GREENWICH STREET SERIES FUND
ANNUAL REPORT FOR
SYMPHONY
A Tax-Deferred Variable Annuity
[Harp Graphic]
INTERMEDIATE HIGH GRADE PORTFOLIO
APPRECIATION PORTFOLIO
TOTAL RETURN PORTFOLIO
DECEMBER 31, 1998
<PAGE>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
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, 1998. This letter will briefly
discuss general economic and market conditions. In addition, detailed
comparisons showing the growth of a hypothetical $10,000 invested in each
Portfolio since inception can be found in this report. All total return figures
given 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
1998 saw a widely gyrating U.S. stock market with different sectors performing
differently. The large-cap oriented S&P 500 Stock Index ("S&P 500") returned
about 28.72% for the year. The S&P 400 Midcap Index had a gain of roughly 19%
while the Russell 2000 Index had a negative return of 2.6% for the year ended
December 31, 1998. Dividend-paying defensive stocks such as utilities performed
better than the average small- and mid-cap stock. While technology stocks were
adversely impacted by the global financial crisis in late 1997, they have since
rebounded, led by Internet-related names.
The economies of the developed world flourished in 1998 while most emerging
markets went down. Low interest rates, robust consumer spending and benign
inflation fueled economic growth in the U.S. and Europe and created favorable
conditions for corporate profitability. In contrast, Russia's economy collapsed,
Asia's economies remained mired in recession and Brazil's economy faltered at
year-end after $30 billion was spent to defend its currency during the reporting
period.
1998 was also a record year for mergers and acquisitions, nearly double 1997's
total. The merger of oil giants Exxon and Mobil announced in December will
result in the creation of the world's largest company in terms of revenue. In
the digital world, merger activity between Internet service providers, phone
companies, cable companies and telecommunications firms heated up, as
"convergence" became the new mantra.
We remain guardedly optimistic about the resilient U.S. economy in the first
half of 1999 because we expect interest rates to stay low and the productivity
revolution through technology to continue. However, the risks from foreign
markets cannot be discounted and future corporate earnings may come under
increasing pressure.
INTERMEDIATE HIGH GRADE PORTFOLIO
The investment objective of the Intermediate High Grade Portfolio ("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 Portfolio
will invest at least 65% of its assets in high-quality, intermediate-term U.S.
government securities and U.S. corporate bonds. Please note that the Portfolio's
Board approved that it can now invest in the three highest rating categories and
this policy change will take affect on April 30, 1999. For the year ended
December 31, 1998, the Portfolio had a total return of 6.79%, compared to the
Lehman Brothers Government/Corporate Bond Index total return of 9.47%. (The
Lehman Brothers Government/ Corporate Bond Index is a combination of publicly
issued intermediate- and long-term U.S. government bonds and corporate bonds.)
In 1998 interest rates went down in October 1998 during a flight to quality
rally that was touched off by emerging market problems and Russia's default.
Although year-end rates were above these October lows, they were considerably
below levels seen earlier in the year.
One interesting aspect of 1998 was that the best performing class of bond was
U.S. Treasuries. This is the first year since 1990 that U.S. Treasuries
outperformed both corporate bonds and mortgage-backed securities (i.e., a spread
product). The outperformance of U.S. Treasuries was most pronounced during
October's flight-to-quality. During that time, U.S. Treasury yields experienced
a greater decline than other types of bonds. In some instances, (as was the case
in sectors of the corporate bond market), yields actually rose during the
reporting period highlighting the widening spread relationship. Three Federal
Reserve Board's ("Fed") monetary easings helped to restore liquidity to the
spread markets and helped them regain some of the performance that had been lost
versus U.S. Treasuries.
1
<PAGE>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
Another notable factor in 1998 was the strength of the U.S. economy. It appears
as though 1998 will post real gross domestic product ("GDP") growth of between
3 1/2-4% with declining inflation. Benign inflation further contributed to the
decline in bond yields during the year.
The managers' outlook for 1999 is for continued growth in the U.S. economy
although at a slightly slower pace. The managers also expect inflation to remain
low. They anticipate spread product to outperform in 1999. Therefore, they will
maintain their overweighting in corporate bonds and U.S. agency mortgages. As
long as the U.S. economy avoids recession and although no guarantees can be
made, the managers believe their strategy should provide good performance in
1999.
APPRECIATION PORTFOLIO
The Appreciation Portfolio's ("Portfolio") investment objective is to provide
investors with long-term appreciation of capital. For the year ended December
31, 1998, the Portfolio had a total return of 19.15%. In comparison, the S&P 500
posted a total return of 28.72% for the same period.
Move over baseball! The stock market has taken over as the national pastime. All
across the country, in virtually every walk of life, the stock market has become
the main topic of conversation and even an obsession with millions of people.
The root causes are many, ranging from several years of economic expansion with
accompanying strong corporate earnings growth, to the proliferation of
self-directed retirement plans, to the phenomenal speed of information that can
be obtained through the Internet. What began a few years ago as a growing
recognition by people that their retirement savings were inadequate has turned
into something much more and has taken on a life of its own.
Regardless of the news or economic background, stocks continue to move higher,
led by a belief in technology as a new religion. And why not? Every market
decline in recent memory has quickly given way to dramatic moves to new and
higher ground. Even Fed Chairman Alan Greenspan, after warning about the
unsustainability of stock prices that were out of line with earnings, blinked
when a major hedge fund debacle seemed to threaten the financial markets. To a
greater degree than ever before, the rewards in this stock market are going to
investors who take the biggest risks, while investors exercising caution suffer
from missed opportunities, or even worse, their own lagging stocks.
As the manager has indicated for two decades, he attempts to walk a fine line in
the Portfolio between taking on the inherent risk of owning stocks to achieve
capital gains and the desire to avoid losses during periods of market weakness.
The year 1998 was a good example, as he posted significant returns of 19.15% for
the year, and he was in very minor negative territory only two days during
October's slide. The manager did a good bit of buying during the September to
October decline, but he has remained more cautious than most managers coming out
of that break which definitely cost him some upside during November and
December.
In a year as volatile as 1998, it was inevitable that more changes than usual
were made in the Portfolio. In many instances, the manager's changes involved
profit taking in portions of several pharmaceutical stocks that had registered
enormous gains, and in our view, had become pricey. He also pruned back
positions in such big movers as Time Warner, Gannett, regional Bell operating
companies, Unilever, Wells Fargo, Procter and Gamble and Texas Instruments.
In a year of underperformance for energy, he was fortunate to own two of the
largest of takeover targets of the year, Amoco and Mobil. Amoco was disposed of
on its price rise into its merger. Mobil will be merged into Exxon, another of
our large positions. He also sold a few disappointing stocks, such as Olin and
St. Paul Companies. Honeywell, a long-time holding in the Portfolio, was
reluctantly sold, as orders finally showed signs of slowing.
As a result of its being taken over, General Reinsurance became Berkshire
Hathaway, and is now the Portfolio's largest position. Because of Warren
Buffett's outstanding management, it is a position with which the manager is
very comfortable. During the Portfolio's fiscal year, material holdings were
established in Bank of New York, MediaOne and Federal Express. Probably his
biggest disappointment during the reporting period was Allstate, our
third-largest holding. The manager still believes that the company is doing
everything right, and that the stock is very inexpensive. Investors seem
concerned about Allstate's revenue growth, but the company has the resources not
only to grow in a competitive environment, but also to keep costs low. He did
add to his Intel and Microsoft holdings during the year, and he started a small
position in America Online, because of its potential for a bright future.
2
<PAGE>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
The U.S. economy has some enormous plusses working for it. Employment is strong,
and inflation, as is now widely appreciated, is nonexistent. The computer and
telecommunications boom is helping create jobs to replace those lost in the
various mega-mergers that have been announced with greater frequency. Falling
oil prices have served nearly as well as a tax cut for most people, stimulating
more spending and helping to offset weak conditions in the beaten down oil
industry. The Fed's cuts in short-term interest rates, coupled with economic
weakness in Asia and Latin America, have kept long-term interest rates low,
giving a boost to new housing starts and, in turn, helping to create vigorous
sales of existing homes. Consumers are confident and increasing their borrowing
to sustain their spending.
The U.S. stock market has benefited from these positive economic conditions.
Yet, many investors have been willing to pay record high prices for stocks while
the overall corporate earnings outlook deteriorates. Stocks of companies with
the promise of higher profits are being priced as if those earnings are assured
indefinitely.
The manager has not seen such valuations accorded good companies since 1972,
when fifty or so stocks commanded price-to-earnings ratios in excess of 50.
These valuations leave no room for disappointment. The 20% sell-off in August
and September seems to have become a distant memory for investors, even though
it demonstrated how quickly problems can arise. Prosperity in the U.S. cannot
continue unabated with so many other parts of the world suffering the effects of
poor government policies, shrinking commodity prices and contracting economies.
The manager already has seen the negative impact on earnings of many of our
biggest companies that rely on foreign revenues for half of their profits.
It is very hard to find compelling values in a market as overvalued as this one
has been. Volatility seems likely to continue unabated, fueled by liquidity on
the one hand and extreme valuations on the other. The manager will continue to
exercise caution unless he sees more attractive prices.
TOTAL RETURN PORTFOLIO
The Total Return Portfolio's ("Portfolio") investment objective is to provide
investors with total return, consisting of long-term capital appreciation and
income. To achieve its objective the Portfolio will primarily invest in a
diversified portfolio of dividend-paying common stocks. For the year ended
December 31, 1998, the Portfolio had a total return of 4.97%. In comparison, the
S&P 500 posted a total return of 28.72% for the same period. The principal
reasons for the disappointing underperformance versus the S&P 500 was due to a
substantial position in real estate investment trusts ("REITs"), a cash position
which averaged more than 15% during the year and a smaller commitment to the top
50 stocks, by size in the S&P 500.
The manager's largest sector weighting is currently financial services with
about 23% of the Portfolio's in this area of the market. He holds positions in
Bank of New York, Mellon Bank, American Express, Chase Manhattan and
BankAmerica. He also maintains significant holdings in real estate investment
trusts because he believes this group, especially today, offers outstanding
rewards for the potential risks. For example, the average REIT yields in excess
of 7 1/2% and might generate 5%-7% in capital gains for a combined total return
greater than 12.5%. REIT stocks underperformed the market by 45% last year and
now sell at the best valuation levels, certainly on a relative basis, he has
since the early 1970s when data was compiled on the industry.
He also believes basic materials and energy are extraordinarily inexpensive, and
he has 12% and 11% respectively in these sectors. The manager expects that an
important transition will occur this year as Fed policies to lower interest
rates and inject liquidity into the U.S. economy bear fruit. Fed actions are
mirrored in the actions taken by monetary authorities around the world.
Cumulative interest rate cuts, by world monetary authorities, number more than
60 in recent months and it is clear that reflation is one of the goals. When
this occurs, economic activity will begin to improve and indexes such as the
Commodity Research Bureau may move higher. In this environment, aluminums,
energy, chemicals and papers, for example, may become some of the best
performing groups.
The Portfolio is also overweighted in communications services (i.e., AT&T,
COMSAT, U.S. West, Ericsson, and GTE Corp.) and utilities such as Duke Energy,
and Sempra Energy. He recently added a position in KN Energy. The Portfolio is
underweighted in technology although it has holdings in Adobe Systems, Motorola,
and Texas Instruments.
Cash is about 13% of Portfolio assets. The manager sees market valuations as
stretched and speculation at "tulipmania" levels at least where Internet stocks
are concerned. The manager believes that 1999 should be an important transition
year in
3
<PAGE>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
which market volatility could remain high and leadership may begin moving away
from the top ten companies in the S&P 500. As the market broadens, there are
many stocks, including those in the "value" arena, that should perform much
better and the manager intends to have an all-cap portfolio. During 1998, just
ten of these companies accounted for approximately 50% of the overall return to
the S&P 500 indicating one of the narrowest markets in history.
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
January 19, 1999
4
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- INTERMEDIATE HIGH GRADE PORTFOLIO AS OF 12/31/98
(UNAUDITED)
[INTERMEDIATE HIGH GRADE PORTFOLIO LINE
GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
SYMPHONY INTERMEDIATE GOVERNMENT/CORPORATE
HIGH GRADE PORTFOLIO BOND INDEX
<S> <C> <C>
10/16/91 10000 10000
DEC-91 10240 10440
DEC-92 10781 11231
DEC-93 11643 12470
DEC-94 11287 12032
DEC-95 13292 14348
DEC-96 13518 14764
DEC-97 14690 15772
12/31/98 15687 16575
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------------
Year Ended 12/31/98 6.79%
Five Years Ended 12/31/98 6.14%
10/16/91* through 12/31/98 6.44%
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURN
- ---------------------------------------------------
10/16/91* through 12/31/98 56.87%
* Commencement of operations
- -------------------------------------------------
</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, 1998 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.
- --------------------------------------------------------------------------------
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 -- APPRECIATION PORTFOLIO AS OF 12/31/98 (UNAUDITED)
[APPRECIATION PORTFOLIO LINE GRAPH]
<TABLE>
<CAPTION>
APPRECIATION PORTFOLIO STANDARD & POOR'S 500 STOCK INDEX
---------------------- ---------------------------------
<S> <C> <C>
10/16/91 10000 10000
12/91 10490 10838
12/92 11133 11668
12/93 11926 12844
12/94 11792 13012
12/95 15193 17898
12/96 18197 22005
12/97 22999 29345
12/31/98 27402 37779
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------------
Year Ended 12/31/98 19.15%
Five Years Ended 12/31/98 18.10%
10/16/91* through 12/31/98 15.00%
</TABLE>
<TABLE>
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURN
- ---------------------------------------------------
10/16/91* through 12/31/98 174.02%
* 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,
1998 with that of a similar
investment in the Standard &
Poor's 500 Stock 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
Stock 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 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
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- TOTAL RETURN PORTFOLIO AS OF 12/31/98 (UNAUDITED)
[TOTAL RETURN PORTFOLIO LINE GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO STANDARD & POOR'S 500 STOCK INDEX
---------------------- ---------------------------------
<S> <C> <C>
12/3/93 10000 10000
12/93 10300 10121
12/94 11062 10253
12/95 13832 14103
12/96 17335 17340
12/97 20255 21109
12/31/98 21260 27176
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------------------
Year Ended 12/31/98 4.97%
Five Years Ended 12/31/98 15.60%
12/3/93* through 12/31/98 16.01%
</TABLE>
<TABLE>
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURN
- ---------------------------------------------------
12/3/93* through 12/31/98 112.60%
* Commencement of operations
- -------------------------------------------------
</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,
1998 with that of a similar
investment in the Standard &
Poor's 500 Stock 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
Stock 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 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
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1998
INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
==============================================================================================================
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 23.7%
$ 110,000 U.S. Treasury Notes, 6.250% due 2/15/03..................... $ 116,303
1,000,000 U.S. Treasury Bonds, 8.125% due 8/15/19..................... 1,336,280
250,000 U.S. Treasury Bonds, 6.000% due 2/15/26..................... 273,478
1,000,000 Federal Home Loan Bank, 6.450% due 10/29/07................. 1,078,630
250,000 Federal National Mortgage Association, Medium Term Notes,
6.220% due 3/13/06.......................................... 264,193
25,000 Private Exempt Funding Co., 7.900% due 3/31/00.............. 25,906
- --------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $2,831,865)........................................ 3,094,790
==============================================================================================================
ASSET-BACKED SECURITIES -- 4.5%
590,000 Standard Credit Card Master Trust, 5.900% due 2/7/01
(Cost -- $588,958).......................................... 590,254
==============================================================================================================
MORTGAGE-BACKED SECURITIES -- 14.5%
627,429 Federal National Mortgage Association, 7.000% due 1/1/13.... 641,547
268,031 Federal National Mortgage Association, 7.000% due 2/1/13.... 274,061
967,574 Federal National Mortgage Association, 6.000% due 6/1/13.... 970,892
- --------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES (Cost -- $1,869,838)....... 1,886,500
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING (a) SECURITY VALUE
==============================================================================================================
<C> <S> <C> <C>
CORPORATE BONDS AND NOTES -- 57.3%
==============================================================================================================
AEROSPACE AND DEFENSE -- 0.8%
$ 100,000 AA- Rockwell International, Notes, $6.750% due 9/15/02.......... 104,625
- --------------------------------------------------------------------------------------------------------------
BANKS/SAVINGS AND LOANS -- 15.1%
400,000 Aa3* Banc One Corp., Sr. Notes, 6.700% due 3/24/00............... 407,000
500,000 AAA Bayerische Landesbank -- NY, Sub. Notes, 5.875% due
12/1/08..................................................... 512,500
250,000 AA J. P. Morgan & Co., Series A, Unsubordinated Sr. Notes,
6.125% due 10/2/00.......................................... 255,000
250,000 AA Morgan Guaranty Trust Co., Sub. Notes, 7.375% due 2/1/02.... 264,687
500,000 AA National Westminster Bank-N.Y., Sub. Notes, 9.450% due
5/1/01...................................................... 538,750
- --------------------------------------------------------------------------------------------------------------
1,977,937
- --------------------------------------------------------------------------------------------------------------
BROKERAGE -- 3.9%
500,000 AA- Merrill Lynch & Co., Notes, 6.500% due 4/1/01............... 510,625
- --------------------------------------------------------------------------------------------------------------
COSMETICS AND TOILETRIES -- 2.5%
Kimberly-Clark Corp., Debentures:
45,000 AA 9.000% due 8/1/00........................................... 47,756
250,000 AA 7.875% due 2/1/23........................................... 275,312
- --------------------------------------------------------------------------------------------------------------
323,068
- --------------------------------------------------------------------------------------------------------------
ELECTRONICS/COMPUTERS -- 4.0%
500,000 A3* Philips Electronics Corp., Notes, 7.200% due 6/1/26......... 520,000
- --------------------------------------------------------------------------------------------------------------
FINANCE COMPANIES/CONSUMER CREDIT -- 10.3%
500,000 AAA General Electric Capital Corp., Notes, 6.120% due 8/15/00... 508,125
500,000 AA Pitney Bowes Credit Corp., Notes, 5.650% due 1/15/03........ 508,125
300,000 A- Xerox Capital Trust, Company Guaranteed Notes, 8.000% due
2/1/27...................................................... 330,750
- --------------------------------------------------------------------------------------------------------------
1,347,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING (a) SECURITY VALUE
==============================================================================================================
<C> <S> <C> <C>
FOREIGN GOVERNMENT -- 0.9%
$ 100,000 AAA Quebec Province, Notes, $8.625% due 1/19/05................. $ 115,000
- --------------------------------------------------------------------------------------------------------------
FUNERAL SERVICES AND RELATED ITEMS -- 4.0%
500,000 BBB+ Service Corp. International, Notes, 7.000% due 6/1/15....... 519,375
- --------------------------------------------------------------------------------------------------------------
INSURANCE COMPANIES -- 3.8%
500,000 A+ St. Paul Cos., Inc., Notes, 6.380% due 12/15/08............. 499,375
- --------------------------------------------------------------------------------------------------------------
OIL/NATURAL GAS -- 7.2%
295,000 AA+ BP America Inc., Debentures, 9.375% due 11/1/00............. 317,494
500,000 BBB+ HNG Internorth, Debentures, 9.625% due 3/15/06.............. 616,875
- --------------------------------------------------------------------------------------------------------------
934,369
- --------------------------------------------------------------------------------------------------------------
RETAIL -- 2.0%
250,000 AA Wal-Mart Stores Inc., Debentures, 9.100% due 7/15/00........ 264,688
- --------------------------------------------------------------------------------------------------------------
SOVEREIGN DEBT -- 2.8%
Asian Development Bank, Debentures:
95,000 AAA 9.125% due 6/1/00........................................... 100,106
180,000 AAA 8.500% due 5/2/01........................................... 193,050
75,000 Aaa* Republic of Ireland, Notes, 7.125% due 7/15/02.............. 79,688
- --------------------------------------------------------------------------------------------------------------
372,844
- --------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $7,335,858)........ 7,488,906
==============================================================================================================
TOTAL INVESTMENTS -- 100% (Cost -- $12,626,519**)........... $13,060,450
==============================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service ("Standard & Poor's")
with the exception of those identified by an asterisk (*), which are rated
by Moody's Investor Service, Inc. ("Moody's").
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 9 for a definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's -- Ratings from "AAA" to "C" may be modified by the addition
of a plus (+) or minus (-) sign to show relative standings within the major
rating categories.
<TABLE>
<S> <C> <C>
AAA -- Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issue
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.
BB, B, -- Bonds rated BB, B, CCC and C are regarded, on balance, as
CCC, predominantly speculative with respect to the issuer's
CC and C capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest
degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighted by
large uncertainties or major risk exposures to adverse
conditions.
</TABLE>
Moody's -- Numerical modifiers 1, 2, and 3 may be applied to each generic rating
from "Aaa" to "Ba," where 1 is the highest and 3 the lowest rating within its
generic category.
