GREENWICH STREET SERIES FUND
ANNUAL REPORT FOR
SYMPHONY
A Tax-Deferred Variable Annuity
[Paste up Art]
INTERMEDIATE HIGH GRADE PORTFOLIO
APPRECIATION PORTFOLIO
TOTAL RETURN PORTFOLIO
DECEMBER 31, 1997
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ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
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Dear Investor:
We are pleased to provide you with the annual report for Greenwich Street Series
Fund -- Intermediate High Grade, Appreciation and Total Return Portfolios
("Portfolios") for the year ended December 31, 1997. This letter will briefly
discuss general economic and market conditions. In addition, detailed
comparisons showing the growth of a hypothetical $10,000 investment in each
Portfolio since inception can be found in this report. All total return figures
presented in this report are cumulative and exclude the effect of sales charges.
A detailed summary of performance and current holdings for each individual
Portfolio can be found in the appropriate sections that follow.
MARKET AND ECONOMIC OVERVIEW
During the past year, the stock and bond markets of the world became more
turbulent. Yet for the third consecutive year in a row, the U.S. stock market
posted 20%-plus returns. The Standard & Poor's 500 Stock-Price Index ("S&P
500"), a common benchmark for stock market performance, had a return of 33.35%
for the year ended December 31, 1997. (The S&P 500 Index is a
capitalization-weighted measure of 500 widely held common stocks.) The bond
market had a stellar year because of declining inflation and a relatively
neutral Federal Reserve ("Fed") monetary policy. Despite an increase in market
volatility and growing investor concerns about Asia, many financial assets
performed well in 1997.
As the world's stock markets have grown more tumultuous, investors have begun to
turn to bonds for safety, further enhancing their relative attractiveness.
Long-term rates have dropped to their lowest level in nearly 30 years. Deflation
has become the major issue rather than inflation. (Deflation is a decline in the
prices of goods and services or when there are major imbalances, too much supply
and little or no demand.) In fact, many investment professionals believe that
the Fed may even lower short-term rates in the coming months.
At the start of 1998, we are at an interesting crossroads in the economic cycle.
Never before have investors faced a world that is rapidly evolving into one vast
economy. A world without a major conflict and marked by less famine, higher
standards of living and more open borders. Some previously underdeveloped
countries are experiencing rapid development and, as a result, are creating a
commensurate higher demand for products and services that have long
characterized more developed countries. Yet, progress can bring imbalances and
the world's capital markets have experienced significant disruptions recently
due in large part to Asia's difficulties.
For the year ended December 31, 1997, the Lehman Brothers Aggregate Bond Index
bonds returned 9.65%. (The Lehman Brothers Aggregate Bond Index is composed of
the Government Corporate Bond Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency
issues, corporate bond issues and mortgage-backed issues.) And we have every
reason to believe that the bond market will continue to perform well in 1998
given the positive underlying economic fundamentals.
But the underlying positive factors supporting the bond market have caused us to
become more concerned about the stock market. Deflation can mean slower economic
growth and greater pressure on corporate earnings (and stock prices). However,
lower rates have historically tended to support the stock market. But that
hasn't always been the case.
In our view, rates are unlikely to rise and may actually come down a little. The
year ahead will probably be one of consolidation in the stock market and healthy
performances for bonds. However, we expect a resurgence of global economic
growth and better stock market performance toward the end of 1998 as Asia's
problems are eventually solved.
Because of low inflation, higher productivity and shrinking deficits, bond
investors should be rewarded in the coming year. Stock investors should not
expect the outsized returns of the last three years to continue. The disruptions
caused by Asia will ripple through the world's capital markets and higher stock
market volatility is here to stay. The International Monetary Fund ("IMF") has
predicted that Asia's stock market and foreign exchange volatility will cut
sharply into the region's economic growth and will also act as a drag on
worldwide economic growth. Moreover, swings in the stock market have become even
more pronounced as daily trading volume surges on the major exchanges.
Counterbalancing this higher volatility is the behavior of increasingly savvy
investors who understand that successful stock investing requires patience,
discipline and an ability to handle the market's ups and downs.
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INTERMEDIATE HIGH GRADE PORTFOLIO
The investment objective of the Intermediate High Grade Portfolio is to provide
investors with as high a level of current income as is consistent with the
protection of capital. Under normal market conditions, the Intermediate High
Grade Portfolio will invest at least 65% of its assets in high-quality
intermediate-term U.S. government securities and U.S. corporate bonds. For the
year ended December 31, 1997, the Intermediate High Grade Portfolio had a total
return of 8.67%, underperforming the Lehman Brothers Government/Corporate Bond
Index total return of 9.76%. (The Lehman Government/Corporate Bond Index is a
combination of publicly issued intermediate- and long-term U.S. government bonds
and corporate bonds.)
Recent news reports of financial meltdowns that have engulfed Thailand,
Indonesia and South Korea and threaten to spread across Asia and other
developing economies have introduced some volatility to the U.S. stock markets.
In the meantime, the U.S. bond market, with the exception of Yankee bonds issued
by those same Asian countries, have been exceedingly calm. We believe that a
slowdown of the Asian growth rates in an orderly fashion with interim financial
support should provide long-term benefits to the rest of the world. The
immediate benefits of the U.S. and International Monetary Fund-led bailouts of
many Asian markets will be to lower the risks to their systems with respect to
their terms of leverage and short-term funding needs as well as to shed some
light on the true condition of these emerging economies and many of their
corporations. This will also enable investors to make better informed decisions
based on a clearer understanding of underlying fundamentals. In the meantime,
the U.S. economy remains strong but with gross exports making up approximately
25% of U.S. gross domestic product ("GDP"), consensus expectations for U.S.
economic growth have been lowered in 1998. This has helped push interest rates
lower and should keep inflation low as well.
Since the Federal Open Market Committee ("FOMC") voted in March of 1997 to raise
the overnight targeted interest rate by 25 basis points (0.25%), they have
adopted a "wait-and-see" approach. Despite of a strong domestic economy, the Fed
has been content to leave rates unchanged. The Fed's rationale seems to be
driven by two major factors: (1) no signs have appeared of system wide price
increases or growing inflationary pressures and; (2) as the keeper of the
world's reserve currency, the Fed is reluctant to tighten credit as long as
international financial markets appear at risk. The Fed has shown a surprising
amount of restraint over the past year that in hindsight can only be classified
as commendable. Despite the Asian situation, we believe that the Fed's restraint
may well be tested once again in the near future as recent wage increases along
with massive mortgage refinancing have made consumers rich. As long as
inflationary forces remain in check, we are confident that any Fed-engineered
interest rate increase will be limited in scope and that rates are most likely
to remain at or near their current levels in the near term.
APPRECIATION PORTFOLIO
For the year ended December 31, 1997, the Appreciation Portfolio had a total
return of 26.39%. In comparison, the S&P 500 posted a total return of 33.35% for
the same period. The Appreciation Portfolio's goal is long-term appreciation of
capital.
The stock market continued its terrific climb in 1997. Large inflows of money
into mutual funds by domestic and international investors, strong corporate
profits and declining inflation produced another year of outsized returns.
However, investors found many potholes along the way, particularly the Asian
jolt. As might be expected in a stock market that has climbed relentlessly for a
while, buyers have been attracted whose conviction levels are not strong. Many
stocks are priced with an investor expectation that they will continue their
current growth rates. As a result, any minor disappointment reported by a
company can result in an exaggerated and painful stock price decline.
The Fund's top ten holdings have changed slightly. Allstate, a leading provider
of auto and home insurance, which we highlighted in last year's report, remains
the Fund's single largest holding. The company continues to run its business for
the benefit of shareholders. Another industry which has been well represented in
the Fund for some time is pharmaceuticals. Strong volume growth driven by new
products made these companies significant contributors to overall returns in
1997. Johnson & Johnson, Bristol Myers and Merck remain top ten holdings of the
fund. Unilever, a Dutch global consumer products company, is the only new
entrant to the Fund's top ten. Under the leadership of a new CEO, the company is
divesting low return businesses, expanding in developing markets, and investing
for future growth. Energy stocks such as Mobil and Amoco, which we highlighted
last year, also remain top holdings. Their higher-than-market dividends,
together with emphasis on earning adequate returns on capital, make them
desirable holdings in a more uncertain market environment.
Our biggest disappointment in the last year was Eastman Kodak, which despite a
huge restructuring, is facing heavy competition in its core film business, while
investing heavily for future growth in digital products. Fortunately, we were
able
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to reduce our position at higher levels as the company began to experience
problems. A large sale of stock by the CEO last spring alerted us to the
possibility of more severe problems.
While the stock market continues to discount a near perfect economic
environment, we think there are some cracks appearing in the foundation that may
warrant a more conservative posture. Our largest concern is that valuation
levels are at or near record levels. While it is virtually impossible to time
when valuations will peak, we do believe that high levels signify a greater
level of market risk. Second, in our view, corporate profit expectations for
1998 are too high and will be adjusted downward. The U.S. economy is slowing due
to high consumer debt levels and the Asian crisis. On a more positive note,
interest rates should continue to trend lower as inflation remains dormant due
to productivity gains along with worldwide competition and excess capacity. The
key issue, it seems to us, is whether earnings disappointment occur, which seems
likely, and if lower interest rates can offset these shortfalls. We expect 1998
to be a very interesting and volatile year, with lots of opportunities in both
directions.
TOTAL RETURN PORTFOLIO
During 1997, the Total Return Portfolio appreciated 16.84% compared to 33.35%
for the S&P 500. The income return during the year was approximately 3.7%
compared to approximately 1.7% for the S&P 500. Therefore our income benchmark
was more than 100% higher than the S&P 500 yield. The Total Return Portfolio's
goal is to provide shareholders with total return, consisting of long-term
capital appreciation and income.
Factors Affecting Portfolio Performance in 1997
For the third year in a row, large capitalization stocks, especially those that
comprise the top 25 positions within the S&P 500, continued to do better than
stocks in general. For much of the year, the investor emphasis was on these
companies' excellent long - term prospects, especially in developing country
economies. With the currency and economic problems in Asia, late in the year,
investor focus shifted to "safe havens" that also benefited the largest
components of the S&P 500. It is our belief that currency devaluations in many
parts of the world may affect the earnings of large-sized companies in 1998.
During 1998, we continued to maintain a nearly 20% position in real estate
investment trusts ("REITs"). As the domestic economy has strengthened, demand
for many property types in the real estate markets have put upward pressure on
rents. REITs also provide generous dividends, which was another consideration in
our maintaining an overweighted position in the group versus the benchmark.
However, many REITs also raised greater capital during the year and this
additional supply helped offset the benefits of higher rents and lower interest
rates.
The Total Return Fund had 1.5 times the S&P weighting in communications services
companies, principally telephone companies. These companies, which include AT&T,
U.S. West, and GTE Corp., were very strong performers in late 1997 as merger
activity and the flight-to-safety by investors in response to turmoil in Asia,
drove their share prices much higher. Communications services issues were very
strong performers for the Total Return Fund in 1997.
During the year, we also maintained lower weightings in financial services and
technology. Financial services stocks have outperformed the market by a wide
margin in the last seven years. This group continues to benefit from lower
interest rates; however, we would like to point out that revenue growth is
slowing, premiums for merger candidates may have peaked and cost savings from
restructuring probably will be less in the years ahead.
Technology stocks are one of the most exciting and volatile segments of the
stock market. Strong performance characterized technology until the fourth
quarter of 1997 when many leading issues declined substantially. In some cases,
most if not all of the 1997 gains were eliminated in a short period of time. Our
underweighted position in technology was a positive for the Fund in 1997.
We maintained a cash position averaging about 20% during the year, reflecting
our belief that many segments of the market had reached overvalued levels not
seen in the last fifty years. As a result, fewer issues met our strict
value-oriented criteria for investment. A substantial cash position in an
improving market also negatively affected the Fund's performance in 1997.
Recent Changes -- A Transition Market
We believe the stock market is in a transition phase in which earnings gains
will be more difficult to come by for many companies. Many multinational
companies will almost certainly see lower growth rates for their international
operations as a
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ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
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result of currency devaluations in Asia and in some other parts of the world.
There is much discussion of the potential deflationary effects of recent
developments in Asia and for a few quarters these may occur. However, we think
it's appropriate to look more closely at several consequences of the recent
events is Asia.
First, very high domestic inflation in many Asian countries will result from the
devaluations of their currencies. Labor unrest and other factors will lead to
inflation that will erode competitive advantages that seem to result from a
devalued currency.
Second, the Asian economic growth model is no longer valid. Growth in many Asian
countries was sustained by cozy relationships between governments, banks and
investor groups. Substantial debt and an emphasis on market share rather than
near-term returns also characterized the so-called Asian growth model, really a
derivative of the old Soviet apparatus. In the next few years, Asia will have to
emphasize return-on-capital and there will be sharp cutbacks in capital
spending. Eventually this will benefit industries such as aluminum and paper.
Even though it may be early, we believe these industries will do better than the
broad market over the next two years.
Basic materials was the single worst performing group in 1997 and, if history
repeats itself, basic materials will show much improved relative performance in
1998 through 1999.
Other recent Portfolio changes included selling some of our positions in energy
and financial services. Energy issues have since declined dramatically and it is
possible we may take our currents market weight position to modestly
overweighted in the period ahead.
Looking Ahead to 1998
Investors in general have become convinced that returns far above the long term
"speed limit" for stocks of 10.5% is now their birthright. Over the last ten
years, stocks returns have averaged about 18%. It is very likely that the
returns over the next decade will be meaningfully lower. With investor
enthusiasm at historic highs and consumer confidence higher than at any time in
30 years, (and stock market valuations at 50 year highs), this is not a market
without risk or vulnerability.
In closing, we would like to thank you for your investment in the Greenwich
Street Series Fund. We look forward to helping you pursue your financial needs
in the years to come.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
February 3, 1998
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PERFORMANCE COMPARISON -- INTERMEDIATE HIGH GRADE PORTFOLIO AS OF 12/31/97
(UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
<S> <C> <C>
Year Ended 12/31/97 8.67%
Five Years Ended 12/31/97 6.38%
10/16/91* through 12/31/97 6.38%
CUMULATIVE TOTAL RETURN
- -------------------------------------------------
10/16/91* through 12/31/97 46.90%
* Commencement of operations
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</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in Intermediate High Grade
Portfolio on October 16, 1991
(commencement of operations)
through December 31, 1997 with
that of a similar investment in
the Lehman Brothers Government/
Corporate Bond Index. Index
information is available at
month-end only; therefore, the
closest month-end to inception
date of the Portfolio has been
used. The Lehman Brothers
Government/Corporate Bond Index
is a weighted composite of the
Lehman Brothers Government Bond
Index, which is a broad-based
index of all public debt
obligations of the U.S.
Government and its agencies and
has an average maturity of nine
years and the Lehman Brothers
Corporate Bond Index, which is
comprised of all public
fixed-rate non-convertible
investment-grade domestic
corporate debt, excluding
collateralized mortgage
obligations.
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MEASUREMENT PERIOD INTERMEDIATE HIGH GOVERNMENT/CORPORATE
(FISCAL YEAR COVERED) GRADE PORTFOLIO BOND INDEX
<S> <C> <C>
10/16/91 10000.00 10000.00
12/91 10240.00 10440.00
12/92 10781.00 11231.00
12/93 11643.00 12470.00
12/94 11287.00 12032.00
12/95 13292.00 14348.00
12/96 13518.00 14764.00
12/31/97 14690.00 15772.00
</TABLE>
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The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
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PERFORMANCE COMPARISON -- APPRECIATION PORTFOLIO AS OF 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
<S> <C> <C>
Year Ended 12/31/97 26.39%
Five Years Ended 12/31/97 15.62%
10/16/91* through 12/31/97 14.34%
CUMULATIVE TOTAL RETURN
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10/16/91* through 12/31/97 129.99%
* Commencement of operations
- -------------------------------------------------
</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in Appreciation Portfolio on
October 16, 1991 (commencement of
operations) through December 31,
1997 with that of a similar
investment in the Standard &
Poor's 500 Index. Index
information is available at
month-end only; therefore, the
closest month-end to inception
date of the Portfolio has been
used. The Standard & Poor's 500
Index is an unmanaged index
composed of 500 widely held
common stocks listed on the New
York Stock Exchange, American
Stock Exchange and over-the-
counter market.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STANDARD & POOR'S 500
(FISCAL YEAR COVERED) APPRECIATION PORTFOLIO INDEX
<S> <C> <C>
10/16/91 10000.00 10000.00
12/91 10490.00 10838.00
12/92 11133.00 11668.00
12/93 11926.00 12844.00
12/94 11792.00 13012.00
12/95 15193.00 17898.00
12/31/96 18197.00 22005.00
12/31/97 22999.00 29345.00
</TABLE>
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The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
5
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PERFORMANCE COMPARISON -- TOTAL RETURN PORTFOLIO AS OF 12/31/97 (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
<S> <C> <C>
Year Ended 12/31/97 16.84%
12/3/93* through 12/31/97 18.89%
CUMULATIVE TOTAL RETURN
- -------------------------------------------------
12/3/93* through 12/31/97 102.54%
* Commencement of operations
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</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in Total Return Portfolio on
December 3, 1993 (commencement of
operations) through December 31,
1997 with that of a similar
investment in the Standard &
Poor's 500 Index. Index
information is available at
month-end only; therefore, the
closest month-end to inception
date of the Portfolio has been
used. The Standard & Poor's 500
Index is an unmanaged index
composed of 500 widely held
common stocks listed on the New
York Stock Exchange, American
Stock Exchange and
over-the-counter market.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STANDARD & POOR'S 500
(FISCAL YEAR COVERED) TOTAL RETURN PORTFOLIO INDEX
<S> <C> <C>
12/3/93 10000.00 10000.00
12/93 10300.00 10121.00
12/94 11062.00 10253.00
12/95 13832.00 14103.00
12/96 17335.00 17340.00
12/31/97 20255.00 23124.00
</TABLE>
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The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
6
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SCHEDULES OF INVESTMENTS DECEMBER 31, 1997
INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
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<S> <C>
ASSET-BACKED SECURITIES -- 4.0%
$ 590,000 Standard Credit Card Master Trust, 5.900% due 2/7/01 (Cost -- $588,506)...... $ 589,380
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MORTGAGE-BACKED SECURITIES -- 13.1%
1,000,000 Federal National Mortgage Association, 6.500% due 1/1/28..................... 987,810
977,644 Government National Mortgage Association, 6.500% due 2/15/26................. 968,173
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TOTAL MORTGAGE-BACKED SECURITIES (Cost -- $1,939,955)........................ 1,955,983
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CORPORATE BONDS AND NOTES -- 60.7%
- ---------------------------------------------------------------------------------------------------------
DOMESTIC BANKS -- 17.2%
400,000 Banc One Corp., Sr. Notes, 6.700% due 3/24/00................................ 405,000
180,000 Chase Manhattan Bank Corp., Sr. Notes, 5.875% due 8/4/99..................... 179,775
250,000 J.P. Morgan & Co., Series A, Unsubordinated Sr. Notes, 6.125% due 10/2/00.... 250,625
500,000 Norwest Corp., Sr. Notes, 6.250% due 4/15/99................................. 501,875
500,000 Rabo Bank Nederland, Deposit Notes, 5.950% due 10/6/99....................... 498,750
500,000 Republic New York Corp., Debentures, 9.500% due 7/1/00....................... 538,750
175,000 Suntrust Banks, Sr. Notes, 8.875% due 2/1/98................................. 175,357
- ---------------------------------------------------------------------------------------------------------
2,550,132
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 16.3%
700,000 Associates Corp. N.A., Sr. Notes, 8.180% due 2/15/05......................... 772,625
500,000 Bankers Trust Institutional Capital Trust B, Company Guaranteed Notes, 7.750%
due 12/1/26 (a).............................................................. 508,750
100,000 Caterpillar Financial Services Inc., Medium Term Notes, 6.100% due 7/15/99... 100,125
200,000 General Electric Capital Corp., Notes, 8.100% due 1/26/99.................... 204,750
500,000 St. Paul Cos., Inc., Notes, 7.180% due 5/5/04................................ 520,000
300,000 Xerox Capital Trust, Company Guaranteed Notes, 8.000% due 2/1/27............. 325,125
- ---------------------------------------------------------------------------------------------------------
2,431,375
- ---------------------------------------------------------------------------------------------------------
FOREIGN BANKS -- 7.2%
500,000 Capital Desjardins Inc., Sub. Notes, 7.370% due 8/8/05 (a)................... 527,500
500,000 National Westminster Bank-N.Y., Sub. Notes, 9.450% due 5/1/01................ 548,125
- ---------------------------------------------------------------------------------------------------------
1,075,625
- ---------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT BONDS -- 0.8%
100,000 Quebec Province, Notes, 8.625% due 1/19/05................................... 112,500
- ---------------------------------------------------------------------------------------------------------
HEALTHCARE -- 4.7%
500,000 Service Corp. International, Notes, 7.000% due 6/1/15........................ 516,250
180,000 Warner Lambert Co., Debentures, 8.000% due 9/1/98............................ 182,109
- ---------------------------------------------------------------------------------------------------------
698,359
- ---------------------------------------------------------------------------------------------------------
NATURAL GAS - PIPELINE -- 4.0%
500,000 HNG Internorth, Debentures, 9.625% due 3/15/06............................... 602,500
- ---------------------------------------------------------------------------------------------------------
OIL INTEGRATED - DOMESTIC -- 3.4%
500,000 Shell Oil Co., Debentures, 6.950% due 12/15/98............................... 503,800
- ---------------------------------------------------------------------------------------------------------
PAPER PRODUCTS -- 1.8%
250,000 Kimberly-Clark Corp., Debentures, 7.875% due 2/1/23.......................... 268,437
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
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SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
RETAIL -- 1.8%
$ 250,000 Wal-Mart Stores Inc., Debentures, 9.100% due 7/15/00......................... $ 268,125
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 3.5%
500,000 Philips Electronics Corp., Notes, 7.200% due 6/1/26.......................... 525,625
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $8,907,414)......................... 9,036,478
- ---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 22.2%
350,000 U.S. Treasury Bonds, 7.125% due 2/15/23...................................... 399,724
1,300,000 U.S. Treasury Bonds, 8.125% due 8/15/19...................................... 1,626,482
1,000,000 Federal Home Loan Bank, 6.450% due 10/29/07.................................. 1,022,500
250,000 Federal National Mortgage Association, Medium Term Notes, 6.220% due
3/13/06...................................................................... 252,682
- ---------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost -- $3,212,101)............ 3,301,388
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $14,647,976).................................. 14,883,229
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.0%
2,000 Goldman, Sachs & Co., 6.348% due 1/2/98; Proceeds at maturity -- $2,001;
(Fully collateralized by U.S. Treasury Notes, 5.625% due 12/31/99; Market
value -- $2,041) (Cost -- $2,000)............................................ 2,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $14,649,976*)............................. $14,885,229
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Security is exempt from registration under rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
8
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SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK -- 83.2%
- ---------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 3.7%
36,000 E.I. du Pont De Nemours & Co. ............................................. $ 2,162,250
22,000 Mead Corp. ................................................................ 616,000
28,000 Olin Corp. ................................................................ 1,312,500
10,000 Raychem Corp. ............................................................. 430,625
10,000 St. Joe Corp. ............................................................. 905,000
- ---------------------------------------------------------------------------------------------------------
5,426,375
- ---------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 7.3%
42,000 Allied Signal Inc. ........................................................ 1,635,375
16,504 Boeing Co. ................................................................ 807,665
14,000 Emerson Electric Co. ...................................................... 790,125
44,000 General Electric Co. ...................................................... 3,228,500
13,000 Honeywell, Inc. ........................................................... 890,500
13,000 Johnson Controls, Inc. .................................................... 620,750
10,000 Lockheed Martin Corp. ..................................................... 985,000
1,913 Raytheon Co. .............................................................. 94,340
34,000 Tyco International Ltd. ................................................... 1,532,125
- ---------------------------------------------------------------------------------------------------------
10,584,380
- ---------------------------------------------------------------------------------------------------------
CONSUMER DURABLES -- 2.3%
14,000 Chrysler Corp. ............................................................ 492,625
33,000 General Motors Corp. ...................................................... 2,000,625
11,000 Goodyear Tire & Rubber Co. ................................................ 699,875
10,000 Republic Industries, Inc. ................................................. 233,125
- ---------------------------------------------------------------------------------------------------------
3,426,250
- ---------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 6.8%
10,000 American Greetings Corp. .................................................. 391,250
10,000 Bestfoods Co. ............................................................. 1,077,500
19,000 Conagra, Inc. ............................................................. 623,438
10,000 Eastman Kodak Co. ......................................................... 608,125
8,000 Gillette Co. .............................................................. 803,500
27,000 Kimberly-Clark Corp. ...................................................... 1,331,438
25,500 Newell Co. ................................................................ 1,083,750
5,000 PepsiCo, Inc. ............................................................. 182,188
10,000 Procter & Gamble Co. ...................................................... 798,125
5,000 Ralston-Ralston Purina Group............................................... 464,687
8,000 Stanley Works.............................................................. 377,500
34,000 Unilever NV, New York Shares............................................... 2,122,875
- ---------------------------------------------------------------------------------------------------------
9,864,376
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CONSUMER SERVICES -- 6.9%
36,000 Gannett Co., Inc. ......................................................... $ 2,225,250
18,000 J.C. Penney Co., Inc. ..................................................... 1,085,625
25,000 McDonald's Corp. .......................................................... 1,193,750
28,000 Meredith Corp. ............................................................ 999,250
12,000 Scandinavian Broadcasting System SA (a).................................... 294,000
16,000 The Walt Disney Co. ....................................................... 1,585,000
15,000 Time Warner, Inc. ......................................................... 930,000
45,000 Wal-Mart Stores, Inc. ..................................................... 1,774,688
- ---------------------------------------------------------------------------------------------------------
10,087,563
- ---------------------------------------------------------------------------------------------------------
DIVERSIFIED CONGLOMERATE -- 1.7%
30,000 Minnesota Mining & Manufacturing Co. ...................................... 2,461,875
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 10.0%
18,000 Amerada Hess Corp. ........................................................ 987,750
25,000 Amoco Corp. ............................................................... 2,128,125
22,000 Ashland Inc. .............................................................. 1,181,125
23,000 Exxon Corp. ............................................................... 1,407,312
22,000 Halliburton Co. ........................................................... 1,142,625
38,000 Mobil Corp. ............................................................... 2,743,125
9,000 Noble Affiliates Inc. ..................................................... 317,250
12,000 Reading & Bates Corp. ..................................................... 502,500
24,000 Royal Dutch Petroleum, New York Shares ADR................................. 1,300,500
10,000 Schlumberger Ltd. ......................................................... 805,000
17,000 Sonat, Inc. ............................................................... 777,750
12,000 Texaco Inc. ............................................................... 652,500
22,000 Union Pacific Resources Group Inc. ........................................ 533,500
- ---------------------------------------------------------------------------------------------------------
14,479,062
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 19.1%
70,000 Allstate Corp. ............................................................ 6,361,250
19,000 American Express Co. ...................................................... 1,695,750
17,000 American International Group, Inc. ........................................ 1,848,750
15,000 Associated First Captial Corp. ............................................ 1,066,875
8,000 Barnett Banks Inc. ........................................................ 575,000
19,520 Chase Manhattan Corp. ..................................................... 2,137,440
30,000 Chubb Corp. ............................................................... 2,268,750
5,000 CNA Financial Corp. (a).................................................... 638,750
45,000 Federal National Mortgage Association...................................... 2,567,812
15,000 First Virginia Banks, Inc. ................................................ 775,312
7,000 General Re Corp. .......................................................... 1,484,000
19,000 Household International, Inc. ............................................. 2,423,688
11,000 Leucadia National Corp. ................................................... 379,500
10,000 National City Corp. ....................................................... 657,500
15,000 St. Paul Cos. ............................................................. 1,230,937
5,000 Wells Fargo & Co. ......................................................... 1,697,188
- ---------------------------------------------------------------------------------------------------------
27,808,502
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
HEALTHCARE -- 9.8%
23,000 Abbott Laboratories........................................................ $ 1,507,937
20,000 American Home Products Corp. .............................................. 1,530,000
29,000 Bristol-Myers Squibb & Co. ................................................ 2,744,125
4,000 Eli Lilly & Co. ........................................................... 278,500
49,000 Johnson & Johnson.......................................................... 3,227,875
27,000 Merck & Co., Inc. ......................................................... 2,868,750
12,000 Novartis AG ADR............................................................ 974,250
4,000 Pfizer Inc. ............................................................... 298,250
15,000 Smithkline Beecham Sponsored ADR........................................... 771,562
- ---------------------------------------------------------------------------------------------------------
14,201,249
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 10.3%
24,500 Cisco Systems, Inc. (a).................................................... 1,365,875
10,000 First Data Corp. .......................................................... 292,500
25,000 Hewlett-Packard Co. ....................................................... 1,562,500
24,000 Intel Corp. ............................................................... 1,686,000
20,000 International Business Machines Corp. ..................................... 2,091,250
6,000 Lucent Technologies Inc. .................................................. 479,250
6,000 Microsoft Corp. (a)........................................................ 775,500
36,000 Texas Instruments, Inc. ................................................... 1,620,000
50,000 Thermo Electron Corp. (a).................................................. 2,225,000
38,000 Xerox Corp. ............................................................... 2,804,875
- ---------------------------------------------------------------------------------------------------------
14,902,750
- ---------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.3%
25,000 Ameritech Corp. ........................................................... 2,012,500
20,000 Bell Atlantic Corp. ....................................................... 1,820,000
8,000 Bellsouth Corp. ........................................................... 450,500
38,000 GTE Corp. ................................................................. 1,985,500
- ---------------------------------------------------------------------------------------------------------
6,268,500
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
10,000 AMR Corp. ................................................................. 1,285,000
5,000 Wisconsin Central Transport (a)............................................ 116,875
- ---------------------------------------------------------------------------------------------------------
1,401,875
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $77,699,810)................................... 120,912,757
- ---------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 16.8%
$24,467,000 Goldman, Sachs & Co., 6.348% due 1/2/98; Proceeds at maturity -- $24,475,629;
(Fully collaterized by U.S. Treasury Note, 5.625% due 12/31/99;
Market value -- $24,967,115) (Cost -- $24,467,000)......................... 24,467,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS --100% (Cost -- $102,166,810*)........................... $145,379,757
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
<S> <C>
- ---------------------------------------------------------------------------------------------------------
COMMON STOCK -- 66.8%
- ---------------------------------------------------------------------------------------------------------
BASIC MATERIALS -- 7.5%
146,300 Alumax Inc. (a)............................................................ $ 4,974,200
100,000 Aluminum Co. of America.................................................... 7,037,500
225,000 Oregon Steel Mills Inc..................................................... 4,795,313
200,000 RMI Titanium Co. (a)(b)(c)................................................. 4,000,000
- ---------------------------------------------------------------------------------------------------------
20,807,013
- ---------------------------------------------------------------------------------------------------------
CHEMICALS -- 2.5%
70,000 Dow Chemical Co............................................................ 7,105,000
- ---------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 13.6%
150,000 American Telephone & Telegraph Corp. ...................................... 9,187,500
283,000 Comsat Corp. .............................................................. 6,862,750
190,000 Enron Corp. ............................................................... 7,896,875
125,000 GTE Corp. ................................................................. 6,531,250
155,000 US West Communications Group............................................... 6,994,375
- ---------------------------------------------------------------------------------------------------------
37,472,750
- ---------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 8.0%
100,000 Georgia Pacific Corp. ..................................................... 6,075,000
225,000 Toys "R" Us, Inc. (a)...................................................... 7,073,434
225,000 Wal-Mart Stores, Inc....................................................... 8,873,438
- ---------------------------------------------------------------------------------------------------------
22,021,872
- ---------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.0%
225,000 PepsiCo Inc. .............................................................. 8,198,438
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 5.7%
60,000 Amoco Corp. ............................................................... 5,107,500
75,000 Coastal Corp. ............................................................. 4,645,313
200,000 Occidental Petroleum Corp. ................................................ 5,862,500
- ---------------------------------------------------------------------------------------------------------
15,615,313
- ---------------------------------------------------------------------------------------------------------
FINANCIALS -- 6.3%
85,000 American Express Co. (c)................................................... 7,586,250
125,000 Bank of New York Co., Inc. (c)............................................. 7,226,563
21,000 Citicorp (c)............................................................... 2,655,188
- ---------------------------------------------------------------------------------------------------------
17,468,001
- ---------------------------------------------------------------------------------------------------------
HEALTH CARE -- 1.7%
50,000 Bristol-Myers Squibb Co. .................................................. 4,731,250
- ---------------------------------------------------------------------------------------------------------
REAL ESTATE -- 14.5%
175,000 Irvine Apartment Communities Inc. ......................................... 5,567,188
200,000 Rouse Co. ................................................................. 6,550,000
201,900 Shurgard Storage Centers, Inc. ............................................ 5,855,100
150,000 Simon Debartolo Group, Inc. ............................................... 4,903,125
150,000 Spieker Properties, Inc. .................................................. 6,431,250
150,000 Trinet Corporate Realty Trust, Inc......................................... 5,803,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
REAL ESTATE -- 14.5% (CONTINUED)
300,000 Westfield America Inc...................................................... $ 5,100,000
- ---------------------------------------------------------------------------------------------------------
40,209,788
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 1.5%
100,000 Adobe Systems Inc. (c)..................................................... 4,125,000
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 2.5%
125,000 Duke Energy Corp........................................................... 6,921,875
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $144,477,578).................................. 184,676,300
- ---------------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 5.2%
100,000 General Datacom Industries, Exchangeable 9.00% (d)......................... 1,500,000
250,000 Greyhound Lines, Exchangeable 8.50% (d).................................... 6,531,250
125,000 KMart Financing Corp., Exchangeable 7.75%.................................. 6,453,125
- ---------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $15,399,873)................................ 14,484,375
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
FACE AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CONVERTIBLE BOND -- 0.8%
$ 2,000,000 PETsMART Inc., 6.750% due 11/1/04 (c) (Cost -- $2,030,000)................. 2,082,500
- ---------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS (Cost -- $161,907,451)............................... 201,243,175
- ---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 27.2%
25,089,000 Chase Manhattan Corp., 5.897% due 1/2/98; Proceeds at
maturity -- $25,097,220;
(Fully collateralized by U.S. Treasury Notes, 5.625% due 12/15/02;
Market value -- $25,590,969)............................................... 25,089,000
25,000,000 Goldman, Sachs & Co., 6.348% due 1/2/98; Proceeds at
maturity -- $25,008,817;
(Fully collateralized by U.S. Treasury Notes, 5.625% due 12/31/99;
Market value -- $25,511,009)............................................... 25,000,000
25,000,000 Morgan Stanley & Co., Inc., 6.196% due 1/2/98; Proceeds at
maturity -- $25,008,606; (Fully collateralized by U.S. Treasury Notes,
6.125% due 9/30/00;
Market value -- $25,509,112)............................................... 25,000,000
- ---------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (Cost -- $75,089,000).......................... 75,089,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $236,996,451*).......................... $276,332,175
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) A portion of this security is on loan (See Note 12).
