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VANGUARD
VARIABLE INSURANCE
FUND
[PHOTO]
Annual Report
September 30, 1999
[THE VANGUARD GROUP LOGO]
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[PHOTO]
John C. Bogle
FELLOW SHAREHOLDERS:
Two roads diverged in a wood, and I--I took the one less traveled by, and
that has made all the difference.
I can think of no better words than those of Robert Frost to begin this special
letter to our shareholders, who have placed such extraordinary trust in me and
in Vanguard over the past quarter century. When the firm was founded 25 years
ago, we deliberately took a new road to managing a mutual fund enterprise.
Instead of having the funds controlled by an outside management company with its
own financial interests, the Vanguard funds--there were only 11 of them
then--would be controlled by their own shareholders and operate solely in their
financial interests. The outcome of our unprecedented decision was by no means
certain. We described it then as "The Vanguard Experiment."
Well, I guess it's fair to say it's an experiment no more. During the past
25 years, the assets we hold in stewardship for investors have grown from $1
billion to more than $500 billion, and I believe that our reputation for
integrity, fair-dealing, and sound investment principles is second to none in
this industry. Our staggering growth--which I never sought--has come in
important part as a result of the simple investment ideas and basic human values
that are the foundation of my personal philosophy. I have every confidence that
they will long endure at Vanguard, for they are the right ideas and right
values, unshakable and eternal.
While Emerson believed that "an institution is the lengthened shadow of one
man," Vanguard today is far greater than any individual. The Vanguard crew has
splendidly implemented and enthusiastically supported our founding ideas and
values, and deserves the credit for a vital role in forging our success over the
years. It is a dedicated crew of fine human beings, working together in an
organization that is well prepared to press on regardless long after I am gone.
Creating and leading this enterprise has been an exhilarating run. Through it
all, I've taken the kudos and the blows alike, enjoying every moment to the
fullest, and even getting a second chance at life with a heart transplant three
years ago. What more could a man ask?
While I shall no longer be serving on the Vanguard Board, I want to assure
you that I will remain vigorous and active in a newly created Vanguard unit,
researching the financial markets, writing, and speaking. I'll continue to focus
whatever intellectual power and ethical strength I possess on my mission to
assure that mutual fund investors everywhere receive a fair shake. In the spirit
of Robert Frost:
But I have promises to keep, and miles to go before I sleep, and miles to
go before I sleep.
You have given me your loyalty and friendship over these long years, and I
deeply appreciate your thousands of letters of support. For my part, I will
continue to keep an eagle eye on your interests, for you deserve no less. May
God bless you all, always.
/s/ JCB
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CONTENTS
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Report From The Chairman.......................... 1
The Markets In Perspective........................ 8
Reports From The Advisers......................... 10
Performance Summaries............................. 21
Financial Statements.............................. 34
Report Of Independent Accountants................. 58
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REPORT FROM THE CHAIRMAN
[PHOTO]
John J. Brennan
Global financial markets were volatile, with sizable gains for U.S. and
international stock markets but declines for the U.S. bond market, during
Vanguard Variable Insurance Fund's fiscal year ended September 30, 1999.
The absolute returns for our 13 portfolios were as diverse as their
holdings, which range from money market instruments, to bonds, to domestic and
international stocks. Among the nine portfolios in existence for the full year,
returns ranged from a modest decline of -0.5% for the High-Grade Bond Portfolio
to an extraordinary gain of 36.0% for the Small Company Growth Portfolio. On a
relative basis, our results also were mixed: Six of the nine portfolios trailed
their average peers, while three posted better-than-average results. The fund's
four new portfolios, which we introduced in February, produced partial-year
returns ranging from a decline of -6.9% for the Diversified Value Portfolio to a
gain of 6.5% for the Mid-Cap Index Portfolio.
A presentation of fiscal 1999 total returns (capital change plus reinvested
dividends) for each portfolio, its average peer, and an appropriate unmanaged
benchmark appears on pages 2-6, along with a discussion of the results. 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. You will find Performance Summaries for the portfolios, which
break down returns into their income and capital components, on pages 21-33. In
reviewing the returns, keep in mind that this report does not reflect the
administrative and insurance expenses associated with the plan through which you
invested in Vanguard Variable Insurance Fund.
I note that peer groups for some of our portfolios have changed due to
recent revisions in fund classifications by Lipper Inc., which supplies
comparative fund information.
FINANCIAL MARKETS IN REVIEW
At first blush, the performance of U.S. stocks during the 12 months ended
September 30 appeared to be the latest chapter in the story of an ongoing bull
market. The Wilshire 5000 Total Market Index, a measure of the entire U.S. stock
market, returned 27.0% against a backdrop of strong economic growth and low
inflation. But that impressive return masked significant weakness during the
second half of the period. Nearly all of the Wilshire 5000's gain came from
October 1998 through March 1999, when the index advanced 26.1%. From April
through September, the index returned just 0.7%, and it recorded negative
returns during four of the period's final six months.
When the fiscal year began, stocks were in the early stages of a swift,
impressive recovery from the swoon of summer 1998, and bonds were basking in an
environment that featured declining interest rates and low inflation. The U.S.
economy was growing nicely, and international markets were getting back on their
feet. But around the period's halfway point, investors increasingly focused on
the possibility that the U.S. economic expansion was so strong that it could
cause inflation to accelerate. And rising interest rates were a burden for both
stock and bond markets.
The shift in sentiment was felt among all stock market segments, even in
the large-capitalization stocks that for several years have driven the
performance of the overall
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market. The large-cap-dominated Standard & Poor's 500 Index, which had gained
27.3% from October through March, returned just 0.4% during the second half of
the fiscal year. Within the S&P 500, technology stocks were the clear leaders,
gaining 77% during the 12 months. Other groups also made impressive advances,
including producer durables (45%), consumer discretionary (34%), and utilities
(28%).
Gains made by growth stocks outstripped those of value stocks by a wide
margin. The growth component of the S&P 500 Index returned 33.4% during the 12
months, compared with a 21.5% return for the index's value shares--those issues
characterized by below-average prices in relation to such measures as earnings
and book value. Among smaller stocks, the gap between growth and value was
enormous. The small-cap Russell 2000 Index was up 19.1%, but its growth stocks
returned 32.6% and its value stocks gained a mere 5.8%.
In the bond market, inflation fears and a weakening dollar helped to push
yields higher and prices lower. The Lehman Brothers Aggregate Bond Index, a
proxy for taxable investment-grade bonds in the United States, provided a
12-month total return of -0.4%. The Federal Reserve Board, after cutting
short-term interest rates by a total of 0.75 percentage point in autumn 1998,
switched direction and boosted short-term rates by 0.50 percentage point in the
summer of 1999. Prices of long-term U.S. Treasury securities, which are
especially sensitive to interest rate changes, declined nearly -14%, and they
recorded a 12-month total return of -7.7%. The yield of the 30-year U.S.
Treasury bond rose 107 basis points (1.07 percentage points) on balance, ending
the period at 6.05%. Investment-grade corporate bonds fared a bit better, but
their interest payments were also more than offset by price declines. The Lehman
Long Corporate Index had a total return of -4.5%. The market for high-yield
corporate bonds was hurt by rising interest rates, poor operating results for
some issuers, and credit-rating downgrades.
Returns from foreign stock markets were quite good, on balance. The
developed markets, weighted by market capitalization, provided a return of 31.3%
in U.S. dollars, as measured by the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. The Pacific Rim, where stocks had plummeted
in 1997 and 1998, rebounded smartly. Stocks from the region, which is dominated
by Japan, gained nearly 39% in local-currency terms, and were boosted further by
the sharp decline in the value of the U.S. dollar versus the Japanese yen. The
dollar's slide reflected both a record U.S. trade deficit, which raised the
supply of dollars held outside the United States, and a renewal of foreign
interest in the Japanese stock market, which boosted the demand for yen. The
total return from the Pacific's developed markets, reflecting the currency
fluctuations, was an eye-popping 70.2% for dollar-based investors. Emerging
markets as a group gained 56.5%. Returns from Europe were less gaudy but still
strong, with gains of 17.4% for U.S. investors.
A portfolio-by-portfolio summary of the year's results follows.
FIXED-INCOME PORTFOLIOS
The MONEY MARKET PORTFOLIO had a 12-month total return of 5.1%, outpacing the
4.4% return of the average money market mutual fund. Our result was nearly
double the 2.6% rate of inflation, as measured by the Consumer Price Index. The
2.5% after-inflation return is strong relative to historical standards.
Short-term interest rates climbed during the year, with the yield of the 3-month
Treasury bill rising from 4.36% on September 30, 1998, to 4.85% a year later.
The portfolio's yield, which lags a bit in reacting to market
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rates, drifted lower in the first half of the year, then rose in the second
half. At fiscal year-end, the yield stood at 5.26%.
Costs are an important determinant in the relative performance of
fixed-income funds, and were the chief reason our Money Market Portfolio
outperformed most peers. Our 0.20% expense ratio (annual expenses as a
percentage of average net assets) is just a fraction of the 0.82% charged by our
average competitor. In other words, the operating expenses borne by our
investors were lower by $6.20 per $1,000 invested than the costs charged by the
average money fund.
Our HIGH-GRADE BOND PORTFOLIO, which met its objective of closely tracking
the all-market Lehman Aggregate Bond Index, sagged under the weight of rising
interest rates to post a total return of -0.5%, just behind the index return of
- -0.4%. The average intermediate-term U.S. government fund fared worse, declining
- -1.5%.
The HIGH YIELD BOND PORTFOLIO provided a return of 2.7%, as a weak second
half of the fiscal year trimmed first-half gains. We trailed both the 4.8%
result of our average peer and the 2.9% return of our unmanaged benchmark, the
Lehman High Yield Bond Index. In an environment where lower quality resulted in
higher returns, the portfolio's adviser, Wellington Management Company, LLP,
shied away from issuers with particularly vulnerable finances. Our lower
operating costs (an expense ratio of 0.29% versus 1.31% for the average
high-yield fund) enable the portfolio to provide competitive long-term returns
while focusing on the higher-quality end of the high-yield market. The higher
yields offered by low-rated issues don't fully compensate, in our view, for the
increased credit risk.
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TOTAL RETURNS
FISCAL YEAR ENDED
SEPTEMBER 30, 1999
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MONEY MARKET PORTFOLIO* 5.1%
(SEC 7-Day Annualized
Yield: 5.26%)
Average Money Market Instrument Fund** 4.4
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.6
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HIGH-GRADE BOND PORTFOLIO -0.5%
Average Intermediate
U.S. Government Fund** -1.5
Lehman Aggregate Bond Index -0.4
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HIGH YIELD BOND PORTFOLIO 2.7%
Average High Current Yield Fund** 4.8
Lehman High Yield Index 2.9
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*An investment in a money market portfolio is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the portfolio seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the portfolio.
**Derived from data provided by Lipper Inc.
BALANCED PORTFOLIO
The BALANCED PORTFOLIO achieved a 12-month total return of 9.4%. While this was
a fine result in absolute terms, it lagged the average balanced fund by 3.2
percentage points and our composite benchmark--a blend of the S&P 500 Index and
high-quality, long-term bonds--by 6 percentage points. Our bond holdings
returned -5.6% during the year, offsetting some of the gains from our equity
investments. But our shortfall versus our peers and the composite index stemmed
from our value-oriented stock holdings, whose return was one-third lower than
that posted by the S&P 500 Index, which was led by large-cap growth stocks that
pay little or no dividends and therefore are largely absent from our portfolio.
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TOTAL RETURNS
FISCAL YEAR ENDED
SEPTEMBER 30, 1999
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BALANCED PORTFOLIO 9.4%
Average Balanced Fund* 12.6
Composite Stock/Bond Index** 15.4
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*Derived from data provided by Lipper Inc.
**65% S&P 500 Index, 35% Lehman Long Corporate AA or Better Bond Index.
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DOMESTIC EQUITY PORTFOLIOS
Our EQUITY INCOME PORTFOLIO posted a solid absolute total return of 10.4%, which
trailed the 12.3% gain for the average equity income fund. Both your portfolio
and the average equity income fund trailed far behind the unmanaged S&P 500
Index. We badly lagged the index primarily because we were absent from the
technology sector, which returned an incredible 77% during the year. As you
know, our portfolio invests in companies that pay relatively high dividends and
offer the potential for capital appreciation. Tech stocks certainly have
appreciated, but most pay little, if any, dividend income. The portfolio's
substantial investments in utility firms, which represent about one-quarter of
our assets, gained nearly 14%, versus a 28% gain for the utility segment of the
index. This was due largely to our light stake in long-distance and wireless
telecommunications stocks, which appreciated strongly during the year but
include many low-yielding stocks.
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TOTAL RETURNS
FISCAL YEAR ENDED
SEPTEMBER 30, 1999
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EQUITY INCOME PORTFOLIO 10.4%
Average Equity Income Fund* 12.3
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EQUITY INDEX PORTFOLIO 27.8%
Average General Equity Fund* 27.3
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GROWTH PORTFOLIO 27.3%
Average Large-Cap Growth Fund** 37.9
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S&P 500 Index 27.8%
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SMALL COMPANY GROWTH PORTFOLIO 36.0%
Average Small-Cap Growth Fund* 43.8
Russell 2000 Index 19.1
Small Company Growth Fund
Stock Index+ 22.2
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*Derived from data provided by Lipper Inc.
**Derived from data provided by Lipper Inc., which moved the portfolio to the
Large-Cap Growth Fund category from the Growth Fund category.
+Provided by Vestek Systems; tracks the stocks held by the 25 largest small-cap
mutual funds. The index incorporates returns from the Russell 2000 Index for
periods prior to August 1997.
The EQUITY INDEX PORTFOLIO gained 27.8% during the year, tracking the
performance of the S&P 500 Index, as it aims to do. The portfolio narrowly edged
the 27.3% return for the average general equity fund. Not surprisingly, I firmly
endorse low-cost index funds. However, I stress that large-cap portfolios
tracking the S&P 500 Index will not always beat the majority of actively managed
funds, as they have for several years in a row. When smaller stocks outperform
larger stocks--and they surely will from time to time--a large-cap fund can be
expected to lag the average mutual fund, which tends to hold some small- and
mid-cap stocks. Moreover, all stock portfolios are subject to loss in market
downturns. Our portfolio has not had a negative total return in the eight full
fiscal years since its inception in 1991, but this is a function of a bull
market for stocks, not brilliance on our part. The market, and our portfolio,
will suffer downturns now and again.
The GROWTH PORTFOLIO gained 27.3% in fiscal 1999, about 21/2 times the
long-term average return for stocks. However, our return was surpassed by those
of both the S&P 500 Index (which rose 27.8%) and the average large-cap growth
fund (up 37.9%). Compared with its average peer, the portfolio invested a bit
more in health-care stocks, one of the market's weakest sectors during the year
(up 1%), and a bit less in technology stocks (which, as noted, rose a stunning
77%). Nonetheless, the portfolio's long-term record is quite good.
Our SMALL COMPANY GROWTH PORTFOLIO posted a powerful 36.0% return during
the fiscal year. The portfolio's return was well ahead of the 19.1% gain for the
small-cap Russell 2000 Index and the 22.2% return for the Small Company Growth
Fund Stock Index, which comprises stocks held by the 25 largest small-cap mutual
funds. However, we trailed the average small company growth fund, which gained
nearly 44%. Good stock
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selections in the health-care and technology sectors were the biggest
contributors to our portfolio's performance.
INTERNATIONAL PORTFOLIO
Our INTERNATIONAL PORTFOLIO advanced 22.0% during the 12 months ended September
30. While robust on an absolute basis, this return lagged the 31.6% gain of the
average international stock fund and the 31.3% rise in the MSCI EAFE Index. The
portfolio suffered in relation to peers by having a relatively small exposure to
Japanese stocks, which rebounded sharply during the year as investors hoped that
massive government spending and ultra-low interest rates would lift the economy
out of recession and increase corporate profits.
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TOTAL RETURNS
FISCAL YEAR ENDED
SEPTEMBER 30, 1999
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INTERNATIONAL PORTFOLIO 22.0%
Average International Fund* 31.6
MSCI EAFE Index 31.3
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*Derived from data provided by Lipper Inc.
OUR NEW PORTFOLIOS
The four portfolios introduced during fiscal 1999 have completed less than eight
months of operations; their results are presented in the following table. I
caution that such a brief track record is not meaningful in evaluating how a
fund will perform over the long haul.
Rising interest rates caused bond prices to fall during fiscal 1999, and
the short-term securities held by the SHORT-TERM CORPORATE PORTFOLIO were not
immune. The portfolio's 1.1% total return from February 8 through September 30
reflected interest income of 3.6% and a price decline of -2.5%. The result was
slightly higher than returns for our average peer and our index benchmark.
The DIVERSIFIED VALUE PORTFOLIO, which seeks long-term growth by purchasing
undervalued large-cap and mid-cap stocks, got off to a rough start. It declined
- -6.9% from its February inception through September 30, as its stock selections
tended to remain out of favor at a time when the market was dominated by a
relative handful of high- octane growth stocks. However, our return was subpar
even in relation to other value funds, as prices of a few key holdings were
pummeled because of earnings disappointments.
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TOTAL RETURNS
SINCE INCEPTION*
THROUGH
SEPTEMBER 30, 1999
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SHORT-TERM CORPORATE PORTFOLIO 1.1%
Average Short Investment Grade
Blend Fund** 1.0
Lehman 1-5 Year Investment
Grade Index 0.9
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DIVERSIFIED VALUE PORTFOLIO -6.9%
Average Large-Cap Value Fund** 3.7
S&P 500 Index 4.0
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MID-CAP INDEX PORTFOLIO 6.5%
Average Mid-Cap Core Fund** 10.3
S&P MidCap 400 Index 6.0
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REIT INDEX PORTFOLIO -1.5%
Average Real Estate Fund** -1.3
Morgan Stanley REIT Index -1.5
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*For Short-Term Corporate and Diversified Value
Portfolios, February 8, 1999; for Mid-Cap Index and
REIT Index Portfolios, February 9, 1999.
**Derived from data provided by Lipper Inc.
Our new MID-CAP INDEX PORTFOLIO gained 6.5%, a solid if unspectacular
result. Although stock investors began during the fiscal year to extend their
enthusiasm beyond large-cap stocks, mid- and small-cap stocks generally lagged
large-cap issues. Our return was slightly ahead of our benchmark index's gain
but trailed the return of the average mid-cap mutual fund.
The REIT INDEX PORTFOLIO declined -1.5%, reflecting general weakness among
real estate investment trusts, whose share
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prices tend to be hurt by rising interest rates (and helped by falling rates).
The portfolio's return was in line with its peers and its target index.
Over the long haul--a period that should be measured in decades for holders
of variable annuity and variable insurance contracts--I am confident that our
new portfolios, aided by the advantage of low costs in relation to competitors,
will serve investors well.
LONGER-TERM PERFORMANCE OVERVIEW
We encourage all investors--and certainly those employing variable annuities--to
take a long-term perspective when crafting investment programs and evaluating
their holdings. The adjacent table presents the lifetime records of the nine
portfolios that have been in existence for more than a year. I'm pleased to
report that eight of the portfolios have outperformed their average peers since
inception. The sole exception--the Small Company Growth Portfolio--has trailed
its average competitor slightly, by an average of 0.4 percentage point annually.
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AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
THROUGH SEPTEMBER 30, 1999
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AVERAGE
VANGUARD COMPARABLE
PORTFOLIO (INCEPTION) PORTFOLIO FUND DIFFERENCE
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Money Market (5/2/1991) 4.8% 4.3% 0.5%
High-Grade Bond (4/29/1991) 7.3 6.3 1.0
High Yield Bond (6/3/1996) 7.5 6.8 0.7
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Balanced (5/23/1991) 13.2% 11.5% 1.7%
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Equity Income (6/7/1993) 16.8% 14.0% 2.8%
Equity Index (4/29/1991) 18.3 15.1 3.2
Growth (6/7/1993) 22.1 20.6 1.5
Small Company Growth (6/3/1996) 8.4 8.8 -0.4
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International (6/3/1994) 10.7% 9.5% 1.2%
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</TABLE>
Our low costs are an important factor in the strong relative performance of
the portfolios. In fiscal 1999, the portfolios' expense ratios (expenses as a
percentage of average net assets) ranged from 0.18% to 0.49%, and each
portfolio's ratio was but a fraction of that charged by the average fund in its
category. This difference--we call it the "Vanguard advantage"--gives the
portfolios a head start year after year in their quest to provide superior
performance. I note that neither our expense ratios nor those of our competitors
include the administrative and insurance costs associated with variable annuity
or insurance contracts.
The oldest portfolios of Vanguard Variable Insurance Fund have been
operating for less than a decade, a brief period compared with the 30-, 40-, or
50-year investing time horizons of many investors. Our portfolios were fortunate
to have been "born" during a generally favorable period for financial
markets--especially for large-cap U.S. stocks. There is, however, one danger for
investors accustomed to fair weather--they may not be properly prepared for the
inevitable storms that financial markets encounter. In this regard, it's
important to have realistic expectations for returns and to understand that
sharp fluctuations--down as well as up--are to be expected.
The future is unpredictable, but the long-term annual average returns for
stocks and high-quality bonds--11% and 6%, respectively--may provide useful
guidance in setting expectations. However, to capture something near those gross
returns, investors had to endure wide year-to-year fluctuations and to limit the
costs of investing.
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IN SUMMARY
The past 12 months demonstrated a fact of investing life: Markets fluctuate,
sometimes substantially. We have long advocated a balanced investment
approach--holding a combination of stock funds, bond funds, and short-term
reserves--as a simple but effective way to participate in the long-term rewards
of the financial markets while tempering the risks. Creating such a
plan--tailored to your time horizon, objectives, and personal situation--and
sticking with it--is a time-tested approach to long-term investment success.
/s/ JOHN J. BRENNAN
John J. Brennan
Chairman and Chief Executive Officer
October 13, 1999
A NOTE OF THANKS TO OUR FOUNDER
As you may have read on the inside cover of our report, our founder, John C.
Bogle, is retiring December 31, 1999, as Senior Chairman of our Board after
nearly 25 years of devoted service to Vanguard and our shareholders. Vanguard
investors have Jack to thank for creating a truly mutual fund company that
operates solely in the interest of its fund shareholders. And mutual fund
investors everywhere have benefited from his energetic efforts to improve this
industry. Finally, on a personal note, I am forever grateful to Jack for giving
me the opportunity to join this great company in 1982.
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THE MARKETS IN PERSPECTIVE
YEAR ENDED SEPTEMBER 30, 1999
The fiscal year ended September 30, 1999, was, in a sense, two distinctly
different periods. During the first half of the year, stock markets rebounded
sharply from the crisis of confidence that had shaken investors during the
summer of 1998. Then, during the second half, fears of a global economic slump
gave way to optimism about improving business activity. Indeed, a new
concern--that economic growth might be getting out of hand--came to the fore,
causing interest rates to rise and bond prices to fall, depressing the total
returns on bonds and cooling off the hot U.S. stock market.
U.S. STOCK MARKETS
A robust U.S. economy and rising expectations for corporate earnings buoyed the
U.S. stock market, especially during the first half of the fiscal year.
Consumers, whose spending accounts for roughly two-thirds of economic activity,
spent like never before, encouraged by rising wealth from a long bull market, a
bright employment picture (unemployment was at a slim 4.2% of the workforce in
September), and rising incomes (after-tax personal income in August was up 5.2%
from a year earlier). Indeed, on average, U.S. households in August spent just
above $1.01 for every $1.00 of after-tax income, dipping into savings or
borrowing to finance some of their purchases.
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AVERAGE ANNUAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
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1 YEAR 3 YEARS 5 YEARS
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STOCKS
S&P 500 Index 27.8% 25.1% 25.0%
Russell 2000 Index 19.1 8.7 12.4
Wilshire 5000 Index 27.0 21.9 22.7
MSCI EAFE Index 31.3 10.7 9.4
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BONDS
Lehman Aggregate Bond Index -0.4% 6.8% 7.8%
Lehman 10 Year Municipal Bond Index -0.5 5.9 6.8
Salomon Smith Barney 3-Month
U.S. Treasury Bill Index 4.6 5.0 5.2
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OTHER
Consumer Price Index 2.6% 2.1% 2.4%
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</TABLE>
During the first half of the period, the stock market rose 26.1%, as
measured by the Wilshire 5000 Total Market Index. Investor confidence, already
high due to the booming economy, was bolstered by easier monetary policy--the
Federal Reserve's Open Market Committee cut short-term interest rates a total of
0.75 percentage point during autumn 1998. However, stock returns were muted
during the second half of the fiscal year, when the Fed acted to boost
short-term rates to slow the economy and reduce inflationary pressures. Higher
rates tend to hurt stock prices because many investors use current interest
rates to discount the value of a stock's projected earnings and dividends. And
the higher the rate, the more future earnings are discounted, and the less
investors are willing to pay for the stock now. After a second-half gain of just
0.7%, the Wilshire 5000 Index recorded a 27.0% return for the full fiscal year.
A rise in corporate profits helped stock investors overcome their worries about
higher interest rates.
Big stocks outperformed small stocks during the fiscal year, and growth
stocks outpaced value stocks. The S&P 500 Index, which is made up largely of
large-capitalization
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stocks, gained 27.8%, while the small-cap Russell 2000 Index posted a 19.1%
return. Large and small growth stocks--whose high prices in relation to
earnings, book value, and dividends indicate high expectations for future
growth--outdistanced value stocks, posting gains of roughly 33%. Value stocks
within the S&P 500 Index gained 21.5%, while the value stocks in the Russell
2000 recorded a meager 5.8% return.
The market's leaders were large-cap technology stocks, which as a group
posted a gain of 77% during the year. Big gains also were posted by retailers
and other members of the consumer-discretionary sector (up 34%) and by the
producer-durables sector (up 45%), which includes engine, machinery, and
aircraft makers. The weakest sectors were consumer staples (a -1% return), where
food and beverage company stocks were hurt by disappointing earnings, and health
care (up 1%), where stocks suffered from weaker-than-expected earnings and
concerns about government efforts to limit health-care spending.
U.S. BOND MARKETS
The powerful economic growth that helped stocks was seen as a negative for
bonds. Investors and Federal Reserve policymakers alike worried that growth was
so strong it was bound to push up inflation. However, the Consumer Price Index
rose a relatively modest 2.6% during the 12-month period.
The Fed, having lowered interest rates late in 1998 to help fuel the
economy, reversed its stance and tapped on the monetary brakes with
quarter-point rate increases on June 30 and again on August 24. The Fed said it
sought to "diminish the risk of rising inflation."
Yields of long-term U.S. Treasury bonds rose by 1 to 1.5 percentage points
during the fiscal year. The yield of the 30-year Treasury bond increased 1.07
percentage points (107 basis points), from 4.98% on September 30, 1998, to 6.05%
a year later. The yield of the 10-year Treasury, a key benchmark for mortgage
loans, rose 146 basis points, from 4.42% to 5.88%. Three-month Treasury bills
rose on balance by 49 basis points, from 4.36% to 4.85%.
The Lehman Brothers Aggregate Bond Index, a benchmark for the entire
taxable bond market, posted a negative -0.4% return, as interest income of 6.1%
from bonds was more than offset by an average price decline of -6.5%. Returns
were somewhat higher for high-yield (junk) bonds and mortgage-backed securities
such as GNMAs.
INTERNATIONAL STOCK MARKETS
International markets recorded big gains during the 12 months ended September
30. The Morgan Stanley Capital International Europe, Australasia, Far East
(EAFE) Index provided a 31.3% return for U.S. investors. Gains were especially
large in the Pacific region, where the MSCI Pacific Free Index posted a 70.2%
return for the fiscal year. Currency fluctuations, principally the U.S. dollar's
slide versus the Japanese yen, accounted for more than 30 percentage points of
the gain in the Pacific region. Emerging markets, as measured by the Select
Emerging Markets Free Index, gained 47.9% for U.S. investors. Returns from
Europe were 17.4%, as measured by the MSCI Europe Index. European currencies
generally declined versus the U.S. dollar, which for U.S. investors reduced the
26.2% gains made in local currencies.
Stocks benefited from a general brightening of the world economic outlook.
When the fiscal year began, markets were still reacting to economic weakness in
Japan and upheavals elsewhere in Asia, Russia, and Latin America. But business
rebounded in many nations around the world, aided by the efforts of central
banks to spur economic growth with lower interest rates.
9
<PAGE> 12
REPORT FROM VANGUARD FIXED INCOME GROUP
MONEY MARKET, SHORT-TERM CORPORATE,
AND HIGH-GRADE BOND PORTFOLIOS
During the fiscal year ended September 30, 1999, interest rate volatility
increased in reaction to changes in monetary policy at the Federal Reserve.
Yields on long-term U.S. Treasury bonds began the period at 4.98% and finished
at 6.05%. Early in the fiscal year, financial markets were unsettled because of
deteriorating global economic conditions. These conditions reached their low
point when Russia devalued its currency and defaulted on its debt, leading many
investors worldwide to seek the safe haven of U.S. Treasury securities.
Corporations issuing debt securities to finance or expand operations discovered
a lack of interest in their bonds. The high demand for Treasuries and the
market's shunning of other debt securities drove yield spreads--the difference
between yields on Treasuries and those on riskier securities--to record levels,
restricting borrowers' ability to obtain funding. The Fed, seeking to maintain
liquidity in the financial markets, lowered interest rates on three separate
occasions and succeeded in restoring some stability.
In the months following the Fed's decisive action, investors waited to
judge whether the capital market dislocations of 1998 would upset the overall
economy in 1999 or would prove to be merely a brief bump in an otherwise smooth
ride for the U.S. economy. By the early spring, evidence accumulated that the
U.S. economy was not slowing down. The unemployment rate continued to decline,
diminishing the pool of available workers. Traditional economic models suggest
that tight labor markets eventually lead to wage inflation. Nonetheless,
government statistics estimating labor-related expenses have been relatively
well contained so far. Average hourly earnings have been on the rise, but
manufacturers' ability to develop more cost-efficient means of production has
allowed them to limit price increases in order to stay competitive. This growth
in productivity has so far allowed our economy to grow rapidly without the
expected side effect of worsening inflation.
On June 30, the Fed took back one of the three quarter-point rate cuts it
made last autumn; on August 24, it took back a second, bringing the target
federal funds rate to 5.25%. Fed officials expressed concern about the economy's
ability to sustain its impressive growth without accelerating inflation. They
have made it clear that they would prefer to preempt an inflationary buildup
rather than react to one. Despite the Fed's moves, however, there is little
evidence that demand has slowed. Interest-sensitive sectors of the economy are
still performing strongly. For example, home sales remain near record levels,
and consumer purchases of
10
<PAGE> 13
automobiles and other durable goods show no sign of abating. It may be too early
for signs of reduced demand to show, given that higher interest rates usually
take some time to affect purchasing decisions. We anticipate that the Fed will
react quickly to any indication that inflation pressures are still building.
MONEY MARKET PORTFOLIO
The Money Market Portfolio returned 5.1% in fiscal 1999, compared with 4.4% for
the average money market fund. We shortened the portfolio's average maturity
before the Federal Reserve made the first of its two summer increases in
interest rates. This allowed the portfolio to take advantage of higher rates
more quickly. We now have a neutral stance, which puts us in the position to
benefit from higher yields if the Fed acts again while selectively searching for
higher-yielding securities that meet our stringent credit-quality standards.
Because the portfolio has a significant expense advantage in relation to
competitors, we can maintain the high credit quality you expect while still
offering superior investment returns.
SHORT-TERM CORPORATE PORTFOLIO
The Short-Term Corporate Portfolio commenced operations on February 8 and
recorded a 1.1% return through September 30. This was slightly ahead of the 1.0%
return of the average comparable mutual fund. The portfolio's mission is to
provide investors with a high level of current income, consistent with the
maintenance of principal and liquidity, by investing primarily in
investment-grade corporate bonds with an average dollar-weighted maturity of 1
to 3 years.
During this startup period, our primary concern was to maintain adequate
diversification of issuers. At fiscal year-end, the portfolio owned securities
from more than 90 different issuers. Given our positive outlook for the economy
and corporate earnings, together with the prevailing wide spread between yields
of corporate and Treasury securities, we focused our buying on instruments from
borrowers with credit ratings of A and BBB to maximize income. As is standard
practice for Vanguard's Fixed Income Group, the creditworthiness of each
security was reviewed by our team of credit analysts before we bought it.
HIGH-GRADE BOND PORTFOLIO
As interest rates rose during the fiscal year, prices of bonds declined, and the
High-Grade Bond Portfolio provided a return of -0.5%. During the second half of
the period, the yield curve steepened at the shorter end of the Treasury bond
market. Three-month Treasury bill yields rose by about 0.4 percentage point,
while yields on 2-year Treasury notes rose by 0.6 point. The yield curve for
longer-term Treasuries flattened slightly, with 30-year yields rising by 0.4
point.
For the full fiscal year, yields for 2-year, 10-year, and 30-year Treasury
securities rose by 1.3 percentage points, 1.5 points, and 1.1 points,
respectively. The chart at right shows the performance of the various sectors of
the Lehman Aggregate Bond Index during the 6- and 12-month periods ended
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-----------------------------------
6 MONTHS 12 MONTHS
- -------------------------------------------------------------------------
<S> <C> <C>
Lehman Aggregate Bond Index -0.21% -0.37%
Government Sector -0.20 -1.70
Corporate Sector -1.29 -1.40
Mortgage-Backed Securities Sector 0.47 2.27
- -------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
September 30. The best-performing category, by a significant margin, during both
the half-year and the full fiscal year was mortgage-backed securities. This
sector's higher yield and shorter average life combined to cushion the effects
of rising interest rates.
Because of fears that the Fed's tightening would ultimately hurt corporate
profitability, spreads widened between Treasury and corporate bonds, and
corporate bond returns lagged during the second half of the year. For the full
year, corporates performed slightly better than government bonds.
The High-Grade Bond Portfolio is designed to closely track the performance
of the Lehman Aggregate Bond Index. The portfolio's returns lagged those of the
index by 0.17 percentage point for the second half of the fiscal year and by
just 0.12 point for the full year. This was excellent tracking, given that the
index is a "paper" entity with no expenses at all, while the portfolio has
operating costs that total approximately 0.23 percentage point annually.
As of September 30, the High-Grade Bond Portfolio comprised 28% government
bonds, 33% corporate bonds, 5% foreign bonds (denominated in U.S. dollars), and
34% mortgage-backed securities.
Ian A. MacKinnon, Managing Director
Robert F. Auwaerter, Principal
David R. Glocke, Principal
Kenneth E. Volpert, Principal
October 14, 1999
- -------------------------------------------------------------------------------
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.
SHORT-TERM CORPORATE PORTFOLIO
The adviser believes a portfolio can provide relatively high levels of current
income with only modest share-price fluctuation by holding high-quality
corporate bonds with short- and intermediate-term maturities.
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.
- -------------------------------------------------------------------------------
12
<PAGE> 15
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
HIGH YIELD BOND PORTFOLIO
The High Yield Bond Portfolio provided total returns of -1.8% and 2.7%,
respectively, for the 6- and 12-month periods ended September 30, 1999. The
yield on the 10-year U.S. Treasury bond rose 64 basis points (0.64 percentage
point) during the second half of the fiscal year, and nearly 150 basis points
over the full year. Rising interest rates have a depressing effect on bond
prices. As we have stated often, however, the direction of interest rates is not
necessarily the determining factor in how the high-yield bond market behaves.
The below-investment-grade, or high-yield, market continues to be a hybrid
between the bond and stock markets. Under some conditions, high-yield bonds
follow the direction of the stock market; at other times, they behave more like
investment-grade bonds. When the stock market is very volatile,
below-investment-grade bonds usually move in the same direction as stocks. When
the stock and bond markets are reasonably stable, high-yield bonds tend to trade
much like investment-grade bonds. And sometimes the high-yield market acts
independently of the other major capital markets. For example, during the first
nine months of 1999, credit-rating downgrades outpaced upgrades, reflecting poor
operating results for corporate issuers of high-yield debt. (Particularly
affected were energy and health-care companies.) The lowering of credit ratings
on high-yield bonds helped to widen their risk premium, or yield spread,
compared with Treasury securities. This wider spread hurt the performance of
high-yield bonds. During the period, the domestic economy and the stock market
remained reasonably vibrant, which would have supported the high-yield market
had the rating downgrades not been so numerous.