<TABLE>
<S> <C> <C>
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective
elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=======================================================================================
<C> <S> <C>
COMMON STOCK -- 81.7%
=======================================================================================
AIRLINES -- 0.2%
10,000 AMR Corp. .................................................. $ 593,750
- ---------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 1.8%
49,000 E.I. du Pont de Nemours & Co. .............................. 2,600,062
15,000 Hercules Inc. .............................................. 410,625
22,000 Mead Corp. ................................................. 644,875
33,000 St. Joe Co. ................................................ 773,437
- ---------------------------------------------------------------------------------------
4,428,999
- ---------------------------------------------------------------------------------------
BASIC MATERIALS -- 2.2%
33,000 Dow Chemical Co. ........................................... 3,000,938
40,000 PPG Industries, Inc. ....................................... 2,330,000
- ---------------------------------------------------------------------------------------
5,330,938
- ---------------------------------------------------------------------------------------
CAPITAL GOODS -- 3.4%
54,000 AlliedSignal Inc. .......................................... 2,392,875
16,000 Emerson Electric Co. ....................................... 1,001,000
16,000 Honeywell Inc. ............................................. 1,205,000
18,000 Illinois Tool Works Inc. ................................... 1,044,000
19,000 Johnson Controls, Inc. ..................................... 1,121,000
19,000 Lockheed Martin Corp. ...................................... 1,610,250
- ---------------------------------------------------------------------------------------
8,374,125
- ---------------------------------------------------------------------------------------
CONSUMER DURABLES -- 2.1%
8,729 DaimlerChrysler AG (a)...................................... 838,530
15,000 Ford Motor Co. ............................................. 880,313
30,000 General Motors Corp. ....................................... 2,146,875
20,000 Goodyear Tire & Rubber Co. ................................. 1,008,750
28,500 Newell Co. ................................................. 1,175,625
- ---------------------------------------------------------------------------------------
6,050,093
- ---------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 8.2%
24,000 Bestfoods................................................... 1,278,000
27,000 Black & Decker Corp. ....................................... 1,513,687
50,000 ConAgra, Inc. .............................................. 1,575,000
23,000 Eastman Kodak Co. .......................................... 1,656,000
19,000 Gillette Co. ............................................... 917,937
15,000 H.J. Heinz Co. ............................................. 849,375
62,000 Kimberly-Clark Corp. ....................................... 3,379,000
22,000 Procter & Gamble Co. ....................................... 2,008,875
90,000 Ralston-Ralston Purina Group................................ 2,913,750
8,000 Stanley Works............................................... 222,000
36,000 Unilever NV................................................. 2,985,750
10,000 Wm. Wrigley Jr. Co. ........................................ 895,625
- ---------------------------------------------------------------------------------------
20,194,999
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=======================================================================================
<C> <S> <C>
CONSUMER SERVICES -- 12.4%
10,000 America Online, Inc. (a).................................... $ 1,447,500
34,000 Costco Cos., Inc. (a)....................................... 2,454,375
49,000 Fannie Mae.................................................. 3,626,000
50,000 First Data Corp. ........................................... 1,584,375
39,000 Gannett Co., Inc. .......................................... 2,581,313
23,000 Home Depot, Inc. ........................................... 1,407,313
38,000 McDonald's Corp. ........................................... 2,911,750
45,000 MediaOne Group, Inc. (a).................................... 2,115,000
41,000 Meredith Corp. ............................................. 1,552,875
15,000 Scandinavian Broadcasting System SA (a)..................... 405,000
62,000 The Walt Disney Co. ........................................ 1,860,000
30,000 Time Warner Inc. ........................................... 1,861,875
42,000 USA Networks, Inc. (a)...................................... 1,391,250
20,000 Viacom Inc., Class B Shares (a)............................. 1,480,000
45,000 Wal-Mart Stores, Inc. ...................................... 3,664,687
- ---------------------------------------------------------------------------------------
30,343,313
- ---------------------------------------------------------------------------------------
DIVERSIFIED CONGLOMERATE -- 8.0%
118 Berkshire Hathaway Inc., Class A Shares (a)................. 8,260,000
58,000 General Electric Co. ....................................... 5,919,625
36,000 Minnesota Mining and Manufacturing Co. ..................... 2,560,500
37,000 Tyco International Ltd. .................................... 2,791,187
- ---------------------------------------------------------------------------------------
19,531,312
- ---------------------------------------------------------------------------------------
ENERGY -- 6.5%
33,000 Amoco Corp. ................................................ 1,992,375
19,000 Ashland Inc. ............................................... 919,125
52,000 Exxon Corp. ................................................ 3,802,500
22,000 Halliburton Co. ............................................ 651,750
49,000 Mobil Corp. ................................................ 4,269,125
26,000 Royal Dutch Petroleum Co. .................................. 1,244,750
39,000 Schlumberger Ltd. .......................................... 1,798,875
22,000 Texaco Inc. ................................................ 1,163,250
14,000 Weatherford International, Inc. (a)......................... 271,250
- ---------------------------------------------------------------------------------------
16,113,000
- ---------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 12.2%
126,000 Allstate Corp. ............................................. 4,866,750
16,000 American Express Co. ....................................... 1,636,000
42,000 American International Group, Inc. ......................... 4,058,250
34,000 Associates First Capital Corp., Class A Shares.............. 1,440,750
98,000 Bank of New York Co., Inc. ................................. 3,944,500
29,040 Chase Manhattan Corp. ...................................... 1,976,535
30,000 Chubb Corp. ................................................ 1,946,250
15,000 CNA Financial Corp. (a)..................................... 603,750
15,000 First Virginia Banks, Inc. ................................. 705,000
70,000 Household International, Inc. .............................. 2,773,750
27,000 Leucadia National Corp. .................................... 850,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=======================================================================================
<C> <S> <C>
FINANCIAL SERVICES -- 12.2% (CONTINUED)
17,000 National City Corp. ........................................ $ 1,232,500
30,000 Washington Mutual, Inc. .................................... 1,145,625
75,000 Wells Fargo Co. ............................................ 2,995,313
- ---------------------------------------------------------------------------------------
30,175,473
- ---------------------------------------------------------------------------------------
HEALTHCARE -- 9.0%
70,000 Abbott Laboratories......................................... 3,430,000
40,000 American Home Products Corp. ............................... 2,252,500
33,000 Bristol-Myers Squibb Co. ................................... 4,415,812
33,000 Chiron Corp. (a)............................................ 864,187
10,000 Eli Lilly and Co. .......................................... 888,750
49,000 Johnson & Johnson........................................... 4,109,875
26,000 Merck & Co., Inc. .......................................... 3,839,875
20,000 Pfizer Inc. ................................................ 2,508,750
- ---------------------------------------------------------------------------------------
22,309,749
- ---------------------------------------------------------------------------------------
TECHNOLOGY -- 11.4%
33,000 Cisco Systems, Inc. (a)..................................... 3,062,812
16,000 Compaq Computer Corp. ...................................... 671,000
23,000 Hewlett-Packard Co. ........................................ 1,571,188
30,000 Intel Corp. ................................................ 3,556,875
29,000 International Business Machines Corp. ...................... 5,357,750
39,000 Lucent Technologies Inc. ................................... 4,290,000
22,000 Microsoft Corp. (a)......................................... 3,051,125
10,000 Motorola, Inc. ............................................. 610,625
29,000 Texas Instruments, Inc. .................................... 2,481,313
30,000 Xerox Corp. ................................................ 3,540,000
- ---------------------------------------------------------------------------------------
28,192,688
- ---------------------------------------------------------------------------------------
TELECOMMUNICATION -- 4.3%
53,000 Ameritech Corp. ............................................ 3,358,875
10,000 AT&T Corp. ................................................. 752,500
28,000 Bell Atlantic Corp. ........................................ 1,590,750
8,000 Bellsouth Corp. ............................................ 399,000
54,000 GTE Corp. .................................................. 3,641,625
14,000 US West, Inc. .............................................. 904,750
- ---------------------------------------------------------------------------------------
10,647,500
- ---------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $132,453,000)................... 202,285,939
=======================================================================================
FACE
AMOUNT SECURITY VALUE
=======================================================================================
REPURCHASE AGREEMENT -- 18.3%
$45,204,000 Morgan Stanley Dean Witter & Co., 4.650% due 1/4/99;
Proceeds at maturity -- $45,227,355; (Fully collateralized
by U.S. Treasury Notes, 6.500% due 8/15/05; U.S. Treasury
Notes, 6.000% due 8/15/99; U.S. Treasury Notes, 6.375% due
7/15/99; U.S. Treasury Bonds, 6.375% due 8/15/27; Total
market value -- $46,318,795) (Cost -- $45,204,000).......... 45,204,000
=======================================================================================
TOTAL INVESTMENTS -- 100% (Cost -- $177,657,000*)........... $247,489,939
=======================================================================================
</TABLE>
(a) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==================================================================================================
<C> <S> <C>
COMMON STOCK -- 81.1%
==================================================================================================
BASIC MATERIALS -- 7.9%
90,000 Aluminum Co. of America..................................... $ 6,710,625
125,000 Consolidated Papers Inc. (a)................................ 3,437,500
125,000 Georgia-Pacific Group (b)................................... 7,320,313
299,500 Oregon Steel Mills Inc. .................................... 3,556,562
200,000 RTI International Metals, Inc. (a).......................... 2,800,000
- --------------------------------------------------------------------------------------------------
23,825,000
- --------------------------------------------------------------------------------------------------
CHEMICALS -- 2.0%
65,000 Dow Chemical Co. ........................................... 5,910,937
- --------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 10.5%
110,000 AT & T Corp. ............................................... 8,277,500
200,000 Comsat Corp. ............................................... 7,200,000
200,000 Ericsson LM Telephone AD.................................... 4,787,500
75,000 GTE Corp. .................................................. 5,057,813
95,000 US West Communications Group................................ 6,139,375
- --------------------------------------------------------------------------------------------------
31,462,188
- --------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 6.1%
250,000 Toys "R" Us, Inc. (a)....................................... 4,218,750
175,000 Wal-Mart Stores, Inc. ...................................... 14,251,562
- --------------------------------------------------------------------------------------------------
18,470,312
- --------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 3.4%
200,000 Fleming Cos., Inc. ......................................... 2,075,000
200,000 PepsiCo, Inc. .............................................. 8,187,500
- --------------------------------------------------------------------------------------------------
10,262,500
- --------------------------------------------------------------------------------------------------
ENERGY -- 8.4%
100,000 Chevron Corp. (a)........................................... 8,293,750
190,000 Halliburton Co. (a)......................................... 5,628,750
255,000 KN Energy, Inc. ............................................ 9,578,438
300,000 Ocean Energy Inc. .......................................... 1,893,750
- --------------------------------------------------------------------------------------------------
25,394,688
- --------------------------------------------------------------------------------------------------
ENTERTAINMENT -- 1.9%
225,000 Fox Entertainment Group, Inc. .............................. 5,667,188
- --------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 11.1%
75,000 American Express Co. ....................................... 7,668,750
270,000 Bank of New York Co., Inc. ................................. 10,867,500
50,000 BankAmerica Corp. (a)....................................... 3,006,250
60,000 Chase Manhattan Corp. (a)................................... 4,083,750
115,000 Mellon Bank Corp (a)........................................ 7,906,250
- --------------------------------------------------------------------------------------------------
33,532,500
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE -- 3.6%
75,000 American Home Products Corp. (a)............................ $ 4,223,437
50,000 Bristol-Myers-Squibb Co. ................................... 6,690,625
- --------------------------------------------------------------------------------------------------
10,914,062
- --------------------------------------------------------------------------------------------------
REAL ESTATE -- 12.7%
400,000 MeriStar Hotels & Resorts, Inc. ............................ 1,050,000
175,000 Rouse Co. .................................................. 4,812,500
200,000 Shurgard Storage Centers Inc. .............................. 5,162,500
410,000 Simon Property Group, Inc. ................................. 11,685,000
290,000 Spieker Properties, Inc. ................................... 10,041,250
200,000 TriNet Corporate Realty Trust, Inc. ........................ 5,350,000
- --------------------------------------------------------------------------------------------------
38,101,250
- --------------------------------------------------------------------------------------------------
TECHNOLOGY -- 5.5%
150,000 Adobe Systems Inc. ......................................... 7,012,500
150,000 Geoworks Corp. ............................................. 543,750
75,000 Motorola, Inc. (a).......................................... 4,579,687
50,000 Texas Instruments, Inc. (a)................................. 4,278,125
- --------------------------------------------------------------------------------------------------
16,414,062
- --------------------------------------------------------------------------------------------------
UTILITIES -- 8.0%
125,000 Duke Energy Corp. .......................................... 8,007,813
150,000 Enron Corp. ................................................ 8,559,375
300,760 Sempra Energy (a)........................................... 7,631,785
- --------------------------------------------------------------------------------------------------
24,198,973
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $209,688,555)................... 244,153,660
==================================================================================================
PREFERRED STOCK -- 4.2%
150,000 Cyprus Amax Minerals Co., Exchangeable 0.00% (a)............ 5,250,000
125,000 KMart Financing Corp., Exchangeable 7.75%................... 7,242,188
- --------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK (Cost -- $12,174,125)................. 12,492,188
==================================================================================================
FOREIGN STOCK -- 1.1%
420 Nippon Telegraph & Telephone Co. (Cost -- $3,127,504)....... 3,246,808
==================================================================================================
SUB-TOTAL INVESTMENTS (Cost -- $224,990,184)................ 259,892,656
==================================================================================================
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 13.6%
$40,889,000 Morgan Stanley Dean Witter & Co., 4.650% due 1/4/99;
Proceeds at maturity -- $40,910,126; (Fully collateralized
by U.S. Treasury Notes, 6.500% due 8/15/08; U.S. Treasury
Notes, 6.000% due 8/15/99; U.S. Treasury Notes, 6.375% due
7/15/99; U.S. Treasury Bonds, 6.375% due 8/15/27; Total
market value -- $41,886,532) (Cost -- $40,889,000).......... 40,889,000
==================================================================================================
TOTAL INVESTMENTS -- 100% (Cost -- $265,879,184*)........... $300,781,656
==================================================================================================
</TABLE>
(a) Non-income producing security.
(b) All or a portion of this security is on loan (See Note 12).
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments -- Cost....................................... $12,626,519 $132,453,000 $224,990,184
Repurchase Agreements -- Cost............................. -- 45,204,000 40,889,000
========================================================================================================
Investments, at Value..................................... $13,060,450 $202,285,939 $259,892,656
Repurchase agreements, at Value........................... -- 45,204,000 40,889,000
Cash...................................................... 16,535 34 431
Collateral for securities on loan (Note 12)............... -- -- 6,188,600
Receivable for Fund shares sold........................... -- 377,744 1,994
Receivable for securities sold............................ -- 2,159,212 --
Dividends and interest receivable......................... 208,702 234,812 603,719
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 13,285,687 250,261,741 307,576,400
- --------------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fees payable.......................... 13,252 109,598 129,920
Administration fees payable............................... 6,437 39,854 49,724
Payable for Fund shares purchased......................... 1,361 44,667 222
Payable for securities purchased.......................... -- 4,342,442 --
Payable for securities on loan (Note 12).................. -- -- 6,188,600
Payable for options written (Note 6)...................... -- -- 2,931,250
Accrued expenses.......................................... 22,368 44,925 61,260
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 43,418 4,581,486 9,360,976
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $13,242,269 $245,680,255 $298,215,424
========================================================================================================
NET ASSETS:
Par value of shares of beneficial interest................ $ 1,215 $ 11,612 $ 16,995
Capital paid in excess of par value....................... 12,352,306 169,197,248 244,460,916
Undistributed net investment income....................... 856,146 2,556,138 8,626,454
Accumulated net realized gain (loss) from
security transactions and options...................... (401,329) 4,082,318 11,613,888
Net unrealized appreciation of investments and options.... 433,931 69,832,939 33,497,171
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $13,242,269 $245,680,255 $298,215,424
========================================================================================================
SHARES OUTSTANDING.......................................... 1,215,059 11,611,924 16,995,236
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, PER SHARE.................................. $10.90 $21.16 $17.55
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
===========================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $991,409 $ 1,771,896 $ 3,753,078
Dividends................................................. -- 2,309,090 6,722,144
Less: Foreign withholding tax............................. -- (14,311) --
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 991,409 4,066,675 10,475,222
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3)......................... 58,825 1,032,038 1,607,515
Administration fees (Note 3).............................. 29,412 375,286 584,551
Audit and legal........................................... 21,208 16,171 16,968
Shareholder and system servicing fees..................... 10,758 12,223 12,626
Shareholder communications................................ 3,500 45,435 67,224
Pricing service fees...................................... 6,961 -- --
Trustees' fees............................................ 3,031 12,543 14,587
Custody................................................... 1,212 10,008 11,999
Amortization of deferred organization costs............... -- -- 2,947
Other..................................................... 1,531 4,561 5,721
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 136,438 1,508,265 2,324,138
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 854,971 2,558,410 8,151,084
- -----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND OPTIONS (NOTES 4 AND 6):
Realized Gain (Loss) From:
Security transactions (excluding short-term
securities).......................................... (81,875) 4,800,221 11,808,714
Options written........................................ -- -- (390,090)
- -----------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS).................................. (81,875) 4,800,221 11,418,624
- -----------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Options:
Beginning of year...................................... 235,253 43,212,947 39,948,496
End of year............................................ 433,931 69,832,939 33,497,171
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION........ 198,678 26,619,992 (6,451,325)
- -----------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS AND OPTIONS......................... 116,803 31,420,213 4,967,299
- -----------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $971,774 $33,978,623 $13,118,383
===========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERMEDIATE TOTAL
HIGH GRADE APPRECIATION RETURN
PORTFOLIO PORTFOLIO PORTFOLIO
========================================================================================================
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 854,971 $ 2,558,410 $ 8,151,084
Net realized gain (loss).................................. (81,875) 4,800,221 11,418,624
Increase (decrease) in net unrealized appreciation........ 198,678 26,619,992 (6,451,325)
- --------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 971,774 33,978,623 13,118,383
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (935,810) (2,031,402) (7,063,001)
Net realized gains........................................ -- (7,904,924) (8,487,441)
- --------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (935,810) (9,936,326) (15,550,442)
- --------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 13):
Net proceeds from sale of shares.......................... 1,549,115 102,247,406 36,729,615
Net asset value of shares issued for reinvestment of
dividends.............................................. 935,810 9,936,326 15,550,442
Cost of shares reacquired................................. (4,378,779) (34,679,798) (25,638,306)
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (1,893,854) 77,503,934 26,641,751
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... (1,857,890) 101,546,231 24,209,692
NET ASSETS:
Beginning of year......................................... 15,100,159 144,134,024 274,005,732
- --------------------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $13,242,269 $245,680,255 $298,215,424
========================================================================================================
* Includes undistributed net investment income of:.......... $856,146 $2,556,138 $8,626,454
========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) 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.
18
<PAGE>
- --------------------------------------------------------------------------------
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"). 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) interest income, adjusted for
amortization of premium and accretion of discount, 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
Fund determines 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 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, 1998, reclassifications were made to the capital
accounts of the Intermediate High Grade, Appreciation and Total Return
Portfolios, respectively, to reflect permanent book/tax differences and income
and gains available for distributions under income tax regulations. Accordingly,
for the Total Return Portfolio, portions of accumulated net investment income
and accumulated net realized gains amounting to $14 and $520, respectively, were
reclassified to paid-in capital. 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 have been
deferred and amortized on a straight-line basis over a five year period, which
began with the commencement of operations in December 1993. As of December 31,
1998, deferred organization costs have been fully amortized.
2. DIVIDENDS
The Portfolios 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").
MMC is a wholly-owned subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
which in turn is a wholly-owned subsidiary of Citigroup Inc. Under the Advisory
Agreement, the Intermediate High Grade, Appreciation and Total Return Portfolios
each pay an investment advisory fee calculated at the annual rates of
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1998, Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, received brokerage commissions of $26,965.
No officer, Director or employee of SSB 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, 1998, 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..................................... $ 8,500,871 $ 10,278,632
Appreciation................................................ 84,017,512 34,064,543
Total Return................................................ 215,858,325 164,229,142
- -----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, 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>
Intermediate High Grade.................................... $ 459,289 $ (25,358) $ 433,931
Appreciation............................................... 71,710,492 (1,877,553) 69,832,939
Total Return............................................... 49,524,544 (14,622,072) 34,902,472
- ---------------------------------------------------------------------------------------------------------
</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, 1998, there were no open futures contracts in the
Portfolios.
20
<PAGE>
- --------------------------------------------------------------------------------
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, 1998, 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, 1998:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
=====================================================================================
<S> <C> <C>
Options written, outstanding at December 31, 1997........... 5,310 $ 1,249,520
Options written during the year ended December 31, 1998..... 34,135 10,299,938
Options cancelled in closing purchase transactions.......... (31,610) (8,669,755)
Options expired............................................. (4,060) (998,591)
Options exercised........................................... (2,025) (355,163)
- -------------------------------------------------------------------------------------
Options written, outstanding at December 31, 1998........... 1,750 $ 1,525,949
=====================================================================================
</TABLE>
The following table represents the written call option contracts open at
December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF STRIKE
CONTRACTS EXPIRATION PRICE VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1,750 Wal-Mart Stores, Inc. (Premiums received -- $1,525,949)..... 1/15/99 75 $(2,931,250)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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.
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1998, 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, 1998, 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, 1998, 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, 1998, the Portfolio had no open short sales against the
box.
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
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1998, the Total Return Portfolio had loaned common stocks
having a value of $6,248,672 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
SECURITY DESCRIPTION VALUE
========================================================================
<S> <C>
TIME DEPOSITS:
Bank of Brussels Lambert, 5.500% due 1/4/99............... $3,558,185
Rabobank Nederland, 7.750% due 1/4/99..................... 599,015
Skandinaviska Enskilda Banken, 8.000% due 1/4/99.......... 563,673
Societe Generale, 5.125% due 1/4/99....................... 922,399
Suntrust Bank, 4.000% due 1/4/99.......................... 135,848
REPURCHASE AGREEMENT:
J.P. Morgan Securities, 5.000% due 1/4/99................. 409,480
- ------------------------------------------------------------------------
Total....................................................... $6,188,600
========================================================================
</TABLE>
Interest income earned by the Total Return Portfolio from securities loaned
for the year ended December 31, 1998 was $27,022.
13. SHARES OF BENEFICIAL INTEREST
At December 31, 1998, 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, 1998 DECEMBER 31, 1997
====================================================================================================
<S> <C> <C>
INTERMEDIATE HIGH GRADE PORTFOLIO
Shares sold................................................. 141,698 139,239
Shares issued on reinvestment............................... 88,618 88,428
Shares redeemed............................................. (402,084) (218,271)
- ---------------------------------------------------------------------------------------------------
Net Increase (Decrease)..................................... (171,768) 9,396
===================================================================================================
APPRECIATION PORTFOLIO
Shares sold................................................. 5,173,374 1,610,791
Shares issued on reinvestment............................... 498,739 505,828
Shares redeemed............................................. (1,753,512) (807,939)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 3,918,601 1,308,680
===================================================================================================
TOTAL RETURN PORTFOLIO
Shares sold................................................. 2,063,766 4,458,481
Shares issued on reinvestment............................... 888,597 638,881
Shares redeemed............................................. (1,511,097) (443,057)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 1,441,266 4,654,305
===================================================================================================
</TABLE>
14. CAPITAL LOSS CARRYFORWARDS
At December 31, 1998, 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 2006 TOTAL
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Intermediate High Grade
Portfolio $288,000 $4,000 $25,000 $84,000 $401,000
=================================================================================================================
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
INTERMEDIATE HIGH GRADE PORTFOLIO 1998(1) 1997 1996 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $10.89 $10.70 $10.60 $9.66 $10.69
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (2)........................... 0.65 0.72 0.71 0.66 0.61
Net realized and unrealized gain (loss)............. 0.07 0.21 (0.53) 1.00 (0.94)
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................... 0.72 0.93 0.18 1.66 (0.33)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................... (0.71) (0.74) (0.08) (0.72) (0.61)
Net realized gains.................................. -- -- -- -- (0.09)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions................................... (0.71) (0.74) (0.08) (0.72) (0.70)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.......................... $10.90 $10.89 $10.70 $10.60 $9.66
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN.......................................... 6.79% 8.67% 1.69% 17.76% (3.05)%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)....................... $13,242 $15,100 $14,736 $16,152 $13,280
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)........................................ 0.93% 0.95% 0.90% 0.86% 0.85%
Net investment income............................... 5.82 6.28 6.35 6.63 6.57
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................... 60% 66% 116% 121% 90%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the Intermediate High Grade Portfolio, the Investment adviser waived all
or part of its fees for the three-year period ended December 31, 1996. In
addition, IDS Life reimbursed expenses of $3,006 and $12,616 for the
two-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>
EXPENSE RATIOS
PER SHARE DECREASES TO WITHOUT FEE WAIVERS
NET INVESTMENT INCOME AND REIMBURSEMENTS
-------------------------- --------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Intermediate High Grade.................................. $0.020 $0.009 $0.020 1.07% 0.94% 1.05%
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
APPRECIATION PORTFOLIO 1998(1) 1997 1996 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $18.73 $15.86 $14.39 $11.54 $11.80
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income.......................... 0.27 0.24 0.27 0.23 0.20
Net realized and unrealized gain (loss)........ 3.24 3.90 2.60 3.04 (0.32)
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.............. 3.51 4.14 2.87 3.27 (0.12)
- ---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.22) (0.21) (0.25) (0.21) (0.14)
Net realized gains............................. (0.86) (1.06) (1.15) (0.21) --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions.............................. (1.08) (1.27) (1.40) (0.42) (0.14)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $21.16 $18.73 $15.86 $14.39 $11.54
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN..................................... 19.15% 26.39% 19.77% 28.84% (1.12)%
- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................. $245,680 $144,134 $101,232 $94,492 $80,823
- ---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................... 0.80% 0.80% 0.85% 0.97% 0.88%
Net investment income.......................... 1.36 1.68 1.59 1.65 1.75
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 22% 34% 39% 43% 61%
=====================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
25
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO 1998(1) 1997 1996 1995 1994
===========================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $17.62 $15.73 $12.75 $10.78 $10.30
- -----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (2)...................... 0.49 0.37 0.26 0.43 0.34
Net realized and unrealized gain............... 0.38 2.26 2.97 2.19 0.42*
- -----------------------------------------------------------------------------------------------------------
Total Income From Operations..................... 0.87 2.63 3.23 2.62 0.76
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.......................... (0.43) (0.21) (0.07) (0.41) (0.28)
Net realized gains............................. (0.51) (0.53) (0.18) (0.24) --
- -----------------------------------------------------------------------------------------------------------
Total Distributions.............................. (0.94) (0.74) (0.25) (0.65) (0.28)
- -----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $17.55 $17.62 $15.73 $12.75 $10.78
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN..................................... 4.97% 16.84% 25.33% 25.04% 7.40%
- -----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S).................. $298,215 $274,006 $171,503 $78,042 $23,196
- -----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)................................... 0.79% 0.79% 0.83% 1.00% 1.00%
Net investment income.......................... 2.79 3.24 3.06 3.80 3.84
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.......................... 72% 75% 82% 81% 118%
===========================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the Total Return Portfolio, the Investment adviser waived all or part
of its fees for the year ended December 31, 1994. In addition, IDS Life
reimbursed expenses of $7,873 for the year 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>
<CAPTION>
PER SHARE EXPENSE RATIOS
DECREASES TO NET WITHOUT WAIVERS
INVESTMENT INCOME AND REIMBURSEMENTS
----------------- ------------------
1994 1994
---- ----
<S> <C> <C>
Total Return................................................ $0.01 1.11%
</TABLE>
* 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.
26
<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 Intermediate High Grade,
Appreciation and Total Return Portfolios ("Portfolios") of Greenwich Street
Series Fund ("Fund") as of December 31, 1998, 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 four-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 the year ended December 31, 1994, 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, 1998, by correspondence with the custodian. As to securities
purchased or sold but not yet 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, 1998, 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 four-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
February 8, 1999
27
<PAGE>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year
ended December 31, 1998:
- Percentages of ordinary dividends paid as qualifying for the dividends
received deduction:
<TABLE>
<S> <C>
Appreciation Portfolio................................. 76.24%
Total Return Portfolio................................. 35.70
</TABLE>
- Total long-term capital gain distributions paid:
<TABLE>
<S> <C>
Appreciation Portfolio................................. $7,651,561
Total Return Portfolio................................. 1,615,958
</TABLE>
A total of 12.44% of the ordinary dividends 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.
28
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED)
On February 6, 1998, a special meeting of shareholders of the Trust was
held for the purpose of voting on the following matters:
1. To elect Trustees of the Trust which includes all Portfolios; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
SHARES VOTED PERCENTAGE OF SHARES VOTED PERCENTAGE OF
NAME OF TRUSTEES FOR SHARES VOTED AGAINST SHARES VOTED
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Herbert Barg.................................. 41,457,550.573 97.176% 1,204,698.617 2.824%
Alfred J. Bianchetti.......................... 41,443,251.652 97.143 1,218,997.538 2.857
Martin Brody.................................. 41,448,794.038 97.156 1,213,455.152 2.844
Dwight B. Crane............................... 41,476,634.180 97.221 1,185,615.010 2.779
Burt N. Dorsett............................... 41,484,718.121 97.240 1,177,531.069 2.760
Elliot S. Jaffee.............................. 41,463,169.203 97.189 1,199,079.987 2.811
Stephen E. Kaufman............................ 41,468,535.534 97.202 1,193,713.656 2.798
Joseph J. McCann.............................. 41,476,403.003 97.220 1,185,846.187 2.780
Heath B. McLendon............................. 41,476,953.962 97.222 1,185,295.228 2.778
Cornelius C. Rose, Jr. ....................... 41,487,746.207 97.247 1,174,602.983 2.753
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Fund in order to modernize them in view of certain
regulatory, business or industry developments that have occurred since original
adoption of these policies by the Portfolios. The chart on the following page
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy, "E" indicates
the elimination of the policy; and "R" indicates the reclassification of the
policy from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Trustees).
<TABLE>
<CAPTION>
INTERMEDIATE HIGH APPRECIATION TOTAL RETURN
GRADE PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
M Diversification............................... X X X
- -----------------------------------------------------------------------------------------------------------
M Senior Securities............................. X X X
- -----------------------------------------------------------------------------------------------------------
M Industry Concentration........................ X X X
- -----------------------------------------------------------------------------------------------------------
M Borrowing..................................... X X X
- -----------------------------------------------------------------------------------------------------------
E Ability to Pledge Assets...................... X X X
- -----------------------------------------------------------------------------------------------------------
M Lending....................................... X X X
- -----------------------------------------------------------------------------------------------------------
M Underwriting of Securities.................... X X X
- -----------------------------------------------------------------------------------------------------------
R Margin and Short-Sales........................ X X X
- -----------------------------------------------------------------------------------------------------------
M Real Estate................................... X X X
- -----------------------------------------------------------------------------------------------------------
R Purchases of Securities of Other Investment
Companies..................................... X X X
- -----------------------------------------------------------------------------------------------------------
R Investments in Oil, Gas and Mineral
Exploration................................... X X X
- -----------------------------------------------------------------------------------------------------------
R Puts, Calls and Combinations Thereof.......... X X X
- -----------------------------------------------------------------------------------------------------------
X-Approved
</TABLE>
29
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED) (CONTINUED)
The information below reports the lowest percentage of shares voting for
the proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all proposals.
INTERMEDIATE HIGH GRADE PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,247,633.554 94.835% 8,539.286 0.649% 59,415.808 4.516%
- --------------------------------------------------------------------------------
</TABLE>
APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6,611,648.810 92.205% 78,829.747 1.099% 480,130.453 6.696%
- --------------------------------------------------------------------------------
</TABLE>
TOTAL RETURN PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
13,559,421.184 92.733% 162,122.220 1.109% 900,413.487 6.158%
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
(This page intentionally left blank.)
<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
S6223-1 D (2/99)
<PAGE>
GREENWICH STREET SERIES FUND
ANNUAL REPORT
INTERMEDIATE HIGH GRADE PORTFOLIO
APPRECIATION PORTFOLIO
TOTAL RETURN PORTFOLIO
DECEMBER 31, 1998
<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.
S6223-1 D (2/99)
GREENWICH STREET SERIES FUND
ANNUAL REPORT FOR
SYMPHONY
A Tax-Deferred Variable Annuity
LOGO
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, 1998
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
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, 1998. This letter will briefly
discuss general economic and market conditions. In addition, detailed
comparisons showing the growth of 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.
ECONOMIC REVIEW AND OUTLOOK
1998 saw a widely gyrating U.S. stock market with different sectors performing
differently. The large cap oriented S&P 500 Stock Index ("S&P 500") returned
28.72% for the year. The S&P 400 Midcap Index had a gain of roughly 19.1% while
the Russell 2000 Index ("Russell 2000") had a negative return of 2.6% for the
year ended December 31, 1998. Dividend-paying defensive stocks such as utilities
performed better than the average small- and mid-cap stock. While technology
stocks were adversely impacted by the global financial crisis in late 1997, they
have since rebounded, led by Internet-related names.
The economies of the developed world flourished in 1998 while most emerging
markets went down. Low interest rates, robust consumer spending and benign
inflation fueled economic growth in the U.S. and Europe and created favorable
conditions for corporate profitability. In contrast, Russia's economy collapsed,
Asia's economies remained mired in recession and Brazil's economy faltered at
year-end after $30 billion was spent to defend its currency during the reporting
period.
