Portfolios:
Equity securities are valued at the latest quoted sales prices as of the close
of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on
the valuation date; such securities not traded on the valuation date are valued
at the mean of the latest quoted bid and asked prices. Prices are taken from
the primary market in which each security trades. Bonds, and temporary cash
investments acquired over 60 days to maturity, are valued using the latest bid
prices or using valuations based on a matrix system (which considers such
factors as security prices, yields, maturities, and ratings), both as furnished
by independent pricing services. Other temporary cash investments are valued at
amortized cost, which approximates market value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollars at the
exchange rates on the valuation date as employed by Morgan Stanley Capital
International in the calculation of its indexes.
Realized gains (losses) and unrealized appreciation (depreciation) on
investment securities include the effects of changes in exchange rates since
the securities were purchased, combined with the effects of changes in security
prices. Fluctuations in the value of other assets and liabilities resulting
from changes in exchange rates are recorded as unrealized foreign currency
gains (losses) until the asset or liability is settled in cash, when they are
recorded as realized foreign currency gains (losses).
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The Equity Index Portfolio uses
S&P 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 invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The Portfolio
may seek to enhance returns 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 currency contracts to
protect the value of securities and related receivables and payables against
changes in foreign exchange rates. The Portfolio's risks in using these
contracts include movement in the values of the foreign currencies relative to
the U.S. dollar and the ability of the counterparties to fulfill their
obligations under the contracts.
Futures and forward currency contracts are valued at their quoted daily
settlement prices. The aggregate principal amounts of the contracts are not
recorded in the financial statements. Fluctuations in the value of the
contracts are recorded in the Statement of Net Assets as an asset (liability)
and in the Statement of Operations as unrealized appreciation (depreciation)
until the contracts are closed, when they are recorded as realized gains
(losses) on futures or forward currency contracts.
45
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (continued)
4. FEDERAL INCOME TAXES: Each Portfolio 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.
5. REPURCHASE AGREEMENTS: The Money Market Portfolio may invest in
repurchase agreements secured by U.S. government obligations. The other
Portfolios, along with other members of The Vanguard Group, transfer uninvested
cash balances to a Pooled Cash Account, which is invested in repurchase
agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that the
market value of the collateral be sufficient to cover payments of interest and
principal; however, in the event of default or bankruptcy by the other party to
the agreement, retention of the collateral may be subject to legal proceedings.
6. DISTRIBUTIONS: Distributions of net investment income to shareholders of
the Money Market, High-Grade Bond, and High Yield Bond Portfolios are declared
daily and paid on the first business day of the following month. Annual
distributions of net investment income to shareholders of the Balanced, Equity
Index, Equity Income, Growth, Small Company Growth, and International
Portfolios are recorded on the ex-dividend date. Annual distributions from
realized capital gains, if any, are recorded on the ex-dividend date.
7. OTHER: Dividend income is recorded on the ex-dividend date. Security
transactions are accounted for on the date the securities are bought or sold.
Costs used to determine realized gains (losses) on the sale of investment
securities are those of the specific securities sold. Premiums and discounts on
debt securities purchased are amortized and accreted, respectively, to interest
income over the lives of the securities.
B. The Vanguard Group furnishes investment advisory services to the Money
Market, High-Grade Bond, and Equity Index Portfolios on an at-cost basis.
Wellington Management Company, LLP; Newell Associates; and Lincoln Capital
Management Company provide investment advisory services to the High Yield Bond,
Equity Income, and Growth Portfolios, respectively. For the six months ended
March 31, 1998, the investment advisory fees of the High Yield Bond, Equity
Income, and Growth Portfolios represented effective annual rates of 0.06%,
0.10%, and 0.15%, respectively, of average net assets.
Wellington Management Company, LLP provides investment advisory services to
the Balanced Portfolio for a fee calculated at an annual percentage rate of
average net assets. The basic fee is subject to quarterly adjustments based on
performance relative to a combined index composed of the S&P 500 Index and the
Lehman Long Corporate AA or Better Bond Index. For the six months ended March
31, 1998, the investment advisory fee represented an effective annual basic
rate of 0.10% of the Portfolio's average net assets before a decrease of
$31,000 (0.01%) based on performance.
Granahan Investment Management, Inc., provides investment advisory services
to the Small Company Growth Portfolio for a fee calculated at an annual
percentage rate of average net assets. The basic fee is subject to quarterly
adjustments based on performance relative to the Russell 2000 Index and,
beginning January 1, 1998, an index of the stocks held by the largest small
capitalization stock mutual funds. For the six months ended March 31, 1998, the
investment advisory fee represented an effective annual basic rate of 0.15% of
the Portfolio's average net assets before a decrease of $30,000 (0.04%) based
on performance.
Schroder Capital Management International Inc. provides investment advisory
services to the International Portfolio for a fee calculated at an annual
percentage rate of average net assets. The basic fee is subject to quarterly
adjustments based on performance relative to the Morgan Stanley Capital
International Europe, Australasia, Far East Index. For the six months ended
March 31, 1998, the investment advisory fee represented an effective annual
basic rate of 0.12% of the Portfolio's average net assets before an increase of
$39,000 (0.03%) based on performance.
46
<PAGE> 49
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the Fund under methods approved by the Board of Trustees. At March 31, 1998,
the Fund had contributed capital aggregating $207,000 to Vanguard (included in
Other Assets), representing 1.0% of Vanguard's capitalization. The Fund's
Trustees and officers are also Directors and officers of Vanguard.
D. Vanguard has asked the Fund's investment advisers to direct certain
portfolio trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate to the Fund part of the commissions generated. Such
rebates are used solely to reduce the Fund's administrative expenses. The
Fund's custodian bank has also agreed to reduce its fees when the Fund
maintains cash on deposit in the noninterest-bearing custody account. For the
six months ended March 31, 1998, directed brokerage and custodian fee offset
arrangements reduced the expenses by:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
EXPENSE REDUCTION
(000) TOTAL EXPENSE
----------------------------- REDUCTION AS A
DIRECTED CUSTODIAN PERCENTAGE OF AVERAGE
PORTFOLIO BROKERAGE FEES NET ASSETS
----------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond -- $1 --
Balanced $27 -- 0.01%*
----------------------------------------------------------------------------
</TABLE>
*Annualized.
E. During the six months ended March 31, 1998, purchases and sales of
investment securities other than temporary cash investments were:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES OTHER INVESTMENT SECURITIES
(000) (000)
---------------------------------------------------------------
PORTFOLIO PURCHASES SALES PURCHASES SALES
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-Grade Bond $80,471 $46,861 $ 24,283 $ 4,786
High Yield Bond -- -- 65,842 21,196
Balanced 32,810 33,101 82,057 39,247
Equity Index -- -- 84,440 3,959
Equity Income -- -- 71,353 1,686
Growth -- -- 146,643 119,996
Small Company Growth -- -- 84,235 73,912
International -- -- 35,812 48,241
-----------------------------------------------------------------------------------
</TABLE>
At September 30, 1997, the following Portfolios had available realized
capital losses to offset future taxable capital gains through the following
fiscal year-ends:
<TABLE>
<CAPTION>
---------------------------------------------------------
EXPIRATION
FISCAL YEARS ENDING AMOUNT
PORTFOLIO SEPTEMBER 30, (000)
---------------------------------------------------------
<S> <C> <C>
High-Grade Bond 2003-2005 $ 767
Small Company Growth 2004-2006 1,093
---------------------------------------------------------
</TABLE>
The Equity Index Portfolio used a tax accounting practice to apply $222,000
of the price of capital shares redeemed to reduce capital gain distribution
requirements for tax purposes for the
47
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (continued)
fiscal year ended September 30, 1997. Capital gains that were so offset have
been reclassified from accumulated net realized gains to paid in capital.
During the six months ended March 31, 1998, the International Portfolio
realized net foreign currency losses of $55,000, which decreased distributable
net income for tax purposes; accordingly, such losses have been reclassified
from accumulated net realized gains to undistributed net investment income.
F. At March 31, 1998, net unrealized appreciation of investment securities for
financial reporting and federal income tax purposes was:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(000)
------------------------------------------------
APPRECIATED DEPRECIATED NET UNREALIZED
PORTFOLIO SECURITIES SECURITIES APPRECIATION
-------------------------------------------------------------------------
<S> <C> <C> <C>
High-Grade Bond $ 6,061 $ (264) $ 5,797
High Yield Bond 2,966 (272) 2,694
Balanced 149,077 (623) 148,454
Equity Index 407,804 (4,104) 403,700
Equity Income 125,369 (546) 124,823
Growth 224,683 (207) 224,476
Small Company Growth 30,634 (2,238) 28,396
International 63,860 (15,116) 48,744
-------------------------------------------------------------------------
</TABLE>
At March 31, 1998, the aggregate settlement value of open S&P 500 Index
futures contracts expiring in June 1998 held by the Equity Index Portfolio and
the unrealized appreciation on those contracts were $30,261,000 and $1,060,000,
respectively.
The International Portfolio had net unrealized foreign currency losses of
$18,000 resulting from the translation of other assets and liabilities at March
31, 1998.
G. The market value of securities on loan to brokers/dealers at March 31,
1998, 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 $ 4,081 $ 4,144
High Yield Bond 1,642 1,686
Balanced 14,213 14,590
Small Company Growth 3,339 3,530
International 26,836 28,538
-------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
48
<PAGE> 51
TRUSTEES AND OFFICERS
JOHN C. BOGLE
Senior Chairman of the Board and Director of The Vanguard Group, Inc., and of
each of the investment companies in The Vanguard Group.
JOHN J. BRENNAN
Chairman, Chief Executive Officer, and Director of The Vanguard Group, Inc.,
and of each of the investment companies in The Vanguard Group.
ROBERT E. CAWTHORN
Chairman Emeritus and Director of Rhone-Poulenc Rorer, Inc.; Managing Director
of Global Health Care Partners/DLJ Merchant Banking Partners; Director of Sun
Company, Inc., and Westinghouse Electric Corp.
BARBARA BARNES HAUPTFUHRER
Director of The Great Atlantic and Pacific Tea Co., IKON Office Solutions,
Inc., Raytheon Co., Knight-Ridder, Inc., Massachusetts Mutual Life Insurance
Co., and Ladies Professional Golf Association; Trustee Emerita of Wellesley
College.
BRUCE K. MACLAURY
President Emeritus of The Brookings Institution; Director of American Express
Bank Ltd., The St. Paul Companies, Inc., and National Steel Corp.
BURTON G. MALKIEL
Chemical Bank Chairman's Professor of Economics, Princeton University; Director
of Prudential Insurance Co. of America, Amdahl Corp., Baker Fentress & Co., The
Jeffrey Co., and Southern New England Telecommunications Co.
ALFRED M. RANKIN, JR.
Chairman, President, and Chief Executive Officer of NACCO Industries, Inc.;
Director of NACCO Industries, The BFGoodrich Co., and The Standard Products Co.
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 Co., Procter & Gamble Co., 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., and Kmart Corp.
J. LAWRENCE WILSON
Chairman and Chief Executive Officer of Rohm & Haas Co.; Director of Cummins
Engine Co. and The Mead Corp.; Trustee of Vanderbilt University.
OTHER FUND OFFICERS
RAYMOND J. KLAPINSKY
Secretary; Managing Director and Secretary of The Vanguard Group, Inc.;
Secretary of each of the investment companies in The Vanguard Group.
RICHARD F. HYLAND
Treasurer; Principal of The Vanguard Group, Inc.; Treasurer of each of the
investment companies in The Vanguard Group.
KAREN E. WEST
Controller; Principal of The Vanguard Group, Inc.; Controller of each of the
investment companies in The Vanguard Group.
OTHER VANGUARD OFFICERS
R. GREGORY BARTON
Managing Director, Legal Department.
ROBERT A. DISTEFANO
Managing Director, Information Technology.
JAMES H. GATELY
Managing Director, Individual Investor Group.
KATHLEEN C. GUBANICH
Managing Director, Human Resources.
IAN A. MACKINNON
Managing Director, Fixed Income Group.
F. WILLIAM MCNABB, III
Managing Director, Institutional Investor Group.
MICHAEL S. MILLER
Managing Director, Planning and Development.
RALPH K. PACKARD
Managing Director and Chief Financial Officer.
GEORGE U. SAUTER
Managing Director, Core Management Group.
"Standard & Poor's 500," "S&P 500(R)," "Standard & Poor's(R)," "S&P(R)," and
"500" are trademarks of
The McGraw-Hill Companies, Inc. Frank Russell Company is the owner of
trademarks and copyrights relating
to the Russell Indexes. "Wilshire 4500" and "Wilshire 5000" are trademarks of
Wilshire Associates.
<PAGE> 52
VANGUARD FAMILY OF FUNDS
STOCK FUNDS
Convertible Securities Fund
Equity Income Fund
Explorer Fund
Growth and Income Portfolio
Horizon Fund
Aggressive Growth Portfolio
Capital Opportunity Portfolio
Global Equity Portfolio
Index Trust
500 Portfolio
Extended Market Portfolio
Growth Portfolio
Small Capitalization Stock
Portfolio
Total Stock Market Portfolio
Value Portfolio
Institutional Index Fund
International Equity Index Fund
Emerging Markets Portfolio
European Portfolio
Pacific Portfolio
International Growth Portfolio
International Value Portfolio
Morgan Growth Fund
PRIMECAP Fund
Selected Value Portfolio
Specialized Portfolios
Energy Portfolio
Gold & Precious Metals
Portfolio
Health Care Portfolio
REIT Index Portfolio
Utilities Income Portfolio
Tax-Managed Fund
Capital Appreciation
Portfolio
Growth and Income Portfolio
Total International Portfolio
Trustees' Equity Fund
U.S. Portfolio
U.S. Growth Portfolio
Windsor Fund
Windsor II
BALANCED FUNDS
Asset Allocation Fund
Balanced Index Fund
Horizon Fund
Global Asset Allocation
Portfolio
LifeStrategy Portfolios
Conservative Growth
Portfolio
Growth Portfolio
Income Portfolio
Moderate Growth Portfolio
STAR Portfolio
Tax-Managed Fund
Balanced Portfolio
Wellesley Income Fund
Wellington Fund
BOND FUNDS
Admiral Funds
Intermediate-Term U.S.
Treasury Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term U.S. Treasury
Portfolio
Bond Index Fund
Intermediate-Term Bond
Portfolio
Long-Term Bond Portfolio
Short-Term Bond Portfolio
Total Bond Market Portfolio
Fixed Income Securities Fund
GNMA Portfolio
High Yield Corporate Portfolio
Intermediate-Term Corporate
Portfolio
Intermediate-Term U.S.
Treasury Portfolio
Long-Term Corporate
Portfolio
Long-Term U.S. Treasury
Portfolio
Short-Term Corporate
Portfolio
Short-Term Federal Portfolio
Short-Term U.S. Treasury
Portfolio
Municipal Bond Fund
High-Yield Portfolio
Insured Long-Term Portfolio
Intermediate-Term Portfolio
Limited-Term Portfolio
Long-Term Portfolio
Short-Term Portfolio
Preferred Stock Fund
State Tax-Free Funds
(CA, FL, NJ, NY, OH, PA)
MONEY MARKET FUNDS
Admiral Funds
U.S. Treasury Money Market
Portfolio
Money Market Reserves
Federal Portfolio
Prime Portfolio
Municipal Bond Fund
Money Market Portfolio
State Tax-Free Funds
(CA, NJ, NY, OH, PA)
Treasury Money Market Portfolio
VARIABLE INSURANCE FUND
Vanguard Variable Insurance Fund
Q642-3/1998
(C) 1998 Vanguard Marketing
Corporation, Distributor
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
INSTITUTIONAL INVESTOR SERVICES
1-800-523-1036
www.vanguard.com
[email protected]
All Vanguard funds are offered by prospectus only. Prospectuses contain more
complete information on advisory fees, distribution charges, and other expenses
and should be read carefully before you invest or send money. Prospectuses can
be obtained directly from The Vanguard Group.
<PAGE> 53
VANGUARD VARIABLE INSURANCE FUND
FINANCIAL STATEMENTS
March 31, 1998 (unaudited)
The Statement of Net Assets should be read in conjunction with the Statement of
Operations, Statement of Changes in Net Assets, Financial Highlights, and Notes
to Financial Statements, which begin on page 32 of the accompanying report.
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each Portfolio's holdings, including
each security's market value on the last day of the reporting period. Securities
are grouped and subtotaled by asset type (common stocks, U.S. government and
agency issues, corporate bonds, etc.) and by industry sector or, for
international securities, by country. (The Equity Index Portfolio's S&P 500
Index securities are listed in descending market value order.) Other assets are
added to, and liabilities are subtracted from, the value of Total Investments to
calculate the Portfolio's Net Assets. Finally, Net Assets are divided by the
outstanding shares of the Portfolio to arrive at its share price, or Net Asset
Value (NAV) Per Share. The NAV is the price used for Portfolio share
transactions with separate accounts of insurance companies, and differs from the
accumulated value of units in their variable annuity plans or variable life
insurance contracts.