(c) Security is segregated by Custodian to cover written call options.
(d) Security is exempt from registration under rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at cost........................................ $14,647,976 $ 77,699,810 $161,907,451
Repurchase agreements, at cost.............................. 2,000 24,467,000 75,089,000
- ------------------------------------------------------------------------------------------------------------
Investments, at value....................................... $14,883,229 $120,912,757 $201,243,175
Repurchase agreements, at value............................. 2,000 24,467,000 75,089,000
Cash........................................................ 858 76 403
Collateral for securities loaned (Note 12).................. -- -- 1,287,048
Dividends and interest receivable........................... 257,470 178,909 657,942
Receivable for Fund shares sold............................. -- 174,321 62,972
Receivable for securities sold.............................. -- 2,916,198 1,669,772
Deferred organization costs................................. -- -- 2,947
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................................ 15,143,557 148,649,261 280,013,259
- ------------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable............................ 13,739 65,656 120,493
Administration fees payable................................. 6,680 23,875 45,313
Payable for Fund shares purchased........................... 93 50,109 3,651
Payable for securities purchased............................ -- 4,346,718 3,861,944
Payable for securities loaned (Note 12)..................... -- -- 1,287,048
Payable for options written (Note 6)........................ -- -- 636,748
Accrued expenses............................................ 22,886 28,879 52,330
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES........................................... 43,398 4,515,237 6,007,527
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.............................................. $15,100,159 $144,134,024 $274,005,732
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest.................. $ 1,387 $ 7,693 $ 15,551
Capital paid in excess of par value......................... 14,245,988 91,697,233 217,820,075
Undistributed net investment income......................... 934,607 1,991,360 7,893,462
Accumulated net realized gain (loss) from security
transactions and options................................. (317,076) 7,224,791 8,328,148
Net unrealized appreciation of investments and options...... 235,253 43,212,947 39,948,496
- ------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS.............................................. $15,100,159 $144,134,024 $274,005,732
- ------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING............................................ 1,386,827 7,693,323 15,553,970
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................... $10.89 $18.73 $17.62
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $1,076,781 $ 1,124,049 $ 2,430,419
Dividends................................................. -- 1,882,294 6,536,579
Less: Foreign withholding tax............................. -- (11,925) --
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 1,076,781 2,994,418 8,966,998
- ------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)......................... 59,572 662,865 1,220,026
Administration fees (Note 3).............................. 29,786 241,042 443,646
Audit and legal........................................... 15,158 14,855 15,501
Shareholder communications................................ 13,961 15,876 34,589
Shareholder and system servicing fees..................... 10,968 11,980 10,000
Pricing service fees...................................... 4,187 -- --
Trustees' fees............................................ 3,092 8,946 19,001
Custody................................................... 1,077 5,995 8,499
Amortization of deferred organization costs............... -- -- 3,201
Other..................................................... 3,241 1,666 7,731
- ------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 141,042 963,225 1,762,194
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 935,739 2,031,193 7,204,804
- ------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND OPTIONS
(NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities).......................................... (24,810) 7,187,150 9,391,959
Options written........................................ -- -- (1,085,113)
- ------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................................. (24,810) 7,187,150 8,306,846
- ------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments and Options:
Beginning of year...................................... (101,606) 25,036,957 20,759,472
End of year............................................ 235,253 43,212,947 39,948,496
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION................... 336,859 18,175,990 19,189,024
- ------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND OPTIONS......................... 312,049 25,363,140 27,495,870
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $1,247,788 $ 27,394,333 $ 34,700,674
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 935,739 $ 2,031,193 $ 7,204,804
Net realized gain (loss).................................... (24,810) 7,187,150 8,306,846
Increase in net unrealized appreciation..................... 336,859 18,175,990 19,189,024
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... 1,247,788 27,394,333 34,700,674
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income....................................... (962,101) (1,537,746) (3,035,727)
Net realized gains.......................................... -- (7,668,329) (7,940,255)
- ------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS... (962,101) (9,206,075) (10,975,982)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 13):
Net proceeds from sale of shares............................ 1,510,131 30,193,445 75,318,676
Net asset value of shares issued for reinvestment of
dividends................................................ 962,101 9,206,075 10,975,982
Cost of shares reacquired................................... (2,394,121) (14,685,582) (7,517,017)
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS......... 78,111 24,713,938 78,777,641
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS........................................ 363,798 42,902,196 102,502,333
NET ASSETS:
Beginning of year........................................... 14,736,361 101,231,828 171,503,399
- ------------------------------------------------------------------------------------------------------------
END OF YEAR*................................................ $15,100,159 $144,134,024 $274,005,732
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:............ $934,607 $1,991,360 $7,893,462
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income....................................... $ 964,989 $ 1,544,019 $ 3,710,576
Net realized gain (loss).................................... (4,603) 7,668,200 8,063,440
Increase in net unrealized appreciation (depreciation)...... (738,535) 8,004,471 16,541,648
- ------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... 221,851 17,216,690 28,315,664
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income....................................... (109,701) (1,465,494) (744,542)
Net realized gains.......................................... -- (6,748,581) (1,914,537)
- ------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS... (109,701) (8,214,075) (2,659,079)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 13):
Net proceeds from sale of shares............................ 1,072,219 6,372,114 70,721,239
Net asset value of shares issued for reinvestment of
dividends................................................ 109,701 8,214,075 2,659,079
Cost of shares reacquired................................... (2,710,130) (16,848,804) (5,576,476)
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS............................................. (1,528,210) (2,262,615) 67,803,842
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS............................. (1,416,060) 6,740,000 93,460,427
NET ASSETS:
Beginning of year........................................... 16,152,421 94,491,828 78,042,972
- ------------------------------------------------------------------------------------------------------------
END OF YEAR*................................................ $14,736,361 $101,231,828 $171,503,399
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of:............ $960,969 $1,535,683 $3,780,179
- ------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Intermediate High Grade, Appreciation and Total Return Portfolios
("Portfolios") are separate investment portfolios of the Greenwich Street Series
Fund ("Fund"), formerly known as the Smith Barney Series Fund. The Fund, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
Shares of the Fund can be acquired through investing in an individual flexible
premium deferred combination fixed and variable annuity contract or a
certificate evidencing interest in a master group flexible premium deferred
annuity offered by certain insurance companies. The Fund offers seven other
managed investment portfolios: Money Market, Diversified Strategic Income,
Equity Income, Equity Index, Growth and Income, Emerging Growth and
International Equity Portfolios. The financial statements and financial
highlights for the other portfolios are presented in a separate annual report.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets or, if there were no sales during the day, at current quoted bid price;
securities primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except that when a significant occurrence subsequent to the time a value was so
established is likely to have significantly changed the value then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees or its delegates;
over-the-counter securities are valued on the basis of the bid price at the
close of business on each day; U.S. government and agency obligations are valued
at the average between the bid and the ask prices; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) dividend income is recorded on the
ex-dividend date; foreign dividend income is recorded on the ex-dividend date or
as soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (e) interest income is
recorded on the accrual basis; (f) gains or losses on the sale of securities are
calculated by using the specific identification method; (g) dividends and
distributions to shareholders are recorded by the Fund on the ex-dividend date;
(h) the accounting records of the Fund are maintained in U.S. dollars. All
assets and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, and income
and expenses are translated at the rate of exchange quoted on the respective
date that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (i) each Portfolio intends to comply with the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all federal income and excise tax; (j) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1997, reclassifications were made to the capital
accounts of the Appreciation and Total Return Portfolios, respectively, to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by these changes; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
In addition, for the Total Return Portfolio, organization costs are
currently being amortized on a straight-line basis over a five year period,
which began with the commencement of operations in December 1993.
2. DIVIDENDS
The Fund's declare and distribute dividends from net investment income
annually. Net realized capital gains, if any, are also declared and distributed
annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
The Fund, on behalf of the Portfolios, has entered into an investment
advisory agreement ("Advisory Agreement") with Mutual Management Corp. ("MMC"),
formerly known as Smith Barney Mutual Funds Management Inc. MMC is a wholly-
owned subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which in turn
is a wholly-owned subsidiary of Travelers Group Inc. ("Travelers"). Under the
Advisory Agreement, the Intermediate High Grade, Appreciation and Total
18
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Return Portfolios each pay an investment advisory fee calculated at the annual
rates of 0.40%, 0.55% and 0.55%, respectively, of the value of their average
daily net assets. These fees are calculated daily and paid monthly.
The Fund, on behalf of the Portfolios, has entered into an administration
agreement with MMC. Under the agreement, each Portfolio pays an administration
fee calculated at the annual rate of 0.20% of the value of their average daily
net assets. These fees are calculated daily and paid monthly.
By mutual agreement of the parties involved, in the event the aggregate
expenses of a Portfolio (exclusive of interest, taxes, brokerage expenses and
extraordinary expenses) exceed an agreed-upon limitation, MMC will, as
appropriate, reduce its fees by one half the excess expenses in the proportion
that its fees bear to the aggregate of such fees paid by the Portfolio. IDS Life
Insurance Company ("IDS Life"), one of the insurance companies offering variable
annuities through which investments can be made in the Fund, will bear the
remaining half of such excess expenses.
For the year ended December 31, 1997, Smith Barney received brokerage
commissions of $18,090.
No officer, Director or employee of Smith Barney or its affiliates receives
any compensation from the Fund for serving as a Trustee or officer of the Fund.
4. INVESTMENTS
During the year ended December 31, 1997, the aggregate costs of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate High Grade................................................... $ 10,017,782 $ 9,482,072
Appreciation.............................................................. 41,271,426 34,204,518
Total Return.............................................................. 165,461,681 133,870,467
- ---------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Intermediate High Grade.................................... $ 263,990 $ (28,737) $ 235,253
Appreciation............................................... 43,592,234 (379,287) 43,212,947
Total Return............................................... 42,270,770 (2,935,046) 39,335,724
- ------------------------------------------------------------------------------------------------------------
</TABLE>
5. FUTURES CONTRACTS
The Intermediate High Grade and Total Return Portfolios may from time to
time enter into futures contracts.
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are received or made and recognized as assets
due from or liabilities due to broker, depending upon whether unrealized gains
or losses are incurred. When the contract is closed, the Portfolio records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Portfolio's basis in the contract.
The Portfolio enters into such contracts to hedge a portion of its
portfolio. The Portfolio bears the market risk that arises from changes in the
value of the financial instruments and securities indices (futures contracts).
At December 31, 1997, there were no open futures contracts in the
Portfolios.
19
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. OPTION CONTRACTS
The Intermediate High Grade and Total Return Portfolios may from time to
time enter into options contracts.
Premiums paid when put or call options are purchased by the Portfolio,
represent investments, which are "marked to market" daily. When a purchased
option expires, the Portfolio will realize a loss in the amount of the premium
paid. When the Portfolio enters into a closing sales transaction, the Portfolio
will realize a gain or loss depending on whether the sales proceeds from the
closing sales transaction are greater or less than the premium paid for the
option. When the Portfolio exercises a put option, it will realize a gain or
loss from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid. When the Portfolio exercises a
call option, the cost of the security which the Portfolio purchases upon
exercise will be increased by the premium originally paid.
At December 31, 1997, there were no open purchased call or put options in
the Portfolios.
When a Portfolio writes a call option or a put option, an amount equal to
the premium received by the Portfolio is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolio
realizes a gain equal to the amount of the premium received. When the Portfolio
enters into a closing purchase transaction, the Portfolio realizes a gain or
loss depending upon whether the cost of the closing transaction is greater or
less than the premium originally received, without regard to any unrealized gain
or loss on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the Portfolio realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. When a written put option
is exercised, the amount of the premium originally received will reduce the cost
of the security which the Portfolio purchased upon exercise. When written index
options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Portfolio enters into options for hedging purposes. The
risk in writing a covered call option is that the Portfolio gives up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a put option is that the
Fund is exposed to the risk of loss if the market price of the underlying
security declines.
The following covered call options transactions occurred in the Total
Return Portfolio during the year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options written, outstanding at December 31, 1996............................. -- --
Options written during the year ended December 31, 1997....................... 27,151 $ 4,547,335
Options cancelled in closing purchase transactions............................ (16,410) (2,740,227)
Options expired............................................................... (5,391) (548,689)
Options exercised............................................................. (40) (8,899)
- -------------------------------------------------------------------------------------------------------
Options written, outstanding at December 31, 1997............................. 5,310 $ 1,249,520
- -------------------------------------------------------------------------------------------------------
</TABLE>
The following table represents the written call option contracts open at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF STRIKE
CONTRACTS EXPIRATION PRICE VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1,000 Adobe Systems, Inc. ........................................... 1/16/98 $ 60 $ (6,250)
850 American Express Co. .......................................... 1/16/98 90 (159,375)
1,250 Bank of New York Co., Inc...................................... 1/16/98 55 (429,687)
210 Citicorp ...................................................... 1/16/98 150 (3,936)
2,000 RMI Titanium Co. .............................................. 3/20/98 30 (37,500)
- ----------------------------------------------------------------------------------------------------------
(Premiums received -- $1,249,520).............................. $(636,748)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed upon higher repurchase price. The Portfolio requires
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
8. REVERSE REPURCHASE AGREEMENTS
The Intermediate High Grade Portfolio may enter into reverse repurchase
agreements.
A reverse repurchase agreement involves a sale by the Portfolio of
securities that it holds with an agreement by the Portfolio to repurchase the
same securities at an agreed upon price and date. A reverse repurchase agreement
involves risk that the market value of the securities sold by the Portfolio may
decline below the repurchase price of the securities. The Portfolio will
establish a segregated account with its custodian, in which the Portfolio will
maintain cash, U.S. government securities or other liquid high grade obligations
equal in value to its obligations with respect to the reverse repurchase
agreements.
At December 31, 1997, there were no open reverse repurchase agreements in
the Portfolio.
9. SECURITIES TRADED ON A WHEN-ISSUED OR TO-BE-ANNOUNCED BASIS
The Intermediate High Grade and Total Return Portfolios may from time to
time purchase securities on a when-issued or to-be-announced ("TBA") basis.
In a TBA transaction, the Portfolio commits to purchasing or selling
securities for which specific information is not yet known at the time of the
trade, particularly the face amount and maturity date in GNMA transactions.
Securities purchased on a TBA basis are not settled until they are delivered to
the Portfolio, normally 15 to 45 days later. These transactions are subject to
market fluctuations and their current value is determined in the same manner as
for other securities.
At December 31, 1997, there were no when-issued or TBA securities held in
the Portfolios.
10. MORTGAGE ROLL TRANSACTIONS
The Intermediate High Grade Portfolio has the ability to participate in
mortgage roll transactions.
A mortgage roll transaction involves a sale by the Portfolio of securities
that it holds with an agreement by the Portfolio to repurchase similar
securities at an agreed upon price and date. The securities repurchased will
bear the same interest rate as those sold, but generally will be collateralized
by pools of mortgages with different prepayment histories than those securities
sold. Proceeds of the sale and the income from these investments will be
invested, together with any additional income from the Portfolio exceeding the
yield on the securities sold.
At December 31, 1997, there were no open mortgage roll transactions in the
Portfolio.
11. SHORT SALES AGAINST THE BOX
The Total Return Portfolio has the ability to engage in short sales against
the box.
A short sale against the box is a short sale of common stock such that,
when the short position is open, the Portfolio involved owns an equal amount of
the stock or preferred stocks or debt securities, convertible or exchangeable,
without payment of further consideration, into an equal number of shares of
common stock sold short. The proceeds of the sale will be held by the broker
until the settlement date, when the Portfolio delivers the stock or the
convertible or exchangeable securities to close out its short position. Although
prior to delivery a Portfolio will have to pay an amount equal to any dividends
paid on the common stock sold short, the Portfolio will receive the dividends
from the stock or, the preferred stock or the interest from the convertible or
exchangeable debt securities plus a portion of the interest earned from the
proceeds of the short sale. The Portfolio will deposit, in a segregated account
with the Fund's custodian, the common stock or convertible preferred stock or
debt securities in connection with short sales against the box.
At December 31, 1997, the Portfolio had no open short sales against the
box.
21
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. LENDING OF SECURITIES
The Portfolios have an agreement with the custodian whereby the custodian
may lend securities owned by the Portfolios to brokers, dealers and other
financial organizations, and receive a lenders fee. Fees earned by the
Portfolios on securities lending are recorded in interest income. Loans of
securities by the Portfolios are collateralized by cash, U.S. Government
securities or high quality money market instruments that are maintained at all
times in an amount at least equal to the current market value of the loaned
securities, plus a margin which may vary depending on the type of securities
loaned. The custodian establishes and maintains the collateral in a segregated
account. The Portfolios maintain exposure for the risk of any losses in the
investment of amounts received as collateral.
At December 31, 1997, the Total Return Portfolio had loaned common stocks
having a value of $1,233,421 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C>
Bank of Tokyo Time Deposit, 10.000% due 1/2/98............................................ $ 79,018
Instituto Bancario San Paolo Time Deposit, 7.000% due 1/2/98.............................. 221,251
Keycorp Bank, N.A. Time Deposit, 4.000% due 1/2/98........................................ 50,503
Goldman, Sachs & Co. Repurchase Agreement, 6.800% due 1/2/98.............................. 786,141
Merrill Lynch Repurchase Agreement, 7.000% due 1/2/98..................................... 150,135
- ------------------------------------------------------------------------------------------------------
Total..................................................................................... $1,287,048
- ------------------------------------------------------------------------------------------------------
</TABLE>
13. SHARES OF BENEFICIAL INTEREST
At December 31, 1997, the Fund had an unlimited number of shares of
beneficial interest authorized with a par value of $0.001 per share.
Transactions in shares for each portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE HIGH GRADE PORTFOLIO
Shares sold..................................................... 139,239 103,151
Shares issued on reinvestment................................... 88,428 10,195
Shares redeemed................................................. (218,271) (260,275)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease)......................................... 9,396 (146,929)
- -------------------------------------------------------------------------------------------------------
APPRECIATION PORTFOLIO
Shares sold..................................................... 1,610,791 400,926
Shares issued on reinvestment................................... 505,828 509,874
Shares redeemed................................................. (807,939) (1,094,435)
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease)......................................... 1,308,680 (183,635)
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN PORTFOLIO
Shares sold..................................................... 4,458,481 4,997,848
Shares issued on reinvestment................................... 638,881 168,616
Shares redeemed................................................. (443,057) (390,187)
- -------------------------------------------------------------------------------------------------------
Net Increase.................................................... 4,654,305 4,776,277
- -------------------------------------------------------------------------------------------------------
</TABLE>
14. CAPITAL LOSS CARRYFORWARDS
At December 31, 1997, the following Portfolio had, for Federal income tax
purposes, capital loss carryforwards available to offset future realized gains.
To the extent that these carryforward losses can be used to offset net realized
capital gains, such gains, if any, will not be distributed. The amount and
expiration of the carryforwards are indicated below. Expiration occurs on
December 31 of the year indicated:
<TABLE>
<CAPTION>
2002 2004 2005 TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate High Grade Portfolio............ $288,000 $4,000 $25,000 $317,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
INTERMEDIATE HIGH GRADE PORTFOLIO 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR...................... $10.70 $10.60 $9.66 $10.69 $10.29
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (1)............................. 0.72 0.71 0.66 0.61 0.55
Net realized and unrealized gain (loss)............... 0.21 (0.53) 1.00 (0.94) 0.26
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations..................... 0.93 0.18 1.66 (0.33) 0.81
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................................. (0.74) (0.08) (0.72) (0.61) (0.36)
Net realized gains.................................... -- -- -- (0.09) (0.05)
- -------------------------------------------------------------------------------------------------------------
Total Distributions..................................... (0.74) (0.08) (0.72) (0.70) (0.41)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............................ $10.89 $10.70 $10.60 $9.66 $10.69
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................ 8.67% 1.69% 17.76% (3.05)% 8.00%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)......................... $15,100 $14,736 $16,152 $13,280 $9,859
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1).......................................... 0.95% 0.90% 0.86% 0.85% 0.85%
Net investment income................................. 6.28 6.35 6.63 6.57 5.25
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................. 66% 116% 121% 90% 139%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Intermediate High Grade Portfolio, the Investment adviser waived all
or part of its fees for the four-year period ended December 31, 1996. In
addition, IDS Life reimbursed expenses of $3,006, $12,616 and $16,459 for
the three-year period ended December 31, 1995. If such fees were not waived
and expenses were not reimbursed, the per share effect on net investment
income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT FEE
NET INVESTMENT INCOME WAIVERS AND REIMBURSEMENTS
---------------------------------- ----------------------------
1996 1995 1994 1993 1996 1995 1994 1993
------- ------- ------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate High Grade.................................... $0.020 $0.009 $0.020 $0.050 1.07% 0.94% 1.05% 1.36%
</TABLE>
23
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
APPRECIATION PORTFOLIO 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................ $15.86 $14.39 $11.54 $11.80 $11.13
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income........................... 0.24 0.27 0.23 0.20 0.15
Net realized and unrealized gain (loss)......... 3.90 2.60 3.04 (0.32) 0.63
- --------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations............... 4.14 2.87 3.27 (0.12) 0.78
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income........................... (0.21) (0.25) (0.21) (0.14) (0.11)
Net realized gains.............................. (1.06) (1.15) (0.21) -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions............................... (1.27) (1.40) (0.42) (0.14) (0.11)
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR...................... $18.73 $15.86 $14.39 $11.54 $11.80
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN...................................... 26.39% 19.77% 28.84% (1.12)% 7.03%
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)................... $144,134 $101,232 $94,492 $80,823 $77,843
- --------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 0.80% 0.85% 0.97% 0.88% 1.01%
Net investment income........................... 1.68 1.59 1.65 1.75 1.35
- --------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE........................... 34% 39% 43% 61% 33%
- --------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID ON EQUITY
TRANSACTIONS (1)................................ $0.06 $0.06 $0.06 -- --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
24
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO 1997 1996 1995 1994 1993(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $15.73 $12.75 $10.78 $10.30 $10.00
- -------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (2)........................... 0.37 0.26 0.43 0.34 0.01
Net realized and unrealized gain.................... 2.26 2.97 2.19 0.42* 0.29
- -------------------------------------------------------------------------------------------------------------
Total Income From Operations.......................... 2.63 3.23 2.62 0.76 0.30
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.21) (0.07) (0.41) (0.28) --
Net realized gains.................................. (0.53) (0.18) (0.24) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.74) (0.25) (0.65) (0.28) --
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $17.62 $15.73 $12.75 $10.78 $10.30
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 16.84% 25.33% 25.04% 7.40% 3.00%++
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $274,006 $171,503 $78,042 $23,196 $2,777
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)........................................ 0.79% 0.83% 1.00% 1.00% 0.85%+
Net investment income............................... 3.24 3.06 3.80 3.84 1.93+
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 75% 82% 81% 118% --
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (3).......................... $0.06 $0.06 $0.06 -- --
- -------------------------------------------------------------------------------------------------------------
(1) For the period from December 3, 1993 (commencement of operations) to December 31, 1993.
(2) For the Total Return Portfolio, the Investment adviser waived all or part of its fees for the year ended December 31, 1994
and the period ended December 31, 1993. In addition, IDS Life reimbursed expenses of $7,873 and $1,472 for the two-year
period ended December 31, 1994. If such fees were not waived and expenses were not reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
</TABLE>
<TABLE>
<CAPTION>
PER SHARE EXPENSE RATIOS
DECREASES TO NET WITHOUT WAIVERS
INVESTMENT INCOME AND REIMBURSEMENTS
-------------------------- ----------------------------------
1994 1993 1994 1993
-------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Total Return.......................................... $0.01 $0.02 1.11% 4.14%+
(3) As of September 1995, the SEC instituted new guidelines requiring the disclosure of average commissions per share.