1998 was also a record year for mergers and acquisitions, nearly double 1997's
total. The merger of oil giants Exxon and Mobil announced in December will
result in the creation of the world's largest company in terms of revenue. In
the digital world, merger activity between Internet service providers, phone
companies, cable companies and telecommunications firms heated up, as
"convergence" became the new mantra.
We remain guardedly optimistic about the resilient U.S. economy in the first
half of 1999 because we expect interest rates to stay low and the productivity
revolution through technology to continue. However, the risks from foreign
markets cannot be discounted and future corporate earnings may come under
increasing pressure.
BOND MARKET COMMENTARY
Problems that started with Asia's currency devaluations in the summer of 1997
hit the bond market hard in August and September of 1998. Bond values fell
dramatically and asset-backed bonds, mortgage-backed securities, emerging-market
debt and corporate bonds all were negatively affected. In 1998, the more risk a
bond investor assumed, the more he or she suffered.
For the year ended December 31, 1998, the Lehman Government/Corporate Index
("Index") returned 9.47%. During the reporting period, the spreads between
different kinds of bonds and U.S. Treasuries widened at record speed as
investors gravitated to their safety amidst rising stock market volatility and
higher investor anxiety about the global economy. The Federal Reserve Board
("Fed") then changed its monetary policy from one of vigilance against inflation
to one of combating deflation during the reporting period and cut rates three
times. So far in 1999, spreads have tightened, bond market liquidity has
returned and the bond market has stabilized.
Markets and policy makers expect real U.S. economic growth to finally slow to
the 1%-2% level in 1998 after three years of 3% plus growth. The slowdown is
expected to be led by a sharp reduction in the growth rate of investment
spending and continued weakness in the export sector. The Conference Board
survey of corporate sentiment indicates that capital-spending plans has not yet
rebounded with the stock market and consumer sentiment. Year 2000 ("Y2K")
spending is temporarily boosting capital spending, yet industrial overcapacity
and several years of rapid spending in technology make slower investment
spending highly likely.
However, a drop in the rate of consumer spending growth is essential to any
meaningful forecast of 1%-2% real Gross Domestic Product ("GDP") growth. This
has not happened yet despite two years where consumer spending has been close to
consumer income. The wealth effect from three years of 20% plus stock market
gains is estimated to increase spending 1.5%
1
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
more than implied by income growth. Lower interest rates, lower oil and other
commodity prices, and declining import prices have further boosted consumer
purchasing power.
The tight employment market has also been a major force behind high consumer
confidence and spending plans. December brought a further sharp drop in oil
prices and continued record high auto sales and housing starts (which
substantially exceeded expectations). Unless they were all caused by
unseasonably warm weather, these factors cause us to push any forecast of a
consumer slowdown further out into the future which will delay any further Fed
rate cuts.
There are storm clouds on the horizon that could lead the consumer to retreat.
Latin America has been pushed into recession by last summer's emerging market
meltdown and could be subject to further pressure if a Brazilian crisis erupts.
Latin America has a larger economic impact on the U.S. than Asia and Russia do.
A decline in the stock market could rattle the consumer, although the stock
markets continued resilience means that a sustained downturn is required before
spending would be significantly impacted. Japan is also a big question mark.
Economic activity is now declining there after several years of flat growth.
Despite three rate cuts in the second half of 1998, it would be hard to say the
Fed has an easy monetary policy. Short-term interest rates are still more than
3% above inflation and are high relative to nominal growth. Credit market
spreads are high and banks are tightening credit standards. These factors create
a downward bias for short-term rates over the long-term, but rates are likely to
remain stable until the consumer slows down.
With the Fed on hold, there will be some upward pressure on long-term rates. But
slow growth outside the U.S. and continued low inflation should prevent rates
from rising too much. The fact that so much of the U.S. Treasury curve trades
below the federal-funds rate is a big factor in the continued high spreads in
the investment grade corporate market. Because of this, spreads should move to
offset the change in U.S. Treasury yields -- narrowing when yields rise and
widening when yields fall.
STOCK MARKET COMMENTARY
The deepening global financial crisis and its adverse impact on global economies
and leveraged hedge funds sent the U.S. stock market into a tailspin during the
third quarter of 1998. The S&P 500 fell by almost 10% in the third quarter while
the Russell 2000 Index of smaller companies fared even worse with a decline of
20%.
The third quarter began on a promising note as stock prices rose by almost 5% in
the first half of July. From the then all-time highs established on July 17,
1998, a series of bad news related to political and currency turmoil led the
stock market down through the end of August. The market decline over that period
was close to 20%, which qualifies under most scenarios as a bear market.
The bulk of the bad news in August came from the political and economic crisis
in Russia and the continuing spread of the currency contagion. The collapse of
the Russian ruble and the restructuring of Russian debt triggered trading and
lending losses at brokerage firms and banks. The crisis in the financial sector
took a turn for the worse later in the quarter as several hedge funds disclosed
losses related to the global financial turmoil. Several stocks in the financial
sector saw their market value cut in half during the third quarter.
Increased uncertainty over Clinton's presidency and the bigger question of the
damage to corporate profits added to the volatility in the stock market. The
increased prospects of a global and U.S. economic slowdown led to some easing of
monetary policy. Japan first decreased short-term interest rates by 20 basis
points and the Fed followed suit with a 25 basis point rate cut in late
September. The U.S. stock market rallied in anticipation of the rate cut and
stock prices rose by almost 6% in September.
In the large-capitalization stock universe, high-quality growth stocks performed
better than value stocks in the third quarter of 1998. The utilities sector
produced the only positive performance in the third quarter while the financial
services and energy sectors at the other end of the spectrum fell by over 20%.
Large-cap technology and health care stocks held up reasonably well, but
consumer stocks declined sharply against the likely backdrop of an economic
slowdown.
A proactive and aggressive stance by the Fed halted the stock market slide early
in the fourth quarter of 1998 and sent stock prices soaring in November and
December. The fourth quarter rally erased losses from the third quarter and most
market measures reached new all-time highs.
2
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
The negative sentiment in the stock market persisted through the first week of
October as the S&P 500 fell another 6%. Investor concerns focused on the impact
of the Russian crisis and global lending and trading losses on U.S. economic and
earnings growth.
Sentiment reversed in the second week of October after most market indexes had
declined over 20% from their all-time highs. The reversal in trend turned into a
significant stock market rally when the Fed cut short-term rates by an
unexpected 25 basis points in the middle of October. The surprise Fed action
raised hopes that a proactive stimulative monetary policy by the most central
banks would avert a global recession.
The stock market rally, triggered by the unexpected Fed rate cut in mid-October,
continued almost unabated through the months of November and December. The
market was also helped by economic reports in the fourth quarter which were well
ahead of expectations. Despite the strength in the economy, interest rates
remained low mainly as a result of low inflation.
The performance of the U.S. stock market in 1998 proves yet again that interest
rate changes and liquidity flows may have a more dominant influence on stock
prices than most other factors. In a year where earnings growth was close to
zero, most measures of the U.S. stock market have risen by over 20%. Declining
interest rates, which fell from 5.9% to 5.1% during 1998, have triggered a
significant expansion in the market price/earnings ("P/E") multiple. The upward
pressure on stock prices has been further amplified by strong money flows as
yields on alternative investments have dwindled.
A notable aspect of the stock market performance in 1998 was the divergence in
returns across different styles and segments of the market. While the S&P 500
rose by 28.72% in 1998, the Russell 2000 actually declined by 2.6%. The gain in
large company growth stocks of 42.2% was well ahead of the 14.7% advance of
large company value stocks and almost out of sight.
With earnings growth slowing down, the market's P/E multiple has now reached 23
times 1998 earnings. It appears that the biggest risk to the stock market still
remains on the earnings front. Earnings estimates for 1999 remain high and it is
quite likely that these earnings forecasts will be revised downward. Despite the
possible downward earnings revisions, we believe that support from low interest
rates should limit any excessive downside for the market.
MONEY MARKET PORTFOLIO
For the year ended December 31, 1998, the Portfolio generated a total return of
4.40%.
The effects of the global events in Russia, Japan and Asia have finally reached
the United States. Many U.S. financial institutions have suffered losses due to
their exposure to Russia and a widening spread on debt instruments in emerging
markets. In fact, the widening spread of debt instruments has even occurred
among "AA"-rated banks and brokerage firms as their future earnings continue to
be questioned. Moreover, the near default of a major hedge fund caused spreads
to widen even more as it began to liquidate its portfolio.
Instability in the capital markets and the downturn in the U.S. stock market
prompted the Fed to take preemptive moves and lower the federal-funds rate from
5.50% to 4.75%. In the view of the managers, this 75 basis point ease in the
Fed's monetary policy has enabled the financial markets to function once again
in an orderly yet still cautious fashion. It appears that a full-blown credit
crunch and U.S. economic recession have been avoided.
The financial markets are now focused as to what degree the U.S. economy may
slow, and further monetary policy eases by the Fed will depend on how the U.S.
economy performs. The major G-7 countries are closely monitoring the financial
markets and global interest-rate cuts have begun. The International Monetary
Fund ("IMF") has devised liquidity plans for emerging market countries in Latin
America and Asia to avoid funding disruptions when global capital flows become
more volatile.
The most recent economic data suggests to the portfolio managers that the U.S.
economy is still healthy and growing at around a 2.5%-3.0% annual pace as we
head into 1999. Several factors such as low interest rates, a healthy housing
and consumer sector, recent lows in oil prices, a rebound in stock prices, and a
bottoming out in Asia have all helped support global economic growth. On the
other hand, a still weak manufacturing sector and some corporate profit
pressures continue to weigh negatively on the U.S. economy.
3
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
For the year ended December 31, 1998, the Diversified Strategic Income Portfolio
("Portfolio") returned 6.41% compared to the Lehman Brothers Aggregate Bond
Index return of 8.69% 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.)
The emphasis of the managers during 1998 was to reduce their exposure to foreign
securities. While their security selection continues to focus on the European
financial markets and not the countries so prevalent in the press, they believe
that U.S. markets should provide a better safe haven. The unforeseen spread
widening experienced in mortgage-backed securities and corporate bonds from
October creates what the managers believe represent tremendous opportunities.
The Portfolio's current asset allocation target is 55% mortgage-backed
securities, 35% high-yield and 10% foreign with an average portfolio maturity of
roughly five years.
High-Yield Bonds
The high-yield bond market generated relatively weak results during the third
quarter of 1998, underperforming all of the other domestic bond market sectors.
By the end of September, the Fed began taking aggressive actions to restore
investor confidence in the financial markets. The Fed concluded that the
financial markets were beginning to freeze up and overall liquidity in the bond
market was disappearing. Many companies were finding it increasingly more
difficult to borrow money through bond markets. Moreover, there was a more
pronounced reluctance on the part of many investors to invest in new bonds,
especially from companies that issue high yield bonds. Fears that an economic
recession was becoming more likely given the turmoil in emerging market
economies such as Korea, Russia and Indonesia were also market factors.
Moreover, investors became concerned that a worldwide credit crunch in the
financial markets might throw the U.S. economy into a meaningful recession. By
acting decisively and lowering short-term interest rates three times, the Fed
was able to stabilize the domestic financial markets and restore investor
confidence. In the fourth quarter of 1998, as investors slowly became more
comfortable with the economic outlook and the Fed's resolve to keep the economy
out of a recession, the high yield bond market stabilized and outperformed other
bond sectors. Yet because of a lingering uncertainty over the economy, the
high-yield bond market trades at undervalued levels. As more investors become
convinced that the U.S. economy is still fundamentally sound, the high-yield
bond market should continue to stabilize and prices may improve.
The portfolio manager of the high-yield bond portion viewed the recent
correction in the high-yield bond market as a buying opportunity and carefully
redeployed excess cash reserves into the market during this time. However, given
the continued problems in Asia, he remained underweighted in basic commodity
industries such as steel, forest products, energy and petrochemicals, industries
that have been negatively affected by worldwide deflationary trends in recent
months. (Deflation is when prices actually fall. Deflation should not be
confused with disinflation, which is the slowing down of the rate at which
prices increase).
Government Securities
The government securities portion of the Portfolio continued to emphasize income
by investing in mortgage-backed securities. To the extent that conditions
suggest lower interest rates, intermediate-term U.S. Treasuries were bought
during the reporting period to help boost the Portfolio's appreciation
potential. The manager of the government securities portion of the Portfolio
intends to closely monitor mortgage prepayment possibilities if interest rates
decline further.
The key events during 1998 were predominantly mergers and acquisitions, the
ongoing overseas economic crisis and the resiliency of the U.S. economy and
financial markets. The broad range in interest rates and the associated higher
market volatility reflected those conditions.
The historically low level of interest rates in October 1998 was precipitated by
the first Fed interest rate cut since 1996. While further cuts ensued, concerns
surrounding hedge fund losses took center stage, prompting spreads between
corporate bonds and mortgage-backed securities to widen versus U.S. Treasuries.
Compounding the problem was considerable corporate financing as the portfolio
managers headed toward the end of the year. Corporate debt issuance for 1998 on
a net basis was more than the prior two years combined.
The manager believes that the dominant issues in 1999 will be the advent of the
Euro, the prospects for economic recovery throughout Asia and other less
developed countries, the future sustainability of U.S. economic growth and the
ongoing
4
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
resiliency of U.S. financial markets. (The Euro is the new, single currency of
eleven European Union countries that began on January 1, 1999.)
The Euro introduces a new variable to macroeconomic analysis that has not been
faced since the demise of the Soviet empire and the advent of true global
competition. Opportunities should abound in the financial markets as corporate
financing expands in creative new ways. However, the implications for the U.S.
dollar as the world's premier currency has now been brought into question by the
Euro's introduction.
The economic picture throughout Asia and Russia remains critically unclear.
Rising employment, the need to dump finished goods in the face of uncertain
currencies and fiscal policies that are slow to change and less than dramatic,
do not bode well for the financial markets of less developed countries.
In the view of the manager, the U.S. economy and the financial markets will
continue to soul search as to prospects for continued good fortune. The
positives include such variables as low unemployment, strong productivity and
the dramatic increase in defined contribution plans (i.e., 401(k) plans) and
estate planning as key market influences. However, historically low savings (the
traditional standard) being redefined as the "wealth effect" as measured by
investment growth remains an ever present shadow that can change with the ups
and downs of the financial markets.
Global Government Bonds
Starting with currency devaluations in East Asia, followed shortly by the
500-point fall in the Dow Jones Industrial Average in October 1997, continuing
with the period of complacency in the first half of this year (during which the
U.S. stock market rallied roughly 20% and European market even more), through
the massive dislocations in financial markets this summer and fall, the world
has rarely seen such disorder and disarray compressed into such a short time
period.
The principal effect on bond markets was the dramatic rally in major government
bond prices over the summer, bringing 10-year German yields below 4% and 30-year
U.S. Treasury bond yields below 5%. This rally was in conjunction with and
partly due to, the sell-off in emerging markets over the late spring and early
summer, as well as the drastic widening of credit spreads of all natures over
the same period. Many investors fled to the highest-quality markets and divested
themselves of anything that could be construed as a "yield spread" product over
the safest of government bond markets. (The term "yield spread" used here refers
to those bonds with yields that exceed those of similar maturity U.S. Treasury
bonds.)
The manager of the global government bond portion of the Portfolio sold all of
his Japanese bond holdings during the summer because:
- With Japanese government bonds yielding below 1%, further price rises are
unlikely to exceed those in other developed world bond markets; and
- With a Japanese weighting of 14% in the J.P. Morgan Global Bond Index,
such a low yielding asset makes it difficult to achieve the dividend
target for the Portfolio.
The manager reinvested some of his U.S. Treasury bond holdings into Canadian and
Australian government bonds to take advantage of the spread widening in those
markets which occurred over the summer. Yields on both Canadian and Australian
bonds have widened significantly compared to comparable U.S. Treasury securities
and the manager expects that difference to narrow in the coming months.
During the early part of the reporting period, the Portfolio benefited from its
concentrated German bonds that have generally outperformed other non-U.S.
government bonds during the reporting period due to the flight-to-quality that
followed the Russian debt default and the widely publicized troubles of large
speculators. In order to preserve those gains, the manager redistributed some of
the Portfolio's German bond holdings into the Danish market, where he believes
good value exists.
The Portfolio's performance suffered from its several emerging markets bond
holdings, in particular its Russian holdings, over the summer. Recently, several
emerging markets have begun to recover, and have outperformed developed world
bond markets. As a result, the manager has begun to cautiously rebuild some of
his holdings in this asset class, but only in the safest, most highly rated of
emerging markets.
5
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
The Equity Income Portfolio ("Portfolio") seeks to provide investors with
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 by the Portfolio's managers to be
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 stocks and bonds of companies in the utility industry.
For the year ended December 31, 1998, the Portfolio had a total return of 16.99%
compared to the S&P 500 total return of 28.72%. The Portfolio focuses on the
utility sector that is viewed as a defensive, income-oriented group and is more
sensitive to changes in the level of interest rates than to the broad-based
stock market.
An otherwise solid stock performance by the utility sector during 1998 was
overshadowed by another exceptional strong performance by the broad stock
market. As of December 31, 1998, the managers owned 40 stock positions and 17
bonds issues. On the stock level, electric utilities dominated with almost 55%
of the Portfolio's assets, followed by natural gas and telecommunications
companies.
Last year was an exciting one within the utility stock universe because of the
extreme divergent investment results -- top performers up over 70%, and laggards
down more than 20%. The defining characteristic that separated the top
performers from their peers was the completion of their regulatory restructuring
plans that outlined management's long term strategies. Once implemented these
deregulated strategies resulted in improved earnings growth visibility and
reduced risk of regulatory uncertainties for each specific utility.
Thematically, 1998 was a year in which many companies seriously started
positioning themselves for the deregulated energy markets. Several large
utilities bought generating assets in other regions as part of a national
wholesale energy strategy while others exited the generation business in order
to focus on the regulated transmission and distribution business. International
acquisitions remained the focus of many companies at a time when other electric
companies were selling off their international investments. In addition, the
first nuclear plant acquisition was made.
The portfolio manager anticipates that deregulation will accelerate in 1999 with
the likely passage of restructuring legislation in key states such as New
Jersey, Texas and Michigan. Additionally, he anticipates a pick up in merger and
acquisition activity with small- and mid-sized utilities finding it increasingly
more difficult to compete in the complex deregulated market hampered primarily
by their size. As companies continue to restructure and re-deploy capital
investments they have assumed earnings growth for the sector will remain in the
three to five percent range and the average dividend pay out (i.e., the portion
of earnings distributed as dividends) will continue to decline an average of
twelve percentage points. For the successful companies, however, the
redeployment should set the stage for better total investment returns in the
future.
EQUITY INDEX PORTFOLIO
The Equity Index Portfolio ("Portfolio") is managed to provide investment
results that, before the 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 year ended December 31, 1998, the Portfolio posted a total return
of 28.46% compared to the total return of the S&P 500 of 28.72% for the same
period.
The Portfolio is designed to provide reliable exposure to the large cap segment
of the U.S. market through a broadly diversified portfolio structure. The
Portfolio matches the composition of the S&P 500 Index and owns the constituent
index stocks at the appropriate index weight. The Portfolio, therefore, remains
neutral relative to the benchmark in terms of economic sectors, market
capitalization and the growth and value styles of investing.
The performance of the U.S. stock market in 1998 proves yet again that interest
rate changes and liquidity flows may have a more dominant influence on stock
prices than most other factors. In a year where corporate earnings growth was
close to zero, most measures of the U.S. stock market have risen by over 20%.
Declining interest rates, which fell from 5.9% to 5.1% during 1998, have
triggered a significant expansion in the market's P/E multiples. The upward
pressure on stock prices has been further amplified by strong money flows as
yields on alternative investments have dwindled.
A notable aspect of the stock market performance in 1998 has been the divergent
trends in returns across different investment styles and market segments. While
the S&P 500 Index rose by 28.72% in 1998, the Russell 2000 Index representative
of
6
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
smaller companies actually declined by 2.6%. The gain in large-sized company
growth stocks of 38.7% was well ahead of the 15.6% advance of large-sized
company value stocks and extremely high compared to small-company growth stocks,
which produced negative returns.
This remarkable spread in relative performance between different capitalizations
and investment styles can best be understood in the context of business cycle
investing and the still unfolding global economic crisis. A common perception is
that the U.S. economy is in the later stages of a muted economic cycle. As
overall corporate earnings growth becomes scarce, investors are more willing to
reward stable growth companies with higher valuations. The flight to quality
precipitated by global turmoil during the reporting period has worked against
riskier asset classes such as small-cap stocks. The combination of meager
overall corporate earnings growth and the flight-to-quality syndrome has worked
in favor of large-cap stocks and against small-cap stocks.
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, 1998, the Portfolio had a return of 11.88% versus the total
return of 15.72% for Lipper, Inc. peer group average for the same period.
(Lipper is a major independent fund-tracking organization.)
The year 1998 set records in the U.S. financial markets. It was broad based, for
investors enjoyed all time record highs in the popular stock market averages,
while bond market yields touched levels last seen in the 1960s. Yet 1998 was
also a tumultuous year. Small-capitalization stock indices, such as the Russell
2000 Index, were actually down for the year. And even large-capitalization stock
indices twice dipped into negative territory. At the end of August and again in
the beginning of October, stocks traded at levels below those of January 1. But
then stocks recovered and rallied strongly through year-end.
The Portfolio is widely diversified, and participates in most of the major stock
market sectors. Due to the strategy of emphasizing stocks with rising dividends,
the Portfolio is somewhat underweighted in the technology sector. This
underweight penalized relative performance, however, as technology stocks
performed strongly over the last twelve months.
Since mid-year, the manager has purchased companies in several different
industries, including health care, technology and financial services. Within
health care, he purchased two pharmaceutical companies, Mylan Labs and Pfizer.
Mylan is a leading generic drug manufacturer, while Pfizer has a very promising
new product pipeline. Computer Associates has a strong position in software for
various business applications. In the financial services sector, the manager
purchased two brokerage stocks, Morgan Stanley Dean Witter and A.G. Edwards; a
savings and loan, Washington Mutual; and an insurance company, Conseco. All were
off their highs, and selling at very reasonable prices relative to their growth
prospects.
Over the same six months, the manager sold a number of stocks. In the natural
resource sector the manager sold Broken Hill Proprietary, an Australian company,
as well as Temple Inland. Both companies stumbled due to lower worldwide
commodity prices. Minnesota Mining and Manufacturing is a well-respected company
with a diversified product line. The portfolio manager sold the stock, however,
due to disappointing revenue growth. The manager also sold M.A. Hanna, a maker
of specialty resins, due to a slowing in its end markets.
In 1999, the manager anticipates further volatility in the U.S. stock market.
Some sectors, such as internet-related stocks, should swing wildly over the next
year. By and large, the Portfolio should be cushioned from these kind of extreme
swings in sentiment and prices. Further, the manager expects the underlying
fundamentals of the economy and markets to remain solid. Corporate earnings
should accelerate in 1999 versus 1998, while inflation remains low.
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 Portfolio posted a total return of 37.14% for the
year ended December 31, 1998, compared to the Lipper, Inc. peer group average
which had a total return of a negative 25.82% for the same period.
7
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
For the year overall, the market benefited from low inflation and new cash flows
into stocks. The stock market performed extremely well through mid-July, when
the Dow Jones Industrial Average set a then record high. Trouble was on the
horizon, however, as the markets feared that many U.S. companies would announce
earnings problems resulting from exposure to lagging international economies.
Investors became increasingly concerned after severe economic problems in Russia
and the near-failure of a large hedge fund threatened financial stability. By
August 31, 1998, the Dow had fallen 19 percent from its high.
Beginning in October conditions began to improve. Inflation remained tame,
enabling the Fed to lower interest rates in September and then again in October
and November. By October, companies began to report better-than-expected third-
quarter earnings, reminding investors that the U.S. economy, although slowing,
was still fundamentally solid. The volatile stock market began to rise again,
with the Dow setting a new record in November before declining modestly from its
high by year-end.
The managers have confidence in their investment strategy, so they continued to
rely upon it throughout last year's highs and lows. As always, they looked for
stocks with rising earnings expectations and rising valuations, and they
invested in those companies they believed had the potential to outperform
earnings expectations. Conversely, they sold stocks if their underlying
companies' earnings estimates or valuations were declining. The managers
consistently run the Portfolio from the "bottom up," meaning that they evaluate
each company individually before deciding whether or not to invest.
That said, 1998 -- particularly the third quarter -- was a challenge because
fewer stocks met their requirements. When the market was at its most volatile,
few companies had rising valuations, so they looked for the stocks whose
valuations were declining the least. Fortunately, the situation stabilized in
the fourth quarter, and the managers found it easier to identify companies that
satisfied their criteria.
The Portfolio was supported primarily by its substantial weighting in technology
stocks. Tech companies, especially those whose businesses are Internet-related,
generally enjoyed the greatest success during the reporting period. America
Online, the nation's leading Internet service provider and the Portfolio's
largest holding at year-end, was among 1998's biggest winners, as its stock rose
572 percent. Yahoo!, which provides a well-known Internet directory, was equally
impressive; its stock price increased by 585 percent in 1998. Other technology
stocks that helped the Portfolio's performance during the year were Dell
Computer, a pioneer in direct computer sales, and EMC, which makes data storage
systems.
Despite a difficult third quarter, retail companies also performed well and
helped the Portfolio during the reporting period. Best Buy, a leading consumer
electronics and appliance retailer, experienced a successful year and its stock
price rose correspondingly. Another successful investment was our purchase of
AnnTaylor Stores, a women's apparel retailer. On the pharmaceutical front, drug
manufacturer Biogen also proved to be a successful acquisition.
Of course, not all stocks in the Portfolio performed as favorably, and there is
no guarantee that any of these stocks will perform as well in the future.
Historically speaking, stock valuations are still relatively high, which makes
the market vulnerable to a sharp drop if bad news rattles investors. At the same
time, central banks around the world, including the Fed, have been implementing
policies designed to bolster lagging economies. The managers anticipate that
these actions may benefit stocks and limit the potential for negative corporate
earnings surprises. Finally, they continue to monitor the Y2K computer problem,
because the companies in which the Portfolio primarily invests -- small- and
mid-cap stocks -- are the ones that are the most likely to be affected.
As the managers have mentioned before, valuations for small-cap stocks continue
to be at historic and relative lows, suggesting a potentially bright future for
the Portfolio. Indeed, in the final quarter of 1998, they saw the first signs of
a narrowing of the valuation gap between large- and small-cap stocks. This gap
should eventually close further, but they believe it is likely to remain wide as
long as investors continue their "flight to quality," or preference for
large-cap, blue-chip investments. If small- and mid-cap stocks begin to
consistently outperform, however, the Portfolio should be well positioned.
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, 1998, the
Portfolio posted a total return of 18.84% compared to the MSCI EAFE
8
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
Index which posted 20.33% for the same period. (The MSCI EAFE Index consists of
the equity total returns for Europe, Australia, New Zealand and the Far East.)