The Federal Reserve has been gradually raising short-term interest rates in
hopes of restraining the expansion of credit and moderating growth and
inflationary forces in the economy. The Fed's stance is likely to keep the
high-yield market slightly off-balance. When credit is rationed, the marginal
borrower or lower-rated issuer must pay a relatively higher risk premium to
obtain financing. We have begun to see this phenomenon. Generally speaking,
investors will decrease their tolerance for risk if the economy's growth rate
begins to slow, as the Fed apparently would prefer.
We remain very selective with respect to credit quality when it comes to
buying new issues for the portfolio. We perform in-depth credit research on a
company-by-company basis and emphasize diversification. We are also avoiding the
smaller start-up companies and continuing to emphasize higher-quality issues
within the below-investment-grade market. The portfolio's holdings continue to
be focused on cash-paying issues almost exclusively rated B or better.
Earl E. McEvoy, Senior Vice President
and Portfolio Manager
October 13, 1999
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
13
<PAGE> 16
REPORT FROM WELLINGTON
MANAGEMENT COMPANY, LLP
BALANCED PORTFOLIO
The Balanced Portfolio achieved a return of 9.4% for the fiscal year ended
September 30, 1999. The portfolio's stock segment, which constituted 64% of
assets at year-end, gained 18.7%, and the bond portion returned -5.6%. The
overall stock market rose rapidly in the first half of the fiscal year, but
progressed only modestly after that, while bonds declined in value as interest
rates rose during the year.
We continued to emphasize high-quality stocks with conservative financial
characteristics, such as low price/earnings ratios and above-average dividend
yields. The performance of such "value" stocks tended to lag the performance of
growth stocks in the first half of the fiscal year. Although value stocks'
performance improved in the spring of 1999, the stock market in general
continues to have a narrow focus, with most of the positive performance
concentrated in the information technology sector. This hurts our performance in
comparison with the market indexes because our largest exposures are in the
financial-services, industrial & commercial, materials, health-care, and energy
sectors.
We cut our stakes in the energy and financial-services sectors modestly
during fiscal 1999. The portfolio's stock gains came from a wide array of our
holdings, with Citigroup, Motorola, IBM, and Alcoa among the key contributors.
New names during the year included Emerson Electric, Black & Decker, Alcan, and
Unicom.
Since the financial turmoil of the summer of 1998, created by economic
crises in Asian nations and in Russia, the world outlook has improved
considerably. As a result, bond investors became increasingly concerned that the
strong growth exhibited by the U.S. economy would cause inflation to accelerate.
There is concern that the Federal Reserve will continue to raise interest
rates--as it did in June and August--to head off any inflationary threat. Our
strategy is to maintain a substantial commitment to high-quality corporate
bonds, which are attractively valued relative to U.S. Treasury securities. We
also remain somewhat defensive--having somewhat reduced the bond segment's
average maturity--because rates, in our view, may increase modestly from here.
Looking forward, we expect the U.S. economy's expansion to slow somewhat,
while economic growth improves elsewhere in the world, especially in Europe and
Asia. This outlook suggests that inflation and interest rates may be a bit
higher next year. However, it also suggests growth in export markets, which
would aid many of the companies we own. At the same time, we expect the U.S.
dollar to fall somewhat versus other currencies, which will improve the
competitiveness of U.S. companies in international markets.
Ernst H. von Metzsch, Senior Vice President
and Portfolio Manager
Paul D. Kaplan, Senior Vice President
and Portfolio Manager
October 13, 1999
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
14
<PAGE> 17
REPORT FROM NEWELL ASSOCIATES
EQUITY INCOME PORTFOLIO
For much of the fiscal year ended September 30, 1999, the stock market surged
ahead, led by a narrow group of popular growth and technology stocks that
investors perceive as havens of safety and performance. The Equity Income
Portfolio ended the year with a return of 10.4%, trailing the 27.8% return of
the S&P 500 Index, which was dominated by these large growth stocks. The
portfolio lagged the 12.3% return of the average equity income fund largely
because of the subpar performance of pharmaceutical stocks. Over the past three-
and five-year periods, however, the portfolio has significantly outperformed the
average equity income fund.
Petroleum and telecommunication stocks were the portfolio's best-performing
sectors during the year. Petroleum companies benefited from rising oil prices
and from concerns about inflation, since some investors view energy stocks as an
inflation hedge. Telecom stocks are benefiting from a change in perceptions:
Increasingly, investors view them more as technology stocks and less as the
slow-moving, regulated, interest-rate- sensitive telephone stocks of yesteryear.
To a large degree, this change explains the group's success during the fiscal
year.
Health-care and electric-utility companies were the portfolio's weaker
areas. Drug stocks were under a cloud as competition, slowing product pipelines,
and patent expirations held back earnings growth. Electric companies again were
ignored as investors looked elsewhere for performance, even though the
utilities' earnings growth plus dividend yield will be quite respectable.
Finally, the absence of technology stocks in the portfolio contributed
significantly to our performance gap in relation to the S&P 500 Index.
The run-up in tech stocks, many of which pay no dividends, has caused the
overall market's dividend yield to fall to unprecedented lows. At the same time,
a number of well-known, dividend-paying growth companies have seen earnings
growth slow, which has caused their stocks to fall from favor. The result is
that their dividend yields are relatively high, producing buying opportunities
that we have not seen for many years. By purchasing such issues, which now
account for 7.5% of the portfolio's assets, we have improved its diversification
and quality.
The addition of these stocks does not change the portfolio's low-risk
characteristics, but should improve its ability to perform in up markets. If we
have a bear market, the portfolio's low-beta and high-yield characteristics
should help protect its return. If the market continues to rise, the portfolio
will, thanks to its new holdings, have greater opportunity to participate in
some of the more exciting areas of the economy. We hope that gives the portfolio
a better chance to keep up with the market without forgoing downside protection.
That, after all, is the idea behind a conservative equity fund.
Roger D. Newell, Chairman
October 13, 1999
- -------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY
The adviser believes that a portfolio made up of undervalued stocks, whose
dividend yields are high both in relation to current market averages and 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.
- -------------------------------------------------------------------------------
15
<PAGE> 18
REPORT FROM BARROW, HANLEY,
MEWHINNEY & STRAUSS, INC.
DIVERSIFIED VALUE PORTFOLIO
In its first seven months of operations, your portfolio declined -6.9%, and
trailed both of our comparative benchmarks by more than 10 percentage points.
The second half of the fiscal year ended September 30 was particularly
painful-to the point that some ask, "Is there any value in value investing?"
The stock market has been characterized by an ever-narrowing focus on companies
with earnings momentum, a trend that reflects a new paradigm in which the price
of a stock does not matter.
Concerns about the market's narrowness have been dismissed by some
observers who argue that the U.S. economy has entered a "new era," in which
industries will be dominated by one or two "winner takes all" companies. If this
were true--and if companies failed to restructure themselves into a niche where
they could be market leaders--it would justify a market of a few winners and
many losers. Also, since many of today's winners are in the technology sector,
defenders of the new-era proposition argue that technology is causing a second
industrial revolution that offers vast growth potential.
During the second half, the top-performing 10% of our value benchmark, the
S&P 500/BARRA Value Index, produced all of the positive return. On average,
these stocks had a price/earnings ratio of 36, sold at 4.8 times book value, and
paid a 1.0% dividend yield. By contrast, our portfolio's average holding had a
price/earnings ratio of 13.9, sold at 2.0 times book value, and had a 2.9%
dividend yield. Comparisons with the S&P 500 Index and with the tech-heavy
Nasdaq Composite Index show even greater differences in valuations. These data
suggest that more than a bit of irrationality lies behind the high valuations of
some stocks and in the indexes strongly influenced by them.
In this environment, any company reporting a disappointment was severely
punished, and instances of stocks being down 25% or more in a single day were
common. We do not remember a time when downside volatility was so pronounced.
The market's unusual valuations and volatility do not explain away the fact
that we had more than our share of problems during the year. The main reason we
trailed the market indexes was our minimal exposure to technology stocks, by far
the market's strongest sector. Among individual holdings, Sears lowered earnings
expectations due to slow soft-goods sales. Waste Management's chairman left, and
a price increase significantly impacted revenues and receivables. Bank One
increased spending on Internet banking at a time when its credit-card operations
had disappointing results. Allstate was hurt by increased auto-insurance claims
and hurricane losses and by rising interest rates.
Many other active investors have sold these stocks. After careful analysis,
we still believe that we hold companies that possess good franchises in the
marketplace and provide valuable goods and services. Rather than join the crowd,
we have decided to hold and even to add these stocks in anticipation of their
recovery.
James P. Barrow
October 14, 1999
- -------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY
The adviser believes that superior long-term investment results can be achieved
by holding a diversified portfolio of out-of-favor stocks that have
above-average dividend yields, below-average prices in relation to earnings,
sales, and book value, and the prospect of above-average total return.
- -------------------------------------------------------------------------------
16
<PAGE> 19
REPORT FROM LINCOLN CAPITAL
MANAGEMENT COMPANY
GROWTH PORTFOLIO
The Growth Portfolio's fiscal year ended September 30 was a period of dramatic
contrasts. During the first half, a return of almost 30% was generated; during
the second half, the return was -2%. To add insult to injury, the Growth
Portfolio trailed the growth indexes in both halves of the year. The contour of
the portfolio's returns-strongly positive in the first half of the year,
desultory in the second half--was identical to that of fiscal 1998. Such high
variability seems to be part of the equity investment landscape.
Technology stocks contributed mightily to our return in fiscal 1999. Tech
stocks in the S&P 500 Index rose 77%, but our returns were lower because we
owned several issues that did poorly and missed several that did well. Not
surprisingly, four of the portfolio's five biggest winners were
technology-based: Cisco Systems, Microsoft, Intel, and Lucent Technologies (the
fifth was General Electric). Our losers, all of them modest in their impact,
included Monsanto, which was beset by concerns over developments in agricultural
genetics; American Home Products (litigation exposure); Quintiles Transnational
(earnings shortfall); and Philip Morris (uncertainty over legal settlements).
Financial stocks suffered from concerns about interest rates, loan quality, and
credit-card growth.
Among our largest purchases for the year were two telecommunications
stocks, a pharmaceutical company, and one technology stock. Large sales included
the elimination of three financial-services stocks.
The portfolio's industry diversification changed dramatically. Technology,
broadly defined, now represents more than 40% of the growth indexes, almost
double its share a year ago. Our tech holdings expanded apace, principally
because of market appreciation. Health care, the portfolio's largest sector
weighting a year ago, ebbed to about 17% of assets. We last saw market sectors
explode the way technology has back in 1991, when consumer and health-care
stocks took off, and before that in 1980, when energy stocks skyrocketed. This
time, the explosive growth derives from units--of computing capacity, data
transmission, and Internet activity--rather than from higher prices (as with the
energy companies 20 years ago). We are responding to the market's dramatic move
by enhancing our technology research through the addition of another analyst and
changes in research assignments for some technology subsectors. It is an
exciting and dynamic period.
New to our "top ten" list of holdings from a year ago are Lucent
Technologies, Warner-Lambert, Dell Computer, and EMC. Our ten largest stocks
represent 40% of the portfolio's assets, and we are confident that they will
contribute importantly to returns in the months ahead.
With this report, John Cole, who joined Lincoln Capital in 1997, joins the
portfolio's management team.
John Cole, Portfolio Manager
David Fowler, Portfolio Manager
Parker Hall, Portfolio Manager
October 8, 1999
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
17
<PAGE> 20
REPORT FROM GRANAHAN INVESTMENT
MANAGEMENT, INC.
SMALL COMPANY GROWTH PORTFOLIO
The Small Company Growth Portfolio returned 36.0% during the fiscal year ended
September 30. Our results were bolstered by renewed market interest in high-
growth small companies, especially in the technology and biotechnology sectors
where we had sizable stakes.
The market's renewed interest in small-company stocks did not extend to all
sectors. Technology companies with rapid earnings growth, Internet
infrastructure companies, and biotech companies were generally strong; consumer
and financial-services stocks were generally weak. With interest rates rising,
companies with rising cash flow and low debt were favored, and those with rising
debt levels were shunned.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-------------------------------------
6 MONTHS 12 MONTHS
- ---------------------------------------------------------------------------
<S> <C> <C>
Small Company Growth Portfolio 18.8% 36.0%
Small Company Growth Fund Index 9.4 22.2
- ---------------------------------------------------------------------------
</TABLE>
Seven of the portfolio's top 15 performers during the second half of the
year were rapidly growing tech companies, including MicroStrategy
(decision-support software); Genesys Telecommunications (computer telephony
software; now being acquired); Macrovision (software copy protection); and
RealNetworks (software for streaming video and audio over the Internet). Among
health-care stocks, strong performers included three early-stage holdings we
consider "pioneers": Abgenix (antibody research); Medarex (immune-response
pharmaceuticals); and QLT PhotoTherapeutics (photosensitive pharmaceuticals).
Other stocks with rapidly growing earnings that made important contributions to
our second-half results included REX Stores (consumer electronics); CEC
Entertainment (restaurants); and JAKKS Pacific (toy action figures).
Poorly performing holdings included Acxiom (marketing data and software);
Superior Consultants (health-care consulting); Family Golf Centers (driving
ranges); and J. Jill Group (women's apparel catalogs). During the second half of
the year, eight holdings were acquired or scheduled to be acquired at premium
prices.
INVESTMENT STRATEGY
Technology and health-care stocks together accounted for nearly half of the
portfolio's assets. Consumer discretionary (25% of assets), producer durables
(8%) and financial services (7%) sectors were next in importance.
In the health-care sector, we reduced or eliminated some successful biotech
holdings, including Biogen, Centocor (acquired by Johnson & Johnson), and
Genzyme, and replaced them with smaller companies such as LeukoSite, Human
Genome Sciences, and Vertex Pharmaceuticals. Other additions included Silknet
Software (website interfaces), Latitude Communications (conferencing software);
MP3.com (online music); Terayon (cable modems); Polycom
18
<PAGE> 21
(conferencing systems); and two recent turnarounds, Trimble Navigation (global
positioning satellite products) and Maxwell Technologies (pulse-power
technology). On balance, we cut back on consumer stocks during the second half
of the fiscal year, but new holdings in this group included jewelry chain Zale
and Hollywood Park, a gaming company. We boosted our stake in business-services
companies through new names such as Learning Tree (information-technology
training) and Proxicom (Internet solutions for businesses).
Our holdings are showing total earnings growth of about 15% annually, and
we expect some acceleration in 2000. We expect to generate good long-term growth
by selecting a blend of early-stage "pioneer" companies, more-developed "core"
growth companies, and turnaround "special values" companies. Current stock
valuations are high by historical standards--the average price/earnings ratio
for the portfolio's holdings exceeds 30, based on estimated earnings for 1999.
At such high valuations, stocks are vulnerable to declines if interest rates
continue to rise.
John J. Granahan, Portfolio Manager
Gary C. Hatton, Assistant Portfolio Manager
Jane M. White, Assistant Portfolio Manager
October 11, 1999
- -------------------------------------------------------------------------------
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
up to $1 billion) 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.
- -------------------------------------------------------------------------------
19
<PAGE> 22
REPORT FROM SCHRODER INVESTMENT
MANAGEMENT NORTH AMERICA INC.
INTERNATIONAL PORTFOLIO
The International Portfolio rose 22.0% during the fiscal year ended September
30, 1999. This was significantly behind the 31.3% total return of the MSCI EAFE
Index and the 31.6% return for the average international stock mutual fund.
Clearly, the past 12 months offered an excellent opportunity to make money, and
I was too cautious, notably about prospects for Japan's recovery. Overseas
investors flocked back to Japanese stocks, hoping for a sustained economic
recovery. Indeed, so much capital flooded into Japan that the yen rose by 28%
against the U.S. dollar. This boosted returns from Japanese stocks to more than
75% in dollar terms for the fiscal year. The portfolio's returns broadly matched
these market gains. But, with the benefit of hindsight, it's clear that we had
far too little in Japan. Japan's government is boosting the economy for the
second year running with deficits equal to 10% of the gross domestic product and
with monetary policy so loose that interest rates are at zero. These are
desperate measures indeed, and Japan cannot afford for them to fail. The
consensus among investors is that the economy will grow by 0.4% next year after
expanding 0.8% this year. Japanese companies are reorganizing operations for
efficiency, but with the economy hovering near recession the timing for such
steps is not ideal.
Where I hope to make money for you in the coming year is in emerging
markets and Europe. Nearly one-tenth of the portfolio's assets is in emerging
markets, which, given their volatility, will well reward us if my call is
correct. We believe that Asian countries in particular are in the early phase of
a cyclical economic upturn, making them particularly attractive. Latin America
is cheaper and riskier. We have a further 5% of assets in Hong Kong and
Singapore.
Continental Europe is in the early stage of an economic upturn. I have
positioned the portfolio to benefit from a pickup in consumer demand in the
United Kingdom (the British pound's strength is hurting exporters there). In the
rest of Europe, the portfolio is designed to benefit from an industrial recovery
that I expect to result from the euro's weakness. We also continue to favor
telecommunications companies, expecting both greater demand for services and
ongoing rationalization in this sector. Continental Europe will benefit from the
stimulus of an easy monetary policy because there is much spare capacity and
little risk of inflation. In comparison with our benchmark index, we remain
particularly overweight in France. We have 19% of assets in U.K. stocks and 46%
in continental Europe.
The growth stocks on which we focus have suffered in the past year because
of rising bond yields worldwide. I don't expect this trend to continue, and this
should be of benefit to the portfolio's performance.
Richard Foulkes
October 15, 1999
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
20
<PAGE> 23
PERFORMANCE SUMMARY
MONEY MARKET PORTFOLIO
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
returns can fluctuate widely. An investment in a money market portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the portfolio seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
portfolio.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 2, 1991-SEPTEMBER 30, 1999
- -------------------------------------------------------
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 5.6 5.6 4.9
1999 0.0 5.1 5.1 4.4
- -------------------------------------------------------
SEC 7-Day Annualized Yield (9/30/1999): 5.26%
</TABLE>
*Average Money Market Instrument Fund.
See Financial Highlights table on page 45 for dividend information for the past
five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 2, 1991-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Average
Money Market Money Market Salomon Smith Barney
Portfolio Instrument Fund* 3-Month Treasury Index
<S> <C> <C> <C>
5/2/1991 10000 10000 10000
1991 06 10095 10091 10093
1991 09 10235 10226 10234
1991 12 10360 10349 10359
1992 03 10464 10446 10463
1992 06 10564 10535 10562
1992 09 10656 10613 10650
1992 12 10739 10685 10732
1993 03 10819 10755 10813
1993 06 10900 10821 10893
1993 09 10981 10891 10977
1993 12 11065 10961 11062
1994 03 11148 11033 11148
1994 06 11251 11122 11256
1994 09 11380 11231 11380
1994 12 11528 11361 11528
1995 03 11696 11511 11689
1995 06 11868 11667 11858
1995 09 12037 11818 12025
1995 12 12206 11971 12189
1996 03 12365 12113 12346
1996 06 12526 12252 12502
1996 09 12697 12398 12665
1996 12 12867 12546 12829
1997 03 13034 12690 12992
1997 06 13209 12844 13160
1997 09 13393 13002 13330
1997 12 13581 13162 13503
1998 03 13765 13319 13676
1998 06 13952 13479 13850
1998 09 14144 13642 14025
1998 12 14328 13798 14186
1999 03 14503 13943 14341
1999 06 14676 14086 14503
1999 09 14862 14248 14673
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Portfolio 5.09% 5.48% 4.82% $14,862
Average Money Market Instrument Fund* 4.41 4.87 4.30 14,248
Salomon Smith Barney 3-Month Treasury Index 4.63 5.21 4.66 14,673
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------------------
Since Inception
INCEPTION --------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio 5/2/1991 5.09% 5.48% 0.00% 4.82% 4.82%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
PERFORMANCE SUMMARY
SHORT-TERM CORPORATE PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS:
FEBRUARY 8, 1999-SEPTEMBER 30, 1999
- -----------------------------------------------------------
SHORT-TERM CORPORATE PORTFOLIO LEHMAN*
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN** RETURN
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1999 -2.5% 3.6% 1.1% 0.9%
- -----------------------------------------------------------
</TABLE>
*Lehman 1-5 Year Investment Grade Index.
**Since Inception.
See Financial Highlights table on page 46 for dividend
information since the portfolio's inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: FEBRUARY 8, 1999-SEPTEMBER 30, 1999
- ----------------------------------------------------------------------------------------
Average Lehman
Short-Term Short Investment 1-5 Year
Corporate Portfolio Grade Blend Fund* Investment Grade Index
<S> <C> <C> <C>
2/8/1999 10000 10000 10000
1999 03 10022 10009 10061
1999 06 10018 10012 10074
1999 09 10108 10103 10089
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIOD ENDED SEPTEMBER 30, 1999
------------------------------- FINAL VALUE OF A
SINCE INCEPTION $10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Corporate Portfolio 1.08% $10,108
Average Short Investment Grade Blend Fund* 1.03 10,103
Lehman 1-5 Year Investment Grade Index 0.89 10,089
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
TOTAL RETURN: PERIOD ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION --------------------------------
DATE CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Corporate Portfolio 2/8/1999 -2.50% 3.58% 1.08%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
PERFORMANCE SUMMARY
HIGH-GRADE BOND PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: APRIL 29, 1991-SEPTEMBER 30, 1999
- ------------------------------------------------------------
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 4.7 6.7 11.4 11.5
1999 -6.3 5.8 -0.5 -0.4
- ------------------------------------------------------------
</TABLE>
*Lehman Aggregate Bond Index.
See Financial Highlights table on page 46 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: APRIL 29, 1991-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------
Average Lehman
High-Grade Intermediate U.S. Aggregate
Bond Portfolio Government Fund* Bond Index
<S> <C> <C> <C>
4/29/1991 10000 10000 10000
1991 06 10033 10045 10084
1991 09 10548 10578 10657
1991 12 11069 11112 11197
1992 03 10887 10939 11054
1992 06 11310 11350 11499
1992 09 11758 11841 11994
1992 12 11775 11779 12026
1993 03 12243 12232 12523
1993 06 12562 12507 12855
1993 09 12892 12796 13190
1993 12 12882 12776 13198
1994 03 12524 12433 12819
1994 06 12398 12275 12687
1994 09 12466 12322 12765
1994 12 12537 12311 12813
1995 03 13135 12845 13459
1995 06 13923 13498 14278
1995 09 14190 13710 14558
1995 12 14798 14222 15178
1996 03 14510 13986 14910
1996 06 14592 14017 14995
1996 09 14871 14236 15272
1996 12 15320 14605 15730
1997 03 15227 14520 15642
1997 06 15779 14967 16216
1997 09 16297 15394 16755
1997 12 16761 15776 17247
1998 03 17018 15995 17516
1998 06 17425 16316 17926
1998 09 18149 17010 18685
1998 12 18201 16986 18748
1999 03 18130 16859 18654
1999 06 17946 16680 18490
1999 09 18061 16767 18614
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
------------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High-Grade Bond Portfolio -0.49% 7.70% 7.27% $18,061
Average Intermediate U.S. Government Fund* -1.46 6.36 6.33 16,767
Lehman Aggregate Bond Index -0.37 7.84 7.66 18,614
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Since Inception
INCEPTION ----------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High-Grade Bond Portfolio 4/29/1991 -0.49% 7.70% 0.69% 6.58% 7.27%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
PERFORMANCE SUMMARY
HIGH YIELD BOND PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 3, 1996-SEPTEMBER 30, 1999
- ---------------------------------------------------------
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 -4.6 8.5 3.9 1.7
1999 -5.7 8.4 2.7 2.9
- ---------------------------------------------------------
</TABLE>
*Lehman High Yield Index.
See financial highlights table on page 47 for dividend and capital gains
information since the portfolio's inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JUNE 3, 1996-SEPTEMBER 30, 1999
- -------------------------------------------------------------
Average
High Yield High Current Lehman High
Bond Portfolio Yield Fund Yield Index
<S> <C> <C> <C>
6/3/1996 10000 10000 10000
1996 06 9968 9968 9968
1996 09 10456 10432 10366
1996 12 10896 10811 10728
1997 03 10943 10890 10849
1997 06 11499 11440 11352
1997 09 11933 12066 11869
1997 12 12212 12208 12102
1998 03 12600 12735 12505
1998 06 12731 12750 12642
1998 09 12392 11852 12067
1998 12 12708 12154 12296
1999 03 12959 12488 12552
1999 06 12853 12565 12594
1999 09 12725 12426 12416
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond Portfolio 2.68% 7.52% $12,725
Average High Current Yield Fund* 4.84 6.75 12,426
Lehman High Yield Index 2.89 6.73 12,416
- ------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High Yield Bond Portfolio 6/3/1996 2.68% -1.41% 8.93% 7.52%
- ------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
PERFORMANCE SUMMARY
BALANCED PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: MAY 23, 1991-SEPTEMBER 30, 1999
- -------------------------------------------------------------------
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 3.7 3.6 7.3 11.5
1999 5.8 3.6 9.4 15.4
- -------------------------------------------------------------------
</TABLE>
*65% S&P 500 Index, 35% Lehman Long Corporate AA or Better Bond Index.
See financial highlights table on page 47 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: MAY 23, 1991-SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------
Balanced Average Composite S&P 500
Portfolio Balanced Fund Stock/Bond Index Index
<S> <C> <C> <C> <C>
5/23/1991 10000 10000 10000 10000
1991 06 9750 9692 9695 9929
1991 09 10250 10319 10280 10460
1991 12 10839 11113 11070 11337
1992 03 10614 10979 10820 11050
1992 06 10989 11015 11119 11260
1992 09 11305 11361 11541 11615
1992 12 11617 11903 11959 12200
1993 03 12216 12385 12517 12733
1993 06 12550 12500 12713 12795
1993 09 12898 12926 13124 13126
1993 12 13148 13179 13288 13430
1994 03 12622 12756 12748 12921
1994 06 12811 12527 12676 12975
1994 09 13243 12890 13075 13609
1994 12 13068 12847 13135 13607
1995 03 14143 13629 14276 14932
1995 06 15352 14530 15606 16358
1995 09 16375 15338 16553 17658
1995 12 17307 16083 17564 18721
1996 03 17889 16500 17879 19725
1996 06 18136 16785 18416 20611
1996 09 18874 17249 18912 21248
1996 12 20116 18296 20213 23019
1997 03 20223 18272 20411 23636
1997 06 22662 20043 23082 27762
1997 09 24083 21394 24630 29842
1997 12 24768 21772 25522 30699
1998 03 26706 23412 27943 34981
1998 06 26968 23565 28909 36136
1998 09 25832 22091 27466 32542
1998 12 27751 24707 31304 39472
1999 03 27751 24927 31973 41439
1999 06 29829 25917 33080 44360
1999 09 28271 24866 31696 41589
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
---------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION 10,000 INVESTMENT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Portfolio 9.44% 16.38% 13.24% $28,271
Average Balanced Fund* 12.56 14.04 11.52 24,866
Composite Stock/Bond Index** 15.40 19.38 14.80 31,696
S&P 500 Index 27.80 25.03 18.60 41,589
- ---------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
**65% S&P 500 Index, 35% Lehman Long Corporate AA or Better Bond Index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ---------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ----------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced Portfolio 5/23/1991 9.44% 16.38% 9.26% 3.98% 13.24%
- ---------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
PERFORMANCE SUMMARY
EQUITY INCOME PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 7, 1993-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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 8.7 2.5 11.2 9.0
1999 7.7 2.7 10.4 27.8
- --------------------------------------------------------------------------------
</TABLE>
See financial highlights table on page 48 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JUNE 7, 1993-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Equity Income Average Equity
Portfolio Income Fund S&P 500 Index
<S> <C> <C> <C>
6/7/1993 10000 10000 10000
1993 06 10090 10090 10078
1993 09 10681 10522 10338
1993 12 10521 10697 10578
1994 03 9862 10298 10177
1994 06 10046 10394 10219
1994 09 10506 10788 10719
1994 12 10390 10521 10717
1995 03 11432 11331 11761
1995 06 12118 12124 12884
1995 09 13205 12969 13907
1995 12 14432 13741 14745
1996 03 14827 14335 15536
1996 06 15476 14798 16233
1996 09 15722 15191 16735
1996 12 17129 16344 18130
1997 03 17763 16573 18616
1997 06 20109 18718 21866
1997 09 21705 20294 23504
1997 12 23019 20765 24179
1998 03 25410 22853 27552
1998 06 25066 22613 28462
1998 09 24135 20345 25630
1998 12 27076 23003 31089
1999 03 26748 22841 32638
1999 06 29133 24992 34938
1999 09 26634 22845 32757
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income Portfolio 10.36% 20.45% 16.78% $26,634
Average Equity Income Fund* 12.29 16.19 13.98 22,845
S&P 500 Index 27.80 25.03 20.67 32,757
- --------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Income Portfolio 6/7/1993 10.36% 20.45% 13.45% 3.33% 16.78%
- ------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
PERFORMANCE SUMMARY
DIVERSIFIED VALUE PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS:
FEBRUARY 8, 1999-SEPTEMBER 30, 1999
- --------------------------------------------------------
DIVERSIFIED VALUE PORTFOLIO S&P 500
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN* RETURN
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1999 -6.9% 0.0% -6.9% 4.0%
- --------------------------------------------------------
</TABLE>
*Since inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: FEBRUARY 8, 1999-SEPTEMBER 30, 1999
- ------------------------------------------------------------
Average
Diversified Value Large-Cap S&P 500
Portfolio Value Fund Index
<S> <C> <C> <C>
2/8/1999 10000 10000 10000
1999 03 10240 10435 10363
1999 06 11170 11327 11093
1999 09 9310 10366 10401
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIOD ENDED SEPTEMBER 30, 1999
------------------------------- FINAL VALUE OF A
SINCE INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Value Portfolio -6.90% $ 9,310
Average Large-Cap Value Fund* 3.66 10,366
S&P 500 Index 4.01 10,401
- -----------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
TOTAL RETURN: PERIOD ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------
INCEPTION SINCE INCEPTION
---------------------------
DATE CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Value Portfolio 2/8/1999 -6.90% 0.00% -6.90%
- --------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
PERFORMANCE SUMMARY
EQUITY INDEX PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: APRIL 29, 1991-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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 0.8 2.7 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 7.5 1.5 9.0 9.0
1999 26.2 1.6 27.8 27.8
- --------------------------------------------------------------------------------
</TABLE>
See financial highlights table on page 49 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: APRIL 29, 1991-SEPTEMBER 30, 1999
- ------------------------------------------------------------
Equity Income Average General S&P 500
Portfolio Equity Fund Index
<S> <C> <C> <C>
4/29/1991 10000 10000 10000
1991 06 9940 9928 10001
1991 09 10450 10671 10536
1991 12 11317 11590 11420
1992 03 11023 11571 11131
1992 06 11226 11220 11343
1992 09 11573 11550 11700
1992 12 12151 12620 12290
1993 03 12672 13049 12826
1993 06 12725 13174 12889
1993 09 13040 13875 13222
1993 12 13338 14199 13528
1994 03 12820 13757 13015
1994 06 12873 13373 13070
1994 09 13501 14124 13709
1994 12 13490 13960 13707
1995 03 14806 14990 15041
1995 06 16205 16299 16477
1995 09 17485 17724 17787
1995 12 18532 18299 18858
1996 03 19523 19301 19870
1996 06 20392 20201 20762
1996 09 21015 20719 21403
1996 12 22767 21864 23187
1997 03 23361 21391 23809
1997 06 27437 24646 27966
1997 09 29487 27473 30060
1997 12 30318 27190 30923
1998 03 34541 30371 35237
1998 06 35674 30221 36401
1998 09 32131 25726 32780
1998 12 39015 31137 39761
1999 03 40956 31453 41742
1999 06 43820 34364 44684
1999 09 41078 32760 41894
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Index Portfolio 27.84% 24.92% 18.27% $41,078
Average General Equity Fund* 27.34 18.33 15.14 32,760
S&P 500 Index 27.80 25.03 18.54 41,894
- ------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------
INCEPTION SINCE INCEPTION
-------------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Index Portfolio 4/29/1991 27.84% 24.92% 16.07% 2.20% 18.27%
- ------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 31
PERFORMANCE SUMMARY
MID-CAP INDEX PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS:
FEBRUARY 9, 1999-SEPTEMBER 30, 1999
- --------------------------------------------------------------
MID-CAP INDEX PORTFOLIO S&P*
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN** RETURN
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 6.5% 0.0% 6.5% 6.0%
- --------------------------------------------------------------
</TABLE>
*S&P MidCap 400 Index.
**Since inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: FEBRUARY 9, 1999-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Mid-Cap Average
Index Mid-Cap S&P MidCap
Portfolio Core Fund* 00 Index
<S> <C> <C> <C>
2/9/1999 10000 10000 10000
1999 03 10150 10308 10136
1999 06 11610 11596 11571
1999 09 10650 11033 10599
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIOD ENDED SEPTEMBER 30, 1999
------------------------------- FINAL VALUE OF A
SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Mid-Cap Index Portfolio 6.50% $10,650
Average Mid-Cap Core Fund* 10.33 11,033
S&P MidCap 400 Index 5.99 10,599
- ------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
TOTAL RETURN: PERIOD ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MID-CAP INDEX PORTFOLIO 2/9/1999 6.50% 0.00% 6.50%
- --------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
PERFORMANCE SUMMARY
GROWTH PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 7, 1993-SEPTEMBER 30, 1999
- -------------------------------------------------------------
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 16.3 1.1 17.4 9.0
1999 26.5 0.8 27.3 27.8
- -------------------------------------------------------------
</TABLE>
See financial highlights table on page 50 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JUNE 7, 1993-SEPTEMBER 30, 1999
- --------------------------------------------------------
Average
Growth Large-Cap S&P 500
Portfolio Growth Fund Index
- --------------------------------------------------------
<S> <C> <C> <C>
6/7/1993 10000 10000 10000
1993 06 10160 10160 10078
1993 09 10260 10658 10338
1993 12 10601 10893 10578
1994 03 10279 10499 10177
1994 06 10349 10195 10219
1994 09 10863 10808 10719
1994 12 11056 10675 10717
1995 03 12083 11471 11761
1995 06 13365 12788 12884
1995 09 14341 13922 13907
1995 12 15293 14172 14745
1996 03 16367 14927 15536
1996 06 17545 15692 16233
1996 09 18327 16290 16735
1996 12 19407 17083 18130
1997 03 19549 16958 18616
1997 06 22863 20044 21866
1997 09 23598 21921 23504
1997 12 24577 21865 24179
1998 03 28402 25132 27552
1998 06 30485 26552 28462
1998 09 27696 23701 25630
1998 12 34593 30187 31089
1999 03 35944 32732 32638
1999 06 37052 33869 34938
1999 09 35250 32674 32757
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Portfolio 27.27% 26.54% 22.08% $35,250
Average Large-Cap Growth Fund* 37.86 24.77 20.62 32,674
S&P 500 Index 27.80 25.03 20.67 32,757
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Portfolio 6/7/1993 27.27% 26.54% 21.04% 1.04% 22.08%
- ------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 33
PERFORMANCE SUMMARY
SMALL COMPANY GROWTH PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 3, 1996-SEPTEMBER 30, 1999
- ------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO RUSSELL
2000
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 33.2
1998 -20.4 0.3 -20.1 -19.0
1999 35.2 0.8 36.0 19.1
- ------------------------------------------------------------------
</TABLE>
See Financial Highlights table on page 50 for dividend and capital gains
information since the portfolio's inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JUNE 3, 1996-SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
Small Company Average Small-Cap Russell
Growth Portfolio Growth Fund 2000 Index
<S> <C> <C> <C>
6/3/1996 10000 10000 10000
1996 06 9530 9530 9530
1996 09 9840 9772 9562
1996 12 9751 9723 10060
1997 03 8887 8590 9539
1997 06 10062 10230 11086
1997 09 12021 12071 12736
1997 12 11045 11114 12309
1998 03 12385 12459 13547
1998 06 11448 11975 12916
1998 09 9604 9220 10314
1998 12 11923 11562 11996
1999 03 10989 11197 11345
1999 06 13110 12977 13109
1999 09 13060 13254 12281
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-------------------------------- FINAL VALUE OF A
1 YEAR SINCE INCEPTION $10,000 INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Small Company Growth Portfolio 35.98% 8.36% $13,060
Average Small-Cap Growth Fund* 43.76 8.84 13,254
Russell 2000 Index 19.07 6.37 12,281
- -----------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------
DATE 1 YEAR CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small Company Growth Portfolio 6/3/1996 35.98% 7.92% 0.44% 8.36%
- -----------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
PERFORMANCE SUMMARY
INTERNATIONAL PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS: JUNE 3, 1994-SEPTEMBER 30, 1999
- ---------------------------------------------------------
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 -10.0 1.3 -8.7 -8.1
1999 20.2 1.8 22.0 31.3
- ---------------------------------------------------------
</TABLE>
See Financial Highlights table on page 51 for dividend and capital gains
information for the past five years.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: JUNE 3, 1994-SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
International Average MSCI
Portfolio International Fund EAFE Index
- ----------------------------------------------------------------------
<S> <C> <C> <C>
6/3/1994 10000 10000 10000
1994 06 9990 9990 9990
1994 09 10310 10312 10006
1994 12 10159 9917 9911
1995 03 10138 9721 10103
1995 06 10883 10083 10185
1995 09 11466 10622 10617
1995 12 11773 10834 11056
1996 03 12447 11293 11384
1996 06 12926 11659 11572
1996 09 12998 11622 11566
1996 12 13492 12116 11759
1997 03 13768 12294 11583
1997 06 15706 13565 13096
1997 09 15409 13764 13012
1997 12 13943 12731 12001
1998 03 15777 14643 13776
1998 06 15973 14705 13931
1998 09 14063 12333 11960
1998 12 16569 14389 14441
1999 03 16415 14651 14652
1999 06 17174 15527 15035
1999 09 17152 16233 15705
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1999
-----------------------------------
SINCE FINAL VALUE OF A
1 YEAR 5 YEARS INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Portfolio 21.97% 10.72% 10.66% $17,152
Average International Fund* 31.63 9.49 9.52 16,233
MSCI EAFE Index 31.32 9.43 8.84 15,705
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS: PERIODS ENDED SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION ------------------------
DATE 1 YEAR 5 YEARS CAPITAL INCOME TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL PORTFOLIO 6/3/1994 21.97% 10.72% 9.44% 1.22% 10.66%
- ------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
PERFORMANCE SUMMARY
REIT INDEX PORTFOLIO
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 returns can fluctuate widely. An investor's shares, when
redeemed, could be worth more or less than their original cost.