* The amount shown in this caption for each share outstanding throughout the period may not accord with the change in the
aggregate gains and losses in the portfolio securities for the period because of the timing of purchases and withdrawals
of shares in relation to the fluctuating market values of the portfolio.
++ Total return is not annualized, as it may not be representative of the total return for the year.
+ Annualized.
</TABLE>
25
<PG$PCN>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
GREENWICH STREET SERIES FUND:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Intermediate High Grade, Appreciation and
Total Return Portfolios ("Portfolios") of Greenwich Street Series Fund ("Fund")
as of December 31, 1997, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the three-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for each of the years in the
two-year period ended December 31, 1994 with respect to the Intermediate High
Grade and Appreciation Portfolios and for the year ended December 31, 1994 and
the period from December 3, 1993 (commencement of operations) to December 31,
1993 with respect to the Total Return Portfolio, were audited by other auditors
whose report thereon, dated February 10, 1995, expressed an unqualified opinion
on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Portfolios as of December 31, 1997, the results of their operations for the year
then ended, the changes in their net assets for each of the years in the
two-year period then ended and their financial highlights for each of the years
in the three-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 10, 1998
26
<PG$PCN>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1997:
- Percentages of ordinary income distributions designated as qualifying for
the corporate dividends received deduction available to corporate
shareholders:
<TABLE>
<S> <C>
Appreciation Portfolio.......................................... 89.56%
Total Return Portfolio.......................................... 41.18%
</TABLE>
- The Taxpayer Relief Act of 1997 enacted differing rates of tax on various
long-term capital gains transactions. As a result, the Fund designates:
- Total long-term capital gain distributions paid which are considered
"28 percent rate gains":
<TABLE>
<S> <C>
Appreciation Portfolio.............................. $7,489,089
Total Return Portfolio.............................. 3,403,929
</TABLE>
A total of 14.14% of the ordinary distributions paid by the Intermediate High
Grade Portfolio from net investment income are derived from federal obligations
and may be exempt from taxation at the state level.
27
<PG$PCN>
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<PG$PCN>
(This page intentionally left blank.)
<PG$PCN>
This report is submitted for the general
information of the owners of the
Greenwich Street Series Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by an effective Prospectus
for the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
SYMPHONY
investments are sponsored and managed
by:
Smith Barney Inc.
and subsidiaries
SYMPHONY
is underwritten, issued and serviced by:
IDS Life Insurance Company and
IDS Life Insurance Company of New York
S6223-1 C (2/98)
<PG$PCN>
GREENWICH STREET SERIES FUND
ANNUAL REPORT
INTERMEDIATE HIGH GRADE PORTFOLIO
APPRECIATION PORTFOLIO
TOTAL RETURN PORTFOLIO
DECEMBER 31, 1997
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This report is submitted for the general
information of the owners of the Smith
Barney Series Fund. It is not authorized
for distribution to prospective
investors unless accompanied or preceded
by an effective Prospectus for the Fund,
which contains information concerning
the Fund's investment policies, fees and
expenses, as well as other pertinent
information.
S6223-1 C (2/98)
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GREENWICH STREET SERIES FUND
ANNUAL REPORT FOR
SYMPHONY
A Tax-Deferred Variable Annuity
EQUITY INDEX PORTFOLIO
MONEY MARKET PORTFOLIO
EQUITY INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
DECEMBER 31, 1997
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ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
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Dear Investor:
We are pleased to provide the annual report for the Greenwich Street Series
Fund -- Money Market, Diversified Strategic Income, Equity Income, Equity Index,
Growth and Income, Emerging Growth and International Equity Portfolios
("Portfolios") for the year ended December 31, 1997. This letter will briefly
discuss general economic and market conditions. In addition, detailed
comparisons showing the growth of a hypothetical $10,000 investment in each
Portfolio since inception can be found in this report (except for the Money
Market Portfolio). A detailed summary of performance and current holdings for
each Portfolio can be found in the appropriate sections that follow.
MARKET AND ECONOMIC OVERVIEW
During the past year, the stock and bond markets of the world became more
turbulent. Yet for the third consecutive year in a row, the U.S. stock market
posted 20%-plus returns. The Standard & Poor's 500 Stock-Price Index ("S&P
500"), a common benchmark for stock market performance, had a return of 33.35%
for the one-year ended December 31, 1997. (The S&P 500 Index is a
capitalization-weighted measure of 500 widely held common stocks.) The bond
market had a stellar year because of declining inflation and a relatively
neutral Federal Reserve Board ("Fed") monetary policy. Despite an increase in
market volatility and growing investor concerns about Asia, many financial
assets performed well in 1997.
As the world's stock markets have grown more tumultuous, investors have begun to
turn to bonds for safety, further enhancing their relative attractiveness.
Long-term rates have dropped to their lowest level in nearly 30 years. Deflation
has become the major issue rather than inflation. (Deflation is a decline in the
prices of goods and services or when there are major imbalances, too much supply
and little or no demand.) In fact, many investment professionals believe that
the Fed may even lower short-term rates in the coming months.
At the start of 1998, we are at an interesting crossroad in the economic cycle.
Never before have investors faced a world that is rapidly evolving into one vast
economy. A world without a major conflict and marked by less famine, higher
standards of living and more open borders. Some previously underdeveloped
countries are experiencing rapid development and, as a result, are creating a
commensurate higher demand for products and services that have long
characterized more developed countries. Yet, progress can bring imbalances and
the world's capital markets have experienced significant disruptions recently
due in large part to Asia's difficulties.
For the year ended December 31, 1997, the Lehman Brothers Aggregate Bond Index
bonds returned 9.65%. (The Lehman Brothers Aggregate Bond Index is composed of
the Government Corporate Bond Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency
issues, corporate bond issues and mortgage-backed issues.) And we have every
reason to believe that the bond market will continue to perform well in 1998
given the positive underlying economic fundamentals.
But the underlying positive factors supporting the bond market have caused us to
become more concerned about the stock market. Deflation can mean slower economic
growth and greater pressure on corporate earnings (and stock prices). However,
lower rates have historically tended to support the stock market. But that
hasn't always been the case.
In our view, rates are unlikely to rise and may actually come down a little. The
year ahead will probably be one of consolidation in the stock market and healthy
performances for bonds. However, we expect a resurgence of global economic
growth and better stock market performance toward the end of 1998 as Asia's
problems are eventually solved.
Because of low inflation, higher productivity and shrinking deficits, bond
investors should be rewarded in the coming year. Stock investors should not
expect the outsized returns of the last three years to continue. The disruptions
caused by Asia will ripple through the world's capital markets and higher stock
market volatility is here to stay. The International Monetary Fund ("IMF") has
predicted that Asia's stock market and foreign exchange volatility will cut
sharply into the region's economic growth and will also act as a drag on
worldwide economic growth. Moreover, swings in the stock market have become even
more pronounced as daily trading volume surges on the major exchanges.
Counterbalancing this higher volatility is the behavior of increasingly savvy
investors who understand that successful stock investing requires patience,
discipline and an ability to handle the market's ups and downs.
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MONEY MARKET PORTFOLIO
For the year ended December 31, 1997, the Money Market Portfolio generated a
total return of 4.47%. Despite the recent troubles in the global stock markets,
it has been relatively quiet in the money markets so far this year. The Fed has
stayed patient and has kept its monetary policy unchanged. The Fed's hands-off
approach has enabled the U.S. economy to grow moderately while inflation remains
subdued. The Federal Open Market Committee ("FOMC"), a key committee that sets
short-term monetary policy for the Fed, last raised interest rates in late March
1997. Since then, both long- and short-term interest rates have traded in a
narrow range and investors who were long and fully invested have been rewarded.
Fed Chairman Alan Greenspan recently testified before the Joint Economic
Committee of Congress where he discussed the financial turmoil in Asia and its
possible effects on the U.S. markets. As a result of events in Asia, Greenspan
expects some slowing in U.S. economic growth. In addition, the Fed Chairman
reiterated many points that we have raised throughout the year; namely that
inflation remains low, labor markets are tight and labor productivity continues
to improve. Greenspan also stated that the U.S. stock market drop of late
October was salutary for the U.S. economy because it could possibly dampen
consumer demand and bring stock valuations back down from their lofty levels.
The U.S. economy is still growing strongly. In our view, the key to prolonging
the current expansion is low inflation. However, we have seen a slight pick-up
in labor costs recently. The employment cost index increased 0.8% in the third
quarter, and is running at a 3.0% for the twelve months ended September 1997
versus 2.8% for the comparable period in 1996.
We think that the emerging market crisis should help to keep inflation low.
However, the degree to which it slows the capital spending of U.S. corporations
remains an open question. Weak demand in Asia and a stronger U.S. dollar will
have some modest effect (although negative) on U.S. economic growth in 1998. The
Fed will most likely wait to see the impact of all these events before making
any changes to its monetary policy. While the outcome of Asian crisis is still
unknown, U.S. leaders, the IMF and the Asian countries involved are working
together to establish reforms that will assist them in stabilizing their
economies. The Asian crisis will put downward pressure on prices of goods as
Korea and Indonesia export goods to the U.S., at cheaper prices. This will keep
prices of U.S. goods low or even reduce prices in order to remain competitive.
This is not a destabilizing force as Chairman Greenspan reiterated in his speech
in early January. He distinguishes between a fall in specific goods price
declines such as in computers as opposed to sharply sliding real estate and
stock prices, which could cause a deflationary spiral. Chairman Greenspan sees
little risk of deflation because growth and consumer demand in the U.S. remains
strong.
The yield curve remains fairly flat and over the next several months we expect
relatively little interest rate volatility. (The yield curve shows the
difference between short- and long-term yields.) We will continue to invest
across the yield curve if when we identify good value. We will target the
average maturity for the Money Market Portfolio at 45 days.
As you have probably read in various financial papers, major U.S. banks,
brokerage firms and multinational corporations have exposure to Asia. However,
these companies have had several years of excellent profitability and reserve
building among the issuers we purchase for the Portfolios.
We believe that no major downgradings will occur that will impair any of our
approved issuers. The Japanese banking system remains in turmoil with major
downgradings and some bankruptcies occurring. Spreads between top European bank
CDs and Japanese bank CDs have widened by as much as 100 basis points (1.00%)
and are now currently 60 basis points (0.60%). We currently hold no Japanese
bank exposure in the Portfolios.
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
The Diversified Strategic Income Portfolio ("Portfolio") seeks to provide
investors with high current income by investing in a combination of U.S.
government and mortgage-related securities, corporate bonds rated below
investment grade and foreign government securities. The Portfolio's investment
management team allocates assets based on its analysis of current economic and
market conditions, taking into account the relative risks and income
opportunities within each of the fixed-income sectors of the Portfolio.
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For the year ended December 31, 1997, the Portfolio returned 8.14% and
underperformed the Lehman Brothers Aggregate Bond Index return of 9.65% for the
same period. (The Lehman Brothers Aggregate Bond Index is made up of U.S.
Treasury bonds, government agency bonds, mortgage-backed securities and
corporate bonds.) What follows are brief summaries of the economic and market
conditions that affected the Portfolio's three major sectors during the
reporting period.
High Yield Bonds
The high yield bond market generated relatively strong performance throughout
1997. Within the high yield bond market, the lower quality issues generated the
strongest total returns in 1997 (i.e., a roughly 16% range). This was not
surprising given the strong performance of the domestic stock market. The
lower-quality segment of the high yield bond market tends to be more closely
correlated to the domestic stock market than the higher-quality segments of the
high yield bond market.
The high yield bond market began to underperform U.S. Treasuries in the fourth
quarter of 1997 as fears of an economic slowdown and lower corporate profits
caused high yield bond premiums to increase versus the U.S. Treasury market. The
greatest underperformance in the fourth quarter was among the lower-quality
issues. In periods of increasing economic uncertainty, the lower-quality
segments of the high yield bond market generally underperform because of their
greater vulnerability to weaker economic conditions. The more interest-rate
sensitive higher-quality issues generated the strongest total returns as general
interest rates declined during the period under review.
We believe the financial markets will remain choppy as investors continue to
sort out the potential negative impact on world economic growth from the large
declines in both the currencies and financial assets of the emerging markets in
Asia and Latin America.
Government Securities
In our view, one of the most important events for the market in 1997 was the
widely publicized currency and economic turmoil in Asia, specifically in Korea,
Japan and Indonesia. As these currencies were devalued, the U.S. dollar was
clearly a beneficiary. Other notable events during the reporting period include:
- As a result of the unexpected strength in the U.S. economy, the Fed
raised the federal funds rate by 25 basis points, or 0.25%, at its March
1997 meeting. (The federal funds rate is the interest rate banks charge
each other for overnight loans and is a closely watched indicator of the
direction of interest rates.)
- The not-so-successful introduction of inflation-indexed bonds by the U.S.
Treasury.
- The drastic reduction in the U.S. budget deficit. According to the latest
report by the Congressional Budget Office, the deficit will go down to $5
billion in fiscal 1998 and may actually run annual surpluses in 2001 if
present policies continue.
- As a result of lower rates, mortgage refinancing has increased.
- The drive toward the European Monetary Union ("EMU") continues to be on
target for 1999.
Moderate economic growth, combined with historically low inflation and the
threat of financial and economic turmoil in Southeast Asia, should provide more
than enough ammunition for rates to go lower. While non-believers would suggest
rates are too low, there is no compelling evidence to warrant a reversal of the
present trend. High real rates, a lesser supply of U.S. Treasuries and a strong
dollar are just some of the reasons why we remain bullish on bonds.
Global Government Bonds
There were three key influences behind the global government bond market's
performance during the reporting period. First, the favorable U.S. economy, with
strong growth and low inflation generating positive supply and demand
conditions. Second, the strong U.S. dollar and relatively large interest rate
differential with comparable foreign assets creating international investor
demand for U.S. securities. Third, the financial crisis in Asia, which escalated
during the second half of 1997 and increasingly highlighted the safe-haven
qualities of treasury bonds. In Europe, the convergence theme was the dominant
factor during 1997. This was highlighted by the relative performance of the
higher-yielding and core bond markets over the period.
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The current year is beginning as 1997 ended, with many Asian currencies and
financial markets in freefall. Currencies will remain under pressure until the
economies in question slow sufficiently to allow their payments imbalances to
readjust to equilibrium. This process will involve significant contraction of
those Asian economies, with ramifications for growth and inflation elsewhere in
the world. There are two routes through which the Asian situation is positive
for developed world bond markets, and one possibly negative one. By slowing
growth worldwide, and in particular in the U.S. and Europe, Asian recession will
further dampen inflation rates which were already low and quite stable in the
U.S. It is true there have been some faint signs of a pickup in wage growth in
the U.S. in particular.
EQUITY INCOME PORTFOLIO
The Equity Income Portfolio ("Portfolio") seek to provide current income and, as
a secondary goal, long-term capital appreciation. The Portfolio will seek to
achieve its goals principally through investment in dividend-paying common
stocks of companies whose prospects for dividend growth and capital appreciation
are considered favorable. The Portfolio will normally invest at least 65% of its
assets in stocks. Under normal circumstances, the Portfolio will concentrate at
least 25% of its assets in the equity and debt securities of companies in the
utility industry.
For the year ended December 31, 1997, the Portfolio had a total return of 23.52%
versus the S&P 500 total return of 33.35% for the same period.
By all measures, the year 1997 was a positive one for the broader utility
industry, with indices such as the Dow Jones Utility Average and Philadelphia
Exchange Index of Utilities reaching all-time highs. In the second half of 1997,
the Philadelphia Utility Index ("UTY") outperformed the S&P 50 by 13.8% and was
up 20.1% nominally. The relative move in the UTY's ended almost four years of
underperformance by the electric utility sector.
In our view, the utility industry's good relative performance was driven by
several factors including the attractive yield relative to either bonds or other
stocks, falling long-term interest rates, improved regulatory reforms and the
prospects for sustained earnings and dividend growth. In addition to these
factors, superior relative performance by utilities in the second half of 1997
reflected a flight to quality as investors grew concerned about the market as a
whole. Investors were particularly concerned about those sectors sensitive to
economic activity that will slow as a result of turmoil in Asia.
We see continued strength in the utility sectors in 1998, despite the magnitude
of the sectors' December rally. In fact, we see an opportunity in the first half
of 1998 to take advantage of the groups' vulnerability to a short-term pullback
in relative performance. We intend to use this opportunity to adjust the
Portfolio's allocations and to establish several new positions.
In light of our macro view that stock market valuations are high and long-term
interest rates will continue to go down, we anticipate that the higher-yielding
utility sectors will remain relatively attractive compared to other market
sectors. If slower corporate earnings growth materializes, a stronger case will
be made for utilities. Companies such as Edison International, Duke Energy,
Florida Power & Light, SBC Communications and WorldCom will lead the expansion
of the sector's multiples as each company establishes individual leadership in
its own markets.
Irrespective of the markets, we expect that the pace of new mergers and
acquisitions in 1998 will increase over 1997 levels. We also expect a
continuation of positive "incentive for performance-based rate" reforms that
have enabled companies to strategically cut costs, lower their capital spending
and invest in higher margin non-regulated businesses, thereby creating the value
that justifies expanded P/E multiples (a price/earnings ratio (P/E) shows the
relationship between a stock's price and the company's earnings for the last
four quarters).
In 1998, as was the case in 1997, we plan to continue to emphasize quality,
targeting companies with strong balance sheets and positive free cash flows. Our
investment strategy also favors companies with managements' who have implemented
a strategic plan for competing in a changing marketplace.
We expect continued volatility in the utilities industry as the financial
markets differentiate between competitive and non-competitive companies. The
Portfolio will continue to diversify in both traditional, low volatility utility
companies such as Florida Power and Light and Texas Utilities as well as
companies with higher growth potential such as WorldCom and Teleport.
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EQUITY INDEX PORTFOLIO
The Equity Index Portfolio is managed to provide investment results that, before
deduction of operating expenses, match the price and yield performance of U.S.
publicly traded common stocks, as measured by the S&P 500. For the period ending
December 31, 1997, the Portfolio posted a total return of 32.16% in line with
the total return of the S&P 500 of 33.35% for the same period.
The big story in the second half of 1997 was the Asian economic and financial
crisis. What started out as a localized disturbance in Thailand in July 1997
soon spread through the other countries in Southeast Asia and wreaked havoc on
their currency and capital markets. The events in Asia raise the specter of a
global economic slowdown and prospects of global deflation.
For most of the year, the U.S. economy continued to grow with a near absence of
inflationary pressures. Consumer prices rose only modestly while wholesale
prices actually fell. Never before has the rate of inflation remained so low at
this late stage of an economic expansion.
Technology-driven strong productivity gains have contributed to the recent
disinflationary trend, another positive factor has now come into play for the
outlook on U.S. inflation. With the significant devaluation of several Asian
currencies, import prices should fall and push domestic inflation even lower.
Prices of some of the most important industrial commodities, including oil and
copper, have tumbled in recent months and the price of gold, a traditional hedge
against inflation, was well below $300 per ounce and at an 18-year low in
December 1997.
We believe that inflation will continue to remain benign. Despite a tight labor
market in the U.S., wage inflation has not surged. Global deflationary pressures
should offset wage inflation in 1998.
While we acknowledge the arguments in favor of global deflation, we have not
seen enough evidence to foresee zero or negative inflation in 1998. (Deflation
is a decline in the prices of goods and services or when there are major
imbalances, too much supply and little or no demand. Disinflation is a slowing
down in the rate of price increases and means you don't have pricing power
today, but there aren't any major imbalances or dislocations to the economy.)
Moreover, while it is difficult to predict the eventual impact on U.S. exports,
most reasonable estimates of growth shortfalls suggest that the impact of the
Asian turmoil on U.S. GDP growth will be no more than -0.5%.
1997 turned out to be another spectacular year for the U.S. stock market. For
the first time ever, the U.S. stock market posted three consecutive years of
gains in excess of 20%. The current bull market continues to be driven by stable
economic growth, robust earnings growth and low inflation.
The events in Southeast Asia came into sharp focus for U.S. investors when a
sell-off in Hong Kong, a beacon of stability in the region, dropped the Dow
Jones index by 554 points on Monday, October 27 and created its largest point
loss in history. After a wild swing in trading the following day, stock prices
began to stabilize. Despite more bad news in terms of large-scale bankruptcies
in South Korea and Japan in the ensuing weeks, U.S. investors assessed a
relatively modest impact on the domestic economy and the stock market was able
to recover its losses from Gray Monday and even nudge higher by year-end in
select sectors.
We suspect that the global stock markets are currently more vulnerable to the
woes of a weak economy than to the risk of higher interest rates stimulated by
economic strength. It is difficult to gauge the precise impact of the Asian
crisis on corporate earnings and, as a result, 1998 promises to be a year of
great uncertainty.
In this environment, we believe that it is particularly important to identify
companies with sustainable earnings growth at attractive valuations across a
wide variety of industries.
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio ("Portfolio") seeks long-term capital growth and
income. The Portfolio invests in income producing equity securities including
companies with consistent dividend-paying histories, the capacity to raise
dividends in the future and the potential for capital appreciation. For the year
ended December 31, 1997, the Growth and Income Portfolio had a return of 22.94%
versus the S&P 500 total return of 33.35% for the same period.
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During 1997, the stock market soared for its third consecutive year. Falling
interest rates rallied bonds, resulting in a positive year for most bond
investors. But by year-end, market uncertainty had increased due to the
financial and economic crisis spreading across Asia. Over the course of the
year, the retailing, pharmaceutical and financial sectors outperformed the
overall stock market, while basic materials and oil stocks lagged.
The Growth and Income Portfolio is widely diversified, and participates in most
of the major stock market sectors. At year-end, the Portfolio was slightly
overweighted in the retail sector and underweighted in pharmaceuticals. The
retailing exposure was a plus for the Portfolio last year, due to the
outperformance noted above. The Portfolio's smaller-than-average participation
in drug stocks was a disadvantage, as drug stocks also produced strong returns.
Our investment management strategy in the Growth and Income Portfolio remains
unchanged. As noted in previous commentaries, we buy quality or "blue chip"
companies with a history of rising dividends. We believe that our focus on
dividend increases is a good way to identify successful companies. In addition
to dividend increases, we also look for companies with solid balance sheets,
excellent management teams and promising product lines.
We were net buyers of both utility and financial stocks last year. In the
utility sector, we purchased Duke Energy, AT&T and MCI Communications. Duke is
an integrated energy provider, with both electrical power and natural gas
capabilities. Duke is ahead of most of its competitors in being able to provide
its customers with total energy solutions. AT&T and MCI are both long distance
telecommunication companies. New management at AT&T is in the midst of
refocusing the company on its core operations. MCI was an attractive way to
invest in WorldCom, as the two companies are scheduled to merge. The combined
company should not only realize significant cost savings, but also be a
formidable competitor across a number of telecommunication markets.
Financial stocks added to the portfolio include Chase Manhattan, and several
Real Estate Investment Trusts ("REITs"): Kilroy Realty, S.L. Green Realty and
Starwood Hotels. Chase is continuing to streamline operations post its merger
with Chemical Bank. It has significant strength in its domestic branch system
and credit cards, and is strengthening its investment banking capabilities.
REITs are an attractive way to play the rebound in U.S. real estate values. They
also provide the Portfolio with an attractive income stream.
Three of the stocks we sold this year are of particular interest, as we sold
each for quite different reasons. We sold Chrysler late in the year due to our
concerns that foreign competition would become fiercer. Despite Chrysler's
increased productivity, we think that a stronger U.S. dollar will allow foreign
manufacturers to cut prices and grab market share from all domestic automakers.
Monsanto was sold as the result of a valuation judgment. The company had gone
through a successful restructuring, which appeared to be fully reflected in the
stock price. Conrail was not technically a sale, as we tendered the shares to a
joint takeover by CSX and Norfolk Southern. These two competing railroads wanted
control of Conrail's excellent access to northeastern markets.
Over the next six months, we believe that market volatility will remain high.
Both the stock and bond markets will be impacted by the events unfolding in
Asia. The economic slowdown in Asia will cool our domestic economy -- which
ironically may prove to be a positive. For it was only a few short months ago
that economists were fretting that U.S. growth might be too strong. Despite the
Asian uncertainty and its associated volatility, we believe that the
fundamentals underlying the U.S. economy remain strong. Corporate earnings
reports are robust versus expectations. Interest rates and inflation remains
low. Therefore, the long-term positive fundamental outlook remains intact. We
think that investors should take advantage of any shorter-term weakness to add
to their long-term core holdings.
EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio ("Portfolio") seeks capital appreciation by
investing at least 65% of its total assets in the common stocks of small- and
medium-sized foreign and domestic companies. The Portfolio focuses on companies
that are in the early stages of their life cycles and have the potential to
become major enterprises.
The Emerging Growth Portfolio posted a total return of 21.16% for the year ended
December 31, 1997, versus the Nasdaq Composite Index which had a total return of
21.64% for the same period.
1997 was a roller coaster year with strong performance in the second and third
quarters, and with first and fourth quarter performance relatively poor. The
year mirrored the performance of emerging growth stocks versus larger ones,
which at the end of the year stood near the bottom of the typical range versus
the larger companies. The best-performing group in the
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market during the reporting period was finance while cyclical stocks were the
worst performers. In fact, no group seems to be able to maintain market
leadership role for any extended period of time.
The Portfolio's investment style is a bottom up approach that focuses on careful
stock selection. We try and identify the best-performing high growth companies.
Risk is minimized by maintaining a broadly diversified portfolio and the
Portfolio usually remains fully invested. Our investment style remains
consistent despite changing market conditions.
Stocks are selected based on two key criteria: rising earnings expectations and
improving valuations. In order for a stock to be purchased, it must meet both
criteria. Stocks are immediately sold if earnings expectations fall, and very
quickly if its valuation declines. Among the best performers for the Portfolio
during the reporting period were Dell Computer, Yahoo, Halter Marine, Chancellor
Media and U.S. Airways.
Depending upon the level of investor uncertainty, the market treats emerging
growth stocks differently. When fear rises, investors usually seek out "safe
haven" stocks, and generally they avoid the type of stocks held in the
Portfolio. When investor confidence returns, the market seeks the typically
higher returns available from emerging growth companies. Emotional swings are
occurring at a seemingly accelerated pace and that has increased market
volatility. We do not see these conditions changing over the near term. Emerging
growth stocks valuations are currently at the bottom of the historic range when
compared to larger companies and we believe they represent attractive long-term
investment opportunities. When investors become more confident, emerging growth
stocks should perform very well. Until then, emerging growth stocks will likely
remain volatile.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio ("Portfolio") seeks total return from growth
of capital and income. The Portfolio seeks to achieve its objective by investing
at least 65% of its assets in a diversified blend of equity securities of
established non-U.S. issuers. For the year ended December 31, 1997, the
International Equity Portfolio posted a total return of -2.18% versus the MSCI
EAFE Index which posted 1.78% for the same period. (The MSCI EAFE Index consists
of the equity total returns for Europe, Australia, New Zealand and the Far
East.)
The U.S. stock market continued its upward momentum in 1997. Large inflows of
money into mutual funds by domestic and international investors, strong
corporate profits and low inflation produced another year of outsized returns.
For the third consecutive year in a row, the U.S. stock market posted 20%-plus
returns. In contrast, the MSCI EAFE Index generated a total return of only 1.78%
for the year ending December 31, 1997. The year also witnessed severe drops in
Asian non-EAFE markets such as Thailand, South Korea, India and the Philippines.
Despite the rise in the U.S. market, investors found many potholes along the
way. As might be expected in a stock market that has climbed relentlessly,
buyers have been attracted whose conviction levels are not strong. Many stocks
are priced for perfection. As a result, any minor disappointment reported by a
company can result in an exaggerated and painful stock price decline.
In the last quarter of 1997, the U.S. experienced a true "decoupling" of the
stock and bond markets, with long-term bonds rallying under a presumed "flight
to quality" while equities struggled. The stock market malaise was fueled
primarily by the economic and market turmoil of the Pacific Rim. What
purportedly began as a problem in Southeast Asia spread northward and engulfed
Korea, Taiwan and Japan. Japan has been struggling with the aftereffects of the
1980s "bubble economy" throughout the 1990s, as well as inconsistent government
policy and corruption all of which have prolonged the agonies. The bankruptcies
of financial institutions in Japan may mark a more pragmatic market approach to
solving its problems, but such solutions are not necessarily available in other
Asian economies where political considerations may preclude significant
departures from past practices.
We do not view Asia's problems as short-term. Forced currency depreciations,
austerity measures and corporate dislocations are hardly the elixir of bull
markets. Markets and stocks stand at ten year relative valuation lows, but
earnings and economic forecasts must be viewed as suspect. We are pleased to
have substantially reduced our Asian exposure earlier in the year and we
continue to monitor the unfolding circumstances closely.
The problems in Asia have caused a withdrawal of capital from virtually all
emerging markets including those of Latin America. The Brazilian economy has
been forced to accept very high interest rates and sharp budget cuts to preserve
its
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currency, which has been central to driving down inflationary pressures. While
the Latin American markets have given up portions of gains earned earlier this
year, we believe the outlook for the region continues to be satisfactory.
