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[LOGO] The Legends Fund, Inc.
Annual Report
June 30, 1996
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The Legends Fund, Inc.
Annual Report
June 30, 1996
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
President's Letter.................................................... 1
Report of Independent Auditors........................................ 2
Financial Statements, Financial Highlights, and Schedules of
Investments:
Renaissance Balanced Portfolio...................................... 3
Zweig Asset Allocation Portfolio.................................... 11
Nicholas-Applegate Balanced Portfolio............................... 29
Harris Bretall Sullivan & Smith Equity Growth Portfolio............. 42
Dreman Value Portfolio.............................................. 51
Zweig Equity (Small Cap) Portfolio.................................. 64
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)................. 95
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio).................103
Morgan Stanley Asian Growth Portfolio...............................110
Morgan Stanley Worldwide High Income Portfolio......................121
Notes to Financial Statements.........................................131
Portfolio Performance.................................................138
</TABLE>
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus. Neither the Fund nor SBM Financial
Services, Inc., the principal underwriter for Fund shares, is a bank and Fund
shares are not backed or guaranteed by any bank or insured by the Federal
Depository Insurance Corporation.
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<TABLE>
<CAPTION>
THE LEGENDS FUND, INC.
- ---------------------------------------------------------------------------------------------------
The Annual Report for the fiscal year ended June 30, 1996 marks another year of
successful operations for The Legends Fund, Inc. (the "Fund"). As always, we
thank all of our current investors for their continued confidence while we
welcome new investors.
The Fund's portfolios and their related returns for the fiscal years ended June
30, 1996 and 1995, respectively, are listed below:
YEAR ENDED YEAR ENDED
PORTFOLIO JUNE 30, 1996 JUNE 30, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Renaissance Balanced 12.68% 13.71%
Zweig Asset Allocation 11.06% 14.57%
Nicholas-Applegate Balanced 13.53% 17.92%
Harris Bretall Sullivan & Smith Equity Growth 13.59% 37.29%
Dreman Value 31.22% 19.98%
Zweig Equity (Small Cap) 18.69% 10.39%
Pinnacle Fixed Income (formerly Mitchell
Hutchins Fixed Income) (managed by J.P. Morgan
Investment Management) 3.29% 11.08%
ARM Capital Advisors Money Market (formerly
Mitchell Hutchins Money Market) 4.55% 4.30%
Morgan Stanley Asian Growth 7.19% 1.80%
Morgan Stanley Worldwide High Income 18.41% 4.00%
</TABLE>
Included in this Annual Report is a discussion of each Portfolio's performance
(with the exception of the ARM Capital Advisors Money Market Portfolio) for the
fiscal year ended June 30, 1996. You will also find detailed information of the
holdings of each Portfolio as of June 30, 1996, as well as other important
financial information.
As the popular media have been reporting, 1996 has been a time of heightened
focus, and some may say uncertainty, in the financial markets. "Bulls" see
opportunities, where "Bears" see concerns. Different views on interest rate
trends and inflation add to the discussion. Given that background, it is
important to note that the Fund's portfolios are committed to providing long
term value in the face of short term shifts in the financial environment. The
managers of all of the portfolios employ their disciplines to support your
investment goals.
On behalf of The Legends Fund, Inc., thank you for choosing to do business with
us. I hope you find the enclosed information helpful. Should you have any
questions or comments, we always welcome your inquiries.
Sincerely,
/s/ Edward J. Haines
Edward J. Haines
President
The Legends Fund, Inc.
1
<PAGE>
Report of Independent Auditors
The Shareholders and Board of Directors
The Legends Fund, Inc.
We have audited the accompanying statements of assets and liabilities of The
Legends Fund, Inc. (the Fund) (comprised of the Renaissance Balanced, Zweig
Asset Allocation, Nicholas Applegate Balanced, Harris Bretall Sullivan & Smith
Equity Growth, Dreman Value, Zweig Equity (Small Cap), Pinnacle Fixed Income,
ARM Capital Advisors Money Market, Morgan Stanley Asian Growth and Morgan
Stanley Worldwide High Income portfolios), including the schedules of
investments, as of June 30, 1996, the related statements of operations for the
year then ended and statements of changes in net assets for each of the two
years in the period then ended and financial highlights for the periods since
June 30, 1993. 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 period ended June 30, 1993 were audited
by other auditors whose report thereon dated August 30, 1993 expressed an
unqualified opinion.