Powerful forces buffeted global equity markets during 1998. Some of those
factors included:
- The economic convergence of eleven European countries to form "Euroland"
with a common functional currency, the Euro
- Significant political change in Asia and Europe and the U.S. Presidential
impeachment process
- Russian debt default, the instability of hedge funds, massive debt
trading losses from major financial institutions and withdrawal of
trading liquidity
- Ongoing global disinflation (in many cases, deflation) which applied
downward pressure to both commodity prices and the developing economies
- Massive mergers and acquisitions in several global industries.
The first half of the year was characterized by strongly positive returns from
the developed markets while emerging market performance lagged. The financial
crisis of late summer engulfed equity markets, negating virtually all gains from
the early part of the year and driving emerging market returns sharply negative.
Coordinated central bank monetary stimulus has allowed a sharp recovery in most
equity markets over the past few months.
Market volatility during the year was higher than in recent years, providing
discomfort to many investors during the late summer and early fall bear market.
Many high-quality stocks fell sharply as investors fled equities for the
perceived safety of dollar-denominated fixed income instruments. This provided
great buying opportunities in stocks and again illustrated the benefit of a
long-term investment perspective.
For other sectors of the market -- specifically those companies oriented to
resources and commodities -- the global economic deceleration and looming
overcapacity combined with strong downward price pressures from end users
increased the prospect of poor earnings in 1998 and 1999. The managers see very
little attraction in these sectors until a major contraction in capital spending
occurs leading to capacity attrition.
Interestingly, corporate managements also took advantage of the sharp decline to
initiate merger and acquisition activity, which reached record levels globally
in 1998. Many enormous transaction were announced in financial services
(Deutsche/ Bankers, Citigroup), energy (Exxon/Mobil) and automotive
(Daimler/Chrysler.) The managers anticipate 1999 should bring further strong
merger and acquisition activity across borders given that national concentration
in many industries has been largely completed.
The three limiting factors on relative performance were:
- Non-U.S. large capitalization stocks, which dominate the EAFE index,
delivered higher returns than mid- and small-capitalization stocks,
similar to the U.S. experience
- Emerging market exposure was a considerable drag as emerging markets
underperformed the developed markets by about 40 percentage points during
1998
- The strength of the Japanese yen versus the dollar in 1998 given our
significantly underweight position in Japanese stocks compared with the
benchmark
At year-end the stock-selection driven geographic allocation was 80% in Europe,
17% in Asia, and 3% in Latin America. The managers' focus is on companies with
high organic unit growth and visibility of earnings, characteristics they
believe may be especially prized in the likely slower growth 1999 environment.
During the variable conditions of the past twelve months, the international
equity markets proved resilient to numerous adverse economic and political
developments. The managers' aim is to own the highest quality growth stocks of
the international marketplace, consistent with prudent diversification to
control risk.
In the U.S., their analysts envision virtually no earnings growth. In Japan, the
managers' foresee earnings declines as that country struggles with continued
recessionary conditions. While the Japanese have recognized partially the depths
of their financial system crisis, unclear is whether the steps taken to date are
sufficient to substantially remedy the problems.
9
<PG$PCN>
ANNUAL REPORT FOR GREENWICH STREET SERIES FUND
- --------------------------------------------------------------------------------
Non-Japan Asia may begin to exhibit earnings gains in the second half of 1999
after two years of the IMF imposed fiscal and monetary disciplines. Investors in
Latin American markets will focus near-term on Brazilian developments where
structural reform must be completed to reduce persistent budget deficits and
stem capital flight.
Europe, in the view of the managers, should be the regional earnings star
performer, especially in Euroland which adopted a common currency on January 1.
Europe's investment attractions will continue in 1999 from the combination of:
- Corporate restructuring
- Increasing consumer confidence, due to declining unemployment
- Attentive management, due to the award of equity incentives
- Deregulation in financial markets, such as the legalization share
repurchases
- Growing flexibility of labor markets
In closing, we thank you for your investment in the Greenwich Street Series
Fund -- Money Market, Diversified Strategic Income, Equity Income, Equity Index,
Growth & 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
January 29, 1999
10
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- DIVERSIFIED STRATEGIC INCOME PORTFOLIO AS OF 12/31/98
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 6.41%
Five Years Ended 12/31/98 7.63%
10/16/91* through 12/31/98 7.39%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
10/16/91* through 12/31/98 67.20%
* Commencement of operations
</TABLE>
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, 1998 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 Income Lehman Brothers Aggregate Bond
Portfolio Index
<S> <C> <C>
10/16/91 10000 10000
Dec-91 10140 10507
Dec-92 10284 11285
Dec-93 11576 12386
Dec-94 11251 12024
Dec-95 13071 14246
Dec-96 14350 14944
Dec-97 15713 16385
12/31/98 16720 17809
</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 12/31/98 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 16.99%
Five Years Ended 12/31/98 12.76%
10/16/91* through 12/31/98 12.20%
CUMULATIVE TOTAL RETURN
- ------------------------------------------
10/16/91* through 12/31/98 129.41%
* Commencement of operations
</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in Equity Income Portfolio on
October 16, 1991 (commencement of
operations) through December 31,
1998 with that of a similar
investment in the Variable
Annuity Lipper Equity Income
Funds Peer Group Average and
Standard & Poor's 500 Index.
Index information is available at
month-end only; therefore, the
closest month-end to inception
date of the Portfolio has been
used. The Standard & Poor's 500
Index is an unmanaged index
composed of 500 widely held
common stocks listed on the New
York Stock Exchange, American
Stock Exchange and over-the-
counter market.
The Variable Annuity Lipper
Equity Income Funds Peer Group
Average is composed of 42 equity
income funds as of December 31,
1998 which underlie variable
annuities.
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO VARIABLE ANNUITY LIPPER
----------------------- EQUITY INCOME FUNDS PEER STANDARD & POOR'S 500
GROUP AVERAGE INDEX
------------------------ ---------------------
<S> <C> <C> <C>
'10/6/91' 10000 10000 10000
'12/91' 10200 10559 10838
'12/92' 11397 11782 11688
'12/93' 12583 13768 12844
'12/94' 11308 14084 13072
'12/95' 14879 16510 17898
'12/96' 15876 18034 22005
'12/97' 19610 23075 29345
'12/31/98' 22941 25781 37779
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
11
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- EQUITY INDEX PORTFOLIO AS OF 12/31/98 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 28.46%
Five Years Ended 12/31/98 23.12%
10/16/91* through 12/31/98 18.89%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
10/16/91* through 12/31/98 248.46%
* Commencement of operations
</TABLE>
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,
1998 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>
EQUITY INDEX PORTFOLIO STANDARD & POOR'S 500 INDEX
---------------------- ---------------------------
<S> <C> <C>
'10/16/91' 10000 10000
'12/91' 10620 10838
'12/92' 11335 11668
'12/93' 12318 12844
'12/94' 12421 13012
'12/95' 16870 17898
'12/96' 20526 22006
'12/97' 27127 29346
'12/31/98' 34846 37779
</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 12/31/98 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 11.88%
Five Years Ended 12/31/98 15.79%
10/16/91* through 12/31/98 13.53%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
10/16/91* through 12/31/98 149.72%
* Commencement of operations
</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in Growth & Income Portfolio on
October 16, 1991 (commencement of
operations) through December 31,
1998 with that of a similar
investment in the Variable
Annuity Lipper Growth & Income
Funds Peer Group Average and
Standard & Poor's 500 Index.
Index information is available at
month-end only; therefore, the
closest month-end to inception
date of the Portfolio has been
used. The Standard & Poor's 500
Index is an unmanaged index
composed of 500 widely held
common stocks listed on the New
York Stock Exchange, American
Stock Exchange and
over-the-counter market.
The Variable Annuity Lipper
Growth & Income Funds Peer Group
Average is composed of 181 growth
and income funds as of December
31, 1998 which underlie variable
annuities.
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO VARIABLE ANNUITY LIPPER S&P 500 INDEX
------------------------- GROWTH & INCOME FUNDS -------------
PEER GROUP
-----------------------
<S> <C> <C> <C>
'10/16/91' 10000 10000 10000
'12/91' 10140 10746 10838
'12/92' 10996 11661 11688
'12/93' 11986 12802 12844
'12/94' 11811 12646 13012
'12/95' 15152 16514 17898
'12/96' 18157 18214 22005
'12/97' 22321 22950 29345
'12/31/98' 24972 26590 37779
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
12
<PG$PCN>
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON -- EMERGING GROWTH PORTFOLIO AS OF 12/31/98 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 37.14%
Five Years Ended 12/31/98 20.95%
12/3/93* through 12/31/98 21.55%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
12/3/93* through 12/31/98 169.43%
* Commencement of operations
</TABLE>
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,
1998 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>
EMERGING GROWTH 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
Dec-97 19646 20819
12/31/98 26943 29071
</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 12/31/98
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------
<CAPTION>
<S> <C>
Year Ended 12/31/98 18.84%
Five Years Ended 12/31/98 7.06%
12/3/93* through 12/31/98 7.06%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
<S> <C>
12/3/93* through 12/31/98 41.38%
* Commencement of operations
</TABLE>
The chart to the right compares
the growth in value of a
hypothetical $10,000 investment
in International Equity Portfolio
on December 3, 1993 (commencement
of operations) through December
31, 1998 with that of a similar
investment in the Morgan Stanley
EAFE Index. Index information is
available at month-end only;
therefore, the closest month-end
to inception date of the
Portfolio has been used. The
Morgan Stanley EAFE Index is a
composite index consisting of
equity total returns for the
countries of Europe, Australia,
New Zealand and countries in the
Far East, weighted based on each
country's gross domestic product.
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO MORGAN STANLEY EAFE INDEX
------------------------------ -------------------------
<S> <C> <C>
12/3/93 10000 10000
Dec-93 10050 10724
Dec-94 9210 10850
Dec-95 10020 12103
Dec-96 12163 12873
Dec-97 11897 13120
12/31/98 14138 15744
</TABLE>
- --------------------------------------------------------------------------------
The performance shown represents past performance and is not a guarantee of
future results. A mutual fund's share price and investment return will vary with
market conditions, and the principal value of shares, when redeemed, may be more
or less than original cost.
Average annual total returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming reinvestment
of dividends. The returns do not reflect expenses associated with the subaccount
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the performance shown.
13
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS DECEMBER 31, 1998
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
BANK NOTE -- 5.3%
$250,000 NationsBank matures 2/22/99 (Cost -- $250,000).............. 5.24% $ 250,000
- --------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- 89.0%
200,000 ANZ Delaware Inc. matures 3/8/99............................ 5.09 198,156
200,000 Associates Corp. of North America matures 1/27/99........... 5.11 199,271
200,000 Bank Austriengellschaft matures 1/15/99..................... 5.43 199,580
200,000 Bank of New York matures 2/1/99............................. 5.14 199,127
150,000 BCI Funding Corp. matures 3/8/99............................ 5.15 148,598
100,000 Chase Manhattan Bank Corp. matures 1/29/99.................. 5.20 99,603
100,000 Commerzbank matures 2/12/99................................. 5.60 99,364
200,000 Den Danske Corp. matures 2/10/99............................ 5.19 198,856
200,000 General Motors Acceptance Corp. matures 1/14/99............. 5.23 199,627
200,000 Goldman, Sachs & Co. matures 1/20/99........................ 5.42 199,434
150,000 GTE Funding Corp. matures 2/23/99........................... 5.20 148,861
200,000 IBM Credit Corp. matures 1/20/99............................ 5.09 199,469
100,000 International Lease Finance matures 2/3/99.................. 5.09 99,540
100,000 Lucent Technologies matures 1/7/99.......................... 4.96 99,915
200,000 Merrill Lynch & Co. matures 2/10/99......................... 5.30 198,833
200,000 Morgan Stanley Dean Witter & Co. mature 1/15/99 to
3/23/99..................................................... 5.26 to 5.34 198,628
200,000 Nestle Capital Corp. matures 1/4/99......................... 4.78 199,920
200,000 PepsiCo Inc. matures 1/5/99................................. 5.08 199,888
200,000 Procter & Gamble Co. matures 3/16/99........................ 5.09 197,932
100,000 San Paolo US Finance Inc. matures 6/22/99................... 5.05 97,645
200,000 Siemens Corp. matures 1/11/99............................... 5.05 199,722
200,000 USAA Capital Corp. matures 2/26/99.......................... 5.16 198,420
200,000 Walt Disney Co. matures 1/29/99............................. 5.07 199,219
200,000 Westpac matures 1/13/99..................................... 5.45 199,639
- --------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost -- $4,179,247)................. 4,179,247
- --------------------------------------------------------------------------------------------------------
TIME DEPOSITS -- 4.3%
200,000 Paribas Finance Inc. matures 1/4/99 (Cost -- $200,000)...... 5.00 200,000
- --------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.4%
64,000 Chase Manhattan Bank, 4.50% due 1/4/99; Proceeds at 64,000
maturity -- $64,032; (Fully collateralized by U.S. Treasury
Notes, 6.25% due 1/31/02;
Market value -- $65,283) (Cost -- $64,000)..................
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $4,693,247*)............. $4,693,247
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT SECTOR -- 45.4%
$10,000,000 Federal Home Loan Bank, zero coupon due 3/16/23............. $ 1,663,800
435,453 Federal Home Loan Mortgage Corp., 9.000% due 1/1/20 through
5/1/21...................................................... 459,674
6,000,000 Federal National Mortgage Association, zero coupon due
10/9/19..................................................... 1,804,800
7,476,172 Federal National Mortgage Association, 6.000% due 4/1/05
through 9/1/13.............................................. 7,515,228
4,519,878 Federal National Mortgage Association, 6.500% due 8/1/28
through 10/1/28............................................. 4,552,332
7,093,772 Federal National Mortgage Association, 7.000% due 4/1/24
through 5/1/25.............................................. 7,242,245
4,841,687 Government National Mortgage Association, 6.500% due 3/15/28
through 4/15/28............................................. 4,894,607
1,476,439 Government National Mortgage Association, 7.000% due 9/15/23
through 5/15/24............................................. 1,511,962
258,641 Government National Mortgage Association, 7.500% due
2/15/24..................................................... 266,884
745,365 Government National Mortgage Association, 8.000% due 5/15/17
through 12/15/21............................................ 774,709
5,078,723 Government National Mortgage Association, 9.000% due
11/15/16 through 9/15/24.................................... 5,423,112
- ------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR (Cost -- $35,637,071).......... 36,109,353
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HIGH YIELD SECTOR -- 31.6%
- --------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 31.3%
- --------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.2%
145,000 B BE Aerospace, 9.500% due 11/1/08 (b)........................ 153,700
- --------------------------------------------------------------------------------------------------------
AIRLINES -- 0.9%
450,000 Ba2* Airplanes Pass Through Trust, 10.875% due 3/15/19........... 478,548
200,000 Ba2* Continental Airlines, 8.000% due 12/15/05 (c)............... 199,750
- --------------------------------------------------------------------------------------------------------
678,298
- --------------------------------------------------------------------------------------------------------
AUTOMOBILE/AUTO PARTS/TRUCK MANUFACTURING -- 0.5%
155,000 B+ Breed Technologies, 9.250% due 4/15/08 (b).................. 136,788
260,000 B1* Exide Corp., 10.000% due 4/15/05............................ 261,300
- --------------------------------------------------------------------------------------------------------
398,088
- --------------------------------------------------------------------------------------------------------
BROADCASTING-TV, CABLE AND RADIO -- 5.4%
90,000 B- Capstar Broadcasting, step bond to yield 12.750% due
2/1/09...................................................... 74,250
200,000 BB- Century Communications, 8.750% due 10/1/07.................. 220,500
300,000 B Chancellor Media, 9.000% due 10/1/08 (b).................... 318,750
210,000 B- Citadel Broadcasting, 9.250% due 11/15/08 (b)............... 219,713
150,000 B2* Comcast UK Cable, step bond to yield 11.200% due 11/15/07... 127,125
CSC Holdings:
275,000 BB- 9.875% due 2/15/13 (c)...................................... 309,031
200,000 BB- 10.500% due 5/15/16......................................... 237,500
NTL Inc.:
75,000 B- 11.500% due 10/1/08 (b)..................................... 81,938
655,000 B- Step bond to yield 12.375% due 10/1/08 (c).................. 414,288
RCN Corp.:
100,000 B3* 10.000% due 10/15/07........................................ 96,000
200,000 B3* Step bond to yield 11.125% due 10/15/07..................... 117,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
BROADCASTING-TV, CABLE AND RADIO -- 5.4% (CONTINUED)
Rogers Cablesystems Ltd.:
$ 100,000 BB+ 10.000% due 3/15/05......................................... $ 112,625
450,000 BB+ 10.000% due 12/1/07......................................... 507,375
325,000 BB- 11.000% due 12/1/15 (c)..................................... 385,125
65,000 CCC+ Telemundo Holdings Inc., step bond to yield 11.500% due
8/15/08..................................................... 37,375
225,000 B+ Telewest Communications PLC, 11.250% due 11/1/08 (b)........ 252,563
TV Azteca:
100,000 B+ 10.125% due 2/15/04......................................... 86,750
100,000 B+ 10.500% due 2/15/07......................................... 84,250
1,200,000 B United International Holdings, step bond to yield 10.750%
due 2/15/08................................................. 648,000
- --------------------------------------------------------------------------------------------------------
4,330,158
- --------------------------------------------------------------------------------------------------------
BUILDING/CONSTRUCTION -- 0.6%
260,000 BB Building Material Corp., 8.000% due 12/1/08 (b)............. 261,950
150,000 B Columbus McKinnon Corp., 8.500% due 4/1/08.................. 141,750
100,000 B+ Nortek Inc., 9.125% due 9/1/07.............................. 103,000
- --------------------------------------------------------------------------------------------------------
506,700
- --------------------------------------------------------------------------------------------------------
CELLULAR AND OTHER WIRELESS -- 2.5%
300,000 CCC+ Centennial Cellular, 10.750% due 12/15/08 (b)............... 302,250
600,000 B3* Clearnet Communications Inc., step bond to yield 14.750% due
12/15/05.................................................... 517,500
150,000 CCC+ Dolphin Telecom PLC, step bond to yield 11.500% due 6/1/08
(b)......................................................... 53,250
215,000 B- Iridium LLC, 14.000% due 7/15/05 (c)........................ 205,594
425,000 B- Millicom International Cellular, step bond to yield 13.500%
due 6/1/06.................................................. 314,500
125,000 Ba3* Orange PLC, 8.000% due 8/1/08............................... 125,625
250,000 NR Pagemart Wireless, step bond to yield 11.250% due 2/1/08.... 120,000
Telesystem International, step bond to yield:
500,000 CCC+ 13.250% due 6/30/07......................................... 225,000
300,000 CCC+ 10.500% due 11/1/07......................................... 112,500
- --------------------------------------------------------------------------------------------------------
1,976,219
- --------------------------------------------------------------------------------------------------------
CHEMICALS -- 0.1%
110,000 NR Huntsman Corp., 9.500% due 7/1/07 (b)....................... 110,275
- --------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 0.9%
100,000 B- Eagle-Picher Industries, 9.375% due 3/1/08 (c).............. 96,000
115,000 B- Fisher Scientific, 9.000% due 2/1/08 (b).................... 115,000
50,000 B- Fisher Scientific International, 9.000% due 2/1/08.......... 50,000
100,000 B3* Interlake Corp., 12.125% due 3/1/02......................... 102,250
225,000 B Outboard Marine, 10.750% due 6/1/08......................... 220,500
150,000 B+ Park-Ohio Industries, 9.250% due 12/1/07.................... 153,375
- --------------------------------------------------------------------------------------------------------
737,125
- --------------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE SERVICES -- 0.7%
100,000 BB- Cia Latino Americana, 11.625% due 6/1/04 (b)................ 66,500
160,000 B Nationsrent Inc., 10.375% due 12/15/08 (b).................. 160,000
250,000 B- Outsourcing Solutions, 11.000% due 11/1/06.................. 241,250
120,000 BB- United Rentals Inc., 9.250% due 1/15/09..................... 121,200
- --------------------------------------------------------------------------------------------------------
588,950
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ELECTRIC UTILITIES -- 1.2%
AES Corp.:
$ 250,000 Ba1* 10.250% due 7/15/06 (c)..................................... $ 271,250
300,000 Ba1* 8.500% due 11/1/07 (b)...................................... 304,875
200,000 Ba2* Calpine Corp., 10.500% due 5/15/06.......................... 214,500
40,984 BB Midland Cog Venture, 10.330% due 7/23/02.................... 44,058
200,000 BB- Niagara Mohawk Power, step bond to yield 8.500% due 7/1/10
(c)......................................................... 153,500
- --------------------------------------------------------------------------------------------------------
988,183
- --------------------------------------------------------------------------------------------------------
ELECTRONICS/COMPUTERS -- 1.2%
100,000 NR Axiohm Transaction Solutions, 9.750% due 10/1/07............ 93,250
15,000 B Fairchild Semiconductor Corp., 10.125% due 3/15/07.......... 15,000
Unisys Corp.:
200,000 BB- 11.750% due 10/15/04........................................ 232,500
300,000 BB- Sr. Notes, 12.000% due 4/15/03.............................. 336,750
300,000 B- Viasystems Inc., 9.750% due 6/1/07.......................... 285,000
- --------------------------------------------------------------------------------------------------------
962,500
- --------------------------------------------------------------------------------------------------------
FINANCE COMPANIES/CONSUMER CREDIT -- 0.3%
Amresco Inc.:
25,000 CCC+ 10.000% due 3/15/04......................................... 17,875
85,000 CCC+ 9.875% due 3/15/05.......................................... 60,775
75,000 NR Ocwen Asset Investment, 11.500% due 7/1/05 (b).............. 60,000
100,000 B2* Ocwen Capital Trust I, 10.875% due 8/1/27................... 83,000
- --------------------------------------------------------------------------------------------------------
221,650
- --------------------------------------------------------------------------------------------------------
FOOD -- 1.3%
100,000 B- B&G Foods Inc., 9.625% due 8/1/07........................... 98,250
650,000 NR Carrols Corp., 9.500% due 12/1/08 (b)....................... 663,000
200,000 B Imperial Holly, 9.750% due 12/15/07......................... 198,000
100,000 B SC International Services, 9.250% due 9/1/07................ 100,500
- --------------------------------------------------------------------------------------------------------
1,059,750
- --------------------------------------------------------------------------------------------------------
HEALTH CARE/DRUGS/HOSPITAL SUPPLIES -- 2.3%
150,000 BBB Columbia/HCA Healthcare, 7.000% due 7/1/07 (c).............. 143,063
130,000 Ba3* Fresenius Medical Cap Trust, 7.875% due 2/1/08.............. 129,350
250,000 BBB+ Graphic Controls Corp., 12.000% due 9/15/05................. 288,125
210,000 BB ICN Pharmaceuticals Inc., 9.250% due 8/15/05................ 215,775
Integrated Health Services:
125,000 B2* 9.500% due 9/15/07.......................................... 119,375
200,000 B2* 9.250% due 1/15/08.......................................... 190,500
375,000 B- Magellan Health Services, 9.000% due 2/15/08................ 335,625
200,000 B- Mariner Post Acute Network Services, 9.500% due 11/1/07..... 162,000
50,000 B- Sun Healthcare, 9.500% due 7/1/07........................... 40,500
200,000 B2* Sun Healthcare Group Inc., 9.375% due 5/1/08 (b)............ 161,000
- --------------------------------------------------------------------------------------------------------
1,785,313
- --------------------------------------------------------------------------------------------------------
HOTEL/GAMING -- 3.9%
35,000 BB+ Circus Circus Enterprises, 9.250% due 12/1/05............... 35,831
300,000 B- Courtyard By Marriott, 10.750% due 2/1/08................... 312,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HOTEL/GAMING -- 3.9% (CONTINUED)
$ 150,000 BB+ Grand Casinos, 10.125% due 12/1/03.......................... $ 163,500
400,000 BB+ Harrahs Operating, 7.875% due 12/15/05...................... 402,000
HMH Properties Inc.:
155,000 BB 7.875% due 8/1/05........................................... 152,868
650,000 BB 7.875% due 8/1/08........................................... 634,564
500,000 BB 8.450% due 12/1/08.......................................... 501,875
200,000 BB+ Mohegan Tribal Gaming Authority, 13.500% due 11/15/02....... 241,000
350,000 BB+ Park Place Entertainment, 7.875% due 12/15/05 (b)(c)........ 350,875
315,000 B+ Station Casinos, 8.875% due 12/1/08 (b)..................... 317,363
- --------------------------------------------------------------------------------------------------------
3,111,876
- --------------------------------------------------------------------------------------------------------
INSURANCE COMPANIES -- 0.4%
125,000 BB+ Sig Capital Trust I, 9.500% due 8/15/27..................... 104,063
200,000 BB- Veritas Capital Trust, 10.000% due 1/1/28................... 182,500
- --------------------------------------------------------------------------------------------------------
286,563
- --------------------------------------------------------------------------------------------------------
LEISURE/AMUSEMENT/MOTION PICTURES -- 1.2%
125,000 B+ Intrawest Corp., 9.750% due 8/15/08 (b)..................... 127,813
620,000 B Regal Cinemas, 9.500% due 6/1/08 (b)........................ 646,350
150,000 B- SFX Entertainment, 9.125% due 2/1/08........................ 149,625
- --------------------------------------------------------------------------------------------------------
923,788
- --------------------------------------------------------------------------------------------------------
MACHINERY -- 0.1%
104,000 B- Alvey Systems Inc., 11.375% due 1/31/03..................... 104,780
- --------------------------------------------------------------------------------------------------------
METALS/MINING -- 0.2%
125,000 B- Haynes International Inc., 11.625% due 9/1/04............... 116,563
- --------------------------------------------------------------------------------------------------------
OIL/NATURAL GAS -- 0.7%
200,000 B+ Clark USA, 10.875% due 12/1/05.............................. 188,000
225,000 BB- Ocean Energy, 10.375% due 10/15/05.......................... 238,500
150,000 B2* Stone Energy Corp., 8.750% due 9/15/07 (c).................. 147,375
- --------------------------------------------------------------------------------------------------------
573,875
- --------------------------------------------------------------------------------------------------------
OIL SERVICES -- 0.2%
100,000 B+ ICO Inc., 10.375% due 6/1/07................................ 94,000
50,000 BB+ J. Ray McDermott, 9.375% due 7/15/06........................ 53,250
- --------------------------------------------------------------------------------------------------------
147,250
- --------------------------------------------------------------------------------------------------------
PACKAGING/CONTAINERS -- 0.1%
50,000 B Huntsman Packaging Corp., 9.125% due 10/1/07................ 49,750
- --------------------------------------------------------------------------------------------------------
PAPER/FOREST PRODUCTS/PRINTING -- 0.5%
125,000 BB Malette Inc., 12.250% due 7/15/04........................... 135,938
Riverwood International:
130,000 B- 10.625% due 8/1/07.......................................... 130,000
105,000 CCC+ 10.875% due 4/1/08.......................................... 96,075
- --------------------------------------------------------------------------------------------------------
362,013
- --------------------------------------------------------------------------------------------------------
PERSONAL CARE PRODUCTS/COSMETICS -- 0.1%
100,000 B- Revlon Consumer Products, 8.625% due 2/1/08................. 92,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(A) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
POLLUTION CONTROL/WASTE REMOVAL -- 0.4%
$ 300,000 BB Allied Waste NA, 7.875% due 1/1/09 (b)...................... $ 304,875
- --------------------------------------------------------------------------------------------------------
PUBLISHING -- 0.4%
300,000 B+ Mail-Well Corp., 8.750% due 12/15/08 (b).................... 301,500
- --------------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT/REITS -- 0.1%
101,000 BB+ Trizec Finance Ltd., 10.875% due 10/15/05................... 111,605
- --------------------------------------------------------------------------------------------------------
RETAIL -- 0.5%
100,000 B- Advance Holdings Corp., step bond to yield 12.875% due
4/15/09..................................................... 59,000
100,000 B- Advance Stores Co., 10.250% due 4/15/08..................... 101,500
285,000 BB DR Structured Finance KMart Prop., 8.375% due 8/15/15....... 280,098
- --------------------------------------------------------------------------------------------------------
440,598
- --------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 4.2%
275,000 NR E.Spire Communications Inc., step bond to yield 10.625% due
7/1/08 (c).................................................. 115,500
100,000 B- Espirit Telecom, 10.875% due 6/15/08 (c).................... 101,125
100,000 B- Espirit Telecom Group PLC, 11.500% due 12/15/07............. 103,125
300,000 NR Facilicom International, 10.500% due 1/15/08................ 246,000
200,000 B Hermes Europe Rail, 10.375% due 1/15/09..................... 203,000
100,000 B Hermes Europe Railtel BV, 11.500% due 8/15/07............... 107,750
50,000 B Impsat Corp., 12.375% due 6/15/08........................... 41,938
225,000 B Intermedia Communications of Florida, step bond to yield