Europe continues to be of particular interest. While these markets are affected
by the Asian turmoil and high employment rates, the economies have stabilized
and European industry continues to restructure and reduce costs. Interest rates
remain at 25 year lows, setting the framework for a generational shift in the
increased demand for stocks. While the second quarter selection of countries to
be included in the first round of European monetary union talks may cause some
trading volatility, the investment outlook for Europe appears to us to have a
good risk reward trade-off.
The U.S. market has stalled as earnings warnings from selected large
capitalization multinationals have cast a modest pall on what has been the
"hottest" part of the U.S. market through the first half of 1997. Clearly these
macro difficulties, combined dampened consumer spending in Asia and Europe as
well as the more onerous currency comparisons, will limit the earnings growth of
some of these global giants. A potential transition of market leadership to
small- and mid-cap stocks may be underway.
A common thread running throughout the global markets has been the emphasis on
large capitalization multi-national companies. This emphasis has not been seen
since the "nifty fifty" era of the mid-1970s when a handful of stocks led the
market to unprecedented heights. Portfolio management for "bottom up" investors
such as ourselves is very difficult in this kind of environment and we look
forward to a period when research and analysis will create more value.
Overall, we do not believe that the long-term bull market for financial assets
is over. Yet the recent global decline of stock is a reminder that the returns
from equities in recent years has been extraordinarily high. We anticipate
measured gains in 1998 as the earnings outlook for companies in Portfolio
remains healthy.
In closing, we thank you for your investment in the Greenwich Street Series
Fund -- Money Market, Diversified Strategic Income, Equity Income, Equity Index,
Growth and Income, Emerging Growth and International Equity Portfolios. We look
forward to helping you pursue your financial goals in the years ahead.
Sincerely,
/s/ HEATH B. MCLENDON
Heath B. McLendon
Chairman
February 3, 1998
8
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DIVERSIFIED STRATEGIC INCOME PORTFOLIO AS OF 12/31/97
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------
<S> <C>
Year Ended 12/31/97 8.14%
Five Years Ended 12/31/97 8.85%
10/16/91* through 12/31/97 7.54%
CUMULATIVE TOTAL RETURN
------------------------------------------
10/16/91* through 12/31/97 57.13%
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical
$10,000 investment in Diversified Strategic Income Portfolio on October 16, 1991
(commencement of operations) through December 31, 1997 with that of a similar
investment in the Lehman Brothers Aggregate Bond Index. Index information is
available at month-end only; therefore, the closest month-end to inception date
of the Portfolio has been used. Figures for the Lehman Brothers Aggregate Bond
Index, an unmanaged index, are composed of the Lehman Intermediate
Government/Corporate Bond Index and the Mortgage-Backed Securities Index and
includes treasury issues, agency issues, corporate bond issues and
mortgage-backed securities.
<TABLE>
<CAPTION>
Diversified Strategic Lehman Brothers
Income Portfolio Aggregate Bond Index
<S> <C> <C>
10/16/91 10000 10000
12/91 10140 10507
12/92 10284 11285
12/93 11576 12386
12/94 11251 12024
12/95 13071 14246
12/96 14530 14944
12/31/97 15713 16385
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- EQUITY INCOME PORTFOLIO AS OF 12/31/97 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------
<S> <C>
Year Ended 12/31/97 23.52%
Five Years Ended 12/31/97 11.46%
10/16/91* through 12/31/97 11.45%
CUMULATIVE TOTAL RETURN
------------------------------------------
10/16/91* through 12/31/97 96.10%
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical $10,000
investment in Equity Income Portfolio on October 16, 1991 (commencement of
operations) through December 31, 1997 with that of a similar investment in the
Variable Annuity Lipper Equity Income Funds Peer Group Average and Standard &
Poor's 500 Index. Index information is available at month-end only; therefore,
the closest month-end to inception date of the Portfolio has been used. The
Standard & Poor's 500 Index is an unmanaged index composed of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange
and over-the- counter market.
The Variable Annuity Lipper Equity Income Funds Peer Group Average is
composed of 267 equity income funds as of December 31, 1997 which underlie
variable annuities.
<TABLE>
<CAPTION>
VARIABLE ANNUITY
LIPPER EQUITY
MEASUREMENT PERIOD EQUITY INCOME INCOME FUNDS PEER
(FISCAL YEAR COVERED) PORTFOLIO GROUP S&P 500 INDEX
<S> <C> <C> <C>
10/16/91 10000 10000 10000
DEC-91 10200 10559 10838
DEC-92 11397 11782 11668
DEC-93 12583 13758 12844
DEC-94 11308 14094 13012
DEC-95 14979 16510 17998
DEC-96 15876 18034 19988
12/31/97 19610 23075 26656
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
9
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- EQUITY INDEX PORTFOLIO AS OF 12/31/97 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Year Ended 12/31/97 32.16%
Five Years Ended 12/31/97 19.07%
10/16/91* through 12/31/97 17.42%
CUMULATIVE TOTAL RETURN
-------------------------------------------
10/16/91* through 12/31/97 171.27%
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical
$10,000 investment in Equity Index Portfolio on October 16, 1991 (commencement
of operations) through December 31, 1997 with that of a similar investment in
the Standard & Poor's 500 Index. Index information is available at month-end
only; therefore, the closest month-end to inception date of the Portfolio has
been used. The Standard & Poor's 500 Index is an unmanaged index composed of 500
widely held common stocks listed on the New York Stock Exchange, American Stock
Exchange and over-the-counter market.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STANDARD & POOR'S 500
(FISCAL YEAR COVERED) EQUITY INDEX PORTFOLIO INDEX
<S> <C> <C>
10/16/91 10000 10000
DEC-91 10620 10838
DEC-92 11335 11668
DEC-93 12316 12844
DEC-94 12421 13012
DEC-95 16870 17898
12/31/96 20526 22005
12/31/97 27127 29345
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- GROWTH & INCOME PORTFOLIO AS OF 12/31/97 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------
<S> <C>
Year Ended 12/31/97 22.94%
Five Years Ended 12/31/97 15.21%
10/16/91* through 12/31/97 13.79%
CUMULATIVE TOTAL RETURN
-------------------------------------------
10/16/91* through 12/31/97 123.21%
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical
$10,000 investment in Growth & Income Portfolio on October 16, 1991
(commencement of operations) through December 31, 1997 with that of a similar
investment in the Variable Annuity Lipper Growth & Income Funds Peer Group
Average and Standard & Poor's 500 Index. Index information is available at
month-end only; therefore, the closest month-end to inception date of the
Portfolio has been used. The Standard & Poor's 500 Index is an unmanaged index
composed of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and over-the-counter market.
The Variable Annuity Lipper Growth & Income Funds Peer Group Average is
composed of 628 growth and income funds as of December 31, 1997 which underlie
variable annuities.
<TABLE>
<CAPTION>
VARIABLE ANNUITY
LIPPER GROWTH &
MEASUREMENT PERIOD GROWTH & INCOME INCOME FUNDS PEER
(FISCAL YEAR COVERED) PORTFOLIO GROUP S&P 500 INDEX
<S> <C> <C> <C>
10/16/91 10000 10000 10000
DEC-91 10140 10746 10838
DEC-92 10996 11551 11668
DEC-93 11995 12802 12844
DEC-94 11611 12646 13012
DEC-95 15152 16514 17898
DEC-96 18157 18211 19988
12/31/97 22321 22950 26656
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
10
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- EMERGING GROWTH PORTFOLIO AS OF 12/31/97 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
<S> <C>
Year Ended 12/31/97 21.16%
12/3/93* through 12/31/97 18.00%
CUMULATIVE TOTAL RETURN
- -------------------------------------------------
12/3/93* through 12/31/97 96.46%
- -------------------------------------------------
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical
$10,000 investment in Emerging Growth Portfolio on December 3, 1993
(commencement of operations) through December 31, 1997 with that of a similar
investment in the NASDAQ Composite Index. Index information is available at
month-end only; therefore, the closest month-end to inception date of the
Portfolio has been used. The NASDAQ Composite Index is a market capitalization
price-only index that tracks the performance of domestic common stocks traded on
the regular NASDAQ market as well as foreign common stocks and ADRs traded on
the National Market System.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EMERGING GROWTH
(FISCAL YEAR COVERED) PORTFOLIO NASDAQ COMPOSITE INDEX
<S> <C> <C>
12/3/93 10000 10000
DEC-93 10410 10297
DEC-94 9631 9968
DEC-95 13762 13947
DEC-96 16215 17115
12/31/97 19646 20819
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- INTERNATIONAL EQUITY PORTFOLIO AS OF 12/31/97
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -------------------------------------------------
<S> <C>
Year Ended 12/31/97 (2.18)%
12/3/93* through 12/31/97 4.35%
CUMULATIVE TOTAL RETURN
- -------------------------------------------------
12/3/93* through 12/31/97 18.97%
- -------------------------------------------------
</TABLE>
* Commencement of operations
The chart to the right compares the growth in value of a hypothetical
$10,000 investment in International Equity Portfolio on December 3, 1993
(commencement of operations) through December 31, 1997 with that of a similar
investment in the Morgan Stanley EAFE Index. Index information is available at
month-end only; therefore, the closest month-end to inception date of the
Portfolio has been used. The Morgan Stanley EAFE Index is a composite index
consisting of equity total returns for the countries of Europe, Australia, New
Zealand and countries in the Far East, weighted based on each country's gross
domestic product.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD INTERNATIONAL EQUITY MORGAN STANLEY EAFE
(FISCAL YEAR COVERED) PORTFOLIO INDEX
<S> <C> <C>
12/3/93 10000 10000
DEC-93 10050 10724
DEC-94 9210 10850
DEC-95 10020 12103
DEC-96 12163 12873
12/31/97 11897 13120
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1997
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. AGENCIES AND INSTRUMENTALITIES -- 6.3%
$100,000 Federal Home Loan Bank matures 4/24/98............................. 5.59% $ 98,292
200,000 Federal Home Loan Mortgage Corp. matures 1/30/98................... 5.75 199,080
- -------------------------------------------------------------------------------------------------------------
TOTAL U.S. AGENCIES AND INSTRUMENTALITIES
(Cost -- $297,372)................................................. 297,372
- -------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 71.5%
100,000 Abbey National PLC matures 4/27/98................................. 5.70 98,212
100,000 Bank of America Corp. matures 4/28/98.............................. 5.76 98,174
200,000 Bell Atlantic Financial Services matures 1/27/98................... 5.89 199,155
200,000 Canadian Imperial Holdings matures 3/10/98......................... 5.81 197,835
200,000 Chase Manhattan Bank Corp. matures 1/30/98......................... 5.65 199,116
200,000 Citicorp matures 1/2/98............................................ 6.75 199,963
150,000 Credito Italiano matures 2/18/98................................... 5.72 148,888
200,000 Cregem North America mature 2/9/98 to 3/16/98...................... 5.67 to 5.80 198,219
200,000 Ford Motor Credit matures 1/15/98.................................. 5.91 199,543
200,000 General Electric Capital Corp. mature 3/11/98 to 5/26/98........... 5.80 to 5.81 196,640
200,000 J.P. Morgan & Co. matures 3/18/98.................................. 5.80 197,585
200,000 Merrill Lynch & Co. mature 1/22/98 to 2/27/98...................... 5.67 to 5.84 198,782
200,000 National Australia Bank matures 1/12/98............................ 5.92 199,639
200,000 NationsBank Corp. matures 2/10/98.................................. 5.81 198,722
200,000 New Center Asset Trust matures 1/20/98............................. 5.98 199,372
200,000 Osterreich Kontrollbank matures 2/27/98............................ 5.84 198,170
100,000 Svenska Handelsbanken matures 1/30/98.............................. 5.64 99,552
100,000 Union Bank of Switzerland matures 1/2/98........................... 6.75 99,981
175,000 USAA Capital Corp. matures 1/21/98................................. 5.92 174,426
100,000 Woolwich Building Society matures 6/5/98........................... 5.84 97,557
- -------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $3,399,531)........................ 3,399,531
- -------------------------------------------------------------------------------------------------------------
FOREIGN CERTIFICATES OF DEPOSIT -- 14.7%
200,000 Bank of Montreal matures 2/18/98................................... 5.75 200,002
200,000 Banque Nationale De Paris matures 2/3/98........................... 5.66 199,981
200,000 Deutsche Bank mature 1/9/98 to 4/6/98.............................. 5.64 200,000
100,000 RaboBank matures 3/20/98........................................... 5.82 99,975
- -------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CERTIFCATES OF DEPOSIT (Cost -- $699,958)............ 699,958
- -------------------------------------------------------------------------------------------------------------
TIME DEPOSITS -- 4.2%
200,000 Republic National Bank of New York matures 1/2/98
(Cost -- $200,000)................................................. 6.75 200,000
- -------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
158,000 Goldman, Sachs & Co., 6.348% due 1/2/97; Proceeds at
maturity -- $158,056; (Fully collateralized by U.S. Treasury Notes,
5.625% due 12/31/99; Market value -- $161,472)
(Cost -- $158,000)................................................. 158,000
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $4,754,861*).................... $4,754,861
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT SECTOR -- 33.1%
$ 10,000,000 U.S. Treasury Principal Strips, due 8/15/17................................ $ 3,093,700
602,712 Federal Home Loan Mortgage Corp., 9.000% due 1/1/20 through 5/1/21......... 640,568
1,768,663 Government National Mortgage Association, 7.000% due 9/15/23 through
5/15/24.................................................................... 1,784,139
357,820 Government National Mortgage Association, 7.500% due 2/15/24............... 366,876
991,193 Government National Mortgage Association, 8.000% due 5/15/17 through
12/15/21................................................................... 1,028,364
12,191,289 Government National Mortgage Association, 9.000% due 11/15/16 through
9/15/24.................................................................... 13,117,339
- ----------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR (Cost -- $19,319,462)......................... 20,030,986
- ----------------------------------------------------------------------------------------------------------
HIGH YIELD SECTOR -- 30.9%
- ----------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 29.0%
- ----------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.8%
450,000 Airplanes Pass Through Trust, 10.875% due 3/15/19.......................... 506,259
- ----------------------------------------------------------------------------------------------------------
BROADCASTING - TV, CABLE AND RADIO -- 4.0%
Cablevision Systems Corp.:
275,000 9.875% due 2/15/13......................................................... 304,563
100,000 10.500% due 5/15/16........................................................ 116,500
150,000 Comcast UK Cable, step bond to yield 11.200% due 11/15/07.................. 123,188
250,000 Le Groupe Videotron Ltee., 10.625% due 2/15/05............................. 279,688
Rogers Cablesystems Ltd.:
100,000 10.000% due 3/15/05........................................................ 110,750
325,000 10.000% due 12/1/07........................................................ 357,500
275,000 11.000% due 12/1/15........................................................ 319,000
100,000 Rogers Communications Inc., 8.875% due 7/15/07............................. 100,250
100,000 TV Azteca S.A., 10.125% due 2/15/04........................................ 103,500
450,000 UIH Australia/Pacific Communications Inc., step bond to yield 14.000% due
5/15/06.................................................................... 308,250
200,000 United International Holdings, zero coupon due 11/15/99.................... 164,000
250,000 Wireless One Inc., 13.000% due 10/15/03.................................... 110,000
- ----------------------------------------------------------------------------------------------------------
2,397,189
- ----------------------------------------------------------------------------------------------------------
BUILDING/CONSTRUCTION -- 0.3%
100,000 American Builders & Contractors Supply Co., 10.625% due 5/15/07............ 104,125
100,000 Koppers Industry Inc., 9.875% due 12/1/07 (a).............................. 103,000
- ----------------------------------------------------------------------------------------------------------
207,125
- ----------------------------------------------------------------------------------------------------------
CHEMICALS -- 0.2%
175,000 PT Polysindo Eka Perkasa, 13.000% due 6/15/01.............................. 157,500
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 0.6%
100,000 Interlake Corp., 12.125% due 3/1/02........................................ 103,875
150,000 Park-Ohio Industries, 9.250% due 12/1/07 (a)............................... 153,937
100,000 Unifrax Investment Corp., 10.500% due 11/1/03.............................. 103,500
- ----------------------------------------------------------------------------------------------------------
361,312
- ----------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE SERVICES -- 0.2%
100,000 Axiohm Transaction Solutions, 9.750% due 10/1/07 (a)....................... 101,750
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRIC/UTILITIES -- 1.5%
Aes Corp.:
$ 100,000 10.250% due 7/15/06........................................................ $ 108,750
100,000 8.375% due 8/15/07......................................................... 100,000
125,000 8.500% due 11/1/07 (a)..................................................... 125,313
200,000 Calpine Corp., 10.500% due 5/15/06......................................... 218,000
100,000 Cleveland Electric Illuminating Co., 7.430% due 11/1/09 (a)................ 103,000
100,000 El Paso Electric Co., 8.900% due 2/1/06.................................... 110,875
50,708 Midland Funding Corp. I, 10.330% due 7/23/02............................... 54,575
100,000 Niagara Mohawk Power Corp., 7.750% due 5/15/06............................. 105,500
- ----------------------------------------------------------------------------------------------------------
926,013
- ----------------------------------------------------------------------------------------------------------
ELECTRONICS/COMPUTERS -- 1.8%
175,000 Fairchild Semiconductor Corp., 10.125% due 3/15/07......................... 185,062
100,000 Flextronics International Ltd., 8.750% due 10/15/07 (a).................... 99,750
250,000 Graphic Controls Corp., 12.000% due 9/15/05................................ 279,375
300,000 Unisys Corp., 12.000% due 4/15/03.......................................... 339,750
200,000 Viasystems Inc., 9.750% due 6/1/07......................................... 206,750
- ----------------------------------------------------------------------------------------------------------
1,110,687
- ----------------------------------------------------------------------------------------------------------
FINANCE -- 0.4%
125,000 Amresco Inc., 10.000% due 3/15/04.......................................... 130,000
100,000 Ocwen Capital Trust I, 10.875% due 8/1/27.................................. 108,375
- ----------------------------------------------------------------------------------------------------------
238,375
- ----------------------------------------------------------------------------------------------------------
FOOD -- 1.4%
100,000 Ameriserve Food Distribution, 8.875% due 10/15/06.......................... 101,250
100,000 B&G Foods Inc., 9.625% due 8/1/07 (a)...................................... 101,000
200,000 Imperial Holly, 9.750% due 12/15/07 (a).................................... 201,250
400,000 Van de Kamp Inc., 12.000% due 9/15/05...................................... 444,000
- ----------------------------------------------------------------------------------------------------------
847,500
- ----------------------------------------------------------------------------------------------------------
GROCERY/CONVENIENCE STORES -- 0.2%
100,000 Extendicare Health Services, 9.350% due 12/15/07 (a)....................... 102,500
- ----------------------------------------------------------------------------------------------------------
HEALTH CARE/DRUGS/HOSPITAL SUPPLIES -- 1.1%
125,000 ICN Pharmaceuticals Inc., 9.250% due 8/15/05............................... 132,812
100,000 Magellan Health Services Inc., 11.250% due 4/15/04......................... 111,250
100,000 Pharmaceutical Fine Chemicals, 9.750% due 11/15/07 (a)..................... 101,500
Tenet Healthcare Corp.:
150,000 8.000% due 1/15/05......................................................... 152,812
150,000 8.625% due 1/15/07......................................................... 155,437
- ----------------------------------------------------------------------------------------------------------
653,811
- ----------------------------------------------------------------------------------------------------------
HOTEL/GAMING -- 2.0%
300,000 Courtyard By Marriott, 10.750% due 2/1/08.................................. 330,000
HMH Properties Inc.:
375,000 9.500% due 5/15/05......................................................... 399,375
100,000 8.875% due 7/15/07......................................................... 105,500
200,000 Mohegan Tribal Gaming Authority, 13.500% due 11/15/02...................... 258,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOTEL/GAMING -- 2.0% (CONTINUED)
$ 100,000 Signature Resorts Inc., 9.750% due 10/1/07 (a)............................. $ 101,000
- ----------------------------------------------------------------------------------------------------------
1,194,625
- ----------------------------------------------------------------------------------------------------------
INSURANCE -- 0.5%
125,000 Sig Capital Trust I, 9.500% due 8/15/27.................................... 127,187
200,000 Veritas Capital Trust, 10.000% due 1/1/28.................................. 204,000
- ----------------------------------------------------------------------------------------------------------
331,187
- ----------------------------------------------------------------------------------------------------------
LEISURE/AMUSEMENT/MOTION PICTURES -- 0.2%
150,000 CLN Holdings Inc., zero coupon due 5/15/01................................. 99,750
- ----------------------------------------------------------------------------------------------------------
MACHINERY -- 0.3%
133,000 Terex Corp., 13.250% due 5/15/02........................................... 151,953
- ----------------------------------------------------------------------------------------------------------
METALS/MINING -- 0.2%
100,000 UCAR Global Enterprises Inc., 12.000% due 1/15/05.......................... 112,875
- ----------------------------------------------------------------------------------------------------------
OIL SERVICES -- 0.8%
200,000 Dawson Production Services, 9.375% due 2/1/07.............................. 210,000
150,000 DeepTech International Inc., 12.000% due 12/15/00.......................... 159,938
100,000 ICO Inc., 10.375% due 6/1/07............................................... 107,500
- ----------------------------------------------------------------------------------------------------------
477,438
- ----------------------------------------------------------------------------------------------------------
OIL/NATURAL GAS -- 2.4%
100,000 Canadian Forest Oil Ltd., 8.750% due 9/15/07............................... 101,375
Clark R&M Inc.:
100,000 8.375% due 11/15/07 (a).................................................... 101,750
100,000 8.875% due 11/15/07 (a).................................................... 100,000
100,000 Coho Energy Inc., 8.875% due 10/15/07...................................... 100,500
150,000 Gulf Canada Resources Ltd., 9.625% due 7/1/05.............................. 163,125
150,000 Parker Drilling Corp., 9.750% due 11/15/06................................. 162,000
300,000 Santa Fe Energy Resources Inc., 11.000% due 5/15/04........................ 325,500
150,000 Stone Energy Corp., 8.750% due 9/15/07..................................... 153,375
225,000 United Meridian Corp., 10.375% due 10/15/05................................ 245,250
- ----------------------------------------------------------------------------------------------------------
1,452,875
- ----------------------------------------------------------------------------------------------------------
PACKAGING/CONTAINERS -- 0.4%
50,000 Aep Industries Inc., 9.875% due 11/15/07 (a)............................... 51,500
100,000 Gaylord Container Corp., step bond to yield 12.750% due 5/15/05............ 107,250
100,000 Huntsman Packaging Corp., 9.125% due 10/1/07 (a)........................... 103,250
- ----------------------------------------------------------------------------------------------------------
262,000
- ----------------------------------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS/PRINTING -- 1.5%
100,000 American Pad & Paper Co., 13.000% due 11/15/05............................. 116,875
100,000 Asia Pulp & Paper Finance II Mauritius Ltd., 12.000% due 12/29/49.......... 88,500
250,000 Indah Kiat International Finance Co., 11.875% due 6/15/02.................. 238,750
275,000 SD Warren Holdings Co., 12.000% due 12/15/04............................... 307,312
200,000 Tjiwi Kimia International Finance Co., 13.250% due 8/1/01.................. 192,000
- ----------------------------------------------------------------------------------------------------------
943,437
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
POLLUTION CONTROL/WASTE REMOVAL -- 0.2%
$ 100,000 Cia Latino Americana, 11.625% due 6/1/04 (a)............................... $ 100,000
- ----------------------------------------------------------------------------------------------------------
PUBLISHING & PRINTING -- 0.2%
100,000 ITT Publimedia BV, 9.375% due 9/15/07 (a).................................. 105,500
- ----------------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT/REITS -- 0.2%
101,000 Trizec Finance Ltd., 10.875% due 10/15/05.................................. 114,004
- ----------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 7.0%
150,000 Alvey Systems Inc., 11.375% due 1/31/03.................................... 156,750
Century Communications Corp.:
100,000 8.750% due 10/1/07......................................................... 102,250
100,000 8.375% due 12/15/07........................................................ 100,250
500,000 Clearnet Communications Inc., step bond to yield 14.750% due 12/15/05...... 397,500
400,000 Colt Telecom Group PLC, step bond to yield 12.000% due 12/15/06 (b)........ 313,000
100,000 Espirit Telecom Group PLC, 11.500% due 12/15/07............................ 103,000
100,000 Fonorola Inc., 12.500% due 8/15/02......................................... 111,250
100,000 Globalstar LP, 11.375% due 2/15/04......................................... 101,000
100,000 Hermes Europe Railtel BV, 11.500% due 8/15/07 (a).......................... 111,000
150,000 Intelcom Group Inc., step bond to yield 12.500% due 5/1/06................. 112,500
225,000 Intermedia Communications Inc. of Florida, step bond to yield 12.500% due
5/15/06.................................................................... 177,750
Iridium LLC/Capital Corp.:
100,000 13.000% due 7/15/05........................................................ 105,375
100,000 14.000% due 7/15/05........................................................ 109,750
100,000 Knology Holdings Inc., step bond to yield 11.875% due 10/15/07 (b)......... 55,000
200,000 McLeod USA Inc., step bond to yield 10.500% due 3/1/07..................... 145,500
200,000 Metronet Communications Corp., 12.000% due 8/15/07 (b)..................... 231,000
375,000 Millicom International Cellular, step bond to yield 13.500% due 6/1/06..... 278,437
100,000 Netia Holdings BV, 10.250% due 11/1/07 (a)................................. 94,750
Nextel Communications Inc., step bond to yield:
200,000 9.750% due 8/15/04......................................................... 178,000
100,000 10.650% due 9/15/07 (a).................................................... 63,375
225,000 9.750% due 10/31/07 (a).................................................... 137,250
100,000 Primus Telecom Group, 11.750% due 8/1/04................................... 107,000
Qwest Communications International:
150,000 10.875% due 4/1/07....................................................... 169,500
175,000 Step bond to yield 9.470% due 10/15/07 (a)............................... 119,000
RCN Corp.:
100,000 10.000% due 10/15/07 (a) 103,250
200,000 Step bond to yield 11.125% due 10/15/07 (a)................................ 126,000
150,000 RSL Communications Ltd., 12.250% due 11/15/06.............................. 163,875
Telesystem International Wireless Inc., step bond to yield:
100,000 10.500% due 11/1/07 (a).................................................... 55,500
300,000 13.250% due 6/30/07 (a).................................................... 188,250
- ----------------------------------------------------------------------------------------------------------
4,217,062
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION -- 0.6%
$ 100,000 GS Superhighway Holdings, 10.250% due 8/15/07 (a).......................... $ 86,500
270,000 Sea Containers Ltd. Series A, 12.500% due 12/1/04.......................... 306,450
- ----------------------------------------------------------------------------------------------------------
392,950
- ----------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $16,862,530)...................... 17,565,677
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 0.0%
- ----------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 0.0%
309 Nextel Communications Inc.+ (Cost -- $4,986)............................... 7,231
- ----------------------------------------------------------------------------------------------------------
PREFERRED STOCK -- 1.9%
- ----------------------------------------------------------------------------------------------------------
AUTOMOBILE/AUTO PARTS/TRUCK MANUFACTURING -- 0.4%
3,750 Navistar International Corp., Series G, Covertible until 12/31/49.......... 224,063
- ----------------------------------------------------------------------------------------------------------
BANKING -- 0.1%
2,400 California Federal Preferred Capital Corp., Series A, Exchangeable......... 64,200
- ----------------------------------------------------------------------------------------------------------
BROADCASTING - TV, CABLE AND RADIO -- 1.2%
662 Time Warner, Inc., Series M................................................ 744,750
- ----------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 0.2%
103 IXC Communications Inc. (a)................................................ 119,480
- ----------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $1,107,451)................................. 1,152,493
- ----------------------------------------------------------------------------------------------------------
WARRANTS -- 0.0%
- ----------------------------------------------------------------------------------------------------------
BROADCASTING - TV, CABLE AND RADIO -- 0.0%
150 Australis Holdings, Expire 10/30/01 (a)(c)................................. 0
150 RSL Communications Ltd., Expire 11/15/06 (c)............................... 1,500
450 UIH Australia, Expire 5/15/06 (c).......................................... 5,400
750 Wireless One Inc., Expire 10/19/00 (c)..................................... 188
- ----------------------------------------------------------------------------------------------------------
7,088
- ----------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 0.0%
1,650 Clearnet Communications Inc., Expire 9/15/05 (c)........................... 9,900
100 Iridium World Communications, Expire 7/15/05 (c)........................... 1,400
600 Nextel Communications Inc., Expire 5/23/99 (c)............................. 6
100 Primus Telecommunications, Expire 8/1/04 (c)............................... 1,000
- ----------------------------------------------------------------------------------------------------------
12,306
- ----------------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $20,938)........................................... 19,394
- ----------------------------------------------------------------------------------------------------------
TOTAL HIGH YIELD SECTOR (Cost -- $17,995,905).............................. 18,744,795
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT++ SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
INTERNATIONAL SECTOR -- 31.3%
- ----------------------------------------------------------------------------------------------------------
BONDS -- 31.3%
- ----------------------------------------------------------------------------------------------------------
ARGENTINA -- 0.4%
300,000 Argentina Discount Series L, 6.875% due 3/31/23 (d)........................ $250,126
- ----------------------------------------------------------------------------------------------------------
AUSTRALIA -- 1.4%
400,000 New South Wales Treasury Corp., 12.000% due 12/1/01........................ 316,522
700,000 Queensland Treasury Corp., 8.000% due 5/14/03.............................. 497,860
- ----------------------------------------------------------------------------------------------------------
814,382
- ----------------------------------------------------------------------------------------------------------
CANADA -- 1.5%
650,000 Government of Canada, 11.750% due 2/1/03................................... 579,350
100,000 International Finance Corp., 7.750% due 8/18/98............................ 70,924
300,000 KFW International Finance, 9.500% due 5/13/02.............................. 238,584
- ----------------------------------------------------------------------------------------------------------
888,858
- ----------------------------------------------------------------------------------------------------------
DENMARK -- 2.6%
Kingdom of Denmark:
7,000,000 6.000% due 12/10/99........................................................ 1,050,603
3,250,000 8.000% due 5/15/03......................................................... 535,907
- ----------------------------------------------------------------------------------------------------------
1,586,510
- ----------------------------------------------------------------------------------------------------------
FINLAND -- 1.7%
2,000,000 Finnish Export, 6.000% due 1/15/99......................................... 374,377
3,000,000 Government of Finland, 9.500% due 3/15/04.................................. 674,184
- ----------------------------------------------------------------------------------------------------------
1,048,561
- ----------------------------------------------------------------------------------------------------------
GERMANY -- 4.6%
4,500,000 Deutschland Republic, 6.000% due 7/4/07.................................... 2,628,775
175,000 Esprit Telecom, 11.500% due 12/15/07....................................... 100,245
100,000 ITT Promedia, 9.125% due 9/15/07........................................... 58,603
- ----------------------------------------------------------------------------------------------------------
2,787,623
- ----------------------------------------------------------------------------------------------------------
IRELAND -- 1.5%
600,000 Republic of Ireland, 8.000% due 10/18/00................................... 923,590
- ----------------------------------------------------------------------------------------------------------
ITALY -- 3.8%
3,300,000,000 Buoni Poliennali Del Tesoro, 8.500% due 8/1/99............................. 1,956,239
600,000,000 Cert Di Credito Del Tes, 7.400% due 8/1/99 (d)............................. 341,733
- ----------------------------------------------------------------------------------------------------------
2,297,972
- ----------------------------------------------------------------------------------------------------------
MEXICO -- 0.7%
500,000 United Mexican States, Series B, 6.250% due 12/31/19 (e)................... 417,500
- ----------------------------------------------------------------------------------------------------------
NEW ZEALAND -- 1.2%
New Zealand Government:
750,000 6.500% due 2/15/00......................................................... 426,100
500,000 10.000% due 3/15/02........................................................ 317,994
- ----------------------------------------------------------------------------------------------------------
744,094
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT++ SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
SPAIN -- 2.5%
200,000,000 Kingdom of Spain, 10.100% due 2/28/01...................................... $ 1,512,597
- ----------------------------------------------------------------------------------------------------------
SWEDEN -- 2.1%
10,000,000 Kingdom of Sweden, 5.500% due 4/12/02...................................... 1,257,417
- ----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 7.3%
2,500,000 United Kingdom Treasury, 7.250% due 12/7/07................................ 4,400,196
- ----------------------------------------------------------------------------------------------------------
TOTAL INTERNATIONAL SECTOR (Cost -- $19,226,011)........................... 18,929,426
- ----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.7%
$ 2,850,000 CIBC Wood Gundy Securities Corp., 6.390% due 1/2/98; Proceeds at
maturity -- $2,851,011; (Fully collateralized by U.S. Treasury Notes,
6.000% due 6/30/99; Market value -- $2,907,874) (Cost -- $2,850,000)....... 2,850,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $59,391,378*)........................... $60,555,207
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(b) Security issued with attached warrants.