At the end of the Statement of Net Assets, you will find a table displaying
the composition of the Portfolio's net assets on both a dollar and per-share
basis. Because all income and any realized gains must be distributed to
shareholders each year, the bulk of net assets consists of Paid in Capital
(money invested by shareholders). The amounts shown for Undistributed Net
Investment Income and Accumulated Net Realized Gains usually approximate the
sums the Portfolio had available to distribute to shareholders as income
dividends or capital gains as of the statement date. Portfolios that distribute
net income to shareholders as a dividend each day usually have no Undistributed
Net Income. Any Accumulated Net Realized Losses, and any cumulative excess of
distributions over net income or net realized gains, will appear as negative
balances. Unrealized Appreciation (Depreciation) is the difference between the
market value of the Portfolio's investments and their cost, and reflects the
gains (losses) that would be realized if the Portfolio were to sell all of its
investments at their statement-date values.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Money Market Portfolio.............. 1
High-Grade Bond Portfolio........... 5
High Yield Bond Portfolio........... 11
Balanced Portfolio.................. 15
Equity Index Portfolio.............. 19
Equity Income Portfolio............. 24
Growth Portfolio.................... 26
Small Company Growth Portfolio...... 28
International Portfolio............. 30
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.4%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 5.488% 4/5/1998(1) $ 5,000 $ 4,999
Federal Home Loan Bank 5.467% 4/26/1998(1) 5,000 4,999
Federal Home Loan Mortgage Corp. 5.464% 4/20/1998(1) 10,000 9,998
Federal Home Loan Mortgage Corp. 5.488% 4/26/1998(1) 15,000 14,991
Federal National Mortgage Assn. 5.507% 4/15/1998(1) 5,000 4,999
Federal National Mortgage Assn. 5.478% 4/17/1998(1) 20,000 19,986
Federal National Mortgage Assn. 5.647% 6/30/1998 4,000 3,945
- ------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $63,917) 63,917
- ------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 54
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (48.1%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANK HOLDING COMPANIES (0.7%)
J.P. Morgan & Co. 5.623% 6/4/1998 $ 345 $ 342
NationsBank Corp. 5.527% 5/22/1998 1,500 1,488
Wachovia Corp. 5.573% 4/24/1998 1,049 1,045
--------
2,875
--------
FINANCE--AUTOMOBILES (2.8%)
General Motors Acceptance Corp. 5.534% 4/29/1998 4,000 3,983
New Center Asset Trust 5.616% 5/13/1998 600 596
New Center Asset Trust 5.578% 6/11/1998 7,151 7,073
New Center Asset Trust 5.557% 4/7/1998 900 899
--------
12,551
--------
FINANCE--OTHER (23.7%)
Asset Securitization Cooperative Corp. 5.528% 5/4/1998 8,000 7,960
Asset Securitization Cooperative Corp. 5.587% 5/19/1998 600 596
Associates Corp. of North America 5.518% 5/26/1998 5,000 4,959
CIT Group Inc. 5.515% 5/6/1998 8,000 7,958
Centric Capital Corp. 5.591% 6/2/1998 2,000 1,981
Centric Capital Corp. 5.598% 6/5/1998 4,577 4,531
Commercial Credit Co. 5.528% 5/4/1998 8,000 7,960
Delaware Funding 5.58% 6/22/1998 8,368 8,263
Eiger Capital Corp. 5.616% 4/24/1998 2,415 2,406
Eiger Capital Corp. 5.629% 4/27/1998 1,900 1,892
Enterprise Funding Corp. 5.621% 4/27/1998 1,300 1,295
Enterprise Funding Corp. 5.556% 5/18/1998 3,600 3,574
Enterprise Funding Corp. 5.545% 5/6/1998 2,005 1,994
Enterprise Funding Corp. 5.606% 6/15/1998 2,000 1,977
General Electric Capital Corp. 5.515% 4/29/1998 5,000 4,979
General Electric Capital Corp. 5.815% 5/19/1998 1,987 1,972
General Electric Capital Corp. 5.822% 5/29/1998 1,946 1,930
General Electric Capital Corp. 5.542% 6/10/1998 1,300 1,286
General Electric Capital Corp. 5.511% 6/18/1998 5,500 5,436
General Electric Capital Corp. 5.419% 7/6/1998 840 828
General Electric Capital Corp. 5.596% 9/14/1998 500 487
General Electric Capital Corp. 5.621% 9/23/1998 2,700 2,628
Riverwoods Funding Corp. 5.591% 6/19/1998 8,400 8,298
Private Export Funding Corp. 5.729% 6/24/1998 1,595 1,575
Private Export Funding Corp. 5.569% 7/30/1998 4,500 4,420
Private Export Funding Corp. 5.586% 8/14/1998 14,807 14,504
---------
105,689
---------
INDUSTRIAL (4.0%)
Archer-Daniels-Midland Co. 5.57% 4/27/1998 3,000 2,988
Archer-Daniels-Midland Co. 5.575% 6/10/1998 4,000 3,957
Chevron U.K. Investment PLC 5.534% 5/6/1998 1,883 1,873
E.I. du Pont de Nemours & Co. 5.488% 4/28/1998 1,000 996
Minnesota Mining & Manufacturing Co. 5.51% 6/9/1998 2,775 2,746
Minnesota Mining & Manufacturing Co. 5.596% 7/22/1998 5,547 5,452
---------
18,012
---------
INSURANCE (4.8%)
John Hancock Capital Corp. 5.598% 6/29/1998 1,560 1,539
MetLife Funding Inc. 5.561% 5/5/1998 4,065 4,044
New York Life Capital Corp. 5.827% 4/28/1998 5,000 4,979
USAA Capital Corp. 5.556% 6/18/1998 5,000 4,941
USAA Capital Corp. 5.579% 7/14/1998 5,674 5,584
---------
21,087
---------
FOREIGN BANKS (1.3%)
Bayerische Landesbank Girozentrale 5.571% 5/27/1998 5,600 5,552
---------
</TABLE>
2
<PAGE> 55
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT (7.4%)
Province of British Columbia 5.786% 5/22/1998 $ 5,000 $ 4,960
Province of British Columbia 5.51% 7/27/1998 3,000 2,948
Caisse d'Amortissement de la Dette Sociale 5.661% 4/7/1998 4,000 3,996
Caisse d'Amortissement de la Dette Sociale 5.847% 6/8/1998 5,000 4,946
Caisse des Depots et Consignations 6.051% 4/1/1998 8,500 8,500
KFW International Finance Inc. 5.685% 4/8/1998 2,800 2,797
KFW International Finance Inc. 5.763% 6/17/1998 5,000 4,940
---------
33,087
---------
FOREIGN INDUSTRIAL (2.5%)
Diageo Capital PLC 5.595% 5/1/1998 400 398
Telstra Corp. Ltd. 5.578% 6/10/1998 7,488 7,408
Telstra Corp. Ltd. 5.58% 6/17/1998 1,000 991
Telstra Corp. Ltd. 5.584% 6/19/1998 2,353 2,325
---------
11,122
---------
FOREIGN UTILITIES (0.9%)
France Telecom 5.521% 5/22/1998 2,031 2,015
France Telecom 5.586% 5/5/1998 2,200 2,188
---------
4,203
---------
- ------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $214,178) 214,178
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (19.7%)
- ------------------------------------------------------------------------------------------------
U.S. BANKS (1.9%)
Chase Manhattan Bank USA 5.59% 6/8/1998 8,400 8,400
---------
YANKEE CERTIFICATES OF DEPOSIT--CANADIAN BRANCHES
(1.1%)
National Westminster Bank PLC 5.709% 4/30/1998 5,000 4,978
---------
YANKEE CERTIFICATES OF DEPOSIT--U.S. BRANCHES (16.7%)
ABN-AMRO Bank N.V. 5.58% 4/3/1998 5,000 5,000
Bank of Montreal 5.52% 5/18/1998 8,000 8,000
Bayerische Vereinsbank AG 5.65% 7/7/1998 10,000 10,001
Canadian Imperial Bank of Commerce 5.53% 5/20/1998 8,000 8,000
Credit Agricole Indosuez 5.81% 6/2/1998 5,000 5,000
Credit Agricole Indosuez 5.52% 8/13/1998 5,000 5,000
Deutsche Bank AG 6.17% 4/23/1998 4,000 4,000
Deutsche Bank AG 6.20% 4/24/1998 2,000 2,000
Deutsche Bank AG 5.70% 1/7/1999 2,000 1,999
Deutsche Bank AG 5.58% 7/9/1998 3,250 3,250
National Westminster Bank PLC 5.79% 7/27/1998 3,300 3,300
National Westminster Bank PLC 5.52% 8/4/1998 2,000 2,000
Rabobank Nederland NV 5.53% 8/3/1998 5,000 5,000
Royal Bank of Canada 5.91% 6/17/1998 3,000 3,000
Swiss Bank Corp. 5.84% 7/17/1998 3,000 3,001
Swiss Bank Corp. 5.75% 4/2/1999 4,000 4,000
Westdeutsche Landesbank Girozentrale 5.53% 4/30/1998 2,000 2,000
---------
74,551
---------
- ------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $87,929) 87,929
- ------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (11.8%)
- ------------------------------------------------------------------------------------------------
Barclays Bank PLC 5.71% 5/12/1998 5,000 4,999
Barclays Bank PLC 5.45% 6/15/1998 4,000 4,000
Barclays Bank PLC 5.54% 8/17/1998 1,000 1,000
Bayerische Landesbank Girozentrale 5.43% 7/14/1998 6,000 5,998
Bayerische Landesbank Girozentrale 5.65% 6/8/1998 3,000 3,000
Dresdner Bank AG 5.56% 6/15/1998 3,500 3,500
National Australia Bank 5.57% 6/9/1998 5,000 5,000
</TABLE>
3
<PAGE> 56
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rabobank Nederland NV 5.815% 6/2/1998 $ 5,000 $ 5,000
Rabobank Nederland NV 5.52% 8/24/1998 4,000 4,000
Toronto Dominion Bank 5.52% 5/13/1998 8,000 8,000
Westdeutsche Landesbank Girozentrale 5.62% 4/7/1998 3,000 3,000
Westdeutsche Landesbank Girozentrale 5.61% 7/8/1998 5,000 5,000
- ------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $52,497) 52,497
- ------------------------------------------------------------------------------------------------
OTHER NOTES (7.3%)
- ------------------------------------------------------------------------------------------------
Abbey National Treasury Services 5.568% 4/15/1998(1) 10,000 9,995
LaSalle National Bank 5.60% 7/6/1998 1,500 1,500
LaSalle National Bank 5.610% 5/11/1998 4,000 4,000
SMM Trust 1997-A 5.687% 6/23/1998(1) 12,000 12,000
Wachovia Bank N.A. 5.552% 4/2/1998(1) 5,000 4,998
- ------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $32,493) 32,493
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.3%)
(COST $451,014) 451,014
- ------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.3%)
- ------------------------------------------------------------------------------------------------
Other Assets--Note C 6,390
Liabilities (12,031)
---------
(5,641)
- ------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- ------------------------------------------------------------------------------------------------
Applicable to 445,381,569 outstanding shares of beneficial interest
(unlimited authorization--no par value) $445,373
================================================================================================
NET ASSET VALUE PER SHARE $1.00
================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
**Represents annualized yield at date of purchase for discount securities, and
coupon for coupon-bearing securities.
(1)Floating Rate Note.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $445,381 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (8) --
Unrealized Appreciation -- --
================================================================================================
NET ASSETS $445,373 $1.00
================================================================================================
</TABLE>
4
<PAGE> 57
<TABLE>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (64.4%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (32.1%)
U.S. Treasury Bond 7.875% 2/15/2021 $ 740 $ 907
U.S. Treasury Bond 8.00% 11/15/2021 6,435 8,012
U.S. Treasury Bond 8.125% 8/15/2019 5,635 7,040
U.S. Treasury Bond 8.125% 8/15/2021 2,925 3,684
U.S. Treasury Bond 8.50% 2/15/2020 1,870 2,426
U.S. Treasury Bond 8.75% 5/15/2017 505 660
U.S. Treasury Bond 8.75% 5/15/2020 525 698
U.S. Treasury Bond 8.875% 8/15/2017 2,350 3,111
U.S. Treasury Bond 8.875% 2/15/2019 1,010 1,349
U.S. Treasury Bond 9.125% 5/15/2018 510 693
U.S. Treasury Bond 10.375% 11/15/2009 1,595 1,987
U.S. Treasury Bond 10.375% 11/15/2012 1,915 2,537
U.S. Treasury Bond 10.75% 8/15/2005 875 1,134
U.S. Treasury Bond 11.625% 11/15/2002 1,000 1,239
U.S. Treasury Bond 14.00% 11/15/2011 1,065 1,645
U.S. Treasury Note 5.625% 11/30/2000 550 550
U.S. Treasury Note 5.75% 10/31/2000 100 100
U.S. Treasury Note 5.75% 10/31/2002 3,390 3,399
U.S. Treasury Note 5.875% 7/31/1999 3,000 3,012
U.S. Treasury Note 5.875% 2/15/2000 400 402
U.S. Treasury Note 5.875% 11/15/2005 175 176
U.S. Treasury Note 6.00% 8/15/1999 1,000 1,006
U.S. Treasury Note 6.25% 10/31/2001 400 407
U.S. Treasury Note 6.25% 2/28/2002 1,300 1,326
U.S. Treasury Note 6.25% 2/15/2003 45 46
U.S. Treasury Note 6.375% 5/15/2000 150 152
U.S. Treasury Note 6.625% 3/31/2002 550 568
U.S. Treasury Note 6.625% 4/30/2002 6,125 6,333
U.S. Treasury Note 6.75% 6/30/1999 2,950 2,993
U.S. Treasury Note 6.75% 4/30/2000 175 179
U.S. Treasury Note 6.875% 7/31/1999 350 356
U.S. Treasury Note 6.875% 5/15/2006 5,310 5,685
U.S. Treasury Note 7.00% 7/15/2006 3,625 3,912
U.S. Treasury Note 7.125% 2/29/2000 350 360
U.S. Treasury Note 7.25% 8/15/2004 470 508
U.S. Treasury Note 7.50% 10/31/1999 750 772
U.S. Treasury Note 7.50% 11/15/2001 130 138
U.S. Treasury Note 7.50% 2/15/2005 1,500 1,648
U.S. Treasury Note 7.75% 11/30/1999 675 698
U.S. Treasury Note 7.75% 2/15/2001 325 343
U.S. Treasury Note 7.875% 11/15/1999 900 932
U.S. Treasury Note 7.875% 8/15/2001 250 267
U.S. Treasury Note 7.875% 11/15/2004 50 56
U.S. Treasury Note 8.00% 5/15/2001 650 693
U.S. Treasury Note 8.50% 2/15/2000 175 184
U.S. Treasury Note 8.50% 11/15/2000 175 187
U.S. Treasury Note 8.75% 8/15/2000 500 534
U.S. Treasury Note 9.125% 5/15/1999 925 960
---------
76,004
---------
AGENCY BONDS & NOTES (1.2%)
Federal Home Loan Mortgage Corp. 6.785% 3/1/2006 300 302
Federal Home Loan Mortgage Corp. 7.09% 6/1/2005 200 203
Federal National Mortgage Assn. 4.95% 9/30/1998 700 698
Federal National Mortgage Assn. 5.35% 8/12/1998 700 700
Federal National Mortgage Assn. 5.80% 12/10/2003 350 349
Federal National Mortgage Assn. 6.25% 8/12/2003 350 349
Federal National Mortgage Assn. 7.55% 6/10/2004 350 356
---------
2,957
---------
</TABLE>
5
<PAGE> 58
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (31.1%)
Federal Home Loan Mortgage Corp. 5.50% 12/1/1998-11/1/2008 (2) $ 171 $ 170
Federal Home Loan Mortgage Corp. 6.00% 7/1/1998-1/1/2024 (2) 1,830 1,802
Federal Home Loan Mortgage Corp. 6.50% 4/1/1998-1/1/2028 (2) 6,985 6,978