12.500% due 5/15/06....................................... 184,500
20,000 B Level 3 Communications, 9.125% due 5/1/08................... 19,900
630,000 B Metromedia Fiber Network, 10.000% due 11/15/08 (b).......... 652,838
Metronet Communications:
200,000 B 12.000% due 8/15/07......................................... 223,000
300,000 B 10.625% due 11/1/08 (b)..................................... 321,000
500,000 B Step bond to yield 9.950% due 6/15/08 (c)................... 308,750
100,000 B- Primus Telecom Group, 11.750% due 8/1/04 (d)................ 105,000
PSINet Inc.:
100,000 B- 10.000% due 2/15/05......................................... 99,000
100,000 B- 11.500% due 11/1/08 (b)..................................... 104,000
75,000 BB+ Qwest Communications International, step bond to yield
9.470% due 10/15/07....................................... 58,500
125,000 NR Splitrock Servicing, 11.750% due 7/15/08.................... 108,125
105,000 B- Verio Inc., 11.250% due 12/1/08 (b)......................... 106,050
100,000 NR Versatel Telecom, 13.250% due 5/15/08 (d)................... 99,250
75,000 NR WAM! Net Inc., step bond to yield 13.250% due 3/1/05........ 41,625
- --------------------------------------------------------------------------------------------------------
3,349,976
- --------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.2%
50,000 B+ American Reefer Co. Ltd., 10.250% due 3/1/08................ 31,750
100,000 B+ Stena Line AB, 10.625% due 6/1/08........................... 90,625
100,000 B+ TBS Shipping, 10.000% due 5/1/05............................ 58,000
- --------------------------------------------------------------------------------------------------------
180,375
- --------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $25,410,557)....... 24,954,296
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PREFERRED STOCK -- 0.1%
- --------------------------------------------------------------------------------------------------------
BANKING -- 0.1%
2,400 California Federal Preferred Capital Corp., 9.125% Series A,
Exchangeable (Cost -- $60,000).............................. $ 60,750
- --------------------------------------------------------------------------------------------------------
WARRANTS (E) -- 0.2%
- --------------------------------------------------------------------------------------------------------
BROADCASTING-TV, CABLE AND RADIO -- 0.0%
150 Australis Holdings, Expire 10/30/01 (b)..................... 0
450 UIH Australia, Expire 5/15/06............................... 450
750 Wireless One Inc., Expire 10/19/00.......................... 188
- --------------------------------------------------------------------------------------------------------
638
- --------------------------------------------------------------------------------------------------------
CELLULAR AND OTHER WIRELESS -- 0.0%
1,650 Clearnet Communications Inc., Expire 9/15/05................ 8,250
100 Iridium World Communications, Expire 7/15/05 (b)............ 1,390
600 Nextel Communications Inc., Expire 4/25/99 (b).............. 6
- --------------------------------------------------------------------------------------------------------
9,646
- --------------------------------------------------------------------------------------------------------
TELEPHONE/COMMUNICATIONS -- 0.2%
400 Allegiance Telecom Inc., Expire 2/3/08...................... 4,400
400 COLT Telecom Group, Expire 12/31/06 (b)..................... 140,000
200 Metronet Communications, Expire 8/15/07 (b)................. 7,000
100 Primus Telecommunications, Expire 8/1/04.................... 488
150 RSL Communications Ltd., Expire 11/15/06.................... 5,850
125 Splitrock Service, Expire 7/15/08........................... 1,375
100 Versatel Telecom, Expire 5/15/08 (b)........................ 1,000
225 WAM! Net Inc., Expire 3/1/05................................ 1,800
- --------------------------------------------------------------------------------------------------------
161,913
- --------------------------------------------------------------------------------------------------------
TOTAL WARRANTS (Cost -- $23,939)............................ 172,197
- --------------------------------------------------------------------------------------------------------
TOTAL HIGH YIELD SECTOR (Cost -- $25,494,496)............... 25,187,243
- --------------------------------------------------------------------------------------------------------
FACE
AMOUNT+ SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
INTERNATIONAL SECTOR -- 23.0%
- --------------------------------------------------------------------------------------------------------
BONDS -- 23.0%
- --------------------------------------------------------------------------------------------------------
AUSTRALIA -- 1.0%
400,000 New South Wales Treasury Corp., 12.000% due 12/1/01......... 291,985
700,000 Queensland Treasury Corp., 8.000% due 5/14/03............... 478,904
- --------------------------------------------------------------------------------------------------------
770,889
- --------------------------------------------------------------------------------------------------------
CANADA -- 0.9%
650,000 Government of Canada, 11.750% due 2/1/03.................... 530,177
300,000 KFW International Finance, 9.500% due 5/13/02............... 220,449
- --------------------------------------------------------------------------------------------------------
750,626
- --------------------------------------------------------------------------------------------------------
DENMARK -- 4.0%
20,000,000 Kingdom of Denmark, 4.000% due 2/15/01...................... 3,153,429
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
FACE
AMOUNT+ SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
EUROPE -- 4.2%
225,000 Dolphin Telecom, step bond to yield 11.625% due 6/1/08...... $ 85,871
500,000 Kingdom of Spain, 6.000% due 1/31/08........................ 670,937
1,000,000 Republic of Italy, 6.000% due 4/2/04........................ 1,303,475
500,000 Republic of Portugal, 6.000% due 2/16/04.................... 650,270
500,000 Societe Nationale Chemins De France, 9.375% due 3/12/01..... 660,310
- --------------------------------------------------------------------------------------------------------
3,370,863
- --------------------------------------------------------------------------------------------------------
FINLAND -- 0.6%
2,000,000 Finnish Export, 6.000% due 1/15/99.......................... 395,347
- --------------------------------------------------------------------------------------------------------
GERMANY -- 3.2%
2,000,000 Bundesobligation, 5.000% due 5/21/01........................ 1,252,522
400,000 Colt Telecom, 7.625% due 7/31/08............................ 230,548
175,000 Esprit Telecom, 11.500% due 12/15/07........................ 106,118
1,500,000 European Investment Bank, 4.500% due 2/15/03................ 938,288
100,000 Texon International, 10.000% due 2/1/08..................... 46,830
- --------------------------------------------------------------------------------------------------------
2,574,306
- --------------------------------------------------------------------------------------------------------
SWEDEN -- 1.6%
10,000,000 Kingdom of Sweden, 5.500% due 4/12/02....................... 1,303,622
- --------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 6.7%
500,000 European Investment Bank, 8.000% due 6/10/03................ 922,895
500,000 Interamer Development Bank, 7.125% due 11/26/04............. 912,490
2,000,000 United Kingdom Treasury, 8.000% due 12/7/00................. 3,514,633
- --------------------------------------------------------------------------------------------------------
5,350,018
- --------------------------------------------------------------------------------------------------------
UNITED STATES -- 0.8%
300,000 Argentina Discount, 6.063% due 3/31/23 (f).................. 222,375
500,000 United Mexican States Series B, 6.250% due 12/31/19......... 391,250
- --------------------------------------------------------------------------------------------------------
613,625
- --------------------------------------------------------------------------------------------------------
TOTAL INTERNATIONAL SECTOR (Cost -- $17,305,187)............ 18,282,725
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $78,436,754**)........... $79,579,321
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(c) All or a portion of this security is on loan (See Note 15).
(d) Security issued with attached warrants.
(e) Non-income producing security.
(f) Variable rate security.
+ Represents local currency.
** Aggregate cost for Federal income tax purposes is substantially the same.
See page 46 for definition of ratings.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 84.9%
- ------------------------------------------------------------------------------------
GAS -- 10.2%
28,000 Coastal Corp. .............................................. $ 978,250
10,000 KN Energy (a) .............................................. 375,625
25,000 MCN Corp. .................................................. 476,563
25,000 Sempra Energy............................................... 634,375
15,000 Southwest Gas Corp. ........................................ 403,125
30,000 Williams Cos. Inc. ......................................... 935,625
- ------------------------------------------------------------------------------------
3,803,563
- ------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 12.9%
10,000 Bell Atlantic............................................... 568,125
27,200 MCI WorldCom, Inc. (a) ..................................... 1,951,600
25,000 MediaOne Group, Inc. ....................................... 1,175,000
12,000 NEXTLINK Communications Inc., Class A Shares (a)............ 340,500
15,000 SBC Communications Inc. .................................... 804,375
- ------------------------------------------------------------------------------------
4,839,600
- ------------------------------------------------------------------------------------
UTILITIES -- 61.8%
20,000 American Electric Power Inc. ............................... 941,250
25,000 BEC Energy.................................................. 1,029,687
25,000 Cinergy Corp. .............................................. 859,375
25,000 CMS Energy Corp. ........................................... 1,210,938
10,000 Consolidated Edison Co. of New York, Inc. .................. 528,750
15,000 Consolidated Natural Gas Co. ............................... 810,000
14,350 Dominion Resources Inc. .................................... 670,862
30,000 DQE Inc. ................................................... 1,318,125
30,000 Edison International........................................ 836,250
30,000 El Paso Energy Corp......................................... 1,044,375
20,000 Energen Corp. .............................................. 390,000
5,000 Energy East Corp. .......................................... 282,500
20,000 Firstenergy Corp. .......................................... 651,250
15,000 Florida Progress Corp. ..................................... 672,188
12,000 FPL Group Inc. ............................................. 739,500
25,000 MDU Resources Group Inc. ................................... 657,812
17,000 The Montana Power Co. ...................................... 961,563
15,000 National Fuel Gas Co. ...................................... 677,813
15,000 New Century Energies Inc. .................................. 731,250
25,000 Niagara Mohawk Power Co. (a) ............................... 403,125
27,000 NIPSCO Industries, Inc. .................................... 821,812
25,000 Northern States Power Co. .................................. 693,750
30,000 Peco Energy Co. ............................................ 1,248,750
14,500 Pinnacle West Capital Co. .................................. 614,437
15,000 Public Service Enterprise Group Inc. ....................... 600,000
20,000 SCANA Corp. ................................................ 645,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 61.8% (CONTINUED)
25,000 Sierra Pacific Resources.................................... $ 950,000
21,000 Texas Utilities Co. ........................................ 980,437
30,000 Unicom Corp. ............................................... 1,156,875
- ------------------------------------------------------------------------------------
23,127,674
- ------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $22,356,724).................... 31,770,837
- ------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 15.1%
$255,000 Central Illinois Public Service Co., 8.500% due 5/15/22..... 270,619
250,000 Dayton Power & Light Co., First Mortgage, 8.150% due
1/15/26..................................................... 276,562
Duquesne Light Co., First Collateral Trust:
200,000 8.375% due 5/15/24........................................ 210,500
250,000 7.550% due 6/15/25........................................ 265,000
200,000 Idaho Power Co., First Mortgage, 8.750% due 3/15/27......... 221,500
300,000 Kentucky Utilities Co., First Mortgage, 8.550% due
5/15/27..................................................... 333,000
Madison Gas & Electric Co., First Mortgage:
200,000 8.500% due 4/15/22........................................ 219,500
500,000 7.700% due 2/15/28........................................ 540,000
New York State Electric & Gas Corp., First Mortgage:
250,000 8.300% due 12/15/22....................................... 267,500
250,000 7.450% due 7/15/23........................................ 261,563
250,000 Pacific Gas & Electric Co., 6.750% due 10/1/23.............. 252,813
500,000 Pennsylvania Power & Light Co., First Mortgage, 8.500% due
5/1/22...................................................... 543,125
500,000 Texas Utilities Co., First Mortgage, 7.625% due 7/1/25...... 534,375
250,000 Virginia Electric & Power Co., First Mortgage, 7.500% due
6/1/23...................................................... 262,812
400,000 Wisconsin Electric Power Co., First Mortgage, 7.050% due
8/1/24...................................................... 412,000
300,000 Wisconsin Power & Light Co., Notes, 8.600% due 3/15/27...... 336,375
425,000 Wisconsin Public Service Corp., First Mortgage, 7.125% due
7/1/23...................................................... 441,469
- ------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost -- $5,296,850)........ 5,648,713
- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $27,653,574**)........... $37,419,550
- ------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
** Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 99.3%
- -------------------------------------------------------------------------------------------------------
BASIC INDUSTRIES -- 4.0%
515 Aeroquip-Vickers, Inc. ..................................... $ 15,418
4,053 Air Products & Chemicals, Inc. ............................. 162,120
3,997 Alcan Aluminium Ltd. ....................................... 108,169
3,401 Allegheny Teledyne, Inc. ................................... 69,508
9,823 Allied Signal, Inc. ........................................ 435,282
3,218 Aluminium Co. of America.................................... 239,942
6,482 Applied Materials, Inc. (a)................................. 276,700
675 ASARCO, Inc. ............................................... 10,167
2,029 Avery Dennison Corp. ....................................... 91,432
6,559 Barrick Gold Corp. ......................................... 127,901
4,210 Battle Mountain Gold Corp. ................................. 17,366
915 Bemis, Inc. ................................................ 34,713
2,351 Bethlehem Steel Corp. (a)................................... 19,690
964 Boise Cascade Corp. ........................................ 29,884
1,676 Champion International Corp. ............................... 67,878
1,593 Cyprus Amax Minerals Corp. ................................. 15,930
3,878 Dow Chemical Co. ........................................... 352,656
19,745 E.I. du Pont de Nemours & Co. .............................. 1,047,719
2,478 Engelhard Corp. ............................................ 48,321
568 FMC Corp. (a)............................................... 31,808
2,846 Freeport-McMoRan Copper & Gold, Inc., Class B Shares........ 29,705
1,547 Georgia-Pacific Corp. ...................................... 90,596
1,032 Great Lakes Chemical Corp. ................................. 41,280
800 Harnischfeger Industries, Inc. ............................. 8,150
1,761 Hercules, Inc. ............................................. 48,207
4,216 Homestake Mining Co. ....................................... 38,735
2,348 Ikon Office Solutions, Inc. ................................ 20,105
2,880 Inco Ltd. .................................................. 30,420
5,405 International Paper Co. .................................... 242,212
1,820 ITT Industries Inc. ........................................ 72,345
9,509 Kimberly-Clark Corp. ....................................... 518,241
1,943 Louisiana Pacific Corp. .................................... 35,581
1,791 Mead Corp. ................................................. 52,499
10,978 Monsanto Co. ............................................... 521,455
2,110 Morton International Industries, Inc. ...................... 51,695
140 Nacco Industries, Inc. ..................................... 12,880
1,170 Nalco Chemical Co. ......................................... 36,270
2,977 Newmont Mining Corp. ....................................... 53,772
1,532 Nucor Corp. ................................................ 66,259
1,020 Phelps Dodge Corp. ......................................... 51,893
4,346 Placer Dome, Inc. .......................................... 49,979
529 Potlatch Corp. ............................................. 19,507
2,779 Praxair, Inc. .............................................. 97,960
1,141 Reynolds Metals Co. ........................................ 60,116
2,910 Rohm & Haas Co. ............................................ 87,664
1,779 Sigma-Aldrich Corp. ........................................ 52,258
1,210 Union Camp Corp. ........................................... 81,675
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
BASIC INDUSTRIES -- 4.0% (CONTINUED)
2,315 Union Carbide Corp. ........................................ $ 98,388
3,955 United Technologies Corp. .................................. 430,106
1,552 USX-U.S. Steel Group........................................ 35,696
1,339 W.R. Grace & Co. (a) ....................................... 21,006
10,051 Waste Management, Inc. ..................................... 468,628
1,757 Westvaco Corp. ............................................. 47,110
3,486 Weyerhaeuser Co. ........................................... 177,132
1,957 Willamette Industries, Inc. ................................ 65,560
1,592 Worthington Industries, Inc. ............................... 19,900
- -------------------------------------------------------------------------------------------------------
7,037,589
- -------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 6.1%
711 Armstrong World Industries, Inc. ........................... 42,882
17,500 Boeing Co. ................................................. 570,938
397 Briggs & Stratton Corp. .................................... 19,800
3,061 Browning Ferris Industries, Inc. ........................... 87,047
6,269 Caterpillar, Inc. .......................................... 288,374
1,044 Centex Corp. ............................................... 47,045
1,830 Cooper Industries, Inc. .................................... 87,268
1,176 Crane Co. .................................................. 35,501
714 Cummins Engine, Inc. ....................................... 25,347
2,896 Dana Corp. ................................................. 118,374
2,330 Danaher Corp. .............................................. 126,548
4,200 Deere & Co. ................................................ 139,125
3,926 Dover Corp. ................................................ 143,790
1,249 Eaton Corp. ................................................ 88,289
7,726 Emerson Electric Co. ....................................... 483,358
1,333 Fluor Corp. ................................................ 56,736
658 Foster Wheeler Corp. ....................................... 8,677
2,229 General Dynamics Corp. ..................................... 130,675
57,429 General Electric Co......................................... 5,861,327
1,308 Goodrich.................................................... 46,925
4,381 Illinois Tool Works, Inc. .................................. 254,098
2,876 Ingersoll-Rand Co. ......................................... 134,992
1,491 Johnson Controls, Inc. ..................................... 87,969
705 Kaufman & Broad Home Corp. ................................. 20,269
3,447 Lockheed Martin Corp. ...................................... 292,133
646 Milacron, Inc. ............................................. 12,436
1,625 Moore Corp. Ltd. ........................................... 17,875
1,150 Navistar International Corp. (a)............................ 32,775
1,213 Northrop Grumman Corp. ..................................... 88,701
939 Owens-Corning Fiberglass Corp. ............................. 33,276
2,714 Owens-Illinois (a).......................................... 83,116
1,380 Paccar, Inc. ............................................... 56,753
1,911 Parker Hannifin Corp. ...................................... 62,585
1,265 Progressive Corp. .......................................... 214,259
1,398 Raychem Corp. .............................................. 45,173
5,893 Raytheon Corp., Class B Shares.............................. 313,802
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
CAPITAL GOODS -- 6.1% (CONTINUED)
3,337 Rockwell International Corp. ............................... $ 162,053
1,557 Stanley Works............................................... 43,207
2,767 Textron, Inc. .............................................. 210,119
2,831 Thermo Electron Corp. (a)................................... 47,950
1,014 Thomas & Betts Corp. ....................................... 43,919
1,047 Timken Co. ................................................. 19,762
2,097 TRW, Inc. .................................................. 117,825
- -------------------------------------------------------------------------------------------------------
10,803,073
- -------------------------------------------------------------------------------------------------------
CONSUMER DURABLES -- 1.8%
1,549 Black & Decker Corp. ....................................... 86,841
1,263 Case Corp. ................................................. 27,549
1,362 Cooper Tire & Rubber Co. ................................... 27,836
4,048 Corning, Inc. .............................................. 182,160
586 Fleetwood Enterprises, Inc. ................................ 20,364
21,208 Ford Motor Co. ............................................. 1,244,645
11,469 General Motors Corp. ....................................... 820,750
3,171 Genuine Parts Co. .......................................... 106,030
2,744 Goodyear Tire & Rubber Co. ................................. 138,401
5,967 Masco Corp. ................................................ 171,551
1,575 Maytag Corp. ............................................... 98,044
2,852 Newell Co. ................................................. 117,645
748 Pulte Corp. ................................................ 20,804
1,055 Snap-On, Inc. .............................................. 36,727
1,342 Whirlpool Corp. ............................................ 74,313
- -------------------------------------------------------------------------------------------------------
3,173,660
- -------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 10.6%
8,378 Anheuser-Busch Cos., Inc. .................................. 549,806
10,357 Archer-Daniels-Midland Co. ................................. 178,011
2,664 Autozone, Inc. (a).......................................... 87,746
4,591 Avon Products, Inc. ........................................ 203,152
551 Ball Corp. ................................................. 25,208
1,194 Brown-Forman Corp., Class B Shares.......................... 90,371
7,859 Campbell Soup Co. .......................................... 432,245
1,815 Clorox Co. ................................................. 212,015
43,191 The Coca Cola Co. .......................................... 2,888,398
6,875 Coca Cola Enterprises, Inc. ................................ 245,781
5,124 Colgate Palmolive Co. ...................................... 475,892
8,592 Conagra, Inc. .............................................. 270,648
651 Coors Adolph Co., Class B Shares............................ 36,741
2,173 Crown Cork & Seal Co., Inc. ................................ 66,956
1,370 Eastman Chemical Co. ....................................... 61,308
5,676 Eastman Kodak Co. .......................................... 408,672
2,585 FDX Corp. .................................................. 230,065
3,871 Fort James Corp. ........................................... 154,840
2,996 Fortune Brands, Inc. ....................................... 94,749
2,694 Fred Meyer Inc. (a) ........................................ 162,314
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER NON-DURABLES -- 10.6% (CONTINUED)
1,269 Fruit of the Loom, Inc. (a)................................. $ 17,528
2,684 General Mills, Inc. ........................................ 208,681
19,435 Gillette Co. ............................................... 938,953
6,333 H.J. Heinz Co. ............................................. 358,606
2,289 Hasbro, Inc. ............................................... 82,690
2,514 Hershey Foods Corp. ........................................ 156,339
1,858 International Flavors & Fragrances, Inc. ................... 82,100
7,121 Kellogg Co. ................................................ 243,004
1,142 Liz Claiborne, Inc. ........................................ 36,044
5,012 Mattel, Inc. ............................................... 114,336
11,856 McDonald's Corp. ........................................... 908,466
5,002 Nike Inc., Class B Shares................................... 202,894
25,724 PepsiCo, Inc. .............................................. 1,053,076
42,674 Philip Morris Cos., Inc..................................... 2,283,059
4,241 Pioneer Hi-Bred International, Inc. ........................ 114,507
772 Polaroid Corp. ............................................. 14,427
23,247 Procter & Gamble Co. ....................................... 2,122,742
2,377 Quaker Oats Co. ............................................ 141,432
5,461 Ralston Purina Group........................................ 176,800
979 Reebok International Ltd. (a)............................... 14,563
5,712 RJR Nabisco Inc. ........................................... 169,575
2,603 Rubbermaid, Inc. ........................................... 81,832
644 Russell Corp. .............................................. 13,081
16,012 Sara Lee Corp. ............................................. 451,338
6,887 Seagram Ltd. ............................................... 261,706
3,032 The Sherwin Williams Co. ................................... 89,065
2,662 Tricon Global Restaurants, Inc. (a)......................... 133,433
977 Tupperware Corp. ........................................... 16,059
11,224 Unilever NV................................................. 930,891
3,269 UST, Inc. .................................................. 114,006
2,087 VF Corp. ................................................... 97,828
2,045 William Wrigley Jr. Co. .................................... 183,155
- -------------------------------------------------------------------------------------------------------
18,687,134
- -------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 12.8%
23 Abercrombie & Fitch Co., Class A Shares (a)................. 1,592
997 Alberto Culver Co., Class B Shares.......................... 26,607
4,299 Albertsons, Inc. ........................................... 273,793
1,232 American Greetings Corp., Class A Shares.................... 50,589
4,795 American Stores Co. ........................................ 177,115
5,009 Bestfoods................................................... 266,729
1,718 Brunswick Corp. ............................................ 42,521
10,424 Carnival Corp. ............................................. 500,352
12,387 CBS Corp. .................................................. 405,674
14,968 Cendant Corp. (a)........................................... 285,328
1,765 Circuit City Stores, Inc. .................................. 88,140
4,620 Clear Channel Communications, Inc. (a)...................... 251,790
6,475 Comcast Corp., Class A Shares (Special)..................... 380,002
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES -- 12.8% (CONTINUED)
1,881 Consolidated Stores Corp. (a) .............................. $ 37,973
3,789 Costco Cos., Inc. (a)....................................... 273,518
6,842 CVS Corp. .................................................. 376,310
2,446 Darden Restaurants, Inc. ................................... 44,028
7,703 Dayton Hudson Corp. ........................................ 417,888
1,421 Deluxe Corp. ............................................... 51,955
1,848 Dillard Department Stores, Inc., Class A Shares............. 52,437
3,273 Dollar General Corp. ....................................... 77,325
1,656 Dow Jones & Co. Inc. ....................................... 79,695
2,916 Dun & Bradstreet Corp. ..................................... 92,036
2,282 Ecolab, Inc. ............................................... 82,580
19,271 Eli Lilly & Co. ............................................ 1,712,710
2,564 Equifax, Inc. .............................................. 87,657
3,572 Federated Department Stores, Inc. (a)....................... 155,605
4,942 Gannett, Inc. .............................................. 327,099
10,171 Gap, Inc. .................................................. 572,119
656 Great Atlantic & Pacific Tea Co., Inc. ..................... 19,434
1,245 Harcourt General, Inc. ..................................... 66,218
1,766 Harrah's Entertainment, Inc. (a)............................ 27,704
8,141 HBO & Co. .................................................. 233,545
4,573 Hilton Hotels Corp. ........................................ 87,459
27,380 Home Depot, Inc. ........................................... 1,675,314
2,434 Interpublic Group of Cos., Inc. ............................ 194,112
4,459 J.C. Penney Co. ............................................ 209,016
610 Jostens, Inc. .............................................. 15,974
1,282 King World Productions, Inc. (a)............................ 37,739
8,606 Kmart Corp. (a)............................................. 131,779
1,367 Knight Ridder, Inc. ........................................ 69,888
2,782 Kohls Corp. (a) ............................................ 170,919
4,478 Kroger Co. (a).............................................. 270,919
5,803 Laidlaw, Inc., Class B Shares............................... 58,393
3,980 Limited, Inc. .............................................. 115,918
6,186 Loews Corp. ................................................ 316,646
696 Longs Drug Stores Corp. .................................... 26,100
4,371 Marriott International, Inc. ............................... 126,759
4,092 May Department Stores Co. .................................. 247,055
1,719 McGraw Hill Cos., Inc. ..................................... 175,123
10,623 MediaOne Group, Inc. (a).................................... 499,281
2,763 Mercantile Stores, Inc. .................................... 127,443
901 Meredith Corp. ............................................. 34,125
3,169 Mirage Resorts, Inc. (a) ................................... 47,337
721 National Service Industries, Inc. .......................... 27,398
3,197 New York Times Co., Class A Shares.......................... 110,896
2,616 Nordstrom, Inc. ............................................ 90,743
2,964 Omnicom Group, Inc. ........................................ 171,912
2,853 Paycheck Inc. .............................................. 146,751
1,139 The Pep Boys - Manny, Moe and Jack.......................... 17,868
2,373 R.R. Donnelley & Sons Co. .................................. 103,967
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES -- 12.8% (CONTINUED)
4,518 Rite Aid Corp. ............................................. $ 223,923
8,509 Safeway, Inc. (a)........................................... 518,517