(c) Non-income producing security.
(d) Variable rate security.
(e) Security is traded with value recovery rights.
+ Restricted security (See Note 17).
++ Represents local currency.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 79.0%
- ---------------------------------------------------------------------------------------------------------
GAS -- 15.2%
14,000 Coastal Corp. ................................................................. $ 867,125
2,400 Columbia Gas Systems Inc. ..................................................... 188,550
20,000 Duke Energy Corp. ............................................................. 1,107,500
15,000 El Paso Natural Gas Co. ....................................................... 997,500
15,000 Enron Corp. ................................................................... 623,438
15,000 Equitable Resources Inc. ...................................................... 530,625
17,000 MCN Corp. ..................................................................... 686,375
20,000 Pacific Enterprises............................................................ 752,500
35,000 Southwest Gas Corp. ........................................................... 654,062
20,000 Williams Cos. Inc. ............................................................ 567,500
- ---------------------------------------------------------------------------------------------------------
6,975,175
- ---------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 11.2%
20,000 Endesa -- Sponsored ADR........................................................ 363,750
20,000 France Telecom SA -- Sponsored ADR............................................. 720,000
12,000 Nextlink Communications Inc., Class A Shares................................... 255,750
12,000 SBC Communications Inc......................................................... 879,000
23,000 Teleport Communications Group, Inc. (a)........................................ 1,262,125
25,000 U.S. West Media Group (a)...................................................... 721,875
30,000 Worldcom Inc. ................................................................. 907,500
- ---------------------------------------------------------------------------------------------------------
5,110,000
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 52.6%
25,000 American Electric Power Inc. .................................................. 1,290,625
15,000 Baltimore Gas & Electric Co. .................................................. 510,937
25,000 Central & Southwest Corp. ..................................................... 676,563
25,000 Cinergy Corp. ................................................................. 957,812
25,000 CMS Energy Corp. .............................................................. 1,101,562
10,000 Consolidated Edison Co. of New York, Inc. ..................................... 410,000
17,000 Consolidated Natural Gas Co. .................................................. 1,028,500
25,000 Dominion Resources Inc. ....................................................... 1,064,063
35,000 DPL Inc. ...................................................................... 1,006,250
35,000 Edison International........................................................... 951,562
8,000 Energen Corp. ................................................................. 318,000
35,000 Entergy Corp. ................................................................. 1,047,812
15,000 Florida Progress Corp. ........................................................ 588,750
27,000 FPL Group Inc. ................................................................ 1,598,063
28,500 GPU Inc. ...................................................................... 1,200,563
15,000 Long Island Lighting Co. ...................................................... 451,875
20,000 New Century Energies Inc. ..................................................... 958,750
8,400 New England Electric Systems................................................... 359,100
17,000 Northern States Power Co. ..................................................... 990,250
35,000 NIPSCO Industries, Inc. ....................................................... 1,730,312
20,000 Pacificorp..................................................................... 546,250
10,000 Pinnacle West Capital Co. ..................................................... 423,750
15,000 Public Service Co. of New Mexico (a)........................................... 355,312
25,000 SCANA Corp. ................................................................... 748,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
UTILITIES -- 52.6% (CONTINUED)
25,000 Sierra Pacific Resources....................................................... $ 937,500
40,000 Southern Co. .................................................................. 1,035,000
25,000 Texas Utilities Co. ........................................................... 1,039,063
25,000 Unicom Corp. .................................................................. 768,750
- ---------------------------------------------------------------------------------------------------------
24,095,412
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $26,191,240)....................................... 36,180,587
- ---------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 19.9%
Arizona Public Service Co., First Mortgage:
$250,000 7.250% due 8/1/23............................................................ 250,313
250,000 8.750% due 1/15/24........................................................... 275,000
200,000 8.000% due 2/1/25............................................................ 215,500
255,000 Central Illinois Public Service Co., 8.500% due 5/15/22........................ 268,068
200,000 Cincinnati Gas & Electric Co., 8.500% due 9/1/22............................... 209,500
250,000 Commonwealth Edison Co., 8.375% due 9/15/22.................................... 267,188
250,000 Dayton Power & Light Co., First Mortgage, 8.150% due 1/15/26................... 266,875
Duquesne Light Co., 1st Collateral Trust:
200,000 8.375% due 5/15/24........................................................... 207,500
250,000 7.550% due 6/15/25........................................................... 258,125
200,000 Idaho Power Co., First Mortgage, 8.750% due 3/15/27............................ 223,750
500,000 Illinois Power Co., 8.000% due 2/15/23......................................... 517,500
300,000 Kentucky Utilities Co., First Mortgage, 8.550% due 5/15/27..................... 333,750
Madison Gas & Electric Co., First Mortgage:
200,000 8.500% due 4/15/22........................................................... 221,250
500,000 7.700% due 2/15/28........................................................... 525,000
250,000 Midwest Power Systems Inc., 8.125% due 2/1/23.................................. 259,687
200,000 New England Power Co., General & Reference, 8.000% due 8/1/22.................. 213,750
New York State Electric & Gas Corp., First Mortgage:
250,000 8.300% due 12/15/22.......................................................... 268,750
250,000 7.450% due 7/15/23........................................................... 250,938
250,000 Niagara Mohawk Power Corp., First Mortgage, 8.500% due 7/1/23.................. 260,938
250,000 Pacific Gas & Electric Co., 6.750% due 10/1/23................................. 241,250
500,000 Pennsylvania Power & Light Co., First Mortgage, 8.500% due 5/1/22.............. 556,250
300,000 Public Service Co., Oklahoma, First Mortgage, 7.375% due 4/1/23................ 308,250
200,000 San Diego Gas & Electric Co., 8.500% due 4/1/22................................ 221,250
550,000 Tampa Electric Co., First Mortgage, 7.750% due 11/1/22......................... 581,625
500,000 Texas Utilities Co., First Mortgage, 7.625% due 7/1/25......................... 516,875
250,000 Virginia Electric & Power Co., First Mortgage, 7.500% due 6/1/23............... 259,062
400,000 Wisconsin Electric Power Co., First Mortgage, 7.050% due 8/1/24................ 398,000
300,000 Wisconsin Power & Light Co., Notes, 8.600% due 3/15/27......................... 335,250
425,000 Wisconsin Public Service Corp., First Mortgage, 7.125% due 7/1/23.............. 426,594
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $8,665,360)........................... 9,137,788
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 1.1%
$501,000 Goldman, Sachs & Co., 6.348% due 1/2/98; Proceeds at maturity -- $501,177;
(Fully collateralized by U.S. Treasury Notes, 5.625% due 12/31/99; Market
value -- $511,241) (Cost -- $501,000).......................................... $ 501,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $35,357,600*)............................... $45,819,375
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 95.2%
- ---------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 5.4%
126 Aeroquip-Vickers, Inc. ..................................................... $ 6,182
501 Air Products & Chemicals, Inc. ............................................. 41,207
1,036 Alcan Aluminium Ltd. ....................................................... 28,619
790 Allegheny Teledyne, Inc. ................................................... 20,441
2,576 Allied Signal, Inc. ........................................................ 100,303
788 Aluminum Co. of America..................................................... 55,455
1,659 Applied Materials, Inc. (a)................................................. 49,977
522 Armco, Inc. (a)............................................................. 2,577
179 ASARCO, Inc. ............................................................... 4,016
465 Avery Dennison Corp. ....................................................... 20,808
330 B.F. Goodrich Co. .......................................................... 13,674
1,699 Barrick Gold Corp. ......................................................... 31,643
1,070 Battle Mountain Gold Corp. ................................................. 6,286
247 Bemis, Inc. ................................................................ 10,883
514 Bethlehem Steel Corp. (a)................................................... 4,433
257 Boise Cascade Corp. ........................................................ 7,774
440 Champion International Corp. ............................................... 19,937
423 Cyprus Amax Minerals Corp. ................................................. 6,503
1,032 Dow Chemical Co. ........................................................... 104,748
697 Echo Bay Mines Ltd. (a)..................................................... 1,698
5,166 E.I. du Pont De Nemours & Co. .............................................. 310,283
663 Engelhard Corp. ............................................................ 11,519
171 FMC Corp. (a)............................................................... 11,510
952 Fort James Corp. ........................................................... 36,414
880 Freeport-McMoRan Copper & Gold Corp., Class B Shares........................ 13,860
223 General Signal Corp. ....................................................... 9,408
422 Georgia PacificCorp. ....................................................... 25,636
274 Great Lakes Chemical Corp. ................................................. 12,296
225 Harnischfeger Industries, Inc. ............................................. 7,945
441 Hercules, Inc. ............................................................. 22,078
666 Homestake Mining Co. ....................................................... 5,911
610 Ikon Office Solutions, Inc. ................................................ 17,156
770 Inco Ltd. .................................................................. 13,090
229 Inland Steel Industries, Inc. .............................................. 3,921
1,381 International Paper Co. .................................................... 59,556
539 ITT Industries Inc. ........................................................ 16,910
2,535 Kimberly-Clark Corp. ....................................................... 125,007
504 Louisiana Pacific Corp. .................................................... 9,576
483 Mead Corp. ................................................................. 13,524
2,708 Monsanto Co. ............................................................... 113,736
604 Morton International Industries, Inc. ...................................... 20,762
37 Nacco Industries, Inc. ..................................................... 3,966
306 Nalco Chemical Co. ......................................................... 12,106
711 Newmont Mining Corp. ....................................................... 20,885
400 Nucor Corp. ................................................................ 19,325
271 Phelps Dodge Corp. ......................................................... 16,870
1,102 Placer Dome, Inc. .......................................................... 13,982
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRIES -- 5.4% (CONTINUED)
129 Potlatch Corp. ............................................................. $ 5,547
815 PPG Industries, Inc. ....................................................... 46,557
716 Praxair, Inc. .............................................................. 32,220
337 Reynolds Metals Co. ........................................................ 20,220
281 Rohm & Haas Co. ............................................................ 26,906
455 Sigma-Aldrich Corp. ........................................................ 18,086
457 Stone Container Corp. (a)................................................... 4,770
260 Temple-Inland, Inc. ........................................................ 13,601
315 Union Camp Corp. ........................................................... 16,911
562 Union Carbide Corp. ........................................................ 24,131
1,063 United Technolgies Corp. ................................................... 77,400
388 USX-U.S. Steel Group........................................................ 12,125
2,074 Waste Management, Inc. ..................................................... 57,035
466 Westvaco Corp. ............................................................. 14,650
913 Weyerhaeuser Co. ........................................................... 44,794
510 Willamette Industries, Inc. ................................................ 16,415
448 Worthington Industries, Inc. ............................................... 7,392
340 W.R. Grace & Co. ........................................................... 27,349
- ---------------------------------------------------------------------------------------------------------
1,950,505
- ---------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 7.1%
182 Armstrong World Industries, Inc. ........................................... 13,604
4,563 Boeing Co. ................................................................. 223,302
112 Briggs & Stratton Corp. .................................................... 5,439
904 Browning Ferris Industries, Inc. ........................................... 33,448
1,695 Caterpillar, Inc. .......................................................... 82,313
139 Centex Corp. ............................................................... 8,748
189 Cincinnati Milacron, Inc. .................................................. 4,902
549 Cooper Industries, Inc. .................................................... 26,901
208 Crane Co. .................................................................. 9,022
174 Cummins Engine, Inc. ....................................................... 10,277
479 Dana Corp. ................................................................. 22,752
1,153 Deere & Co. ................................................................ 67,234
1,013 Dover Corp. ................................................................ 36,594
350 Eaton Corp. ................................................................ 31,237
287 Echlin, Inc. ............................................................... 10,386
2,019 Emerson Electric Co. ....................................................... 113,947
383 Fluor Corp. ................................................................ 14,315
192 Foster Wheeler Corp. ....................................................... 5,196
287 General Dynamics Corp. ..................................................... 24,807
14,933 General Electric Co. (b).................................................... 1,095,709
1,138 Illinois Tool Works, Inc. .................................................. 68,422
758 Ingersoll Rand Co. ......................................................... 30,699
381 Johnson Controls, Inc. ..................................................... 18,193
186 Kaufman & Broad Home Corp. ................................................. 4,173
886 Lockheed Martin Corp. ...................................................... 87,271
405 Moore Corp. Ltd. ........................................................... 6,126
343 Navistar International Corp. (a)............................................ 8,511
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
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EQUITY INDEX PORTFOLIO
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CAPITAL GOODS -- 7.1% (CONTINUED)
306 Northrop Grumman Corp. ..................................................... $ 35,190
248 Owens-Corning Fiberglass Corp. ............................................. 8,463
357 Paccar, Inc. ............................................................... 18,742
511 Parker Hannifin Corp. ...................................................... 23,442
397 Raychem Corp. .............................................................. 17,096
0 Raytheon Co., Class A Shares................................................ 10
1,551 Raytheon Co., Class B Shares................................................ 78,326
951 Rockwell International Corp. ............................................... 49,690
413 Stanley Works............................................................... 19,488
750 Textron, Inc. .............................................................. 46,875
692 Thermo Electron Corp. (a)................................................... 30,794
250 Thomas & Betts Corp. ....................................................... 11,813
283 Timken Co................................................................... 9,728
565 TRW, Inc.................................................................... 30,157
2,437 Tyco International Ltd...................................................... 109,817
228 W.W. Grainger, Inc.......................................................... 22,159
- ---------------------------------------------------------------------------------------------------------
2,575,318
- ---------------------------------------------------------------------------------------------------------
CONSUMER DURABLES -- 2.4%
436 Black & Decker Corp......................................................... 17,031
341 Case Corp................................................................... 20,609
3,026 Chrysler Corp............................................................... 106,477
365 Cooper Tire & Rubber Co..................................................... 8,897
1,054 Corning, Inc................................................................ 39,130
160 Fleetwood Enterprises, Inc.................................................. 6,790
5,478 Ford Motor Co............................................................... 266,710
3,229 General Motors Corp......................................................... 195,758
814 Genuine Parts Co............................................................ 27,625
716 Goodyear Tire & Rubber Co................................................... 45,556
758 Masco Corp.................................................................. 38,563
432 Maytag Corp................................................................. 16,119
726 Newell Co................................................................... 30,855
98 Pulte Corp.................................................................. 4,098
277 Snap-On, Inc................................................................ 12,084
341 Whirlpool Corp.............................................................. 18,755
- ---------------------------------------------------------------------------------------------------------
855,057
- ---------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 11.9%
2,239 Anheuser-Busch Cos., Inc. .................................................. 98,516
2,541 Archer-Daniels-Midland Co. ................................................. 55,108
689 Autozone, Inc. (a).......................................................... 19,981
598 Avon Products, Inc. ........................................................ 36,702
138 Ball Corp. ................................................................. 4,873
314 Brown Forman Corp., Class B Shares.......................................... 17,349
2,088 Campbell Soup Co. .......................................................... 121,365
471 Clorox Co. ................................................................. 37,238
11,289 Coca-Cola Co. (b)........................................................... 752,130
1,352 Colgate Palmolive Co. ...................................................... 99,372
</TABLE>
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25
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CONSUMER NON-DURABLES -- 11.9% (CONTINUED)
2,153 Conagra, Inc. .............................................................. $ 70,645
166 Coors Adolph Co., Class B Shares............................................ 5,520
655 CPC International, Inc. .................................................... 70,576
587 Crown Cork & Seal, Inc. .................................................... 29,423
354 Eastman Chemical Co. ....................................................... 21,085
1,482 Eastman Kodak Co. .......................................................... 90,124
783 Fortune Brands, Inc. ....................................................... 29,020
342 Fruit of the Loom, Inc. (a)................................................. 8,764
723 General Mills, Inc. ........................................................ 51,785
2,557 Gillette Co. ............................................................... 256,819
575 Hasbro, Inc. ............................................................... 18,113
653 Hershey Foods Corp. ........................................................ 40,445
1,677 H.J. Heinz Co. ............................................................. 85,213
499 International Flavors & Fragrances, Inc. ................................... 25,698
1,878 Kellogg Co. ................................................................ 93,196
309 Liz Claiborne, Inc. ........................................................ 12,920
1,325 Mattel, Inc. ............................................................... 49,356
3,142 McDonald's Corp. ........................................................... 150,031
1,321 Nike Inc., Class B Shares................................................... 51,849
6,924 PepsiCo, Inc. .............................................................. 252,293
11,066 Philip Morris Cos, Inc. (b)................................................. 501,428
302 Pioneer Hi Bred International, Inc. ........................................ 32,390
206 Polaroid Corp. ............................................................. 10,029
6,134 Procter & Gamble Co. ....................................................... 489,570
632 Quaker Oats Co. ............................................................ 33,338
485 Ralston Purina Group........................................................ 45,074
262 Reebok International Ltd. (a)............................................... 7,549
681 Rubbermaid, Inc. ........................................................... 17,025
168 Russell Corp. .............................................................. 4,463
2,188 Sara Lee Corp. ............................................................. 123,212
794 Scherwin Williams Co. ...................................................... 22,034
1,632 Seagram Ltd. ............................................................... 52,734
690 Tricon Global Resturants, Inc. (a).......................................... 20,053
280 Tupperware Corp. ........................................................... 7,805
2,921 Unilever N.V. .............................................................. 182,380
835 UST, Inc. .................................................................. 30,843
554 VF Corp. ................................................................... 25,449
532 Wm. Wrigley Jr. Co. ........................................................ 42,327
459 Whitman Corp. .............................................................. 11,963
- ---------------------------------------------------------------------------------------------------------
4,315,175
- ---------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 9.2%
252 Alberto Culver, Class B Shares.............................................. 8,080
1,123 Albertsons, Inc. ........................................................... 53,202
338 American Greetings Corp., Class A Shares.................................... 13,224
1,243 American Stores Co. ........................................................ 25,559
451 Brunswick Corp. ............................................................ 13,671
3,614 Cendant Corp. (a)........................................................... 124,241
</TABLE>
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CONSUMER SERVICES -- 9.2% (CONTINUED)
497 Charming Shoppes, Inc. (a).................................................. $ 2,330
448 Circuit City Stores, Inc. .................................................. 15,932
447 Clear Channel Communications, Inc. (a)...................................... 35,509
738 Cognizant Corp. ............................................................ 32,887
3,211 Columbia Broadcasting System Corp. ......................................... 94,524
1,596 Comcast Corp., Class A Shares (Special)..................................... 50,374
970 Costco Cos., Inc. (a)....................................................... 43,286
787 CVS Corp. .................................................................. 50,417
701 Darden Restaurants, Inc. ................................................... 8,763
993 Dayton Hudson Corp. ........................................................ 67,028
372 Deluxe Corp. ............................................................... 12,834
508 Dillards Department Stores, Inc., Class A Shares............................ 17,907
440 Dow Jones & Co. Inc. ....................................................... 23,622
780 Dun & Bradstreet Corp. ..................................................... 24,131
290 Ecolab, Inc. ............................................................... 16,077
685 Equifax, Inc. .............................................................. 24,275
959 Federated Department Stores (a)............................................. 41,297
1,293 Gannett, Inc. .............................................................. 79,924
1,832 Gap, Inc. .................................................................. 64,922
274 Giant Foods Inc., Class A Shares............................................ 9,230
174 Great Atlantic & Pacific Tea Co., Inc. ..................................... 5,166
324 Harcourt General, Inc. ..................................................... 17,739
458 Harrah's Entertainment, Inc. (a)............................................ 8,645
1,144 Hilton Hotels Corp. ........................................................ 34,034
3,337 Home Depot, Inc. ........................................................... 196,466
574 Interpublic Group Co., Inc. ................................................ 28,592
1,141 J.C. Penney Co. ............................................................ 68,817
150 John H. Harland Co. ........................................................ 3,150
176 Jostens, Inc. .............................................................. 4,059
2,223 KMart Corp. (a)............................................................. 25,703
171 King World Productions, Inc. ............................................... 9,875
380 Knight Ridder, Inc. ........................................................ 19,760
1,164 Kroger Co. (a).............................................................. 42,995
1,501 Laidlaw, Inc. .............................................................. 20,451
1,244 Limited, Ltd. .............................................................. 31,722
528 Loews Cos., Inc. ........................................................... 56,034
171 Longs Drugs Stores Corp. ................................................... 5,493
581 Marriott International, Inc. ............................................... 40,234
1,054 May Department Stores Co. .................................................. 55,532
449 McGraw Hill Cos., Inc. ..................................................... 33,226
164 Mercantile Stores, Inc. .................................................... 9,983
249 Meredith Corp. ............................................................. 8,886
813 Mirage Resorts, Inc. ....................................................... 18,496
196 National Services Industries, Inc. ......................................... 9,714
435 New York Times Co., Class A Shares.......................................... 28,764
353 Nordstrom, Inc. ............................................................ 21,312
740 Omnicom Group, Inc. ........................................................ 31,358
637 Owens-Illinois, Inc. (a).................................................... 24,166
</TABLE>
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27
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CONSUMER SERVICES -- 9.2% (CONTINUED)
292 Pep Boys-Manny, Moe and Jack................................................ $ 6,972
670 R.R. Donnelley & Sons Co. .................................................. 24,957
573 Rite Aid Corp. ............................................................. 33,628
259 Safety-Kleen Corp. ......................................................... 7,106
1,786 Sears, Roebuck & Co. ....................................................... 80,817
1,151 Service Corp. International................................................. 42,515
90 Spring Industries, Inc. .................................................... 4,680
275 Super Valu, Inc. ........................................................... 11,515
786 Sysco Corp. ................................................................ 35,812
477 Tandy Corp. ................................................................ 18,394
2,308 Tele-Communications, Inc., Class A Shares (a)............................... 64,480
2,558 Time Warner, Inc. .......................................................... 158,596
440 Times Mirror Co., Class A Shares............................................ 27,060
744 TJX Cos. Inc. .............................................................. 25,575
1,302 Toys 'R' Us, Inc. (a)....................................................... 40,932
558 Tribune Co. ................................................................ 34,735
1,613 Viacom, Inc., Class B Shares (a)............................................ 66,839
10,287 Wal-Mart Stores, Inc. ...................................................... 405,694
2,246 Walgreen Co. ............................................................... 70,468
3,079 Walt Disney Co. ............................................................ 305,013
601 Wendy's International, Inc. ................................................ 14,461
678 Winn Dixie Stores, Inc. .................................................... 29,620
620 Woolworth Corp. (a)......................................................... 12,633
- ---------------------------------------------------------------------------------------------------------
3,336,120
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 8.6%
416 Amerada Hess Corp. ......................................................... 22,828
2,222 Amoco Corp. ................................................................ 189,148
278 Anadarko Petroleum Corp. ................................................... 16,872
413 Apache Corp. ............................................................... 14,481
341 Ashland, Inc. .............................................................. 18,307
1,464 Atlantic Richfield Co. ..................................................... 117,303
775 Baker Hughes, Inc. ......................................................... 33,809
808 Burlington Resources, Inc. ................................................. 36,209
2,999 Chevron Corp. .............................................................. 230,923
721 CINergy Corp. .............................................................. 27,623
483 Coastal Corp. .............................................................. 29,916
802 Dresser Industries, Inc. ................................................... 33,634
91 Eastern Enterprises......................................................... 4,095
1,735 Edison International........................................................ 47,170
11,252 Exxon Corp. (b)............................................................. 688,482
1,200 Halliburton Co. ............................................................ 62,325
116 Helmerich & Payne, Inc. .................................................... 7,874
220 Kerr McGee Corp. ........................................................... 13,929
644 LSI Logic Corp. (a)......................................................... 12,719
258 McDermott International, Inc. .............................................. 9,449
3,581 Mobil Corp. ................................................................ 258,503
1,549 Occidental Petroleum Corp. ................................................. 45,405
</TABLE>
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28
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<TABLE>
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ENERGY -- 8.6% (CONTINUED)
482 Oryx Energy Co. (a)......................................................... $ 12,291
217 Pennzoil Co. ............................................................... 14,498
1,200 Phillips Petroleum Co. ..................................................... 58,350
398 Rowan Cos., Inc. (a)........................................................ 12,139
9,784 Royal Dutch Petroleum Co. (b)............................................... 530,171
2,261 Schlumberger Ltd. .......................................................... 182,011
389 Sonat Inc. ................................................................. 17,797
322 Sun Co., Inc. .............................................................. 13,544
780 Tenneco, Inc. .............................................................. 30,810
2,500 Texaco, Inc. ............................................................... 135,938
1,163 Union Pacific Resources Group Inc. ......................................... 28,203
1,124 Unocal Corp. ............................................................... 43,625
1,323 USX-Marathon Group Inc. .................................................... 44,651
249 Western Atlas, Inc. (a)..................................................... 18,426
1,438 Williams Cos., Inc. ........................................................ 40,803
- ---------------------------------------------------------------------------------------------------------
3,104,261
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 16.5%
679 Aetna Inc. ................................................................. 47,912
1,955 Allstate Corp. ............................................................. 177,661
2,119 American Express Co. ....................................................... 189,121
1,113 American General Corp. ..................................................... 60,172
3,199 American International Group, Inc. ......................................... 347,891
765 Aon Corp. .................................................................. 44,848
2,679 Banc One Corp. ............................................................. 145,503
661 Bank of Boston Corp. ....................................................... 62,093
1,715 Bank of New York............................................................ 99,148
3,165 BankAmerica Corp. .......................................................... 231,045
447 Bankers Trust of New York Corp. ............................................ 50,260
880 Barnett Banks Inc. ......................................................... 63,250
625 BB&T Corp. ................................................................. 40,039
244 Beneficial Corp. ........................................................... 20,282
1,207 Charles Schwab Corp. ....................................................... 50,618
1,923 Chase Manhattan Corp. ...................................................... 210,569
777 Chubb Corp. ................................................................ 58,761
340 CIGNA Corp. ................................................................ 58,841
250 Cincinnati Financial Corp. ................................................. 35,188
2,087 CitiCorp.................................................................... 263,875
478 Comerica Inc. .............................................................. 43,140
859 Conseco, Inc. .............................................................. 39,031
900 CoreStates Financial Corp. ................................................. 72,056
494 Countrywide Credit Industries, Inc. ........................................ 21,180
4,841 Fannie Mae.................................................................. 276,240
705 Fifth Third BanCorp. ....................................................... 57,634
1,328 First Chicago Corp. ........................................................ 110,888
1,955 First Data Corp. ........................................................... 57,184
2,866 First Union Corp. .......................................................... 146,883
1,140 Fleet Financial Group, Inc. ................................................ 85,429
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
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- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
<TABLE>
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FINANCIAL SERVICES -- 16.5% (CONTINUED)
3,174 Freddie Mac................................................................. $ 133,110
358 General Re Corp. ........................................................... 75,896
256 Golden West Financial Corp. ................................................ 25,040
620 Green Tree Financial Corp. ................................................. 16,236
437 H&R Block, Inc.............................................................. 19,583
431 H.F. Ahmanson & Co. ........................................................ 28,850
537 Hartford Financial Services Group, Inc. .................................... 50,243
490 Household International, Inc. .............................................. 62,506
876 Huntington Bancshares, Inc. ................................................ 31,536
324 Jefferson Pilot Corp. ...................................................... 25,232
812 J.P. Morgan & Co., Inc. .................................................... 91,655
1,000 KeyCorp. ................................................................... 70,813
470 Lincoln National Corp. ..................................................... 36,719
791 Lowes Corp. ................................................................ 37,721
773 Marsh & McLennan Cos., Inc. ................................................ 57,637
410 MBIA, Inc. ................................................................. 27,393
2,286 MBNA Corp. ................................................................. 62,436
1,159 Mellon Bank Corp. .......................................................... 70,264
1,519 Merrill Lynch & Co., Inc. .................................................. 110,792
523 MGIC Investment Corp. ...................................................... 34,780
2,708 Morgan Stanley, Dean Witter, Discover & Co. ................................ 160,111
975 National City Corp. ........................................................ 64,106
3,244 NationsBank Corp. .......................................................... 197,276
3,449 Norwest Corp. .............................................................. 133,218