Federal Home Loan Mortgage Corp. 7.00% 12/1/1999-3/1/2028 (2) 8,790 8,923
Federal Home Loan Mortgage Corp. 7.50% 3/1/2000-2/1/2028 (2) 7,290 7,485
Federal Home Loan Mortgage Corp. 8.00% 10/1/2009-12/1/2027 (2) 3,551 3,688
Federal Home Loan Mortgage Corp. 8.50% 5/1/2006-5/1/2027 (2) 1,213 1,273
Federal Home Loan Mortgage Corp. 9.00% 11/1/2005-5/1/2027 (2) 636 675
Federal Home Loan Mortgage Corp. 9.50% 1/1/2025-2/1/2025 (2) 167 181
Federal Home Loan Mortgage Corp. 10.00% 3/1/2017-11/1/2019 (2) 93 102
Federal National Mortgage Assn. 5.50% 3/1/2001 (2) 63 62
Federal National Mortgage Assn. 6.00% 11/15/1998-10/1/2025 (2) 1,397 1,376
Federal National Mortgage Assn. 6.50% 3/1/2000-6/1/2028 (2) 4,025 4,008
Federal National Mortgage Assn. 7.00% 5/1/2000-3/1/2028 (2) 7,234 7,332
Federal National Mortgage Assn. 7.50% 4/1/1999-5/1/2027 (2) 4,031 4,146
Federal National Mortgage Assn. 8.00% 2/1/2000-9/1/2027 (2) 2,265 2,353
Federal National Mortgage Assn. 8.50% 10/1/2004-12/1/2026 (2) 999 1,046
Federal National Mortgage Assn. 9.00% 3/1/2020-4/1/2025 (2) 426 454
Federal National Mortgage Assn. 9.50% 6/1/2001-2/1/2025 (2) 286 309
Federal National Mortgage Assn. 10.00% 8/1/2020-8/1/2021 (2) 125 137
Federal National Mortgage Assn. 10.50% 8/1/2020 (2) 34 38
Government National Mortgage Assn. 6.00% 3/15/2009-1/15/2024 (2) 387 383
Government National Mortgage Assn. 6.50% 10/15/2008-8/15/2027 (2) 2,064 2,049
Government National Mortgage Assn. 7.00% 10/15/2008-3/15/2028 (2) 5,111 5,174
Government National Mortgage Assn. 7.50% 5/15/2008-2/15/2028 (2) 5,299 5,452
Government National Mortgage Assn. 8.00% 3/15/2008-9/15/2027 (2) 4,091 4,251
Government National Mortgage Assn. 8.50% 7/15/2009-4/15/2027 (2) 1,676 1,776
Government National Mortgage Assn. 9.00% 4/15/2016-10/15/2026 (2) 937 1,011
Government National Mortgage Assn. 9.50% 4/15/2017-2/15/2025 (2) 471 515
Government National Mortgage Assn. 10.00% 5/15/2020-1/15/2025 (2) 191 212
Government National Mortgage Assn. 10.50% 5/15/2019 (2) 28 32
Government National Mortgage Assn. 11.00% 10/15/2015 (2) 27 31
Government National Mortgage Assn. 11.50% 2/15/2013 (2) 34 40
Resolution Trust Corp. Collateralized 10.35% 8/25/2021 (2) 106 112
Mortgage Obligations ---------
73,576
---------
- ------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $147,995) 152,537
- ------------------------------------------------------------------------------------------------
CORPORATE BONDS (31.2%)
- ------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (3.2%)
California Infrastructure & Economic
Development Bank SP Trust PG&E 6.16% 6/25/2003 (2) 250 251
California Infrastructure & Economic
Development Bank SP Trust PG&E 6.42% 9/25/2008 (2) 375 379
Discover Card Master Trust 5.40% 11/16/2001 (2) 1,400 1,397
First Deposit Master Trust 5.75% 6/15/2001 (2) 1,400 1,401
First Deposit Master Trust 6.05% 8/15/2002 (2) 1,400 1,402
Sears Credit Card Master Trust 8.10% 6/15/2004 (2) 1,400 1,453
Standard Credit Card Master Trust 7.875% 1/7/2000 (2) 1,400 1,416
---------
7,699
---------
FINANCE (13.7%)
American General Finance Corp. 8.00% 2/15/2000 900 931
Ameritech Capital Funding 6.15% 1/15/2008 1,000 993
Associates Corp. 6.25% 3/15/1999 500 502
Associates Corp. 6.50% 10/15/2002 650 659
Associates Corp. 6.68% 9/17/1999 700 708
Associates Corp. 7.50% 4/15/2002 600 628
Avalon Properties Inc. 6.875% 12/15/2007 450 450
BT Capital Trust B 7.90% 1/15/2027 200 204
</TABLE>
6
<PAGE> 59
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank of New York Capital I 7.97% 12/31/2026 $ 400 $ 423
BankAmerica Capital II 8.00% 12/15/2026 200 213
BankAmerica Corp. 9.625% 2/13/2001 500 546
BankAmerica Corp. 10.00% 2/1/2003 200 231
Bear, Stearns & Co., Inc. 6.625% 1/15/2004 200 202
Bear, Stearns & Co., Inc. 7.625% 4/15/2000 250 257
CIT Group Holdings 6.625% 6/15/2005 400 404
CNA Financial Corp. 6.45% 1/15/2008 300 294
Chase Capital I 7.67% 12/1/2026 400 410
The Chase Manhattan Corp. 10.00% 6/15/1999 1,000 1,047
Chrysler Financial Corp. 5.875% 2/7/2001 500 498
Chrysler Financial Corp. 6.28% 6/21/1999 800 805
Citicorp Capital II 8.015% 2/15/2027 500 526
CoreStates Capital Corp. 9.375% 4/15/2003 250 283
Countrywide Funding 7.31% 8/28/2000 MTN 600 614
Equity Residental Properties 6.55% 11/15/2001 550 551
First Chicago Corp. 11.25% 2/20/2001 300 340
First Interstate Bancorp 8.625% 4/1/1999 500 513
Fleet Capital Trust II 7.92% 12/11/2026 400 418
General Motors Acceptance Corp. 5.50% 12/15/2001 750 730
General Motors Acceptance Corp. 7.125% 5/1/2001 1,200 1,235
Great Western Finance 6.375% 7/1/2000 900 903
Health & Retirement Property Trust 6.75% 12/18/2002 (1) 750 750
Household Finance Corp. 7.65% 5/15/2007 400 430
JDN Realty Corp. 6.80% 8/1/2004 350 348
Lehman Brothers Holdings Inc. 6.15% 3/15/2000 MTN 750 749
Lehman Brothers Holdings Inc. 6.90% 1/29/2001 1,000 1,015
Lehman Brothers Holdings Inc. 7.20% 8/15/2009 320 332
Manufacturers Hanover Corp. 8.50% 2/15/1999 500 511
Mellon Capital II 7.995% 1/15/2027 400 423
Mellon Financial Corp. 7.625% 11/15/1999 200 205
Merrill Lynch & Co., Inc. 6.38% 7/18/2000 500 504
Merrill Lynch & Co., Inc. 6.50% 4/1/2001 1,000 1,012
Morgan Stanley, Dean Witter, Discover & Co. 5.89% 3/20/2000 MTN 1,500 1,497
NCNB Corp. 9.50% 6/1/2004 150 174
NationsBank Corp. 5.75% 3/15/2001 500 497
NationsBank Corp. 7.00% 9/15/2001 200 206
NationsBank Corp. 7.75% 8/15/2004 500 538
PaineWebber Group, Inc. 7.00% 3/1/2000 450 457
Salomon, Inc. 6.50% 3/1/2000 650 655
Salomon, Inc. 6.65% 7/15/2001 750 759
Salomon, Inc. 6.70% 12/1/1998 1,000 1,006
Salomon Smith Barney Holdings Inc. 5.875% 2/1/2001 400 397
Salomon Smith Barney Holdings Inc. 7.98% 3/1/2000 700 724
Sears Roebuck & Co. Acceptance Corp. 6.75% 9/15/2005 150 152
Security Capital Pacific Trust 8.05% 4/1/2017 150 162
Simon DeBartolo Group, Inc. 6.75% 7/15/2004 250 248
Storage USA, Inc. 7.50% 12/1/2027 175 177
Summit Properties Inc. 6.95% 8/15/2004 700 703
Travelers Property Casualty Corp. 7.75% 4/15/2026 275 299
U S WEST Financial 8.85% 9/20/1999 MTN 500 520
Wells Fargo Capital I 7.96% 12/15/2026 400 418
---------
32,386
---------
INDUSTRIAL (11.0%)
American Stores Co. 8.00% 6/1/2026 300 337
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 450 468
Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 150 155
Anheuser-Busch Cos., Inc. 7.375% 7/1/2023 75 77
Anheuser-Busch Cos., Inc. 8.625% 12/1/2016 31 32
Applied Materials, Inc. 8.00% 9/1/2004 100 107
</TABLE>
7
<PAGE> 60
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Archer-Daniels-Midland Co. 8.875% 4/15/2011 $ 180 $ 220
Auburn Hills 12.00% 5/1/2020 115 183
Bayer Corp. 6.65% 2/15/2028 (1) 350 350
Black & Decker Corp. 6.625% 11/15/2000 1,000 1,011
Black & Decker Corp. 7.50% 4/1/2003 500 525
The Boeing Co. 6.625% 2/15/2038 (1) 400 393
Bowater, Inc. 9.375% 12/15/2021 250 305
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 100 99
Burlington Northern Santa Fe Corp. 6.875% 2/15/2016 300 301
Burlington Northern Sante Fe Corp. 7.25% 8/1/2097 100 103
C.R. Bard, Inc. 6.70% 12/1/2026 450 460
CSX Corp. 8.625% 5/15/2022 50 59
Caterpillar Co. 7.375% 3/1/2097 300 322
Chrysler Corp. 7.45% 2/1/2097 100 105
Comcast Cablevision 8.875% 5/1/2017 350 413
Conrail Corp. 9.75% 6/15/2020 100 131
Continental Airlines, Inc. 6.648% 3/15/2019 390 387
(Equipment Trust Certificates)
Cyprus Minerals 6.625% 10/15/2005 400 392
Deere & Co. 8.50% 1/9/2022 100 119
Delta Airlines, Inc. 8.54% 1/2/2007 (2) 194 212
(Equipment Trust Certificates)
The Walt Disney Co. 7.55% 7/15/2093 350 387
Eastman Chemical Co. 6.375% 1/15/2004 400 399
Eastman Chemical Co. 7.25% 1/15/2024 100 102
Federal Express Corp. 10.00% 9/1/1998 400 407
Federated Department Stores, Inc. 7.45% 7/15/2017 425 443
Ford Capital BV 9.875% 5/15/2002 400 452
Ford Holdings 9.25% 3/1/2000 300 317
Ford Motor Co. 9.95% 2/15/2032 65 90
Fortune Brands, Inc. 7.875% 1/15/2023 100 113
General Motors Corp. 9.125% 7/15/2001 400 435
General Motors Corp. 9.625% 12/1/2000 500 542
W.R. Grace & Co. 7.40% 2/1/2000 400 412
W.R. Grace & Co. 8.00% 8/15/2004 350 386
International Business Machines Corp. 7.125% 12/1/2096 450 467
International Paper Co. 7.875% 8/1/2006 100 109
J.C. Penney & Co., Inc. 6.875% 6/15/1999 500 506
Kroger Co. 6.375% 3/1/2008 650 639
Lockheed Martin Corp. 6.85% 5/15/2001 2,000 2,040
May Department Stores Co. 9.75% 2/15/2021 100 127
McDonald's Corp. 6.75% 2/15/2003 230 233
Mobil Corp. 7.625% 2/23/2033 200 210
News America Holdings 7.50% 3/1/2000 500 512
News America Holdings 8.50% 2/15/2005 300 329
Norfolk Southern Corp. 6.875% 5/1/2001 1,125 1,146
Norfolk Southern Corp. 7.70% 5/15/2017 50 55
Norfolk Southern Corp. 7.90% 5/15/2097 50 56
Northrop Grumman Corp. 9.375% 10/15/2024 400 474
Occidental Petroleum Corp. 8.50% 11/9/2001 MTN 750 803
Petro Geo-Services 7.125% 3/30/2028 430 431
Philip Morris Cos., Inc. 7.00% 7/15/2005 150 153
Philip Morris Cos., Inc. 8.25% 10/15/2003 150 162
Phillips Petroleum Co. 9.00% 6/1/2001 600 651
Praxair, Inc. 6.70% 4/15/2001 1,175 1,192
Praxair, Inc. 6.75% 3/1/2003 500 512
Quaker State Corp. 6.625% 10/15/2005 175 175
Safeway Inc. 6.85% 9/15/2004 700 711
Tenneco, Inc. 10.075% 2/1/2001 200 220
Texaco Capital Corp. 8.875% 9/1/2021 150 189
Tosco Corp. 7.00% 7/15/2000 1,000 1,018
Union Carbide Corp. 6.75% 4/1/2003 200 203
Union Carbide Corp. 7.75% 10/1/2096 125 135
</TABLE>
8
<PAGE> 61
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Union Carbide Corp. 7.875% 4/1/2023 $ 125 $ 136
Union Oil of California 6.375% 2/1/2004 200 200
Union Oil of California 9.125% 2/15/2006 115 134
Union Pacific Corp. 8.625% 5/15/2022 175 187
Whirlpool Corp. 9.00% 3/1/2003 150 167
---------
26,033
---------
UTILITIES (3.3%)
AT&T Corp. 8.35% 1/15/2025 140 152
Alabama Power Co. 8.75% 12/1/2021 107 108
Baltimore Gas & Electric Co. 8.375% 8/15/2001 500 533
Carolina Power & Light Co. 6.875% 8/15/2023 175 170
Coastal Corp. 7.75% 10/15/2035 250 266
Enron Corp. 7.125% 5/15/2007 150 155
Enron Corp. 9.65% 5/15/2001 450 493
Houston Lighting & Power Co. 8.75% 3/1/2022 100 109
MCI Communications Corp. 7.50% 8/20/2004 250 263
MCI Communications Corp. 7.75% 3/23/2025 250 254
Michigan Bell Telephone Co. 7.50% 2/15/2023 175 180
National Rural Utility Co. 6.20% 2/1/2008 650 644
New England Telephone & Telegraph Co. 7.875% 11/15/2029 500 581
New York Telephone Co. 6.125% 1/15/2010 750 734
New York Telephone Co. 7.00% 8/15/2025 175 173
Northern Telecom Ltd. 6.875% 9/1/2023 250 247
Pacific Bell Telephone Co. 7.25% 7/1/2002 225 235
Southern California Edison Co. 6.375% 1/15/2006 650 651
Southwestern Bell Telephone Co. 6.625% 7/15/2007 600 617
Southwestern Bell Telephone Co. 7.625% 3/1/2023 475 486
Texas Utilities Co. 7.375% 8/1/2001 250 258
Texas Utilities Co. 7.875% 3/1/2023 110 114
Texas Utilities Co. 8.25% 4/1/2004 100 109
Virginia Electric & Power Co. 6.625% 4/1/2003 200 204
---------
7,736
---------
- ------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $72,843) 73,854
- ------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(3.4%)
- ------------------------------------------------------------------------------------------------
Province of British Columbia 7.00% 1/15/2003 170 176
Canadian Imperial Bank of Commerce 6.20% 8/1/2000 1,800 1,808
(NY Branch)
Finland Global Bond 7.875% 7/28/2004 350 383
Grand Metropolitan Investment Corp. 9.00% 8/15/2011 150 184
Hanson Overseas 7.375% 1/15/2003 400 416
Inter-American Development Bank 8.50% 3/15/2011 130 157
KFW International Finance, Inc. 7.625% 2/15/2004 300 322
KFW International Finance, Inc. 8.85% 6/15/1999 425 440
KFW International Finance, Inc. 9.125% 5/15/2001 200 217
Province of Manitoba 8.75% 5/15/2001 500 537
Province of Manitoba 9.25% 4/1/2020 120 158
Province of Manitoba 9.50% 10/1/2000 130 140
Province of Manitoba 9.625% 12/1/2018 100 135
National Westminster Bancorp Inc. 9.375% 11/15/2003 350 398
Province of Newfoundland 7.32% 10/13/2023 350 373
Noranda, Inc. 8.625% 7/15/2002 370 395
Province of Ontario 7.375% 1/27/2003 110 116
Province of Ontario 7.75% 6/4/2002 200 212
Republic of Portugal 5.75% 10/8/2003 650 644
Province of Saskatchewan 7.125% 3/15/2008 200 214
Province of Saskatchewan 8.00% 7/15/2004 550 602
- ------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(COST $7,783) 8,027
- ------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 62
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.8%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.95% 4/1/1998 $ 4,144 $ 4,144
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.97% 4/1/1998 2,407 2,407
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $6,551) 6,551
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.8%)
(COST $235,172) 240,969
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.8%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 5,441
Liabilities--Note G (9,642)
---------
(4,201)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 22,129,411 outstanding shares of beneficial interest
(Unlimited authorization--no par value) $236,768
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.70
=========================================================================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
(1)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At March 31, 1998, the aggregate
value of these securities was $1,493,000, representing 0.6% of net assets.