1,477 Sealed Air Corp. (a) ....................................... 75,419
6,718 Sears, Roebuck & Co. ....................................... 285,515
4,516 Service Corp. International................................. 171,891
306 Spring Industries, Inc. .................................... 12,680
5,457 Staples, Inc. (a)........................................... 238,403
2,142 Super Valu, Inc. ........................................... 59,976
5,866 Sysco Corp. ................................................ 160,948
1,739 Tandy Corp. ................................................ 71,625
9,425 Tele-Communications, Inc., Class A Shares (a)............... 521,320
960 Temple Inland Inc. ......................................... 56,940
21,493 Time Warner, Inc. .......................................... 1,333,909
1,406 Times Mirror Co., Class A Shares............................ 78,736
5,645 TJX Cos., Inc. ............................................. 163,705
4,563 Toys 'R' Us, Inc. (a)....................................... 77,001
2,085 Tribune Co. ................................................ 137,610
1,527 US Air Group (a)............................................ 79,404
6,089 Viacom, Inc., Non Voting Shares (a)......................... 450,586
1,680 W.W. Grainger, Inc. ........................................ 69,930
39,473 Wal-Mart Stores, Inc. ...................................... 3,214,582
8,742 Walgreen Co. ............................................... 511,953
35,911 Walt Disney Co. ............................................ 1,077,330
2,213 Wendy's International, Inc. ................................ 48,271
2,603 Winn Dixie Stores, Inc. .................................... 116,810
- -------------------------------------------------------------------------------------------------------
22,601,886
- -------------------------------------------------------------------------------------------------------
ENERGY -- 7.1%
3,157 AES Corp. (a)............................................... 149,562
1,571 Amerada Hess Corp. ......................................... 78,157
16,730 Amoco Corp. ................................................ 1,010,074
2,110 Anadarko Petroleum Corp. ................................... 65,146
1,714 Apache Corp. ............................................... 43,386
1,340 Ashland, Inc. .............................................. 64,823
5,616 Atlantic Richfield Co. ..................................... 366,444
5,780 Baker Hughes, Inc. ......................................... 102,234
3,113 Burlington Resources, Inc. ................................. 111,484
11,442 Chevron Corp. .............................................. 948,971
2,758 Cinergy Corp. .............................................. 94,806
3,715 Coastal Corp. .............................................. 129,793
398 Eastern Enterprises......................................... 17,413
6,209 Edison International........................................ 173,076
5,807 Enron Corp. ................................................ 331,362
42,609 Exxon Corp.................................................. 3,115,783
4,162 First Energy Corp. ......................................... 135,525
7,683 Halliburton Co. ............................................ 227,609
842 Helmerich & Payne, Inc. .................................... 16,314
839 Kerr McGee Corp. ........................................... 32,092
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
ENERGY -- 7.1% (CONTINUED)
2,479 LSI Logic Corp. (a)......................................... $ 39,974
1,050 McDermott International, Inc. .............................. 25,922
13,658 Mobil Corp. ................................................ 1,189,953
2,003 New Century Energies Inc. .................................. 97,646
6,032 Occidental Petroleum Corp. ................................. 101,790
1,861 Oryx Energy Co. (a)......................................... 25,007
842 PennzEnergy Co. ............................................ 13,735
4,482 Phillips Petroleum Co. ..................................... 191,045
1,534 Rowan Cos., Inc. (a)........................................ 15,340
37,563 Royal Dutch Petroleum Co.................................... 1,798,329
9,551 Schlumberger Ltd. .......................................... 440,540
4,222 Sempra Energy............................................... 107,133
1,931 Sonat Inc. ................................................. 52,258
1,650 Sunoco Inc. ................................................ 59,503
2,998 Tenneco, Inc. .............................................. 102,119
9,375 Texaco, Inc. ............................................... 495,703
4,469 Union Pacific Resources Group, Inc. ........................ 40,500
4,221 Unocal Corp. ............................................... 123,200
5,408 USX-Marathon Group.......................................... 162,916
7,517 Williams Cos., Inc. ........................................ 234,436
- -------------------------------------------------------------------------------------------------------
12,531,103
- -------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 15.9%
2,516 Aetna Inc. ................................................. 197,821
14,376 Allstate Corp. ............................................. 555,273
7,929 American Express Co. ....................................... 810,740
4,413 American General Corp. ..................................... 344,214
18,395 American International Group, Inc. ......................... 1,777,417
12,788 Associates First Capital Corp. ............................. 541,892
20,508 Banc One Corp. ............................................. 1,047,190
5,144 Bank of Boston Corp. ....................................... 200,295
13,348 Bank of New York Co., Inc. ................................. 537,257
30,340 BankAmerica Corp. .......................................... 1,824,193
1,670 Bankers Trust of New York Corp. ............................ 142,681
5,137 BB&T Co. ................................................... 207,085
1,994 Bear Stearns & Co. ......................................... 74,526
132 Berkshire Hathaway, Inc., Class B Shares (a)................ 309,671
1,147 Capital One................................................. 131,905
7,018 Charles Schwab Corp. ....................................... 394,324
14,825 Chase Manhattan Corp. ...................................... 1,009,027
2,859 Chubb Corp. ................................................ 185,478
3,622 Cigna Corp. ................................................ 280,026
2,922 Cincinnati Financial Corp. ................................. 107,018
39,828 Citigroup Inc. ............................................. 1,971,486
2,737 Comerica, Inc. ............................................. 186,629
5,534 Conseco, Inc. .............................................. 169,133
1,975 Countrywide Credit Industries, Inc. ........................ 99,120
18,181 Fannie Mae.................................................. 1,345,394
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 15.9% (CONTINUED)
11,893 Federal Home Loan Mortgage Corp. ........................... $ 766,355
4,667 Fifth Third Bancorp......................................... 332,815
7,735 First Data Corp. ........................................... 245,103
17,366 First Union Corp. .......................................... 1,056,070
9,949 Fleet Financial Group, Inc. ................................ 444,596
4,440 Franklin Resources Inc. .................................... 142,080
1,003 Golden West Financial Corp. of Delaware..................... 91,963
1,780 H&R Block, Inc. ............................................ 80,100
4,092 Hartford Financial Services Group, Inc. .................... 224,549
8,441 Household International Inc. ............................... 334,475
3,693 Huntington Bancshares....................................... 111,021
3,060 J.P. Morgan & Co., Inc. .................................... 321,491
1,860 Jefferson Pilot Corp. ...................................... 139,500
7,985 KeyCorp..................................................... 255,520
2,037 Lehman Brothers Holdings, Inc. ............................. 89,755
1,767 Lincoln National Corp. ..................................... 144,563
1,992 Lowes Corp. ................................................ 195,714
4,509 Marsh & McLennan Cos., Inc. ................................ 263,495
1,732 MBIA, Inc. ................................................. 113,554
13,150 MBNA Corp. ................................................. 327,928
4,576 Mellon Bank Corp. .......................................... 314,600
6,215 Merrill Lynch & Co., Inc. .................................. 414,851
1,940 MGIC Investment Corp. ...................................... 77,236
10,134 Morgan Stanley Dean Witter & Co. ........................... 719,514
5,788 National City Corp. ........................................ 419,630
1,943 Northern Trust.............................................. 169,648
5,265 PNC Bank Corp. ............................................. 284,968
2,383 Provident Cos. ............................................. 98,895
2,473 Providian Corp. ............................................ 185,475
3,881 Regions Financial Corp. .................................... 156,453
1,870 Republic of New York Corp. ................................. 85,202
2,391 Safeco Corp. ............................................... 102,664
2,903 SLM Holding Corp. .......................................... 139,344
4,115 St. Paul Cos., Inc. ........................................ 142,996
2,820 State Street Corp. ......................................... 196,166
3,040 Summit Bancorp.............................................. 132,810
3,807 SunAmerica, Inc. ........................................... 308,843
3,664 Suntrust Bank, Inc. ........................................ 280,296
4,656 Synovus Financial Corp. .................................... 113,490
2,462 Torchmark Corp. ............................................ 86,939
1,093 Transamerica Corp. ......................................... 126,242
11,292 Tyco International Ltd. .................................... 851,840
12,737 U.S. Bancorp. of Oregon..................................... 452,164
2,394 Union Planters Corp. ....................................... 108,478
2,436 Unum Corp. ................................................. 142,202
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES -- 15.9% (CONTINUED)
3,547 Wachovia Corp. ............................................. $ 310,141
10,420 Washington Mutual, Inc. .................................... 397,914
28,337 Wells Fargo & Co. .......................................... 1,131,709
- -------------------------------------------------------------------------------------------------------
28,081,152
- -------------------------------------------------------------------------------------------------------
HEALTH CARE -- 11.2%
26,588 Abbott Laboratories......................................... 1,302,812
1,161 Allergan, Inc. ............................................. 75,175
1,524 Alza Corp. (a).............................................. 79,629
23,111 American Home Products Corp. ............................... 1,301,438
4,453 Amgen, Inc. (a)............................................. 465,617
2,996 Aon Corp. .................................................. 165,904
976 Bausch & Lomb, Inc. ........................................ 58,560
5,025 Baxter International, Inc. ................................. 323,170
4,345 Becton, Dickinson & Co. .................................... 185,477
1,945 Biomet, Inc. ............................................... 78,286
6,913 Boston Scientific Corp. (a)................................. 185,355
17,410 Bristol-Myers Squibb Co. ................................... 2,329,676
3,519 Cardinal Health, Inc. ...................................... 267,004
11,339 Columbia/HCA Healthcare Corp. .............................. 280,640
2,637 Guidant Corp. .............................................. 290,729
1,959 HCR Manor Care (a).......................................... 57,546
7,472 Healthsouth Corp. (a)....................................... 115,349
2,954 Humana, Inc. (a)............................................ 52,618
2,815 IMS Health, Inc. ........................................... 212,357
23,563 Johnson & Johnson........................................... 1,976,347
1,230 Mallinckrodt Group, Inc. ................................... 37,899
8,594 Medtronic, Inc. ............................................ 638,105
20,877 Merck & Co., Inc. .......................................... 3,083,272
761 Millipore Corp. ............................................ 21,641
2,164 Pall Corp. ................................................. 54,776
22,738 Pfizer, Inc. ............................................... 2,852,198
8,902 Pharmacia & Upjohn, Inc. ................................... 504,076
25,762 Schering-Plough Corp. ...................................... 1,423,351
1,473 St. Jude Medical, Inc. (a).................................. 40,784
5,407 Tenet Healthcare Corp. (a).................................. 141,934
3,269 United Healthcare Corp. .................................... 140,771
14,405 Warner Lambert Co. ......................................... 1,083,076
- -------------------------------------------------------------------------------------------------------
19,825,572
- -------------------------------------------------------------------------------------------------------
TECHNOLOGY -- 19.0%
6,271 3Com Corp. (a).............................................. 281,019
1,150 Adobe Systems, Inc. ........................................ 53,763
2,543 Advanced Micro Devices, Inc. (a)............................ 73,588
4,811 Alltel Corp. ............................................... 287,758
6,500 America Online, Inc. (a).................................... 940,875
3,848 AMP, Inc. .................................................. 200,337
1,532 Andrew Corp. (a)............................................ 25,278
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 19.0% (CONTINUED)
2,345 Apple Computer, Inc. (a).................................... $ 95,998
3,789 Ascend Communications, Inc. (a)............................. 249,127
807 Autodesk, Inc. ............................................. 34,449
5,297 Automatic Data Processing, Inc. ............................ 424,753
3,776 BMC Software................................................ 168,268
952 C.R. Bard, Inc. ............................................ 47,124
2,800 Cabletron Systems, Inc. (a)................................. 23,450
1,249 Ceridian Corp. (a).......................................... 87,196
27,675 Cisco Systems, Inc. (a)..................................... 2,568,586
29,799 Compaq Computer Corp. ...................................... 1,249,696
9,430 Computer Associates International, Inc. .................... 401,954
2,786 Computer Sciences Corp. .................................... 179,523
896 Data General Corp. (a)...................................... 14,728
22,312 Dell Computer Corp. (a)..................................... 1,632,960
760 EG&G, Inc. ................................................. 21,138
8,653 Electronic Data Systems Corp. .............................. 434,813
8,787 EMC Corp. (a)............................................... 746,895
2,753 Gateway 2000, Inc. (a)...................................... 140,919
2,917 General Instrument Corp. (a)................................ 98,996
1,425 Harris Corp. ............................................... 52,191
18,165 Hewlett Packard Co. ........................................ 1,240,897
2,206 Honeywell, Inc. ............................................ 166,139
29,216 Intel Corp. ................................................ 3,463,922
16,355 International Business Machines Corp. ...................... 3,021,586
1,544 KLA-Tencor Corp. (a)........................................ 66,971
23,052 Lucent Technologies......................................... 2,535,720
3,756 Micron Technology, Inc. (a)................................. 189,913
43,700 Microsoft Corp. (a)......................................... 6,060,644
7,041 Minnesota Mining & Manufacturing Co. ....................... 500,791
10,517 Motorola, Inc. ............................................. 642,194
2,964 National Semiconductor Corp. (a)............................ 40,014
5,037 Nextel Communications, Inc. (a)............................. 118,999
11,441 Northern Telecom Ltd. ...................................... 573,480
6,163 Novell, Inc. (a)............................................ 111,704
17,034 Oracle Systems Corp. (a).................................... 734,591
4,809 Parametric Technology Corp. (a)............................. 78,747
4,083 Peoplesoft, Inc. (a)........................................ 77,322
865 Perkin-Elmer Corp. ......................................... 84,392
4,776 Pitney Bowes, Inc. ......................................... 315,515
3,107 PPG Industries (a).......................................... 180,983
1,308 Scientific-Atlanta, Inc. ................................... 29,839
4,297 Seagate Technology, Inc. (a)................................ 129,984
478 Shared Medical Systems Corp. ............................... 23,840
3,351 Silicon Graphics, Inc. (a).................................. 43,144
1,700 Solectron Corp. (a)......................................... 157,994
7,296 Sprint PCS.................................................. 168,720
6,670 Sun Microsystems, Inc. (a).................................. 571,119
817 Tektronix, Inc. ............................................ 24,561
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY -- 19.0% (CONTINUED)
3,402 Tellabs, Inc. (a)........................................... $ 233,250
6,835 Texas Instruments, Inc. .................................... 584,820
3,822 Unicom Corp. ............................................... 147,386
4,485 Unisys Corp. (a)............................................ 154,452
5,752 Xerox Corp. ................................................ 678,736
- -------------------------------------------------------------------------------------------------------
33,687,751
- -------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.7%
3,191 AMR Corp. (a)............................................... 189,466
8,200 Burlington Northern Santa Fe................................ 276,750
3,843 CSX Corp. .................................................. 159,485
2,520 Delta Air Lines, Inc. ...................................... 131,040
6,624 Norfolk Southern Corp. ..................................... 209,898
1,232 Ryder Systems, Inc. ........................................ 32,032
5,858 Southwest Airlines Co. ..................................... 131,439
4,327 Union Pacific Corp. ........................................ 194,985
- -------------------------------------------------------------------------------------------------------
1,325,095
- -------------------------------------------------------------------------------------------------------
UTILITIES -- 10.1%
10,029 AirTouch Communications, Inc. (a)........................... 723,342
2,421 Ameren Corp. ............................................... 103,346
3,366 American Electric Power, Inc. .............................. 158,412
19,332 Ameritech Corp. ............................................ 1,225,166
31,652 AT&T Corp. ................................................. 2,381,813
2,598 Baltimore Gas & Electric Co. ............................... 80,213
27,215 Bell Atlantic Corp. ........................................ 1,546,152
33,490 BellSouth Corp. ............................................ 1,670,314
2,646 Carolina Power & Light Co. ................................. 124,527
3,743 Central & South West Corp. ................................. 102,699
1,461 Columbia Energy Group....................................... 84,373
4,091 Consolidated Edison Co. of New York, Inc. .................. 216,312
1,664 Consolidated Natural Gas Co. ............................... 89,856
3,418 Dominion Resources Inc. .................................... 159,792
2,541 DTE Energy Co. ............................................. 108,945
6,337 Duke Power Co. ............................................. 405,964
4,317 Entergy Corp. .............................................. 134,367
3,159 FPL Group, Inc. ............................................ 194,673
3,017 Frontier Corp. ............................................. 102,578
2,253 GPU, Inc. .................................................. 99,554
16,923 GTE Corp. .................................................. 1,141,245
5,004 Houston Industries, Inc. ................................... 160,754
32,119 MCI WorldCom, Inc. (a) ..................................... 2,304,538
3,269 Niagara Mohawk Power Corp. (a).............................. 52,713
818 Nicor, Inc. ................................................ 34,561
2,649 Northern States Power Co. of Minnesota...................... 73,510
544 Oneok, Inc. ................................................ 19,652
5,179 PacifiCorp.................................................. 109,083
3,916 Peco Energy Co. ............................................ 163,004
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES -- 10.1% (CONTINUED)
2,643 Pennsylvania Power & Light.................................. $ 73,674
618 Peoples Energy Corp. ....................................... 24,643
6,716 PG&E Corp. ................................................. 211,554
4,000 Public Service Enterprise Group............................. 160,000
34,289 SBC Communications, Inc. ................................... 1,838,748
12,211 Southern Co. ............................................... 354,882
7,554 Sprint Corp. ............................................... 635,480
4,934 Texas Utilities Co. ........................................ 230,356
8,820 U.S. West Inc. ............................................. 569,991
- -------------------------------------------------------------------------------------------------------
17,870,786
- -------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $142,758,992)................... 175,624,801
- -------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS -- 0.7%
$739,000 Repurchase Agreement -- Morgan Stanley Dean Witter & Co.,
4.650% due 1/4/99; Proceeds at maturity -- $739,382; (Fully
collateralized by U.S. Treasury Notes and Bonds, 6.000% to
6.500% due 7/15/99 to 8/15/27; Market value -- $757,225).... 739,000
490,000 U.S. Treasury Bill, 4.360% due 3/18/99 (b).................. 485,664
- -------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $1,224,490)........... 1,224,664
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $143,983,482*)........... $176,849,465
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Security is segregated by the custodian for futures contracts commitments.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 93.0%
- -----------------------------------------------------------------------------------------
AEROSPACE -- 1.3%
9,000 Gulfstream Aerospace Corp. (a).............................. $ 479,250
- -----------------------------------------------------------------------------------------
AIRLINES -- 1.1%
18,000 Southwest Airlines Co. ..................................... 403,875
- -----------------------------------------------------------------------------------------
BANKS -- 4.0%
26,000 KeyCorp. ................................................... 832,000
9,000 State Street Corp. ......................................... 626,062
- -----------------------------------------------------------------------------------------
1,458,062
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.6%
14,000 W.W. Grainger, Inc. ........................................ 582,750
- -----------------------------------------------------------------------------------------
CONSUMER DURABLES -- 1.2%
20,000 Leggett & Platt, Inc. ...................................... 440,000
- -----------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 4.0%
9,000 The Coca-Cola Co. .......................................... 601,875
5,000 Colgate Palmolive Co. ...................................... 464,375
4,000 Procter & Gamble Co. ....................................... 365,250
- -----------------------------------------------------------------------------------------
1,431,500
- -----------------------------------------------------------------------------------------
CONSUMER SERVICES -- 2.0%
20,000 TCA Cable TV, Inc. ......................................... 713,750
- -----------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 7.4%
10,000 Computer Associates International Inc. ..................... 426,250
10,000 Electronic Data Systems Corp. .............................. 502,500
15,000 Hewlett Packard Co. ........................................ 1,024,687
6,000 Motorola, Inc. ............................................. 366,375
3,000 Xerox Corp. ................................................ 354,000
- -----------------------------------------------------------------------------------------
2,673,812
- -----------------------------------------------------------------------------------------
ENERGY -- 6.4%
10,000 Coastal Corp. .............................................. 349,375
8,000 Exxon Corp. ................................................ 585,000
9,000 Mobil Corp. ................................................ 784,125
14,000 Phillips Petroleum Co. ..................................... 596,750
- -----------------------------------------------------------------------------------------
2,315,250
- -----------------------------------------------------------------------------------------
ENTERTAINMENT -- 1.2%
15,000 The Walt Disney Co. ........................................ 450,000
- -----------------------------------------------------------------------------------------
FINANCE -- 15.5%
10,000 A.G. Edwards, Inc. ......................................... 372,500
12,000 BankAmerica Corp. .......................................... 721,500
12,000 Chase Manhattan Corp. ...................................... 816,750
7,000 Conseco, Inc. .............................................. 213,937
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
FINANCE -- 15.5% (CONTINUED)
18,000 Greenpoint Financial Corp. ................................. $ 632,250
15,532 Household International, Inc. .............................. 615,455
6,000 J.P. Morgan & Co., Inc. .................................... 630,375
18,000 Mercury General Corp. ...................................... 788,625
6,000 Morgan Stanley Dean Witter & Co. ........................... 426,000
10,000 Washington Mutual, Inc. .................................... 381,875
- -----------------------------------------------------------------------------------------
5,599,267
- -----------------------------------------------------------------------------------------
FOOD -- 0.4%
5,000 Dole Food Co., Inc. ........................................ 150,000
- -----------------------------------------------------------------------------------------
HEALTH TECHNOLOGY -- 10.7%
12,000 Eli Lilly & Co. ............................................ 1,066,500
11,000 Johnson & Johnson........................................... 922,625
7,000 Merck & Co., Inc. .......................................... 1,033,813
11,000 Mylan Laboratories Inc. .................................... 346,500
4,000 Pfizer Inc. ................................................ 501,750
- -----------------------------------------------------------------------------------------
3,871,188
- -----------------------------------------------------------------------------------------
INDUSTRIAL SERVICES -- 1.4%
12,000 Fluor Corp. ................................................ 510,750
- -----------------------------------------------------------------------------------------
MACHINERY -- 2.0%
28,000 Pall Corp. ................................................. 708,750
- -----------------------------------------------------------------------------------------
MINERALS -- 0.9%
25,000 Worthington Industries Inc. ................................ 312,500
- -----------------------------------------------------------------------------------------
PROCESS INDUSTRIES -- 0.8%
8,000 Bemis Inc. ................................................. 303,500
- -----------------------------------------------------------------------------------------
PRODUCER MANUFACTURER -- 6.0%
14,000 Dana Corp. ................................................. 572,250
8,000 Ford Motor Co. ............................................. 469,500
11,000 General Electric Co. ....................................... 1,122,688
- -----------------------------------------------------------------------------------------
2,164,438
- -----------------------------------------------------------------------------------------
REAL ESTATE -- 1.3%
10,000 Arden Realty Group, Inc. ................................... 231,875
10,000 Kilroy Realty Corp. ........................................ 230,000
- -----------------------------------------------------------------------------------------
461,875
- -----------------------------------------------------------------------------------------
RESTAURANT & LODGING -- 0.7%
11,000 Starwood Hotels & Resorts Trust............................. 249,562
- -----------------------------------------------------------------------------------------
RETAIL -- 8.1%
13,000 May Department Stores Co. .................................. 784,875
25,000 Nordstrom, Inc. ............................................ 867,187
16,000 Rite Aid Corp. ............................................. 793,000
6,000 Wal-Mart Stores, Inc. ...................................... 488,625
- -----------------------------------------------------------------------------------------
2,933,687
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY SERVICES -- 2.2%
10,000 Automatic Data Processing, Inc. ............................ $ 801,875
- -----------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 1.7%
25,000 LM Ericsson Telephone Co., ADR.............................. 598,438
- -----------------------------------------------------------------------------------------
TEXTILES-APPAREL MANUFACTURING -- 0.8%
9,000 Liz Claiborne, Inc. ........................................ 284,063
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 1.0%
17,000 Knightsbridge Tankers Ltd. ................................. 353,813
- -----------------------------------------------------------------------------------------
UTILITIES -- 9.3%
17,000 Ameritech Corp. ............................................ 1,077,375
8,000 AT&T Corp. ................................................ 602,000
4,000 Duke Energy Corp. .......................................... 256,250
10,000 GTE Corp. .................................................. 674,375
10,658 MCI WorldCom, Inc. (a)...................................... 764,711
- -----------------------------------------------------------------------------------------
3,374,711
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $20,464,465).................... 33,626,666
- -----------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK -- 1.4%
ENERGY -- 1.4%
10,044 Unocal Corp., Convertible 6.250% (b) (Cost -- $485,250)..... 495,923
- -----------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
CORPORATE DEBENTURES -- 4.4%
FINANCIAL SERVICES -- 2.9%
$500,000 General Motors Acceptance Corp., 7.000% due 9/15/02......... 521,875
500,000 Morgan Stanley Dean Witter & Co., 6.875% due 3/1/03......... 521,875
- -----------------------------------------------------------------------------------------
1,043,750
- -----------------------------------------------------------------------------------------
RETAIL TRADE -- 1.5%
500,000 Limited Inc., 7.800% due 5/15/02............................ 530,625
- -----------------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES (Cost -- $1,559,315)............. 1,574,375
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.2%
426,000 Morgan Stanley Dean Witter & Co., 4.650% due 1/4/99;
Proceeds at maturity -- $426,220; (Fully collateralized by
U.S. Treasury Notes, 6.000% to 6.500% due 7/15/99 to
8/15/27; Market value -- $436,506) (Cost -- $426,000)....... 426,000
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $22,935,030**)........... $36,122,964
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S>
(a) Non-income producing security.
(b) Security is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in
transactions that are exempt from registration, generally to
qualified institutional buyers.