1,393 PNC Bank Corp. ............................................................. 79,488
327 Progressive Corp. .......................................................... 39,199
434 Providian Financial Corp. .................................................. 19,612
251 Republic New York Corp. .................................................... 28,661
645 SAFECO Corp. ............................................................... 31,444
381 St. Paul Cos., Inc. ........................................................ 31,266
736 State Street Corp. ......................................................... 42,826
889 SunAmerica, Inc. ........................................................... 38,005
960 Suntrust Bank, Inc. ........................................................ 68,520
800 Synovus Financial Corp. .................................................... 26,200
638 Torchmark Corp. ............................................................ 26,836
285 Transamerica Corp........................................................... 30,353
5,232 Travelers Group, Inc. ...................................................... 281,874
638 UNUM Corp. ................................................................. 34,691
1,119 U.S. Bancorp. .............................................................. 125,258
513 USF&G Corp. ................................................................ 11,318
934 Wachovia Corp. ............................................................. 75,771
1,171 Washington Mutual, Inc. .................................................... 74,724
395 Wells Fargo & Co. .......................................................... 134,078
- ---------------------------------------------------------------------------------------------------------
5,990,019
- ---------------------------------------------------------------------------------------------------------
HEALTH CARE -- 10.8%
3,493 Abbott Laboratories......................................................... 229,010
297 Allergan, Inc. ............................................................. 9,968
</TABLE>
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30
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- --------------------------------------------------------------------------------
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<TABLE>
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HEALTH CARE -- 10.8% (CONTINUED)
385 ALZA Corp. ................................................................. $ 12,248
2,963 American Home Products Corp. ............................................... 226,670
1,199 Amgen, Inc. (a)............................................................. 64,896
255 Bausch & Lomb, Inc. ........................................................ 10,104
1,281 Baxter International, Inc. ................................................. 64,610
556 Becton Dickinson & Co. ..................................................... 27,800
501 Biomet, Inc. ............................................................... 12,838
887 Boston Scientific Corp. (a)................................................. 40,691
4,537 Bristol-Myers Squibb Co. ................................................... 429,314
497 Cardinal Health, Inc. ...................................................... 37,337
2,956 Columbia HCA Healthcare Corp. .............................................. 87,572
260 C.R. Bard, Inc. ............................................................ 8,141
5,062 Eli Lilly & Co. ............................................................ 352,442
675 Guidant Corp. .............................................................. 42,019
915 HBO & Co. .................................................................. 43,920
1,792 HEALTHSOUTH Corp. (a)....................................................... 49,728
738 Humana, Inc. (a)............................................................ 15,314
6,134 Johnson & Johnson........................................................... 404,077
333 Mallinckrodt Group, Inc. ................................................... 12,654
286 Manor Care, Inc. ........................................................... 10,010
2,141 Medtronic, Inc. ............................................................ 112,001
5,469 Merck & Co., Inc. .......................................................... 581,081
196 Millipore Corp. ............................................................ 6,652
585 Pall Corp. ................................................................. 12,102
5,902 Pfizer, Inc. ............................................................... 440,068
2,321 Pharmacia & Upjohn.......................................................... 85,007
6 PharMerica, Inc. (a)........................................................ 66
3,343 Schering-Plough Corp. ...................................................... 207,684
421 St. Jude Medical, Inc. (a).................................................. 12,841
1,398 Tenet Healthcare Corp. (a).................................................. 46,309
859 United Healthcare Corp. .................................................... 42,682
342 US Surgical Corp. .......................................................... 10,025
1,245 Warner Lambert Co. ......................................................... 154,380
- ---------------------------------------------------------------------------------------------------------
3,902,261
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 12.7%
337 Adobe Systems, Inc. ........................................................ 13,901
645 Advanced Micro Devices, Inc. (a)............................................ 11,570
850 ALLTEL Corp. ............................................................... 34,903
1,007 AMP, Inc. .................................................................. 42,294
410 Andrew Corp. (a)............................................................ 9,840
595 Apple Computer, Inc. (a).................................................... 7,809
220 Autodesk, Inc. ............................................................. 8,140
1,335 Automatic Data Processing, Inc. ............................................ 81,936
970 Bay Networks, Inc. (a)...................................................... 24,795
710 Cabletron Systems, Inc. (a)................................................. 10,650
346 Ceridian Corp. (a).......................................................... 15,851
4,593 Cisco Systems, Inc. (a)..................................................... 256,060
</TABLE>
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31
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- --------------------------------------------------------------------------------
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<TABLE>
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TECHNOLOGY -- 12.7% (CONTINUED)
3,454 Compaq Computer Corp. ...................................................... $ 194,935
2,497 Computer Association International, Inc. ................................... 132,029
353 Computer Sciences Corp. (a)................................................. 29,476
222 Data General Corp. (a)...................................................... 3,871
1,491 Dell Computer Corp. (a)..................................................... 125,244
681 Digital Equipment Corp. (a)................................................. 25,197
536 DSC Communications Corp. (a)................................................ 12,864
199 EG&G, Inc. ................................................................. 4,142
2,261 EMC Corp. (a)............................................................... 62,036
368 Harris Corp. ............................................................... 16,882
4,745 Hewlett Packard Co. ........................................................ 296,563
582 Honeywell, Inc. ............................................................ 39,867
7,467 Intel Corp. ................................................................ 524,557
4,436 International Business Machines Corp. ...................................... 463,839
528 ITT Corp. (a)............................................................... 43,758
385 Kla-Tencor Corp. (a)........................................................ 14,871
2,930 Lucent Technologies, Inc. .................................................. 234,034
967 Micron Technology, Inc. (a)................................................. 25,142
5,506 Microsoft Corp. (a)......................................................... 711,651
1,865 Minnesota Mining & Manufacturing Co. ....................................... 153,047
2,727 Motorola, Inc. ............................................................. 155,609
748 National Semiconductor Corp. (a)............................................ 19,401
670 Nextlevel Systems, Inc. (a)................................................. 11,976
1,193 Northern Telecom Ltd. ...................................................... 106,177
1,615 Novell, Inc. (a)............................................................ 12,113
4,468 Oracle Systems Corp. (a).................................................... 99,692
579 Parametric Technology Corp. (a)............................................. 27,430
202 Perkin-Elmer Corp. ......................................................... 14,355
663 Pitney Bowes, Inc. ......................................................... 59,629
361 Scientific Atlanta, Inc. ................................................... 6,047
1,110 Seagate Technology, Inc. (a)................................................ 21,368
116 Shared Medical Systems Corp. ............................................... 7,656
854 Silicon Graphics, Inc. (a).................................................. 10,622
1,711 Sun Microsystems, Inc. (a).................................................. 68,226
237 Tektronix, Inc. ............................................................ 9,406
831 Tellabs, Inc. (a)........................................................... 43,939
1,785 Texas Instruments, Inc...................................................... 80,325
1,582 3Com Corp. (a).............................................................. 55,271
991 Unicom Corp................................................................. 30,473
797 Unisys Corp. (a)............................................................ 11,058
1,490 Xerox Corp.................................................................. 109,981
- ---------------------------------------------------------------------------------------------------------
4,592,508
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.2%
416 AMR Corp. (a)............................................................... 53,456
715 Burlington Northern Santa Fe................................................ 66,450
181 Caliber Systems, Inc........................................................ 8,813
996 CSX Corp.................................................................... 53,784
</TABLE>
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32
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- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
<TABLE>
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TRANSPORTATION -- 1.2% (CONTINUED)
338 Delta Air Lines, Inc........................................................ $ 40,222
526 Federal Express Corp. (a)................................................... 32,119
1,721 Norfolk Southern Corp....................................................... 53,028
348 Ryder Systems Inc........................................................... 11,397
1,003 Southwest Airlines Co....................................................... 24,699
1,126 Union Pacific Corp.......................................................... 70,305
415 U.S. Airways Group, Inc. (a)................................................ 25,938
- ---------------------------------------------------------------------------------------------------------
440,211
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 9.4%
2,301 Airtouch Communications, Inc. (a)........................................... 95,635
862 American Electric Power, Inc................................................ 44,501
2,501 Ameritech Corp.............................................................. 201,331
7,409 AT&T Corp. (b).............................................................. 453,801
674 Baltimore Gas & Electric Co. ............................................... 22,958
3,546 Bell Atlantic Corp. ........................................................ 322,686
4,524 BellSouth Corp. ............................................................ 254,758
685 Carolina Power & Light Co. ................................................. 29,070
968 Central & South West Corp. ................................................. 26,197
254 Columbia Gas Systems, Inc. ................................................. 19,955
1,077 Consolidated Edison Co. New York, Inc. ..................................... 44,157
438 Consolidated Natural Gas Co. ............................................... 26,499
853 Dominion Resources Inc. .................................................... 36,306
661 DTE Energy Co. ............................................................. 22,928
1,640 Duke Energy Corp. .......................................................... 90,815
1,451 Enron Corp. ................................................................ 60,307
1,116 Entergy Corp. .............................................................. 33,410
1,055 FirstEnergy Corp. .......................................................... 30,595
827 FPL Group, Inc. ............................................................ 48,948
747 Frontier Corp. ............................................................. 17,974
551 GPU, Inc. .................................................................. 23,211
4,372 GTE Corp. .................................................................. 228,437
1,304 Houston Industries, Inc. ................................................... 34,801
3,178 MCI Communications Corp. ................................................... 136,058
643 Niagara Mohawk Power Corp. (a).............................................. 6,752
219 Nicor, Inc. ................................................................ 9,239
339 Northern States Power Co. of Minnesota...................................... 19,747
110 Oneok, Inc. ................................................................ 4,441
380 Pacific Enterprises......................................................... 14,298
1,354 PacificCorp. ............................................................... 36,981
1,017 PECO Energy Co. ............................................................ 24,662
158 Peoples Energy Corp. ....................................................... 6,221
1,997 PG&E Corp. ................................................................. 60,784
757 PP&L Resources, Inc. ....................................................... 18,121
1,052 Public Service Enterprise Group............................................. 33,335
4,183 SBC Communications, Inc. ................................................... 306,405
3,151 Southern Co. ............................................................... 81,532
1,961 Sprint Corp. ............................................................... 114,964
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 9.4% (CONTINUED)
1,125 Texas Utilities Co. ........................................................ $ 46,758
466 Union Electric Co. ......................................................... 20,155
2,209 U.S. West Communications Group.............................................. 99,681
2,771 U.S. West Media Group (a)................................................... 80,013
4,125 Worldcom, Inc. (a).......................................................... 124,781
- ---------------------------------------------------------------------------------------------------------
3,414,208
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost --$23,089,586)..................................... 34,475,643
- ---------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 4.8%
$1,680,000 Repurchase Agreement -- Goldman, Sachs & Co., 6.348% due 1/2/98; Proceeds at
maturity -- $1,680,592; (Fully collateralized by U.S. Treasury Notes, 5.625%
due 12/31/99; Market value -- $1,714,340)................................... 1,680,000
70,000 U.S. Treasury Bills, 5.005% due 3/12/98 (b)................................. 69,307
- ---------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $1,749,319)........................... 1,749,307
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $24,838,905*)............................ $36,224,950
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Security segregated by custodian for futures contract commitments.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 94.2%
- ---------------------------------------------------------------------------------------------------------
BANKS -- 1.6%
12,000 State Street Boston Corp...................................................... $ 698,250
- ---------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 3.0%
6,600 Reuters Holdings PLC ADR...................................................... 437,250
9,000 W.W. Grainger, Inc. .......................................................... 874,688
- ---------------------------------------------------------------------------------------------------------
1,311,938
- ---------------------------------------------------------------------------------------------------------
CONSUMER DURABLES -- 2.3%
15,000 Genuine Parts Co.............................................................. 509,062
12,000 Leggett & Platt, Inc. ........................................................ 502,500
- ---------------------------------------------------------------------------------------------------------
1,011,562
- ---------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 7.0%
12,000 Coca-Cola Corp. .............................................................. 799,500
10,000 Colgate-Palmolive Co. ........................................................ 735,000
14,000 Kimberly-Clark Corp. ......................................................... 690,375
10,000 Procter & Gamble Co. ......................................................... 798,125
- ---------------------------------------------------------------------------------------------------------
3,023,000
- ---------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 2.3%
8,000 McDonald's Corp. ............................................................. 382,000
13,000 TCA Cable TV, Inc............................................................. 598,000
- ---------------------------------------------------------------------------------------------------------
980,000
- ---------------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 8.5%
17,000 AMP, Inc. .................................................................... 714,000
20,000 Electronic Data Systems Corp. ................................................ 878,750
22,000 Hewlett Packard Co. .......................................................... 1,375,000
12,000 Motorola, Inc. ............................................................... 684,750
- ---------------------------------------------------------------------------------------------------------
3,652,500
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 4.8%
10,000 Exxon Corp. .................................................................. 611,875
10,000 Mobil Corp.................................................................... 721,875
15,000 Phillips Petroleum Co. ....................................................... 729,375
- ---------------------------------------------------------------------------------------------------------
2,063,125
- ---------------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 2.3%
10,000 The Walt Disney Co. .......................................................... 990,625
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCE -- 14.5%
10,000 Beneficial Corp. ............................................................. $ 831,250
7,000 Chase Manhattan Corp. ........................................................ 766,500
10,000 Greenpoint Financial Corp. ................................................... 725,625
15,000 KeyCorp....................................................................... 1,062,188
7,000 J.P. Morgan & Co., Inc. ...................................................... 790,125
20,000 Mercury General Corp. ........................................................ 1,105,000
16,000 NationsBank Corp.+............................................................ 973,000
- ---------------------------------------------------------------------------------------------------------
6,253,688
- ---------------------------------------------------------------------------------------------------------
HEALTH TECHNOLOGY -- 7.2%
15,000 Eli Lilly & Co. .............................................................. 1,044,375
15,000 Johnson & Johnson ............................................................ 988,125
10,000 Merck & Co., Inc. ............................................................ 1,062,500
- ---------------------------------------------------------------------------------------------------------
3,095,000
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES -- 1.0%
12,000 Fluor Corp. .................................................................. 448,500
- ---------------------------------------------------------------------------------------------------------
MACHINERY -- 1.4%
28,000 Pall Corp. ................................................................... 579,250
- ---------------------------------------------------------------------------------------------------------
MINERALS -- 1.0%
25,000 Worthington Industries Inc. .................................................. 412,500
- ---------------------------------------------------------------------------------------------------------
PROCESS INDUSTRIES -- 3.5%
11,000 Bemis, Inc. .................................................................. 484,687
15,000 M.A. Hanna Co................................................................. 378,750
12,000 Temple-Inland, Inc. .......................................................... 627,750
- ---------------------------------------------------------------------------------------------------------
1,491,187
- ---------------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURER -- 6.8%
15,000 Dana Corp. ................................................................... 712,500
14,000 General Electric Co. ......................................................... 1,027,250
9,200 Hubbell, Inc., Class B Shares................................................. 453,675
9,000 Minnesota Mining & Manufacturing Co. ......................................... 738,563
- ---------------------------------------------------------------------------------------------------------
2,931,988
- ---------------------------------------------------------------------------------------------------------
REAL ESTATE -- 3.0%
15,000 Arden Realty Group, Inc. ..................................................... 461,250
15,000 Kilroy Realty Corp. .......................................................... 431,250
16,000 SL Green Realty Corp. ........................................................ 415,000
- ---------------------------------------------------------------------------------------------------------
1,307,500
- ---------------------------------------------------------------------------------------------------------
RESTAURANT & LODGING -- 1.5%
11,000 Starwood Hotels & Resorts Trust+.............................................. 636,625
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL -- 5.6%
14,000 May Department Stores Co. .................................................... $ 737,625
15,000 Nordstrom Inc. ............................................................... 905,625
13,000 Rite Aid Corp. ............................................................... 762,938
- ---------------------------------------------------------------------------------------------------------
2,406,188
- ---------------------------------------------------------------------------------------------------------
TECHNOLOGY SERVICES -- 2.3%
16,000 Automatic Data Processing, Inc. .............................................. 982,000
- ---------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.0%
23,000 LM Ericsson Telephone Co. ADR................................................. 858,187
- ---------------------------------------------------------------------------------------------------------
TEXTILES - APPAREL MANUFACTURING -- 1.6%
16,000 Liz Claiborne, Inc............................................................ 669,000
- ---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.6%
17,000 Knightsbridge Tankers Ltd. ................................................... 481,312
10,000 Union Pacific Corp. .......................................................... 624,375
- ---------------------------------------------------------------------------------------------------------
1,105,687
- ---------------------------------------------------------------------------------------------------------
UTILITIES -- 8.4%
10,000 American Telephone & Telegraph Co............................................. 612,500
10,000 Ameritech Corp. .............................................................. 805,000
15,000 Duke Energy Corp. ............................................................ 830,625
14,000 GTE Corp. .................................................................... 731,500
15,000 MCI Communications Corp. ..................................................... 642,188
- ---------------------------------------------------------------------------------------------------------
3,621,813
- ---------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $25,480,022)...................................... 40,530,113
- ---------------------------------------------------------------------------------------------------------
FOREIGN COMMON STOCK -- 0.9%
- ---------------------------------------------------------------------------------------------------------
AUSTRALIA -- 0.9%
39,526 Broken Hill Properties (Cost -- $448,917)..................................... 367,011
- ---------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 1.3%
- ---------------------------------------------------------------------------------------------------------
ENERGY -- 1.3%
10,044 Unocal Corp., Convertible 6.250% (a) (Cost -- $485,250)....................... 564,975
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C>
CORPORATE DEBENTURES -- 3.6%
- ---------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 2.4%
$500,000 Dean Witter Discover & Co., 6.875% due 3/1/03................................. $ 510,625
500,000 General Motors Acceptance Corp., 7.000% due 9/15/02........................... 515,000
- ---------------------------------------------------------------------------------------------------------
1,025,625
- ---------------------------------------------------------------------------------------------------------
RETAIL TRADE -- 1.2%
500,000 Limited Inc., 7.800% due 5/15/02.............................................. 518,750
- ---------------------------------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES (Cost -- $1,559,315)............................... 1,544,375
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $27,973,504*).............................. $43,006,474
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+ Security is on loan (See Note 16).
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 96.0%
- ----------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES/RAW MATERIALS -- 0.4%
500 Mueller Industries, Inc. (a)................................................... $ 29,500
800 Sealed Air Corp. (a)........................................................... 49,400
- ----------------------------------------------------------------------------------------------------------
78,900
- ----------------------------------------------------------------------------------------------------------
CAPITAL GOODS/PRODUCTION -- 0.7%
1,200 Danaher Corp. ................................................................. 75,750
1,200 Precision Castparts Corp. ..................................................... 72,375
- ----------------------------------------------------------------------------------------------------------
148,125
- ----------------------------------------------------------------------------------------------------------
CHEMICALS -- 0.0%
200 Witco Corp. (a)................................................................ 8,163
- ----------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.9%
1,395 Accustaff, Inc. (a)............................................................ 32,085
1,800 Cambridge Technology Partners, Inc. (a)........................................ 74,925
1,200 Ciber, Inc. ................................................................... 69,600
1,500 Consolidated Graphics, Inc. ................................................... 69,938
3,000 Keane, Inc. (a)................................................................ 121,875
1,100 Paychex, Inc. ................................................................. 55,688
1,500 Outdoor Systems, Inc. ......................................................... 57,563
2,400 Robert Half International, Inc. ............................................... 96,000
- ----------------------------------------------------------------------------------------------------------
577,674
- ----------------------------------------------------------------------------------------------------------
CONSUMER DISTRIBUTION -- 13.9%
550 Abercrombie & Fitch Co. ....................................................... 17,188
3,050 Barnes & Noble, Inc. (a)....................................................... 101,794
2,300 Bed, Bath & Beyond, Inc. ...................................................... 88,550
3,000 Best Buy Co., Inc. ............................................................ 110,625
3,100 Borders Group, Inc. (a)........................................................ 97,069
3,500 CHS Electronics, Inc. ......................................................... 59,938
6,700 CompUSA, Inc. (a).............................................................. 207,700
3,200 Consolidated Stores Corp. (a).................................................. 140,600
2,950 Costco Cos. Inc. (a)........................................................... 131,644
1,500 CVS Corp. ..................................................................... 96,094
2,200 Dollar General Corp. .......................................................... 79,750
1,100 Dollar Tree Stores, Inc. ...................................................... 45,513
3,100 Family Dollar Stores, Inc. .................................................... 90,869
3,200 Fred Meyer, Inc. .............................................................. 116,400
6,200 General Nutrition Cos., Inc. (a)............................................... 210,800
1,200 Kohl's Corp. .................................................................. 81,750
1,600 Linens 'n Things, Inc. ........................................................ 69,800
1,650 Pacific Sunware of California (a).............................................. 48,778
3,750 Pier 1 Imports, Inc. .......................................................... 84,844
3,700 Proffitt's, Inc. (a)........................................................... 105,219
4,500 Ross Stores, Inc. ............................................................. 163,665
1,376 Safeway, Inc. ................................................................. 87,032
1,550 Stage Stores, Inc. ............................................................ 57,931
2,150 Tech Data Corp. ............................................................... 83,581
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
CONSUMER DISTRIBUTION -- 13.9% (CONTINUED)
4,700 TJX Companies, Inc. ........................................................... $ 161,563
2,775 U.S. Office Products Co. ...................................................... 54,459
2,250 Whole Foods Market, Inc. ...................................................... 115,031
1,750 Williams Sonoma, Inc. (a)...................................................... 73,281
- ----------------------------------------------------------------------------------------------------------
2,781,468
- ----------------------------------------------------------------------------------------------------------
CONSUMER DURABLES -- 0.8%
2,800 Herman Miller, Inc. ........................................................... 152,775
- ----------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 2.7%
1,400 Canadaigua Brands, Inc., Class A Shares........................................ 77,525
3,200 Interstate Bakeries Corp. ..................................................... 119,600
1,200 Jones Apparel Group, Inc. (a).................................................. 51,600
1,500 Nautica Enterprises, Inc. (a).................................................. 34,875
1,900 Smithfield Foods, Inc. (a)..................................................... 62,700
1,190 Suiza Foods Corp. ............................................................. 70,879
1,300 Westpoint Stevens, Inc. (a).................................................... 61,425
2,500 Wolverine World Wide, Inc. .................................................... 56,563
- ----------------------------------------------------------------------------------------------------------
535,167
- ----------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 5.7%
1,100 Action Performance Cos., Inc. (a).............................................. 41,663
1,700 Apollo Group, Inc., Class A Shares (a)......................................... 80,325
1,000 Applied Graphics Technologies, Inc. ........................................... 53,250
4,400 Brightpoint Inc. (a)........................................................... 61,050
1,000 Capstar Hotel Co. (a).......................................................... 34,313
1,600 Caribiner International, Inc. ................................................. 71,200
4,250 Chancellor Media Corp. ........................................................ 317,156
1,500 CKE Restaurants, Inc. ......................................................... 63,188
750 Computer Learning Centers, Inc. ............................................... 45,938
1,000 CORESTAFF, Inc. ............................................................... 26,500
2,000 Foodmaker, Inc. ............................................................... 30,125
1,000 Jacor Communications, Inc. (a)................................................. 53,125
1,500 Landry's Seafood Restaurants, Inc. ............................................ 36,000
2,687 Promus Hotel Corp. (a)......................................................... 112,854
1,200 Rainforest Cafe, Inc. ......................................................... 39,600
2,400 Signature Resorts, Inc. ....................................................... 52,500
700 StaffMark, Inc. ............................................................... 22,138
- ----------------------------------------------------------------------------------------------------------
1,140,925
- ----------------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.2%
1,700 Jabil Circuit, Inc. (a)........................................................ 67,575
2,550 Teradyne, Inc. (a)............................................................. 81,600
2,400 Vitesse Semiconductors, Inc. .................................................. 90,600
- ----------------------------------------------------------------------------------------------------------
239,775
- ----------------------------------------------------------------------------------------------------------
ENERGY -- 10.5%
1,200 BJ Services Co. (a)............................................................ 86,325
1,400 Cliffs Drilling Co. ........................................................... 69,825
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
ENERGY -- 10.5% (CONTINUED)
1,200 Coflexip SA ADR (a)............................................................ $ 66,600
2,500 Comstock Resources, Inc. ...................................................... 29,844
2,500 Cooper Cameron Corp. .......................................................... 152,500
7,000 ENSCO International, Inc. (a).................................................. 234,500
3,500 Evi, Inc. (a).................................................................. 181,125
4,700 Falcon Drilling Co., Inc. ..................................................... 164,794
3,750 Global Industries Ltd. ........................................................ 63,750
1,250 Hvide Marine, Inc., Class A Shares............................................. 32,188
900 Input/Output Inc. ............................................................. 26,719
750 Key Energy Group Inc. ......................................................... 16,266
5,300 Marine Drilling Co., Inc. (a).................................................. 109,975
1,500 Maverick Tube Corp. ........................................................... 37,969
5,600 Nabors Industries, Inc. ....................................................... 176,050
1,500 National Oilwell, Inc. (a)..................................................... 51,281
2,000 Parker Drilling Co. ........................................................... 24,375
1,000 Patterson Energy, Inc. ........................................................ 38,688
5,500 Rowan Companies, Inc. ......................................................... 167,750
1,250 Santa Fe International Corp. (a)............................................... 50,859
2,600 Smith International, Inc. (a).................................................. 159,575
7,000 Varco International, Inc. (a).................................................. 150,063
- ----------------------------------------------------------------------------------------------------------
2,091,021
- ----------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 6.1%
1,000 AmeriCredit Corp. ............................................................. 27,688
200 Associates First Capital Corp. (a)............................................. 14,225
1,000 Astoria Financial Corp. ....................................................... 55,750
500 Bank United Corp., Class A Shares (a).......................................... 24,469
600 Capital One Financial Corp. (a)................................................ 32,513
1,950 Comdisco Inc. ................................................................. 65,203
800 Cullen Frost Bankers, Inc. .................................................... 48,550
1,100 Dime Bankcorp, Inc. (a)........................................................ 33,275
3,500 Finova Group, Inc. ............................................................ 173,906
1,000 Golden State Bancorp., Inc. ................................................... 37,375
1,050 Greenpoint Financial Corp. .................................................... 76,191
550 HF Ahmanson & Co. (a).......................................................... 36,816
750 Lehman Brothers Holdings, Inc. (a)............................................. 38,250
400 National Commerce Bancorp. .................................................... 14,100
1,800 North Fork Bancorp. ........................................................... 60,413
1,000 People's Heritage Financial Group, Inc. ....................................... 46,000
2,050 Povidian Financial Corp. (a)................................................... 92,634
250 Silicon Valley Bancshares (a).................................................. 14,063
2,300 Sovereign Bancorp., Inc. ...................................................... 47,725
2,000 St. Paul Bancorp., Inc. ....................................................... 52,500
1,200 Star Banc Corp. (a)............................................................ 68,850
600 Starwood Lodging Trust......................................................... 34,725
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
FINANCIAL SERVICES -- 6.1% (CONTINUED)
1,250 State Street Corp. (a)......................................................... $ 72,734
1,200 SunAmerica, Inc. .............................................................. 51,300
- ----------------------------------------------------------------------------------------------------------
1,219,255