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 at June 30,
1996, by correspondence with the custodian. As to incompleted securities
transactions, we performed other 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 referred to above and financial
highlights for the periods since June 30, 1993 present fairly, in all material
respects, the financial position of each of the portfolios constituting The
Legends Fund, Inc. at June 30, 1996 and the results of their operations for the
year then ended, changes in their net assets for each of the two years in the
period then ended, and financial highlights for the periods since June 30, 1993,
in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Kansas City, Missouri
August 16, 1996
2
<PAGE>
Renaissance Balanced Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $25,714,901)
(Note l)-See accompanying schedule $26,983,102
Dividends and interest receivable 168,760
-----------
TOTAL ASSETS 27,151,862
LIABILITIES
Cash overdraft 11,251
Accounts payable and accrued expenses 37,258
-----------
TOTAL LIABILITIES 48,509
-----------
NET ASSETS $27,103,353
===========
Net Assets consist of:
Paid-in capital $22,403,239
Undistributed net investment income 758,801
Accumulated undistributed net realized gain on investments 2,673,112
Net unrealized appreciation on investment securities 1,268,201
-----------
NET ASSETS, for 2,139,600 shares outstanding $27,103,353
===========
NET ASSET VALUE, offering and redemption price per share $ 12.67
===========
</TABLE>
See accompanying notes.
3
<PAGE>
Renaissance Balanced Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 217,318
Interest 825,185
----------
Total investment income 1,042,503
EXPENSES (Note 2)
Investment advisory and management fees 183,375
Custody and accounting fees 74,036
Professional fees 15,859
Directors' fees and expenses 6,000
Other expenses 4,432
----------
Total expenses 283,702
----------
Net investment income 758,801
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 2,972,263
Change in unrealized appreciation on investment securities (423,724)
----------
Net gain on investments 2,548,539
----------
Net increase in net assets resulting from operations $3,307,340
==========
</TABLE>
See accompanying notes.
4
<PAGE>
Renaissance Balanced Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 758,801 $ 915,608
Net realized gain (loss) on investments 2,972,263 (299,151)
Change in net unrealized appreciation (423,724) 2,638,834
--------------------------
Net increase in net assets resulting from
operations 3,307,340 3,255,291
Distributions to shareholders from:
Net investment income (914,654) (423,397)
Net realized gain -- (82,603)
--------------------------
Total distributions to shareholders (914,654) (506,000)
Capital share transactions:
Proceeds from sales of shares 3,559,180 6,487,456
Proceeds from reinvested distributions 914,654 506,000
Cost of shares redeemed (6,795,362) (7,756,946)
--------------------------
Net decrease in net assets resulting from
share transactions (2,321,528) (763,490)
--------------------------
Total increase in net assets 71,158 1,985,801
NET ASSETS
Beginning of period 27,032,195 25,046,394
--------------------------
End of period (including undistributed net
investment income of $758,801 and
$914,654, respectively) $27,103,353 $27,032,195
==========================
OTHER INFORMATION
Shares:
Sold 286,131 603,427
Issued through reinvestment of distributions 74,583 47,019
Redeemed (548,725) (731,529)
--------------------------
Net decrease (188,011) (81,083)
==========================
</TABLE>
See accompanying notes.