** Aggregate cost for Federal income tax purposes is
substantially the same.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 94.8%
- -----------------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 15.1%
800 Applied Micro Circuits Corp. (a)............................ $ 27,175
4,400 BMC Software, Inc. (a)...................................... 196,075
2,200 CIBER, Inc. (a)............................................. 61,463
3,000 Citrix Systems, Inc. (a).................................... 291,188
10,300 Compuware Corp. (a)......................................... 804,688
900 Concord Communications, Inc. (a)............................ 51,075
1,000 GeoTel Communications Corp. (a)............................. 37,250
2,550 Gulfstream Aerospace Corp. (a).............................. 135,788
1,200 IMRglobal Corp. (a)......................................... 35,325
1,500 Keane, Inc. (a)............................................. 59,906
3,650 Legato Systems, Inc. (a).................................... 240,672
2,600 Macromedia, Inc. (a)........................................ 87,588
1,400 Mastech Corp. (a)........................................... 40,075
1,000 Mercury Interactive Corp. (a)............................... 63,250
700 Microsoft Corp. (a)......................................... 97,081
1,500 MindSpring Enterprises, Inc. (a)............................ 91,594
1,600 Network Associates, Inc. (a)................................ 106,000
400 Network Solutions, Inc. (a)................................. 52,350
1,200 New Era of Networks, Inc. (a)............................... 52,800
400 Peregrine Systems, Inc. (a)................................. 18,550
3,200 Rational Software Corp. (a)................................. 84,800
2,000 Sterling Software, Inc. (a)................................. 54,125
1,500 Veritas DGC Inc. (a)........................................ 19,500
2,850 Veritas Software Corp. (a).................................. 170,822
800 Wind River Systems, Inc. (a)................................ 37,600
1,650 Yahoo! Inc. (a)............................................. 387,853
- -----------------------------------------------------------------------------------------
3,304,593
- -----------------------------------------------------------------------------------------
CONSUMER DISTRIBUTION -- 15.3%
500 American Eagle Outfitters, Inc. (a)......................... 33,313
2,200 Ann Taylor Stores Corp. (a)................................. 86,763
2,400 Bed Bath & Beyond Inc. (a).................................. 81,900
7,250 Best Buy Co., Inc. (a)...................................... 444,969
1,000 Cardinal Health, Inc. ...................................... 75,875
1,200 CDW Computer Centers, Inc. (a).............................. 115,125
1,000 Costco Cos., Inc. (a)....................................... 72,188
2,500 CVS Corp. .................................................. 137,500
2,000 Dollar Tree Stores, Inc. (a)................................ 87,375
1,800 The Earthgrains Co. ........................................ 55,688
1,100 Express Scripts, Inc. (a)................................... 73,838
6,000 Family Dollar Stores, Inc. ................................. 132,000
3,100 The Gap, Inc. .............................................. 174,375
1,000 Hollywood Entertainment Corp. (a)........................... 27,250
4,300 The Home Depot, Inc......................................... 263,106
900 Insight Enterprises, Inc. (a)............................... 45,788
600 Lason, Inc. (a)............................................. 34,913
2,950 Lexmark International Group, Inc. (a)....................... 296,475
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER DISTRIBUTION -- 15.3% (CONTINUED)
3,750 Lowe's Cos., Inc. .......................................... $ 191,953
700 Micro Warehouse, Inc. (a)................................... 23,669
3,300 Safeway Inc. (a)............................................ 201,094
5,750 Staples, Inc. (a)........................................... 251,203
7,000 TJX Cos., Inc. ............................................. 203,000
1,300 Trans World Entertainment Corp. (a)......................... 24,781
1,300 Tricon Global Restaurants, Inc. (a)......................... 65,163
1,100 U.S. Foodservice (a)........................................ 53,900
2,100 Williams Sonoma, Inc. (a)................................... 84,656
- -----------------------------------------------------------------------------------------
3,337,860
- -----------------------------------------------------------------------------------------
CONSUMER DURABLES -- 0.5%
800 Kaufman & Broad Home Corp. ................................. 23,000
1,000 Pulte Corp. ................................................ 27,813
2,100 Shaw Industries, Inc. ...................................... 50,925
- -----------------------------------------------------------------------------------------
101,738
- -----------------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 2.1%
3,000 Abercrombie & Fitch Co. (a)................................. 212,250
1,100 Adolph Coors Co. ........................................... 62,081
3,600 Linens 'n Things, Inc. (a).................................. 142,650
600 Smithfield Foods, Inc. (a).................................. 20,325
750 Westpoint Stevens Inc. (a).................................. 23,672
- -----------------------------------------------------------------------------------------
460,978
- -----------------------------------------------------------------------------------------
CONSUMER SERVICES -- 9.9%
2,000 Brinker International, Inc. (a)............................. 57,750
2,750 Cablevision Systems Corp. (a)............................... 138,016
7,600 Chancellor Media Corp. (a).................................. 363,850
4,800 Clear Channel Communications, Inc. (a)...................... 261,600
800 Consolidated Graphics, Inc. (a)............................. 54,050
1,400 Earthlink Network, Inc. (a)................................. 79,800
700 Education Management Corp. (a).............................. 16,538
1,600 International Network Services (a).......................... 106,400
1,700 The Interpublic Group of Cos., Inc. ........................ 135,575
3,000 Jacor Communications, Inc. (a).............................. 193,125
3,300 Liberty Media Group (a)..................................... 152,006
2,100 Meredith Corp............................................... 79,538
300 Metris Cos., Inc. .......................................... 15,094
1,300 The Metzler Group, Inc. (a)................................. 63,294
2,900 Omnicom Group Inc........................................... 168,200
3,500 Outdoor Systems, Inc. (a)................................... 105,000
1,600 Robert Half International Inc. (a).......................... 71,500
750 Snyder Communications, Inc. (a)............................. 25,313
1,500 Valassis Communications, Inc. (a)........................... 77,438
- -----------------------------------------------------------------------------------------
2,164,087
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
E.D.P. PERIPHERALS & SERVICES -- 13.1%
1,000 Affiliated Computer Services, Inc. (a)...................... $ 45,000
9,000 America Online, Inc. (a).................................... 1,302,750
1,700 American Management Systems, Inc. (a)....................... 68,000
1,700 Apple Computer, Inc. (a).................................... 69,594
12,600 Dell Computer Corp. (a)..................................... 922,163
1,300 Fiserv, Inc. (a)............................................ 66,869
1,600 Paychex, Inc. .............................................. 82,300
500 QLogic Corp. (a)............................................ 65,438
550 SEI Investments Co. ........................................ 54,656
2,800 SunGard Data Systems Inc. (a)............................... 111,125
350 VeriSign, Inc. (a).......................................... 20,694
1,500 Xircom, Inc. (a)............................................ 51,000
- -----------------------------------------------------------------------------------------
2,859,589
- -----------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & DISTRIBUTORS -- 6.2%
3,000 Concord Communications, Inc. (a)............................ 127,125
9,300 EMC Corp. (a)............................................... 790,500
1,400 Flextronics International Ltd. (a).......................... 119,875
800 Gentex Corp. (a)............................................ 16,000
2,000 Jabil Circuit, Inc. (a)..................................... 149,250
600 Sanmina Corp. (a)........................................... 37,500
1,300 Solectron Corp. (a)......................................... 120,819
- -----------------------------------------------------------------------------------------
1,361,069
- -----------------------------------------------------------------------------------------
ENERGY -- 0.2%
900 BJ Services Co. (a)......................................... 7,482
3,600 Marine Drilling Co., Inc. (a)............................... 27,675
1,500 National Oilwell, Inc. (a).................................. 16,781
- -----------------------------------------------------------------------------------------
51,938
- -----------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 5.9%
1,000 AmSouth Bancorp. ........................................... 45,625
1,650 Capital One Financial Corp. ................................ 189,750
1,250 Dime Bancorp, Inc. ......................................... 33,047
440 Fidelity National Financial, Inc. .......................... 13,420
800 Fifth Third Bancorp......................................... 57,050
1,200 Finova Group Inc. .......................................... 64,725
1,300 Firstar Corp. .............................................. 121,225
800 National Commerce Bancorp. ................................. 15,050
1,300 Northern Trust Corp. ....................................... 113,506
1,500 Old Kent Financial Corp. ................................... 69,750
250 Progressive Corp. .......................................... 42,344
1,100 Protective Life Corp. ...................................... 43,794
5,700 Providian Financial Corp. .................................. 427,500
1,000 Zions Bancorp. ............................................. 62,375
- -----------------------------------------------------------------------------------------
1,299,161
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE -- 11.5%
5,500 Allegiance Corp. ........................................... $ 256,438
1,500 Allergan, Inc. ............................................. 97,125
600 Amgen Inc. ................................................. 62,738
5,100 Biogen, Inc. (a)............................................ 423,300
900 Biomatrix, Inc. (a)......................................... 52,425
2,100 Biomet, Inc. ............................................... 84,525
600 Cree Research, Inc. (a)..................................... 28,725
2,400 Genzyme Corp. (a)........................................... 119,400
2,000 Guidant Corp................................................ 220,500
1,000 Henry Schein, Inc. (a)...................................... 44,750
1,100 Immunex Corp. (a)........................................... 138,394
800 Medicis Pharmaceutical Corp. (a)............................ 47,700
1,000 Medimmune, Inc. (a)......................................... 99,438
800 Medquist Inc. (a)........................................... 31,600
1,300 Medtronic, Inc.............................................. 96,525
1,000 Minimed Inc. (a)............................................ 104,750
3,400 Omnicare Group Inc. ........................................ 118,150
400 Pathogenesis Corp. (a)...................................... 23,200
800 Patterson Dental Co. (a).................................... 34,800
800 PSS World Medical, Inc. (a)................................. 18,400
2,700 Quintiles Transnational Corp. (a)........................... 144,113
100 Visx, Inc. (a).............................................. 8,744
3,200 Watson Pharmaceuticals, Inc. (a)............................ 201,200
600 Wellpoint Health Networks Inc. (a).......................... 52,200
- -----------------------------------------------------------------------------------------
2,509,140
- -----------------------------------------------------------------------------------------
PRECISION INSTRUMENTS -- 1.6%
4,800 Network Appliance, Inc. (a)................................. 216,000
1,500 Waters Corp. (a)............................................ 130,875
- -----------------------------------------------------------------------------------------
346,875
- -----------------------------------------------------------------------------------------
PRODUCER MANUFACTURING -- 4.2%
5,145 Allied Waste Industries, Inc. (a)........................... 121,551
3,800 American Power Conversion Corp. (a)......................... 184,063
1,800 Danaher Corp. .............................................. 97,763
1,800 Federal-Mogul Corp. ........................................ 107,100
4,400 Metromedia Fiber Network, Inc. (a).......................... 147,400
3,300 Tyco International, Ltd. ................................... 248,944
- -----------------------------------------------------------------------------------------
906,821
- -----------------------------------------------------------------------------------------
SEMICONDUCTORS -- 1.7%
1,500 Advanced Micro Devices, Inc. (a)............................ 43,406
2,100 Altera Corp. (a)............................................ 127,838
1,200 Intel Corp. ................................................ 142,275
650 Texas Instruments Inc. ..................................... 55,616
- -----------------------------------------------------------------------------------------
369,135
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATION EQUIPMENT -- 6.4%
2,750 Cisco Systems, Inc. (a)..................................... $ 255,234
1,500 Comverse Technology, Inc. (a)............................... 106,500
2,000 CSG Systems International, Inc. (a)......................... 158,000
1,200 EchoStar Communications, Class A Shares (a)................. 58,050
2,900 Gemstar International Group Ltd. (a)........................ 166,025
2,400 General Instrument Corp. (a)................................ 81,450
900 Gilat Satellite Networks Ltd. (a)........................... 49,613
1,000 Global Crossing Ltd. (a).................................... 45,125
1,300 Nokia Corp. ADS............................................. 156,569
1,800 Symbol Technologies, Inc. .................................. 115,088
2,100 Tekelec (a)................................................. 34,781
3,750 Vitesse Semiconductor Corp. (a)............................. 171,094
- -----------------------------------------------------------------------------------------
1,397,529
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 0.6%
1,750 Comair Holdings, Inc. ...................................... 59,063
3,300 Southwest Airlines Co. ..................................... 74,044
- -----------------------------------------------------------------------------------------
133,107
- -----------------------------------------------------------------------------------------
UTILITIES -- 0.5%
1,700 Century Telephone Enterprises, Inc. ........................ 114,750
- -----------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost -- $12,571,275).................... 20,718,370
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 5.2%
$1,000,000 U.S. Treasury Bills, 4.38% due 2/4/99 (b)................... 995,863
150,000 U.S. Treasury Bills, 4.40% due 2/4/99 (b)................... 149,377
- -----------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $1,145,240)........................................ 1,145,240
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $13,716,515*)............ $21,863,610
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing security.
(b) Rate represents annualized yield to maturity.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK -- 100.0%
- -------------------------------------------------------------------------------------------------
AUSTRALIA -- 2.1%
89,612 Coca Cola Amatil Ltd. (a) .................................. $ 334,205
87,723 Coca Cola Beverages PLC (a)(b).............................. 161,481
- -------------------------------------------------------------------------------------------------
495,686
- -------------------------------------------------------------------------------------------------
AUSTRIA -- 1.5%
6,000 Wolford AG.................................................. 351,242
- -------------------------------------------------------------------------------------------------
FINLAND -- 4.1%
8,000 Nokia Oyj................................................... 963,500
- -------------------------------------------------------------------------------------------------
FRANCE -- 3.9%
4,000 Axa......................................................... 580,001
4,000 Sidel S.A. ................................................. 339,408
- -------------------------------------------------------------------------------------------------
919,409
- -------------------------------------------------------------------------------------------------
HONG KONG -- 4.8%
348,491 Hong Kong & China Gas Co. Ltd. ............................. 443,075
15,840 Hong Kong & China Gas Co. Ltd. Warrants,
Expire 9/30/99 (b).......................................... 1,043
100,000 Hutchison Whampoa Ltd. ..................................... 706,698
- -------------------------------------------------------------------------------------------------
1,150,816
- -------------------------------------------------------------------------------------------------
IRELAND -- 13.2%
55,729 Bank of Ireland............................................. 1,242,231
204,629 Independent Newspapers PLC.................................. 839,031
20,000 IONA Technologies PLC (a)(b)................................ 760,000
25,638 Irish Continental Group PLC................................. 303,899
- -------------------------------------------------------------------------------------------------
3,145,161
- -------------------------------------------------------------------------------------------------
ITALY -- 8.0%
250,000 Istituto Nazionale delle Assicurazioni...................... 662,698
150,000 Telecom Italia Mobile S.p.A. ............................... 1,110,075
250,000 Unione Immobiliare S.p.A. (b) .............................. 130,603
- -------------------------------------------------------------------------------------------------
1,903,376
- -------------------------------------------------------------------------------------------------
JAPAN -- 10.6%
17,000 Hosiden Corp. (a) .......................................... 297,199
11,000 Murata Manufacturing Co., Ltd. ............................. 457,358
3,000 Shohkoh Fund & Co., Ltd. ................................... 968,085
6,500 Sony Corp. ................................................. 474,247
14,000 Terumo Corp................................................. 330,142
- -------------------------------------------------------------------------------------------------
2,527,031
- -------------------------------------------------------------------------------------------------
MEXICO -- 0.8%
160,800 Cifra S.A. de CV (b)........................................ 198,358
- -------------------------------------------------------------------------------------------------
NETHERLANDS -- 8.4%
15,136 Getronics NV................................................ 750,066
10,346 IHC Caland NV............................................... 430,004
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PG$PCN>
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (CONTINUED) DECEMBER 31, 1998
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS -- 8.4% (CONTINUED)
50,000 ING Groep NV Warrants, Expire 3/15/01 (b)................... $ 825,918
- -------------------------------------------------------------------------------------------------
2,005,988
- -------------------------------------------------------------------------------------------------
NORWAY -- 4.1%
30,000 Tomra Systems ASA........................................... 984,381
- -------------------------------------------------------------------------------------------------
PANAMA -- 1.8%
20,000 Panamerican Beverages, Inc. ................................ 436,250
- -------------------------------------------------------------------------------------------------
SPAIN -- 2.2%
7,000 Banco Popular Espanol S.A. ................................. 528,598
- -------------------------------------------------------------------------------------------------
SWEDEN -- 4.6%
70,000 Securitas AB, Class B Shares................................ 1,088,110
- -------------------------------------------------------------------------------------------------
SWITZERLAND -- 6.2%
25,000 Mettler-Toledo International Inc. (b) ...................... 701,563
400 Novartis AG, Registered Shares.............................. 786,312
- -------------------------------------------------------------------------------------------------
1,487,875
- -------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 23.7%
125,000 Boxmore International PLC................................... 317,164
115,000 Capita Group PLC............................................ 1,062,884
70,000 Colt Telecom Group PLC (b).................................. 1,024,907
100,000 Hays PLC.................................................... 856,862
100,670 Misys PLC................................................... 740,331
70,000 SEMA Group PLC.............................................. 687,736
50,000 Serco Group PLC............................................. 957,939
- -------------------------------------------------------------------------------------------------
5,647,823
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $15,396,801*)............ $23,833,604
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) A portion of this security is on loan (See Note 15).
(b) Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PG$PCN>
- --------------------------------------------------------------------------------
BOND RATINGS (UNAUDITED)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "BBB" to
"C" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
<TABLE>
<S> <C> <C>
BBB -- Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they
normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, -- Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
CC and C balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates
the lowest degree of speculation and "C" the highest degree
of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
</TABLE>
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Baa" to "Ca," where 1 is the highest
and 3 the lowest ranking within its generic category.
<TABLE>
<S> <C> <C>
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is, they are neither highly protected nor
poorly secured. Interest payment and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. Such issues may be
in default, or there may be present elements of danger with
respect to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
</TABLE>
46
<PG$PCN>
(This page intentionally left blank)
47
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at cost...................................... $4,693,247 $78,436,754
Foreign currency, at cost................................. -- 2,734,361
- ---------------------------------------------------------------------------------------------
Investments, at value..................................... $4,693,247 $79,579,321
Foreign currency, at value................................ -- 2,745,132
Cash...................................................... 225 --
Collateral for securities on loan (Note 15)............... -- 2,499,650
Receivable for Fund shares sold........................... -- 3,827
Receivable for securities sold............................ -- --
Receivable from manager................................... 8,937 --
Receivable from broker-variation margin................... -- --
Dividends and interest receivable......................... 3,647 1,155,495
Receivable for open forward foreign currency contracts
(Note 7)............................................... -- 42,806
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS.............................................. 4,706,056 86,026,231
- ---------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased......................... -- 129,930
Investment advisory fees payable.......................... -- 30,636
Dividends payable......................................... 9,678 --
Administration fees payable............................... -- 13,616
Payable for securities purchased.......................... -- 200,000
Payable to bank........................................... -- 2,035,671
Payable for securities on loan (Note 15).................. -- 2,499,650
Payable for open forward foreign currency contracts (Note
7)..................................................... -- 96,793
Accrued expenses.......................................... 25,141 50,253
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES......................................... 34,819 5,056,549
- ---------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $4,671,237 $80,969,682
- ---------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares............................... $ 4,671 $ 7,427
Capital paid in excess of par value....................... 4,666,566 75,023,719
Undistributed (overdistributed) net investment income..... -- 3,844,787
Accumulated net realized gain on security transactions and
futures contracts...................................... -- 980,637
Net unrealized appreciation of investments, futures
contracts and foreign currencies....................... -- 1,113,112
- ---------------------------------------------------------------------------------------------
TOTAL NET ASSETS............................................ $4,671,237 $80,969,682
- ---------------------------------------------------------------------------------------------
SHARES OUTSTANDING.......................................... 4,671,243 7,426,810
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE............................................. $1.00 $10.90
- ---------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PG$PCN>
- ----------------------------------------------------------
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$27,653,574 $143,983,482 $22,935,030 $13,716,515 $15,396,801
-- -- -- -- 65
- ----------------------------------------------------------------------------------
$37,419,550 $176,849,465 $36,122,964 $21,863,610 $23,833,604
-- -- -- -- 70
-- 462 753 41,615 --
-- -- -- -- 639,186
-- 491,181 -- 137 --
1,633,458 805,315 593,822 67,561 250,855
-- 139,932 -- -- --
-- 8,602 -- -- --
209,487 168,128 78,204 2,809 15,871
-- -- -- -- --
- ----------------------------------------------------------------------------------
39,262,495 178,463,085 36,795,743 21,975,732 24,739,586
- ----------------------------------------------------------------------------------
99,840 -- 25,583 -- 71,907
15,099 28,999 13,887 11,674 16,254
-- -- -- -- --
6,755 11,947 6,172 4,391 3,824
473,700 1,196,991 926,893 784,327 --
1,141,049 -- -- -- 451,877
-- -- -- -- 639,186
-- -- -- -- 2,169
31,125 58,435 42,308 28,184 72,276
- ----------------------------------------------------------------------------------
1,767,568 1,296,372 1,014,843 828,576 1,257,493
- ----------------------------------------------------------------------------------
$37,494,927 $177,166,713 $35,780,900 $21,147,156 $23,482,093
- ----------------------------------------------------------------------------------
$ 2,289 $ 5,907 $ 1,937 $ 1,077 $ 1,685
20,438,507 141,330,600 16,316,048 9,331,668 13,268,524
1,467,374 1,249,038 574,981 (1,228) (470,435)
5,820,781 1,709,633 5,700,000 3,668,544 2,245,243
9,765,976 32,871,535 13,187,934 8,147,095 8,437,076
- ----------------------------------------------------------------------------------
$37,494,927 $177,166,713 $35,780,900 $21,147,156 $23,482,093
- ----------------------------------------------------------------------------------
2,289,068 5,907,470 1,936,882 1,077,307 1,684,706
- ----------------------------------------------------------------------------------
$16.38 $29.99 $18.47 $19.63 $13.94
- ----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................. $272,329 $5,253,061
Dividends................................................. -- 46,130
Less: Foreign withholding tax............................. -- --
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................... 272,329 5,299,191
- -----------------------------------------------------------------------------------------------
EXPENSES:
Audit and legal........................................... 18,723 17,993
Custody................................................... 18,773 19,866
Shareholder and system servicing fees..................... 15,735 14,837
Investment advisory fees (Note 3)......................... 14,675 332,908
Administration fees (Note 3).............................. 9,784 147,959
Trustees' fees............................................ 3,702 6,332
Shareholder communications................................ 3,525 20,414
Amortization of deferred organization costs............... -- --
Pricing service fees...................................... -- 12,448
Other..................................................... 650 1,814
- -----------------------------------------------------------------------------------------------
TOTAL EXPENSES............................................ 85,567 574,571
Less: Investment advisory & administration fee waivers and
expense reimbursement.................................. (24,459) --
- -----------------------------------------------------------------------------------------------
NET EXPENSES.............................................. 61,108 574,571
- -----------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)................................ 211,221 4,724,620
- -----------------------------------------------------------------------------------------------
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*).......................................... 59 1,024,521
Futures contracts...................................... -- --
Foreign currency transactions.......................... -- (813,523)
- -----------------------------------------------------------------------------------------------
NET REALIZED GAIN......................................... 59 210,998
- -----------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments,
Futures Contracts and Foreign Currencies:
Beginning of year...................................... -- 1,460,585
End of year............................................ -- 1,113,112
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET UNREALIZED APPRECIATION........ -- (347,473)
- -----------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS AND
FOREIGN CURRENCIES........................................ 59 (136,475)
- -----------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS...................... $211,280 $4,588,145
- -----------------------------------------------------------------------------------------------
</TABLE>
* Represents net realized gains only from short-term securities for the Money
Market Portfolio.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PG$PCN>
- ---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 561,575 $ 203,934 $ 119,188 $ 41,226 $ 34,900
1,246,712 1,305,018 748,917 39,028 299,328
(2,520) (7,808) (1,902) (153) (28,698)
- --------------------------------------------------------------------------------------------------
1,805,767 1,501,144 866,203 80,101 305,530
- --------------------------------------------------------------------------------------------------
21,954 23,821 11,051 20,271 20,417
2,332 93,400 289 17,951 41,387
11,162 15,907 3,365 12,753 14,334
192,581 135,564 179,897 150,773 225,622
85,592 54,226 79,954 40,206 53,087
4,538 6,857 6,285 3,292 2,864
16,183 40,566 6,365 8,001 6,421
-- -- -- 2,845 2,924
1,788 -- -- -- 3,955
787 14,025 -- 300 773
- --------------------------------------------------------------------------------------------------
336,917 384,366 287,206 256,392 371,784
-- (114,983) -- -- --
- --------------------------------------------------------------------------------------------------
336,917 269,383 287,206 256,392 371,784
- --------------------------------------------------------------------------------------------------
1,468,850 1,231,761 578,997 (176,291) (66,254)
- --------------------------------------------------------------------------------------------------
5,820,781 1,184,427 5,699,928 3,689,801 5,405,229
-- 586,748 -- -- --
-- -- -- -- (8,079)
- --------------------------------------------------------------------------------------------------
5,820,781 1,771,175 5,699,928 3,689,801 5,397,150
- --------------------------------------------------------------------------------------------------
10,461,775 11,389,699 15,032,970 5,450,266 9,345,681
9,765,976 32,871,535 13,187,934 8,147,095 8,437,076
- --------------------------------------------------------------------------------------------------
(695,799) 21,481,836 (1,845,036) 2,696,829 (908,605)
- --------------------------------------------------------------------------------------------------
5,124,982 23,253,011 3,854,892 6,386,630 4,488,545
- --------------------------------------------------------------------------------------------------
$ 6,593,832 $24,484,772 $4,433,889 $6,210,339 $4,422,291
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PG$PCN>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DIVERSIFIED
MONEY STRATEGIC
MARKET INCOME
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ 211,221 $ 4,724,620
Net realized gain......................................... 59 210,998
Increase (decrease) in net unrealized appreciation........ -- (347,473)
- -------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS.................... 211,280 4,588,145
- -------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income..................................... (211,278) (4,468,175)
Net realized gains........................................ -- --
- -------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS........................................... (211,278) (4,468,175)
- -------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 16):
Net proceeds from sale of shares.......................... 8,425,171 30,385,689
Net asset value of shares issued for reinvestment of
dividends.............................................. 211,918 4,468,175
Cost of shares reacquired................................. (8,718,390) (16,561,693)
- -------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE
TRANSACTIONS........................................... (81,301) 18,292,171
- -------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS........................... (81,299) 18,412,141
NET ASSETS:
Beginning of year......................................... 4,752,536 62,557,541
- -------------------------------------------------------------------------------------------
END OF YEAR*.............................................. $ 4,671,237 $ 80,969,682
- -------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment
income of: -- $3,844,787
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PG$PCN>
- -----------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH EMERGING INTERNATIONAL
INCOME INDEX & INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1,468,850 $ 1,231,761 $ 578,997 $ (176,291) $ (66,254)
5,820,781 1,771,175 5,699,928 3,689,801 5,397,150
(695,799) 21,481,836 (1,845,036) 2,696,829 (908,605)
- ---------------------------------------------------------------------------------------
6,593,832 24,484,772 4,433,889 6,210,339 4,422,291
- ---------------------------------------------------------------------------------------
(1,898,883) (249,653) (672,200) -- (121,294)
(1,821,123) (658,235) (3,971,293) (3,312,304) --
- ---------------------------------------------------------------------------------------
(3,720,006) (907,888) (4,643,493) (3,312,304) (121,294)
- ---------------------------------------------------------------------------------------
709,065 127,445,128 1,262,764 1,191,991 1,274,980
3,720,006 907,888 4,643,493 3,312,304 121,294
(15,882,004) (10,114,491) (13,129,695) (6,259,617) (10,562,558)
- ---------------------------------------------------------------------------------------
(11,452,933) 118,238,525 (7,223,438) (1,755,322) (9,166,284)
- ---------------------------------------------------------------------------------------
(8,579,107) 141,815,409 (7,433,042) 1,142,713 (4,865,287)
46,074,034 35,351,304 43,213,942 20,004,443 28,347,380
- ---------------------------------------------------------------------------------------
$37,494,927 $177,166,713 $ 35,780,900 $21,147,156 $ 23,482,093
- ---------------------------------------------------------------------------------------
$1,467,374 $1,249,038 $574,981 $(1,228) $(470,435)
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PG$PCN>
- --------------------------------------------------------------------------------
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 16):
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: -- $4,460,203
- -------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PG$PCN>
- -----------------------------------------------------------
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) $(306,786)
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PG$PCN>
- --------------------------------------------------------------------------------
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, adjusted for amortization of
premium and accretion of discount, 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, 1998, reclassifications were made to the Diversified
Strategic Income, Equity Income, Equity Index, Growth & Income, Emerging Growth
and International Equity Portfolios capital accounts to reflect permanent
book/tax differences and income gains available for distributions under income
tax regulations. In addition, a portion of accumulated net realized gains
amounting to $21,284, $62 and $22,247 was reclassified to paid-in capital for
the Emerging Growth, Equity Income and Equity Index Portfolios, respectively.