(2)The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
MTN--Medium-Term Note.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $231,398 $10.46
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses (427) (.02)
Unrealized Appreciation--Note F 5,797 .26
================================================================================================
NET ASSETS $236,768 $10.70
================================================================================================
</TABLE>
10
<PAGE> 63
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (97.6%)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (5.1%)
Amresco, Inc. 10.00% 3/15/2004 $ 500 $ 514
Bank United Corp. 8.875% 5/1/2007 1,250 1,350
Chevy Chase Savings Bank, FSB 9.25% 12/1/2008 1,000 1,045
Imperial Credit Industries, Inc. 9.875% 1/15/2007 700 693
Navistar Financial Corp. 9.00% 6/1/2002 1,000 1,050
Olympic Financial Ltd. 11.50% 3/15/2007 370 364
United Companies Financial Corp. 8.375% 7/1/2005 625 597
Western Financial Savings Bank, FSB 8.50% 7/1/2003 1,000 962
---------
6,575
---------
INDUSTRIAL (88.5%)
AEROSPACE & DEFENSE (2.4%)
Argo-Tech Corp. 8.625% 10/1/2007 750 767
K & F Industries, Inc. 9.25% 10/15/2007 1,000 1,043
L-3 Communications Corp. 10.375% 5/1/2007 500 552
Newport News Shipbuilding Inc. 8.625% 12/1/2006 750 784
AUTOMOTIVE (6.0%)
Accuride Corp. 9.25% 2/1/2008 (1) 1,000 995
Collins & Aikman Products Co. 11.50% 4/15/2006 750 844
Delco-Remy International, Inc. 10.625% 8/1/2006 750 821
Federal-Mogul Corp. 8.80% 4/15/2007 1,000 1,050
Hayes Wheels International, Inc. 11.00% 7/15/2006 750 849
Johnstown America Industries, Inc. 11.75% 8/15/2005 750 838
Key Plastics, Inc. 10.25% 3/15/2007 460 489
LDM Technologies Inc. 10.75% 1/15/2007 300 327
Lear Corp. 9.50% 7/15/2006 1,000 1,104
Walbro Corp. 9.875% 7/15/2005 500 487
BASIC INDUSTRIES (9.7%)
Advanced Lighting Technologies, Inc. 8.00% 3/15/2008 955 962
Anchor Glass Container Corp. 11.25% 4/1/2005 (1) 500 550
Cabot Safety Corp. 12.50% 7/15/2005 125 142
Clark-Schwebel Inc. 10.50% 4/15/2006 235 263
Consumers International 10.25% 4/1/2005 (1) 1,000 1,110
Day International Group Inc. 11.125% 6/1/2005 200 219
EnviroSource, Inc. 9.75% 6/15/2003 750 765
Goss Graphic Systems, Inc. 12.00% 10/15/2006 250 284
Great Lakes Carbon Corp. 10.00% 1/1/2006 100 110
Idex Corp. 6.875% 2/15/2008 470 465
International Wire Group 11.75% 6/1/2005 500 555
Mastec Inc. 7.75% 2/1/2008 (1) 1,250 1,244
Neenah Corp. 11.125% 5/1/2007 1,000 1,107
Numatics Inc. 9.625% 4/1/2008 1,000 1,021
Park-Ohio Industries, Inc. 9.25% 12/1/2007 1,000 1,053
Roller Bearing Co. of America Inc. 9.625% 6/15/2007 1,000 1,027
Scotsman Group Inc. 8.625% 12/15/2007 415 421
Synthetic Industries, Inc. 9.25% 2/15/2007 250 261
Terex Corp. 8.875% 4/1/2008 1,000 1,000
BUILDING MATERIALS (3.6%)
American Standard Cos. Inc. 7.375% 2/1/2008 1,500 1,470
Amtrol Inc. 10.625% 12/31/2006 355 368
Associated Materials Inc. 9.25% 3/1/2008 235 242
Falcon Building Products, Inc. 9.50% 6/15/2007 1,000 1,020
Johns Manville International Group 10.875% 12/15/2004 500 554
Nortek, Inc. 9.25% 3/15/2007 1,000 1,040
CABLE (5.1%)
CSC Holdings, Inc. 9.25% 11/1/2005 400 427
Cablevision Systems Corp. 8.125% 8/15/2009 750 786
</TABLE>
11
<PAGE> 64
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comcast Corp. 9.125% 10/15/2006 1,500 1,598
Falcon Holdings Group 8.375% 4/15/2010 845 843
Lenfest Communications, Inc. 8.375% 11/1/2005 1,000 1,036
Rifkin Acquisition Partners LLLP 11.125% 1/15/2006 1,250 1,387
TCI Communications, Inc. 6.875% 2/15/2006 500 506
CHEMICALS (5.0%)
Acetex Corp. 9.75% 10/1/2003 750 776
Buckeye Cellulose Corp. 8.50% 12/15/2005 750 767
Huntsman Corp. 9.50% 7/1/2007 (1) 280 284
LaRoche Industries Inc. 9.50% 9/15/2007 (1) 750 741
Lilly Industries, Inc. 7.75% 12/1/2007 1,250 1,274
Pioneer Americas Acquisition Corp. 9.25% 6/15/2007 1,000 1,030
Sovereign Specialty Chemicals Inc. 9.50% 8/1/2007 (1) 750 791
Texas Petrochemicals Corp. 11.125% 7/1/2006 750 827
CONSUMER GOODS & SERVICES (3.8%)
Chattem, Inc. 8.875% 4/1/2008 265 268
Muzak LP/Muzak Capital Corp. 10.00% 10/1/2003 500 523
Playtex Family Products Corp. 9.00% 12/15/2003 1,000 1,035
Rayovac Corp. 10.25% 11/1/2006 163 179
Revlon Consumer Products Corp. 8.625% 2/1/2008 (1) 1,000 1,014
Safelite Glass Corp. 9.875% 12/15/2006 (1) 750 795
Sealy Mattress Co. 9.875% 12/15/2007 (1) 1,000 1,060
CONTAINERS (3.4%)
BWAY Corp. 10.25% 4/15/2007 1,000 1,101
Gaylord Container Corp. 9.375% 6/15/2007 (1) 1,000 1,000
Owens-Illinois, Inc. 8.10% 5/15/2007 750 795
Silgan Corp. 9.00% 6/1/2009 1,000 1,050
Sweetheart Cup Co., Inc. 9.625% 9/1/2000 400 404
ENERGY & RELATED GOODS & SERVICES (8.3%)
AmeriGas Partners, LP Series B 10.125% 4/15/2007 600 642
Clark Refining & Marketing, Inc. 8.375% 11/15/2007 1,000 1,008
Cross Timbers Oil Co. 9.25% 4/1/2007 750 770
Dailey International Inc. 9.50% 2/15/2008 (1) 750 756
Energy Corp. of America 9.50% 5/15/2007 750 746
Falcon Drilling Co., Inc. 8.875% 3/15/2003 750 821
Flores & Rucks, Inc. 9.75% 10/1/2006 500 548
J. Ray McDermott, SA 9.375% 7/15/2006 500 538
Newfield Exploration Co. 7.45% 10/15/2007 750 748
Newpark Resources Inc. 8.625% 12/15/2007 (1) 1,250 1,284
Plains Resources, Inc. 10.25% 3/15/2006 750 806
Pride Petroleum Services, Inc. 9.375% 5/1/2007 750 802
Seagull Energy Corp. 8.625% 8/1/2005 500 516
Tuboscope Inc. 7.50% 2/15/2008 (1) 750 739
FOOD & LODGING (2.2%)
B & G Foods Inc. 9.625% 8/1/2007 750 770
CapStar Hotel Co. 8.75% 8/15/2007 1,000 1,035
Purina Mills Inc. 9.00% 3/15/2010 1,000 1,032
HEALTH CARE (5.6%)
Beverly Enterprises Inc. 9.00% 2/15/2006 250 261
Columbia/HCA Healthcare Corp. 7.25% 5/20/2008 1,000 947
Genesis Health Ventures Inc. 9.75% 6/15/2005 100 106
Graham Field Health Products, Inc. 9.75% 8/15/2007 465 474
Integrated Health Services, Inc. 9.50% 9/15/2007 500 530
Kinetic Concepts, Inc. 9.625% 11/1/2007 750 769
Leiner Health Products, Inc. 9.625% 7/1/2007 500 545
Owens & Minor, Inc. 10.875% 6/1/2006 750 838
</TABLE>
12
<PAGE> 65
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Packard Bioscience Co. 9.375% 3/1/2007 360 346
PharMerica, Inc. 8.375% 4/1/2008 595 598
Quorum Health Group, Inc. 8.75% 11/1/2005 200 209
Tenet Healthcare Corp. 10.125% 3/1/2005 500 550
U.S. Surgical Corp. 7.25% 3/15/2008 1,000 994
HOME BUILDING & REAL ESTATE (2.4%)
Continental Homes Holding Corp. 10.00% 4/15/2006 100 108
Kaufman & Broad Home Corp. 7.75% 10/15/2004 1,000 995
Standard Pacific Corp. 8.50% 6/15/2007 1,000 1,020
Toll Corp. 7.75% 9/15/2007 1,000 1,002
MEDIA & ENTERTAINMENT (5.7%)
American Radio Systems Corp. 9.00% 2/1/2006 500 531
Big Flower Press Holdings Inc. 8.875% 7/1/2007 750 765
Chancellor Media Corp 9.375% 10/1/2004 750 795
Fox/Liberty Networks LLC 8.875% 8/15/2007 1,000 1,040
JCAC, Inc. 10.125% 6/15/2006 100 110
Jacor Communications, Inc. 8.75% 6/15/2007 280 293
Lin Television Corp. 8.375% 3/1/2008 (1) 1,000 1,006
Outdoor Systems Inc. 9.375% 10/15/2006 260 279
PRIMEDIA Inc. 7.625% 4/1/2008 (1) 1,000 990
Von Hoffman Press Inc. 10.375% 5/15/2007 (1) 500 535
Young Broadcasting Inc. 9.00% 1/15/2006 750 778
Young Broadcasting Inc. 10.125% 2/15/2005 250 269
METAL (5.1%)
AK Steel Corp. 9.125% 12/15/2006 500 536
Algoma Steel Inc. 12.375% 7/15/2005 1,000 1,190
AmeriSteel Corp. 8.75% 4/15/2008 370 375
Armco, Inc. 9.00% 9/15/2007 500 521
Bethlehem Steel Corp. 10.375% 9/1/2003 400 433
GS Technologies Operating Co., Inc. 12.25% 10/1/2005 750 844
LTV Corp. 8.20% 9/15/2007 750 758
NS Group Inc. 13.50% 7/15/2003 300 348
Oregon Steel Mills, Inc. 11.00% 6/15/2003 175 191
Ryerson Tull, Inc. 9.125% 7/15/2006 500 550
Weirton Steel Corp. 10.75% 6/1/2005 500 532
Wells Aluminum Corp. 10.125% 6/1/2005 250 268
PAPER & PACKAGING (5.6%)
Container Corp. of America 9.75% 4/1/2003 700 753
Doman Industries, Ltd. 8.75% 3/15/2004 750 750
Domtar Inc. 8.75% 8/1/2006 200 210
Domtar Inc. 9.50% 8/1/2016 1,250 1,341
Fonda Group Inc. 9.50% 3/1/2007 500 490
NoramPac Inc. 9.50% 2/1/2008 (1) 1,000 1,040
Paperboard Industries International Inc. 8.375% 9/15/2007 (1) 1,000 1,025
Tembec Finance Corp. 9.875% 9/30/2005 750 795
U.S. Timberlands LLC 9.625% 11/15/2007 750 780
TECHNOLOGY & RELATED (6.5%)
Advanced Micro Devices, Inc. 11.00% 8/1/2003 750 804
Amphenol Corp. 9.875% 5/15/2007 1,500 1,627
Beckman Instruments, Inc. 7.45% 3/4/2008 (1) 750 753
Fairchild Semiconductor Corp. 10.125% 3/15/2007 750 784
Fisher Scientific International 9.00% 2/1/2008 (1) 1,000 1,018
Iron Mountain, Inc. 10.125% 10/1/2006 1,000 1,101
Pierce Leahy Corp. 9.125% 7/15/2007 1,250 1,313
Unisys Corp. 7.875% 4/1/2008 1,000 1,002
</TABLE>
13
<PAGE> 66
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (5.4%)
Comcast Cellular Holdings, Inc. 9.50% 5/1/2007 1,000 1,050
GCI, Inc. 9.75% 8/1/2007 1,000 1,063
ITC Deltacom Inc. 11.00% 6/1/2007 1,000 1,130
Intermedia Communications Inc. 8.875% 11/1/2007 1,000 1,068
McLeodUSA Inc. 9.25% 7/15/2007 1,000 1,070
Paging Network, Inc. 10.125% 8/1/2007 750 787
Rogers Cantel, Inc. 8.30% 10/1/2007 750 750
TEXTILES & RELATED (2.7%)
Galey & Lord Inc. 9.125% 3/1/2008 (1) 1,000 1,015
Pillowtex Corp. 9.00% 12/15/2007 (1) 1,000 1,040
Tultex Corp. 9.625% 4/15/2007 500 505
Tultex Corp. 10.625% 3/15/2005 500 521
Westpoint Stevens, Inc. 9.375% 12/15/2005 425 451
---------
114,326
---------
UTILITIES (4.0%)
AES Corp. 8.375% 8/15/2007 500 509
CMS Energy Corp. 8.125% 5/15/2002 750 768
CalEnergy Co., Inc. 9.50% 9/15/2006 250 271
Calpine Corp. 7.875% 4/1/2008 810 812
Cleveland Electric Illuminating Co. 7.43% 11/1/2009 (1) 1,500 1,546
El Paso Electric Co. 8.90% 2/1/2006 1,000 1,111
Texas-New Mexico Power Co. 10.75% 9/15/2003 200 217
---------
5,234
---------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $123,441) 126,135
- -------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (2.2%)
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.95% 4/1/1998 1,686 1,686
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.97% 4/1/1998 1,140 1,140
- -------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $2,826) 2,826
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.8%)
(COST $126,267) 128,961
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.2%)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 5,641
Liabilities--Note G (5,395)
---------
246
- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- -------------------------------------------------------------------------------------------------------------------------
Applicable to 12,075,880 outstanding shares of beneficial interest
(unlimited authorization--no par value) $129,207
=========================================================================================================================
NET ASSET VALUE PER SHARE $10.70
=========================================================================================================================
</TABLE>
* See Note A in Notes to Financial Statements.