- ----------------------------------------------------------------------------------------------------------
HEALTH CARE -- 13.0%
2,300 Arterial Vascular Engineering, Inc. ........................................... 149,500
1,200 Concentra Managed Care, Inc. .................................................. 40,500
750 Curative Technologies, Inc. (a)................................................ 22,781
2,550 ESC Medical Systems, Ltd. ..................................................... 98,813
1,500 FPA Medical Management, Inc. (a)............................................... 27,938
4,700 Guidant Corp. ................................................................. 292,575
750 Gulf South Medical Supply, Inc. ............................................... 27,938
11,400 HBO & Co. ..................................................................... 547,200
1,000 Health Care & Retirement Corp. ................................................ 40,250
4,900 Health Management Associates, Inc., Class A Shares (a)......................... 123,725
7,300 HEALTHSOUTH Corp. (a).......................................................... 202,575
825 McKesson Corp. (a)............................................................. 89,255
1,000 Minimed, Inc. (a).............................................................. 38,875
4,200 Omnicare Group, Inc. .......................................................... 130,200
1,500 Parexel International Corp. (a)................................................ 55,500
2,500 Quintiles Transnational Corp. (a).............................................. 95,625
1,400 Renal Treatment Centers, Inc. (a).............................................. 50,575
4,100 Rexall Sundown, Inc. (a)....................................................... 123,769
3,150 Safeskin Corp. ................................................................ 178,763
900 STERIS Corp. .................................................................. 43,425
500 Sunrise Assisted Living, Inc. ................................................. 21,563
1,000 Sybron International Corp. .................................................... 46,938
1,150 Theragenics Corp. ............................................................. 41,400
1,999 Total Renal Care Holdings, Inc. (a)............................................ 55,000
1,300 Universal Health Services, Inc., Class B Shares (a)............................ 65,488
- ----------------------------------------------------------------------------------------------------------
2,610,171
- ----------------------------------------------------------------------------------------------------------
INSURANCE -- 2.8%
2,000 CMAC Investment Corp. ......................................................... 120,750
7,000 Conseco, Inc. ................................................................. 318,063
1,000 Everest Reinsurance Holdings, Inc. ............................................ 41,250
250 Mercury General Corp. ......................................................... 13,813
750 Protective Life Corp. (a)...................................................... 44,813
300 Trans-Atlantic Holdings, Inc. ................................................. 21,450
200 Vesta Insurance Group, Inc. ................................................... 11,875
- ----------------------------------------------------------------------------------------------------------
572,014
- ----------------------------------------------------------------------------------------------------------
MEDIA -- 2.8%
1,950 Clear Channel Communications, Inc. (a)......................................... 154,903
2,325 Interpublic Group of Cos., Inc. ............................................... 115,814
3,200 Meredith Corp. ................................................................ 114,200
3,450 Omnicom Group, Inc. ........................................................... 146,194
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
MEDIA -- 2.8% (CONTINUED)
850 Valassis Communications, Inc. (a).............................................. $ 31,450
- ----------------------------------------------------------------------------------------------------------
562,561
- ----------------------------------------------------------------------------------------------------------
PHARMACEUTICALS -- 1.6%
3,900 Dura Pharmaceuticals, Inc. (a)................................................. 178,913
1,800 Medicis Pharmaceutical......................................................... 92,025
1,600 Watson Pharmaceuticals, Inc. .................................................. 51,900
- ----------------------------------------------------------------------------------------------------------
322,838
- ----------------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING -- 2.6%
3,700 Allied Waste Industries, Inc. (a).............................................. 86,256
3,500 Newpark Resources, Inc. (a).................................................... 61,250
4,300 Tyco International, Ltd. ...................................................... 193,769
4,800 U.S.A. Waste Service, Inc. .................................................... 188,400
- ----------------------------------------------------------------------------------------------------------
529,675
- ----------------------------------------------------------------------------------------------------------
SHIPBUILDING -- 0.4%
2,600 Halter Marine Group, Inc. (a).................................................. 75,075
- ----------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 24.1%
3,900 Advanced Fibre Communications (a).............................................. 113,588
7,600 AirTouch Communications, Inc. ................................................. 315,875
2,600 America Online Inc. ........................................................... 231,888
1,000 ASM Lithography Holding N.V. .................................................. 67,500
700 Aspect Development, Inc. ...................................................... 36,400
1,600 Baan Company N.V. (a).......................................................... 52,800
4,600 BMC Software, Inc. (a)......................................................... 301,875
1,300 CBT Group PLC ADR.............................................................. 106,763
200 Check Point Software Technologies, Ltd. ....................................... 8,150
1,500 Ciena Corp. (a)................................................................ 91,688
2,650 Citrix Systems, Inc. (a)....................................................... 201,400
1,400 Compaq Computer Corp. ......................................................... 79,013
1,300 Computer Horizons Corp. ....................................................... 58,500
11,000 Compuware Corp. ............................................................... 352,000
9,500 Dell Computer Corp. ........................................................... 798,000
2,500 Digital Microwave Corp. ....................................................... 36,250
550 The DII Group, Inc. ........................................................... 14,988
7,500 EMC Corp. ..................................................................... 205,781
1,250 HNC Software, Inc. (a)......................................................... 53,750
1,600 Hyperion Software Corp. ....................................................... 57,200
1,000 Information Management Resources, Inc. ........................................ 37,500
1,450 Legato Systems, Inc. .......................................................... 63,800
1,750 Level One Communications, Inc. ................................................ 49,438
1,000 Manugistics Group, Inc. ....................................................... 44,625
1,600 Micrel, Inc. .................................................................. 44,800
700 Network Appliance, Inc. ....................................................... 24,850
600 NICE -- Systems, Ltd. ......................................................... 25,200
8,000 Peoplesoft, Inc. (a)........................................................... 312,000
1,500 Saville Systems Ireland PLC ADR................................................ 62,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
TECHNOLOGY -- 24.1% (CONTINUED)
2,450 Siebel Systems, Inc. (a)....................................................... $ 102,441
1,200 SIPEX Corp. ................................................................... 36,300
2,000 SMART Modular Technologies, Inc. .............................................. 46,000
3,800 Sunguard Data Systems, Inc. ................................................... 117,800
1,200 Tekelec........................................................................ 36,600
3,100 Uniphase Corp. ................................................................ 128,263
2,100 Veritas Software Corp. ........................................................ 107,100
1,900 Visio Corp. ................................................................... 72,913
1,400 Wind River Systems............................................................. 55,563
1,500 World Access, Inc. ............................................................ 35,813
2,925 Yahoo! Inc. ................................................................... 202,556
1,600 Yurie Systems, Inc. ........................................................... 32,300
- ----------------------------------------------------------------------------------------------------------
4,821,521
- ----------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 3.1%
1,500 Airborne Freight Corp. ........................................................ 93,188
2,000 CNF Transportation Inc. ....................................................... 76,750
1,850 Comair Holdings, Inc. ......................................................... 44,631
2,300 Continental Airlines, Class B Shares........................................... 110,688
500 Expeditors International of Washington, Inc. .................................. 19,250
4,450 Southwest Airlines Co. (a)..................................................... 109,581
2,600 US Airways Group, Inc. (a)..................................................... 162,500
- ----------------------------------------------------------------------------------------------------------
616,588
- ----------------------------------------------------------------------------------------------------------
UTILITIES -- 0.7%
2,800 AES Corp. ..................................................................... 130,550
- ----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $13,801,044)....................................... 19,214,241
- ----------------------------------------------------------------------------------------------------------
WARRANTS -- 0.2%
900 BJ Services Co., Expires 4/12/00 (Cost -- $4,275).............................. 41,344
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 3.8%
$ 110,000 U.S. Treasury Bills, 4.80% due 1/2/98 (b)...................................... 109,985
75,000 U.S. Treasury Bills, 5.00% due 1/22/98 (b)..................................... 74,781
125,000 U.S. Treasury Bills, 5.10% due 2/12/98 (b)..................................... 124,256
450,000 U.S. Treasury Bills, 5.12% due 3/26/98 (b)..................................... 444,624
- ----------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (Cost -- $753,646)................ 753,646
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $14,558,965*)............................... $ 20,009,231
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Rate represents annualized yield to maturity.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
STOCK -- 96.4%
- ---------------------------------------------------------------------------------------------------------
AUSTRALIA -- 2.3%
86,999 Coca-Cola Amatil Ltd. ....................................................... $ 649,993
- ---------------------------------------------------------------------------------------------------------
AUSTRIA -- 2.3%
2,000 VA Technologie AG............................................................ 303,212
6,000 Wolford AG................................................................... 362,811
- ---------------------------------------------------------------------------------------------------------
666,023
- ---------------------------------------------------------------------------------------------------------
CAYMAN ISLANDS -- 2.1%
15,000 Santa Fe International Corp. ................................................ 610,313
- ---------------------------------------------------------------------------------------------------------
DENMARK -- 2.8%
10,000 Coloplast, Class B Shares.................................................... 774,016
- ---------------------------------------------------------------------------------------------------------
FINLAND -- 3.5%
14,000 Nokia Oyj, Class A Shares.................................................... 980,000
- ---------------------------------------------------------------------------------------------------------
GERMANY -- 4.5%
10,000 SGL Carbon AG................................................................ 1,279,128
- ---------------------------------------------------------------------------------------------------------
HONG KONG -- 9.1%
200,000 Cheung Kong Infrastructure Holdings.......................................... 565,271
316,810 Hong Kong & China Gas Co. Ltd. .............................................. 613,299
31,930 HSBC Holdings PLC............................................................ 787,072
100,000 Hutchison Whampoa Ltd. ...................................................... 627,218
- ---------------------------------------------------------------------------------------------------------
2,592,860
- ---------------------------------------------------------------------------------------------------------
IRELAND -- 8.5%
64,731 Bank of Ireland.............................................................. 998,260
199,999 Independent Newspapers PLC................................................... 1,097,470
25,475 Irish Continental Group PLC.................................................. 310,445
- ---------------------------------------------------------------------------------------------------------
2,406,175
- ---------------------------------------------------------------------------------------------------------
ISRAEL -- 2.0%
20,000 Gilat Satellite Networks Ltd. (a)............................................ 572,500
- ---------------------------------------------------------------------------------------------------------
ITALY -- 4.9%
300,000 Telecom Italia Mobile S.p.A. ................................................ 1,384,916
- ---------------------------------------------------------------------------------------------------------
JAPAN -- 7.2%
11,000 Murata Manufacturing Co., Ltd. .............................................. 277,485
7,000 Noritsu Koki Co., Ltd. ...................................................... 173,351
4,000 Rohm Company Ltd. ........................................................... 409,152
3,000 Shohkoh Fund & Co., Ltd. .................................................... 918,285
48,000 Sumitomo Realty & Development Co., Ltd. ..................................... 276,870
- ---------------------------------------------------------------------------------------------------------
2,055,143
- ---------------------------------------------------------------------------------------------------------
MALAYSIA -- 0.3%
246,400 Sungei Way Holdings Berhad................................................... 79,760
25,887 Sungei Way Holdings Berhad Warrants, Expire 6/29/99 (a)...................... 665
- ---------------------------------------------------------------------------------------------------------
80,425
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEXICO -- 0.8%
56,069 Gruma S.A., Class B Shares (a)............................................... $ 222,553
- ---------------------------------------------------------------------------------------------------------
NETHERLANDS -- 8.8%
45,821 Getronics NV................................................................. 1,460,088
10,158 IHC Caland NV................................................................ 527,116
50,000 ING Groep NV Warrants, Expire 3/15/01 (a).................................... 523,849
- ---------------------------------------------------------------------------------------------------------
2,511,053
- ---------------------------------------------------------------------------------------------------------
NORWAY -- 4.0%
50,000 Tomra Systems ASA............................................................ 1,119,039
- ---------------------------------------------------------------------------------------------------------
PANAMA -- 2.3%
20,000 Panamerican Beverages Inc. .................................................. 652,500
- ---------------------------------------------------------------------------------------------------------
SINGAPORE -- 0.8%
70,000 Cerebos Pacific Ltd. ........................................................ 176,142
125,000 Van Der Horst Ltd. .......................................................... 47,849
- ---------------------------------------------------------------------------------------------------------
223,991
- ---------------------------------------------------------------------------------------------------------
SWEDEN -- 10.3%
21,333 Astra AB, Class A Shares..................................................... 369,689
5,333 Astra AB, Class B Shares..................................................... 89,734
25,000 Autoliv Inc. ................................................................ 818,750
5,000 Munters AB (a)............................................................... 43,165
35,000 Nobel Biocare AB............................................................. 458,750
30,800 Telefonaktiebolaget LM Ericsson, Class B Shares.............................. 1,158,697
- ---------------------------------------------------------------------------------------------------------
2,938,785
- ---------------------------------------------------------------------------------------------------------
SWITZERLAND -- 2.9%
500 Novartis AG, Registered Shares............................................... 812,423
- ---------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 17.0%
125,000 Boxmore International PLC.................................................... 550,185
150,000 Capita Group PLC............................................................. 910,736
50,000 Hays PLC..................................................................... 668,861
20,000 IONA Technologies PLC ADR (a)................................................ 410,000
39,416 Misys PLC.................................................................... 1,186,858
6,000 Reuters Holdings PLC ADR..................................................... 397,500
50,000 Serco Group PLC.............................................................. 714,521
- ---------------------------------------------------------------------------------------------------------
4,838,661
- ---------------------------------------------------------------------------------------------------------
TOTAL STOCK (Cost -- $18,022,132)............................................ 27,370,497
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.6%
$1,032,000 CIBC Wood Gundy Securities Corp., 6.390% due 1/2/98; Proceeds at maturity
$1,032,366; (Fully collateralized by U.S. Treasury Notes, 6.000% due 6/30/99;
Market value -- $1,053,301) (Cost -- $1,032,000)............................. $ 1,032,000
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $19,054,132*)............................. $28,402,497
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at cost................................................ $4,754,861 $59,391,378
Foreign currency, at cost........................................... -- 377,567
- --------------------------------------------------------------------------------------------------------
Investments, at value............................................... $4,754,861 $60,555,207
Foreign currency, at value.......................................... -- 374,527
Cash................................................................ -- 365,039
Collateral for securities loaned (Note 16).......................... -- --
Receivable for Fund shares sold..................................... -- 29,825
Receivable from affiliate........................................... -- --
Receivable for securities sold...................................... -- 1,312
Dividends and interest receivable................................... 19,610 1,015,487
Receivable from manager............................................. 13,225 --
Receivable for open forward foreign currency contracts (Note 7)..... -- 312,246
Deferred organization costs......................................... -- --
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................................ 4,787,696 62,653,643
- --------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable.................................... -- 23,024
Administration fees payable......................................... -- 10,233
Payable for Fund shares purchased................................... -- 6,978
Payable for securities purchased.................................... -- --
Dividends payable................................................... 10,317 --
Payable to bank..................................................... 9,195 --
Deferred compensation............................................... 1,025 1,673
Payable for securities on loan (Note 16)............................ -- --
Payable to broker -- variation margin (Note 5)...................... -- --
Accrued expenses.................................................... 14,623 54,194
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................... 35,160 96,102
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...................................................... $4,752,536 $62,557,541
- --------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares......................................... $ 4,753 $ 5,743
Capital paid in excess of par value................................. 4,747,783 56,733,232
Undistributed net investment income (loss).......................... -- 4,460,203
Accumulated net realized gain (loss) on security transactions and
futures contracts................................................ -- (102,222)
Net unrealized appreciation of investments, futures contracts
and foreign currencies........................................... -- 1,460,585
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...................................................... $4,752,536 $62,557,541
- --------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING.................................................... 4,752,543 5,743,025
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE....................................................... $1.00 $10.89
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
- ---------------------------------------------------------
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$35,357,600 $24,838,905 $27,973,504 $14,558,965 $ 19,054,132
-- -- -- -- 67
- -------------------------------------------------------------------------------------
$45,819,375 $36,224,950 $43,006,474 $20,009,231 $ 28,402,497
-- -- -- -- 67
896 326 -- 1,260 2,631
-- -- 1,641,000 -- --
22,236 105,533 -- -- --
-- 68,259 -- -- --
-- 12,021 337,837 84,282 27,422
282,509 42,739 116,981 4,147 23,581
-- -- -- -- --
-- -- -- -- 110
-- -- -- 2,845 2,924
- -------------------------------------------------------------------------------------
46,125,016 36,453,828 45,102,292 20,101,765 28,459,232
- -------------------------------------------------------------------------------------
17,544 8,387 16,470 11,467 20,445
7,842 3,703 7,320 4,336 4,810
-- -- 890 13,431 18,102
-- 1,064,202 149,895 43,624 --
-- -- -- -- --
-- -- 6,218 -- --
1,442 1,198 1,394 2,323 1,338
-- -- 1,641,000 -- --
-- 740 -- -- --
24,154 24,294 65,163 22,141 67,157
- -------------------------------------------------------------------------------------
50,982 1,102,524 1,888,350 97,322 111,852
- -------------------------------------------------------------------------------------
$46,074,034 $35,351,304 $43,213,942 $20,004,443 $ 28,347,380
- -------------------------------------------------------------------------------------
$ 3,010 $ 1,498 $ 2,331 $ 1,186 $ 2,406
31,890,657 23,074,183 23,536,495 11,241,837 22,434,087
1,897,407 248,482 670,853 (1,177) (306,786)
1,821,185 637,442 3,971,293 3,312,331 (3,128,008)
10,461,775 11,389,699 15,032,970 5,450,266 9,345,681
- -------------------------------------------------------------------------------------
$46,074,034 $35,351,304 $43,213,942 $20,004,443 $ 28,347,380
- -------------------------------------------------------------------------------------
3,009,643 1,498,461 2,330,583 1,186,046 2,406,432
- -------------------------------------------------------------------------------------
$15.31 $23.59 $18.54 $16.87 $11.78
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................ $298,425 $4,585,774
Dividends............................................................... -- 134,639
Less: Foreign withholding tax........................................... -- --
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................................. 298,425 4,720,413
- ---------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)....................................... 16,034 263,097
Audit and legal......................................................... 13,173 17,414
Shareholder and system servicing fees................................... 10,800 13,186
Administration fees (Note 3)............................................ 10,689 116,932
Custody................................................................. 10,677 9,399
Shareholder communications.............................................. 1,600 16,874
Trustees' fees.......................................................... 1,400 7,325
Amortization of deferred organization costs............................. -- --
Insurance............................................................... -- 424
Pricing service fees.................................................... -- 9,110
Other................................................................... 13 2,219
- ---------------------------------------------------------------------------------------------------------
TOTAL EXPENSES.......................................................... 64,386 455,980
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS).............................................. 234,039 4,264,433
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES (NOTES 4, 5 AND 7):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities).............. -- 753,247
Futures contracts.................................................... -- --
Foreign currency transactions........................................ -- 197,393
- ---------------------------------------------------------------------------------------------------------
NET REALIZED GAIN....................................................... -- 950,640
- ---------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments, Futures Contracts
and Foreign Currencies:
Beginning of year.................................................... -- 2,120,086
End of year.......................................................... -- 1,460,585
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION...................... -- (659,501)
- ---------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND FOREIGN
CURRENCIES.............................................................. -- 291,139
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS......................... $234,039 $4,555,572
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
- ---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 885,451 $ 22,107 $ 143,542 $ 60,266 $ 31,152
1,355,296 406,090 857,728 45,260 348,452
-- (2,367) (2,981) (144) (27,596)
- ----------------------------------------------------------------------------------------
2,240,747 425,830 998,289 105,382 352,008
- ----------------------------------------------------------------------------------------
194,623 56,376 187,747 146,478 275,190
15,544 17,500 17,951 15,636 17,385
11,965 11,000 11,965 10,968 11,992
86,499 27,188 83,443 39,061 64,750
2,713 49,000 3,489 16,939 31,812
9,972 10,000 11,965 8,962 8,512
6,570 4,000 5,420 3,292 5,413
-- -- -- 3,235 3,226
-- -- -- 639 577
2,993 -- -- -- 5,059
-- 1,104 -- 460 1,766
- ----------------------------------------------------------------------------------------
330,879 176,168 321,980 245,670 425,682
- ----------------------------------------------------------------------------------------
1,909,868 249,662 676,309 (140,288) (73,674)
- ----------------------------------------------------------------------------------------
1,831,459 644,572 3,975,853 3,311,992 144,270
-- 9,967 -- -- --
-- -- -- -- (77,473)
- ----------------------------------------------------------------------------------------
1,831,459 654,539 3,975,853 3,311,992 66,797
- ----------------------------------------------------------------------------------------
5,070,190 6,100,145 11,152,771 4,950,310 9,893,328
10,461,775 11,389,699 15,032,970 5,450,266 9,345,681
- ----------------------------------------------------------------------------------------
5,391,585 5,289,554 3,880,199 499,956 (547,647)
- ----------------------------------------------------------------------------------------
7,223,044 5,944,093 7,856,052 3,811,948 (480,850)
- ----------------------------------------------------------------------------------------
$ 9,132,912 $ 6,193,755 $8,532,361 $3,671,660 $ (554,524)
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................ $ 234,039 $ 4,264,433
Net realized gain................................................... -- 950,640
Increase (decrease) in net unrealized appreciation.................. -- (659,501)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................... 234,039 4,555,572
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income............................................... (234,046) (5,165,625)
Net realized gain................................................... -- --
- ---------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........... (234,046) (5,165,625)
- ---------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 18):
Net proceeds from sale of shares.................................... 4,068,547 8,577,774
Net asset value of shares issued for reinvestment of dividends...... 236,528 5,165,625
Cost of shares reacquired........................................... (5,440,440) (10,090,660)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS...... (1,135,365) 3,652,739
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS..................................... (1,135,372) 3,042,686
NET ASSETS:
Beginning of year................................................... 5,887,908 59,514,855
- ---------------------------------------------------------------------------------------------------------
END OF YEAR*........................................................ $ 4,752,536 $62,557,541
- ---------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment income of: -- $4,460,203
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
- -----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,909,868 $ 249,662 $ 676,309 $ (140,288) $ (73,674)
1,831,459 654,539 3,975,853 3,311,992 66,797
5,391,585 5,289,554 3,880,199 499,956 (547,647)
- -----------------------------------------------------------------------------
9,132,912 6,193,755 8,532,361 3,671,660 (554,524)
- -----------------------------------------------------------------------------
(2,166,350) (234,763) (618,594) -- (62,462)
-- (647,602) (2,845,466) (2,276,771) --
- -----------------------------------------------------------------------------
(2,166,350) (882,365) (3,464,060) (2,276,771) (62,462)
- -----------------------------------------------------------------------------
898,736 13,341,026 2,532,681 1,483,760 1,308,196
2,166,350 882,365 3,464,060 2,276,771 62,462
(9,573,459) (3,441,285) (6,353,227) (4,052,109) (5,743,348)
- -----------------------------------------------------------------------------
(6,508,373) 10,782,106 (356,486) (291,578) (4,372,690)
- -----------------------------------------------------------------------------
458,189 16,093,496 4,711,815 1,103,311 (4,989,676)
45,615,845 19,257,808 38,502,127 18,901,132 33,337,056
- -----------------------------------------------------------------------------
$46,074,034 $35,351,304 $43,213,942 $20,004,443 $ 28,347,380
- -----------------------------------------------------------------------------
$1,897,407 $248,482 $670,853 $(1,177) $(306,786)
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)........................................ $ 280,454 $ 4,697,494
Net realized gain (loss)............................................ -- 1,216,193
Increase (decrease) in net unrealized appreciation.................. -- 356,725
- ---------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.............................. 280,454 6,270,412
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income............................................... (280,454) (788,174)
Net realized gains.................................................. -- --
- ---------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS........... (280,454) (788,174)
- ---------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares.................................... 4,806,909 2,168,649
Net asset value of shares issued for reinvestment of dividends...... 284,142 788,591
Cost of shares reacquired........................................... (4,856,413) (8,240,160)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS...... 234,638 (5,282,920)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS..................................... 234,638 199,318
NET ASSETS:
Beginning of year................................................... 5,653,270 59,315,537
- ---------------------------------------------------------------------------------------------------------
END OF YEAR*........................................................ $ 5,887,908 $59,514,855
- ---------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment income of: -- $5,164,002
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
- ---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,158,929 $ 236,040 $ 614,342 $ (121,085) $ (66,052)
2,077,070 639,818 2,842,198 2,277,045 (576,982)
(1,702,067) 2,569,432 3,230,536 935,006 6,833,360
- -------------------------------------------------------------------------------------
2,533,932 3,445,290 6,687,076 3,090,966 6,190,326
- -------------------------------------------------------------------------------------
(279,331) (233,642) (53,652) -- (118,973)
-- (386,017) -- (445,756) --
- -------------------------------------------------------------------------------------
(279,331) (619,659) (53,652) (445,756) (118,973)
- -------------------------------------------------------------------------------------
438,507 3,253,118 1,940,036 2,152,668 2,716,330
279,331 619,658 53,651 445,756 118,973
(9,800,862) (2,670,818) (5,283,170) (3,805,437) (4,548,187)
- -------------------------------------------------------------------------------------
(9,083,024) 1,201,958 (3,289,483) (1,207,013) (1,712,884)
- -------------------------------------------------------------------------------------
(6,828,423) 4,027,589 3,343,941 1,438,197 4,358,469
52,444,268 15,230,219 35,158,186 17,462,935 28,978,587
- -------------------------------------------------------------------------------------
$45,615,845 $19,257,808 $38,502,127 $18,901,132 $ 33,337,056
- -------------------------------------------------------------------------------------
$2,153,889 $233,583 $613,411 $(1,133) $(143,714)
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Money Market, Diversified Strategic Income, Equity Income, Equity
Index, Growth & Income, Emerging Growth and International Equity Portfolios
("Portfolios") are separate investment portfolios of the Greenwich Street Series
Fund ("Fund"), formerly known as the Smith Barney Series Fund. The Fund, a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a diversified, open-ended management investment company.
Shares of the Fund can be acquired through investing in an individual flexible
premium deferred combination fixed and variable annuity contract or a
certificate evidencing interest in a master group flexible premium deferred
annuity offered by certain insurance companies. The Fund offers three other
portfolios: Appreciation, Intermediate High Grade and Total Return Portfolios.
The financial statements and financial highlights for the other portfolios are
presented in a separate annual report.
The significant accounting policies consistently followed by the Portfolios
are: (a) security transactions are accounted for on trade date; (b) securities
traded on national securities markets are valued at the closing prices on such
markets or, if there were no sales during the day, at current quoted bid price;
securities primarily traded on foreign exchanges are generally valued at the
preceding closing values of such securities on their respective exchanges,
except that when a significant occurrence subsequent to the time a value was so
established is likely to have significantly changed the value then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees or its delegates;
over-the-counter securities are valued on the basis of the bid price at the
close of business on each day; U.S. government and agency obligations are valued
at the average between bid and ask prices; (c) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium,
which approximates value; (d) interest income is recorded on the accrual basis;
(e) dividend income is recorded on the ex-dividend date; foreign dividend income
is recorded on the ex-dividend date or as soon as practical after the Portfolios
determine the existence of a dividend declaration after exercising reasonable
due diligence; (f) gains or losses on the sale of securities are calculated by
using the specific identification method; (g) dividends and distributions to
shareholders are recorded by the Portfolios on the ex-dividend date; (h) the
accounting records of the Portfolios are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars based on the rate of exchange of such currencies against U.S. dollars on
the date of valuation. Purchases and sales of securities, and income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank; (i) each Portfolio intends to comply with the requirements of
the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies and to make distributions of taxable income sufficient to
relieve it from substantially all federal income and excise tax; (j) the
character of income and gains distributed are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1997, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, for the
Emerging Growth Portfolio a portion of net investment loss and accumulated net
realized gains amounting to $140,244 and $49, respectively, was reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; and (k) estimates and assumptions are required to
be made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, for the Emerging Growth and International Equity Portfolios,
organization costs are currently being amortized on a straight-line basis over a
five-year period, which began with the Portfolio's commencement of operations in
December 1993.
In addition, certain Portfolios may enter into forward exchange contracts
in order to hedge against foreign currency risk. These contracts are
marked-to-market daily, by recognizing the difference between the contract
exchange rate and the current market rate as an unrealized gain or loss.
Realized gains or losses are recognized when contracts are settled.
2. DIVIDENDS
The Money Market Portfolio declares dividends daily from net investment
income and distributes such dividends monthly. Net realized capital gains, if
any, are declared and distributed annually.
56
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
The Fund, on behalf of the Money Market, Diversified Strategic Income,
Equity Income, Growth & Income and International Equity Portfolios, has entered
into an investment advisory agreement ("Advisory Agreement") with Mutual
Management Corp. ("MMC"), formerly known as Smith Barney Mutual Funds Management
Inc. MMC is a wholly-owned subsidiary of Salomon Smith Barney Holdings Inc.
("SSBH"), which is in turn a wholly-owned subsidiary of Travelers Group Inc.
("Travelers"). Under each respective investment advisory agreement, the
Portfolios pay an investment advisory fee calculated at an annual rate of their
respective average daily net assets. These fees are calculated daily and paid
monthly.