<TABLE>
<CAPTION>
TOTAL INVESTMENT RETURNS:
FEBRUARY 9, 1999-SEPTEMBER 30, 1999
- ---------------------------------------------------
REIT INDEX PORTFOLIO REIT INDEX*
FISCAL CAPITAL INCOME TOTAL TOTAL
PERIOD RETURN RETURN RETURN** RETURN
- ---------------------------------------------------
<S> <C> <C> <C> <C>
1999 -1.5% 0.0% -1.5% -1.5%
- ---------------------------------------------------
</TABLE>
*Morgan Stanley REIT Index.
**Since inception.
[LINE GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE PERFORMANCE: FEBRUARY 9, 1999-SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
REIT Index Average Real Morgan Stanley
Portfolio Estate Fund REIT Index
<S> <C> <C> <C>
2/9/1999 10000 10000 10000
1999 03 9750 9727 9748
1999 06 10690 10871 10696
1999 09 9850 9871 9849
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS
PERIOD ENDED SEPTEMBER 30, 1999
------------------------------- FINAL VALUE OF A
SINCE INCEPTION $10,000 INVESTMENT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
REIT Index Portfolio -1.50% $9,850
Average Real Estate Fund* -1.29 9,871
Morgan Stanley REIT Index -1.51 9,849
- ------------------------------------------------------------------------------------------
</TABLE>
*Derived from data provided by Lipper Inc.
<TABLE>
<CAPTION>
TOTAL RETURN: PERIOD ENDED SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------------------
SINCE INCEPTION
INCEPTION -----------------------
DATE CAPITAL INCOME TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REIT Index Portfolio 2/9/1999 -1.50% 0.00% -1.50%
- -----------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 36
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 SHORT-TERM HIGH-GRADE HIGH YIELD
MARKET CORPORATE BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
YEAR ENDED FEB. 8* TO YEAR ENDED YEAR ENDED
SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999
-----------------------------------------------------------------
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends -- -- -- --
Interest $ 32,023 $ 727 $ 21,465 $ 13,074
Security Lending -- -- 4 5
-----------------------------------------------------------------
Total Income 32,023 727 21,469 13,079
-----------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 74 1 42 90
Performance Adjustment -- -- -- --
The Vanguard Group--Note C
Management and Administrative 933 21 618 292
Marketing and Distribution 149 -- 45 22
Custodian Fees 32 2 61 5
Auditing Fees 10 8 9 9
Shareholders' Reports 17 -- 15 8
Trustees' Fees and Expenses 1 -- 1 --
-----------------------------------------------------------------
Total Expenses 1,216 32 791 426
Expenses Paid Indirectly--Note D -- -- (5) --
-----------------------------------------------------------------
Net Expenses 1,216 32 786 426
- --------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 30,807 695 20,683 12,653
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (7) (29) (1,277) (5,546)
Futures Contracts -- 14 -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (7) (15) (1,277) (5,546)
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities -- (383) (21,106) (3,123)
Futures Contracts -- (17) -- --
Foreign Currencies and Forward Currency Contracts -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) -- (400) (21,106) (3,123)
- --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 30,800 $ 280 $ (1,700) $ 3,984
==========================================================================================================================
</TABLE>
*Commencement of operations.
34
<PAGE> 37
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY DIVERSIFIED EQUITY
BALANCED INCOME VALUE INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED FEB. 8* TO YEAR ENDED
SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999
---------------------------------------------------------------------
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 9,092 $11,798 $ 502 $ 16,721
Interest 14,290 166 96 560
Security Lending 91 2 -- 46
---------------------------------------------------------------------
Total Income 23,473 11,966 598 17,327
---------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 556 436 28 93
Performance Adjustment (93) -- -- --
The Vanguard Group--Note C
Management and Administrative 1,161 894 42 1,956
Marketing and Distribution 79 58 -- 155
Custodian Fees 7 18 2 16
Auditing Fees 10 10 8 12
Shareholders' Reports 28 25 -- 40
Trustees' Fees and Expenses 1 1 -- 2
---------------------------------------------------------------------
Total Expenses 1,749 1,442 80 2,274
Expenses Paid Indirectly--Note D (20) -- -- --
---------------------------------------------------------------------
Net Expenses 1,729 1,442 80 2,274
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 21,744 10,524 518 15,053
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 27,783 2,990 (444) 11,250
Futures Contracts -- -- -- 2,697
Foreign Currencies and Forward Currency Contracts -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 27,783 2,990 (444) 13,947
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities 3,466 25,354 (6,880) 229,115
Futures Contracts -- -- -- (85)
Foreign Currencies and Forward Currency Contracts -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) 3,466 25,354 (6,880) 229,030
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 52,993 $38,868 $(6,806) $ 258,030
=============================================================================================================================
</TABLE>
*Commencement of operations.
35
<PAGE> 38
STATEMENT OF OPERATIONS (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SMALL
MID-CAP COMPANY
INDEX GROWTH GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------
FEB. 8* TO YEAR ENDED YEAR ENDED YEAR ENDED
SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999 SEP. 30, 1999
--------------------------------------------------------------------
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends** $ 241 $ 7,216 $ 826 $ 4,097
Interest 19 1,085 549 760
Security Lending -- 27 170 119
--------------------------------------------------------------------
Total Income 260 8,328 1,545 4,976
--------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 7 1,362 220 319
Performance Adjustment -- -- 9 13
The Vanguard Group--Note C
Management and Administrative 32 1,568 425 622
Marketing and Distribution -- 112 20 34
Custodian Fees 2 17 8 152
Auditing Fees 8 11 9 9
Shareholders' Reports -- 35 14 21
Trustees' Fees and Expenses -- 1 -- --
--------------------------------------------------------------------
Total Expenses 49 3,106 705 1,170
Expenses Paid Indirectly--Note D -- -- -- --
--------------------------------------------------------------------
Net Expenses 49 3,106 705 1,170
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 211 5,222 840 3,806
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 1,028 51,155 2,020 12,200
Futures Contracts -- -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- (1,353)
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 1,028 51,155 2,020 10,847
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION)
Investment Securities (2,433) 121,304 37,771 32,559
Futures Contracts -- -- -- --
Foreign Currencies and Forward Currency Contracts -- -- -- (327)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION
(DEPRECIATION) (2,433) 121,304 37,771 32,232
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(1,194) $177,681 $40,631 $ 46,885
============================================================================================================================
</TABLE>
*Commencement of operations.
**Dividends for the International Portfolio are net of foreign withholding taxes
of $281,000.
36
<PAGE> 39
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
REIT INDEX
PORTFOLIO
-------------
FEB. 8* TO
SEP. 30, 1999
-------------
(000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
INCOME
Dividends $ 606
Interest 16
Security Lending --
-------------
Total Income 622
-------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fee 7
Performance Adjustment --
The Vanguard Group--Note C
Management and Administrative 8
Marketing and Distribution --
Custodian Fees 3
Auditing Fees 8
Shareholders' Reports --
Trustees' Fees and Expenses --
-------------
Total Expenses 26
Expenses Paid Indirectly--Note D --
-------------
Net Expenses 26
- ----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 596
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold (28)
Futures Contracts --
Foreign Currencies and Forward Currency Contracts --
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) (28)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities (1,448)
Futures Contracts --
Foreign Currencies and Forward Currency Contracts --
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) (1,448)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (880)
============================================================================================================================
</TABLE>
*Commencement of operations.
37
<PAGE> 40
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,
Short-Term Corporate, 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 SHORT-TERM
PORTFOLIO CORPORATE PORTFOLIO
------------------------------- -----------------------
YEAR ENDED SEPTEMBER 30,
------------------------------- FEB. 8* TO
1999 1998 SEP. 30, 1999
(000) (000) (000)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 30,807 $ 24,820 $ 695
Realized Net Gain (Loss) (7) (9) (15)
Change in Unrealized Appreciation (Depreciation) -- -- (400)
---------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 30,800 24,811 280
---------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (30,807) (24,820) (695)
Realized Capital Gain -- -- --
---------------------------------------------------------
Total Distributions (30,807) (24,820) (695)
---------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 725,646 1,061,400 36,778
Issued in Lieu of Cash Distributions 30,807 24,820 695
Redeemed (624,080) (888,628) (8,139)
---------------------------------------------------------
Net Increase from Capital Share Transactions 132,373 197,592 29,334
- ------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 132,366 197,583 28,919
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 590,182 392,599 --
---------------------------------------------------------
End of Period $ 722,548 $ 590,182 $ 28,919
========================================================================================================================
(1)Shares Issued (Redeemed)
Issued 725,646 1,061,400 3,721
Issued in Lieu of Cash Distributions 30,807 24,820 71
Redeemed (624,080) (888,628) (827)
---------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 132,373 197,592 2,965
========================================================================================================================
</TABLE>
*Commencement of operations.
38
<PAGE> 41
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
HIGH-GRADE HIGH YIELD
BOND PORTFOLIO BOND PORTFOLIO
--------------------------- ----------------------------
YEAR ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 20,683 $ 14,610 $ 12,653 $ 10,286
Realized Net Gain (Loss) (1,277) 1,652 (5,546) 214
Change in Unrealized Appreciation (Depreciation) (21,106) 10,148 (3,123) (7,370)
-------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,700) 26,410 3,984 3,130
-------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (20,683) (14,610) (12,653) (10,286)
Realized Capital Gain (909) -- (227) (124)
-------------------------------------------------------------
Total Distributions (21,592) (14,610) (12,880) (10,410)
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 163,151 167,673 97,568 112,906
Issued in Lieu of Cash Distributions 21,592 14,610 12,880 10,410
Redeemed (147,350) (59,504) (86,553) (69,715)
-------------------------------------------------------------
Net Increase from Capital Share Transactions 37,393 122,779 23,895 53,601
- ----------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 14,101 134,579 14,999 46,321
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 322,469 187,890 131,208 84,887
-------------------------------------------------------------
End of Period $ 336,570 $ 322,469 $ 146,207 $ 131,208
==================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 15,167 15,547 9,786 10,663
Issued in Lieu of Cash Distributions 2,029 1,356 1,299 990
Redeemed (13,789) (5,533) (8,695) (6,666)
-------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 3,407 11,370 2,390 4,987
==================================================================================================================================
</TABLE>
39
<PAGE> 42
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCED EQUITY INCOME
PORTFOLIO PORTFOLIO
---------------------------- ---------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 21,744 $ 19,575 $ 10,524 $ 9,417
Realized Net Gain (Loss) 27,783 39,951 2,990 2,103
Change in Unrealized Appreciation (Depreciation) 3,466 (25,475) 25,354 21,179
-------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 52,993 34,051 38,868 32,699
-------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (19,489) (15,774) (9,370) (6,052)
Realized Capital Gain (40,236) (21,821) (2,104) (5,674)
-------------------------------------------------------------
Total Distributions (59,725) (37,595) (11,474) (11,726)
-------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 130,611 145,644 132,042 174,388
Issued in Lieu of Cash Distributions 59,725 37,595 11,474 11,726
Redeemed (138,248) (94,318) (116,547) (103,350)
-------------------------------------------------------------
Net Increase from Capital Share Transactions 52,088 88,921 26,969 82,764
- -----------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 45,356 85,377 54,363 103,737
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 553,156 467,779 374,946 271,209
-------------------------------------------------------------
End of Period $ 598,512 $ 553,156 $ 429,309 $ 374,946
=============================================================================================================================
(1)Shares Issued (Redeemed)
Issued 7,415 8,177 6,116 8,961
Issued in Lieu of Cash Distributions 3,600 2,290 570 677
Redeemed (7,837) (5,299) (5,384) (5,252)
-------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 3,178 5,168 1,302 4,386
=============================================================================================================================
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY INDEX
VALUE PORTFOLIO PORTFOLIO
------------------- ------------------------------
YEAR ENDED SEPTEMBER 30,
FEB. 8* TO ------------------------------
SEP. 30, 1999 1999 1998
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 518 $ 15,053 $ 12,763
Realized Net Gain (Loss) (444) 13,947 4,510
Change in Unrealized Appreciation (Depreciation) (6,880) 229,030 43,795
------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (6,806) 258,030 61,068
------------------------------------------------------
DISTRIBUTIONS
Net Investment Income -- (12,732) (9,840)
Realized Capital Gain -- (4,473) (6,946)
------------------------------------------------------
Total Distributions -- (17,205) (16,786)
------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 69,125 450,504 343,912
Issued in Lieu of Cash Distributions -- 17,205 16,786
Redeemed (20,045) (263,396) (202,406)
------------------------------------------------------
Net Increase from Capital Share Transactions 49,080 204,313 158,292
- ---------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 42,274 445,138 202,574
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period -- 920,245 717,671
------------------------------------------------------
End of Period $ 42,274 $ 1,365,383 $ 920,245
===============================================================================================================
(1)Shares Issued (Redeemed)
Issued 6,450 13,596 12,480
Issued in Lieu of Cash Distributions -- 600 699
Redeemed (1,908) (8,019) (7,370)
------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 4,542 6,177 5,809
===============================================================================================================
</TABLE>
*Commencement of operations.
41
<PAGE> 44
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
MID-CAP INDEX GROWTH
PORTFOLIO PORTFOLIO
----------------- -----------------------------
YEAR ENDED SEPTEMBER 30,
FEB. 8* TO -----------------------------
SEP. 30, 1999 1999 1998
(000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 211 $ 5,222 $ 4,147
Realized Net Gain (Loss) 1,028 51,155 39,532
Change in Unrealized Appreciation (Depreciation) (2,433) 121,304 32,038
---------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,194) 177,681 75,717
---------------------------------------------------
DISTRIBUTIONS
Net Investment Income -- (4,170) (4,303)
Realized Capital Gain -- (39,875) (12,264)
---------------------------------------------------
Total Distributions -- (44,045) (16,567)
---------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 64,212 375,784 235,489
Issued in Lieu of Cash Distributions -- 44,045 16,567
Redeemed (9,332) (231,886) (140,467)
---------------------------------------------------
Net Increase from Capital Share Transactions 54,880 187,943 111,589
- -------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 53,686 321,579 170,739
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period -- 631,058 460,319
---------------------------------------------------
End of Period $ 53,686 $ 952,637 $ 631,058
===================================================================================================================
(1)Shares Issued (Redeemed)
Issued 5,885 13,290 9,602
Issued in Lieu of Cash Distributions -- 1,805 810
Redeemed (846) (8,142) (5,871)
---------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 5,039 6,953 4,541
===================================================================================================================
</TABLE>
*Commencement of operations.
42
<PAGE> 45
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY INTERNATIONAL
GROWTH PORTFOLIO PORTFOLIO
----------------------------- ----------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 1998 1999 1998
(000) (000) (000) (000)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 840 $ 699 $ 3,806 $ 3,438
Realized Net Gain (Loss) 2,020 (1,648) 10,847 (2,868)
Change in Unrealized Appreciation (Depreciation) 37,771 (28,021) 32,232 (24,519)
-----------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 40,631 (28,970) 46,885 (23,949)
-----------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income (731) (483) (3,272) (3,015)
Realized Capital Gain (122) -- -- (2,345)
-----------------------------------------------------------------
Total Distributions (853) (483) (3,272) (5,360)
-----------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 85,183 84,575 89,926 94,146
Issued in Lieu of Cash Distributions 853 483 3,272 5,360
Redeemed (69,143) (77,871) (82,080) (99,247)
-----------------------------------------------------------------
Net Increase from Capital Share Transactions 16,893 7,187 11,118 259
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 56,671 (22,266) 54,731 (29,050)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 110,856 133,122 217,066 246,116
-----------------------------------------------------------------
End of Period $ 167,527 $ 110,856 $ 271,797 $ 217,066
================================================================================================================================
(1)Shares Issued (Redeemed)
Issued 7,414 7,534 5,936 6,672
Issued in Lieu of Cash Distributions 84 42 242 412
Redeemed (6,113) (7,065) (5,482) (7,246)
-----------------------------------------------------------------
Net Increase (Decrease) in
Shares Outstanding 1,385 511 696 (162)
===============================================================================================================================
</TABLE>
43
<PAGE> 46
STATEMENT OF CHANGES IN NET ASSETS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
REIT INDEX
PORTFOLIO
--------------------
FEB. 8* TO
SEP. 30, 1999
(000)
- --------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 596
Realized Net Gain (Loss) (28)
Change in Unrealized Appreciation (Depreciation) (1,448)
--------------------
Net Increase (Decrease) in Net Assets Resulting from Operations (880)
--------------------
DISTRIBUTIONS
Net Investment Income --
Realized Capital Gain --
--------------------
Total Distributions --
--------------------
CAPITAL SHARE TRANSACTIONS(1)
Issued 25,811
Issued in Lieu of Cash Distributions --
Redeemed (4,371)
--------------------
Net Increase from Capital Share Transactions 21,440
- --------------------------------------------------------------------------------------------------
Total Increase (Decrease) 20,560
- --------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period --
End of Period $ 20,560
==================================================================================================
(1)Shares Issued (Redeemed)
Issued 2,510
Issued in Lieu of Cash Distributions --
Redeemed (422)
--------------------
Net Increase (Decrease) in Shares Outstanding 2,088
==================================================================================================
</TABLE>
*Commencement of operations.
44
<PAGE> 47
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .050 .055 .054 .054 .056
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
-----------------------------------------------
Total from Investment Operations .050 .055 .054 .054 .056
-----------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.050) (.055) (.054) (.054) (.056)
Distributions from Realized Capital Gains -- -- -- -- --
-----------------------------------------------
Total Distributions (.050) (.055) (.054) (.054) (.056)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
========================================================================================================================
TOTAL RETURN 5.09% 5.60% 5.48% 5.49% 5.77%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $723 $590 $393 $285 $218
Ratio of Total Expenses to Average Net Assets 0.20% 0.20% 0.21% 0.19% 0.23%
Ratio of Net Investment Income to Average Net Assets 4.98% 5.46% 5.36% 5.36% 5.66%
=======================================================================================================================
</TABLE>
45
<PAGE> 48
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM CORPORATE PORTFOLIO
------------------------------
FEB. 8* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD SEP. 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .355
Net Realized and Unrealized Gain (Loss) on Investments (.250)
------------
Total from Investment Operations .105
------------
DISTRIBUTIONS
Dividends from Net Investment Income (.355)
Distributions from Realized Capital Gains --
------------
Total Distributions (.355)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.75
===================================================================================================================================
TOTAL RETURN 1.08%
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $29
Ratio of Total Expenses to Average Net Assets 0.27%**
Ratio of Net Investment Income to Average Net Assets 5.74%**
Portfolio Turnover Rate 39%
===================================================================================================================================
</TABLE>
*Inception.
**Annualized.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
HIGH-GRADE BOND PORTFOLIO
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.07 $10.57 $10.29 $10.47 $ 9.82
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .646 .663 .678 .670 .663
Net Realized and Unrealized Gain (Loss) on Investments (.700) .500 .280 (.180) .650
--------------------------------------------------
Total from Investment Operations (.054) 1.163 .958 .490 1.313
--------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.646) (.663) (.678) (.670) (.663)
Distributions from Realized Capital Gains (.030) -- -- -- --
--------------------------------------------------
Total Distributions (.676) (.663) (.678) (.670) (.663)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.34 $11.07 $10.57 $10.29 $10.47
=======================================================================================================================
TOTAL RETURN -0.49% 11.36% 9.60% 4.80% 13.83%
=======================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $337 $322 $188 $139 $120
Ratio of Total Expenses to Average Net Assets 0.23% 0.28% 0.29% 0.25% 0.29%
Ratio of Net Investment Income to Average Net Assets 6.06% 6.16% 6.51% 6.43% 6.58%
Portfolio Turnover Rate 69% 65% 40% 56% 29%
=======================================================================================================================
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-------------------------------------- Jun. 3* to
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1999 1998 1997 SEP. 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.59 $10.15 $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .847 .895 .922 .299
Net Realized and Unrealized Gain (Loss) on Investments (.573) (.485) .450 .150
-----------------------------------------------------
Total from Investment Operations .274 .410 1.372 .449
-----------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.847) (.895) (.922) (.299)
Distributions from Realized Capital Gains (.017) (.015) (.010) --
-----------------------------------------------------
Total Distributions (.864) (.910) (.932) (.299)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.50 $10.09 $10.59 $10.15
================================================================================================================================
TOTAL RETURN 2.68% 3.85% 14.12% 4.56%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $146 $131 $85 $22
Ratio of Total Expenses to Average Net Assets 0.29% 0.31% 0.31% 0.32%**
Ratio of Net Investment Income to Average Net Assets 8.51% 8.45% 8.88% 9.29%**
Portfolio Turnover Rate 31% 38% 30% 8%
================================================================================================================================
</TABLE>
*Inception.
**Annualized.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $17.73 $17.97 $14.81 $13.33 $11.33
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .63 .63 .60 .565 .51
Net Realized and Unrealized Gain (Loss) on Investments .95 .56 3.31 1.420 2.07
------------------------------------------------------------------
Total from Investment Operations 1.58 1.19 3.91 1.985 2.58
------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.62) (.60) (.19) (.505) (.50)
Distributions from Realized Capital Gains (1.28) (.83) (.56) -- (.08)
------------------------------------------------------------------
Total Distributions (1.90) (1.43) (.75) (.505) (.58)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.41 $17.73 $17.97 $14.81 $13.33
================================================================================================================================
TOTAL RETURN 9.44% 7.26% 27.60% 15.26% 23.65%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $599 $553 $468 $330 $280
Ratio of Total Expenses to Average Net Assets
Ratio of Net Investment Income to Average Net Assets 0.29% 0.31% 0.32% 0.31% 0.36%
3.58% 3.72% 3.96% 4.04% 4.25%
Portfolio Turnover Rate 24% 31% 25% 36% 26%
================================================================================================================================
</TABLE>
47
<PAGE> 50
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $19.69 $18.50 $13.71 $12.00 $10.05
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .51 .490 .42 .48 .46
Net Realized and Unrealized Gain (Loss) on Investments 1.50 1.475 4.69 1.75 2.02
-----------------------------------------------------------------
Total from Investment Operations 2.01 1.965 5.11 2.23 2.48
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.49) (.400) (.15) (.46) (.48)
Distributions from Realized Capital Gains (.11) (.375) (.17) (.06) (.05)
-----------------------------------------------------------------
Total Distributions (.60) (.775) (.32) (.52) (.53)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $21.10 $19.69 $18.50 $13.71 $12.00
================================================================================================================================
TOTAL RETURN 10.36% 11.19% 38.05% 19.07% 25.69%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $429 $375 $271 $142 $91
Ratio of Total Expenses to Average Net Assets 0.33% 0.36% 0.37% 0.35% 0.39%
Ratio of Net Investment Income to Average Net Assets 2.44% 2.69% 3.11% 3.69% 4.28%
Portfolio Turnover Rate 6% 6% 8% 8% 10%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED VALUE PORTFOLIO
---------------------------
FEB. 8* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD SEP. 30, 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .11
Net Realized and Unrealized Gain (Loss) on Investments (.80)
-----------------
Total from Investment Operations (.69)
-----------------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
-----------------
Total Distributions --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.31
================================================================================================================================
TOTAL RETURN -6.90%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $42
Ratio of Total Expenses to Average Net Assets 0.37%**
Ratio of Net Investment Income to Average Net Assets 2.38%**
Portfolio Turnover Rate 18%
================================================================================================================================
</TABLE>
*Inception.
**Annualized.
48
<PAGE> 51
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $26.94 $25.32 $18.32 $15.69 $12.47
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .37 .37 .34 .34 .33
Net Realized and Unrealized Gain (Loss) on Investments 7.04 1.83 6.94 2.75 3.26
-----------------------------------------------------------------
Total from Investment Operations 7.41 2.20 7.28 3.09 3.59
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.37) (.34) (.19) (.33) (.29)
Distributions from Realized Capital Gains (.13) (.24) (.09) (.13) (.08)
-----------------------------------------------------------------
Total Distributions (.50) (.58) (.28) (.46) (.37)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $33.85 $26.94 $25.32 $18.32 $15.69
================================================================================================================================
TOTAL RETURN 27.84% 8.97% 40.31% 20.19% 29.51%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $1,365 $920 $718 $406 $276
Ratio of Total Expenses to Average Net Assets 0.18% 0.20% 0.23% 0.22% 0.28%
Ratio of Net Investment Income to Average Net Assets 1.21% 1.48% 1.78% 2.13% 2.53%
Portfolio Turnover Rate 4% 1% 1% 2% 2%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MID-CAP INDEX PORTFOLIO
-----------------------
FEB. 8* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD SEP. 30, 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04
Net Realized and Unrealized Gain (Loss) on Investments .61
--------------
Total from Investment Operations .65
--------------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
--------------
Total Distributions --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.65
================================================================================================================================
TOTAL RETURN 6.50%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $54
Ratio of Total Expenses to Average Net Assets 0.24%**
Ratio of Net Investment Income to Average Net Assets 1.03%**
Portfolio Turnover Rate 24%
================================================================================================================================
</TABLE>
*Initial share purchase date. All assets were held in money market
instruments until February 9, 1999, when performance measurement begins.
**Annualized.
49
<PAGE> 52
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $24.33 $21.51 $17.58 $14.10 $10.79
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .16 .16 .190 .18 .16
Net Realized and Unrealized Gain (Loss) on Investments 6.16 3.43 4.615 3.65 3.26
-----------------------------------------------------------------
Total from Investment Operations 6.32 3.59 4.805 3.83 3.42
-----------------------------------------------------------------
FDISTRIBUTIONS
Dividends from Net Investment Income (.16) (.20) (.180) (.16) (.11)
Distributions from Realized Capital Gains (1.53) (.57) (.695) (.19) --
-----------------------------------------------------------------
Total Distributions (1.69) (.77) (.875) (.35) (.11)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $28.96 $24.33 $21.51 $17.58 $14.10
================================================================================================================================
TOTAL RETURN 27.27% 17.37% 28.76% 27.79% 32.02%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $953 $631 $460 $276 $162
Ratio of Total Expenses to Average Net Assets 0.35% 0.39% 0.38% 0.39% 0.47%
Ratio of Net Investment Income to Average Net Assets 0.59% 0.74% 1.12% 1.29% 1.64%
Portfolio Turnover Rate 50% 48% 38% 42% 32%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY GROWTH PORTFOLIO
YEAR ENDED SEPTEMBER 30,
------------------------------------- Jun. 3* to
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 1999 1998 1997 SEP. 30, 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.53 $11.97 $ 9.84 $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .06 .06 .04 .04
Net Realized and Unrealized Gain (Loss) on Investments 3.35 (2.46) 2.13 (.20)
---------------------------------------------------
Total from Investment Operations 3.41 (2.40) 2.17 (.16)
---------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.06) (.04) (.04) --
Distributions from Realized Capital Gains (.01) -- -- --
---------------------------------------------------
Total Distributions (.07) (.04) (.04) --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.87 $ 9.53 $11.97 $ 9.84
================================================================================================================================
TOTAL RETURN 35.98% -20.10% 22.16% -1.60%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $168 $111 $133 $44
Ratio of Total Expenses to Average Net Assets 0.49% 0.42% 0.39% 0.45%**
Ratio of Net Investment Income to Average Net Assets 0.58% 0.54% 0.67% 1.42%**
Portfolio Turnover Rate 85% 106% 72% 18%
================================================================================================================================
</TABLE>
*Inception.
**Annualized.
50
<PAGE> 53
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.96 $14.55 $12.74 $11.40 $10.31
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .23 .21 .17 .14 .16
Net Realized and Unrealized Gain (Loss) on Investments 2.59 (1.48) 2.10 1.36 .99
-----------------------------------------------------------------
Total from Investment Operations 2.82 (1.27) 2.27 1.50 1.15
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.20) (.18) (.14) (.16) (.06)
Distributions from Realized Capital Gains -- (.14) (.32) -- --
-----------------------------------------------------------------
Total Distributions (.20) (.32) (.46) (.16) (.06)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $15.58 $12.96 $14.55 $12.74 $11.40
================================================================================================================================
TOTAL RETURN 21.97% -8.74% 18.55% 13.36% 11.21%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (Millions) $272 $217 $246 $162 $90
Ratio of Total Expenses to Average Net Assets 0.46% 0.48% 0.46% 0.49% 0.54%
Ratio of Net Investment Income to Average Net Assets 1.51% 1.48% 1.43% 1.42% 1.67%
Portfolio Turnover Rate 39% 38% 22% 19% 27%
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
REIT INDEX PORTFOLIO
--------------------
FEB 8.* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD SEP. 30, 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .28
Net Realized and Unrealized Gain (Loss) on Investments (.43)
----------------
Total from Investment Operations (.15)
----------------
DISTRIBUTIONS
Dividends from Net Investment Income --
Distributions from Realized Capital Gains --
----------------
Total Distributions --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.85
================================================================================================================================
TOTAL RETURN -1.50%
================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $21
Ratio of Total Expenses to Average Net Assets 0.27%**
Ratio of Net Investment Income to Average Net Assets 6.26%**
Portfolio Turnover Rate 4%
================================================================================================================================
</TABLE>
*Initial share purchase date. All assets were held in money market
instruments until February 9, 1999, when performance measurement begins.
**Annualized.
51
<PAGE> 54
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, Short-Term Corporate, High-Grade Bond, High Yield Bond, Balanced,
Equity Income, Diversified Value, Equity Index, Mid-Cap Index, Growth, Small
Company Growth, International, and REIT Index Portfolios. Each portfolio's
shares are only available for purchase by separate accounts of insurance
companies as investments for variable annuity plans or variable life insurance
contracts.
Certain investments of the Money Market, Short-Term Corporate, 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. Securities for which market
quotations are not readily available are valued by methods deemed by the Board
of Trustees to represent fair 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 Short-Term Corporate Portfolio may use Municipal Bond Index, U.S.
Treasury Bond, and U.S. Treasury Note futures contracts, with the objectives of
enhancing returns, managing interest-rate risk, maintaining liquidity,
diversifying credit risk, and minimizing transaction costs. The portfolio may
purchase or sell futures contracts instead of bonds to take advantage of
pricing differentials between the futures contracts and the underlying bonds.
The portfolio may also seek to take advantage of price differences among bond
market sectors by simultaneously buying futures
52
<PAGE> 55
(or bonds) of one market sector and selling futures (or bonds) of another
sector. Futures contracts may also be used to simulate a fully invested
position in the underlying bonds while maintaining a cash balance for
liquidity. The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of bonds 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.
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, Short-Term Corporate, 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 Income, Diversified Value, Equity Index, Mid-Cap Index,
Growth, Small Company Growth, International, and REIT Index 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. The REIT
Index Portfolio's dividend income is recorded at management's estimate of the
income included in distributions received from the REIT investments.
Distributions received in excess of this estimated amount are recorded as a
reduction of the cost of investments. The actual amounts of income and return
of capital are only determined by each REIT after its fiscal year-end, and may
differ from the estimated amounts. 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, Short-Term Corporate, High-Grade Bond, Equity Index, Mid-Cap Index, and
REIT Index Portfolios on an at-cost basis.
Wellington Management Company, LLP; Newell Associates; Barrow, Hanley,
Mewhinney & Strauss, Inc.; and Lincoln Capital Management Company provide
investment advisory services to the High Yield Bond, Equity Income, Diversified
Value, and Growth Portfolios, respectively. For the period ended September 30,
1999, the investment advisory fees of the High Yield Bond, Equity
53
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (continued)
Income, Diversified Value, and Growth Portfolios represented effective annual
rates of 0.06%, 0.10%, 0.125%, 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 for the preceding three years relative to a combined index composed
of the S&P 500 Index and the Lehman Long Corporate AA or Better Bond Index. For
the year ended September 30, 1999, the investment advisory fee represented an
effective annual basic rate of 0.09% of the portfolio's average net assets
before a decrease of $93,000 (0.02%) 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 an
index of the stocks held by the largest small-capitalization stock mutual
funds. For the year ended September 30, 1999, the investment advisory fee
represented an effective annual basic rate of 0.15% of the portfolio's average
net assets before an increase of $9,000 (0.01%) based on performance.
Schroder Investment Management North America 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 for the preceding three years
relative to the Morgan Stanley Capital International Europe, Australasia, Far
East Index. For the year ended September 30, 1999, the investment advisory fee
represented an effective annual basic rate of 0.125% of the portfolio's average
net assets before an increase of $13,000 based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to each portfolio under methods approved by the Board of Trustees. Each
portfolio has committed to provide up to 0.40% of its net assets in capital
contributions to Vanguard. At September 30, 1999, the portfolios had
contributed capital to Vanguard (included in Other Assets) of:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
CAPITAL CONTRIBUTED PERCENTAGE PERCENTAGE
TO VANGUARD OF PORTFOLIO OF VANGUARD'S
PORTFOLIO (000) NET ASSETS CAPITALIZATION
----------------------------------------------------------------------
<S> <C> <C> <C>
Money Market $150 0.02% 0.15%
Short-Term Corporate 10 0.03 0.01
High-Grade Bond 70 0.02 0.07
High Yield Bond 30 0.02 0.03
Balanced 130 0.02 0.13
Equity Income 90 0.02 0.09
Diversified Value 10 0.02 0.01
Equity Index 300 0.02 0.30
Mid-Cap Index 10 0.02 0.01
Growth 210 0.02 0.21
Small Company Growth 40 0.02 0.04
International 60 0.02 0.06
----------------------------------------------------------------------
</TABLE>
The portfolios' Trustees and officers are also Directors and officers of
Vanguard.
54
<PAGE> 57
D. Vanguard has asked the portfolios' investment advisers to direct certain
security trades, subject to obtaining the best price and execution, to brokers
who have agreed to rebate to the portfolios part of the commissions generated.