(1)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At March 31, 1998, the aggregate
value of these securities was $22,331,000 representing 17.3% of net assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- -------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $125,581 $10.40
Undistributed Net Investment Income -- --
Accumulated Net Realized Gains 932 .08
Unrealized Appreciation--Note F 2,694 .22
=========================================================================================================================
NET ASSETS $129,207 $10.70
=========================================================================================================================
</TABLE>
14
<PAGE> 67
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (61.6%)
- ---------------------------------------------------------
<S> <C>
AUTO & TRANSPORTATION (5.4%)
CSX Corp. 3,000 178
Canadian National Railway Co. 45,500 2,912
Chrysler Corp. 62,500 2,598
Ford Motor Co. 149,531 9,691
General Motors Corp. 43,139 2,909
KLM Royal Dutch Air Lines NV 91,300 3,709
Norfolk Southern Corp. 32,200 1,203
Union Pacific Corp. 118,800 6,675
---------
29,875
---------
CONSUMER DISCRETIONARY (2.7%)
Eastman Kodak Co. 44,400 2,880
May Department Stores Co. 34,800 2,210
J.C. Penney Co., Inc. 40,500 3,065
Sears, Roebuck & Co. 72,052 4,138
Waste Management Inc. 76,000 2,342
---------
14,635
---------
CONSUMER STAPLES (1.7%)
American Stores Co. 50,000 1,300
General Mills, Inc. 23,000 1,748
H.J. Heinz Co. 69,000 4,028
Philip Morris Cos., Inc. 56,000 2,334
---------
9,410
---------
FINANCIAL SERVICES (12.1%)
Allstate Corp. 44,964 4,134
BankAmerica Corp. 57,000 4,710
CIGNA Corp. 36,100 7,400
Citicorp 68,900 9,784
CoreStates Financial Corp. 36,540 3,279
Equity Residential Properties
Trust REIT 23,000 1,156
Fannie Mae 74,000 4,680
First Union Corp. 105,754 6,002
Jefferson-Pilot Corp. 29,500 2,624
MBIA, Inc. 38,000 2,945
Marsh & McLennan Cos., Inc. 48,000 4,191
Security Capital Pacific, Inc. REIT47,000 1,131
Spieker Properties, Inc. REIT 25,000 1,031
Starwood Hotels & Resorts REIT 6,000 321
U.S. Bancorp 64,400 8,034
Wachovia Corp. 68,300 5,793
---------
67,215
---------
HEALTH CARE (7.6%)
Abbott Laboratories 61,600 4,639
American Home Products Corp. 23,000 2,194
C.R. Bard, Inc. 56,000 2,058
Baxter International, Inc. 73,100 4,030
Bristol-Myers Squibb Co. 50,400 5,257
Columbia/HCA Healthcare Corp. 69,000 2,225
Johnson & Johnson 73,000 5,352
Pfizer, Inc. 39,500 3,938
Pharmacia & Upjohn, Inc. 202,500 8,859
Rhone-Poulenc SA ADR 71,782 3,616
---------
42,168
---------
INTEGRATED OILS (5.6%)
Amoco Corp. 52,400 4,526
Ashland, Inc. 23,400 1,325
Atlantic Richfield Co. 9,000 708
Chevron Corp. 30,600 2,458
Equitable Resources, Inc. 46,000 1,529
Exxon Corp. 29,700 2,008
Kerr-McGee Corp. 11,000 765
Phillips Petroleum Co. 49,800 2,487
Repsol SA ADR 73,400 3,734
Royal Dutch Petroleum Co. ADR 71,300 4,051
Texaco Inc. 21,000 1,265
Total SA ADR 46,056 2,766
USX-Marathon Group 50,200 1,889
Unocal Corp. 40,587 1,570
---------
31,081
---------
OTHER ENERGY (0.4%)
Occidental Petroleum Corp. 68,000 1,993
---------
MATERIALS & PROCESSING (10.4%)
Aluminum Co. of America 80,000 5,505
BOC Group PLC ADR 46,000 1,518
British Steel PLC ADR 105,900 2,568
Cabot Corp. 50,200 1,851
Dow Chemical Co. 68,100 6,623
E.I. du Pont de Nemours & Co. 106,100 7,215
Imperial Chemical Industries
PLC ADR 23,000 1,653
International Paper Co. 45,500 2,130
Kimberly-Clark Corp. 121,300 6,080
Lubrizol Corp. 57,000 2,194
Norsk Hydro ASA ADR 45,400 2,270
PPG Industries, Inc. 39,200 2,663
Phelps Dodge Corp. 75,200 4,855
Reynolds Metals Co. 36,262 2,228
Temple-Inland Inc. 45,000 2,796
Westvaco Corp. 45,300 1,393
Willamette Industries, Inc. 69,800 2,622
Witco Chemical Corp. 38,500 1,516
---------
57,680
---------
PRODUCER DURABLES (6.1%)
AMP, Inc. 60,000 2,629
The Boeing Co. 80,000 4,170
Caterpillar, Inc. 62,000 3,414
Honeywell, Inc. 73,300 6,061
Lockheed Martin Corp. 46,000 5,175
United Technologies Corp. 38,600 3,563
Xerox Corp. 84,000 8,941
---------
33,953
---------
TECHNOLOGY (0.6%)
International Business
Machines Corp. 34,000 3,532
---------
UTILITIES (5.6%)
AT&T Corp. 75,500 4,955
ALLTEL Corp. 16,000 699
Bell Atlantic Corp. 33,356 3,419
BellSouth Corp. 57,600 3,892
Carolina Power & Light Co. 45,500 2,059
Cinergy Corp. 72,000 2,664
Duke Energy Corp. 57,000 3,395
PacifiCorp 72,000 1,773
Pinnacle West Capital Corp. 40,000 1,778
</TABLE>
15
<PAGE> 68
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
SBC Communications Inc. 66,000 $ 2,879
Texas Utilities Co. 56,700 2,229
U S WEST Communications Group 22,100 1,210
---------
30,952
---------
OTHER (3.4%)
Canadian Pacific Ltd. 129,000 3,805
Cooper Industries, Inc. 82,000 4,874
General Electric Co. 73,400 6,326
Minnesota Mining &
Manufacturing Co. 39,400 3,593
---------
18,598
---------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $203,312) 341,092
- ---------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (0.3%)
- ---------------------------------------------------------
Cyprus Amax Minerals Co.
$4.00 Cvt. Pfd. Series A 11,666 560
Sun Co., Inc.
$1.80 Cvt. Pfd. Series A 29,000 1,100
- ---------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $1,445) 1,660
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
CORPORATE BONDS (21.8%)
- ---------------------------------------------------------
<S> <C> <C>
COMMERCIAL MORTGAGE-
BACKED SECURITIES (0.4%)
Asset Securitization Corp.
(3) 6.75%, 2/14/2041 $ 2,000 2,047
---------
FINANCE (5.9%)
BB&T Corp.
7.25%, 6/15/2007 2,000 2,096
BankAmerica Corp.
7.20%, 4/15/2006 1,000 1,050
BankBoston NA
6.375%, 3/25/2008 2,000 1,976
CIGNA Corp.
7.875%, 5/15/2027 2,000 2,165
Citicorp
7.625%, 5/1/2005 1,000 1,064
Comerica, Inc.
7.25%, 8/1/2007 1,500 1,584
Dean Witter, Discover & Co.
6.75%, 10/15/2013 1,000 1,003
Exxon Capital Corp.
6.00%, 7/1/2005 1,000 990
First Union Corp.
7.50%, 4/15/2035 1,000 1,139
Ford Motor Credit Co.
6.25%, 12/8/2005 1,000 992
General Electric Global
Insurance Holdings Corp.
7.00%, 2/15/2026 2,000 2,075
Jackson National Life Insurance Co.
(1) 8.15%, 3/15/2027 1,500 1,668
John Hancock Mutual
Life Insurance Co.
(1) 7.375%, 2/15/2024 2,000 2,078
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
Lumbermens Mutual Casualty Co.
(1) 9.15%, 7/1/2026 $ 1,000 $ 1,167
NBD Bancorp, Inc.
7.125%, 5/15/2007 1,500 1,567
NationsBank Corp.
7.80%, 9/15/2016 2,000 2,221
Ohio National Life Insurance Co.
(1) 8.50%, 5/15/2026 2,000 2,227
Provident Cos., Inc.
7.25%, 3/15/2028 2,000 1,985
Security Benefit Life Insurance Co.
(1) 8.75%, 5/15/2016 1,500 1,672
SunTrust Bank Atlanta
7.25%, 9/15/2006 1,000 1,054
Wachovia Corp.
6.375%, 2/1/2009 1,000 994
---------
32,767
---------
INDUSTRIAL (10.0%)
Abbott Laboratories
6.80%, 5/15/2005 1,000 1,041
Air Products & Chemicals, Inc.
7.375%, 5/1/2005 1,000 1,061
Amoco Corp.
6.50%, 8/1/2007 1,500 1,540
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 1,500 1,650
Baxter International, Inc.
7.65%, 2/1/2027 2,100 2,326
Becton, Dickinson & Co.
7.00%, 8/1/2027 2,000 2,084
The Boeing Co.
8.75%, 8/15/2021 1,500 1,894
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 1,500 1,552
Browning-Ferris Industries, Inc.
6.375%, 1/15/2008 1,000 990
CPC International, Inc.
7.25%, 12/15/2026 1,000 1,067
Coca-Cola Enterprises, Inc.
8.50%, 2/1/2022 1,000 1,207
Dean Foods Co.
6.90%, 10/15/2017 2,000 2,045
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 2,000 1,948
Fluor Corp.
6.95%, 3/1/2007 1,500 1,564
Georgia-Pacific Corp.
9.625%, 3/15/2022 1,000 1,117
International Business
Machines Corp.
7.00%, 10/30/2025 2,000 2,098
Johnson Controls, Inc.
7.125%, 7/15/2017 1,200 1,245
KN Energy, Inc.
7.25%, 3/1/2028 2,000 2,004
Eli Lilly & Co.
7.125%, 6/1/2025 2,000 2,155
Lockheed Martin Corp.
7.65%, 5/1/2016 1,000 1,085
</TABLE>
16
<PAGE> 69
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
<S> <C> <C>
McDonald's Corp.
6.375%, 1/8/2028 $ 1,000 $ 978
7.375%, 7/15/2033 1,000 1,027
Mead Corp.
7.35%, 3/1/2017 500 529
Merck & Co.
6.40%, 3/1/2028 2,000 1,989
Minnesota Mining &
Manufacturing Corp.
6.375%, 2/15/2028 2,000 1,956
Norfolk Southern Corp.
7.70%, 5/15/2017 1,500 1,656
J.C. Penney Co., Inc.
7.95%, 4/1/2017 1,500 1,660
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 1,000 1,292
Raytheon Co.
7.20%, 8/15/2027 1,500 1,560
Sears, Roebuck & Co.
9.375%, 11/1/2011 1,000 1,239
Stanford Univ.
7.65%, 6/15/2026 1,000 1,149
TRW, Inc.
9.375%, 4/15/2021 1,000 1,309
Tosco Corp.
7.80%, 1/1/2027 1,500 1,629
Ultramar Diamond Shamrock Corp.
7.20%, 10/15/2017 2,000 2,021
United Technologies Corp.
8.75%, 3/1/2021 1,000 1,224
Wal-Mart Stores, Inc.
7.25%, 6/1/2013 1,000 1,079
Weyerhaeuser Co.
6.95%, 8/1/2017 1,500 1,501
---------
55,471
---------
UTILITIES (5.5%)
AT&T Corp.
7.75%, 3/1/2007 1,000 1,101
Ameritech Capital Funding
6.875%, 10/15/2027 2,000 2,034
Atlantic City Electric Co.
(2) 7.00%, 9/1/2023 1,000 1,008
Baltimore Gas & Electric Co.
5.50%, 4/15/2004 1,000 966
BellSouth Telecommunications
7.50%, 6/15/2033 1,000 1,039
Central Power & Light Co.
6.625%, 7/1/2005 1,000 1,019
Duke Energy Corp.
7.00%, 7/1/2033 1,000 988
El Paso Natural Gas Co.
7.50%, 11/15/2026 1,500 1,590
Florida Power & Light Co.
7.00%, 9/1/2025 2,000 2,013
Florida Power Corp.
6.75%, 2/1/2028 1,755 1,761
6.875%, 2/1/2008 1,850 1,942
GTE Southwest, Inc.
6.00%, 1/15/2006 1,000 973
Illinois Bell Telephone Co.
6.625%, 2/1/2025 1,000 950
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 1,000 1,093
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 1,000 1,165
New York Telephone Co.
7.25%, 2/15/2024 1,000 1,015
PacifiCorp
6.625%, 6/1/2007 MTN 1,000 1,014
Pacific Bell
7.125%, 3/15/2026 1,000 1,062
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 1,500 1,592
U S WEST Capital Funding, Inc.
7.90%, 2/1/2027 1,500 1,684
U S WEST Communications Group
6.875%, 9/15/2033 1,000 959
Union Electric Co.
7.375%, 12/15/2004 1,000 1,057
Washington Gas Light Co.
6.15%, 1/26/2026 MTN 1,500 1,500
Wisconsin Electric Power Co.
7.70%, 12/15/2027 1,000 1,042
---------
30,567
---------
- ---------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $114,848) 120,852
- ---------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(3.0%)
- ---------------------------------------------------------
ABN-AMRO BK NV (Chicago)
7.25%, 5/31/2005 1,000 1,046
Banque Nationale de Paris-NY
7.20%, 1/15/2007 1,500 1,551
Banque Paribas-NY
6.875%, 3/1/2009 1,500 1,500
Deutsche Bank Financial Inc.
6.70%, 12/13/2006 2,000 2,024
Enersis SA
7.40%, 12/1/2016 1,500 1,464
Husky Oil Ltd.
7.55%, 11/15/2016 1,000 1,011
KFW International Finance, Inc.
7.20%, 3/15/2014 2,000 2,160
Metropolitano de Lisboa
(1) 7.42%, 10/15/2016 1,000 1,063
Petro-Canada
7.875%, 6/15/2026 1,000 1,104
Southern Investments UK PLC
6.80%, 12/1/2006 1,500 1,522
Toronto Dominion Bank-NY
6.45%, 1/15/2009 1,000 994
Zeneca Wilmington Inc.
7.00%, 11/15/2023 1,000 1,055
- ---------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $15,780) 16,494
- ---------------------------------------------------------
</TABLE>
17
<PAGE> 70
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
BALANCED PORTFOLIO (000) (000)
- ---------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (11.8%)
- ---------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (11.6%)
U.S. Treasury Bonds
6.25%, 8/15/2023 $24,100 $ 24,817
7.25%, 5/15/2016 13,500 15,345
7.50%, 11/15/2016 3,000 3,494
U.S. Treasury Notes
6.50%, 8/15/2005 6,400 6,683
6.625%, 5/15/2007 13,000 13,790
---------
64,129
---------
AGENCY BONDS & NOTES (0.2%)
Federal Home Loan Bank
7.66%, 7/20/2004 1,000 1,091
---------
- ---------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $61,479) 65,220
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENTS (3.3%)
- ---------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.95%, 4/1/1998--Note G 14,590 14,590
5.97%, 4/1/1998 3,652 3,652
- ---------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $18,242) 18,242
- ---------------------------------------------------------
TOTAL INVESTMENTS (101.8%)
(COST $415,106) 563,560
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.8%)
- ---------------------------------------------------------
Other Assets--Note C 6,086
Liabilities--Note G (16,220)
---------
(10,134)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 30,197,325 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $553,426
=========================================================
NET ASSET VALUE PER SHARE $18.33
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
(1)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At March 31, 1998, the aggregate
value of these securities was $9,875,000, representing 1.8% of net assets.
(2)Scheduled principal and interest payments are guaranteed by MBIA (Municipal
Bond Insurance Association).
(3)The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
ADR--American Depositary Receipt.