The respective advisers and annual rates are as follows:
<TABLE>
<CAPTION>
PORTFOLIO ADVISOR RATE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Mutual Management Corp. 0.30%
Diversified Strategic Income Mutual Management Corp. 0.45
Equity Income Mutual Management Corp. 0.45
Equity Index Travelers Investment Management Co. 0.15
Growth & Income Mutual Management Corp. 0.45
Emerging Growth Van Kampen American Capital Asset Management, Inc. 0.75
International Equity Mutual Management Corp. 0.85
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Smith Barney Global Capital Management, Inc. ("SBGCM") serves as
sub-investment adviser to the Diversified Strategic Income Portfolio and is paid
a monthly fee by MMC calculated at an annual rate of 0.15% of the Portfolio's
average daily net assets. The Diversified Strategic Income Portfolio does not
make any direct payments to SBGCM.
The Fund, on behalf of the Portfolios, has also entered into an
administration agreement with MMC. Under the agreement, each Portfolio pays an
administration fee calculated at an annual rate of 0.20% of the average daily
net assets; except for the Equity Index Portfolio which pays an administration
fee of 0.06%. These fees are calculated daily and paid monthly.
By mutual agreement of the parties involved, in the event the aggregate
expenses of a Portfolio (exclusive of interest, taxes, brokerage expenses and
extraordinary expenses) exceed an agreed upon limitation, MMC will, as
appropriate, reduce its fees by one half the excess expenses in the proportion
that its respective fees bear to the aggregate of such fees paid by the
Portfolio. IDS Life Insurance Company ("IDS Life"), one of the insurance
companies offering variable annuities through which investments can be made in
the Fund, will bear the remaining half of such excess expenses.
For the year ended December 31, 1997, the Equity Income, Emerging Growth
and International Equity Portfolios paid Smith Barney brokerage commissions of
$1,200, $324 and $650, respectively.
No officer, Director or employee of Smith Barney or its affiliates receives
any compensation from the Fund for serving as a Trustee or officer of the Fund.
4. INVESTMENTS
During the year ended December 31, 1997, the aggregate costs of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Strategic Income................................................ $29,761,333 $27,109,400
Equity Income............................................................... 17,455,394 23,739,455
Equity Index................................................................ 11,175,399 1,469,364
Growth & Income............................................................. 7,055,224 9,678,245
Emerging Growth............................................................. 18,650,516 20,894,549
International Equity........................................................ 6,581,781 11,600,298
- ---------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Strategic Income................................ $ 2,273,618 $(1,109,789) $ 1,163,829
Equity Income............................................... 10,467,517 (5,742) 10,461,775
Equity Index................................................ 11,638,202 (252,157) 11,386,045
Growth & Income............................................. 15,558,267 (525,297) 15,032,970
Emerging Growth............................................. 5,945,505 (495,239) 5,450,266
International Equity........................................ 11,196,112 (1,847,747) 9,348,365
- ----------------------------------------------------------------------------------------------------------
</TABLE>
5. FUTURES CONTRACTS
The Diversified Strategic Income, Equity Income, Equity Index, Growth &
Income, Emerging Growth and International Equity Portfolios may from time to
time enter into futures contracts.
Initial margin deposits made upon entering into futures contracts are
recognized as assets. The initial margin is segregated by the custodian as is
noted in the schedule of investments. During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains or
losses by "marking to market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Portfolio records a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Portfolio's basis in the contract. The Portfolio enters into such contracts
to hedge a portion of its portfolio. The Portfolio bears the market risk that
arises from changes in the value of the financial instruments and securities
indices (futures contracts) and the credit risk should a counterparty fail to
perform under such contracts.
At December 31, 1997, the Equity Index Portfolio had the following open
futures contracts:
<TABLE>
<CAPTION>
EXPIRATION # OF BASIS MARKET UNREALIZED
FUTURES CONTRACTS SOLD MONTH/YEAR CONTRACTS VALUE VALUE GAIN
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 Stock Index............................. 3/98 15 $730,671 $734,325 $3,654
- -----------------------------------------------------------------------------------------------------------
</TABLE>
6. OPTION CONTRACTS
The Diversified Strategic Income, Equity Income, Equity Index, Growth &
Income, Emerging Growth and International Equity Portfolios may from time to
time enter into option contracts.
Upon the purchase of a put option or a call option by the Portfolio, the
premium paid is recorded as an investment, the value of which is
marked-to-market daily. When a purchased option expires, the Portfolio will
realize a loss in the amount of the cost of the option. When the Portfolio
enters into a closing sales transaction, the Portfolio will realize a gain or
loss depending on whether the sales proceeds from the closing sales transaction
are greater or less than the cost of the option. When the Portfolio exercises a
put option, it will realize a gain or loss from the sale of the underlying
security and the proceeds from such sale will be decreased by the premium
originally paid. When the Portfolio exercises a call option, the cost of the
security which the Portfolio purchases upon exercise will be increased by the
premium originally paid.
As of December 31, 1997, the Portfolios held no purchased call or put
options.
When a Portfolio writes a call option or a put option, an amount equal to
the premium received by the Portfolio is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Portfolio
realizes a gain equal to the amount of the premium received. When the Portfolio
enters into a closing purchase transaction, the Portfolio realizes a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
eliminated. When a written call option is exercised, the Portfolio realizes a
gain or loss from the sale of the underlying
58
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
security and the proceeds from such sale are increased by the premium originally
received. When a written put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the Portfolio
purchased upon exercise. When written index options are exercised, settlement is
made in cash.
The risk associated with purchasing options is limited to the premium
originally paid. The Portfolio enters into options for hedging purposes. The
risk in writing a covered call option is that the Portfolio gives up the
opportunity to participate in any increase in the price of the underlying
security beyond the exercise price. The risk in writing a covered put option is
that the Portfolio is exposed to the risk of loss if the market price of the
underlying security declines.
During the year ended December 31, 1997, the Portfolios did not write any
call or put options.
7. FORWARD FOREIGN CURRENCY CONTRACTS
The Diversified Strategic Income, Emerging Growth and International Equity
Portfolios have the ability to enter into forward foreign currency contracts.
At December 31, 1997, the Diversified Strategic Income and International
Equity Portfolios had open forward foreign currency contracts as described
below. The Portfolio bears the market risk that arises from changes in foreign
currency exchange rates. The unrealized gain (loss) on the contracts reflected
in the accompanying financial statements were as follows:
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO SELL:
Australian Dollar................................. 1,200,000 $ 782,191 1/15/98 $ 55,169
Danish Krone...................................... 11,000,000 1,607,741 1/15/98 48,137
German Deutschemark............................... 107,775 59,967 1/8/98 519
German Deutschemark............................... 175,000 97,760 3/18/98 1,446
Irish Punt........................................ 620,000 883,451 1/15/98 42,271
Italian Lira...................................... 3,800,000,000 2,148,957 1/15/98 66,334
Spanish Peseta.................................... 250,000,000 1,640,797 1/15/98 64,524
Swedish Krona..................................... 6,300,000 794,339 1/15/98 33,846
- -----------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED GAIN ON FORWARD FOREIGN
CURRENCY CONTRACTS................................ $312,246
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO SELL:
Belgian Franc..................................... 1,015,968 $ 27,423 1/15/98 $ 110
- -----------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED GAIN ON FORWARD FOREIGN
CURRENCY CONTRACTS................................ $ 110
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
8. REPURCHASE AGREEMENTS
The Portfolios purchase (and its custodian takes possession of) U.S.
government securities from banks and securities dealers subject to agreements to
resell the securities to the sellers at a future date (generally, the next
business day) at an agreed-upon higher repurchase price. The Portfolios require
continual maintenance of the market value of the collateral in amounts at least
equal to the repurchase price.
59
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REVERSE REPURCHASE AGREEMENTS
The Diversified Strategic Income, Equity Income and International Equity
Portfolios may enter into reverse repurchase agreement for leveraging purposes.
A reverse repurchase agreement involves a sale by the Portfolio of
securities that it holds with an agreement by the Portfolio to repurchase the
same securities at an agreed upon price and date. A reverse repurchase agreement
involves risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. The Portfolio will
establish a segregated account with its custodian, in which the Portfolio will
maintain cash, U.S. government securities or other liquid high grade debt
obligations equal in value to its obligations with respect to the reverse
repurchase agreements.
At December 31, 1997, the Portfolios had no open reverse repurchase
agreements.
10. CONCENTRATION OF RISK
Under normal market conditions, the Money Market Portfolio invests at least
25% of its assets in short-term bank instruments and the Equity Income Portfolio
invests at least 25% of its assets in the utility industry. Because of their
concentration policy, these Portfolios may be subject to greater risk and market
fluctuation than a portfolio that has securities representing a broader range of
investment alternatives. Various factors could adversely affect the ability and
inclination of companies in these industries to declare and pay dividends or
interest and the ability of holders of securities of such companies to realize
any value from the assets of the issuer upon liquidation or bankruptcy.
11. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in U.S. companies and the U.S. Government. These risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more volatile
than those of securities of comparable U.S. companies and the U.S. Government.
12. CAPITAL LOSS CARRYFORWARD
At December 31, 1997, the following Portfolios had, for Federal income tax
purposes, capital loss carryforwards available to offset future realized capital
gains. To the extent that these capital loss carryforwards can be used to offset
net realized capital gains, it is probable such gains will not be distributed.
The approximate amounts and expiration of carryforwards are indicated below.
Expiration occurs on December 31 in the year indicated:
<TABLE>
<CAPTION>
PORTFOLIO 2003 2004 TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diversified Strategic Income.......................................... $ 45,000 $ -- $ 45,000
International Equity.................................................. 2,422,000 706,000 3,128,000
- ----------------------------------------------------------------------------------------------------------
</TABLE>
13. SECURITIES TRADED ON A WHEN-ISSUED OR TO-BE-ANNOUNCED BASIS
The Diversified Strategic Income, Equity Income, Growth & Income, Emerging
Growth and International Equity Portfolios may from time to time purchase
securities on a when-issued or to-be-announced ("TBA") basis.
In a TBA transaction, the Portfolio commits to purchasing or selling
securities for which specific information is not yet known at the time of the
trade, particularly the face amount and maturity date in GNMA transactions.
Securities purchased on a TBA basis are not settled until they are delivered to
the Fund, normally 15 to 45 days later. Beginning on the date the Portfolio
enters into the TBA transaction, the custodian maintains cash, U.S. Government
securities or other liquid high grade debt obligations in a segregated account
equal in value to the purchase price of the TBA security. These transactions are
subject to market fluctuations and their current value is determined in the same
manner as for other securities.
At December 31, 1997, there were no when-issued or TBA securities held by
the Portfolios.
60
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. MORTGAGE ROLL TRANSACTIONS
The Diversified Strategic Income Portfolio has the ability to participate
in mortgage roll transactions.
A mortgage roll transaction involves a sale by the Fund of securities that
it holds with an agreement by the Portfolio to purchase similar securities at an
agreed upon price and date. The securities repurchased will bear the same
interest as those sold, but generally will be collateralized by pools of
mortgages with different prepayment histories than those securities sold.
Proceeds of the sale will be invested and the income from these investments,
together with any additional income from the Portfolio exceeding the yield on
the securities sold.
At December 31, 1997, there were no open mortgage roll transactions in the
Portfolio.
15. SHORT SALES AGAINST THE BOX
The Equity Income, Emerging Growth and International Equity Portfolios each
have the ability to engage in short sales against the box.
A short sale against the box is a short sale of common stock such that,
when the short position is open, the Portfolio involved owns an equal amount of
the stock or preferred stocks or debt securities, convertible or exchangeable,
without payment of further consideration, into an equal number of shares of
common stock sold short. The proceeds of the sale will be held by the broker
until the settlement date, when the Portfolio delivers the stock or the
convertible or exchangeable securities to close out its short position. Although
prior to delivery a Portfolio will have to pay an amount equal to any dividends
paid on the common stock sold short, the Portfolio will receive the dividends
from the stock or the preferred stock or the interest from the stock or
convertible or exchangeable debt securities plus a portion of the interest
earned from the proceeds of the short sale. The Portfolio will deposit in a
segregated account with the Fund's custodian, the common stock or convertible
preferred stock or debt securities in connection with short sales against the
box.
At December 31, 1997, the Portfolios had no open short sales against the
box.
16. LENDING OF SECURITIES
The Diversified Strategic Income, Equity Income, Equity Index, Growth &
Income, Emerging Growth and International Equity Portfolios each have the
ability to lend its securities to brokers, dealers and other financial
organizations.
The Portfolio has an agreement with its custodian whereby the custodian may
lend securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
in interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. Government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin which may vary depending on the
type of securities loaned. The custodian establishes and maintains the
collateral in a segregated account. The Fund maintains exposure for the risk of
any losses in the investment of amounts received as collateral.
At December 31, 1997, the Growth & Income Portfolio loaned stocks having a
value of approximately $1,609,633 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Bank of Tokyo, 10.000% due 1/2/98....................................................... $ 100,749
Instituto Bancario San Paolo, 7.000% due 1/2/98......................................... 282,097
Keycorp Bank, N.A., 4.000% due 1/2/98................................................... 64,392
REPURCHASE AGREEMENTS:
Goldman, Sachs & Co., 6.800% due 1/2/98................................................. 1,002,339
Merrill Lynch, 7.000% due 1/2/98........................................................ 191,423
- ------------------------------------------------------------------------------------------------------
Total..................................................................................... $1,641,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
17. RESTRICTED SECURITIES
One of Diversified Strategic Income Portfolio's investments is valued at
the direction of the Fund's Board of Directors; this security is restricted as
to resale and has been valued in good faith, taking into consideration the
appropriate economic, financial and other pertinent available information
pertaining to the restricted security. The table below shows the security valued
by the Fund's Board of Directors:
<TABLE>
<CAPTION>
12/31/97 VALUE PERCENTAGE
ACQUISITION FAIR PER OF NET
SECURITY SHARES DATE VALUE UNIT ASSETS COST
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nextel Communications, Inc., Common Stock... 309 9/10/97 7,231 $23.40 0.00% $4,986
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
18. SHARES OF BENEFICIAL INTEREST
As of December 31, 1997, the Fund had an unlimited number of shares of
beneficial interest authorized with a par value of $0.001 per share.
Transactions in shares for each portfolio were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO
Shares sold.................................................... 4,068,547 4,806,909
Shares issued on reinvestment.................................. 236,528 284,142
Shares redeemed................................................ (5,440,440) (4,856,413)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease)........................................ (1,135,365) 234,638
- --------------------------------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
Shares sold.................................................... 742,785 210,123
Shares issued on reinvestment.................................. 474,346 71,886
Shares redeemed................................................ (892,937) (790,515)
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease)........................................ 324,194 (508,506)
- --------------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
Shares sold.................................................... 64,996 35,646
Shares issued on reinvestment.................................. 143,372 21,388
Shares redeemed................................................ (705,308) (797,407)
- --------------------------------------------------------------------------------------------------------
Net Decrease................................................... (496,940) (740,373)
- --------------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
Shares sold.................................................... 571,732 215,955
Shares issued on reinvestment.................................. 38,819 12,461
Shares redeemed................................................ (161,000) (157,107)
- --------------------------------------------------------------------------------------------------------
Net Increase................................................... 449,551 71,309
- --------------------------------------------------------------------------------------------------------
GROWTH & INCOME PORTFOLIO
Shares sold.................................................... 138,981 131,558
Shares issued on reinvestment.................................. 192,448 3,219
Shares redeemed................................................ (344,165) (352,087)
- --------------------------------------------------------------------------------------------------------
Net Decrease................................................... (12,736) (217,310)
- --------------------------------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
Shares sold.................................................... 85,297 139,846
Shares issued on reinvestment.................................. 144,282 28,230
Shares redeemed................................................ (237,235) (243,591)
- --------------------------------------------------------------------------------------------------------
Net Decrease................................................... (7,656) (75,515)
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
Shares sold.................................................... 105,543 248,948
Shares issued on reinvestment.................................. 5,408 9,955
Shares redeemed................................................ (466,755) (401,765)
- --------------------------------------------------------------------------------------------------------
Net Decrease................................................... (355,804) (142,862)
- --------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $1.000 $1.000 $1.000 $1.000 $1.000
- ------------------------------------------------------------------------------------------------------------
Net investment income (1)........................... 0.044 0.047 0.052 0.035 0.023
Dividends from net investment income................ (0.044) (0.047) (0.052) (0.035) (0.023)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $1.000 $1.000 $1.000 $1.000 $1.000
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 4.47% 4.80% 5.31% 3.56% 2.37%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $4,753 $5,888 $5,653 $7,141 $3,703
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1)........................................ 1.20% 0.75% 0.75% 0.75% 0.75%
Net investment income............................... 4.38 4.70 5.19 3.65 2.34
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED STRATEGIC INCOME PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $10.98 $10.01 $ 9.18 $10.07 $ 9.61
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (1)(2)........................ 0.77 0.88 0.74 0.58 0.70
Net realized and unrealized gain (loss)............. 0.12 0.24 0.70 (0.86) 0.47
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................... 0.89 1.12 1.44 (0.28) 1.17
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.98) (0.15) (0.61) (0.58) (0.61)
Net realized gains.................................. -- -- -- -- (0.09)
Capital............................................. -- -- -- (0.03) (0.01)
- ------------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.98) (0.15) (0.61) (0.61) (0.71)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $10.89 $10.98 $10.01 $ 9.18 $10.07
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 8.14% 11.16% 16.18% (2.81)% 12.56%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $62,558 $59,515 $59,316 $55,260 $43,244
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1)........................................ 0.78% 0.84% 0.90% 0.95% 1.00%
Net investment income............................... 7.29 7.94 7.73 7.31 7.14
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 47% 106% 46% 54% 94%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Money Market Portfolio, the Investment adviser waived all or part of
its fees for the four-year period ended December 31, 1996. In addition, for
the Diversified Strategic Income Portfolio, the Investment adviser waived
all or part of its fees for the year ended December 31, 1993. For the Money
Market Portfolio, the Investment adviser also reimbursed expenses of $16,616
and $17,889 for the two-year period ended December 31, 1994. In addition,
for the Diversified Strategic Income Portfolio, IDS Life reimbursed expenses
of $2,816 for the year ended December 31, 1993. If such fees were not waived
and expenses not reimbursed, the per share effect on net investment income
and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
PER SHARE DECREASES TO EXPENSE RATIOS WITHOUT
NET INVESTMENT INCOME WAIVERS AND REIMBURSEMENTS
--------------------------------------- -------------------------------
PORTFOLIO 1996 1995 1994 1993 1996 1995 1994 1993
---------------------------------------------- ------ ------ ------ ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market.................................. $0.005 $0.005 $0.005 $0.014 1.25% 1.21% 1.26% 2.15%
Diversified Strategic Income.................. N/A N/A N/A 0.00* N/A N/A N/A 1.02
</TABLE>
(2) Includes realized gains and losses from foreign currency transactions for
the three years ended December 31, 1995.
* Amount represents less than $0.01.
63
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $13.01 $12.35 $ 9.87 $11.55 $10.90
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.............................. 0.77 0.63 0.54 0.58 0.53
Net realized and unrealized gain (loss)............ 2.28 0.11 2.56 (1.75) 0.60
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 3.05 0.74 3.10 (1.17) 1.13
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.75) (0.08) (0.62) (0.49) (0.47)
Net realized gains................................. -- -- -- (0.02) (0.01)
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.75) (0.08) (0.62) (0.51) (0.48)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $15.31 $13.01 $12.35 $ 9.87 $11.55
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 23.52% 5.99% 32.47% (10.20)% 10.41%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $46,074 $45,616 $52,444 $44,417 $60,160
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.77% 0.77% 0.95% 0.84% 0.87%
Net investment income.............................. 4.42 4.53 4.95 5.51 4.54
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 42% 28% 33% 21% 4%
- ------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (1)......................... $0.06 $0.06 $0.06 -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $18.36 $15.58 $11.69 $11.90 $11.27
- -------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (2)........................... 0.12 0.22 0.25 0.23 0.20
Net realized and unrealized gain (loss)............. 5.76 3.17 3.88 (0.14) 0.71
- -------------------------------------------------------------------------------------------------------------
Total Income From Operations.......................... 5.88 3.39 4.13 0.09 0.91
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.17) (0.23) (0.23) (0.15) (0.16)
Net realized gains.................................. (0.48) (0.38) (0.01) (0.15) (0.12)
- -------------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.65) (0.61) (0.24) (0.30) (0.28)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $23.59 $18.36 $15.58 $11.69 $11.90
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 32.16% 21.68% 35.81% 0.85% 8.66%
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $35,351 $19,258 $15,230 $10,225 $8,842
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)........................................ 0.76% 1.06% 1.00% 1.00% 1.00%
Net investment income............................... 1.08 1.37 1.84 2.10 1.77
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 6% 7% 5% 1% 1%
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (1).......................... $0.03 $0.04 $0.05 -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(2) For the Equity Index Portfolio, the Investment adviser waived all or part
of its fees for the three-year period ended December 31, 1995. In
addition, for Equity Index Portfolio, IDS Life reimbursed expenses of
$6,842, $25,496 and $28,169 for the three-year period ended December 31,
1995. If such fees were not waived and expenses not reimbursed, the per
share effect on net investment income and the expense ratios would have
been as follows:
<TABLE>
<CAPTION>
PER SHARE EXPENSE RATIOS WITHOUT
DECREASES TO WAIVERS
NET INVESTMENT INCOME AND REIMBURSEMENTS
------------------------- ----------------------
PORTFOLIO 1995 1994 1993 1995 1994 1993
--------------------------------------------------------------------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Equity Index......................................................... $0.02 $0.06 $0.10 1.17% 1.53% 1.88%
</TABLE>
64
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $16.43 $13.73 $10.75 $11.37 $10.68
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (1).......................... 0.31 0.27 0.26 0.27 0.30
Net realized and unrealized gain (loss)............ 3.41 2.45 2.99 (0.63) 0.67
- ------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 3.72 2.72 3.25 (0.36) 0.97
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.29) (0.02) (0.27) (0.26) (0.26)
Net realized gains................................. (1.32) -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (1.61) (0.02) (0.27) (0.26) (0.28)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $18.54 $16.43 $13.73 $10.75 $11.37
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 22.94% 19.83% 30.49% (3.20)% 9.09%
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $43,214 $38,502 $35,158 $29,625 $25,549
- ------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1)....................................... 0.77% 0.83% 0.98% 0.93% 1.00%
Net investment income.............................. 1.62 1.67 2.09 2.52 2.68
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 17% 22% 17% 77% 78%
- ------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (2)......................... $0.06 $0.06 $0.06 -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH PORTFOLIO 1997 1996 1995 1994 1993(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $15.83 $13.76 $ 9.63 $10.41 $10.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (1).................... (0.12) (0.10) (0.03) 0.00* 0.01
Net realized and unrealized gain (loss)............. 3.32 2.55 4.16 (0.78) 0.40
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................... 3.20 2.45 4.13 (0.78) 0.41
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... -- -- -- (0.00)* --
Net realized gains.................................. (2.16) (0.38) -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions................................... (2.16) (0.38) -- (0.00)* --
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $16.87 $15.83 $13.76 $ 9.63 $10.41
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 21.16% 17.83% 42.89% (7.48)% 4.10%++
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $20,004 $18,901 $17,463 $11,539 $2,257
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1)........................................ 1.26% 1.27% 1.20% 1.20% 1.05%+
Net investment income (loss)........................ (0.72) (0.64) (0.24) (0.17) 1.37+
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 102% 84% 121% 66% --
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (2).......................... $0.05 $0.05 $0.06 -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Growth & Income Portfolio, the Investment adviser waived all or
part of its fees for the year period ended December 31, 1993. In addition,
for the Emerging Growth Portfolio, the Investment adviser waived all or
part of its fees for the two-year period ended December 31, 1995 and the
period ended December 31, 1993. For the Growth & Income Portfolio, IDS
Life reimbursed expenses of $1,085 for the year period ended December 31,
1993. In addition, for the Emerging Growth Portfolio, IDS Life reimbursed
expenses of $5,265, $18,068 and $2,915 for the two-year period ended
December 31, 1995 and the period ended December 31, 1993. If such fees were
not waived and expenses not reimbursed, the per share effect on net
investment income and the expense ratios would have been as follows:
<TABLE>
<CAPTION>
EXPENSE RATIOS
PER SHARE DECREASES TO WITHOUT WAIVERS
NET INVESTMENT INCOME AND REIMBURSEMENTS
------------------------- ----------------------
PORTFOLIO 1995 1994 1993 1996 1995 1994
--------------------------------------------------------------------- ----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Growth & Income...................................................... N/A N/A $0.01 N/A N/A 1.01%
Emerging Growth...................................................... $0.02 $0.01 0.06 1.39% 1.59% 9.99+
</TABLE>
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
(3) For the period from December 3, 1993 (commencement of operations) to
December 31, 1993.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
65
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO 1997 1996 1995 1994 1993(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR..................... $12.07 $ 9.98 $ 9.21 $10.05 $10.00
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (2)(3).................. (0.02) (0.02) 0.03 0.00* 0.00*
Net realized and unrealized gain (loss).............. (0.24) 2.15 0.78 (0.84) 0.05
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................... (0.26) 2.13 0.81 (0.84) 0.05
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income................................ (0.03) (0.04) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions.................................... (0.03) (0.04) (0.04) -- --
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................... $11.78 $12.07 $ 9.98 $ 9.21 $10.05
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................... (2.18)% 21.38% 8.80% (8.36)% 0.50%++
- -------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)........................ $28,347 $33,337 $28,979 $28,413 $5,867
- -------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)(4)...................................... 1.31% 1.35% 1.43% 1.30% 1.08%+
Net investment income (loss)......................... (0.23) (0.20) 0.35 0.31 (0.51)+
- -------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE................................ 21% 33% 34% 12% --
- -------------------------------------------------------------------------------------------------------------
AVERAGE COMMISSIONS PER SHARE PAID
ON EQUITY TRANSACTIONS (5)........................... $0.01 $0.03 $0.01 -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period from December 3, 1993 (commencement of operations) to
December 31, 1993.
(2) For the International Equity Portfolio, the Investment adviser waived all or
part of its fees for the year ended December 31, 1994 and the period ended
December 31, 1993. IDS Life reimbursed expenses of $23,712 and $1,902 for
the year ended December 31, 1994 and the period ended December 31, 1993. If
such fees were not waived and expenses not reimbursed, the per share effect
on net investment income and the expense would have been as follows:
<TABLE>
<CAPTION>
PER SHARE EXPENSE RATIOS
DECREASES TO WITHOUT
NET INVESTMENT WAIVERS AND
INCOME REIMBURSEMENTS
----------------- -----------------
PORTFOLIO 1994 1993 1994 1993
---------------------------------------------------------------------------- ----- ----- ---- ----
<S> <C> <C> <C> <C>
International Equity........................................................ $0.00* $0.02 1.51% 2.96%+
</TABLE>
(3) Includes realized gains and losses from foreign currency transactions for
the two years ended December 31, 1995 and the period ended December 31,
1993.
(4) During the year ended December 31, 1996 and the year ended December 31,
1995, the International Equity Portfolio has earned credits from the
custodian which reduce service fees incurred. If the credits are taken into
consideration, the ratios of expenses to average net assets would be 1.33%
and 1.37%, respectively.
(5) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Amount represents less than $0.01.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
66
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
GREENWICH STREET SERIES FUND:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of the Money Market, Diversified Strategic Income,
Equity Income, Equity Index, Growth and Income, Emerging Growth, and
International Equity Portfolios ("Portfolios") of the Greenwich Series Fund
("Fund") as of December 31, 1997, the related statements of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended and the financial highlights for each of the
years in the three-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the years in the two-year period ended December 31, 1994 with respect to the
Money Market, Diversified Strategic Income, Equity Income, Equity Index, and
Growth and Income Portfolios, and for the year ended December 31, 1994 and the
period from December 3, 1993 (commencement of operations) to December 31, 1993
with respect to the Emerging Growth and International Equity Portfolios were
audited by other auditors whose report thereon, dated February 10, 1995,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Portfolios as of December 31, 1997, the results of their operations for the year
then ended, the changes in their net assets for each of the years in the
two-year period then ended and their financial highlights for each of the years
in the three-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 10, 1998
67
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1997:
- Percentages of ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Equity Income Portfolio.............................................. 61.74%
Equity Index Portfolio............................................... 72.96
Growth & Income Portfolio............................................ 56.37
</TABLE>
- The Taxpayer Relief Act of 1997 enacted differing rates of tax on various
long-term capital gain transactions.
As a result, the Fund designates:
- Total long-term capital distributions paid are considered "28
percent rate gains":
<TABLE>
<S> <C>
Equity Index Portfolio............................ $ 560,561
Growth & Income Portfolio......................... 2,366,749
Emerging Growth Portfolio......................... 2,277,102
</TABLE>
68
<PAGE>
This report is submitted for the general
information of the owners of the
Greenwich Street Series Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by an effective Prospectus
for the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
SYMPHONY
investments are sponsored and managed
by:
Smith Barney Inc.
and subsidiaries
SYMPHONY
is underwritten, issued and serviced by:
IDS Life Insurance Company and
IDS Life Insurance Company of New York
S6223 G (2/98)
<PAGE>
GREENWICH STREET SERIES FUND
ANNUAL REPORT
EQUITY INDEX PORTFOLIO
MONEY MARKET PORTFOLIO
EQUITY INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
DECEMBER 31, 1997
<PAGE>
This report is submitted for the general
information of the owners of the
Greenwich Street Series Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by an effective Prospectus
for the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
S6223 G (2/98)
<PAGE>