Such rebates are used solely to reduce the portfolios' management and
administrative expenses. The portfolios' custodian banks have also agreed to
reduce their fees when a portfolio maintains cash on deposit in the
non-interest- bearing custody account. For the year ended September 30, 1999,
these arrangements reduced expenses by:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
EXPENSE REDUCTION
(000)
----------------------------------------
MANAGEMENT AND CUSTODIAN
PORTFOLIO ADMINISTRATIVE FEES
---------------------------------------------------------------------
<S> <C> <C>
High-Grade Bond -- $5
Balanced $20 --
---------------------------------------------------------------------
</TABLE>
E. During the period ended September 30, 1999, 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>
Short-Term Corporate $ 6,690 $ 5,398 $ 27,189 $ 919
High-Grade Bond 238,288 190,204 59,410 41,878
High Yield Bond -- -- 64,398 44,381
Balanced 27,966 33,299 132,210 111,489
Equity Income -- -- 57,825 27,265
Diversified Value -- -- 53,117 5,158
Equity Index -- -- 244,700 44,808
Mid-Cap Index -- -- 62,623 7,344
Growth -- -- 589,325 430,194
Small Company Growth -- -- 131,793 113,640
International -- -- 109,685 92,914
REIT Index -- -- 22,306 581
-------------------------------------------------- ------------------------------
</TABLE>
At September 30, 1999, the following portfolios had available realized
capital losses to offset future taxable capital gains through the following
fiscal year-ends:
<TABLE>
<CAPTION>
------------------------------------------------------------------
EXPIRATION LOSS
FISCAL YEARS ENDING AMOUNT
PORTFOLIO SEPTEMBER 30, (000)
------------------------------------------------------------------
<S> <C> <C>
Money Market 2001-2008 $ 19
Short-Term Corporate 2008 31
High-Grade Bond 2008 1,292
High Yield Bond 2007-2008 5,546
Diversified Value 2008 444
Small Company Growth 2007 821
REIT Index 2008 28
------------------------------------------------------------------
</TABLE>
55
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (continued)
The International Portfolio used a capital loss carryforward of $2,735,000
to offset taxable capital gains realized during the year ended September 30,
1999, reducing the amount of capital gains that would otherwise be available to
distribute to shareholders.
During the year ended September 30, 1999, the International Portfolio
realized net foreign currency losses of $230,000, 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 September 30, 1999, net unrealized appreciation (depreciation) of
investment securities for financial reporting and federal income tax purposes
was:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(000)
------------------------------------------------
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
PORTFOLIO SECURITIES SECURITIES (DEPRECIATION)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Corporate $ 29 $ (412) $ (383)
High-Grade Bond 1,576 (8,600) (7,024)
High Yield Bond 397 (8,521) (8,124)
Balanced 122,549 (22,286) 100,263
Equity Income 131,891 (8,746) 123,145
Diversified Value 1,195 (8,075) (6,880)
Equity Index 584,498 (28,054) 556,444
Mid-Cap Index 3,498 (5,931) (2,433)
Growth 320,795 (20,908) 299,887
Small Company Growth 38,680 (7,983) 30,697
International 67,354 (13,682) 53,672
REIT Index 167 (1,615) (1,448)
- ---------------------------------------------------------------------------
</TABLE>
At September 30, 1999, the aggregate settlement value of open futures
contracts expiring in December 1999 and the related unrealized depreciation
were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
(000)
---------------------------------
NUMBER OF AGGREGATE
PORTFOLIO/ LONG (SHORT) SETTLEMENT UNREALIZED
FUTURES CONTRACTS CONTRACTS VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Corporate/
U.S. Treasury Note (3) $ 330 $ (2)
5-Year U.S. Treasury Note (18) 1,952 (15)
Equity Index/
S&P 500 Index 17 5,517 (86)
- -------------------------------------------------------------------------
</TABLE>
Unrealized depreciation on open futures contracts is required to be treated as
realized loss for tax purposes.
56
<PAGE> 59
At September 30, 1999, the International Portfolio had open forward
currency contracts to deliver foreign currency in exchange for U.S. dollars as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(000)
-------------------------------------------------------------
CONTRACT AMOUNT
------------------------ NET
CONTRACT FOREIGN U.S. MARKET VALUE IN UNREALIZED
SETTLEMENT DATE CURRENCY DOLLARS U.S. DOLLARS DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deliver:
10/5/1999 JPY 1,469,478 $13,501 $13,804 $(303)
- -------------------------------------------------------------------------------
</TABLE>
JPY--Japanese Yen.
Unrealized depreciation on open forward currency contracts is required to be
treated as realized loss for tax purposes.
The International Portfolio had net unrealized foreign currency losses of
$7,000 resulting from the translation of other assets and liabilities at
September 30, 1999.
G. The market value of securities on loan to broker/dealers at September 30,
1999, 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 Yield Bond $ 804 $ 830
Balanced 8,199 8,415
Small Company Growth 9,298 9,559
International 10,045 10,733
REIT Index 275 280
- -----------------------------------------------------------------------
</TABLE>
Cash collateral received is invested in repurchase agreements.
57
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
Vanguard Variable Insurance Fund
In our opinion, the statements of net assets included in the insert to this
Annual Report and the accompanying related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Money Market Portfolio, Short-Term
Corporate Portfolio, High-Grade Bond Portfolio, High Yield Bond Portfolio,
Balanced Portfolio, Equity Income Portfolio, Diversified Value Portfolio, Equity
Index Portfolio, Mid-Cap Index Portfolio, Growth Portfolio, Small Company Growth
Portfolio, International Portfolio, and REIT Index Portfolio (separate
portfolios of Vanguard Variable Insurance Fund, hereafter referred to as the
"Fund") at September 30, 1999, the results of each of their operations for the
period then ended, and the changes in each of their net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
November 5, 1999
58
<PAGE> 61
- --------------------------------------------------------------------------------
SPECIAL 1999 TAX INFORMATION (UNAUDITED) FOR
VANGUARD VARIABLE INSURANCE FUND
This information for the fiscal year ended September 30, 1999, is included
pursuant to provisions of the Internal Revenue Code.
The High-Grade, High Yield, Balanced, Equity Income, Equity Index, Growth,
and Small Company Growth Portfolios designate $697,000, $107,000, $37,250,000,
$1,721,000, $3,097,000, $35,184,000, and $122,000, respectively, as capital gain
dividends (from net long-term capital gains), which were distributed in October
1998.
- --------------------------------------------------------------------------------
59
<PAGE> 62
NOTICE TO SHAREHOLDERS ABOUT Y2K
As is well known by now, the approaching calendar change to 2000 has posed a
challenge to many computer systems worldwide. Computers that are not modified
could interpret "00" as 1900 rather than 2000 and produce errors in
date-dependent calculations, including bond interest payments, stock trade
settlements, retirement benefits, and other financial transactions.
OUR APPROACH
Vanguard has taken this challenge seriously. We have had a Year 2000 Project
under way since 1996 to fulfill our responsibility to safeguard our business
relationships and the security of our investors' accounts.
Our internal systems are Year 2000-compliant. They have been renovated and
thoroughly tested and are ready for the date change. As for the external systems
that connect with ours, we have been working for many months with clients,
business partners, and providers of products and services to assess their
compliance. We have analyzed the external services we require and have developed
contingency plans--including provision for alternative providers where
appropriate.
On New Year's Day, our telephone centers will be staffed and ready for
shareholder calls. However, we expect the volume of inquiries over the New
Year's weekend to be high, and we encourage shareholders to check their accounts
via our website or automated telephone systems, which offer much greater service
capacity and efficiency. This will also help our live representatives to provide
a higher level of service to those with specific transaction or other
service-related needs.
WHAT YOU CAN DO
We assure you we will protect our shareholders' records, so account records will
not be lost. Nevertheless, keeping copies of current records is always
advisable. You should keep at least your third-quarter statement and any
confirmations you receive from us between October 1, 1999, and year-end.
If you are a registered user of Access Vanguard(TM) (www.vanguard.com), you
can retrieve this information through the secure "Your Accounts" section and
print copies for your files. If you are not registered for Access Vanguard and
wish to have this flexibility, you should register as soon as possible so that
you can receive your password and become familiar with this service before the
New Year's weekend. Likewise, you may need personal identification numbers to
use our automated telephone services: Vanguard Tele-Account(R) for individual
investors (1-800-662-6273) and The VOICE(TM) Network for participants in
employer-sponsored retirement plans (1-800-523-1188).
Our Year 2000 Project's primary goal from the start has been to prepare our
systems for business as usual on behalf of our shareholders into 2000 and
beyond. We remain confident we will meet that goal, and we look forward to
serving you in the years to come.
60
<PAGE> 63
- --------------------------------------------------------------------------------
THE PEOPLE WHO GOVERN YOUR FUND
The Trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are part owner of
the fund. Your fund Trustees also serve on the Board of Directors of The
Vanguard Group, which is owned by the funds and exists solely to provide
services to them on an at-cost basis.
Seven of Vanguard's nine board members are independent, meaning that they
have no affiliation with Vanguard or the funds they oversee, apart from the
sizable personal investments they have made as private individuals. They bring
distinguished backgrounds in business, academia, and public service to their
task of working with Vanguard officers to establish the policies and oversee the
activities of the funds.
Among board members' responsibilities are selecting investment advisers for
the funds; monitoring fund operations, performance, and costs; reviewing
contracts; nominating and selecting new Trustees/Directors; and electing
Vanguard officers.
The list below provides a brief description of each Trustee's professional
affiliations. Noted in parentheses is the year in which the Trustee joined the
Vanguard Board.
John C. Bogle
TRUSTEES
JOHN C. BOGLE - (1967) Founder, Senior Chairman of the Board,
and Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOHN J. BRENNAN - (1987) Chairman of the Board, Chief Executive Officer, and
Director/Trustee of The Vanguard Group, Inc., and each of the investment
companies in The Vanguard Group.
JOANN HEFFERNAN HEISEN - (1998) Vice President, Chief Information Officer, and a
member of the Executive Committee of Johnson & Johnson; Director of Johnson &
Johnson-Merck Consumer Pharmaceuticals Co., The Medical Center at Princeton, and
Women's Research and Education Institute.
BRUCE K. MACLAURY - (1990) President Emeritus of The Brookings Institution;
Director of American Express Bank Ltd., The St. Paul Companies, Inc., and
National Steel Corp.
BURTON G. MALKIEL - (1977) Chemical Bank Chairman's Professor of Economics,
Princeton University; Director of Prudential Insurance Co. of America, Banco
Bilbao Gestinova, Baker Fentress & Co., The Jeffrey Co., and Select Sector SPDR
Trust.
ALFRED M. RANKIN, JR. - (1993) 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 - (1991) 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., NACCO Industries, and Newfield Exploration Co.
JAMES O. WELCH, JR. - (1971) 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 - (1985) 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.
THOMAS J. HIGGINS - Treasurer; Principal of The Vanguard Group, Inc.; Treasurer
of each of the investment companies in The Vanguard Group.
VANGUARD MANAGING DIRECTORS
R. GREGORY BARTON - Legal Department.
ROBERT A. DISTEFANO - Information Technology.
JAMES H. GATELY - Individual Investor Group.
KATHLEEN C. GUBANICH - Human Resources.
IAN A. MACKINNON - Fixed Income Group.
F. WILLIAM MCNABB, III - Institutional Investor Group.
MICHAEL S. MILLER - Planning and Development.
RALPH K. PACKARD - Chief Financial Officer.
GEORGE U. SAUTER - Core Management Group.
<PAGE> 64
ABOUT OUR COVER
Our cover art, depicting HMS Vanguard at sea, is a reproduction of Leading the
Way, a 1984 work created and copyrighted by noted naval artist Tom Freeman, of
Forest Hill, Maryland.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," 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.
[THE VANGUARD GROUP LOGO]
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
INDIVIDUAL ACCOUNT SERVICES
1-800-662-2739
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1-800-523-1036
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
Q640-11/24/1999
(C) 1999 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
<PAGE> 65
VANGUARD VARIABLE INSURANCE FUND
STATEMENT OF NET ASSETS - SEPTEMBER 30, 1999
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, all of which appear in the accompanying report.
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 and Mid-Cap Index
Portfolios' 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 Investment 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.
- -------------------------------------------------
CONTENTS
<TABLE>
<S> <C>
Money Market Portfolio................ 1
Short-Term Corporate Portfolio........ 5
High-Grade Bond Portfolio............. 8
High Yield Bond Portfolio............. 15
Balanced Portfolio.................... 20
Equity Income Portfolio............... 24
Diversified Value Portfolio........... 26
Equity Index Portfolio................ 27
Mid-Cap Index Portfolio............... 32
Growth Portfolio...................... 36
Small Company Growth Portfolio........ 38
International Portfolio............... 40
REIT Index Portfolio.................. 43
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (27.7%)
- -------------------------------------------------------------------------------------------------------------
AGENCY BONDS & NOTES (27.6%)
Federal Home Loan Bank 4.775% 11/12/1999 (1) $10,000 $ 9,995
Federal Home Loan Bank 5.11% 10/11/1999 (1) 10,000 9,998
Federal Home Loan Bank 5.20% 10/28/1999 (1) 7,000 6,996
Federal Home Loan Bank 5.21% 10/12/1999 (1) 15,000 14,994
Federal Home Loan Bank 5.42% 10/6/1999 (1) 25,000 24,988
Federal Home Loan Bank 5.45% 10/7/1999 (1) 25,000 24,983
Federal Home Loan Mortgage Corp. 5.159% 11/30/1999 9,820 9,738
Federal Home Loan Mortgage Corp. 5.186% 10/18/1999 (1) 10,000 9,995
Federal Home Loan Mortgage Corp. 5.00%-5.62% 1/10/2000 8,000 7,878
</TABLE>
1
<PAGE> 66
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn. 4.78% 11/30/1999 $ 9,000 $ 9,000
Federal National Mortgage Assn. 5.14% 11/4/1999 6,050 6,021
Federal National Mortgage Assn. 5.192% 10/15/1999 (1) 15,000 14,996
Federal National Mortgage Assn. 5.192% 10/24/1999 (1) 10,000 9,997
Federal National Mortgage Assn. 5.199% 10/21/1999 (1) 20,000 19,989
Federal National Mortgage Assn. 5.20% 10/26/1999 (1) 20,000 19,989
---------
199,557
---------
U.S. GOVERNMENT SECURITY (0.1%)
U.S. Treasury Note 6.375% 1/15/2000 1,000 1,004
---------
- -------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $200,561) 200,561
- -------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (44.2%)
- -------------------------------------------------------------------------------------------------------------
BANK HOLDING COMPANY (1.8%)
Citicorp 5.859% 2/15/2000 13,200 12,913
---------
FINANCE--AUTOMOBILES (3.4%)
DaimlerChrysler North America Holding Corp. 5.356% 10/5/1999 8,000 7,995
Ford Motor Credit Co. 5.321% 10/13/1999 1,835 1,832
Ford Motor Credit Co. 5.325% 10/20/1999 15,000 14,958
---------
24,785
---------
FINANCE--OTHER (17.7%)
Asset Securitization Cooperative Co. 5.962% 2/18/2000 14,300 13,976
Centric Capital Corp. 5.382% 10/25/1999 7,500 7,473
CIT Group Holdings Inc. 5.338% 10/12/1999 5,168 5,160
Delaware Funding 5.374% 10/15/1999 8,038 8,021
Delaware Funding 5.398% 10/22/1999 7,060 7,038
Enterprise Funding Corp. 5.376% 10/5/1999 7,559 7,555
Enterprise Funding Corp. 5.379% 10/7/1999 2,125 2,123
Enterprise Funding Corp. 5.384% 10/15/1999 1,088 1,086
Enterprise Funding Corp. 5.391% 10/14/1999 524 523
Enterprise Funding Corp. 5.473% 12/1/1999 1,136 1,126
General Electric Capital Corp. 5.881% 2/29/2000 9,640 9,410
General Electric Capital Corp. 5.893% 3/14/2000 6,541 6,370
General Electric Capital Corp. 5.92% 3/17/2000 4,000 3,892
Norwest Financial 5.234% 10/13/1999 4,588 4,580
Norwest Financial 5.239% 10/12/1999 3,000 2,995
Park Avenue Receivable Corp. 5.372% 10/8/1999 5,941 5,935
Park Avenue Receivable Corp. 5.416% 10/21/1999 2,500 2,493
Park Avenue Receivable Corp. 5.948% 3/14/2000 5,000 4,868
Preferred Receivables Funding Co. 5.39% 10/7/1999 6,000 5,995
Riverwoods Funding Corp. 5.367% 10/18/1999 5,654 5,640
Riverwoods Funding Corp. 5.367% 10/19/1999 8,400 8,378
Triple A One Funding Corp. 5.365% 10/8/1999 8,887 8,878
Triple A One Funding Corp. 5.419% 11/2/1999 4,501 4,480
---------
127,995
---------
INDUSTRIAL (4.4%)
Chevron Transport Co. 5.918% 3/10/2000 5,000 4,871
Chevron USA Inc. 5.888% 2/17/2000 6,488 6,344
First Data Corp. 5.358% 10/5/1999 4,398 4,395
Pfizer Inc. 5.326% 10/19/1999 1,450 1,446
Pfizer Inc. 5.378% 11/2/1999 15,000 14,929
---------
31,985
---------
INSURANCE (6.5%)
Aegon Funding Corp. 5.612% 2/4/2000 13,150 12,899
Aegon Funding Corp. 5.752% 2/15/2000 3,250 3,181
Teachers Insurance & Annuity Assn. of America 5.339% 10/4/1999 9,802 9,798
USAA Capital Corp. 4.95% 12/15/1999 5,000 5,018
</TABLE>
2
<PAGE> 67
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
YIELD** DATE (000) (000)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Capital Corp. 5.835% 2/23/2000 $13,900 $ 13,582
USAA Capital Corp. 5.837% 2/16/2000 2,000 1,957
---------
46,435
---------
FOREIGN BANKS (1.3%)
UBS Finance, Inc. 5.60% 10/1/1999 4,296 4,296
Westpac Capital Corp. 5.201% 10/4/1999 5,000 4,998
---------
9,294
---------
FOREIGN GOVERNMENT (3.3%)
Caisse Des Depots et Consignations 5.336% 10/4/1999 7,096 7,093
Canadian Wheat Board 5.841% 3/17/2000 2,060 2,005
KFW International Finance Inc. 5.83% 3/3/2000 8,667 8,456
Province of British Columbia 5.846% 3/6/2000 6,500 6,339
---------
23,893
---------
FOREIGN INDUSTRIAL (1.2%)
Westpac Trust Secs NZ Ltd. 5.359% 10/27/1999 8,750 8,716
---------
FOREIGN UTILITIES (4.6%)
British Telecommunications PLC 5.847% 3/30/2000 5,000 4,857
British Telecommunications PLC 5.90% 5/3/2000 5,000 4,830
British Telecommunications PLC 5.904% 4/7/2000 5,000 4,852
France Telecom 5.32% 10/5/1999 774 773
Telstra Corp. Ltd. 5.268% 10/18/1999 6,000 5,985
Telstra Corp. Ltd. 5.472% 12/13/1999 12,008 11,877
---------
33,174
---------
- -------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(COST $319,190) 319,190
- -------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (15.0%)
- -------------------------------------------------------------------------------------------------------------
U.S. BANKS (3.3%)
Chase Manhattan Bank 5.61% 2/1/2000 5,000 5,000
Nationsbank N.A. 4.90% 10/8/1999 3,000 3,000
Nationsbank N.A. 4.99% 1/11/2000 3,000 3,000
Wachovia Bank N.A. 5.271% 10/26/1999 (1) 13,000 13,000
---------
24,000
---------
YANKEE CERTIFICATES OF DEPOSIT--U.S. BRANCHES (11.7%)
ABN-AMRO Bank NV 4.96% 11/16/1999 5,000 5,000
Bayerische Landesbank Girozentrale 4.98% 11/19/1999 4,091 4,089
Credit Communal De Belgique SA 5.81% 2/22/2000 2,000 2,000
Credit Communal De Belgique SA 5.83% 3/6/2000 5,000 5,000
Credit Communal De Belgique SA 5.84% 2/28/2000 10,000 10,000
Lloyds Bank 4.94% 10/29/1999 10,000 10,000
National Westminster Bank PLC 4.98% 1/10/2000 13,000 12,998
Rabobank Nederlanden 4.83% 10/6/1999 3,000 3,000
Rabobank Nederlanden 5.08% 4/12/2000 3,000 2,998
Rabobank Nederlanden 5.29% 5/19/2000 10,000 9,997
UBS AG 5.20% 2/29/2000 5,000 4,999
Westdeutsche Landesbank 5.34% 10/27/1999 14,000 14,000
---------
84,081
---------
- -------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT
(COST $108,081) 108,081
- -------------------------------------------------------------------------------------------------------------
EURODOLLAR CERTIFICATES OF DEPOSIT (8.6%)
- -------------------------------------------------------------------------------------------------------------
Bayerische Landsbank Girozentrale 5.25% 10/29/1999 10,000 10,000
Bayerische Landsbank Girozentrale 5.60% 2/1/2000 9,000 8,996
Credit Agricole Indosuez 5.23% 10/7/1999 12,000 12,000
Dresdner Bank AG 5.04% 10/4/1999 2,000 2,000
Dresdner Bank AG 5.22% 10/6/1999 10,000 10,000
Halifax PLC 5.12% 4/10/2000 5,000 5,000
</TABLE>
3
<PAGE> 68
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
MONEY MARKET PORTFOLIO YIELD** DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Halifax PLC 5.23% 10/6/1999 $11,000 $ 11,000
National Westminster Bank PLC 5.20% 10/4/1999 3,000 3,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(COST $61,996) 61,996
- --------------------------------------------------------------------------------------------------------------------
BANK NOTES (2.6%)
- --------------------------------------------------------------------------------------------------------------------
Bank of America N.A. 5.50% 10/4/1999 (1) 10,000 10,000
LaSalle National Bank 5.03% 2/7/2000 5,000 5,000
LaSalle National Bank 5.17% 4/20/2000 4,000 3,999
- --------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES
(COST $18,999) 18,999
- --------------------------------------------------------------------------------------------------------------------
OTHER NOTES (9.3%)
- --------------------------------------------------------------------------------------------------------------------
ABN-AMRO Bank NV 5.445% 10/4/1999 (1) 5,500 5,498
Abbey National Treasury Services 5.14% 4/25/2000 5,000 4,998
Abbey National Treasury Services 5.25% 3/1/2000 10,000 9,998
Associates Corp. of North America 5.261% 10/20/1999 (1) 9,500 9,497
Associates Corp. of North America 5.309% 10/29/1999 (1) 10,000 9,995
First National Bank of Chicago 5.13% 4/4/2000 5,000 4,999
First National Bank of Chicago 5.90% 3/13/2000 12,500 12,501
General Electric Capital Corp. 5.26% 10/12/1999 (1) 9,600 9,600
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER NOTES
(COST $67,086) 67,086
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (107.4%)
(COST $775,913) 775,913
- --------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-7.4%)
- --------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 7,999
Payables for Investment Securities Purchased (59,652)
Other Liabilities (1,712)
---------
(53,365)
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------
Applicable to 722,567,152 outstanding $.001 par value
shares of beneficial interest (unlimited authorization) $722,548
====================================================================================================================
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) Adjustable Rate Note.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- -----------------------------------------------------------------------------------------
Amount Per
(000) Share
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $722,567 $1.00
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (19) --
Unrealized Appreciation -- --
- -----------------------------------------------------------------------------------------
NET ASSETS $722,548 $1.00
=========================================================================================
</TABLE>
4
<PAGE> 69
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (81.0%)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (15.6%)
ARG Funding Corp. 5.88% 5/20/2003 (1)(2) $250 $ 246
Advanta Mortgage Loan Trust 5.98% 3/1/2014 (1) 250 248
American Express Credit Account Master Trust 5.85% 11/15/2006 (1) 200 191
BMW Vehicle Owner Trust 6.41% 4/25/2003 (1) 250 250
Citibank Credit Card Trust I 5.55% 1/9/2006 (1) 300 283
Countrywide Asset-Backed Certificates 6.24% 9/25/2018 (1) 300 295
EQCC Home Equity Loan Trust 6.223% 11/25/2001 (1) 350 345
First Bank Corp. Card Master Trust 6.40% 2/15/2003 (1) 350 350
Green Tree Home Equity Loan Trust 7.05% 9/15/2030 (1) 250 251
Honda Auto Lease Trust 6.45% 9/15/2002 (1) 400 400
MBNA Master Credit Card Trust 6.70% 1/18/2005 (1) 200 199
Navistar Financial Corp. Owner Trust 5.95% 4/15/2003 (1) 350 347
PECO Energy Transition Trust 6.05% 3/1/2009 (1) 250 238
Residential Asset Securities Corp. 6.00% 5/25/2020 (1) 350 345
UAC Securitization Corp. 5.57% 9/8/2003 (1) 350 346
UAC Securitization Corp. 6.31% 12/8/2006 (1) 175 172
------------
4,506
------------
FINANCE (27.7%)
AUTO (1.3%)
Ford Motor Credit Co. 5.75% 2/23/2004 400 384
BANKS (10.9%)
Bank One Corp. 6.40% 8/1/2002 400 396
Capital One Bank 6.58% 4/17/2001 250 248
Dime Bancorp Inc. 7.00% 7/25/2001 100 100
Mercantile Bancorp 6.80% 6/15/2001 300 300
Norwest Corp. 6.125% 10/15/2000 425 424
PNC Funding Corp. 6.125% 9/1/2003 350 338
Popular Inc. 6.20% 4/30/2001 300 296
Southern National Corp. 7.05% 5/23/2003 500 499
Summit Bancorp 8.625% 12/10/2002 100 104
Wachovia Corp. 6.70% 6/21/2004 450 449
CONSUMER (2.1%)
CIT Group Holdings 6.25% 3/28/2001 200 199
Sears Roebuck Acceptance Corp. 6.69% 4/30/2001 400 400
DIVERSIFIED (2.3%)
Comdisco Inc. 7.25% 9/20/2001 275 275
Finova Capital Corp. 6.11% 2/18/2003 400 387
OTHER (11.1%)
Cabot Industrial Properties LP 7.125% 5/1/2004 330 319
Colonial Realty LP 6.96% 7/26/2004 200 189
Donaldson Lufkin & Jenrette, Inc. 6.25% 8/1/2001 350 347
ERAC USA Finance Co. 6.35% 1/15/2001 (2) 200 198
First Industrial LP 7.15% 5/15/2027 250 242
JDN Realty Corp. 6.80% 8/1/2004 250 236
Lehman Brothers Holdings Inc. 7.00% 5/15/2003 200 198
Morgan Stanley, Dean Witter & Co. 5.625% 1/20/2004 400 381
Newcourt Credit Group 6.875% 2/16/2005 (2) 300 293
Oasis Residential Inc. 6.75% 11/15/2001 250 246
Reckson Operating Partnership LP 7.40% 3/15/2004 125 122
Regency Centers LP 7.40% 4/1/2004 100 96
Salomon Smith Barney Holdings Inc. 7.30% 5/15/2002 350 355
------------
8,021
------------
</TABLE>
5
<PAGE> 70
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
SHORT-TERM CORPORATE PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL (25.7%)
AUTOMOTIVE (1.7%)
DaimlerChrysler North America Holding Corp. 6.90% 9/1/2004 $ 500 $ 502
CABLE (2.2%)
Cox Communications, Inc. 6.50% 11/15/2002 250 246
TCI Communications, Inc. 6.375% 5/1/2003 400 395
CHEMICALS (2.6%)
Monsanto Co. 5.375% 12/1/2001 (2) 250 244
Praxair, Inc. 6.70% 4/15/2001 500 499
CONSUMER GOODS & SERVICES (2.3%)
American Stores Co. 7.40% 5/15/2005 300 306
VF Corp. 7.60% 4/1/2004 365 366
ENERGY & RELATED GOODS & SERVICES (3.5%)
BP America, Inc. 9.375% 11/1/2000 400 413
Osprey Trust 8.31% 1/15/2003 (2) 125 125
Phillips Petroleum Co. 9.00% 6/1/2001 450 467
FOOD & LODGING (0.8%)
Philip Morris Cos. Inc. 9.00% 1/1/2001 235 241
GENERAL (1.1%)
Parker Retirement Savings Plan Trust 6.34% 7/15/2008 (1)(2) 329 320
GROCERY STORES (1.5%)
Kroger Co. 6.34% 6/1/2001 (2) 425 422
HEALTH CARE (1.4%)
Upjohn Co. 5.875% 4/15/2000 400 400
OTHER (2.0%)
Raytheon Co. 5.95% 3/15/2001 300 297
WMX Technologies Inc. 7.00% 10/15/2006 300 271
PAPER & PACKAGING (0.8%)
International Paper Co. 6.125% 11/1/2003 250 242
TECHNOLOGY & RELATED (2.4%)
CSC Enterprises 6.50% 11/15/2001 (2) 300 298
Texas Instruments Inc. 7.00% 8/15/2004 (2) 400 400
TRANSPORTATION (3.4%)
Continental Airlines Pass Through Trust 7.434% 3/15/2006 (1) 300 297
Delta Air Lines 6.65% 3/15/2004 100 97
Hertz Corp. 7.375% 6/15/2001 350 354
Norfolk Southern Corp. 6.70% 5/1/2000 230 231
------------
7,433
------------
UTILITIES (12.0%)
Arizona Public Service 5.875% 2/15/2004 (3) 400 381
Cinergy Corp. 6.125% 4/15/2004 (2) 150 143
Duquesne Light Co. 6.10% 5/10/2000 400 400
East Coast Power 6.737% 3/31/2008 (2) 142 134
FPL Group Capital Inc. 7.625% 9/15/2006 300 305
KN Energy Inc. 6.45% 11/30/2001 150 148
LG&E Capital Corp. 6.205% 5/1/2004 (2) 300 289
Nevada Power Co. 6.20% 4/15/2004 150 144
Texas Utilities Co. 7.375% 8/1/2001 209 211
Transcontinental Gas Pipeline 8.875% 9/15/2002 300 315
US West Capital Funding, Inc. 6.875% 2/15/2001 (2) 500 500
</TABLE>
6
<PAGE> 71
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Virginia Electric Power 6.30% 6/21/2001 $ 250 $ 249
WorldCom Inc. 6.125% 8/15/2001 250 248
-----------
3,467
-----------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $23,789) 23,427
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITY (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note
(COST $1,271) 4.625% 12/31/2000 1,275 1,261
- --------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(8.4%)
- --------------------------------------------------------------------------------------------------------------------------
The Development Bank of Singapore Ltd. 7.875% 8/10/2009 (2) 50 51
Kimberly-Clark de Mexico 8.875% 8/1/2009 (2) 50 50
Korea Electric Power 10.00% 4/1/2001 (2) 150 155
Korean Development Bank 7.125% 4/22/2004 150 146
National Westminster Bank PLC 7.375% 10/1/2009 250 250
Pemex Finance Ltd. 6.125% 11/15/2003 (1)(2) 400 393
Pemex Finance Ltd. 9.14% 8/15/2004 (2) 400 401
Petroliam Nasional Berhd 7.125% 10/18/2006 (2) 100 92
Pohang Iron & Steel Co. Ltd. 6.625% 7/1/2003 100 95
Qantas Airways 7.75% 6/15/2009 (2) 250 248
The State of Qatar 9.50% 5/21/2009 (2) 100 104
Telecom Argentina 9.75% 7/12/2001 (2) 200 200
Trans Canada Pipelines 7.15% 6/15/2006 250 247
- --------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $2,443) 2,432
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations in a
Pooled Cash Account
(COST $1,555) 5.30% 10/1/1999 1,555 1,555
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.2%)
(COST $29,058) 28,675
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C 747
Liabilities (503)
-----------
244
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 2,964,666 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $28,919
==========================================================================================================================
NET ASSET VALUE PER SHARE $9.75
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) 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 September 30,
1999, the aggregate value of these securities was $5,306,000, representing
18.3% of net assets.