Moreover, a portion of undistributed (overdistributed) net investment income
amounting to $2,597, ($176,240) and $54 was reclassified to paid-in capital for
the Growth & Income, Emerging Growth and Equity Index Portfolios. Net investment
income, net realized gains and net assets were not affected by this change; and
(k) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
In addition, for the Emerging Growth and International Equity Portfolios,
organization costs have been amortized on a straight-line basis over a five-year
period, which began with the Portfolio's commencement of operations in December
1993. As of December 31, 1998, deferred organization costs have been fully
amortized.
In addition, certain Portfolios may enter into forward exchange contracts
in order to hedge against foreign currency risk. These contracts are
marked-to-market daily, by recognizing the difference between the contract
exchange rate and the current market rate as an unrealized gain or loss.
Realized gains or losses are recognized when contracts are settled.
2. DIVIDENDS
The Money Market Portfolio declares dividends daily from net investment
income and distributes such dividends monthly. Net realized capital gains, if
any, are declared and distributed annually.
56
<PG$PCN>
- --------------------------------------------------------------------------------
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"). 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. For the year ended December 31, 1998, for the Money
Market Portfolio, MMC has waived all of its investment advisory fee.
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>
For the year ended December 31, 1998, MMC reimbursed expenses of $114,983
related to the Equity Index Portfolio.
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. For the year
ended December 31, 1998, for the Money Market Portfolio, MMC has waived all of
its administration fee.
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, 1998, the Equity Income, Growth & Income,
Emerging Growth and International Equity Portfolios paid Salomon Smith Barney
Inc. ("SSB"), another subsidiary of SSBH, brokerage commissions of $600, $300,
$853 and $1,393, respectively.
No officer, Director or employee of SSB or its affiliates receives any
compensation from the Fund for serving as a Trustee or officer of the Fund.
57
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS
During the year ended December 31, 1998, 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................................ $ 85,408,189 $59,858,560
Equity Income............................................... 18,072,655 31,097,148
Equity Index................................................ 122,545,928 4,060,949
Growth & Income............................................. 5,058,939 16,223,341
Emerging Growth............................................. 18,998,762 23,923,436
International Equity........................................ 7,920,034 15,950,593
- ----------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, 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................................ $ 2,359,690 $(1,217,123) $ 1,142,567
Equity Income............................................... 10,121,511 (355,535) 9,765,976
Equity Index................................................ 35,535,013 (2,669,030) 32,865,983
Growth & Income............................................. 13,994,660 (806,726) 13,187,934
Emerging Growth............................................. 8,333,539 (186,444) 8,147,095
International Equity........................................ 9,194,029 (757,226) 8,436,803
- --------------------------------------------------------------------------------------------------------
</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, 1998, the Equity Index Portfolio had the following open
futures contracts:
<TABLE>
<CAPTION>
EXPIRATION # OF BASIS MARKET UNREALIZED
FUTURES CONTRACTS BOUGHT MONTH/YEAR CONTRACTS VALUE VALUE GAIN
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S&P 500 Stock Index.......................... 3/99 36 $2,236,348 $2,241,900 $5,552
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6. OPTION CONTRACTS
The Diversified Strategic Income, Equity Income, Equity Index, Growth &
Income, Emerging Growth and International Equity Portfolios may from time to
time enter into option contracts.
58
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
At December 31, 1998, the Portfolios held no purchased call or put options.
When the 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 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, 1998, 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, 1998, 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 (LOSS)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
TO SELL:
Australian Dollar................................... 1,300,000 $ 797,546 1/15/99 $ 23,131
British Pound....................................... 3,320,000 5,520,960 1/15/99 (37,482)
Danish Krone........................................ 20,600,000 3,238,077 1/15/99 (11,791)
European Currency Unit.............................. 5,115,961 6,012,355 1/15/99 (12,355)
European Currency Unit.............................. 88,740 104,520 3/1/99 (1,635)
German Mark......................................... 3,740,000 2,247,187 1/15/99 (18,397)
German Mark......................................... 399,740 240,347 1/28/99 (14,811)
German Mark......................................... 176,735 106,439 3/3/99 (216)
German Mark......................................... 86,638 52,178 3/3/99 (106)
Swedish Krona....................................... 10,800,000 1,333,275 1/15/99 19,675
- ------------------------------------------------------------------------------------------------------------
TOTAL UNREALIZED LOSS ON OPEN FORWARD FOREIGN CURRENCY
CONTRACTS........................................... $(53,987)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE LOSS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TO SELL:
Finnish Markka........................................ 1,270,178 $250,907 1/4/99 $(2,169)
- -----------------------------------------------------------------------------------------------------------
</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.
9. REVERSE REPURCHASE AGREEMENTS
The Diversified Strategic Income, Equity Income and International Equity
Portfolios may enter into reverse repurchase agreements 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, 1998, 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. 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, 1998, there were no when-issued or TBA securities held by
the Portfolios.
60
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. 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, 1998, there were no open mortgage roll transactions in the
Portfolio.
14. 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, 1998, the Portfolios had no open short sales against the
box.
15. 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, 1998, the Portfolios listed below had loaned common stocks
and bonds which were collateralized by cash. In addition, the International
Equity Portfolio had loaned common stocks collateralized by securities. The
market value for the securities on loan were as follows:
<TABLE>
<CAPTION>
PORTFOLIO VALUE
- ------------------------------------------------------------------------
<S> <C>
Diversified Strategic Income................................ $2,470,226
International Equity........................................ 781,440
- ------------------------------------------------------------------------
</TABLE>
61
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, the cash collateral held for the securities on loan
was as follows:
<TABLE>
<CAPTION>
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Bayerische Landesbank Munich, 8.375% due 1/4/99........... $ 135,652
Commerzbank AG Frankfurt, 7.125% due 1/4/99............... 119,693
Landesbank Hessen Thuringen, 6.750% due 1/4/99............ 119,693
Toronto Dominion-Grand Cayman, 5.750% due 1/4/99.......... 119,693
Unibank, 5.750% due 1/4/99................................ 119,693
REPURCHASE AGREEMENTS:
J.P. Morgan Securities, 5.500% due 1/4/99................. 217,343
Merrill Lynch Securities, 5.580% due 1/4/99............... 470,791
COMMERCIAL PAPER:
Alpine Securitization Corp., 5.503% due 1/4/99............ 119,620
Citibank Capital Markets Assets, 5.303% due 1/4/99........ 119,622
General Electric Credit, 5.133% due 1/4/99................ 120,360
Market Street Funding, 5.353% due 1/4/99.................. 119,622
New Center Asset Trust, 5.553% due 1/4/99................. 119,619
Newport Funding Corp., 5.503% due 1/4/99.................. 119,620
Sheffield Receivable Corp., 5.253% due 1/4/99............. 119,623
Twin Towers Inc., 5.503% due 1/4/99....................... 119,620
MONEY MARKET FUND:
Dreyfus Cash Management, 4.928% due 1/4/99................ 119,693
Dreyfus Cash Management Plus, 4.979% due 1/4/99........... 119,693
- ------------------------------------------------------------------------
Total....................................................... $2,499,650
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
SECURITY DESCRIPTION VALUE
- ------------------------------------------------------------------------
<S> <C>
TIME DEPOSITS:
Bayerische Landesbank, Munich, 8.375% due 1/4/99.......... $ 34,688
Commerzbank AG, Frankfurt, 7.125% due 1/4/99.............. 30,607
Landesbank Hessen Thuringen, 6.750% due 1/4/99............ 30,607
Toronto Dominion-Grand Cayman, 5.750% due 1/4/99.......... 30,607
Unibank, 5.750% due 1/4/99................................ 30,607
REPURCHASE AGREEMENT:
J.P. Morgan Securities, 5.500% due 1/4/99................. 55,577
Merrill Lynch Securities/MLPFS, 5.580% due 1/4/99......... 120,386
COMMERCIAL PAPER:
Alpine Securitization Corp., 5.503% due 1/4/99............ 30,588
Citibank Capital Markets Assts, 5.303% due 1/4/99......... 30,588
General Electric Credit, 5.133% due 1/4/99................ 30,777
Market Street Funding, 5.353% due 1/4/99.................. 30,588
New Center Asset Trust, 5.553% due 1/4/99................. 30,588
Newport Funding Corp., 5.503% due 1/4/99.................. 30,588
Sheffield Receivable Corp., 5.253% due 1/4/99............. 30,588
Twin Towers Inc., 5.503% due 1/4/99....................... 30,588
MONEY MARKET FUND:
Dreyfus Cash Management, 4.928% due 1/4/99................ 30,607
Dreyfus Cash Management Plus, 4.979% due 1/4/99........... 30,607
- ------------------------------------------------------------------------
Total....................................................... $ 639,186
- ------------------------------------------------------------------------
</TABLE>
62
<PG$PCN>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition to the above noted cash collateral, the International Equity
Portfolio held securities collateral with a market value of $152,248 as of
December 31, 1998.
Interest income earned by the Portfolios from securities loaned for the
year ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
PORTFOLIO VALUE
- --------------------------------------------------------------------
<S> <C>
Diversified Strategic Income Portfolio...................... $8,294
International Equity Portfolio.............................. 6,835
- --------------------------------------------------------------------
</TABLE>
16. SHARES OF BENEFICIAL INTEREST
At December 31, 1998, 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, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO
Shares sold................................................. 8,425,171 4,068,547
Shares issued on reinvestment............................... 211,918 236,528
Shares redeemed............................................. (8,718,390) (5,440,440)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (81,301) (1,135,365)
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
Shares sold................................................. 2,787,964 742,785
Shares issued on reinvestment............................... 420,732 474,346
Shares redeemed............................................. (1,524,911) (892,937)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 1,683,785 324,194
- ---------------------------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
Shares sold................................................. 44,887 64,996
Shares issued on reinvestment............................... 248,332 143,372
Shares redeemed............................................. (1,013,794) (705,308)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (720,575) (496,940)
- ---------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO
Shares sold................................................. 4,762,662 571,732
Shares issued on reinvestment............................... 33,135 38,819
Shares redeemed............................................. (386,788) (161,000)
- ---------------------------------------------------------------------------------------------------
Net Increase................................................ 4,409,009 449,551
- ---------------------------------------------------------------------------------------------------
GROWTH & INCOME PORTFOLIO
Shares sold................................................. 67,202 138,981
Shares issued on reinvestment............................... 254,438 192,448
Shares redeemed............................................. (715,341) (344,165)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (393,701) (12,736)
- ---------------------------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
Shares sold................................................. 68,440 85,297
Shares issued on reinvestment............................... 192,913 144,282
Shares redeemed............................................. (370,092) (237,235)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (108,739) (7,656)
- ---------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
Shares sold................................................. 90,783 105,543
Shares issued on reinvestment............................... 8,751 5,408
Shares redeemed............................................. (821,260) (466,755)
- ---------------------------------------------------------------------------------------------------
Net Decrease................................................ (721,726) (355,804)
- ---------------------------------------------------------------------------------------------------
</TABLE>
63
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<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).......................... 0.043 0.044 0.047 0.052 0.035
Dividends from net investment income............... (0.043) (0.044) (0.047) (0.052) (0.035)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $1.000 $1.000 $1.000 $1.000 $1.000
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 4.40% 4.47% 4.80% 5.31% 3.56%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $4,671 $4,753 $5,888 $5,653 $7,141
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (1)....................................... 1.24% 1.20% 0.75% 0.75% 0.75%
Net investment income.............................. 4.30 4.38 4.70 5.19 3.65
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED STRATEGIC INCOME PORTFOLIO 1998(2) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $10.89 $10.98 $10.01 $ 9.18 $10.07
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (3).......................... 0.69 0.77 0.88 0.74 0.58
Net realized and unrealized gain (loss)............ (0.01) 0.12 0.24 0.70 (0.86)
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 0.68 0.89 1.12 1.44 (0.28)
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.67) (0.98) (0.15) (0.61) (0.58)
Capital............................................ -- -- -- -- (0.03)
- -------------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.67) (0.98) (0.15) (0.61) (0.61)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $10.90 $10.89 $10.98 $10.01 $ 9.18
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 6.41% 8.14% 11.16% 16.18% (2.81)%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $80,970 $62,558 $59,515 $59,316 $55,260
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................... 0.78% 0.78% 0.84% 0.90% 0.95%
Net investment income.............................. 6.38 7.29 7.94 7.73 7.31
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 86% 47% 106% 46% 54%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the Money Market Portfolio, the Investment Adviser waived all or part of
its fees for the year ended December 31, 1998 and the three-year period
ended December 31, 1996. For the Money Market Portfolio, the Investment
Adviser also reimbursed expenses of $16,616 for the year ended December 31,
1994. 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
NET INVESTMENT INCOME
------------------------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Money Market......................... $0.005 N/A $0.005 $0.005 $0.005
<CAPTION>
EXPENSE RATIOS WITHOUT
WAIVERS AND REIMBURSEMENTS
--------------------------------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Money Market......................... 1.74% N/A 1.25% 1.21% 1.26%
</TABLE>
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) Includes realized gains and losses from foreign currency transactions for
the three years ended December 31, 1995.
64
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO 1998(1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................. $15.31 $13.01 $12.35 $ 9.87 $11.55
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income............................. 0.53 0.77 0.63 0.54 0.58
Net realized and unrealized gain (loss)........... 1.94 2.28 0.11 2.56 (1.75)
- ------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations................. 2.47 3.05 0.74 3.10 (1.17)
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.71) (0.75) (0.08) (0.62) (0.49)
Net realized gains................................ (0.69) -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (1.40) (0.75) (0.08) (0.62) (0.51)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................ $16.38 $15.31 $13.01 $12.35 $ 9.87
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 16.99% 23.52% 5.99% 32.47% (10.20)%
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $37,495 $46,074 $45,616 $52,444 $44,417
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 0.79% 0.77% 0.77% 0.95% 0.84%
Net investment income............................. 3.43 4.42 4.53 4.95 5.51
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 43% 42% 28% 33% 21%
- ------------------------------------------------------------------------------------------------------------------
EQUITY INDEX PORTFOLIO 1998(1) 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR.................. $23.59 $18.36 $15.58 $11.69 $11.90
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income (2)......................... 0.36 0.12 0.22 0.25 0.23
Net realized and unrealized gain (loss)........... 6.33 5.76 3.17 3.88 (0.14)
- ------------------------------------------------------------------------------------------------------------------
Total Income From Operations........................ 6.69 5.88 3.39 4.13 0.09
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income............................. (0.08) (0.17) (0.23) (0.23) (0.15)
Net realized gains................................ (0.21) (0.48) (0.38) (0.01) (0.15)
- ------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.29) (0.65) (0.61) (0.24) (0.30)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR........................ $29.99 $23.59 $18.36 $15.58 $11.69
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN........................................ 28.46% 32.16% 21.68% 35.81% 0.85%
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)..................... $177,167 $35,351 $19,258 $15,230 $10,225
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)(3)................................... 0.30% 0.76% 1.06% 1.00% 1.00%
Net investment income............................. 1.36 1.08 1.37 1.84 2.10
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE............................. 5% 6% 7% 5% 1%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the year ended December 31, 1998, MMC agreed to reimburse expenses of
$114,983 related to the Equity Index Portfolio. In addition, for the Equity
Index Portfolio, the Investment Adviser waived all or part of its fees for
the two-year period ended December 31, 1995. In addition, IDS Life
reimbursed expenses of $6,842 and $25,496 for the two-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 DECREASES TO
NET INVESTMENT INCOME
-----------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Equity Index.................................. $0.02 N/A N/A $0.02 $0.06
<CAPTION>
EXPENSE RATIOS WITHOUT
WAIVERS AND REIMBURSEMENTS
--------------------------------------------
PORTFOLIO 1998 1997 1996 1995 1994
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Equity Index.................................. 0.42% N/A N/A 1.17% 1.53%
</TABLE>
(3) As a result of the 0.30% voluntary expense limitation for the ratio of
expenses to average net assets, which became effective during 1998, the
investment manager will reimburse fees for the amount that exceeds the
limitation.
65
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO 1998(1) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $ 18.54 $16.43 $13.73 $10.75 $11.37
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (2).......................... 0.27 0.31 0.27 0.26 0.27
Net realized and unrealized gain (loss)............ 1.93 3.41 2.45 2.99 (0.63)
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 2.20 3.72 2.72 3.25 (0.36)
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.33) (0.29) (0.02) (0.27) (0.26)
Net realized gains................................. (1.94) (1.32) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (2.27) (1.61) (0.02) (0.27) (0.26)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $18.47 $18.54 $16.43 $13.73 $10.75
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 11.88% 22.94% 19.83% 30.49% (3.20)%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $35,781 $43,214 $38,502 $35,158 $29,625
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)....................................... 0.72% 0.77% 0.83% 0.98% 0.93%
Net investment income.............................. 1.45 1.62 1.67 2.09 2.52
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 13% 17% 22% 17% 77%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING GROWTH PORTFOLIO 1998(1) 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $16.87 $15.83 $13.76 $ 9.63 $10.41
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (2)................... (0.15) (0.12) (0.10) (0.03) 0.00*
Net realized and unrealized gain (loss)............ 5.98 3.32 2.55 4.16 (0.78)
- -------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 5.83 3.20 2.45 4.13 (0.78)
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. -- -- -- -- (0.00)*
Net realized gains................................. (3.07) (2.16) (0.38) -- --
- -------------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (3.07) (2.16) (0.38) -- (0.00)*
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $19.63 $16.87 $15.83 $13.76 $ 9.63
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 37.14% 21.16% 17.83% 42.89% (7.48)%
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $21,147 $20,004 $18,901 $17,463 $11,539
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)....................................... 1.28% 1.26% 1.27% 1.20% 1.20%
Net investment loss................................ (0.88) (0.72) (0.64) (0.24) (0.17)
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 98% 102% 84% 121% 66%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the Emerging Growth Portfolio, the Investment Adviser waived all or part
of its fees for the two-year period ended December 31, 1995. In addition,
for the Emerging Growth Portfolio, IDS Life reimbursed expenses of $5,265
and $18,068 for the two-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>
EXPENSE RATIOS
PER SHARE WITHOUT
DECREASES TO NET WAIVERS AND
INVESTMENT INCOME REIMBURSEMENTS
------------------ ----------------
PORTFOLIO 1995 1994 1995 1994
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Emerging Growth............................................. $0.02 $0.01 1.39% 1.59%
</TABLE>
* Amount represents less than $0.01.
66
<PG$PCN>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of beneficial interest outstanding throughout each year ended
December 31:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO 1998(1) 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................... $11.78 $12.07 $ 9.98 $ 9.21 $10.05
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (2)(3)................ (0.03) (0.02) (0.02) 0.03 0.00*
Net realized and unrealized gain (loss)............ 2.25 (0.24) 2.15 0.78 (0.84)
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations.................. 2.22 (0.26) 2.13 0.81 (0.84)
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income.............................. (0.06) (0.03) (0.04) (0.04) --
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions.................................. (0.06) (0.03) (0.04) (0.04) --
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR......................... $13.94 $11.78 $12.07 $ 9.98 $ 9.21
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN......................................... 18.84% (2.18)% 21.38% 8.80% (8.36)%
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR (000'S)...................... $23,482 $28,347 $33,337 $28,979 $28,413
- -----------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (2)(4).................................... 1.40% 1.31% 1.35% 1.43% 1.30%
Net investment income (loss)....................... (0.25) (0.23) (0.20) 0.35 0.31
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE.............................. 30% 21% 33% 34% 12%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the International Equity Portfolio, the Investment Adviser waived all or
part of its fees for the year ended December 31, 1994. IDS Life reimbursed
expenses of $23,712 for the year ended December 31, 1994. If such fees were
not waived and expenses not reimbursed, the per share effect on net
investment income and the expense would have been $0.00* and 1.51%,
respectively.
(3) Includes realized gains and losses from foreign currency transactions for
the two-years ended December 31, 1995.
(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.
* Amount represents less than $0.01.
67
<PG$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 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, 1998, 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 four-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 the year
ended December 31, 1994 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, 1998, by correspondence with the custodian. As to securities
purchased and sold but not yet 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, 1998, 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 four-year period then ended, in conformity with generally accepted
accounting principles.
[KPMG Peat Marwick LLP
Signature]
New York, New York
February 8, 1999
68
<PG$PCN>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED)
On February 6, 1998, a special meeting of shareholders of the Trust was
held for the purpose of voting on the following matters:
1. To elect Trustees of the Trust, which includes all Portfolios; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
SHARES VOTED PERCENTAGE OF SHARES VOTED PERCENTAGE OF
NAME OF TRUSTEES FOR SHARES VOTED AGAINST SHARES VOTED
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Herbert Barg................................... 41,457,550.573 97.176% 1,204,698.617 2.824%
Alfred J. Bianchetti........................... 41,443,251.652 97.143 1,218,997.538 2.857
Martin Brody................................... 41,448,794.038 97.156 1,213,455.152 2.844
Dwight B. Crane................................ 41,476,634.180 97.221 1,185,615.010 2.779
Burt N. Dorsett................................ 41,484,718.121 97.240 1,177,531.069 2.760
Elliot S. Jaffee............................... 41,463,169.203 97.189 1,199,079.987 2.811
Stephen E. Kaufman............................. 41,468,535.534 97.202 1,193,713.656 2.798
Joseph J. McCann............................... 41,476,403.003 97.220 1,185,846.187 2.780
Heath B. McLendon.............................. 41,476,953.962 97.222 1,185,295.228 2.778
Cornelius C. Rose, Jr.......................... 41,487,746.207 97.247 1,174,602.983 2.753
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental policies of the Fund in order to modernize them in view of certain
regulatory, business or industry developments that have occurred since original
adoption of these policies by the Portfolios. The chart on the following page
demonstrates that all proposals were approved by shareholders.
Please note that "M" indicates a modification of the policy, "E" indicates
the elimination of the policy; and "R" indicates the reclassification of the
policy from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Trustees).
69
<PG$PCN>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET DIVERSIFIED STRATEGIC
PORTFOLIO INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
M Diversification............................................. X X
- -------------------------------------------------------------------------------------------------------
M Senior Securities........................................... X X
- -------------------------------------------------------------------------------------------------------
M Industry Concentration...................................... N/A X
- -------------------------------------------------------------------------------------------------------
M Borrowing................................................... X X
- -------------------------------------------------------------------------------------------------------
E Ability to Pledge Assets.................................... X X
- -------------------------------------------------------------------------------------------------------
M Lending..................................................... X X
- -------------------------------------------------------------------------------------------------------
M Underwriting of Securities.................................. X X
- -------------------------------------------------------------------------------------------------------
R Margin and Short-Sales...................................... X X
- -------------------------------------------------------------------------------------------------------
M Real Estate................................................. X X
- -------------------------------------------------------------------------------------------------------
R Purchases of Securities of Other Investment Companies....... X X
- -------------------------------------------------------------------------------------------------------
R Investments in Oil, Gas and Mineral Exploration............. X X
- -------------------------------------------------------------------------------------------------------
R Puts, Calls and Combinations Thereof........................ X X
- -------------------------------------------------------------------------------------------------------
N/A Not Applicable; X Approved
</TABLE>
The information below reports the lowest percentage of shares voting for
the proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all proposals.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,451,325.425 97.800% 806.377 0.018% 99,316.708 2.182%
- --------------------------------------------------------------------------------
</TABLE>
DIVERSIFIED STRATEGIC INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,901,141.307 94.214% 26,957.821 0.518% 274,051.761 5.268%
- --------------------------------------------------------------------------------
</TABLE>
EQUITY INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2,728,404.550 94.038% 29,250.133 1.008% 143,727.993 4.954%
- --------------------------------------------------------------------------------
</TABLE>
70
<PG$PCN>
- --------------------------------------------------------------------------------
ADDITIONAL SHAREHOLDER INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
EQUITY INCOME EQUITY INDEX GROWTH & INCOME EMERGING GROWTH INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
N/A X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
X X X X X
- ---------------------------------------------------------------------------------------
</TABLE>
EQUITY INDEX PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,028,617.856 82.893% 13,059.286 1.053% 199,194.297 16.054%
- --------------------------------------------------------------------------------
</TABLE>
GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,986,855.037 92.098% 21,517.641 0.997% 148,965.887 6.905%
- --------------------------------------------------------------------------------
</TABLE>
EMERGING GROWTH PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
980,675.945 92.111% 18,098.615 1.700% 65,892.870 6.189%
- --------------------------------------------------------------------------------
</TABLE>
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE
SHARES VOTED OF SHARES SHARES VOTED OF SHARES SHARES OF SHARES
FOR VOTED AGAINST VOTED ABSTAINED ABSTAINED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2,269,693.106 93.160% 33,939.337 1.393% 132,702.689 5.447%
- --------------------------------------------------------------------------------
</TABLE>
71
<PG$PCN>
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
December 31, 1998:
- Percentages of ordinary dividends paid as qualifying for the corporate
dividends received deduction:
<TABLE>
<S> <C>
Equity Income Portfolio..................................... 91.63%
Equity Index Portfolio...................................... 72.96
Growth and Income Portfolio................................. 84.17
</TABLE>
- Total long-term capital gain distributions paid:
<TABLE>
<S> <C>
Equity Income Portfolio..................................... $1,366,780
Equity Index Portfolio...................................... 657,935
Growth and Income Portfolio................................. 3,733,946
Emerging Growth Portfolio................................... 3,333,257
</TABLE>
The following percentages of ordinary dividends paid from net investment income
are derived from Federal obligations and may be exempt from taxation at the
state level:
<TABLE>
<S> <C>
Money Market Portfolio...................................... 2.69%
Diversified Strategic Income Portfolio...................... 3.03
Equity Index Portfolio...................................... 0.70
</TABLE>
72
<PG$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 a current Prospectus for
the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
S6223 H (2/99)
<PG$PCN>
This report is submitted for the general
information of the owners of the
Greenwich Street Series Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by a current Prospectus for
the Fund, which contains information
concerning the Fund's investment
policies, fees and expenses, as well as
other pertinent information.
SYMPHONY
investments are sponsored and managed
by:
Smith Barney Inc.
and subsidiaries
SYMPHONY
is underwritten, issued and serviced by:
IDS Life Insurance Company and
IDS Life Insurance Company of New York
S6223 H (2/99)
<PG$PCN>
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, 1998
<PG$PCN>