MTN--Medium-Term Note.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $378,442 $12.53
Undistributed Net Investment
Income 8,785 .29
Accumulated Net
Realized Gains 17,745 .59
Unrealized Appreciation--Note F 148,454 4.92
- ---------------------------------------------------------
NET ASSETS $553,426 $18.33
=========================================================
</TABLE>
18
<PAGE> 71
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (96.8%)(1)
- ---------------------------------------------------------
<S> <C>
General Electric Co. 339,036 $ 29,221
- - Microsoft Corp. 253,300 22,670
The Coca-Cola Co. 257,262 19,922
Exxon Corp. 256,630 17,355
Merck & Co., Inc. 124,128 15,935
Pfizer, Inc. 134,536 13,412
Intel Corp. 169,428 13,226
Royal Dutch Petroleum Co. ADR 222,980 12,668
Wal-Mart Stores, Inc. 234,842 11,933
Procter & Gamble Co. 139,244 11,749
AT&T Corp. 168,264 11,042
Bristol-Myers Squibb Co. 103,150 10,760
Philip Morris Cos., Inc. 252,769 10,537
International Business
Machines Corp. 101,332 10,526
Johnson & Johnson 140,154 10,275
American International Group, Inc. 73,085 9,204
Lucent Technologies, Inc. 68,221 8,724
SBC Communications Inc. 190,780 8,323
Bell Atlantic Corp. 80,791 8,281
Ford Motor Co. 124,458 8,066
E.I. du Pont de Nemours & Co. 117,340 7,979
The Walt Disney Co. 70,410 7,516
- - Cisco Systems, Inc. 106,089 7,254
Travelers Group Inc. 118,944 7,137
NationsBank Corp. 97,825 7,135
Fannie Mae 110,396 6,983
BellSouth Corp. 103,204 6,973
Gillette Co. 58,278 6,917
Hewlett-Packard Co. 108,248 6,860
Eli Lilly & Co. 114,904 6,851
Citicorp 47,616 6,761
PepsiCo, Inc. 157,904 6,741
American Home Products Corp. 67,550 6,443
Mobil Corp. 81,798 6,268
Schering-Plough Corp. 75,844 6,196
Abbott Laboratories 79,328 5,974
GTE Corp. 99,635 5,966
BankAmerica Corp. 71,926 5,943
The Chase Manhattan Corp. 43,887 5,919
Ameritech Corp. 113,372 5,605
Chevron Corp. 68,130 5,472
The Boeing Co. 104,393 5,441
Home Depot, Inc. 75,795 5,111
General Motors Corp. 73,282 4,942
Warner-Lambert Co. 28,454 4,846
- - Dell Computer Corp. 70,800 4,797
- - WorldCom, Inc. 105,830 4,557
Unilever NV ADR 66,356 4,554
Morgan Stanley
Dean Witter & Co. 61,809 4,504
American Express Co. 48,357 4,440
Amoco Corp. 50,897 4,396
Time Warner, Inc. 60,751 4,374
McDonald's Corp. 71,993 4,320
Banc One Corp. 67,249 4,253
Allstate Corp. 44,458 4,087
Compaq Computer Corp. 157,568 4,077
Schlumberger Ltd. 51,600 3,909
Minnesota Mining &
Manufacturing Co. 42,509 3,876
First Union Corp. 67,272 3,818
Motorola, Inc. 61,856 3,750
Xerox Corp. 33,747 3,592
MCI Communications Corp. 72,122 3,570
Northern Telecom Ltd. 54,096 3,496
Texaco Inc. 57,000 3,434
Freddie Mac 71,656 3,399
- - Cendant Corp. 84,272 3,339
Computer Associates
International, Inc. 56,891 3,285
Norwest Corp. 78,770 3,274
Tyco International Ltd. 59,612 3,256
- - Oracle Corp. 102,354 3,231
Monsanto Co. 61,405 3,193
U.S. Bancorp 25,314 3,158
Sara Lee Corp. 49,554 3,054
Emerson Electric Co. 46,480 3,030
Sprint Corp. 44,713 3,027
Wells Fargo & Co. 8,977 2,974
Kimberly-Clark Corp. 57,788 2,897
Merrill Lynch & Co., Inc. 34,700 2,880
Chrysler Corp. 68,136 2,832
U S WEST Communications
Group 49,829 2,728
Campbell Soup Co. 47,174 2,677
Colgate-Palmolive Co. 30,818 2,670
First Chicago NBD Corp. 30,129 2,655
Atlantic Richfield Co. 33,238 2,613
- - AirTouch Communications, Inc. 52,078 2,549
Medtronic, Inc. 48,728 2,528
CBS Corp. 73,700 2,501
AlliedSignal Inc. 58,812 2,470
J.P. Morgan & Co., Inc. 18,243 2,450
The Bank of New York Co., Inc. 38,898 2,443
Fleet Financial Group, Inc. 28,522 2,426
Sears, Roebuck & Co. 41,107 2,361
Anheuser-Busch Cos., Inc. 50,570 2,342
National City Corp. 31,898 2,339
Pharmacia & Upjohn, Inc. 52,589 2,301
Lockheed Martin Corp. 20,248 2,278
Dow Chemical Co. 23,277 2,264
H.J. Heinz Co. 38,511 2,248
United Technologies Corp. 24,124 2,227
Duke Energy Corp. 37,073 2,208
- - U S WEST Media Group 63,529 2,208
Eastman Kodak Co. 34,006 2,206
Texas Instruments, Inc. 40,722 2,204
Columbia/HCA Healthcare Corp. 66,757 2,153
Caterpillar, Inc. 38,766 2,135
Gannett Co., Inc. 29,392 2,113
Automatic Data Processing, Inc. 30,736 2,092
Dayton Hudson Corp. 22,758 2,003
J.C. Penney Co., Inc. 26,256 1,987
Southern Co. 70,725 1,958
- - EMC Corp. 50,900 1,925
Washington Mutual, Inc. 26,694 1,914
- - Viacom Inc. Class B 35,467 1,906
PNC Bank Corp. 31,757 1,903
</TABLE>
19
<PAGE> 72
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
CoreStates Financial Corp. 20,736 $ 1,861
The Gap, Inc. 41,069 1,848
MBNA Corp. 51,540 1,846
Wachovia Corp. 21,749 1,845
Kellogg Co. 42,158 1,818
Walgreen Co. 51,256 1,804
General Re Corp. 8,054 1,777
American General Corp. 27,211 1,760
KeyCorp 45,816 1,732
Bestfoods 14,799 1,730
Burlington Northern
Santa Fe Corp. 16,266 1,692
BankBoston Corp. 15,226 1,679
Mellon Bank Corp. 26,360 1,674
- - Amgen, Inc. 27,399 1,668
Illinois Tool Works, Inc. 25,616 1,659
Raytheon Co. Class B 28,160 1,644
- - Tele-Communications, Inc.
Class A 52,655 1,637
SunTrust Banks, Inc. 21,590 1,627
- - Sun Microsystems, Inc. 38,600 1,610
Baxter International, Inc. 29,121 1,605
Deere & Co. 25,838 1,600
ConAgra, Inc. 49,502 1,590
CIGNA Corp. 7,689 1,576
Marsh & McLennan Cos., Inc. 17,690 1,545
Household International, Inc. 11,170 1,539
Pitney Bowes, Inc. 30,554 1,533
May Department Stores Co. 24,036 1,526
Enron Corp. 32,459 1,505
PG&E Corp. 44,805 1,479
International Paper Co. 31,374 1,469
Waste Management Inc. 47,383 1,460
First Data Corp. 44,764 1,455
Union Pacific Corp. 25,798 1,450
Norfolk Southern Corp. 38,489 1,439
The Seagram Co. Ltd. 37,119 1,417
CVS Corp. 18,362 1,386
Fifth Third Bancorp 16,200 1,385
- - 3Com Corp. 38,300 1,376
Williams Cos., Inc. 42,730 1,367
The Chubb Corp. 17,418 1,365
Phillips Petroleum Co. 27,109 1,354
CSX Corp. 22,708 1,351
Albertson's, Inc. 25,599 1,347
- - Boston Scientific Corp. 19,942 1,346
Halliburton Co. 26,804 1,345
- - AMR Corp. 9,393 1,345
- - Applied Materials, Inc. 38,044 1,343
Archer-Daniels-Midland Co. 60,888 1,336
The Hartford Financial Services
Group Inc. 12,288 1,333
NIKE, Inc. Class B 29,680 1,313
HBO & Co. 21,500 1,298
Textron, Inc. 16,820 1,295
Aetna Inc. 15,275 1,275
Lowe's Cos., Inc. 18,035 1,266
PPG Industries, Inc. 18,525 1,259
- - Tellabs, Inc. 18,696 1,255
United Healthcare Corp. 19,288 1,249
The Goodyear Tire & Rubber Co. 16,249 1,231
General Mills, Inc. 16,167 1,229
Rockwell International Corp. 21,409 1,228
FPL Group, Inc. 19,046 1,224
Loews Corp. 11,700 1,220
Aluminum Co. of America 17,645 1,214
Bankers Trust New York Corp. 10,028 1,206
- - The Kroger Co. 26,002 1,201
Mattel, Inc. 30,222 1,198
- - Costco Cos., Inc. 22,318 1,194
Guidant Corp. 16,200 1,189
Ralston-Ralston Purina Group 11,164 1,183
Weyerhaeuser Co. 20,802 1,175
- - Clear Channel
Communications, Inc. 11,850 1,161
Edison International 38,994 1,145
Consolidated Edison Inc. 24,455 1,143
State Street Corp. 16,700 1,137
- - Tenet Healthcare Corp. 31,297 1,136
Comerica, Inc. 10,700 1,132
- - HEALTHSOUTH Corp. 40,327 1,132
Aon Corp. 17,200 1,114
- - Federated Department
Stores, Inc. 21,300 1,104
USX-Marathon Group 29,319 1,103
Service Corp. International 25,824 1,096
Conseco Inc. 19,200 1,087
- - FDX Corp. 15,044 1,070
Honeywell, Inc. 12,916 1,068
Hershey Foods Corp. 14,890 1,067
Corning, Inc. 23,648 1,046
Avon Products, Inc. 13,394 1,045
BB&T Corp. 15,400 1,042
Charles Schwab Corp. 27,300 1,037
Progressive Corp. of Ohio 7,600 1,024
Occidental Petroleum Corp. 34,569 1,013
AMP, Inc. 22,898 1,003
Texas Utilities Co. 25,474 1,001
Masco Corp. 16,729 995
Air Products & Chemicals, Inc. 12,003 995
Cardinal Health, Inc. 11,200 988
Unocal Corp. 25,299 979
American Electric Power Co., Inc. 19,400 975
Fort James Corp. 21,241 973
Cognizant Corp. 16,934 972
Wrigley, (Wm.) Jr. Co. 11,829 967
SunAmerica Inc. 19,850 950
Sysco Corp. 36,380 932
The Clorox Co. 10,776 923
Delta Air Lines, Inc. 7,771 919
Public Service Enterprise
Group, Inc. 24,168 915
Rite Aid Corp. 26,704 915
Summit Bancorp. 18,200 911
Tribune Co. 12,802 903
Computer Sciences Corp. 16,264 895
- - Parametric Technology Corp. 26,800 893
Lincoln National Corp. 10,487 890
H.F. Ahmanson & Co. 11,431 886
Dresser Industries, Inc. 18,287 879
</TABLE>
20
<PAGE> 73
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C>
Dominion Resources, Inc. 20,896 $ 878
Burlington Resources, Inc. 18,111 868
Northern Trust Corp. 11,604 867
- - Toys R Us, Inc. 28,818 866
Dover Corp. 22,560 857
Becton, Dickinson & Co. 12,460 848
Barrick Gold Corp. 38,901 841
Houston Industries, Inc. 29,186 839
Hilton Hotels Corp. 26,057 831
The Quaker Oats Co. 14,459 828
- - Kmart Corp. 49,553 827
Praxair, Inc. 16,021 824
ALLTEL Corp. 18,842 823
Interpublic Group of Cos., Inc. 13,149 817
SAFECO Corp. 14,780 808
Ingersoll-Rand Co. 16,700 801
The Limited, Inc. 27,686 794
Newell Co. 16,275 788
- - Digital Equipment Corp. 15,043 787
Lehman Brothers Holdings, Inc. 10,500 786
Omnicom Group Inc. 16,600 781
UNUM Corp. 13,994 772
Unicom Corp. 22,054 772
Mercantile Bancorp, Inc. 14,000 767
MBIA, Inc. 9,900 767
The McGraw-Hill Cos., Inc. 10,034 763
PacifiCorp 30,972 763
Eaton Corp. 8,000 762
Entergy Corp. 25,550 760
TJX Cos., Inc. 16,772 759
Republic New York Corp. 5,678 757
MGIC Investment Corp. 11,500 755
St. Paul Cos., Inc. 8,455 754
Transamerica Corp. 6,388 744
Alcan Aluminium Ltd. 23,812 744
American Stores Co. 28,460 740
Tenneco, Inc. 17,261 737
FirstEnergy Corp. 23,773 733
Comcast Corp. Class A Special 20,729 732
Coastal Corp. 11,163 727
Northrop Grumman Corp. 6,762 726
Cooper Industries, Inc. 12,184 724
Cincinnati Financial Corp. 5,700 714
Huntington Bancshares Inc. 19,499 710
TRW, Inc. 12,886 710
Fortune Brands, Inc. 17,639 703
Winn-Dixie Stores, Inc. 15,026 697
Carolina Power & Light Co. 15,353 695
Baker Hughes, Inc. 17,254 694
Crown Cork & Seal Co., Inc. 12,980 694
Genuine Parts Co. 18,169 693
New York Times Co. Class A 9,882 692
- - US Airways Group, Inc. 9,301 689
Beneficial Corp. 5,384 669
Southwest Airlines Co. 22,482 665
Browning-Ferris Industries, Inc. 20,329 663
Rohm & Haas Co. 6,363 657
VF Corp. 12,460 655
Synovus Financial Corp. 17,600 653
- - Bay Networks, Inc. 24,000 651
Torchmark Corp. 14,194 650
Jefferson-Pilot Corp. 7,305 650
Pioneer Hi-Bred International, Inc. 6,647 649
Sherwin-Williams Co. 17,924 636
- - Owens-Illinois, Inc. 14,650 634
Union Pacific Resources
Group, Inc. 26,516 633
Union Carbide Corp. 12,618 632
Dana Corp. 10,808 629
W.R. Grace & Co. 7,492 627
- - Seagate Technology 24,800 626
R.R. Donnelley & Sons Co. 15,227 625
- - NEXTEL Communications, Inc. 18,300 618
- - Micron Technology, Inc. 21,197 616
- - Thermo Electron Corp. 15,200 614
UST, Inc. 18,893 609
Georgia Pacific Group 9,382 607
Ameren Corp. 14,255 600
The Dun & Bradstreet Corp. 17,534 599
Cinergy Corp. 16,173 598
The Times Mirror Co. Class A 9,338 592
DTE Energy Co. 14,986 589
Countrywide Credit
Industries, Inc. 10,900 580
Central & South West Corp. 21,626 579
Parker Hannifin Corp. 11,242 576
GPU, Inc. 12,892 570
Allegheny Teledyne Inc. 20,132 560
Consolidated Natural Gas Co. 9,688 559
Providian Financial Corp. 9,608 552
Avery Dennison Corp. 10,310 550
General Dynamics Corp. 6,380 549
Golden West Financial Corp. 5,726 549
Equifax, Inc. 15,000 547
Eastman Chemical Co. 8,094 546
Amerada Hess Corp. 9,278 541
Champion International Corp. 9,904 538
International Flavors &
Fragrances, Inc. 11,407 538
Frontier Corp. 16,500 537
Johnson Controls, Inc. 8,836 536
- - AutoZone Inc. 15,800 535
Whirlpool Corp. 7,790 534
W.W. Grainger, Inc. 5,180 533
Case Corp. 7,700 525
Laidlaw, Inc. 33,042 525
H & R Block, Inc. 10,968 522
Comcast Corp. Class A 14,931 518
The Stanley Works 9,270 517
PECO Energy Corp. 23,285 515
Dow Jones & Co., Inc. 9,731 515
Tandy Corp. 10,794 507
Black & Decker Corp. 9,512 505
Nordstrom, Inc. 7,743 494
Newmont Mining Corp. 16,055 491
Nucor Corp. 8,969 488
Hercules, Inc. 9,878 488
Marriott International Inc. 13,103 487
Baltimore Gas & Electric Co. 14,851 485
- - Unisys Corp. 25,505 485
</TABLE>
21
<PAGE> 74
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
Sonat, Inc. 11,066 $ 481
Knight Ridder 8,536 477
PACCAR, Inc. 7,960 474
Marriott International Inc.