(3) Security segregated as initial margin for open futures contracts.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $29,334 $9.89
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (15) --
Unrealized Depreciation--Note F
Investment Securities (383) (.13)
Futures Contracts (17) (.01)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $28,919 $9.75
==========================================================================================================================
</TABLE>
7
<PAGE> 72
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (61.2%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT SECURITIES (20.9%)
U.S. Treasury Bond 7.125% 2/15/2023 $ 3,400 $ 3,690
U.S. Treasury Bond 7.50% 11/15/2024 1,900 2,161
U.S. Treasury Bond 7.625% 11/15/2022 3,300 3,772
U.S. Treasury Bond 7.875% 2/15/2021 540 628
U.S. Treasury Bond 8.00% 11/15/2021 3,685 4,352
U.S. Treasury Bond 8.125% 8/15/2019 6,935 8,209
U.S. Treasury Bond 8.125% 8/15/2021 4,175 4,985
U.S. Treasury Bond 8.50% 2/15/2020 1,870 2,296
U.S. Treasury Bond 8.75% 5/15/2017 2,905 3,597
U.S. Treasury Bond 8.75% 5/15/2020 900 1,133
U.S. Treasury Bond 8.875% 8/15/2017 1,300 1,629
U.S. Treasury Bond 8.875% 2/15/2019 1,010 1,276
U.S. Treasury Bond 9.125% 5/15/2018 510 655
U.S. Treasury Bond 10.00% 5/15/2010 125 147
U.S. Treasury Bond 10.375% 11/15/2009 6,795 8,029
U.S. Treasury Bond 10.375% 11/15/2012 5,765 7,225
U.S. Treasury Bond 12.75% 11/15/2010 1,775 2,357
U.S. Treasury Bond 14.00% 11/15/2011 1,065 1,532
U.S. Treasury Note 5.75% 11/30/2002 4,000 3,996
U.S. Treasury Note 5.75% 8/15/2003 3,150 3,140
U.S. Treasury Note 6.50% 8/15/2005 125 128
U.S. Treasury Note 6.50% 10/15/2006 5,225 5,342
-----------
70,279
-----------
AGENCY BONDS & NOTES (6.4%)
Federal Farm Credit Bank 4.80% 11/6/2003 2,500 2,359
Federal Home Loan Bank 5.575% 9/2/2003 1,900 1,846
Federal Home Loan Bank 5.675% 8/18/2003 2,000 1,952
Federal Home Loan Bank 5.80% 9/2/2008 2,400 2,261
Federal Home Loan Bank 5.865% 9/2/2008 1,300 1,225
Federal Home Loan Bank 5.88% 11/25/2008 530 491
Federal Home Loan Bank 6.50% 8/15/2007 1,450 1,441
Federal Home Loan Mortgage Corp. 7.09% 6/1/2005 200 199
Federal National Mortgage Assn. 5.64% 12/10/2008 1,500 1,367
Federal National Mortgage Assn. 5.75% 4/15/2003 1,090 1,071
Federal National Mortgage Assn. 5.90% 7/9/2003 1,500 1,465
Federal National Mortgage Assn. 5.91% 8/25/2003 650 635
Federal National Mortgage Assn. 5.96% 4/23/2003 300 294
Federal National Mortgage Assn. 5.97% 7/3/2003 1,000 978
Federal National Mortgage Assn. 6.40% 5/14/2009 2,000 1,912
Federal National Mortgage Assn. 6.56% 4/23/2008 1,250 1,204
Tennessee Valley Auth. 5.375% 11/13/2008 1,000 905
-----------
21,605
-----------
MORTGAGE-BACKED SECURITIES (33.9%)
Federal Home Loan Mortgage Corp. 5.50% 11/1/2008-12/1/2013 1,736 1,637
Federal Home Loan Mortgage Corp. 6.00% 7/1/2000-5/1/2029 15,307 14,492
Federal Home Loan Mortgage Corp. 6.50% 9/1/2000-7/1/2029 20,643 19,961
Federal Home Loan Mortgage Corp. 7.00% 12/1/1999-7/1/2029 13,902 13,735
Federal Home Loan Mortgage Corp. 7.50% 3/1/2000-4/1/2028 6,731 6,782
Federal Home Loan Mortgage Corp. 8.00% 10/1/2009-12/1/2027 3,786 3,877
Federal Home Loan Mortgage Corp. 8.50% 5/1/2006-5/1/2027 690 716
Federal Home Loan Mortgage Corp. 9.00% 11/1/2005-6/1/2022 146 154
Federal Home Loan Mortgage Corp. 9.50% 1/1/2025-2/1/2025 84 90
Federal Home Loan Mortgage Corp. 10.00% 3/1/2017-11/1/2019 46 49
Federal National Mortgage Assn. 5.50% 3/1/2001 36 36
Federal National Mortgage Assn. 6.00% 4/1/2001-3/1/2029 5,334 5,043
Federal National Mortgage Assn. 6.50% 3/1/2000-10/1/2028 7,696 7,414
Federal National Mortgage Assn. 7.00% 5/1/2000-8/1/2028 5,197 5,122
Federal National Mortgage Assn. 7.50% 7/1/2001-5/1/2027 2,072 2,088
</TABLE>
8
<PAGE> 73
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal National Mortgage Assn. 8.00% 7/1/2007-9/1/2027 $ 984 $ 1,007
Federal National Mortgage Assn. 8.50% 10/1/2004-12/1/2026 460 477
Federal National Mortgage Assn. 9.00% 3/1/2020-4/1/2025 226 238
Federal National Mortgage Assn. 9.50% 6/1/2001-2/1/2025 134 142
Federal National Mortgage Assn. 10.00% 8/1/2020-8/1/2021 76 82
Federal National Mortgage Assn. 10.50% 8/1/2020 20 23
Government National Mortgage Assn. 6.00% 3/15/2009-7/15/2029 2,788 2,599
Government National Mortgage Assn. 6.50% 10/15/2008-7/15/2029 10,271 9,850
Government National Mortgage Assn. 7.00% 10/15/2008-3/15/2029 7,970 7,844
Government National Mortgage Assn. 7.50% 5/15/2008-2/15/2028 4,535 4,564
Government National Mortgage Assn. 8.00% 3/15/2008-1/15/2028 3,826 3,919
Government National Mortgage Assn. 8.50% 7/15/2009-4/15/2027 922 960
Government National Mortgage Assn. 9.00% 4/15/2016-10/15/2026 571 603
Government National Mortgage Assn. 9.50% 4/15/2017-2/15/2025 283 305
Government National Mortgage Assn. 10.00% 5/15/2020-1/15/2025 115 125
Government National Mortgage Assn. 10.50% 5/15/2019 28 31
Government National Mortgage Assn. 11.00% 10/15/2015 19 21
Government National Mortgage Assn. 11.50% 2/15/2013 15 17
Resolution Trust Corp. Collateralized Mortgage Obligations 10.35% 8/25/2021 53 53
-----------
114,056
-----------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $209,554) 205,940
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (32.9%)
- --------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (5.2%)
ARG Funding Corp. 5.88% 5/20/2003(1)(2) 1,350 1,327
Advanta Credit Card Master Trust 6.05% 8/1/2003 (1) 1,250 1,252
Advanta Mortgage Loan Trust 6.21% 11/25/2016 (1) 1,000 986
American Express Credit Card Master Trust 6.80% 12/15/2003 (1) 1,250 1,262
CIT RV Trust 5.78% 7/15/2008 (1) 500 499
CIT RV Trust 5.96% 4/15/2011 (1) 450 447
California Infrastructure & Economic Development
Bank SP Trust PG&E 6.16% 6/25/2003 (1) 250 250
California Infrastructure & Economic Development
Bank SP Trust PG&E 6.42% 9/25/2008 (1) 375 368
Chemical Master Credit Card Trust I 5.55% 4/15/2003 (1) 1,250 1,242
Discover Card Trust 5.65% 11/15/2004 (1) 200 196
First USA Credit Card Master Trust 6.42% 3/17/2005 (1) 1,250 1,253
PECO Energy Transition Trust 5.63% 6/26/2006 (1) 1,900 1,857
PECO Energy Transition Trust 6.05% 3/1/2009 (1) 225 214
Premier Auto Trust 5.69% 6/8/2002 (1) 1,700 1,696
Sears Credit Account Master Trust 5.80% 8/15/2005 (1) 1,500 1,496
Sears Credit Account Master Trust 8.10% 6/15/2004 (1) 933 959
Toyota Auto Lease Trust 5.35% 7/25/2002 (1) 1,850 1,832
Toyota Auto Lease Trust 6.35% 4/26/2004 (1) 250 251
-----------
17,387
-----------
FINANCE (12.3%)
Associates Corp. 5.875% 5/16/2001 1,100 1,088
Associates Corp. 6.50% 10/15/2002 650 646
Associates Corp. 7.50% 4/15/2002 600 612
Avalon Properties Inc. 6.875% 12/15/2007 450 421
BT Capital Trust B 7.90% 1/15/2027 200 187
Bank of New York Capital I 7.97% 12/31/2026 400 384
BankAmerica Corp. 9.375% 9/15/2009 500 578
BankAmerica Corp. 9.625% 2/13/2001 500 520
BankAmerica Corp. 10.00% 2/1/2003 200 219
Bear, Stearns & Co., Inc. 6.625% 1/15/2004 200 196
CIGNA Corp. 7.875% 5/15/2027 450 433
CNA Financial Corp. 6.50% 4/15/2005 525 497
Case Credit Corp. 6.15% 3/1/2002 2,250 2,233
</TABLE>
9
<PAGE> 74
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chase Capital I 7.67% 12/1/2026 $ 400 $ 374
Chase Manhattan Corp. 6.00% 11/1/2005 575 543
Chase Manhattan Corp. 6.50% 8/1/2005 175 170
Chrysler Financial Corp. LLC 5.25% 10/19/2000 2,000 1,979
Chrysler Financial Corp. LLC 5.875% 2/7/2001 500 496
Citicorp Capital II 8.015% 2/15/2027 500 478
Citicorp 7.625% 5/1/2005 300 306
CoreStates Capital Corp. 9.375% 4/15/2003 250 268
Donaldson Lufkin & Jenrette, Inc. 6.00% 12/1/2001 3,000 2,953
Equitable Companies Inc. 7.00% 4/1/2028 140 128
Equity Residential Properties 6.55% 11/15/2001 550 544
Finova Capital Corp 5.875% 10/15/2001 750 733
First Chicago Corp. 11.25% 2/20/2001 300 318
Fleet Capital Trust II 7.92% 12/11/2026 400 378
Ford Motor Credit Co. 5.125% 10/15/2001 2,100 2,042
Ford Motor Credit Co. 6.375% 2/1/2029 500 429
Ford Motor Credit Co. 7.00% 9/25/2001 400 403
General Electric Capital Corp. 5.77% 8/27/2001 2,000 1,979
General Motors Acceptance Corp. 5.50% 12/15/2001 750 732
General Motors Acceptance Corp. 7.125% 5/1/2001 1,200 1,209
HRPT Properties Trust 6.75% 12/18/2002 750 712
Household Finance Corp. 6.40% 6/17/2008 125 118
Household Finance Corp. 7.65% 5/15/2007 400 408
JDN Realty Corp. 6.80% 8/1/2004 350 331
Lehman Brothers Holdings Inc. 6.25% 4/1/2003 850 824
Lehman Brothers Holdings Inc. 6.375% 10/23/2000 750 748
Lehman Brothers Holdings Inc. 6.625% 2/5/2006 250 238
Lehman Brothers Holdings Inc. 6.90% 1/29/2001 1,000 1,000
Lehman Brothers Holdings Inc. 7.50% 9/1/2006 250 249
Mack-Cali Realty 7.00% 3/15/2004 1,000 964
Merrill Lynch & Co., Inc. 6.50% 4/1/2001 1,000 1,000
NB Capital Trust IV 8.25% 4/15/2027 200 196
NCNB Corp. 9.50% 6/1/2004 150 165
NationsBank Corp. 5.75% 3/15/2001 500 495
NationsBank Corp. 7.00% 9/15/2001 200 202
NationsBank Corp. 7.75% 8/15/2004 500 519
Norwest Corp. 6.125% 10/15/2000 1,000 998
Popular Inc 7.375% 9/15/2001 775 776
Reckson Operating Partnership LP 7.75% 3/15/2009 500 473
Salomon Smith Barney Holdings Inc. 5.875% 2/1/2001 400 397
Salomon, Inc. 6.65% 7/15/2001 750 751
Security Capital Pacific Trust 8.05% 4/1/2017 150 140
Simon DeBartolo Group, Inc. 6.75% 7/15/2004 250 238
Summit Properties Inc. 6.95% 8/15/2004 700 659
Susa Partnership 7.50% 12/1/2027 175 146
Toyota Motor Credit Corp. 5.50% 9/17/2001 1,750 1,716
Travelers Property Casualty Corp. 7.75% 4/15/2026 275 272
U S WEST Capital Funding, Inc. 6.875% 2/15/2001 (2) 750 750
Wells Fargo Capital I 7.96% 12/15/2026 400 383
Wells Fargo Co. 6.50% 9/3/2002 1,100 1,097
-----------
41,441
-----------
INDUSTRIAL (9.5%)
Allied Signal Inc. 6.20% 2/1/2008 500 474
American Airlines ETC-A 6.855% 4/15/2009 400 399
American Airlines ETC-A 7.024% 10/15/2009 200 199
Anadarko Petroleum Corp. 7.20% 3/15/2029 500 461
Anheuser-Busch Cos., Inc. 7.10% 6/15/2007 450 445
Anheuser-Busch Cos., Inc. 7.125% 7/1/2017 150 143
Anheuser-Busch Cos., Inc. 7.375% 7/1/2023 75 72
Applied Materials, Inc. 8.00% 9/1/2004 100 103
</TABLE>
10
<PAGE> 75
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Archer-Daniels-Midland Co. 8.875% 4/15/2011 $ 180 $ 203
Auburn Hills 12.00% 5/1/2020 115 173
Bayer Corp. 6.65% 2/15/2028 (2) 350 316
Black & Decker Corp. 6.625% 11/15/2000 1,000 1,001
Black & Decker Corp. 7.50% 4/1/2003 500 504
The Boeing Co. 6.625% 2/15/2038 400 351
Burlington Northern Santa Fe Corp. 6.375% 12/15/2005 100 96
Burlington Northern Santa Fe Corp. 6.75% 3/15/2029 250 221
Burlington Northern Santa Fe Corp. 6.875% 2/15/2016 300 279
Burlington Northern Santa Fe Corp. 7.00% 12/15/2025 200 184
C.R. Bard, Inc. 6.70% 12/1/2026 450 439
CSX Corp. 8.10% 9/15/2022 150 153
CSX Corp. 8.625% 5/15/2022 50 54
Caterpillar Co. 7.375% 3/1/2097 300 279
Chrysler Corp. 7.45% 2/1/2097 100 95
Coastal Corp. 6.50% 5/15/2006 250 241
Comcast Cablevision 8.375% 5/1/2007 400 421
Comcast Cablevision 8.875% 5/1/2017 350 386
Conrail Corp. 9.75% 6/15/2020 100 118
Continental Airlines, Inc. (Equipment Trust Certificates) 6.648% 3/15/2019 382 350
Cyprus Minerals 6.625% 10/15/2005 400 371
DaimlerChrysler North America Holding Corp. 6.90% 9/1/2004 1,000 1,004
Dayton Hudson Corp. 6.65% 8/1/2028 400 357
Dayton Hudson Corp. 6.75% 1/1/2028 250 226
Deere & Co. 8.50% 1/9/2022 100 109
Delta Airlines, Inc. (Equipment Trust Certificates) 8.54% 1/2/2007 183 189
Dillard's Department Stores 7.75% 5/15/2027 250 234
Dillard's Department Stores 7.85% 10/1/2012 300 294
Eastman Chemical Co. 6.375% 1/15/2004 400 386
Eastman Chemical Co. 7.25% 1/15/2024 100 91
Federated Department Stores, Inc. 7.00% 2/15/2028 100 90
First Data Corp. 6.625% 4/1/2003 125 124
Ford Capital BV 9.875% 5/15/2002 400 431
Ford Motor Co. 8.90% 1/15/2032 500 576
Ford Motor Co. 9.98% 2/15/2047 65 83
General Motors Corp. 9.125% 7/15/2001 400 418
Harrahs Operating Co., Inc. 7.50% 1/15/2009 300 285
International Business Machines Corp. 7.125% 12/1/2096 450 423
International Paper Co. 6.875% 4/15/2029 250 224
International Paper Co. 7.875% 8/1/2006 100 102
Kroger Co. 7.65% 4/15/2007 350 351
Kroger Co. 7.625% 9/15/2006 300 301
Kroger Co. 7.625% 9/15/2029 125 125
Lockheed Martin Corp. 6.85% 5/15/2001 2,000 1,997
May Department Stores Co. 9.75% 2/15/2021 100 120
McDonald's Corp. 6.75% 2/15/2003 230 231
Mobil Corp. 7.625% 2/23/2033 200 196
Monsanto Co. 5.75% 12/1/2005 (2) 1,000 929
News America Holdings Inc. 8.50% 2/15/2005 300 312
Norfolk Southern Corp. 6.875% 5/1/2001 1,125 1,127
Norfolk Southern Corp. 7.40% 9/15/2006 270 269
Norfolk Southern Corp. 7.90% 5/15/2097 50 49
Northrop Grumman Corp. 9.375% 10/15/2024 400 426
Occidental Petroleum Corp. 8.50% 11/9/2001 750 772
Philip Morris Cos., Inc. 7.00% 7/15/2005 150 147
Philip Morris Cos., Inc. 8.25% 10/15/2003 150 156
Phillips Petroleum Co. 9.00% 6/1/2001 600 623
Praxair, Inc. 6.70% 4/15/2001 1,175 1,173
Praxair, Inc. 6.75% 3/1/2003 500 494
Raytheon Co. 6.50% 7/15/2005 1,100 1,058
Rohm & Haas Co. 6.95% 7/15/2004 (2) 200 200
</TABLE>
11
<PAGE> 76
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH-GRADE BOND PORTFOLIO COUPON DATE (000) (000)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rohm & Haas Co. 7.40% 7/15/2009 (2) $ 100 $ 101
Rohm & Haas Co. 7.85% 7/15/2029 (2) 325 330
Safeway Inc. 6.85% 9/15/2004 700 686
Safeway Inc. 7.00% 9/15/2007 550 536
Sears, Roebuck & Co. Acceptance Corp. 6.75% 9/15/2005 150 146
Telecommunications Inc. 6.375% 5/1/2003 1,050 1,037
Tenneco, Inc. 10.075% 2/1/2001 200 208
Texaco Capital Corp. 8.875% 9/1/2021 150 171
Time Warner Entertainment 8.375% 3/15/2023 350 375
Time Warner Inc. 7.75% 6/15/2005 1,250 1,274
Time Warner Inc. 8.18% 8/15/2007 250 263
Tyco International Group SA 6.875% 1/15/2029 500 447
Union Carbide Corp. 6.75% 4/1/2003 200 199
Union Carbide Corp. 7.75% 10/1/2096 125 119
Union Carbide Corp. 7.875% 4/1/2023 125 127
Union Oil of California 6.375% 2/1/2004 200 194
Union Pacific Corp. 6.625% 2/1/2029 500 428
-----------
31,874
-----------
UTILITIES (6.0%)
AT&T Corp. 8.35% 1/15/2025 140 142
Ameritech Capital Funding 6.15% 1/15/2008 775 734
Ameritech Capital Funding 7.50% 4/1/2005 300 308
Baltimore Gas & Electric Co. 8.375% 8/15/2001 500 516
CMS Panhandle Holding Co. 6.125% 3/15/2004 100 96
CMS Panhandle Holding Co. 6.50% 7/15/2009 300 279
CMS Panhandle Holding Co. 7.00% 7/15/2029 (2) 200 178
Coastal Corp 6.50% 6/1/2008 100 94
Coastal Corp. 7.42% 2/15/2037 175 161
Coastal Corp. 7.75% 10/15/2035 250 239
Commonwealth Edison 7.375% 9/15/2002 1,000 1,033
Commonwealth Edison 7.50% 7/1/2013 250 252
Edison International 6.875% 9/15/2004 900 891
El Paso Energy Corp. 6.75% 5/15/2009 1,000 946
Enron Corp. 6.40% 7/15/2006 250 236
Enron Corp. 6.75% 8/1/2009 450 422
Enron Corp. 7.125% 5/15/2007 150 147
Enron Corp. 9.125% 4/1/2003 500 528
Enron Corp. 9.65% 5/15/2001 450 471
GTE South Inc. 6.125% 6/15/2007 500 470
KN Energy, Inc. 6.45% 3/1/2003 250 243
MCI Communications Corp. 6.50% 4/15/2010 200 191
MCI Communications Corp. 7.50% 8/20/2004 250 256
Michigan Bell Telephone Co. 7.50% 2/15/2023 175 169
Midamerican Funding LLC 5.85% 3/1/2001 (2) 1,200 1,189
National Rural Utility Co. 5.00% 10/1/2002 500 479
National Rural Utility Co. 6.20% 2/1/2008 650 620
New England Telephone & Telegraph Co. 6.875% 10/1/2023 175 161
New England Telephone & Telegraph Co. 7.875% 11/15/2029 500 520
New York Telephone Co. 6.125% 1/15/2010 750 694
Pacific Bell Telephone Co. 7.25% 7/1/2002 225 229
Southern California Edison Co. 6.375% 1/15/2006 650 627
Southwestern Bell Telephone Co. 7.625% 3/1/2023 475 460
Texas Utilities Co. 7.17% 8/1/2007 850 844
Texas Utilities Co. 7.375% 8/1/2001 250 253
Texas Utilities Co. 7.875% 3/1/2023 110 109
Texas Utilities Co. 8.25% 4/1/2004 100 104
U S WEST Capital Funding, Inc. 6.125% 7/15/2002 1,000 977
Virginia Electric & Power Co. 6.625% 4/1/2003 200 199
Virginia Electric & Power Co. 6.75% 10/1/2023 500 444
</TABLE>
12
<PAGE> 77
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WorldCom Inc. 6.125% 8/15/2001 $ 1,250 $ 1,242
WorldCom Inc. 6.25% 8/15/2003 2,000 1,964
- -----------------------------------------------------------------------------------------------------------------------------
20,117
----------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $113,774) 110,819
- -----------------------------------------------------------------------------------------------------------------------------
FOREIGN AND INTERNATIONAL AGENCY BONDS (U.S. DOLLAR-DENOMINATED)(4.8%)
- -----------------------------------------------------------------------------------------------------------------------------
Province of British Columbia 7.00% 1/15/2003 170 172
Canadian National Railway Co. 6.80% 7/15/2018 450 411
Canadian National Railway Co. 6.90% 7/15/2028 200 180
Embotelladora Andina SA 7.875% 10/1/2097 350 256
Republic of Finland 7.875% 7/28/2004 350 368
Grand Metropolitan Investment Corp. 9.00% 8/15/2011 400 454
Hanson Overseas 7.375% 1/15/2003 400 405
Inter-American Development Bank 8.50% 3/15/2011 130 145
Israel Electric Corp. 7.75% 3/1/2009 (2) 450 446
KFW International Finance, Inc. 7.625% 2/15/2004 300 313
KFW International Finance, Inc. 9.125% 5/15/2001 200 209
Korea Electric Power 7.00% 2/1/2007 275 249
Korea Electric Power 7.75% 4/1/2013 600 540
Korean Development Bank 7.125% 4/22/2004 1,100 1,069
Province of Manitoba 8.75% 5/15/2001 500 518
Province of Manitoba 9.625% 12/1/2018 100 126
Province of Manitoba 9.25% 4/1/2020 120 148
National Australia Bank 6.60% 12/10/2007 400 381
National Westminster Bancorp Inc. 9.375% 11/15/2003 350 380
Province of New Brunswick 8.75% 5/1/2022 200 226
Province of New Brunswick 9.75% 5/15/2020 500 612
Province of Newfoundland 7.32% 10/13/2023 350 335
Province of Newfoundland 9.00% 6/1/2019 300 339
Noranda, Inc. 8.625% 7/15/2002 370 380
Northern Telecom Ltd. 6.875% 9/1/2023 250 233
Province of Ontario 7.375% 1/27/2003 110 113
Province of Ontario 7.75% 6/4/2002 200 206
Province of Ontario 8.00% 10/17/2001 1,500 1,544
Petroliam Nasional Berhad 8.875% 8/12/2004 (2) 700 717
Pemex Finance Ltd. 6.125% 11/15/2003 (2) 550 540
Petro Geo-Services 7.125% 3/30/2028 430 379
Petro Geo-Services 7.50% 3/31/2007 250 247
Republic of Portugal 5.75% 10/8/2003 650 636
The State of Qatar 9.50% 5/21/2009 (2) 550 571
Province of Saskatchewan 7.125% 3/15/2008 200 203
Province of Saskatchewan 8.00% 7/15/2004 550 578
Swiss Bank Corp.-New York 7.00% 10/15/2015 500 467
Swiss Bank Corp.-New York 7.375% 6/15/2017 100 97
TPSA Finance BV 7.75% 12/10/2008 (2) 290 277
Tyco International Ltd. 6.875% 9/5/2002 (2) 500 500
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN AND INTERNATIONAL AGENCY BONDS
(Cost $16,425) 15,970
- -----------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.7%)
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government Obligations
in a Pooled Cash Account
(COST $5,704) 5.30% 10/1/1999 5,704 5,704
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(COST $345,457) 338,433
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 78
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
HIGH-GRADE BOND PORTFOLIO (000)
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.6%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Other Assets--Note C $ 4,769
Liabilities (6,632)
------------
(1,863)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 32,548,313 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $336,570
==========================================================================================================================
NET ASSET VALUE PER SHARE $10.34
==========================================================================================================================
</TABLE>
*See Note A in Notes to Financial Statements.
(1) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
(2) 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 September 30,
1999, the aggregate value of these securities was $8,371,000, representing
2.5% of net assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 344,893 $10.60
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (1,299) (.04)
Unrealized Depreciation--Note F (7,024) (.22)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 336,570 $10.34
==========================================================================================================================
</TABLE>
14
<PAGE> 79
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (93.7%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE (3.2%)
Bank United Corp. 8.875% 5/1/2007 $ 750 $ 735
Chevy Chase Savings Bank 9.25% 12/1/2008 1,250 1,247
Imperial Credit Industries, Inc. 9.875% 1/15/2007 700 532
Navistar Financial Corp. 9.00% 6/1/2002 1,000 1,015
Olympic Financial Ltd. 11.50% 3/15/2007 370 277
Western Financial Savings Bank 8.50% 7/1/2003 1,000 930
---------
4,736
---------
INDUSTRIAL (85.8%)
AEROSPACE & DEFENSE (2.0%)
Argo-Tech Corp. 8.625% 10/1/2007 250 214
K & F Industries, Inc. 9.25% 10/15/2007 1,500 1,444
L-3 Communications Corp. 10.375% 5/1/2007 500 519
Newport News Shipbuilding Inc. 8.625% 12/1/2006 750 746
AUTOMOTIVE (4.2%)
Accuride Corp. 9.25% 2/1/2008 1,000 947
Delco Remy International Inc. 10.625% 8/1/2006 750 720
Dura Operating Corp. 9.00% 5/1/2009 (1) 500 464
Federal-Mogul Corp. 8.80% 4/15/2007 1,000 990
Hayes Wheels International, Inc. 11.00% 7/15/2006 500 514
Johnstown America Industries, Inc. 11.75% 8/15/2005 250 255
LDM Technologies Inc. 10.75% 1/15/2007 500 445
Lear Corp. 7.96% 5/15/2005 (1) 1,000 977
Lear Corp. 9.50% 7/15/2006 750 769
BUILDING MATERIALS (1.9%)
American Standard Cos. Inc. 7.375% 2/1/2008 2,250 2,042
Nortek, Inc. 9.25% 3/15/2007 750 729
CABLE (9.3%)
Adelphia Communications Corp. 8.375% 2/1/2008 1,000 937
Bresnan Communications Group 8.00% 2/1/2009 (1) 1,000 982
CSC Holdings, Inc. 8.125% 8/15/2009 750 758
CSC Holdings, Inc. 9.25% 11/1/2005 500 515
Century Communications Inc. 8.875% 1/15/2007 995 965
Charter Communications Holdings LLC 8.625% 4/1/2009 (1) 2,000 1,890
Classic Cable Inc. 9.875% 8/1/2008 (1) 1,000 995
Falcon Holdings Group LP 8.375% 4/15/2010 1,000 982
Jones Intercable Inc. 7.625% 4/15/2008 1,000 997
Lenfest Communications, Inc. 8.375% 11/1/2005 1,500 1,534
NTL Inc. 10.00% 2/15/2007 245 251
Rifkin Acquisition Partners LLP 11.125% 1/15/2006 1,250 1,391
USA Networks Inc. 6.75% 11/15/2005 1,500 1,428
CHEMICALS (3.7%)
ARCO Chemical Co. 9.80% 2/1/2020 1,500 1,425
Acetex Corp. 9.75% 10/1/2003 750 660
Buckeye Cellulose Corp. 8.50% 12/15/2005 500 484
Huntsman Corp. 9.50% 7/1/2007 (1) 750 690
Lilly Industries, Inc. 7.75% 12/1/2007 1,250 1,192
Lyondell Chemical Co. 9.625% 5/1/2007 250 249
Pioneer Americas Acquisition Corp. 9.25% 6/15/2007 500 385
Sovereign Specialty Chemicals, Inc. 9.50% 8/1/2007 250 248
CONSUMER GOODS & SERVICES (1.6%)
Scotts Co. 8.625% 1/15/2009 (1) 500 478
Sealy Mattress, Inc. 9.875% 12/15/2007 1,000 960
True Temper Sports, Inc. 10.875% 12/1/2008 1,000 950
</TABLE>
15
<PAGE> 80
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTAINERS (2.0%)
BWAY Corp. 10.25% 4/15/2007 $ 500 $ 500
Owens-Illinois, Inc. 8.10% 5/15/2007 1,500 1,467
Silgan Holding Inc. 9.00% 6/1/2009 1,000 960
ENERGY & RELATED GOODS & SERVICES (6.1%)
AmeriGas Partners, LP Series B 10.125% 4/15/2007 600 612
Clark Refining & Marketing, Inc. 8.375% 11/15/2007 500 432
Cross Timbers Oil Co. 9.25% 4/1/2007 400 396
Energy Corp. of America 9.50% 5/15/2007 500 440
Newfield Exploration Co. 7.45% 10/15/2007 750 697
Newpark Resources, Inc. 8.625% 12/15/2007 500 468
Oryx Energy Co. 8.125% 10/15/2005 1,000 1,030
P & L Coal Holdings Corp. 8.875% 5/15/2008 1,500 1,459
Plains Resources, Inc. 10.25% 3/15/2006 500 505
Pride Petroleum Services, Inc. 9.375% 5/1/2007 750 754
RBF Finance Co. 11.00% 3/15/2006 1,000 1,055
Tesoro Petroleum Corp. 9.00% 7/1/2008 500 489
Tuboscope Inc. 7.50% 2/15/2008 750 639
FOOD & LODGING (2.1%)
Aurora Foods Inc. 8.75% 7/1/2008 500 471
B & G Foods, Inc. 9.625% 8/1/2007 500 455
Nash Finch Co. 8.50% 5/1/2008 750 662
New World Pasta Co. 9.25% 2/15/2009 (1) 1,000 930
Tricon Global Restaurants, Inc. 7.65% 5/15/2008 500 483
GENERAL INDUSTRIAL (7.6%)
Allied Waste North America Inc. 7.625% 1/1/2006 1,500 1,335
Anchor Glass Container Corp. 11.25% 4/1/2005 500 500
Consumers International 10.25% 4/1/2005 1,000 995
Grove Worldwide LLC 9.25% 5/1/2008 725 348
Henry Co. 10.00% 4/15/2008 1,000 660
Idex Corp. 6.875% 2/15/2008 1,500 1,348
International Wire Group 11.75% 6/1/2005 500 511
Mastec, Inc. 7.75% 2/1/2008 1,250 1,169
Neenah Corp. 11.125% 5/1/2007 1,035 958
Numatics Inc. 9.625% 4/1/2008 500 420
Park-Ohio Industries, Inc. 9.25% 12/1/2007 1,000 945
Roller Bearing Co. of America Inc. 9.625% 6/15/2007 500 445
Royster-Clark Inc. 10.25% 4/1/2009 (1) 1,000 925
Terex Corp. 8.875% 4/1/2008 500 475
HEALTH CARE (3.4%)
Beverly Enterprises Inc. 9.00% 2/15/2006 500 431
Columbia/HCA Healthcare Corp. 7.25% 5/20/2008 1,000 875
Kinetic Concepts, Inc. 9.625% 11/1/2007 220 158
Leiner Health Products, Inc. 9.625% 7/1/2007 365 288
Lifepoint Hospitals Holdings Corp. 10.75% 5/15/2009 (1) 500 500
Owens & Minor, Inc. 10.875% 6/1/2006 500 505
Tenet Healthcare Corp. 8.125% 12/1/2008 1,750 1,597
Triad Hospitals Holdings, Inc. 11.00% 5/15/2009 (1) 640 634
HOME BUILDING & REAL ESTATE (2.2%)
CapStar Hotel Co. 8.75% 8/15/2007 500 454
Kaufman & Broad Home Corp. 7.75% 10/15/2004 500 467
Standard Pacific Corp. 8.50% 6/15/2007 500 473
Toll Corp. 7.75% 9/15/2007 1,000 910
Del E. Webb Corp. 10.25% 2/15/2010 1,000 930
</TABLE>
16
<PAGE> 81
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEDIA & ENTERTAINMENT (12.0%)
AMC Entertainment Inc. 9.50% 2/1/2011 $ 1,000 $ 815
American Media Operation Inc. 10.25% 5/1/2009 (1) 125 121
Big Flower Press Holdings 8.875% 7/1/2007 750 735
CBS Corp. 7.15% 5/20/2005 1,000 987
Chancellor Media Corp. 9.375% 10/1/2004 500 505
Citadel Broadcasting Co. 9.25% 11/15/2008 500 495
EchoStar DBS Corp. 9.375% 2/1/2009 (1) 2,000 1,975
Emmis Communications Corp. 8.125% 3/15/2009 1,500 1,417
Fox/Liberty Networks LLC 8.875% 8/15/2007 1,000 1,010
JCAC, Inc. 10.125% 6/15/2006 85 90
Lin Television Corp. 8.375% 3/1/2008 500 466
Loews Cineplex Entertainment 8.875% 8/1/2008 1,500 1,335
Mail-Well Corp. 8.75% 12/15/2008 1,435 1,363
Outdoor Systems Inc. 9.375% 10/15/2006 260 272
PRIMEDIA, Inc. 7.625% 4/1/2008 1,000 935
RCN Corp. 10.00% 10/15/2007 1,500 1,440
TV Guide, Inc. 8.125% 3/1/2009 1,500 1,418
Von Hoffman Press Inc. 10.875% 5/15/2007 (1) 405 397
World Color Press, Inc. 8.375% 11/15/2008 1,000 990
Young Broadcasting Inc. 9.00% 1/15/2006 750 746
METAL (3.1%)
AK Steel Corp. 9.125% 12/15/2006 1,000 995
AmeriSteel Corp. 8.75% 4/15/2008 500 498
Armco, Inc. 9.00% 9/15/2007 500 496
Bethlehem Steel Corp. 10.375% 9/1/2003 400 408
LTV Corp. 8.20% 9/15/2007 500 442
National Steel Corp. 9.875% 3/1/2009 500 491
Ryerson Tull, Inc. 9.125% 7/15/2006 500 493
Weirton Steel Corp. 10.75% 6/1/2005 500 465
Wells Aluminum Corp. 10.125% 6/1/2005 250 240
PAPER & PACKAGING (5.0%)
Ball Corp. 7.75% 8/1/2006 1,000 969
Boise Cascade Co. 9.45% 11/1/2009 500 534
Container Corp. of America 9.75% 4/1/2003 500 512
Domtar Inc. 8.75% 8/1/2006 200 204
Domtar Inc. 9.50% 8/1/2016 500 520
Fonda Group Inc. 9.50% 3/1/2007 500 435
NoramPac Inc. 9.50% 2/1/2008 500 509
Packaging Corp. of America 9.625% 4/1/2009 (1) 1,000 1,007
Paperboard Industries International Inc. 8.375% 9/15/2007 1,000 910
Repap New Brunswick, Inc. 9.00% 6/1/2004 750 720
Tembec Finance Corp. 9.875% 9/30/2005 205 212
Tembec Industries Inc. 8.625% 6/30/2009 125 123
U.S. Timberlands LLC 9.625% 11/15/2007 750 694
RETAIL (0.6%)
Boise Cascade Office Products Corp. 7.05% 5/15/2005 965 908
TECHNOLOGY & RELATED (7.4%)
Amphenol Corp. 9.875% 5/15/2007 500 500
Beckman Instruments, Inc. 7.45% 3/4/2008 750 693
Fairchild Semiconductor Corp. 10.125% 3/15/2007 475 463
Fisher Scientific International Inc. 9.00% 2/1/2008 1,000 935
Iron Mountain, Inc. 10.125% 10/1/2006 1,000 1,015
Pierce Leahy Corp. 9.125% 7/15/2007 1,000 985
PSINet Inc. 10.00% 2/15/2005 2,000 1,920
SCG Holding & Semiconductor Co. Corp. 12.00% 8/1/2009 (1) 1,500 1,537
</TABLE>
17
<PAGE> 82
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FACE MARKET
MATURITY AMOUNT VALUE*
HIGH YIELD BOND PORTFOLIO COUPON DATE (000) (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Telecommunication Techniques Co. 9.75% 5/15/2008 $ 900 $ 855
Unisys Corp. 7.875% 4/1/2008 1,000 965
Wesco Distribution Inc. 9.125% 6/1/2008 1,000 935
TELECOMMUNICATIONS (10.4%)
Crown Castle International Corp. 9.00% 5/15/2011 1,350 1,262
Flag Limited Inc. 8.25% 1/30/2008 1,500 1,309
GCI, Inc. 9.75% 8/1/2007 1,000 950
ITC DeltaCom, Inc. 9.75% 11/15/2008 405 405
ITC DeltaCom, Inc. 11.00% 6/1/2007 620 645
Insight Midwest 9.75% 10/1/2009 (1) 175 175
Intermedia Communications Inc. 8.875% 11/1/2007 1,000 877
Level 3 Communications, Inc. 9.125% 5/1/2008 1,500 1,357
MJD Communications Inc. 9.50% 5/1/2008 1,000 910
McLeodUSA Inc. 9.25% 7/15/2007 1,000 992
Nextel Communications Inc. 12.00% 11/1/2008 1,500 1,669
NEXTLINK Communications, Inc. 10.75% 11/15/2008 1,000 1,002
Qwest Communications International Inc. 7.50% 11/1/2008 1,500 1,489
Rogers Cantel, Inc. 8.30% 10/1/2007 1,500 1,519
Verio Inc. 11.25% 12/1/2008 605 620
TEXTILES & RELATED (0.6%)
Westpoint Stevens Inc. 7.875% 6/15/2005 1,000 935
TRANSPORTATION (0.6%)
Budget Group Inc. 9.125% 4/1/2006 1,000 880
----------
125,377
----------
UTILITIES (4.7%)
AES Corp. 8.375% 8/15/2007 500 458
CMS Energy Corp. 7.50% 1/15/2009 350 321
CMS Energy Corp. 8.125% 5/15/2002 750 747
Caithness Coso Fund Corp. 9.05% 12/15/2009 (1) 500 490
CalEnergy Co., Inc. 7.52% 9/15/2008 500 493
Calpine Corp. 7.625% 4/15/2006 1,000 935
Cleveland Electric Illuminating Co. 7.43% 11/1/2009 750 739
El Paso Electric Co. Series D 8.90% 2/1/2006 1,000 1,064
Niagara Mohawk Power Corp. 7.75% 10/1/2008 500 508
Public Service Co. of New Mexico 7.50% 8/1/2018 1,000 944
Texas-New Mexico Power Co. 10.75% 9/15/2003 200 204
----------
6,903
----------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $145,140) 137,016
- --------------------------------------------------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government Obligations
in a Pooled Cash Account--Note G 5.25% 10/1/1999 830 830
Collateralized by U.S. Government Obligations
in a Pooled Cash Account 5.30% 10/1/1999 4,867 4,867
- --------------------------------------------------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $5,697) 5,697
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (97.6%)
(COST $150,837) 142,713
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 83
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
Other Assets--Note C $ 4,942
Liabilities--Note G (1,448)
----------
3,494
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS (100%)
- --------------------------------------------------------------------------------------------------------------------------
Applicable to 15,395,340 outstanding $.001 par value shares of beneficial interest
(unlimited authorization) $146,207
==========================================================================================================================
NET ASSETS VALUE PER SHARE $9.50
==========================================================================================================================
</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 September 30,
1999, the aggregate value of these securities was $15,167,000, representing
10.4% of net assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid in Capital $159,890 $10.39
Undistributed Net Investment Income -- --
Accumulated Net Realized Losses--Note E (5,559) (.36)
Unrealized Depreciation--Note F (8,124) (.53)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS $146,207 9.50
==========================================================================================================================
</TABLE>
19
<PAGE> 84
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
BALANCED PORTFOLIO SHARES (000)
- ----------------------------------------------------------
COMMON STOCK (63.8)%
- ----------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (6.5%)
Ford Motor Co. 165,531 $ 8,308
Union Pacific Corp. 144,800 6,959
General Motors Corp. 88,139 5,547
Delphi Automotive Systems Corp. 201,301 3,233
KLM Royal Dutch Air Lines
NV ADR 123,229 3,219
Canadian National Railway Co. 103,000 3,122
CSX Corp. 70,000 2,966
British Airways PLC 51,100 2,919
Norfolk Southern Corp. 116,200 2,847
---------
39,120
---------
CONSUMER DISCRETIONARY (3.9%)
Kimberly-Clark Corp. 130,300 6,841
Whirlpool Corp. 56,500 3,690
Eastman Kodak Co. 44,400 3,349
Black & Decker Corp. 70,000 3,198
May Department Stores Co. 81,200 2,959
Sears, Roebuck & Co. 70,052 2,198
J.C. Penney Co., Inc. 36,500 1,255
---------
23,490
---------
CONSUMER STAPLES (1.5%)
Philip Morris Cos., Inc. 116,500 3,983
H.J. Heinz Co. 70,000 3,010
Bestfoods 47,000 2,280
---------
9,273
---------
FINANCIAL SERVICES (9.8%)
Citigroup, Inc. 289,875 12,755
CIGNA Corp. 111,300 8,654
Wachovia Corp. 93,300 7,336
U.S. Bancorp 196,200 5,923
Marsh & McLennan Cos., Inc. 81,000 5,549
MBIA, Inc. 62,900 2,933
Bank of America Corp. 49,106 2,735
Fannie Mae 39,700 2,489
Jefferson-Pilot Corp. 34,250 2,164
Equity Office Properties Trust
REIT 70,000 1,628
Spieker Properties, Inc. REIT 46,000 1,596
Ace, Ltd. 94,000 1,592
Archstone Communities
Trust REIT 70,000 1,352
Equity Residential Properties
Trust REIT 31,000 1,314
Starwood Hotels & Resorts
Worldwide, Inc. 26,000 580
---------
58,600
---------
HEALTH CARE (5.7%)
Pharmacia & Upjohn, Inc. 183,500 9,106
Johnson & Johnson 77,000 7,074
Baxter International, Inc. 90,100 5,429
Abbott Laboratories 126,200 4,638
American Home Products Corp. 100,000 4,150
Columbia/HCA Healthcare Corp. 117,000 2,479
AstraZeneca Group PLC ADR 31,000 1,310
---------
34,186
---------
INTEGRATED OILS (6.6%)
BP Amoco PLC ADR 62,064 6,877
Royal Dutch Petroleum Co. ADR 112,400 6,639
Repsol SA ADR 245,200 4,889
Chevron Corp. 46,600 4,136
Total SA ADR 59,056 3,746
Conoco Inc. 132,791 3,635
USX-Marathon Group 116,200 3,399
Phillips Petroleum Co. 50,800 2,477
Texaco Inc. 35,000 2,209
Unocal Corp. 44,587 1,653
---------
39,660
---------
OTHER ENERGY (1.7%)
Schlumberger Ltd. 66,000 4,113
Baker Hughes, Inc. 70,000 2,030
Sunoco, Inc. 70,545 1,931
Halliburton Co. 47,000 1,927
---------
10,001
---------
MATERIALS & PROCESSING (9.9%)
Alcoa Inc. 169,000 10,489
Dow Chemical Co. 64,100 7,283
Phelps Dodge Corp. 84,200 4,636
E.I. du Pont de Nemours & Co. 63,086 3,840
PPG Industries, Inc. 63,200 3,792
Rhone-Poulenc SA ADR 72,782 3,730
British Steel PLC ADR 139,900 3,602
BOC Group PLC ADR 82,000 3,413
Willamette Industries, Inc. 71,800 3,096
Alcan Aluminium Ltd. 93,100 2,909
Temple-Inland Inc. 47,000 2,844
Imperial Chemical Industries
PLC ADR 59,000 2,548
International Paper Co. 52,000 2,499
Cabot Corp. 52,200 1,240
Lubrizol Corp. 47,000 1,207
Weyerhaeuser Co. 20,000 1,153
CK Witco Corp. 57,762 841
---------
59,122
---------
PRODUCER DURABLES (5.6%)
Xerox Corp. 182,000 7,633
Northrop Grumman Corp. 70,000 4,449
Emerson Electric Co. 70,000 4,423
Caterpillar, Inc. 70,000 3,837
Alcatel SA ADR 137,000 3,802
Thomas & Betts Corp. 53,000 2,703
Pall Corp. 114,500 2,655
United Technologies Corp. 35,200 2,088
Parker Hannifin Corp. 40,100 1,797
---------
33,387
---------
TECHNOLOGY (3.8%)
International Business
Machines Corp. 73,000 8,860
Motorola, Inc. 98,600 8,677
Hewlett-Packard Co. 54,000 4,968
---------
22,505
---------
UTILITIES (5.9%)
Bell Atlantic Corp. 119,712 8,058
Duke Energy Corp. 93,500 5,154
ALLTEL Corp. 64,000 4,504
SBC Communications Inc. 67,000 3,421
Cinergy Corp. 97,400 2,758
Unicom Corp. 67,300 2,486
</TABLE>
20
<PAGE> 85
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
Texas Utilities Co. 57,700 $ 2,153
AT&T Corp. 46,250 2,012
Carolina Power & Light Co. 46,500 1,645
Pinnacle West Capital Corp. 42,000 1,528
PacifiCorp 73,000 1,469
---------
35,188
---------
OTHER (2.9%)
Cooper Industries, Inc. 119,000 5,563
Minnesota Mining &
Manufacturing Co. 46,400 4,457
Canadian Pacific Ltd. 163,000 3,718
Norsk Hydro AS ADR 83,400 3,586
---------
17,324
---------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $273,625) 381,856
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
CORPORATE BONDS (28.1%)
- ----------------------------------------------------------
MORTGAGE-BACKED SECURITIES (0.3%)
Asset Securitization Corp.
(3) 6.75%, 2/14/2041 $ 2,000 1,942
---------
FINANCE (8.5%)
Allstate Corp.
6.75%, 5/15/2018 2,000 1,799
Aon Corp.
6.90%, 7/1/2004 2,000 1,993
BB&T Corp.
7.25%, 6/15/2007 2,000 1,955
Bank One Corp.
6.875%, 8/1/2006 2,000 1,971
BankAmerica Corp.
7.20%, 4/15/2006 1,000 1,003
BankBoston NA
6.375%, 3/25/2008 2,000 1,883
CIGNA Corp.
7.875%, 5/15/2027 2,000 1,922
Cincinnati Financial Corp.
6.90%, 5/15/2028 2,000 1,788
Citicorp
7.625%, 5/1/2005 1,000 1,019
Citigroup, Inc.
6.625%, 1/15/2028 2,000 1,737
Comerica, Inc.
7.25%, 8/1/2007 1,500 1,492
Dean Witter, Discover & Co.
6.75%, 10/15/2013 1,000 932
Exxon Capital Corp.
6.00%, 7/1/2005 1,000 969
First Union Corp.
7.50%, 4/15/2035 1,000 1,010
Ford Motor Credit Co.
6.25%, 12/8/2005 1,000 957
Frank Russell Co.
(1) 5.625%, 1/15/2009 2,000 1,796
General Electric Global
Insurance Holdings Corp.
7.00%, 2/15/2026 2,000 1,885
Jackson National Life Insurance Co.
(1) 8.15%, 3/15/2027 1,500 1,553
John Hancock Mutual
Life Insurance Co.
(1) 7.375%, 2/15/2024 2,000 1,943
Lumbermens Mutual Casualty Co.
(1) 9.15%, 7/1/2026 1,000 972
NBD Bancorp, Inc.
7.125%, 5/15/2007 1,500 1,492
NationsBank Corp.
7.80%, 9/15/2016 2,000 2,028
Ohio National Life Insurance
(1) 8.50%, 5/15/2026 2,000 2,091
Provident Cos., Inc.
7.25%, 3/15/2028 2,000 1,826
Security Benefit Life Insurance Co.
(1) 8.75%, 5/15/2016 1,500 1,445
SunTrust Bank Atlanta
7.25%, 9/15/2006 1,000 1,008
Toyota Motor Credit Corp.
5.50%, 12/15/2008 2,000 1,812
UNUM Corp.
6.75%, 12/15/2028 2,000 1,712
US Bank NA Minnesota
5.625%, 11/30/2005 2,000 1,855
Washington Mutual, Inc.
7.50%, 8/15/2006 3,000 3,041
Wachovia Corp.
5.625%, 12/15/2008 2,000 1,798
---------
50,687
---------
INDUSTRIAL (11.9%)
Abbott Laboratories
6.80%, 5/15/2005 1,000 1,002
Airtouch Communications Inc.
6.65%, 5/1/2008 2,000 1,924
Amoco Corp.
6.50%, 8/1/2007 1,500 1,469
Archer-Daniels-Midland Co.
7.50%, 3/15/2027 1,500 1,491
Autozone Inc.
6.50%, 7/15/2008 2,000 1,867
Baxter International, Inc.
7.65%, 2/1/2027 2,100 2,080
Becton, Dickinson & Co.
7.00%, 8/1/2027 2,000 1,855
The Boeing Co.
8.75%, 8/15/2021 1,500 1,694
Bristol-Myers Squibb Co.
6.80%, 11/15/2026 1,500 1,435
CPC International, Inc.
7.25%, 12/15/2026 1,000 973
Coca-Cola Enterprises, Inc.
8.50%, 2/1/2022 1,000 1,086
Continental Airlines
(3) 6.90%, 7/2/2019 1,958 1,828
Dean Foods Co.
6.90%, 10/15/2017 2,000 1,876
Diageo PLC
6.125%, 8/15/2005 2,000 1,925
Dover Corp.
6.65%, 6/1/2028 2,000 1,783
</TABLE>
21
<PAGE> 86
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
BALANCED PORTFOLIO (000) (000)
- ----------------------------------------------------------
<S> <C> <C>
E.I. du Pont de Nemours & Co.
6.50%, 1/15/2028 $ 2,000 $ 1,791
Eli Lilly & Co.
7.125%, 6/1/2025 2,000 1,963
Federal Express Corp.
6.72%, 1/15/2022 1,995 1,889
Fluor Corp.
6.95%, 3/1/2007 1,500 1,465
Georgia-Pacific Corp.
9.625%, 3/15/2022 1,000 1,080
International Business
Machines Corp.
7.00%, 10/30/2025 2,000 1,934
Johnson Controls, Inc.
7.125%, 7/15/2017 2,200 2,082
Joseph Seagram & Sons, Inc.
7.50%, 12/15/2018 2,000 1,896
KN Energy, Inc.
7.25%, 3/1/2028 2,000 1,816
Lockheed Martin Corp.
7.65%, 5/1/2016 1,000 974
Mattel Inc.
6.125%, 7/15/2005 2,000 1,906
McDonald's Corp.
6.375%, 1/8/2028 1,000 897
7.375%, 7/15/2033 1,000 949
Merck & Co.
6.40%, 3/1/2028 2,000 1,823
Minnesota Mining &
Manufacturing Corp.
6.375%, 2/15/2028 2,000 1,794
Norfolk Southern Corp.
7.70%, 5/15/2017 1,500 1,495
Procter & Gamble Co. ESOP
9.36%, 1/1/2021 2,000 2,381
Raytheon Co.
7.20%, 8/15/2027 1,500 1,388
Rohm & Haas Co.
(1) 7.40%, 7/15/2009 2,000 2,025
Sears, Roebuck & Co.
9.375%, 11/1/2011 1,000 1,137
Stanford Univ.
7.65%, 6/15/2026 1,000 1,051
TRW, Inc.
9.375%, 4/15/2021 1,000 1,120
Tosco Corp.
7.80%, 1/1/2027 1,500 1,445
Tyco International Group
7.00%, 6/15/2028 2,000 1,817
USA Waste Services Inc.
7.00%, 7/15/2028 2,000 1,560
Ultramar Diamond Shamrock
7.20%, 10/15/2017 2,000 1,843
United Technologies Corp.
8.75%, 3/1/2021 1,000 1,144
Wal-Mart Stores, Inc.
6.875%, 8/10/2009 2,000 2,004
7.25%, 6/1/2013 1,000 1,020
Weyerhaeuser Co.
6.95%, 8/1/2017 1,500 1,412
---------
71,389
---------
UTILITIES (7.4%)
AT&T Corp.
6.50%, 3/15/2029 2,000 1,763
7.75%, 3/1/2007 1,000 1,043
Ameritech Capital Funding
6.875%, 10/15/2027 2,000 1,865
Atlantic City Electric Co.
(2) 7.00%, 9/1/2023 1,000 921
Baltimore Gas & Electric Co.
5.50%, 4/15/2004 1,000 953
BellSouth Telecommunications
7.50%, 6/15/2033 1,000 955
Carolina Power & Light Co.
5.95%, 3/1/2009 2,000 1,838
Central Illinois Public Service
6.125%, 12/15/2028 1,000 871
Central Power & Light Co.
6.625%, 7/1/2005 1,000 976
Cincinnati Bell, Inc.
6.30%, 12/1/2028 2,000 1,539
Duke Energy Corp.
6.00%, 12/1/2028 1,000 800
7.00%, 7/1/2033 1,000 891
El Paso Natural Gas Co.
7.50%, 11/15/2026 1,500 1,436
Florida Power & Light Co.
7.00%, 9/1/2025 2,000 1,837
Florida Power Corp.
6.75%, 2/1/2028 1,790 1,608
6.875%, 2/1/2008 1,850 1,859
GTE Southwest, Inc.
6.00%, 1/15/2006 1,000 945
Illinois Bell Telephone Co.
6.625%, 2/1/2025 1,000 898
Indiana Bell Telephone Co., Inc.
7.30%, 8/15/2026 2,000 1,969
Indiana Michigan Power Co.
6.875%, 7/1/2004 2,000 1,956
National Rural Utilities
5.75%, 12/1/2008 2,000 1,840
New Jersey Bell Telephone Co.
8.00%, 6/1/2022 1,000 1,047
New York Telephone Co.
7.25%, 2/15/2024 1,000 932
Northern Natural Gas Co.
(1) 6.75%, 9/15/2008 2,000 1,892
PacifiCorp
6.625%, 6/1/2007 1,000 978
Pacific Bell
7.125%, 3/15/2026 1,000 954
Sprint Capital Corp.
6.125%, 11/15/2008 2,000 1,856
Tennessee Gas Pipeline Co.
7.50%, 4/1/2017 1,500 1,447
U S WEST Communications Group
6.875%, 9/15/2033 1,000 866
Union Electric Co.
7.375%, 12/15/2004 1,000 1,019
Washington Gas Light Co.
6.15%, 1/26/2026 1,500 1,471
</TABLE>
22
<PAGE> 87
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- ----------------------------------------------------------
<S> <C> <C>
Wisconsin Electric Power Co.
7.70%, 12/15/2027 $ 1,000 $ 958
WorldCom Inc.
6.40%, 8/15/2005 2,000 1,946
---------
44,129
---------
- ----------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $176,082) 168,147
- ----------------------------------------------------------
FOREIGN BONDS (U.S. DOLLAR-DENOMINATED)(2.5%)
- ----------------------------------------------------------
Banque Nationale de Paris-NY
7.20%, 1/15/2007 1,500 1,473
Banque Paribas NY
6.95%, 7/22/2013 2,000 1,859
Husky Oil Ltd.
7.55%, 11/15/2016 1,000 876
Inter-American Dev. Bank
8.875%, 6/1/2009 1,500 1,705
KFW International Finance, Inc.
7.20%, 3/15/2014 2,000 2,065
Metropolitano de Lisboa
(1) 7.42%, 10/15/2016 1,000 1,017
Petro-Canada
7.875%, 6/15/2026 1,000 984
Southern Investments UK PLC
6.80%, 12/1/2006 1,500 1,423
The Dev. Bank of Singapore Ltd
(1) 7.875%, 8/10/2009 1,580 1,604
Toronto Dominion Bank-NY
6.45%, 1/15/2009 1,000 946
Zeneca Wilmington Inc.
7.00%, 11/15/2023 1,000 950
- ----------------------------------------------------------
TOTAL FOREIGN BONDS
(COST $15,133) 14,902
- ----------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (4.5%)
- ----------------------------------------------------------
U.S. GOVERNMENT SECURITIES (2.8%)
U.S. Treasury Bonds
6.25%, 8/15/2023 11,000 10,829
7.25%, 5/15/2016 2,500 2,703
7.50%, 11/15/2016 3,000 3,323
---------
16,855
---------
AGENCY BONDS & NOTES (0.5%)
Federal Home Loan Bank
5.24%, 12/18/2008 2,000 1,791
7.66%, 7/20/2004 1,000 1,050
---------
2,841
---------
MORTGAGE-BACKED SECURITIES (1.2%)
Government National Mortgage Assn.
6.00%, 12/15/2028 4,979 4,624
6.00%, 7/15/2029 999 928
6.00%, 8/15/2029 1,997 1,854
---------
7,406
---------
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (COST $26,904) 27,102
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (1.9%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.25%, 10/1/1999--Note G 8,415 8,415
5.30%, 10/1/1999 3,092 3,092
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $11,507) 11,507
- ----------------------------------------------------------
TOTAL INVESTMENTS (100.8%)
(COST $503,251) 603,514
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.8%)
- ----------------------------------------------------------
Other Assets--Note C 4,856
Liabilities--Note G (9,858)
---------
(5,002)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 34,382,659 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $598,512
==========================================================
NET ASSETS VALUE PER SHARE $17.41
==========================================================
</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 September 30,
1999, the aggregate value of these securities was $16,338,000, representing
2.7% of net assets.
(2) Scheduled principal and interest payments are guaran- teed by MBIA
(Municipal Bond Issuance Association).
(3) The average maturity is shorter than the final maturity shown due to
scheduled interim principal payments.
ADR--American Depositary Receipt.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- --------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- --------------------------------------------------------
AMOUNT PER
(000) SHARE
- --------------------------------------------------------
<S> <C> <C>
Paid in Capital $449,245 $13.06
Undistributed Net
Investment Income 21,548 .63
Accumulated Net Realized Gains 27,456 .80
Unrealized Appreciation--Note F 100,263 2.92
- --------------------------------------------------------
NET ASSETS $598,512 $17.41
========================================================
</TABLE>
23
<PAGE> 88
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
EQUITY INCOME PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.7%)
- ----------------------------------------------------------
AUTO & TRANSPORTATION (2.7%)
Ford Motor Co. 81,800 $ 4,105
Genuine Parts Co. 78,450 2,084
Union Pacific Corp. 42,500 2,043
Norfolk Southern Corp. 73,600 1,803
CSX Corp. 41,500 1,759
The Goodyear Tire & Rubber Co. 500 24
---------
11,818
---------
CONSUMER DISCRETIONARY (5.6%)
May Department Stores Co. 138,500 5,047
J.C. Penney Co., Inc. 101,900 3,503
Eastman Kodak Co. 43,500 3,282
Kimberly-Clark Corp. 45,700 2,399
The McGraw-Hill Cos., Inc. 43,600 2,109
Gillette Co. 58,800 1,996
Whirlpool Corp. 21,800 1,424
International Flavors &
Fragrances, Inc. 34,700 1,197
Newell Rubbermaid, Inc. 37,500 1,071
Avon Products, Inc. 40,800 1,012
Sears, Roebuck & Co. 29,600 929
---------
23,969
---------
CONSUMER STAPLES (9.9%)
Philip Morris Cos., Inc. 236,300 8,079
Anheuser-Busch Cos., Inc. 65,000 4,554
General Mills, Inc. 45,300 3,675
Kellogg Co. 79,700 2,984
H.J. Heinz Co. 66,250 2,849
The Quaker Oats Co. 45,000 2,784
Sara Lee Corp. 90,600 2,123
Procter & Gamble Co. 22,000 2,062
PepsiCo, Inc. 67,800 2,051
Campbell Soup Co. 44,600 1,745
The Clorox Co. 45,000 1,721
UST, Inc. 55,400 1,672
Hershey Foods Corp. 25,400 1,237
Gallaher Group PLC ADR 44,700 1,215
Albertson's, Inc. 27,400 1,084
Bestfoods 18,000 873
Rite Aid Corp. 58,200 804
Ralston-Ralston Purina Group 20,900 581
ConAgra, Inc. 24,200 546
---------
42,639
---------
FINANCIAL SERVICES (15.7%)
Bank of America Corp. 152,350 8,484
Bank One Corp. 159,740 5,561
First Union Corp. 156,076 5,550
J.P. Morgan & Co., Inc. 37,100 4,239
Marsh & McLennan Cos., Inc. 60,750 4,161
PNC Bank Corp. 68,300 3,599
Lincoln National Corp. 91,800 3,448
American General Corp. 53,800 3,399
Fleet Financial Group, Inc. 86,300 3,161
Washington Mutual, Inc. 103,780 3,036
Mellon Bank Corp. 87,400 2,950
Wachovia Corp. 37,200 2,925
KeyCorp 83,300 2,150
The Chase Manhattan Corp. 28,100 2,118
U.S. Bancorp 69,554 2,100
St. Paul Cos., Inc. 76,300 2,098
SAFECO Corp. 68,400 1,915
Merrill Lynch & Co., Inc. 26,400 1,774
Dun & Bradstreet Corp. 47,900 1,431
The Chubb Corp. 27,500 1,370
Wells Fargo Co. 22,900 907
Fannie Mae 13,800 865
---------
67,241
---------
HEALTH CARE (12.7%)
Bristol-Myers Squibb Co. 211,600 14,283
American Home Products Corp. 229,800 9,537
Pharmacia & Upjohn, Inc. 190,550 9,456
Merck & Co., Inc. 120,900 7,836
Glaxo Wellcome PLC ADR 113,300 5,892
Eli Lilly & Co. 44,800 2,867
Baxter International, Inc. 46,100 2,778
SmithKline Beecham PLC ADR 17,400 1,003
Abbott Laboratories 17,900 658
---------
54,310
---------
INTEGRATED OILS (18.1%)
Mobil Corp. 125,100 12,604
Exxon Corp. 165,800 12,590
BP Amoco PLC ADR 109,264 12,108
Chevron Corp. 120,400 10,686
Atlantic Richfield Co. 102,100 9,049
Texaco Inc. 136,500 8,617
Royal Dutch Petroleum Co. ADR 112,000 6,615
Phillips Petroleum Co. 48,800 2,379
USX-Marathon Group 77,800 2,276
Unocal Corp. 11,900 441
Conoco Inc. Class B 10,794 295
---------
77,660
---------
OTHER ENERGY (0.7%)
Schlumberger Ltd. 25,200 1,570
Baker Hughes, Inc. 52,600 1,525
3,095
MATERIALS & PROCESSING (4.3%)
Dow Chemical Co. 64,700 7,352
International Paper Co. 89,127 4,284
E.I. du Pont de Nemours & Co. 63,941 3,892
Weyerhaeuser Co. 48,800 2,812
---------
18,340
---------
PRODUCER DURABLES (3.0%)
Pitney Bowes, Inc. 51,900 3,163
Emerson Electric Co. 47,800 3,020
Thomas & Betts Corp. 33,800 1,724
Honeywell, Inc. 12,200 1,358
Caterpillar, Inc. 20,400 1,118
Lockheed Martin Corp. 31,100 1,017
Deere & Co. 22,600 874
The Boeing Co. 16,800 716
---------
12,990
---------
UTILITIES (23.8%)
Bell Atlantic Corp. 259,784 17,487
GTE Corp. 148,000 11,377
Ameritech Corp. 166,900 11,214
AT&T Corp. 240,550 10,464
U S WEST, Inc. 131,000 7,475
SBC Communications Inc. 121,736 6,216
</TABLE>
24
<PAGE> 89
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
BellSouth Corp. 121,600 $ 5,472
Consolidated Natural Gas Co. 63,000 3,930
Duke Energy Corp. 60,300 3,324
Southern Co. 127,500 3,283
Edison International 132,400 3,219
PacifiCorp 145,000 2,918
Texas Utilities Co. 59,815 2,232
Dominion Resources, Inc. 37,400 1,688
FPL Group, Inc. 30,400 1,531
Central & South West Corp. 61,400 1,297
Northern States Power Co. 59,400 1,281
Constellation Energy Group 45,500 1,280
Allegheny Energy, Inc. 40,000 1,272
TECO Energy, Inc. 56,000 1,183
Wisconsin Energy Corp. 47,200 1,106
Ameren Corp. 28,000 1,059
NICOR, Inc. 22,600 840
Sempra Energy 26,882 559
Consolidated Edison Inc. 12,500 519
----------
102,226
----------
OTHER (3.2%)
Minnesota Mining &
Manufacturing Co. 70,500 6,772
General Electric Co. 43,600 5,169
Fortune Brands, Inc. 53,400 1,722
----------
13,663
----------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $304,806) 427,951
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.5%)
- ----------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.30%, 10/1/1999
(COST $2,273) $2,273 2,273
- ----------------------------------------------------------
TOTAL INVESTMENTS (100.2%)
(COST $307,079) 430,224
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- ----------------------------------------------------------
Other Assets--Note C 1,848
Liabilities (2,763)
----------
(915)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 20,348,498 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $429,309
==========================================================
NET ASSET VALUE PER SHARE $21.10
==========================================================
</TABLE>
*See Note A in Notes to Financial Statements.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $292,828 $14.39
Undistributed Net
Investment Income 10,419 .51
Accumulated Net Realized Gains 2,917 .15
Unrealized Appreciation--Note F 123,145 6.05
- ----------------------------------------------------------
NET ASSETS $429,309 $21.10
==========================================================
</TABLE>
25
<PAGE> 90
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
DIVERSIFIED VALUE PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.1%)
AUTO & TRANSPORTATION (3.8%)
Ford Motor Co. 21,000 $ 1,054
General Motors Corp. 8,600 541
---------
1,595
---------
CONSUMER DISCRETIONARY (11.1%)
- - Kmart Corp. 93,800 1,096
- - Toys R Us, Inc. 71,600 1,074
Sears, Roebuck & Co. 28,600 897
Waste Management, Inc. 28,600 551
Service Corp. International 47,700 504
J.C. Penney Co., Inc. 14,600 502
Newell Rubbermaid, Inc. 2,100 60
---------
4,684
---------
CONSUMER STAPLES (5.0%)
Philip Morris Cos., Inc. 34,300 1,173
Anheuser-Busch Cos., Inc. 7,500 525
Imperial Tobacco Group ADR 17,200 404
---------
2,102
---------
FINANCIAL SERVICES (21.1%)
Bank of America Corp. 25,200 1,403
The Chase Manhattan Corp. 16,300 1,229
XL Capital Ltd. Class A 19,100 860
Allstate Corp. 33,200 828
Washington Mutual, Inc. 27,900 816
First Union Corp. 22,900 814
Aon Corp. 25,800 763
PNC Bank Corp. 11,500 606
Citigroup, Inc. 13,400 590
The CIT Group, Inc. 25,500 524
Bank One Corp. 14,300 498
---------
8,931
---------
INTEGRATED OILS (9.2%)
Atlantic Richfield Co. 20,200 1,790
Occidental Petroleum Corp. 66,800 1,545
Phillips Petroleum Co. 10,900 531
Conoco Inc. 1,400 38
---------
3,904
---------
OTHER ENERGY (10.8%)
Schlumberger Ltd. 22,700 1,414
Baker Hughes, Inc. 38,200 1,108
Williams Cos., Inc. 28,100 1,052
Halliburton Co. 23,900 980
---------
4,554
---------
MATERIALS & PROCESSING (6.3%)
Fort James Corp. 38,200 1,020
Lyondell Chemical Co. 61,300 820
Millennium Chemicals, Inc. 14,300 292
Hanson PLC ADR 7,300 282
CK Witco Corp. 17,684 258
---------
2,672
---------
PRODUCER DURABLES (4.8%)
Honeywell, Inc. 9,400 1,046
Xerox Corp. 23,900 1,002
---------
2,048
---------
TECHNOLOGY (2.6%)
Raytheon Co. Class B 22,000 1,092
---------
UTILITIES (16.9%)
GTE Corp. 18,100 1,392
Entergy Corp. 47,700 1,380
- - Northeast Utilities 72,700 1,336
SBC Communications Inc. 19,100 975
Central & South West Corp. 40,100 847
FirstEnergy Corp. 26,700 681
Reliant Energy, Inc. 20,000 541
---------
7,152
---------
OTHER (4.5%)
ITT Industries, Inc. 28,600 910
AlliedSignal Inc. 9,500 570
Tenneco, Inc. 24,800 422
---------
1,902
---------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $47,516) 40,636
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENT (3.9%)
- ----------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.30%, 10/1/1999
(COST $1,644) $1,644 1,644
- ----------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(COST $49,160) 42,280
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- ----------------------------------------------------------
Other Assets--Note C 318
Liabilities (324)
---------
(6)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 4,542,460 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $42,274
==========================================================
NET ASSET VALUE PER SHARE $9.31
==========================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $49,080 $ 10.81
Undistributed Net
Investment Income 518 .11
Accumulated Net Realized
Losses--Note E (444) (.10)
Unrealized Depreciation--Note F (6,880) (1.51)
- ---------------------------------------------------------
NET ASSETS $42,274 $ 9.31
=========================================================
</TABLE>
26
<PAGE> 91
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.6%)(1)
- ---------------------------------------------------------
- - Microsoft Corp. 656,600 $ 59,463
General Electric Co. 421,936 50,026
Intel Corp. 425,656 31,632
- - Cisco Systems, Inc. 417,766 28,643
International Business
Machines Corp. 233,064 28,288
Wal-Mart Stores, Inc. 572,484 27,229
Lucent Technologies, Inc. 394,130 25,569
Exxon Corp. 311,930 23,687
Merck & Co., Inc. 302,656 19,616
Citigroup, Inc. 434,476 19,117
Pfizer, Inc. 497,908 17,894
AT&T Corp. 410,643 17,863
- - MCI WorldCom, Inc. 240,957 17,319
American International
Group, Inc. 199,193 17,317
Bristol-Myers Squibb Co. 255,500 17,246
Royal Dutch Petroleum Co. ADR 275,580 16,276
Procter & Gamble Co. 170,944 16,026
Johnson & Johnson 172,954 15,890
The Coca-Cola Co. 317,662 15,268
- - America Online, Inc. 142,590 14,829
- - Dell Computer Corp. 326,500 13,652
Bell Atlantic Corp. 199,782 13,448
Home Depot, Inc. 190,790 13,093
SBC Communications Inc. 253,080 12,923
Bank of America Corp. 223,613 12,452
Hewlett-Packard Co. 130,248 11,983
Tyco International Ltd. 109,064 11,261
BellSouth Corp. 243,008 10,935
Philip Morris Cos., Inc. 309,569 10,583
Mobil Corp. 100,698 10,145
Time Warner, Inc. 166,202 10,097
GTE Corp. 126,035 9,689
Ameritech Corp. 140,972 9,472
- - EMC Corp. 130,400 9,315
- - Sun Microsystems, Inc. 99,500 9,253
Eli Lilly & Co. 141,204 9,037
Nortel Networks Corp. 170,712 8,706
Wells Fargo Co. 212,840 8,434
- - Oracle Corp. 185,131 8,423
Texas Instruments, Inc. 101,044 8,311
Fannie Mae 131,496 8,243
Schering-Plough Corp. 188,888 8,240
The Chase Manhattan Corp. 108,574 8,184
Ford Motor Co. 155,958 7,827
American Express Co. 57,857 7,789
E.I. du Pont de Nemours & Co. 125,658 7,649
McDonald's Corp. 173,886 7,477
Chevron Corp. 84,030 7,458
Warner-Lambert Co. 109,862 7,292
Abbott Laboratories 195,056 7,168
American Home Products Corp. 167,900 6,968
The Walt Disney Co. 265,330 6,865
Motorola, Inc. 77,856 6,851
Morgan Stanley Dean
Witter & Co. 73,709 6,574
Sprint Corp. 111,026 6,023
PepsiCo, Inc. 189,104 5,720
- - Amgen, Inc. 65,798 5,363
Medtronic, Inc. 150,954 5,359
The Boeing Co. 124,793 5,319
- - MediaOne Group, Inc. 77,629 5,303
Bank One Corp. 151,068 5,259
General Motors Corp. 83,082 5,229
Compaq Computer Corp. 220,390 5,055
Unilever NV ADR 73,249 4,990
Minnesota Mining &
Manufacturing Co. 51,609 4,958
Gillette Co. 142,056 4,821
Freddie Mac 90,256 4,693
Texaco Inc. 70,900 4,476
First Union Corp. 124,064 4,412
Schlumberger Ltd. 70,226 4,376
Anheuser-Busch Cos., Inc. 61,070 4,279
AlliedSignal Inc. 70,912 4,250
- - CBS Corp. 91,300 4,223
Computer Associates
International, Inc. 68,791 4,213
- - Sprint PCS 56,506 4,213
- - QUALCOMM, Inc. 20,600 3,897
Enron Corp. 91,118 3,759
- - Applied Materials, Inc. 48,144 3,749
U S WEST, Inc. 64,904 3,704
- - Viacom Inc. Class B 87,534 3,698
Atlantic Richfield Co. 41,438 3,672
United Technologies Corp. 61,629 3,655
Kimberly-Clark Corp. 68,088 3,575
Charles Schwab Corp. 106,000 3,571
The Gap, Inc. 111,580 3,571
Xerox Corp. 84,994 3,564
Emerson Electric Co. 55,980 3,537
Automatic Data Processing, Inc. 78,972 3,524
- - Clear Channel
Communications, Inc. 43,410 3,467
Colgate-Palmolive Co. 74,936 3,428
Carnival Corp. 78,800 3,428
Dayton Hudson Corp. 57,016 3,425
Associates First Capital Corp. 93,556 3,368
Electronic Data Systems Corp. 63,300 3,351
The Bank of New York Co., Inc. 98,096 3,280
Walgreen Co. 129,112 3,276
Firstar Corp. 127,370 3,264
Comcast Corp. Class A Special 81,489 3,249
Pharmacia & Upjohn, Inc. 64,789 3,215
Dow Chemical Co. 28,077 3,190
Eastman Kodak Co. 42,106 3,176
Merrill Lynch & Co., Inc. 47,200 3,171
Alcoa Inc. 47,486 2,947
Monsanto Co. 81,505 2,909
- - NEXTEL Communications, Inc. 42,500 2,882
- - Tellabs, Inc. 50,492 2,875
U.S. Bancorp 94,142 2,842
ALLTEL Corp. 38,996 2,744
Sara Lee Corp. 116,308 2,726
SunTrust Banks, Inc. 41,418 2,723
Fleet Financial Group, Inc. 72,940 2,671
J.P. Morgan & Co., Inc. 22,643 2,587
Duke Energy Corp. 46,873 2,584
Allstate Corp. 103,516 2,581
- - Global Crossing Ltd. 96,250 2,551
</TABLE>
27
<PAGE> 92
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
International Paper Co. 52,812 $ 2,538
The Seagram Co. Ltd. 55,619 2,531
Caterpillar, Inc. 45,966 2,520
- - Safeway, Inc. 65,600 2,497
Gannett Co., Inc. 35,992 2,490
- - Solectron Corp. 34,600 2,485
Household International, Inc. 61,360 2,462
First Data Corp. 55,064 2,416
Illinois Tool Works, Inc. 32,316 2,410
Lowe's Cos., Inc. 48,978 2,388
MBNA Corp. 103,310 2,357
- - The Kroger Co. 105,604 2,330
Halliburton Co. 56,791 2,328
Marsh & McLennan Cos., Inc. 33,685 2,307
Southern Co. 89,025 2,292
Conoco Inc. 83,197 2,278
Mellon Bank Corp. 67,220 2,269
Washington Mutual, Inc. 77,327 2,262
Baxter International, Inc. 37,221 2,243
- - BMC Software, Inc. 30,683 2,196
Campbell Soup Co. 55,774 2,182
National City Corp. 80,556 2,150
Corning, Inc. 31,348 2,149
- - Micron Technology, Inc. 32,197 2,143
Albertson's, Inc. 53,756 2,127
Fifth Third Bancorp 34,600 2,105
Guidant Corp. 39,000 2,091
Pitney Bowes, Inc. 34,254 2,087
Williams Cos., Inc. 55,629 2,083
PNC Bank Corp. 39,257 2,068
CVS Corp. 50,504 2,061
Wachovia Corp. 26,149 2,056
NIKE, Inc. Class B 36,080 2,052
CIGNA Corp. 26,267 2,042
American General Corp. 32,111 2,029
- - Costco Wholesale Corp. 28,018 2,017
H.J. Heinz Co. 46,411 1,996
Kellogg Co. 52,358 1,960
Cardinal Health, Inc. 35,180 1,917
Omnicom Group Inc. 23,100 1,829
Honeywell, Inc. 16,216 1,805
Raytheon Co. Class B 36,060 1,789
- - Unisys Corp. 39,305 1,774
- - Gateway, Inc. 39,800 1,769
Masco Corp. 56,658 1,756
Bestfoods 35,498 1,722
Burlington Northern Santa Fe Corp.60,698 1,669
Lockheed Martin Corp. 50,096 1,638
BankBoston Corp. 37,652 1,633
- - Cendant Corp. 91,872 1,631
- - Best Buy Co., Inc. 26,200 1,626
General Mills, Inc. 19,767 1,604
Phillips Petroleum Co. 32,609 1,590
May Department Stores Co. 43,404 1,582
General Dynamics Corp. 25,260 1,577
Tribune Co. 31,404 1,562
Sears, Roebuck & Co. 49,707 1,560
Columbia/HCA Healthcare Corp. 73,257 1,552
Waste Management, Inc. 79,661 1,533
Union Pacific Corp. 31,498 1,514
Textron, Inc. 19,320 1,495
Weyerhaeuser Co. 25,802 1,487
Interpublic Group of Cos., Inc. 36,098 1,485
- - FDX Corp. 38,288 1,484
KeyCorp 57,416 1,482
Sysco Corp. 42,080 1,475
Providian Financial Corp. 18,412 1,458
- - Computer Sciences Corp. 20,564 1,446
AFLAC, Inc. 34,400 1,441
- - AES Corp. 24,200 1,428
ConAgra, Inc. 63,102 1,424
- - Kohl's Corp. 20,700 1,369
Texas Utilities Co. 35,674 1,331
PPG Industries, Inc. 22,125 1,328
BB&T Corp. 40,990 1,327
- - 3Com Corp. 46,000 1,323
State Street Corp. 20,400 1,318
- - Staples, Inc. 59,800 1,304
- - Apple Computer, Inc. 20,546 1,301
- - Boston Scientific Corp. 52,384 1,293
Tandy Corp. 24,988 1,292
Rockwell International Corp. 24,209 1,271
PG&E Corp. 48,705 1,260
- - Compuware Corp. 47,900 1,248
The McGraw-Hill Cos., Inc. 25,668 1,242
Coca-Cola Enterprises, Inc. 54,000 1,218
Norfolk Southern Corp. 49,489 1,212
Pioneer Hi-Bred
International, Inc. 30,341 1,208
Baker Hughes, Inc. 41,626 1,207
Consolidated Edison Inc. 29,055 1,206
The Hartford Financial
Services Group Inc. 29,276 1,197
FPL Group, Inc. 23,546 1,186
Northern Trust Corp. 14,204 1,186
CSX Corp. 27,808 1,178
Deere & Co. 30,438 1,178
- - Federated Department Stores, Inc. 26,900 1,175
J.C. Penney Co., Inc. 34,156 1,174
Ralston-Ralston Purina Group 42,192 1,173
Delphi Automotive Systems Corp. 72,960 1,172
USX-Marathon Group 39,919 1,168
TJX Cos., Inc. 41,544 1,166
Ingersoll-Rand Co. 21,100 1,159
Dover Corp. 28,160 1,151
The Clorox Co. 30,026 1,148
Unocal Corp. 30,799 1,141
The Chubb Corp. 22,818 1,137
Coastal Corp. 27,626 1,131
Dominion Resources, Inc. 24,696 1,114
United Healthcare Corp. 22,888 1,114
Barrick Gold Corp. 50,701 1,103
Paychex, Inc. 32,050 1,094
Circuit City Stores, Inc. 25,924 1,094
Edison International 44,494 1,082
The Quaker Oats Co. 17,459 1,080
Public Service Enterprise
Group, Inc. 27,868 1,076
- - General Instrument Corp. 22,300 1,073
- - AMR Corp. 19,686 1,073
Newell Rubbermaid, Inc. 36,474 1,042
McKesson HBOC, Inc. 35,903 1,041
Loews Corp. 14,800 1,039
</TABLE>
28
<PAGE> 93
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
Marriott International,
Inc. Class A 31,706 $ 1,036
The Limited, Inc. 27,092 1,036
Occidental Petroleum Corp. 44,669 1,033
Comerica, Inc. 20,350 1,030
Mattel, Inc. 53,842 1,023
Unicom Corp. 27,554 1,018
Reliant Energy, Inc. 37,586 1,017
Wrigley, (Wm.) Jr. Co. 14,729 1,014
Rohm & Haas Co. 28,001 1,012
Capital One Financial Corp. 25,700 1,002
- - Lexmark International Group, Inc.