Class A 13,103 469
Reynolds Metals Co. 7,633 469
IKON Office Solutions, Inc. 13,438 464
- - Consolidated Stores, Inc. 10,728 461
ITT Industries, Inc. 12,088 460
Maytag Corp. 9,478 453
Hasbro, Inc. 12,800 452
- - Tricon Global Restaurants, Inc. 15,030 452
Northern States Power Co. 7,454 440
- - Mirage Resorts, Inc. 18,000 438
Morton International, Inc. 13,291 436
Harris Corp. 8,320 434
Columbia Energy Group 5,573 433
Ashland, Inc. 7,626 432
Rubbermaid, Inc. 15,067 429
Union Camp Corp. 7,175 429
Anadarko Petroleum Corp. 6,200 428
Circuit City Stores, Inc. 9,912 424
Fluor Corp. 8,442 420
- - Ceridian Corp. 7,740 417
- - Western Atlas, Inc. 5,364 415
Dillard's Inc. 11,206 414
- - Apple Computer, Inc. 15,046 414
Willamette Industries, Inc. 10,974 412
- - Advanced Micro Devices, Inc. 13,916 404
- - Humana, Inc. 16,100 399
Harcourt General, Inc. 7,085 392
- - ALZA Corp. 8,609 386
Phelps Dodge Corp. 5,974 386
Raytheon Co. Class A 6,777 385
PP&L Resources Inc. 16,300 385
Brown-Forman Corp. Class B 6,999 385
- - Novell, Inc. 35,845 384
Green Tree Financial Corp. 13,300 378
Ecolab, Inc. 13,026 378
The Mead Corp. 10,416 373
Freeport-McMoRan Copper &
Gold Inc. Class B 18,600 371
Sigma-Aldrich Corp. 9,838 366
The BFGoodrich Co. 7,158 366
Armstrong World Industries Inc. 4,201 364
Temple-Inland Inc. 5,801 360
Raychem Corp. 8,648 359
- - LSI Logic Corp. 14,200 359
Perkin-Elmer Corp. 4,908 355
Apache Corp. 9,600 353
Brunswick Corp. 10,102 352
- - Woolworth Corp. 14,009 350
- - National Semiconductor Corp. 16,654 349
Biomet, Inc. 11,619 349
Kerr-McGee Corp. 4,974 346
Thomas & Betts Corp. 5,402 346
Pacific Enterprises 8,420 344
USX-U.S. Steel Group 8,978 339
Echlin, Inc. 6,414 336
Great Lakes Chemical Corp. 6,225 336
American Greetings Corp. Class A 7,278 335
- - KLA-Tencor Corp. 8,700 333
Liz Claiborne, Inc. 6,624 330
Placer Dome, Inc. 24,583 324
Adobe Systems, Inc. 7,100 321
Westvaco Corp. 10,340 318
Inco Ltd. 17,007 318
- - General Instrument Corp. 15,000 314
Pennzoil Co. 4,737 306
Sun Co., Inc. 7,305 299
Mallinckrodt, Inc. 7,410 293
- - St. Jude Medical, Inc. 8,588 287
Wendy's International, Inc. 12,741 284
- - FMC Corp. 3,594 282
Ryder System, Inc. 7,415 282
- - Oryx Energy Co. 10,810 281
SuperValu Inc. 5,988 279
USF&G Corp. 11,144 278
Nalco Chemical Co. 6,769 275
Snap-On Inc. 5,878 268
Engelhard Corp. 14,033 267
Darden Restaurants Inc. 17,067 266
Pall Corp. 12,256 264
Deluxe Corp. 7,949 262
- - Silicon Graphics, Inc. 18,739 261
National Service Industries, Inc. 4,363 257
U.S. Surgical Corp. 7,693 254
- - Navistar International Corp. 7,235 253
Louisiana-Pacific Corp. 10,782 251
Bausch & Lomb, Inc. 5,416 247
- - Harrah's Entertainment, Inc. 9,957 245
Allergan, Inc. 6,318 240
- - Rowan Cos., Inc. 8,231 239
Crane Co. 4,499 238
Mercantile Stores Co., Inc. 3,499 235
Bemis Co., Inc. 5,177 234
Giant Food, Inc. Class A 6,019 232
Manor Care Inc. 6,026 223
McDermott International, Inc. 5,371 222
General Signal Corp. 4,739 222
- - Cabletron Systems, Inc. 15,186 221
Tektronix, Inc. 4,952 221
Meredith Corp. 5,222 220
Centex Corp. 5,714 218
- - Fruit of the Loom, Inc. 7,058 216
King World Productions, Inc. 7,202 211
NICOR, Inc. 4,889 207
C.R. Bard, Inc. 5,583 205
- - DSC Communications Corp. 11,250 205
The Timken Co. 6,030 204
Cummins Engine Co., Inc. 3,599 198
Shared Medical Systems Corp. 2,523 198
Autodesk, Inc. 4,560 197
Boise Cascade Corp. 5,436 196
Polaroid Corp. 4,353 192
Cooper Tire & Rubber Co. 7,748 184
- - Sealed Air Corp. 2,800 183
- - Andrew Corp. 9,211 182
Owens Corning 5,053 182
- - Niagara Mohawk Power Corp. 13,862 180
Harnischfeger Industries Inc. 5,019 172
</TABLE>
22
<PAGE> 75
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
- - Fleetwood Enterprises, Inc. 3,644 $ 170
Alberto-Culver Co. Class B 5,502 167
Worthington Industries, Inc. 9,086 165
- - Reebok International Ltd. 5,386 164
Tupperware Corp. 6,029 161
- - Bethlehem Steel Corp. 11,826 160
Homestake Mining Co. 14,467 157
Scientific-Atlanta, Inc. 7,995 156
Safety-Kleen Corp. 5,508 156
Millipore Corp. 4,465 155
Aeroquip-Vickers Inc. 2,654 153
Cyprus Amax Minerals Co. 9,030 150
Helmerich & Payne, Inc. 4,666 146
The Pep Boys
(Manny, Moe & Jack) 6,120 142
Inland Steel Industries, Inc. 5,127 142
Moore Corp. Ltd. 8,130 135
Battle Mountain Gold Co. Class A 20,324 130
ONEOK, Inc. 3,145 128
EG&G, Inc. 4,393 128
Cincinnati Milacron, Inc. 3,870 123
Kaufman & Broad Home Corp. 3,765 123
Longs Drug Stores, Inc. 3,920 119
Foster Wheeler Corp. 3,893 119
Adolph Coors Co. Class B 3,305 116
Briggs & Stratton Corp. 2,491 114
Peoples Energy Corp. 3,085 112
- - Stone Container Corp. 8,879 111
Associates First Capital Corp. 1,400 111
Potlatch Corp. 2,557 110
Great Atlantic & Pacific
Tea Co., Inc. 3,406 103
Vlasic Foods International, Inc. 3,917 100
Springs Industries Inc. Class A 1,803 99
NACCO Industries, Inc. Class A 725 97
Russell Corp. 3,514 94
ASARCO, Inc. 3,525 94
Ball Corp. 2,846 93
Arbor Drugs, Inc. 3,900 92
Sodexho Marriott Services, Inc. 3,276 87
Pulte Corp. 1,839 86
Jostens Inc. 3,412 82
Eastern Enterprises 1,813 78
- - Data General Corp. 4,387 78
- - Armco, Inc. 10,337 61
- - Viacom Inc. Class A 1,056 56
- - Charming Shoppes, Inc. 7,850 37
Freeport-McMoRan Copper &
Gold, Inc. Class A 1,600 30
John H. Harland Co. 979 15
- - Allergan Specialty
Therapeutics, Inc. 316 4
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $491,833) 895,533
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENTS (3.4%)
- ---------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BILLS
(2) 5.01%, 4/23/1998 $ 900 $ 897
(2) 5.09%, 4/9/1998 300 300
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.97%, 4/1/1998 30,183 30,183
- ---------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $31,380) 31,380
- ---------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $523,213) 926,913
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- ---------------------------------------------------------
Other Assets--Note C 3,434
--------
Liabilities (5,335)
- ---------------------------------------------------------
(1,901)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 31,946,244 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $925,012
=========================================================
NET ASSET VALUE PER SHARE $28.96
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
(1)The combined market value of common stocks and S&P 500 Index futures
contracts represents 100.1% of net assets. See Note F.
(2)Securities with an aggregate value of $1,197,000 have been segregated as
initial margin for open futures contracts.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital--Note E $510,947 $15.99
Undistributed Net
Investment Income 5,645 .18
Accumulated Net Realized Gains
--Note E 3,660 .12
Unrealized Appreciation--Note F
Investment Securities 403,700 12.64
Futures Contracts 1,060 .03
- ---------------------------------------------------------
NET ASSETS $925,012 $28.96
=========================================================
</TABLE>
23
<PAGE> 76
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INCOME PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (99.0%)
- ---------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (3.1%)
Ford Motor Co. 58,000 $ 3,759
Genuine Parts Co. 74,650 2,846
Norfolk Southern Corp. 65,600 2,452
Union Pacific Corp. 54,100 3,040
--------
12,097
--------
CONSUMER DISCRETIONARY (5.5%)
Deluxe Corp. 23,700 781
Eastman Kodak Co. 31,500 2,044
Fortune Brands, Inc. 67,900 2,708
- - Kmart Corp. 73,200 1,221
May Department Stores Co. 80,500 5,112
The McGraw-Hill Cos., Inc. 29,400 2,236
J.C. Penney Co., Inc. 76,900 5,820
Whirlpool Corp. 23,100 1,584
- - Woolworth Corp. 6,600 165
--------
21,671
--------
CONSUMER STAPLES (8.1%)
Anheuser-Busch Cos., Inc. 75,400 3,492
The Clorox Co. 24,400 2,091
Gallaher Group PLC ADR 80,000 1,730
General Mills, Inc. 42,200 3,207
H.J. Heinz Co. 56,750 3,313
International Flavors &
Fragrances, Inc. 38,000 1,791
Kellogg Co. 51,200 2,208
Philip Morris Cos., Inc. 228,400 9,521
The Quaker Oats Co. 46,600 2,668
UST, Inc. 55,400 1,787
--------
31,808
--------
FINANCIAL SERVICES (19.5%)
American General Corp. 55,100 3,564
Banc One Corp. 77,814 4,922
Bankers Trust New York Corp. 38,700 4,656
CoreStates Financial Corp. 44,800 4,021
The Dun & Bradstreet Corp. 51,400 1,757
First Chicago NBD Corp. 48,000 4,230
First Union Corp. 65,400 3,711
Fleet Financial Group, Inc. 40,000 3,402
KeyCorp 83,600 3,161
Lincoln National Corp. 40,800 3,463
Marsh & McLennan Cos., Inc. 42,700 3,728
Mellon Bank Corp. 46,100 2,927
J.P. Morgan & Co., Inc. 41,800 5,614
NationsBank Corp. 111,850 8,158
PNC Bank Corp. 65,400 3,920
SAFECO Corp. 65,800 3,596
St. Paul Cos., Inc. 20,700 1,845
U.S. Bancorp 17,818 2,223
Wachovia Corp. 40,400 3,426
Washington Mutual, Inc. 51,120 3,666
--------
75,990
--------
HEALTH CARE (11.4%)
American Home Products Corp. 105,900 10,100
Baxter International, Inc. 33,800 1,863
Bristol-Myers Squibb Co. 102,100 10,650
Glaxo Wellcome PLC ADR 103,600 5,607
Eli Lilly & Co. 46,200 2,755
Merck & Co., Inc. 45,300 5,815
Pharmacia & Upjohn, Inc. 178,550 7,812
--------
44,602
--------
INTEGRATED OILS (16.2%)
Amoco Corp. 81,200 7,014
Atlantic Richfield Co. 99,400 7,815
Chevron Corp. 114,400 9,188
Exxon Corp. 160,300 10,840
Mobil Corp. 121,600 9,318
Phillips Petroleum Co. 58,800 2,936
Royal Dutch Petroleum Co. ADR 97,100 5,516
Texaco Inc. 132,400 7,977
USX-Marathon Group 67,400 2,536
--------
63,140
--------
MATERIALS & PROCESSING (4.5%)
ARCO Chemical Co. 17,300 820
Dow Chemical Co. 65,500 6,370
E.I. du Pont de Nemours & Co. 43,900 2,985
International Paper Co. 39,600 1,854
Potlatch Corp. 28,000 1,206
Union Camp Corp. 23,700 1,416
Weyerhaeuser Co. 53,400 3,017
--------
17,668
--------
PRODUCER DURABLES (1.8%)
Emerson Electric Co. 32,000 2,086
Pitney Bowes, Inc. 51,700 2,595
Thomas & Betts Corp. 34,400 2,202
--------
6,883
--------
UTILITIES (26.4%)
ELECTRICAL (9.5%)
Allegheny Energy, Inc. 52,800 1,772
Ameren Corp. 37,600 1,584
Baltimore Gas & Electric Co. 54,400 1,778
Central & South West Corp. 66,200 1,771
Consolidated Edison Inc. 34,400 1,608
Dominion Resources, Inc. 47,000 1,974
Edison International 122,900 3,610
FPL Group, Inc. 33,200 2,133
Northern States Power Co. 32,000 1,888
OGE Energy Corp. 21,300 1,233
PacifiCorp 161,200 3,970
Potomac Electric Power Co. 51,400 1,288
PP&L Resources Inc. 28,800 680
Public Service Enterprise
Group, Inc. 39,600 1,500
SCANA Corp. 47,700 1,476
Southern Co. 125,200 3,466
TECO Energy, Inc. 60,300 1,703
Texas Utilities Co. 56,000 2,202
Wisconsin Energy Corp. 47,900 1,470
GAS DISTRIBUTION (1.5%)
Consolidated Natural Gas Co. 72,500 4,182
NICOR, Inc. 25,500 1,077
Pacific Enterprises 21,600 882
TELECOMMUNICATIONS (14.4%)
Ameritech Corp. 176,600 8,731
AT&T Corp. 139,000 9,122
</TABLE>
24
<PAGE> 77
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
Bell Atlantic Corp. 121,392 $ 12,443
BellSouth Corp. 71,800 4,851
GTE Corp. 145,700 8,724
SBC Communications Inc. 121,736 5,311
U S WEST Communications
Group 126,000 6,899
UTILITIES--OTHER (1.0%)
Duke Energy Corp. 60,900 3,627
Energy Group PLC ADR 4,025 227
--------
103,182
--------
OTHER (2.5%)
General Electric Co. 35,600 3,068
Minnesota Mining &
Manufacturing Co. 58,000 5,289
Ogden Corp. 46,300 1,331
--------
9,688
--------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $261,906) 386,729
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.2%)
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.97%, 4/1/1998
(COST $4,559) $4,559 4,559
- ---------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $266,465) 391,288
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- ---------------------------------------------------------
Other Assets--Note C 1,924
Liabilities (2,721
- ---------------------------------------------------------
(797
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 18,840,078 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $390,491
=========================================================
NET ASSET VALUE PER SHARE $20.73
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $260,909 $13.85
Undistributed Net
Investment Income 4,172 .22
Accumulated Net Realized Gains 587 .03
Unrealized Appreciation--Note F 124,823 6.63
- ---------------------------------------------------------
NET ASSETS $390,491 $20.73
=========================================================
</TABLE>
25
<PAGE> 78
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
GROWTH PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (96.7%)
- ---------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY (10.9%)
Avon Products, Inc. 50,800 $ 3,962
Carnival Corp. Class A 86,800 6,054
Dayton Hudson Corp. 35,400 3,115
The Walt Disney Co. 143,600 15,329
Lowe's Cos., Inc. 81,900 5,748
Mattel, Inc. 134,900 5,346
May Department Stores Co. 106,200 6,744
McDonald's Corp. 71,900 4,314
Rubbermaid, Inc. 92,500 2,636
Sears, Roebuck & Co. 48,700 2,797
Wal-Mart Stores, Inc. 153,900 7,820
--------
63,865
--------
CONSUMER STAPLES (18.6%)
CVS Corp. 18,000 1,359
Campbell Soup Co. 72,300 4,103
The Coca-Cola Co. 329,900 25,547
Coca-Cola Enterprises, Inc. 47,400 1,739
Colgate-Palmolive Co. 87,700 7,597
Gillette Co. 124,000 14,717
PepsiCo, Inc. 303,400 12,951
Philip Morris Cos., Inc. 309,900 12,919
Procter & Gamble Co. 225,200 19,001
Unilever NV ADR 124,900 8,571
Vlasic Foods International, Inc. 7,230 185
--------
108,689
--------
ENERGY (0.2%)
- - Talisman Energy, Inc. 46,800 1,404
--------
FINANCIAL SERVICES (11.8%)
American International
Group, Inc. 90,000 11,334
Automatic Data Processing, Inc. 204,400 13,912
Banc One Corp. 47,400 2,998
Beneficial Corp. 45,300 5,631
Chase Manhattan Corp. 91,200 12,301
First Data Corp. 124,400 4,043
Household International, Inc. 56,000 7,714
Norwest Corp. 177,400 7,373
Paychex, Inc. 62,300 3,594
--------
68,900
--------
HEALTH CARE (21.1%)
- - ALZA Corp. 113,500 5,086
American Home Products Corp. 85,100 8,117
- - Amgen, Inc. 62,700 3,817
Bristol-Myers Squibb Co. 141,800 14,792
Cardinal Health, Inc. 50,600 4,462
- - First Health Group Corp. 46,100 2,501
Johnson & Johnson 43,900 3,218
Eli Lilly & Co. 171,400 10,220
Medtronic, Inc. 48,800 2,532
Merck & Co., Inc. 140,400 18,024
Pfizer, Inc. 281,000 28,012
- - Quintiles Transnational Corp. 87,200 4,202
Schering-Plough Corp. 34,100 2,786
SmithKline Beecham PLC ADR 90,100 5,637
Warner-Lambert Co. 56,600 9,640
--------
123,046
--------
MATERIALS & PROCESSING (8.1%)
E.I. du Pont de Nemours & Co. 63,300 4,304
W.R. Grace & Co. 158,000 13,223
Kimberly-Clark Corp. 33,200 1,664
Monsanto Co. 491,200 25,542
Solutia, Inc. 92,520 2,753
--------
47,486
--------
PRODUCER DURABLES (2.0%)
Honeywell, Inc. 35,200 2,911
Molex, Inc. Class A 75,125 2,014
Northern Telecom Ltd. 100,800 6,514
--------
11,439
--------
TECHNOLOGY (18.0%)
- - BMC Software, Inc. 39,600 3,319
- - Cisco Systems, Inc. 249,900 17,087
- - Dell Computer Corp. 238,800 16,179
Hewlett-Packard Co. 78,000 4,943
Intel Corp. 199,400 15,566
Lucent Technologies, Inc. 45,500 5,818
- - Microsoft Corp. 356,400 31,898
Motorola, Inc. 50,500 3,062
- - 3Com Corp. 146,000 5,247
- - Xilinx, Inc. 54,300 2,033
--------
105,152
--------
OTHER (6.0%)
General Electric Co. 269,400 23,219
Illinois Tool Works, Inc. 85,100 5,510
Tyco International Ltd. 111,800 6,107
--------
34,836
--------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $340,341) 564,817
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.2%)
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.97%, 4/1/1998
(COST $18,902) $18,902 18,902
- ---------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(COST $359,243) 583,719
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- ---------------------------------------------------------
Other Assets--Note C 6,786
Liabilities (6,140
--------
646
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 23,425,115 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $584,365
=========================================================
NET ASSET VALUE PER SHARE $24.95
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
ADR--American Depositary Receipt.