Class A 12,400 998
Southwest Airlines Co. 65,284 992
- - LSI Logic Corp. 19,200 989
Aon Corp. 33,100 979
Archer-Daniels-Midland Co. 80,255 978
Franklin Resources Corp. 31,800 978
Lincoln National Corp. 25,574 961
Danaher Corp. 18,200 959
The Goodyear Tire & Rubber Co. 19,849 955
Union Carbide Corp. 16,718 950
Allergan, Inc. 8,618 948
Adobe Systems, Inc. 8,300 942
PECO Energy Corp. 24,885 933
PE Corp. - PE Biosystems Group 12,816 926
IMS Health, Inc. 40,268 919
Praxair, Inc. 19,921 916
Becton, Dickinson & Co. 32,520 913
- - Seagate Technology Inc. 29,600 912
Entergy Corp. 31,350 907
Georgia Pacific Group 22,364 906
Alcan Aluminium Ltd. 28,712 897
UnumProvident Corp. 30,123 887
Lehman Brothers Holdings, Inc. 15,200 886
SLM Holding Corp. 20,600 886
Delta Air Lines, Inc. 18,242 885
- - Novell, Inc. 42,745 884
Hershey Foods Corp. 18,090 881
Aetna Inc. 17,875 880
Dollar General Corp. 28,300 874
Regions Financial Corp. 29,100 873
Jefferson-Pilot Corp. 13,757 869
AmSouth Bancorp 37,000 867
New York Times Co. Class A 22,964 861
American Electric Power Co., Inc. 25,000 853
Air Products & Chemicals, Inc. 29,006 843
Burlington Resources, Inc. 22,511 827
Avon Products, Inc. 33,288 826
Republic New York Corp. 13,356 821
- - Tricon Global Restaurants, Inc. 20,030 820
Eaton Corp. 9,400 811
Huntington Bancshares Inc. 30,138 801
St. Paul Cos., Inc. 28,896 795
Conseco Inc. 41,038 793
Cincinnati Financial Corp. 21,000 788
Avery Dennison Corp. 14,810 781
TRW, Inc. 15,686 780
FirstEnergy Corp. 30,573 780
Dana Corp. 20,926 777
Fort James Corp. 28,741 767
Progressive Corp. of Ohio 9,300 760
SouthTrust Corp. 21,000 753
PacifiCorp 37,272 750
Consolidated Natural Gas Co. 11,988 748
Summit Bancorp 22,800 740
Union Planters Corp. 18,100 738
- - KLA-Tencor Corp. 11,200 728
- - Kmart Corp. 62,153 726
- - ADC Telecommunications, Inc. 17,100 717
Carolina Power & Light Co. 20,175 714
Johnson Controls, Inc. 10,736 712
CenturyTel, Inc. 17,450 709
Amerada Hess Corp. 11,478 703
Golden West Financial Corp. 7,126 700
- - Tenet Healthcare Corp. 39,397 692
Fortune Brands, Inc. 21,239 685
UST, Inc. 22,593 682
MGIC Investment Corp. 14,000 669
DTE Energy Co. 18,486 668
PaineWebber Group, Inc. 18,300 663
- - National Semiconductor Corp. 21,654 660
Ameren Corp. 17,255 652
Champion International Corp. 12,604 648
Dun & Bradstreet Corp. 21,534 643
The Times Mirror Co. Class A 9,738 641
Kansas City Southern
Industries, Inc. 13,800 641
Synovus Financial Corp. 34,150 638
Sempra Energy 30,114 627
Whirlpool Corp. 9,590 626
Genuine Parts Co. 23,369 621
Nabisco Group Holdings Corp. 41,300 620
Apache Corp. 14,300 618
Kerr-McGee Corp. 11,205 617
Parker Hannifin Corp. 13,642 611
Willamette Industries, Inc. 14,174 611
Dow Jones & Co., Inc. 11,431 610
Cooper Industries, Inc. 12,784 598
Placer Dome, Inc. 39,988 595
MBIA, Inc. 12,700 592
W.W. Grainger, Inc. 12,260 589
- - Network Appliance, Inc. 8,200 587
Columbia Energy Group 10,509 582
Florida Progress Corp. 12,400 574
Cinergy Corp. 19,973 565
Central & South West Corp. 26,726 565
Northrop Grumman Corp. 8,862 563
Sonat, Inc. 14,166 562
Bear Stearns Co., Inc. 14,550 559
Newmont Mining Corp. 21,455 555
Ecolab, Inc. 16,226 554
Winn-Dixie Stores, Inc. 18,626 553
Knight Ridder 10,036 551
- - Sealed Air Corp. 10,645 546
Brown-Forman Corp. Class B 8,699 543
H & R Block, Inc. 12,468 542
- - ALZA Corp. 12,609 540
Comcast Corp. Class A 14,931 538
GPU, Inc. 16,392 535
PP&L Resources Inc. 19,691 533
Hasbro, Inc. 24,700 530
CMS Energy Corp. 15,600 529
</TABLE>
29
<PAGE> 94
<TABLE>
<CAPTION>
- ---------------------------------------------------------
MARKET
VALUE*
EQUITY INDEX PORTFOLIO SHARES (000)
- ---------------------------------------------------------
<S> <C> <C>
Constellation Energy Group 18,751 $ 527
Nucor Corp. 11,069 527
PACCAR, Inc. 10,360 527
Union Pacific Resources
Group, Inc. 32,616 524
- - AutoZone Inc. 18,600 522
Inco Ltd. 24,407 522
Black & Decker Corp. 11,412 521
Equifax, Inc. 18,400 518
- - PeopleSoft, Inc. 30,300 513
Scientific-Atlanta, Inc. 10,095 500
- - Bed Bath & Beyond, Inc. 14,300 500
R.R. Donnelley & Sons Co. 17,227 497
Reynolds Metals Co. 8,233 497
- - Toys R Us, Inc. 32,818 492
Nordstrom, Inc. 18,186 491
- - Wellpoint Health Networks Inc.
Class A 8,600 490
New Century Energies, Inc. 14,600 488
SAFECO Corp. 17,280 484
- - Office Depot, Inc. 47,000 479
Bausch & Lomb, Inc. 7,216 476
Anadarko Petroleum Corp. 15,500 474
VF Corp. 15,260 473
Rite Aid Corp. 33,904 468
Case Corp. 9,400 468
International Flavors &
Fragrances, Inc. 13,507 466
- - Parametric Technology Corp. 34,400 464
Vulcan Materials Co. 12,500 458
Countrywide Credit Industries, Inc.14,100 455
- - Harrah's Entertainment, Inc. 16,357 454
Sherwin-Williams Co. 21,624 453
- - Ceridian Corp. 18,080 450
- - Adaptec, Inc. 11,200 445
The Mead Corp. 12,716 437
Torchmark Corp. 16,694 432
Temple-Inland Inc. 7,101 430
Nalco Chemical Co. 8,269 418
Northern States Power Co. 19,308 416
ITT Industries, Inc. 12,988 413
Wendy's International, Inc. 15,641 413
- - Navistar International Corp. 8,735 406
Phelps Dodge Corp. 7,374 406
Eastman Chemical Co. 10,094 404
Allegheny Teledyne Inc. 23,832 402
The BFGoodrich Co. 13,858 402
Sigma-Aldrich Corp. 12,638 401
- - Owens-Illinois, Inc. 19,750 391
SuperValu Inc. 17,776 388
Fluor Corp. 9,542 384
Hercules, Inc. 13,378 383
Maytag Corp. 11,478 382
- - Niagara Mohawk Holdings Inc. 24,362 376
Harcourt General, Inc. 8,985 374
Crown Cork & Seal Co., Inc. 15,380 373
Biomet, Inc. 14,119 372
Tenneco, Inc. 21,561 367
- - Watson Pharmaceuticals, Inc. 11,900 364
Thomas & Betts Corp. 7,102 362
- - St. Jude Medical, Inc. 11,388 359
Pall Corp. 15,356 356
Service Corp. International 33,624 355
- - Mirage Resorts, Inc. 25,200 354
- - Cabletron Systems, Inc. 21,886 343
Deluxe Corp. 9,949 338
Ashland, Inc. 10,026 337
Darden Restaurants Inc. 17,067 334
Raytheon Co. Class A 6,777 329
- - Consolidated Stores, Inc. 14,828 327
Westvaco Corp. 12,740 326
- - King World Productions, Inc. 8,702 326
Hilton Hotels Corp. 32,757 323
- - HEALTHSOUTH Corp. 52,627 319
- - Advanced Micro Devices, Inc. 18,416 317
C.R. Bard, Inc. 6,483 305
Engelhard Corp. 16,733 304
Sunoco, Inc. 11,105 304
Homestake Mining Co. 32,367 297
- - US Airways Group, Inc. 11,101 291
Brunswick Corp. 11,702 291
Freeport-McMoRan Copper &
Gold, Inc. Class B 18,600 289
USX-U.S. Steel Group 11,178 288
Snap-On Inc. 8,778 285
Laidlaw, Inc. 41,942 283
Great Lakes Chemical Corp. 7,425 283
- - Allied Waste Industries, Inc. 23,800 278
Harris Corp. 10,020 277
Tosco Corp. 10,900 275
Cummins Engine Co., Inc. 5,499 274
Dillard's Inc. 13,406 272
The Stanley Works 10,770 271
Mallinckrodt, Inc. 8,610 260
- - Thermo Electron Corp. 19,100 257
- - Silicon Graphics, Inc. 23,439 256
Adolph Coors Co. Class B 4,705 255
Boise Cascade Corp. 6,836 249
- - Manor Care, Inc. 14,126 243
Liz Claiborne, Inc. 7,824 243
Bemis Co., Inc. 7,077 240
Pinnacle West Capital Corp. 6,500 236
EG&G, Inc. 5,793 231
Meredith Corp. 6,322 230
NICOR, Inc. 5,889 219
Armstrong World Industries Inc. 4,801 216
Centex Corp. 7,114 210
Cyprus Amax Minerals Co. 10,530 207
American Greetings Corp. Class A 7,978 205
- - Andrew Corp. 11,811 205
Tektronix, Inc. 6,052 203
Louisiana-Pacific Corp. 12,882 201
Millipore Corp. 5,165 194
IKON Office Solutions, Inc. 18,038 193
- - FMC Corp. 3,894 188
Crane Co. 8,198 184
Ryder System, Inc. 9,015 184
Worthington Industries, Inc. 10,586 180
Eastern Enterprises 3,713 172
Ball Corp. 3,846 169
Briggs & Stratton Corp. 2,891 169
Cooper Tire & Rubber Co. 9,248 163
</TABLE>
30
<PAGE> 95
<TABLE>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
- - Rowan Cos., Inc. 9,931 $ 161
Helmerich & Payne, Inc. 6,366 161
Alberto-Culver Co. Class B 6,902 160
Peoples Energy Corp. 4,485 158
National Service Industries, Inc. 4,963 156
Autodesk, Inc. 7,060 154
McDermott International, Inc. 7,471 151
Shared Medical Systems Corp. 3,223 151
Potlatch Corp. 3,657 151
Great Atlantic & Pacific
Tea Co., Inc. 4,906 149
Pulte Corp. 6,678 145
- - W.R. Grace & Co. 8,892 143
ASARCO, Inc. 5,325 143
Owens Corning 6,553 142
Polaroid Corp. 5,353 139
Tupperware Corp. 6,829 138
Longs Drug Stores, Inc. 4,520 135
- - Humana, Inc. 19,600 135
The Timken Co. 7,830 126
- - Data General Corp. 5,587 118
ONEOK, Inc. 3,845 117
- - Bethlehem Steel Corp. 15,463 114
Kaufman & Broad Home Corp. 5,265 109
Springs Industries Inc. Class A 2,903 99
The Pep Boys
(Manny, Moe & Jack) 6,264 93
- - Viacom Inc. Class A 2,112 91
Fleetwood Enterprises, Inc. 3,844 78
Jostens Inc. 3,912 75
Milacron Inc. 3,870 69
- - Reebok International Ltd. 6,186 66
NACCO Industries, Inc. Class A 925 65
Russell Corp. 4,414 63
- - Quintiles Transnational Corp. 3,100 59
Foster Wheeler Corp. 3,893 47
- - LifePoint Hospitals, Inc. 4,129 36
Freeport-McMoRan Copper &
Gold, Inc. Class A 1,600 22
- - Fruit of the Loom Inc. Class A 3,858 13
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $803,827) 1,360,271
- ----------------------------------------------------------
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.5%)(1)
- ----------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSN.
(2) 5.13%, 10/4/1999 $ 700 700
U.S. TREASURY BILL
(2) 4.74%, 10/28/1999 300 299
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled Cash Account
5.30%, 10/1/1999 5,395 5,395
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $6,394) 6,394
- ----------------------------------------------------------
TOTAL INVESTMENTS (100.1%)
(COST $810,221) 1,366,665
- ----------------------------------------------------------
- ----------------------------------------------------------
MARKET
VALUE*
(000)
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
- ----------------------------------------------------------
Other Assets--Note C $ 3,052
Liabilities (4,334)
---------
(1,282)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 40,333,398 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $1,365,383
==========================================================
NET ASSET VALUE PER SHARE $33.85
==========================================================
</TABLE>
* See Note A in Notes to Financial Statements.
- - Non-Income-Producing Security.
(1) The portfolio invests a portion of its cash reserves in equity markets
through the use of index futures contracts. After giving effect to futures
investments, the portfolio's effective common stock and temporary cash
investment positions represented 100.0% and 0.1%, respectively, of net
assets. See Note F in Notes to Financial Statements.
(2) Security segregated as initial margin for open futures contracts.
ADR--American Depositary Receipt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $ 781,004 $ 19.36
Undistributed Net
Investment Income 14,804 .37
Accumulated Net Realized Gains 13,217 .33
Unrealized Appreciation
(Depreciation)--Note F
Investment Securities 556,444 13.79
Futures Contracts (86) --
- ---------------------------------------------------------
NET ASSETS $1,365,383 $33.85
=========================================================
</TABLE>
31
<PAGE> 96
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
MID-CAP INDEX PORTFOLIO SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (100.1%)
- ----------------------------------------------------------
<S> <C> <C>
- - Veritas Software Corp. 11,000 $ 835
- - Biogen, Inc. 9,640 760
- - Xilinx, Inc. 10,280 674
Linear Technology Corp. 9,960 585
- - Analog Devices, Inc. 11,210 575
- - Altera Corp. 12,740 553
- - Maxim Integrated Products, Inc. 8,640 545
- - Univision Communications Inc. 6,500 529
Harley-Davidson, Inc. 9,780 490
- - Comverse Technology, Inc. 4,535 428
- - Vitesse Semiconductor Corp. 4,900 418
Cintas Corp. 7,160 414
- - Siebel Systems, Inc. 5,980 398
- - Teradyne, Inc. 10,960 386
Marshall & Ilsley Corp. 6,670 381
- - MedImmune Inc. 3,700 369
Molex, Inc. 9,920 361
- - E*TRADE Group, Inc. 15,300 360
- - Intuit, Inc. 4,050 355
Telephone & Data Systems, Inc. 3,970 353
- - Citrix Systems, Inc. 5,640 349
- - Chiron Corp. 11,770 326
Stryker Corp. 6,360 325
- - VISIX Inc. 4,100 324
Washington Post Co. Class B 630 322
El Paso Energy Corp. 7,530 300
First Security Corp. 12,480 297
- - Starbucks Corp. 11,960 296
- - Sanmina Corp. 3,775 292
Old Kent Financial Corp. 7,758 288
- - Electronic Arts Inc. 3,970 287
- - Jabil Circuit, Inc. 5,700 282
Zions Bancorp 5,060 279
- - Concord EFS, Inc. 13,320 275
- - Centocor, Inc. 4,680 274
Tiffany & Co. 4,480 268
- - Fiserv, Inc. 8,100 263
Charter One Financial 11,078 256
- - Synopsys, Inc. 4,540 255
Leggett & Platt, Inc. 12,870 253
KeySpan Corp. 8,850 253
- - Hispanic Broadcasting Corp. 3,300 251
Tyson Foods, Inc. 15,050 247
- - Genzyme Corp. 5,390 243
First Tennessee National Corp. 8,510 239
- - DST Systems, Inc. 4,200 239
Allegheny Energy, Inc. 7,450 237
- - Waters Corp. 3,900 236
- - American Power Conversion Corp. 12,320 234
Family Dollar Stores, Inc. 11,000 232
- - Legato Systems, Inc. 5,320 232
- - Forest Laboratories, Inc. 5,400 227
- - Jones Apparel Group, Inc. 7,846 226
- - Atmel Corp. 6,600 223
Weatherford International, Inc. 6,970 223
- - Abercrombie & Fitch Co. 6,540 223
T. Rowe Price 7,820 215
Montana Power Co. 7,020 214
Devon Energy Corp. 5,119 212
AMBAC Financial Group Inc. 4,470 212
- - SunGard Data Systems, Inc. 7,960 209
- - Cadence Design Systems, Inc. 15,790 209
- - NCR Corp. 6,280 208
- - SCI Systems, Inc. 4,660 207
Reader's Digest Assn., Inc.
Class A 6,900 202
Pinnacle West Capital Corp. 5,530 201
Premark International, Inc. 3,980 201
New England Electric System 3,860 200
- - Convergys Corp. 10,080 200
Transocean Offshore, Inc. 6,510 199
Potomac Electric Power Co. 7,810 199
- - MiniMed, Inc. 2,000 196
Hormel Foods Corp. 4,710 195
Symbol Technologies, Inc. 5,775 194
- - Nabors Industries, Inc. 7,710 193
Green Point Financial Corp. 7,140 190
R.J. Reynolds Tobacco
Holdings, Inc. 7,000 189
Hannaford Brothers Co. 2,670 188
Comdisco, Inc. 9,680 187
- - SPX Corp. 2,040 185
TECO Energy, Inc. 8,750 185
- - Noble Drilling Corp. 8,450 185
Reliastar Financial Corp. 5,510 183
- - Sybron International Corp. 6,810 183
Viad Corp. 6,200 183
- - Global Marine, Inc. 11,110 183
NiSource, Inc. 8,200 181
DPL Inc. 10,280 181
Compass Bancshares Inc. 7,200 180
LG&E Energy Corp. 8,430 179
American Water Works Co., Inc. 6,190 179
Cincinnati Bell, Inc. 9,100 177
- - Williams Sonoma, Inc. 3,600 175
- - Gilead Sciences, Inc. 2,700 173
Bowater Inc. 3,300 173
- - Microchip Technology, Inc. 3,370 173
North Fork Bancorp, Inc. 8,870 173
Wisconsin Energy Corp. 7,370 173
- - American Standard Cos., Inc. 4,480 172
Energy East Corp. 7,200 171
- - Network Associates, Inc. 8,930 171
DQE Inc. 4,300 168
Allmerica Financial Corp. 3,500 167
- - Dollar Tree Stores, Inc. 4,150 166
SCANA Corp. 6,840 165
- - Litton Industries, Inc. 3,000 164
Dial Corp. 6,440 164
- - Promus Hotel Corp. 5,040 164
Unitrin, Inc. 4,700 163
ENSCO International, Inc. 9,020 163
Murphy Oil Corp. 3,000 162
- - Rational Software Corp. 5,530 162
- - QLogic Corp. 2,300 161
- - Sepracor Inc. 2,110 159
A.G. Edwards & Sons, Inc. 6,040 159
Mylan Laboratories, Inc. 8,520 157
- - Lear Corp. 4,440 156
Consolidated Papers 5,800 156
</TABLE>
32
<PAGE> 97
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
- - Westwood One, Inc. 3,400 $ 153
Sonoco Products Co. 6,720 153
- - Northeast Utilities 8,340 153
- - Calpine Corp. 1,800 153
USG Corp. 3,200 152
- - Quantum Corp.- DLT &
Storage Systems 10,760 151
TCF Financial Corp. 5,260 150
- - Millennium Pharmaceuticals, Inc. 2,300 149
McCormick & Co., Inc. 4,500 149
- - Premier Parks Inc. 5,100 148
Associated Banc-Corp. 4,000 145
A. H. Belo Corp. Class A 7,530 144
IBP, Inc. 5,820 144
- - BJ Services Co. 4,500 143
- - Cypress Semiconductor Corp. 6,650 143
FINOVA Group, Inc. 3,910 143
- - Saks Inc. 9,370 142
Mercantile Bankshares Corp. 4,590 142
Manpower Inc. 4,870 142
First Virginia Banks, Inc. 3,250 142
Shaw Industries, Inc. 8,850 140
- - BJ's Wholesale Club, Inc. 4,740 140
Ultramar Diamond Shamrock Corp. 5,470 139
- - Robert Half International, Inc. 5,810 139
Hubbell Inc. Class B 4,330 138
- - Quintiles Transnational Corp. 7,208 137
Alliant Energy Corp. 4,950 137
- - Affiliated Computer Services, Inc.
Class A 3,300 134
Solutia, Inc. 7,340 131
- - Symantec Corp. 3,610 130
Whitman Corp. 9,110 130
- - Pacificare Health Systems, Inc. 3,000 130
Southdown, Inc. 2,420 129
- - Vishay Intertechnology, Inc. 5,438 129
Puget Sound Energy Inc. 5,730 129
Herman Miller, Inc. 5,350 128
- - Outback Steakhouse 5,010 128
- - Lands' End, Inc. 1,930 127
- - Smith International, Inc. 3,130 127
Illinova Corp. 4,490 126
Dime Bancorp, Inc. 7,160 125
- - Navigant Consulting, Inc. 2,700 125
- - Storage Technology Corp. 6,500 125
UtiliCorp United, Inc. 5,940 125
- - Health Management Associates
Class A 16,670 123
Federal-Mogul Corp. 4,440 122
- - Nova Corp. (Georgia) 4,890 122
- - Chris-Craft Industries, Inc. 2,176 122
Protective Life Corp. 4,210 122
The Timber Co. 5,320 122
- - Barnes & Noble, Inc. 4,660 121
Hibernia Corp. Class A 10,420 121
The PMI Group Inc. 2,945 120
Martin Marietta Materials, Inc. 3,010 120
- - Brinker International, Inc. 4,420 120
- - Mandalay Resort Group 6,050 119
Fastenal Co. 2,520 119
Harte-Hanks, Inc. 4,700 118
Ross Stores, Inc. 5,840 118
Old Republic International Corp. 8,100 117
Conectiv, Inc. 5,958 117
American Financial Group, Inc. 4,070 114
National Fuel Gas Co. 2,420 114
- - U.S. Foodservice 6,340 114
- - MidAmerican Energy Holdings Co. 3,860 114
- - Ocean Energy, Inc. 11,120 113
CK Witco Corp. 7,754 113
CNF Transportation, Inc. 3,030 113
Sovereign Bancorp, Inc. 12,260 111
OGE Energy Corp. 4,990 111
- - IVAX Corp. 6,690 110
CCB Financial Corp. 2,650 110
Dean Foods Corp. 2,530 110
IMC Global Inc. 7,560 110
- - Sterling Commerce, Inc. 5,910 110
- - Payless ShoeSource, Inc. 2,170 110
Sierra Pacific Resources 4,910 109
Hillenbrand Industries, Inc. 4,140 109
Pentair, Inc. 2,720 109
- - Keane, Inc. 4,780 109
Provident Financial Group, Inc. 2,970 109
Interstate Bakeries Corp. 4,690 108
Astoria Financial Corp. 3,500 108
- - Sterling Software, Inc. 5,380 108
IPALCO Enterprises, Inc. 5,500 107
Pacific Century Financial Corp. 5,180 106
- - Integrated Device Technology Inc. 5,710 106
Wilmington Trust Corp. 2,170 105
International Game Technology 5,840 105
- - Arrow Electronics, Inc. 5,950 105
Diebold, Inc. 4,460 103
COMSAT Corp. 3,480 103
- - Santa Fe Snyder Corp. 11,400 103
- - Apollo Group, Inc. Class A 4,850 102
Noble Affiliates, Inc. 3,530 102
KN Energy, Inc. 4,560 102
MCN Energy Group Inc. 5,870 101
- - Lincare Holdings, Inc. 3,740 100
AK Steel Corp. 5,450 99
Comair Holdings, Inc. 5,950 99
Teleflex Inc. 2,510 99
Reynolds & Reynolds Class A 4,860 99
Cabot Corp. 4,160 99
York International Corp. 2,740 98
Lyondell Chemical Co. 7,350 98
City National Corp. 2,910 98
- - Informix Corp. 12,300 98
GATX Corp. 3,140 98
Avnet, Inc. 2,300 97
- - Adtran, Inc. 2,500 96
Kansas City Power & Light Co. 3,880 94
Sotheby's Holdings Class A 3,630 94
Lubrizol Corp. 3,610 93
Questar Corp. 5,110 93
Meritor Automotive, Inc. 4,360 91
Tidewater Inc. 3,430 87
Bergen Brunswig Corp. Class A 8,405 87
Media General, Inc. Class A 1,700 87
Washington Gas Light Corp. 3,200 87
</TABLE>
33
<PAGE> 98
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
MID-CAP INDEX PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
Flowers Industries, Inc. 6,400 $ 87
Beckman Coulter, Inc. 1,920 87
Westpoint Stevens, Inc. 3,620 85
Lancaster Colony Corp. 2,670 85
ICN Pharmaceuticals, Inc. 4,940 85
- - ACNielson Corp. 3,730 85
Minnesota Power, Inc. 4,800 84
- - Blyth Industries, Inc. 3,000 84
RPM Inc. (Ohio) 6,820 83
- - Papa John's International, Inc. 2,000 83
- - Modis Professional Services Inc. 6,030 80
Trinity Industries, Inc. 2,580 80
Lee Enterprises, Inc. 2,890 79
Clayton Homes Inc. 9,100 79
- - Swift Transportation Co., Inc. 4,000 79
Houghton Mifflin Co. 1,930 78
- - Suiza Foods Corp. 2,090 78
Carlisle Co., Inc. 1,930 76
Rayonier Inc. 1,810 76
- - Tech Data Corp. 3,260 76
Keystone Financial, Inc. 3,170 75
HON Industries, Inc. 3,880 75
DENTSPLY International Inc. 3,280 75
Harsco Corp. 2,690 74
- - Trigon Healthcare, Inc. 2,570 74
- - Foundation Health Systems Class A 7,850 74
Newport News Shipbuilding Inc. 2,290 74
- - Mohawk Industries, Inc. 3,700 74
- - Gartner Group, Inc. Class A 4,600 73
- - Imation Corp. 2,350 73
- - Borders Group, Inc. 4,950 73
Everest Reinsurance Holdings, Inc. 3,050 73
IDACORP, Inc. 2,410 73
WestAmerica Bancorporation 2,400 73
Universal Foods Corp. 3,160 72
- - Furniture Brands International Inc.3,670 72
Airborne Freight Corp. 3,430 72
Hawaiian Electric Industries Inc. 2,050 72
Alexander & Baldwin, Inc. 2,990 71
Borg-Warner Automotive, Inc. 1,660 71
Dole Food Co. 3,750 71
- - Snyder Communications, Inc. 4,660 71
Donaldson Co., Inc. 3,030 70
Cordant Technologies, Inc. 2,300 70
- - Policy Management Systems Corp. 2,200 70
Pennzoil-Quaker State Co. 5,460 69
Horace Mann Educators Corp. 2,670 69
- - First Health Group Corp. 3,070 69
- - Alaska Air Group, Inc. 1,690 69
HSB Group Inc. 1,920 68
- - Oxford Health Plan 5,390 67
Albemarle Corp. 3,320 67
The Warnaco Group, Inc. Class A 3,660 67
Kelly Services, Inc. Class A 2,210 67
Valero Energy Corp. 3,420 66
Ohio Casualty Corp. 3,900 66
Church & Dwight, Inc. 2,620 65
Minerals Technologies, Inc. 1,340 65
- - Pioneer Natural Resources Co. 6,110 65
- - Cytec Industries, Inc. 2,680 64
- - UCAR International, Inc. 2,800 64
- - Park Place Entertainment 5,000 62
- - Sylvan Learning Systems, Inc. 3,200 62
Tecumseh Products Co. Class A 1,230 62
Pittston Brink's Group 2,650 61
Callaway Golf Co. 5,030 61
Webster Financial Corp. 2,400 61
- - Novellus Systems, Inc. 900 61
Olsten Corp. 5,800 61
- - Cambridge Technology Partners 4,150 60
- - Sensormatic Electronics Corp. 4,730 60
CBRL Group, Inc. 3,870 60
- - Apria Healthcare 3,570 60
Federal Signal Corp. 3,000 60
Mark IV Industries, Inc. 3,000 59
AGL Resources Inc. 3,530 57
CMP Group Inc. 2,160 57
Universal Corp. 2,170 57
- - Transaction Systems
Architects, Inc. 2,100 57
Wallace Computer Services, Inc. 2,780 56
- - STERIS Corp. 4,050 56
Carter-Wallace, Inc. 3,100 55
- - Jacobs Engineering Group Inc. 1,680 55
Dexter Corp. 1,460 54
- - Scholastic Corp. 1,080 54
Omnicare, Inc. 5,590 54
Kaydon Corp. 2,150 53
Nordson Corp. 1,080 53
- - Varco International, Inc. 4,310 53
Kennametal, Inc. 2,030 53
Bob Evans Farms, Inc. 2,550 52
H.B. Fuller Co. 850 52
Arvin Industries, Inc. 1,670 52
- - Airgas, Inc. 4,380 51
Claire's Stores, Inc. 3,060 51
- - GTech Holdings Corp. 2,360 51
Superior Industries
International, Inc. 1,800 50
Precision Castparts Corp. 1,570 48
Ruddick Corp. 3,010 48
- - Armco, Inc. 6,800 48
Cleco Corp. 1,450 47
Public Service Co. of New Mexico 2,560 47
AGCO Corp. 3,560 46
Bandag, Inc. 1,440 46
Investment Technology Group, Inc. 2,000 46
- - Cirrus Logic 4,100 45
GenCorp, Inc. 2,460 45
- - Wisconsin Central
Transportation Corp. 3,260 45
Ferro Corp. 2,090 45
Granite Construction Co. 1,700 44
P.H. Glatfelter Co. 2,660 44
Chesapeake Corp. of Virginia 1,440 44
Ametek Aerospace Products Inc. 2,150 43
Wausau-Mosinee Paper Corp. 3,400 41
Stewart Enterprises, Inc. Class A 6,710 41
Longview Fibre Co. 3,270 41
Banta Corp. 1,820 41
- - Unifi, Inc. 3,670 40
Modine Manufacturing Co. 1,730 40
</TABLE>
34
<PAGE> 99
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
Flowserve Corp. 2,420 $ 40
- - PSS World Medical, Inc. 4,480 40
The Standard Register Co. 1,700 40
Olin Corp. 2,920 40
- - Mentor Graphics Corp. 4,620 40
- - OfficeMax, Inc. 6,780 39
- - American Eagle Outfitters, Inc. 800 39
- - Sequa Corp. Class A 610 38
- - Covance, Inc. 3,940 38
Georgia Gulf Corp. 2,140 38
Overseas Shipholding Group Inc. 2,410 37
Wellman, Inc. 2,050 37
Watts Industries Class A 1,700 37
Indiana Energy, Inc. 1,830 37
Dreyer's Grand Ice Cream, Inc. 2,100 36
J.M. Smucker Co. Class A 1,720 36
A. Schulman Inc. 2,070 36
M.A. Hanna Co. 3,150 36
- - CompUSA, Inc. 5,840 36
- - Total Renal Care Holdings, Inc. 4,790 36
Ryerson Tull, Inc. 1,540 36
Carpenter Technology Corp. 1,440 35
- - Perrigo Co. 4,410 35
J.B. Hunt Transport Services, Inc. 2,490 35
- - Quorum Health Group, Inc. 4,800 34
Black Hills Corp. 1,440 34
Rollins, Inc. 2,140 33
Ogden Corp. 3,240 32
- - Structural Dynamics
Research Corp. 2,100 32
- - Micro Warehouse Inc. 2,390 29
- - Buffets Inc. 2,400 28
- - Albany International Corp. 1,740 26
International Multifoods Corp. 1,110 26
Stewart & Stevenson Services, Inc. 1,910 25
- - Maxxam Inc. 480 25
- - Beverly Enterprises, Inc. 5,730 24
Lance, Inc. 1,730 23
- - Magnatek 2,450 22
Cleveland-Cliffs Iron Co. 620 19
- - Acuson Corp. 1,500 19
Arnold Industries, Inc. 1,480 19
- - Vlasic Foods International, Inc. 2,600 18
Ethyl Corp. 4,620 18
- - Lone Star Steakhouse &
Saloon, Inc. 2,230 17
Heilig-Meyers Co. 3,560 17
Gartner Group, Inc. Class B 1,000 17
Oregon Steel Mills, Inc. 1,480 16
- - Burlington Industries, Inc. 3,040 13
NCH Corp. 260 12
- - Sykes Enterprises, Inc. 300 7
- - Ventiv Health, Inc. 53 1
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $56,193) 53,760
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.1%)
- ----------------------------------------------------------
Other Assets--Note C 723
Liabilities (797)
-----
(74)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 5,039,351 outstanding
$0.001 par value shares of beneficial
interest (unlimited authorization) $53,686
=========================================================
NET ASSET VALUE PER SHARE $10.65
=========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
<CAPTION>
- ---------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ---------------------------------------------------------
AMOUNT PER
(000) SHARE
- ---------------------------------------------------------
<S> <C> <C>
Paid in Capital $54,880 $10.89
Undistributed Net
Investment Income 211 .04
Accumulated Net Realized Gains 1,028 .20
Unrealized Depreciation--Note F (2,433) (.48)
- ---------------------------------------------------------
NET ASSETS $53,686 $10.65
=========================================================
</TABLE>
35
<PAGE> 100
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
GROWTH PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.4%)
- ----------------------------------------------------------
CONSUMER DISCRETIONARY (11.1%)
- - America Online, Inc. 198,500 $ 20,644
Wal-Mart Stores, Inc. 410,000 19,501
Home Depot, Inc. 232,400 15,948
Time Warner, Inc. 176,500 10,722
TJX Cos., Inc. 202,400 5,680
Gillette Co. 164,800 5,593
McDonald's Corp. 116,500 5,010
- - Bed Bath & Beyond, Inc. 139,600 4,877
The Walt Disney Co. 177,500 4,593
- - Clear Channel
Communications, Inc. 45,900 3,666
- - Mirage Resorts, Inc. 232,000 3,263
May Department Stores Co. 79,050 2,880
- - Abercrombie & Fitch Co. 60,700 2,068
- - Costco Wholesale Corp. 20,100 1,447
--------
105,892
--------
CONSUMER STAPLES (11.6%)
Procter & Gamble Co. 290,600 27,244
CVS Corp. 414,100 16,900
The Coca-Cola Co. 320,300 15,394
PepsiCo, Inc. 448,100 13,555
Colgate-Palmolive Co. 237,800 10,879
- - The Kroger Co. 253,200 5,586
Philip Morris Cos., Inc. 142,100 4,858
Unilever NV ADR 68,749 4,684
General Mills, Inc. 46,800 3,797
Walgreen Co. 113,000 2,867
Campbell Soup Co. 50,600 1,980
Coca-Cola Enterprises, Inc. 83,600 1,886
The Quaker Oats Co. 11,800 730
--------
110,360
--------
FINANCIAL SERVICES (8.0%)
Paychex, Inc. 346,700 11,831
American International
Group, Inc. 133,500 11,606
MBNA Corp. 464,200 10,590
Automatic Data Processing, Inc. 236,400 10,549
Capital One Financial Corp. 211,600 8,252
Associates First Capital Corp. 175,100 6,304
Wells Fargo Co. 158,900 6,296
- - Concord EFS, Inc. 218,550 4,508
State Street Corp. 69,300 4,479
Charles Schwab Corp. 67,900 2,287
--------
76,702
--------
HEALTH CARE (17.2%)
Warner-Lambert Co. 427,900 28,402
Pfizer, Inc. 634,000 22,784
Bristol-Myers Squibb Co. 290,400 19,602
Johnson & Johnson 181,700 16,694
Schering-Plough Corp. 276,500 12,062
Merck & Co., Inc. 181,000 11,731
American Home Products Corp. 277,800 11,529
Pharmacia & Upjohn, Inc. 219,800 10,908
- - Amgen, Inc. 132,500 10,799
AstraZeneca Group PLC ADR 218,571 9,235
- - ALZA Corp. 210,700 9,021
- - Quintiles Transnational Corp. 36,100 687
--------
163,454
--------
MATERIALS & PROCESSING (0.8%)
- - Sealed Air Corp. 99,000 5,080
- - W.R. Grace & Co. 161,800 2,599
--------
7,679
--------
PRODUCER DURABLES (3.7%)
Nokia Corp. ADR 239,000 21,465
- - Applied Materials, Inc. 124,600 9,703
Xerox Corp. 105,600 4,429
--------
35,597
--------
TECHNOLOGY (31.5%)
COMMUNICATIONS TECHNOLOGY (5.2%)
Lucent Technologies, Inc. 599,000 38,860
- - Tellabs, Inc. 120,500 6,861
- - Inktomi Corp. 31,600 3,793
COMPUTER SERVICES SOFTWARE &
SYSTEMS (6.9%)
- - Microsoft Corp. 597,400 54,102
- - BMC Software, Inc. 160,300 11,471
COMPUTER TECHNOLOGY (13.3%)
- - Cisco Systems, Inc. 888,800 60,938
- - Dell Computer Corp. 602,500 25,192
- - EMC Corp. 344,500 24,610
International Business
Machines Corp. 130,200 15,803
ELECTRONICS--SEMICONDUCTORS/
COMPONENTS (6.1%)
Intel Corp. 590,000 43,844
Texas Instruments, Inc. 174,100 14,320
--------
299,794
--------
UTILITIES (4.4%)
SBC Communications Inc. 365,300 18,653
- - MCI WorldCom, Inc. 252,400 18,141
Comcast Corp. Class A Special 117,900 4,701
--------
41,495
--------
OTHER (10.1%)
General Electric Co. 464,600 55,084
Monsanto Co. 467,800 16,695
Tyco International Ltd. 155,700 16,076
Illinois Tool Works, Inc. 112,600 8,396
--------
96,251
--------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $638,369) 937,224
- ----------------------------------------------------------
CONVERTIBLE PREFERRED STOCK (0.5%)
- ----------------------------------------------------------
Sealed Air Corp. $ 2.00 Cvt. Pfd.