26
<PAGE> 79
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $342,054 $14.60
Undistributed Net
Investment Income 1,673 .07
Accumulated Net Realized Gains 16,162 .69
Unrealized Appreciation--
Note F 224,476 9.59
- ---------------------------------------------------------
NET ASSETS $584,365 $24.95
=========================================================
</TABLE>
27
<PAGE> 80
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
SMALL COMPANY VALUE*
GROWTH PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (95.8%)
- ---------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (5.3%)
C.H. Robinson Worldwide, Inc. 32,000 $ 832
- - Covenant Transport, Inc. 28,000 613
- - Heartland Express, Inc. 78,250 2,171
- - Hvide Marine, Inc. Class A 9,500 167
- - M.S. Carriers Inc. 35,000 1,186
- - Midwest Express Holdings, Inc. 38,500 1,887
Polaris Industries, Inc. 20,000 740
- - Simon Transportation
Services, Inc. 9,000 139
--------
7,735
--------
CONSUMER DISCRETIONARY (22.8%)
- - Championship Auto Racing
Teams, Inc. 25,000 462
Cooker Restaurant Corp. 114,000 1,147
Dover Downs Entertainment, Inc. 42,100 1,242
- - The Dress Barn, Inc. 16,500 474
- - Family Golf Centers, Inc. 25,000 1,013
French Fragrances, Inc. 43,000 731
- - GT Interactive Software Corp. 121,000 862
Hancock Fabrics, Inc. 44,800 697
Haverty Furniture Co., Inc. 25,000 469
- - ITI Technologies, Inc. 47,000 1,222
- - Landry's Seafood
Restaurants, Inc. 40,000 1,230
- - Lo-Jack Corp. 50,000 719
Marcus Corp. 36,000 635
Movado Group, Inc. 29,000 837
- - Nautica Enterprises Inc. 52,000 1,599
- - The North Face, Inc. 46,000 1,115
- - Object Design, Inc. 281,000 1,800
Oneida Ltd. 33,000 1,007
- - Plantronics, Inc. 22,800 933
- - Play-By-Play Toys &
Novelties, Inc. 96,500 1,821
- - QuickResponse Services, Inc. 70,000 3,745
- - Rex Stores Corp. 101,300 1,494
Russ Berrie, Inc. 30,000 909
St. John Knits, Inc. 41,100 1,942
- - Steinway Musical
Instruments Inc. 24,000 779
Stride Rite Corp. 80,000 1,085
- - Trendwest Resorts, Inc. 56,800 1,072
- - Vistana, Inc. 78,200 2,072
--------
33,113
--------
CONSUMER STAPLES (0.8%)
- - American Italian Pasta Co. 31,000 1,120
--------
ENERGY (0.2%)
- - Trico Marine Services, Inc. 11,500 242
--------
FINANCIAL SERVICES (13.7%)
- - Advent Software, Inc. 59,000 2,802
Comdisco, Inc. 68,000 2,967
- - Concord EFS, Inc. 92,249 3,188
- - E*TRADE Group, Inc. 31,800 793
Fidelity National Financial, Inc. 33,000 1,213
First Washington Realty
Trust, Inc. REIT 76,700 2,076
- - Investment Technology
Group, Inc. 52,500 1,719
McGrath RentCorp 26,000 517
Regency Realty Corp. REIT 67,100 1,774
Saul Centers, Inc. REIT 124,900 2,256
Sun Communities, Inc. REIT 19,000 660
--------
19,965
--------
HEALTH CARE (17.1%)
- - Angeion Corp. 266,300 924
Arrow International, Inc. 56,300 1,935
Ballard Medical Products 46,000 1,242
- - Biogen, Inc. 62,000 2,988
- - Cell Genesys, Inc. 125,600 832
DENTSPLY International Inc. 74,000 2,308
- - Forest Laboratories, Inc. 44,000 1,650
- - Genome Therapeutics Corp. 70,000 604
- - Genzyme Corp. 107,000 3,424
- - Harborside Healthcare Corp. 20,000 453
- - Nabi 130,200 399
- - Orthologic Corp. 145,000 1,015
- - PathoGenesis Corp. 44,800 1,501
- - Patterson Dental Co. 57,450 1,781
- - Province Healthcare Co. 50,000 1,312
- - Sofamor Danek Group, Inc. 12,300 1,049
- - Sola International, Inc. 8,000 332
- - Sybron International Corp. 16,000 418
- - TheraTech, Inc. 72,800 719
--------
24,886
--------
MATERIALS & PROCESSING (7.4%)
- - Comfort Systems USA, Inc. 116,300 2,515
Elcor Corp. 44,000 1,182
- - Metals USA, Inc. 75,000 1,434
Rohn Industries Inc. 90,000 506
- - Service Experts Inc. 75,600 2,377
- - Shaw Group, Inc. 86,000 2,145
Valmont Industries, Inc. 23,000 558
--------
10,717
--------
PRODUCER DURABLES (12.0%)
- - American Homestar Corp. 20,000 454
- - American Power
Conversion Corp. 29,000 832
Applied Power, Inc. 42,000 1,617
- - Cuno Inc. 55,000 1,210
- - The Cherry Corp. Class A 42,200 760
Donaldson Co., Inc. 30,000 772
General Cable Corp. 75,000 3,403
Lindsay Manufacturing Co. 15,000 683
- - Mettler-Toledo International Inc. 74,700 1,657
MTI Technology Corp. 20,000 345
- - Nobility Homes, Inc. 60,000 893
- - Palm Harbor Homes, Inc. 39,162 1,444
SL Industries, Inc. 70,000 1,002
- - Southern Energy Homes, Inc. 57,000 691
TransTechnology Corp. 30,000 904
- - Vivid Technologies, Inc. 50,000 750
--------
17,417
--------
</TABLE>
28
<PAGE> 81
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (15.2%)
- - Acxiom Corp. 15,000 $ 384
- - AXENT Technologies, Inc. 75,000 2,287
- - Davox Corp. 38,750 1,206
- - Documentum, Inc. 12,000 650
IFR Systems, Inc. 47,250 1,051
- - Mechanical Dynamics, Inc. 22,700 236
- - Melita International Corp. 118,500 2,163
- - Oak Technology, Inc. 80,000 505
- - Pinnacle Systems, Inc. 82,000 3,106
- - Remedy Corp. 152,000 2,983
- - SBS Technologies, Inc. 20,000 575
- - STB Systems, Inc. 73,375 1,468
Schawk, Inc. 25,000 319
- - Structural Dynamics
Research Corp. 67,000 1,667
- - Synopsys, Inc. 104,841 3,433
--------
22,033
--------
UTILITIES (0.9%)
- - UniSource Energy Corp. 73,000 1,268
--------
OTHER (0.4%)
Teleflex Inc. 14,000 588
--------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $110,688) 139,084
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENTS (7.3%)
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.95%, 4/1/1998--Note G $3,530 3,530
5.97%, 4/1/1998 6,995 6,995
- ---------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $10,525) 10,525
- ---------------------------------------------------------
TOTAL INVESTMENTS (103.1%)
(COST $121,213) 149,609
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-3.1%)
- ---------------------------------------------------------
Other Assets--Note C 1,606
Liabilities--Note G (6,099
- ---------------------------------------------------------
(4,493)
- ---------------------------------------------------------
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 11,804,175 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $145,116
=========================================================
NET ASSET VALUE PER SHARE $12.29
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $121,699 $10.31
Undistributed Net
Investment Income 302 .03
Accumulated Net
Realized Losses (5,281) (.45)
Unrealized Appreciation--Note F 28,396 2.40
- ---------------------------------------------------------
NET ASSETS $145,116 $12.29
=========================================================
</TABLE>
29
<PAGE> 82
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
INTERNATIONAL PORTFOLIO SHARES (000)
- ---------------------------------------------------------
COMMON STOCKS (96.2%)
- ---------------------------------------------------------
<S> <C>
ARGENTINA (0.2%)
YPF SA ADR 15,000 $ 510
--------
BELGIUM (1.0%)
Credit Communal Holdings/Dexia 15,500 2,263
--------
BRAZIL (2.1%)
Telecomunicacoes Brasileiras
SA ADR 33,341 4,328
Usiminas-Usinas Siderurgicas
de Minas Gerais SA ADR 90,000 720
--------
5,048
--------
CHILE (0.2%)
Compania de Telecomunicaciones
de Chile SA ADR 13,600 375
--------
DENMARK (0.9%)
Den Danske Bank A/S 16,000 2,091
--------
FRANCE (8.6%)
Accor SA 4,800 1,232
Compagnie Generale des
Eaux SA 34,000 5,521
- - Compagnie Generale des
Eaux SA
Warrants Exp. 5/2/2001 18,200 20
Compagnie de Saint-Gobain SA 7,282 1,199
Compagnie des Gaz de Petrole
Primagaz SA 6,600 570
Compagnie des Gaz de Petrole
Primagaz SA Warrants
Exp. 6/30/1998 600 8
Elf Aquitaine SA 50,000 6,553
Societe Generale SA 8,700 1,741
Synthelabo SA 10,260 1,424
Total SA B Shares 18,000 2,161
--------
20,429
--------
GERMANY (8.1%)
Allianz AG 323 97
Allianz AG (Registered) 11,000 3,322
Bayer AG 95,000 4,346
Buderus AG 1,500 675
Deutsche Bank AG 45,190 3,400
Mannesmann AG 4,900 3,587
SGL Carbon AG 890 98
Veba AG 50,700 3,597
--------
19,122
--------
HONG KONG (4.7%)
Cheung Kong Holdings Ltd. 242,000 1,718
China Resources Enterprise Ltd. 273,000 553
Citic Pacific Ltd. 298,000 1,054
HSBC Holdings PLC 75,800 2,319
Hong Kong Electric Holdings Ltd. 223,000 765
Hong Kong Land Holdings Ltd. 135,000 232
Hutchison Whampoa Ltd. 288,000 2,026
New World Development
Co., Ltd. 167,000 589
Sun Hung Kai Properties Ltd. 158,000 1,076
Swire Pacific Ltd. A Shares 143,000 757
--------
11,089
--------
INDONESIA (0.1%)
PT Gudang Garam 96,000 133
PT Telekomunikasi
Indonesia ADR 22,000 216
--------
349
--------
IRELAND (0.4%)
Bank of Ireland PLC 47,950 948
--------
ITALY (4.1%)
Assicurazioni Generali SPA 30,000 928
- - Banca di Roma 1,675,800 2,827
Telecom Italia Mobile SPA 509,000 2,735
Telecom Italia SPA 418,000 3,295
--------
9,785
--------
JAPAN (16.1%)
Dai-Nippon Printing Co., Ltd. 62,000 1,023
Dowa Fire & Marine
Insurance Co. 500,000 1,608
East Japan Railway Co. 400 1,854
Fuji Photo Film Co., Ltd. 206,000 7,662
Hirose Electric Co., Ltd. 10,500 523
Keyence Corp. 6,600 911
Kuraray Co., Ltd. 62,000 544
Mabuchi Motor Co. 24,000 1,332
Matsushita Electric
Industrial Co., Ltd. 240,000 3,851
Mitsui & Co., Ltd. 22,000 140
Mitsui Fudosan Co., Ltd. 97,000 924
Murata Manufacturing Co., Ltd. 101,000 2,787
Nippon Steel Corp. 811,000 1,301
Nippon Television Network 3,500 1,037
Omron Corp. 110,000 1,666
SMC Corp. 27,300 2,029
Shin-Etsu Chemical Co., Ltd. 32,000 633
Showa Shell Sekiyu K.K. 54,000 325
Takeda Chemical Industries Ltd. 164,000 4,169
Toho Co., Ltd. 8,250 885
Tokio Marine & Fire Insurance Co. 12,000 134
Tokyo Electron Ltd. 599 20
Toppan Printing Co., Ltd. 158,000 1,943
Yasuda Fire & Marine
Insurance Co. 170,000 868
--------
38,169
--------
KOREA (0.7%)
Korea Electric Power Corp. 49,000 637
L.G. Electronics Co. 15,000 207
Pohang Iron & Steel Co., Ltd. 2,540 141
SK Telecom Co. 530 303
Samsung Electronics Co., Ltd. 8,000 422
--------
1,710
--------
MALAYSIA (1.5%)
Genting Bhd. 130,900 449
Malayan Banking Bhd. 149,000 573
Resorts World Bhd. 120,000 265
Sime Darby Bhd. 308,000 345
Telekom Malaysia Bhd. 207,500 718
Tenaga Nasional Bhd. 403,000 1,019
United Engineers Malaysia Bhd. 125,000 146
--------
3,515
--------
</TABLE>
30
<PAGE> 83
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
MEXICO (0.6%)
- - Cementos de Mexico SA
de CV ADR 150,000 $ 1,331
--------
NETHERLANDS (14.0%)
ABN-AMRO Holding NV 102,000 2,353
- - Baan Co. NV 36,000 1,722
Elsevier NV 45,870 755
Getronics NV 81,643 3,505
Hagemeyer NV 14,800 717
Heineken NV 11,500 2,615
ING Groep NV 188,351 10,688
Oce-Van Der Grinten NV 16,076 2,312
Philips Electronics NV 78,000 5,725
Polygram NV 26,500 1,214
Verenigde Nederlandse
Uitgeversbedrijven
Verenigd Bezit 41,000 1,402
--------
33,008
--------
PHILIPPINES (0.8%)
Ayala Land, Inc. 1,839,843 886
Manila Electric Co. Class B 118,300 387
Philippine Long Distance
Telephone Co. 24,000 668
--------
1,941
--------
SINGAPORE (1.5%)
City Developments Ltd. 106,000 522
DBS Land Ltd. 162,000 274
Development Bank of Singapore
Ltd. (Foreign) 75,900 555
Development Bank of Singapore
Ltd. Rights Exp. 4/26/1998 13,800 28
Keppel Corp., Ltd. 76,250 229
Oversea-Chinese Banking
Corp., Ltd. (Foreign) 53,760 303
Singapore Airlines Ltd. (Foreign) 31,000 221
Singapore Press Holdings Ltd. 81,152 930
United Overseas Bank Ltd.
(Foreign) 107,000 593
--------
3,655
--------
SPAIN (2.0%)
Endesa SA 195,690 4,705
--------
SWEDEN (2.6%)
Electrolux AB B Shares 14,000 1,156
LM Ericsson Telephone
AB B Shares 37,000 1,759
Svenska Handelsbanken
AB A Shares 70,000 3,240
--------
6,155
--------
SWITZERLAND (13.8%)
ABB AG (Bearer) 3,350 5,006
Adecco SA (Bearer) 4,950 1,750
Alusuisse-Lonza Holding AG
(Registered) 1,300 1,578
Novartis AG (Registered) 6,900 12,211
Roche Holdings AG
(Dividend-Right Certificates) 357 3,864
Union Bank of Switzerland AG
(Bearer) 2,200 3,593
Zurich Insurance Co. (Registered) 7,800 4,528
--------
32,530
--------
THAILAND (0.1%)
PTT Exploration & Production
PLC (Foreign) 18,800 214
--------
UNITED KINGDOM (12.1%)
Airtours PLC 81,000 680
Asda Group PLC 800,000 2,710
British Airways PLC 119,000 1,211
British Land Co., PLC 84,000 1,055
British Petroleum Co., PLC 306,751 4,428
Cable and Wireless PLC 226,000 2,829
Daily Mail & General Trust
PLC Class A 30,000 1,199
EMI Group PLC 180,000 1,495
Enterprise Oil PLC 102,000 921
Glaxo Wellcome PLC 124,400 3,348
Granada Group PLC 45,000 809
LucasVarity PLC 320,000 1,294
Reckitt & Colman PLC 63,000 1,168
David S. Smith Holdings PLC 100,000 331
Tesco PLC 330,000 3,310
United News & Media PLC 109,000 1,493
Vodafone Group PLC 27,000 283
--------
28,564
--------
- ---------------------------------------------------------
TOTAL COMMON STOCKS
(COST $178,762) 227,506
- ---------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ---------------------------------------------------------
TEMPORARY CASH INVESTMENTS (15.2 %)
- ---------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.95%, 4/1/1998--Note G $28,538 28,538
5.97%, 4/1/1998 7,498 7,498
- ---------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $36,036) 36,036
- ---------------------------------------------------------
TOTAL INVESTMENTS (111.4%)
(COST $214,798) 263,542
- ---------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-11.4%)
- ---------------------------------------------------------
Other Assets--Note C 3,169
Security Lending Collateral
Payable to Brokers--Note G (28,538
Other Liabilities (1,738
- ---------------------------------------------------------
(27,107
- ---------------------------------------------------------
</TABLE>
31
<PAGE> 84
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
INTERNATIONAL PORTFOLIO (000)
- ---------------------------------------------------------
<S> <C>
NET ASSETS (100%)
- ---------------------------------------------------------
Applicable to 16,260,490 outstanding
shares of beneficial interest
(unlimited authorization--no par value) $236,435
=========================================================
NET ASSET VALUE PER SHARE $14.54
=========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
AT MARCH 31, 1998, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $187,477 $11.53
Undistributed Net
Investment Income--Note E 218 .01
Accumulated Net
Realized Gains--Note E 14 --
Unrealized Appreciation
(Depreciation)--Note F
Investment Securities 48,744 3.00
Foreign Currencies (18) --
- ---------------------------------------------------------
NET ASSETS $236,435 $14.54
=========================================================
</TABLE>
32
F642-3/1998