(COST $3,779) 94,800 4,811
- ----------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.9%)
- ----------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.30%, 10/1/1999
(COST $17,975) $17,975 17,975
- ----------------------------------------------------------
TOTAL INVESTMENTS (100.8%)
(COST $660,123) 960,010
- ----------------------------------------------------------
</TABLE>
36
<PAGE> 101
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
(000)
- ----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-0.8%)
- ----------------------------------------------------------
Other Assets--Note C $ 4,959
Liabilities (12,332)
-------
(7,373)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 32,891,028 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $952,637
==========================================================
NET ASSET VALUE PER SHARE $ 28.96
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
- ----------------------------------------------------------
<CAPTION>
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $597,080 $18.15
Undistributed Net
Investment Income 4,932 .15
Accumulated Net Realized Gains 50,738 1.54
Unrealized Appreciation--Note F 299,887 9.12
- ----------------------------------------------------------
NET ASSETS $952,637 $28.96
==========================================================
</TABLE>
37
<PAGE> 102
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
SMALL COMPANY VALUE*
GROWTH PORTFOLIO SHARES (000)
- ----------------------------------------------------------
COMMON STOCKS (96.4%)
- ----------------------------------------------------------
<S> <C> <C>
AUTO & TRANSPORTATION (6.2%)
- - Heartland Express, Inc. 160,750 $ 2,271
- - Covenant Transport, Inc. 114,000 1,738
Wabash National Corp. 72,000 1,463
- - M.S. Carriers, Inc. 57,000 1,368
Tidewater Inc. 41,000 1,046
C.H. Robinson Worldwide, Inc. 30,000 1,011
Oshkosh Truck Corp. 37,500 998
Polaris Industries, Inc. 15,000 519
-------
10,414
-------
CONSUMER DISCRETIONARY (25.4%)
CABLE TELEVISION SERVICES (1.3%)
- - Insight Communications Co., Inc. 77,500 2,218
CASINOS & GAMBLING (1.0%)
Dover Downs Entertainment, Inc. 67,000 930
- - Hollywood Park, Inc. 55,000 846
CONSUMER ELECTRONICS (2.4%)
- - ITI Technologies, Inc. 53,000 1,593
- - Proxicom, Inc. 16,000 936
- - THQ Inc. 20,000 863
- - LoJack Corp. 75,000 621
CONSUMER PRODUCTS (0.5%)
Tupperware Corp. 45,500 921
EDUCATION--SERVICES (0.8%)
- - Learning Tree International, Inc. 74,500 1,234
- - New Horizons Worldwide, Inc. 3,000 48
ENTERTAINMENT (0.9%)
- - On Command Corp. 75,000 1,425
HOTEL/MOTEL (0.3%)
The Marcus Corp. 36,000 434
HOUSEHOLD FURNISHINGS (0.8%)
Oneida Ltd. 43,000 1,024
Haverty Furniture Cos., Inc. 24,900 361
JEWELRY WATCHES & GEMS (0.7%)
Movado Group, Inc. 53,000 1,219
LEISURE TIME (2.9%)
- - Trendwest Resorts, Inc. 85,300 2,218
- - Vistana, Inc. 97,200 1,458
- - Action Performance Cos., Inc. 52,500 1,106
RENT LEASE SERVICES--CONSUMER
(0.9%)
- - Rent-A-Center, Inc. 80,000 1,490
RESTAURANTS (1.6%)
- - CEC Entertainment Inc. 75,700 2,716
RETAIL (7.8%)
- - Zale Corp. 66,500 2,548
- - Ames Department Stores, Inc. 65,000 2,072
- - BJ's Wholesale Club, Inc. 62,800 1,857
- - ShopKo Stores, Inc. 63,000 1,827
- - MP3.com, Inc. 37,400 1,405
- - PETCO Animal Supplies, Inc. 92,000 1,093
- - Chemdex Corp. 20,000 616
- - Lands' End, Inc. 9,000 594
- - Linens 'n Things, Inc. 14,000 472
- - The Dress Barn, Inc. 20,500 376
Russ Berrie and Co., Inc. 12,400 260
SERVICES--COMMERCIAL (2.5%)
- - Latitude Communications, Inc. 54,000 1,576
- - NCO Group, Inc. 30,000 1,410
- - Newgen Results Corp. 71,000 772
- - The Corporate Executive Board Co. 10,000 407
- - Liquid Audio, Inc. 700 26
SHOES (0.1%)
- - Shoe Carnival, Inc. 16,800 186
TOYS (0.9%)
- - JAKKS Pacific, Inc. 38,000 1,425
-------
42,583
-------
ENERGY (1.6%)
St. Mary Land & Exploration Co. 62,500 1,633
- - Chieftain International, Inc. 57,000 1,083
------
2,716
------
FINANCIAL SERVICES (6.9%)
Sun Communities, Inc. REIT 69,000 2,281
- - Concord EFS, Inc. 107,061 2,208
Saul Centers, Inc. REIT 124,900 1,967
First Washington Realty
Trust, Inc. REIT 86,700 1,821
Investment Technology
Group, Inc. 78,554 1,807
- - The Profit Recovery Group
International, Inc. 20,000 893
Fidelity National Financial,
Inc. 28,400 431
- - Towne Services, Inc. 30,000 96
-------
11,504
-------
HEALTH CARE (20.2%)
- - Vertex Pharmaceuticals, Inc. 100,000 3,106
- - Abgenix, Inc. 70,000 2,743
DENTSPLY International Inc. 100,000 2,275
- - PE Corp.-Celera Genomics Group 55,000 2,214
- - Medarex, Inc. 300,000 2,138
- - QLT PhotoTherapeutics Inc. 27,500 2,102
- - Human Genome Sciences, Inc. 25,000 1,844
- - LeukoSite, Inc. 90,000 1,811
- - Protein Design Labs, Inc. 50,000 1,806
- - Biogen, Inc. 22,000 1,734
- - Acuson Corp. 135,000 1,721
- - Genzyme Corp. 36,000 1,622
- - Patterson Dental Co. 30,950 1,534
- - Cephalon, Inc. 80,000 1,437
- - United Therapeutics Corp. 45,500 1,314
- - Forest Laboratories, Inc. 29,000 1,222
Arrow International, Inc. 42,000 1,074
- - Cell Genesys, Inc. 74,850 589
- - CV Therapeutics, Inc. 35,000 512
- - Beverly Enterprises, Inc. 100,000 425
- - PathoGenesis Corp. 22,800 351
- - The Liposome Co., Inc. 30,000 228
-------
33,802
-------
</TABLE>
38
<PAGE> 103
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
(000)
- ----------------------------------------------------------
<S> <C> <C>
MATERIALS & PROCESSING (1.1%)
- - U.S. Can Corp. 58,100 $ 1,187
Elcor Corp. 24,000 600
------
1,787
------
PRODUCER DURABLES (8.1%)
- - Mettler-Toledo International
Inc. 138,700 4,109
- - American Power Conversion Corp. 88,000 1,672
SL Industries, Inc. 105,000 1,496
- - Jason Inc. 147,500 1,162
- - Plantronics, Inc. 19,700 980
- - Terayon Communications
Systems, Inc. 18,000 880
- - Rayovac Corp. 40,000 865
Lindsay Manufacturing Co. 42,050 825
- - Palm Harbor Homes, Inc. 53,953 742
- - Polycom, Inc. 12,500 596
- - American Homestar Corp. 45,000 174
- - Vivid Technologies, Inc. 30,000 109
-------
13,610
-------
TECHNOLOGY (26.4%)
COMMUNICATIONS TECHNOLOGY (5.9%)
- - RealNetworks, Inc. 29,300 3,064
- - CSG Systems International, Inc. 99,000 2,713
- - SeaChange International, Inc. 157,500 2,500
- - CAIS Internet, Inc. 50,000 603
- - CellNet Data Systems, Inc. 130,000 512
- - Melita International Corp. 45,300 354
- - Software.com, Inc. 5,000 214
COMPUTER SERVICES SOFTWARE & SYSTEM (16.0%)
- - MicroStrategy Inc. 81,000 4,541
- - Macrovision Corp. 85,000 3,772
- - Remedy Corp. 130,000 3,689
- - Exchange Applications, Inc. 97,000 2,819
- - Acxiom Corp. 112,000 2,202
- - Avant! Corp. 110,000 1,963
- - Genesys Telecommunications
Laboratories, Inc. 31,000 1,416
- - Silknet Software, Inc. 25,000 1,153
- - Macromedia, Inc. 24,500 1,001
- - Wind River Systems Inc. 50,000 950
- - Sapient Corp. 10,000 943
- - Bluestone Software Inc. 40,000 925
- - Aspect Development, Inc. 25,000 633
- - WatchGuard Technologies, Inc. 40,000 600
- - Caere Corp. 26,000 201
COMPUTER TECHNOLOGY (1.8%)
- - MTI Technology Corp. 94,500 2,179
- - Computer Network
Technology Corp. 90,000 838
ELECTRICAL & ELECTRONICS
- - InVision Technologies, Inc. 15,000 53
ELECTRONICS (1.3%)
BEI Technologies, Inc. 122,500 1,485
- - Del Global Technologies Corp. 85,500 673
ELECTRONICS--SEMICONDUCTORS/
COMPONENTS (1.3%)
- - Oak Technology, Inc. 265,500 1,186
- - The Cherry Corp. 70,200 895
ELECTRONICS--TECHNOLOGY (0.1%)
- - Maxwell Technologies, Inc. 13,500 177
- - Trimble Navigation Ltd. 5,000 53
-------
44,307
-------
OTHER (0.5%)
Teleflex Inc. 19,000 751
-------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $130,777) 161,474
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------------------------------------------
TEMPORARY CASH INVESTMENTS (9.0%)
- ----------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.25%, 10/1/1999--Note G $9,559 9,559
5.30%, 10/1/1999 5,546 5,546
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $15,105) 15,105
- ----------------------------------------------------------
TOTAL INVESTMENTS (105.4%)
(COST $145,882) 176,579
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-5.4%)
- ----------------------------------------------------------
Other Assets--Note C 4,829
Security Lending Collateral
Payable to Brokers--Note G (9,559)
Other Liabilities (4,322)
-------
(9,052)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 13,015,159 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $167,527
==========================================================
NET ASSET VALUE PER SHARE $ 12.87
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
REIT--Real Estate Investment Trust.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
Amount Per
(000) Share
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $136,934 $10.52
Undistributed Net
Investment Income 772 .06
Accumulated Net
Realized Losses--Note E (876) (.07)
Unrealized Appreciation--Note F 30,697 2.36
- ----------------------------------------------------------
NET ASSETS $167,527 $12.87
==========================================================
</TABLE>
39
<PAGE> 104
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
INTERNATIONAL PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (94.8%)
- ----------------------------------------------------------
AUSTRALIA (0.9%)
Westpac Banking Corp., Ltd. 134,306 $ 829
Broken Hill Proprietary Co.
Ltd. 66,000 760
Telstra Corp. Ltd. 144,600 749
------
2,338
------
BELGIUM (0.2%)
Algemene Maatschappij
voor Nijverheidskredit NV 9,092 494
- - Fortis AG-CVG 2,562 16
----
510
----
BRAZIL (1.2%)
Telesp Participacoes ADR 54,000 851
Tele Celular Sul
Participacoes ADR 38,000 720
Tele Centro Sul
Participacoes ADR 10,600 588
Cia Vale Do Rio Doce PNA A 19,300 406
Petroleos Brasiliero SA PN 2,600,000 399
Telesp PN 4,150,000 371
------
3,335
------
DENMARK (0.7%)
Den Danske Bank A/S 16,000 1,822
-----
FRANCE (12.1%)
Elf Aquitaine SA 48,000 8,384
Suez Lyonnaise des Eaux 37,430 6,059
Vivendi 80,400 5,647
Alcatel 24,800 3,418
- - Canal Plus SA 28,800 1,721
Renault SA 27,000 1,492
AXA 11,473 1,452
Bouygues SA 4,336 1,375
Accor SA 4,800 1,119
Thomson-CSF SA 25,000 849
Societe National
d'Exploitation Industrielle
des Tabacs et Allumettes SA 12,000 716
- - Sanofi-Synthelabo SA 16,000 682
- - Vivendi Warrants Exp. 2/5/2001 18,200 37
-------
32,951
-------
GERMANY (6.7%)
Mannesmann AG 49,200 7,913
BASF AG 48,000 2,065
Viag AG 151,800 2,886
Hoechst AG 42,000 1,828
SAP AG Pfd. 3,450 1,551
Bayerische Hypo-und
Vereinsbank AG 23,000 1,339
Buderus AG 39,000 665
-------
18,247
-------
HONG KONG (2.4%)
Hutchison Whampoa Ltd. 184,000 1,711
HSBC Holdings PLC 110,400 1,265
Swire Pacific Ltd. A 233,000 1,104
- - China Telecom (Hong Kong) Ltd. 312,000 962
Cheung Kong Holdings Ltd. 90,000 750
Sun Hung Kai Properties Ltd. 85,000 648
------
6,440
------
IRELAND (1.6%)
- - Elan Corp. PLC ADR 77,000 2,584
Bank of Ireland PLC 210,000 1,711
------
4,295
------
ITALY (5.4%)
- - Olivetti SpA 1,954,080 4,214
Telecom Italia Mobile SpA 509,000 3,166
Banca di Roma 2,080,000 3,157
Fiat SpA 57,800 1,927
Ente Nazionale Idrocarburi SpA 231,350 1,451
- - Tecnost SpA 347,580 729
-------
14,644
-------
JAPAN (16.1%)
Murata Manufacturing Co., Ltd. 85,000 8,543
Fuji Photo Film Co., Ltd. 206,000 7,062
Takeda Chemical Industries Ltd. 125,000 6,751
Mabuchi Motor Co. 24,000 3,124
Matsushita Electric Industrial
Co., Ltd. 145,000 3,085
Tokyo Electron Ltd. 23,599 2,050
Dowa Fire & Marine
Insurance Co. 500,000 1,616
Mitsubishi Corp. 192,000 1,587
Nippon Television Network Corp. 2,160 1,542
Hirose Electric Co., Ltd. 8,700 1,369
Toppan Printing Co., Ltd. 103,000 1,296
Toho Co., Ltd. 8,200 1,287
East Japan Railway Co. 195 1,242
Yasuda Fire & Marine
Insurance Co. 143,000 912
Sumitomo Electric Industries
Ltd. 60,000 823
Kuraray Co., Ltd. 62,000 727
Mitsui & Co., Ltd. 84,000 636
Mitsui Fudosan Co., Ltd. 8,000 64
-------
43,716
-------
MALAYSIA (0.8%)
Malayan Banking Bhd. 211,000 655
Tenaga Nasional Bhd. 277,041 569
Telekom Malaysia Bhd. 207,500 538
Genting Bhd. 117,700 393
------
2,155
------
MEXICO (1.5%)
Telefonos de Mexico
SA Class L ADR 19,500 1,389
- - Grupo Televisa SA GDR 22,900 915
Cemex SA ADR 37,504 905
Grupo Bimbo
SA de CV Series A 240,000 504
Fomento Economico
Mexicano UBD 130,000 405
------
4,118
------
NETHERLANDS (10.0%)
ING Groep NV 176,021 9,560
Philips Electronics NV 79,260 7,977
Getronics NV 65,283 3,521
Heineken NV 47,000 2,338
</TABLE>
40
<PAGE> 105
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
Verenigde Nederlandse
Uitgeversbedrijven
Verenigd Bezit 41,000 $ 1,423
Oce NV 65,547 1,208
STMicroelectronics NV 8,400 655
DSM NV 13,800 547
-------
27,229
-------
PHILIPPINES (0.7%)
Ayala Land, Inc. 3,137,811 767
Philippine Long Distance
Telephone Co. 34,500 747
Manila Electric Co. 118,300 341
------
1,855
------
SINGAPORE (2.3%)
United Overseas Bank Ltd.
(Foreign) 236,000 1,790
DBS Group Holdings Ltd. 148,864 1,663
Singapore Press Holdings Ltd. 81,138 1,279
City Developments Ltd. 179,000 911
Singapore Airlines Ltd. 57,000 556
------
6,199
------
SOUTH KOREA (3.6%)
Samsung Electronics Co., Ltd. 23,117 3,744
Korea Electric Power Corp. 64,500 2,121
- - Pohang Iron & Steel
Co. Ltd. Warrants
Exp. 5/26/2000 14,500 1,628
Pohang Iron & Steel Co. Ltd. 5,240 594
- - Korea Telecom Warrants
Exp. 5/22/2000 8,500 525
Shinhan Bank Co. Ltd. 47,500 441
SK Telecom Co. Ltd. 344 318
SK Telecom Co. Ltd. ADR 29,250 302
- - Korea Telecom Corp. ADR 7,400 274
------
9,947
------
SPAIN (1.9%)
Endesa SA 216,000 4,104
Bankinter SA 30,000 1,176
------
5,280
------
SWEDEN (2.3%)
Svenska Handelsbanken
A Shares 210,000 2,933
Skandia Forsakrings AB 87,000 1,815
LM Ericsson Telephone
AB B Shares 51,000 1,580
------
6,328
------
SWITZERLAND (4.8%)
UBS AG 14,400 4,059
Novartis AG (Registered) 2,300 3,412
Roche Holdings AG
(Dividend-Right Certificates) 210 2,430
- - ABB Ltd. 23,505 2,428
Clariant AG 1,800 816
-------
13,145
-------
TAIWAN (0.8%)
- - Taiwan Semiconductor
Manufacturing Co. Warrants
Exp. 4/25/2000 179,129 923
- - Far East Textiles Warrants
Exp. 8/11/2000 482,000 680
- - Honhai Precision Warrants
Exp. 8/11/2000 54,000 353
- - Asustek Computer Inc. Warrants
Exp. 6/21/2000 24,000 238
------
2,194
------
UNITED KINGDOM (18.8%)
Standard Chartered PLC 322,800 4,668
Glaxo Wellcome PLC 164,000 4,278
Bass PLC 276,000 3,330
BP Amoco PLC 169,000 3,087
Boots Co. PLC 265,000 2,952
Tesco PLC 915,000 2,859
Kingfisher PLC 245,000 2,627
Scottish & Newcastle PLC 264,000 2,624
Allied Zurich PLC 212,000 2,489
Rolls-Royce PLC 685,300 2,379
Granada Group PLC 216,000 1,850
British Telecommunications PLC 122,000 1,847
Daily Mail & General Trust PLC
Class A 30,000 1,600
British Sky Broadcasting
Group PLC 151,000 1,461
Great Universal Stores PLC 185,000 1,395
EMI Group PLC 180,000 1,316
Airtours PLC 203,300 1,296
Marks & Spencer PLC 235,000 1,221
Diageo PLC 116,470 1,190
Provident Financial PLC 87,000 1,042
United News & Media PLC 98,000 944
Tarmac PLC 122,289 877
Cable and Wireless PLC 78,000 849
Reckitt & Colman PLC 63,000 782
British Land Co., PLC 84,000 656
British Airways PLC 103,000 578
Norwich Union PLC 72,000 521
- - Carillion PLC 152,639 309
-------
51,027
-------
- ----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $204,103) 257,775
- ----------------------------------------------------------
<CAPTION>
FACE
AMOUNT
(000)
- ----------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (9.3%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.25%, 10/1/1999--Note G $10,733 10,733
5.30%, 10/1/1999 14,523 14,523
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $25,256) 25,256
- ----------------------------------------------------------
TOTAL INVESTMENTS (104.1%)
(COST $229,359) 283,031
- ----------------------------------------------------------
</TABLE>
41
<PAGE> 106
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
INTERNATIONAL PORTFOLIO (000)
- ----------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES (-4.1%)
- ----------------------------------------------------------
Other Assets--Note C $ 1,355
Security Lending Collateral
Payable to Brokers--Note G (10,733)
Other Liabilities (1,856)
- ----------------------------------------------------------
(11,234)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 17,443,198 outstanding
$.001 par shares of beneficial
interest (unlimited authorization) $271,797
==========================================================
NET ASSET VALUE PER SHARE $ 15.58
==========================================================
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
ADR--American Depositary Receipt.
GDR--Global Depositary Receipt.
- ----------------------------------------------------------
<CAPTION>
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $206,810 $11.86
Undistributed Net
Investment Income--Note E 3,356 .19
Accumulated Net
Realized Gains--Note E 8,269 .47
Unrealized Appreciation
(Depreciation)--Note F
Investment Securities 53,672 3.08
Foreign Currencies and
Forward Currency Contracts (310) (.02)
- ----------------------------------------------------------
NET ASSETS $271,797 $15.58
==========================================================
</TABLE>
42
<PAGE> 107
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
REIT INDEX PORTFOLIO SHARES (000)
- ----------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (97.9%)
- ----------------------------------------------------------
<S> <C> <C>
Equity Office Properties
Trust REIT 46,510 1,081
Equity Residential Properties
Trust REIT 21,550 913
Simon Property Group, Inc. REIT 31,290 702
Public Storage, Inc. REIT 24,446 616
ProLogis Trust REIT 29,210 551
Vornado Realty Trust REIT 15,390 500
Archstone Communities
Trust REIT 25,110 485
Apartment Investment &
Management Co. Class A REIT 11,270 431
Crescent Real Estate, Inc. REIT 23,100 416
Duke Realty Investments, Inc.
REIT 20,878 407
Spieker Properties, Inc. REIT 11,400 395
Avalonbay Communities, Inc. REIT 11,600 393
Host Marriott Corp. REIT 40,800 388
Kimco Realty Corp. REIT 10,760 385
Boston Properties, Inc. REIT 11,400 350
Cornerstone Properties,
Inc. REIT 22,870 349
AMB Property Corp. REIT 15,300 324
Rouse Co. REIT 12,950 298
New Plan Excel Realty Trust REIT 16,300 290
Highwood Properties, Inc. REIT 11,110 287
General Growth Properties
Inc. REIT 9,000 284
Mack-Cali Realty Corp. REIT 10,350 278
Post Properties, Inc. REIT 7,000 275
Liberty Property Trust REIT 11,800 268
CarrAmerica Realty Corp. REIT 12,150 266
Arden Realty Group, Inc. REIT 11,350 247
Franchise Finance Corp. of
America REIT 10,300 241
Regency Realty Corp. REIT 10,800 227
FelCor Lodging Trust, Inc. REIT 12,500 219
Hospitality Properties Trust
REIT 9,900 218
United Dominion Realty
Trust REIT 18,900 211
Cousins Properties, Inc. REIT 5,900 200
Camden Property Trust REIT 7,300 196
Prison Realty Trust, Inc. REIT 18,200 196
BRE Properties Inc. Class A REIT 8,100 194
Weingarten Realty Investors REIT 4,900 183
Westfield America, Inc. REIT 13,180 183
First Industrial Realty Trust
REIT 6,700 166
Developers Diversified Realty
Corp. REIT 11,250 157
Federal Realty Investment
Trust REIT 7,400 155
Prentiss Properties Trust REIT 6,800 151
Cabot Industrial Trust REIT 7,300 141
The Macerich Co. REIT 6,100 141
Storage USA, Inc. REIT 4,900 135
MeriStar Hospitality Corp. REIT 8,400 128
Chateau Communities, Inc. REIT 4,900 127
Shurgard Storage Centers, Inc.
Class A REIT 5,100 126
JDN Realty Corp. REIT 6,100 125
Colonial Properties Trust REIT 4,600 123
Gables Residential Trust REIT 4,900 118
CenterPoint Properties Corp.
REIT 3,500 116
Charles E. Smith Residential
Realty, Inc. REIT 3,340 114
Reckson Associates Realty
Corp. REIT 5,500 114
Brandywine Realty Trust REIT 6,900 112
PS Business Parks, Inc. REIT 4,300 112
Taubman Co. REIT 9,600 110
Trinet Corporate Realty
Trust, Inc. REIT 4,600 110
Realty Income Corp. REIT 4,700 109
Kilroy Realty Corp. REIT 5,070 107
CBL & Associates Properties,
Inc. REIT 4,310 105
Essex Property Trust, Inc. REIT 3,000 105
Manufactured Home
Communities, Inc. REIT 4,500 105
Summit Properties, Inc. REIT 5,200 104
Sun Communities, Inc. REIT 3,100 102
Washington REIT 6,200 98
Glenborough Realty Trust,
Inc. REIT 5,900 97
Walden Residential
Properties, Inc. REIT 4,300 94
Urban Shopping Centers,
Inc. REIT 3,200 93
Home Properties of
New York, Inc. REIT 3,400 91
SL Green Realty Corp. REIT 4,500 89
Bradley Real Estate Inc. REIT 4,600 85
Chelsea GCA Realty, Inc. REIT 2,700 85
Berkshire Realty Co., Inc. REIT 7,000 84
Koger Equity, Inc. REIT 5,000 80
Pacific Gulf Properties, Inc.
REIT 3,700 74
Mills Corp. REIT 4,100 73
Mid-America Apartment
Communities, Inc. REIT 3,300 71
Alexandria Real Estate
Equities, Inc. REIT 2,300 68
Cornerstone Realty Income
Trust, Inc. REIT 7,500 67
Bedford Property Investors,
Inc. REIT 3,900 66
Glimcher Realty Trust REIT 4,500 66
AMLI Residential Properties
Trust REIT 3,100 65
Pan Pacific Retail Properties,
Inc. REIT 3,600 61
Burnham Pacific Properties,
Inc. REIT 5,700 60
Commercial Net Lease
Realty REIT 5,600 59
Sunstone Hotel Investors,
Inc. REIT 6,600 58
Equity Inns, Inc. REIT 6,700 57
RFS Hotel Investors, Inc. REIT 4,900 56
American Industrial
Properties REIT 4,100 55
Parkway Properties Inc. REIT 1,700 55
Prime Retail, Inc. REIT 7,500 55
Town & Country Trust REIT 3,100 55
</TABLE>
43
<PAGE> 108
<TABLE>
<CAPTION>
- ----------------------------------------------------------
MARKET
VALUE*
REIT INDEX PORTFOLIO SHARES (000)
- ----------------------------------------------------------
<S> <C> <C>
Innkeepers USA Trust REIT 6,400 $ 53
Center Trust, Inc. REIT 4,700 52
EastGroup Properties, Inc. REIT 2,800 51
JP Realty Inc. REIT 3,000 51
U.S. Restaurant Properties,
Inc. REIT 2,700 51
IRT Property Co. REIT 5,500 50
Sovran Self Storage, Inc. REIT 2,100 48
Capital Automotive REIT 3,800 47
National Golf Properties,
Inc. REIT 2,100 47
Pennsylvania REIT 2,500 47
Prime Group Realty Trust REIT 3,100 47
Entertainment Properties
Trust REIT 2,800 41
Great Lakes, Inc. REIT 2,700 41
Boykin Lodging Co. REIT 2,900 38
Konover Property Trust, Inc.
REIT 6,000 38
Lexington Corporate Properties
Trust REIT 3,410 38
Reckson Associates Realty Corp.
Class B REIT 1,756 38
Saul Centers, Inc. REIT 2,400 38
Associated Estates Realty
Corp. REIT 4,000 37
Tanger Factory Outlet Centers,
Inc. REIT 1,600 37
Western Properties Trust REIT 3,400 37
First Washington Realty Trust,
Inc. REIT 1,700 36
LaSalle Hotel Properties REIT 2,700 35
Crown American Realty Trust REIT 5,250 34
Golf Trust of America, Inc. REIT 1,630 32
Lexford Residential Trust REIT 1,500 30
Mid Atlantic Realty Trust REIT 2,500 26
Phillips International Realty
Corp. REIT 1,600 25
Winston Hotels, Inc. REIT 2,800 25
Investors Real Estate Trust REIT 2,800 24
Ramco-Gershenson Properties
Trust REIT 1,600 24
Correctional Properties Trust
REIT 1,600 22
Corporate Office Properties Trust,
Inc. REIT 2,600 20
Kranzco Realty Trust REIT 2,000 20
Equity One, Inc. REIT 1,600 17
Grove Property Trust REIT 1,300 17
Captec Net Lease Realty,
Inc. REIT 1,400 14
Jameson Inns, Inc. REIT 1,500 13
- - Interstate Hotels Corp. REIT 876 3
- ----------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Cost $21,574) 20,126
- ----------------------------------------------------------
<CAPTION>
FACE MARKET
AMOUNT VALUE
(000) (000)
- ----------------------------------------------------------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS (3.6%)
- ----------------------------------------------------------
REPURCHASE AGREEMENTS
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
5.25%, 10/1/1999--Note G $280 $ 280
5.30%, 10/1/1999 453 453
- ----------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $733) 733
- ----------------------------------------------------------
TOTAL INVESTMENTS (101.5%)
(COST $22,307) 20,859
- ----------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.5%)
- ----------------------------------------------------------
Other Assets 189
Liabilities--Note G (488)
-------
(299)
- ----------------------------------------------------------
NET ASSETS (100%)
- ----------------------------------------------------------
Applicable to 2,088,263 outstanding
$.001 par value shares of beneficial
interest (unlimited authorization) $20,560
==========================================================
NET ASSET VALUE PER SHARE $9.85
==========================================================
</TABLE>
*See Note A in Notes to Financial Statements.
- -Non-Income-Producing Security.
REIT--Real Estate Investment Trust.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
AT SEPTEMBER 30, 1999, NET ASSETS CONSISTED OF:
- ----------------------------------------------------------
AMOUNT PER
(000) SHARE
- ----------------------------------------------------------
<S> <C> <C>
Paid in Capital $21,440 $10.27
Undistributed Net
Investment Income 596 .28
Accumulated Net Realized
Losses--Note E (28) (.01)
Unrealized Depreciation--Note F (1,448) (.69)
- ----------------------------------------------------------
NET ASSETS $20,560 $9.85
==========================================================
</TABLE>
44