5
<PAGE>
Renaissance Balanced Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
----------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.61 $ 10.40 $ 10.42 $10.00
Income from investment operations:
Net investment income 0.36 0.42 0.20 0.13
Net realized and unrealized gain
(loss) on investments 1.10 0.99 (0.11) 0.29
-------------------------------------------------
Total from investment operations 1.46 1.41 0.09 0.42
Less distributions:
From net investment income (0.40) (.17) (0.11) -
From net realized gain - (.03) - -
-------------------------------------------------
Total distributions (0.40) (.20) (0.11) -
-------------------------------------------------
Net asset value, end of period $ 12.67 $ 11.61 $ 10.40 $10.42
=================================================
TOTAL RETURN (A) 12.68% 13.71% 0.73% 7.70%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in
thousands) $27,103 $27,032 $25,046 $7,799
Ratio of expenses to average net
assets (C) 1.01% 0.96% 1.06% 1.24%
Ratio of net investment income to
average net assets (C) 2.69% 3.53% 2.72% 2.36%
Portfolio turnover rate 107% 71% 85% 29%
</TABLE>
(A) Total returns for periods of less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) The ratios of expenses and net investment income to average net assets
before voluntary expense reimbursement were 2.95% and 0.65%, respectively,
for the period December 14, 1992 (commencement of operations) through June
30, 1993. (Note 2)
6
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (40.4%)
APPAREL & OTHER TEXTILE PRODUCTS (2.0%)
Liz Claiborne, Inc. 15,300 $ 529,763
BUSINESS SERVICES (2.0%)
HBO & Company 8,000 541,000
CHEMICALS & ALLIED PRODUCTS (6.1%)
Bristol-Meyers Squibb Company 6,500 585,000
Morton International, Inc. 15,800 588,550
Rohm & Haas Company 7,600 476,900
---------
1,650,450
DEPOSITORY INSTITUTIONS (1.9%)
First Chicago NBD Corporation 12,985 508,038
EATING & DRINKING PLACES (2.4%)
Pepsico, Inc. 18,200 643,822
ELECTRIC, GAS & SANITARY SERVICES (2.1%)
Williams Companies, Inc. 11,300 559,350
ENGINEERING & MANAGEMENT SERVICES (2.0%)
Halliburton Company 9,900 549,450
FURNITURE & FIXTURES (2.0%)
Leggett & Platt, Inc. 19,300 535,575
HOTELS & OTHER LODGING PLACES (2.5%)
Hilton Hotels Corporation 6,000 675,000
</TABLE>
7
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINE & EQUIPMENT (3.8%)
Ingersoll-Rand Company 13,000 $ 568,750
Seagate Technology, Inc.* 10,400 468,000
----------
1,036,750
INSTRUMENTS & RELATED PRODUCTS (1.6%)
KLA Instruments Corporation* 18,600 431,288
INSURANCE CARRIERS (4.4%)
Lowes Corporation 7,700 607,338
Travelers Group, Inc. 12,950 590,844
----------
1,198,182
MISCELLANEOUS RETAIL (2.0%)
Staples, Inc.* 28,000 544,250
TRANSPORTATION BY AIR (1.8%)
Northwest Airlines Corporation* 12,200 481,138
WHOLESALE TRADE - DURABLE GOODS (1.6%)
Arrow Electronics, Inc.* 10,200 439,875
WHOLESALE TRADE - NONDURABLE GOODS (2.2%)
Nike, Inc. 5,700 585,675
----------
TOTAL COMMON STOCKS (Cost $9,826,898) 10,909,606
</TABLE>
8
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
LONG-TERM DEBT SECURITIES (40.2%)
U.S. GOVERNMENT OBLIGATIONS (40.2%)
U.S. Treasury Notes, 5.75%, due 8/15/2003 $ 535,000 $ 509,502
U.S. Treasury Notes, 5.875%, due 2/15/2004 1,035,000 989,232
U.S. Treasury Notes, 6.50%, due 5/15/2005 700,000 690,809
U.S. Treasury Notes, 6.875%, due 5/15/2006 3,350,000 3,387,152
U.S. Treasury Notes, 7.25%, due 5/15/2004 1,835,000 1,901,225
U.S. Treasury Notes, 7.25%, due 8/15/2004 2,475,000 2,563,556
U.S. Treasury Notes, 7.875%, due 11/15/2004 745,000 800,756
TOTAL LONG-TERM DEBT SECURITIES (Cost $10,656,739) 10,842,232
SHORT-TERM SECURITIES (19.4%)
REPURCHASE AGREEMENT (1.0%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $281,875) 273,401 273,401
U.S. GOVERNMENT AGENCY-COLLATERALIZED MORTGAGE
OBLIGATIONS (3.3%)
Federal Home Loan Mortgage Corp., 5.85%, due
8/26/1996 910,000 902,710
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (4.0%)
Federal National Mortgage Assoc., 5.25%,
due 7/02/1996 1,070,000 1,069,845
</TABLE>
9
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (CONTINUED)
U.S. GOVERNMENT OBLIGATIONS (11.1%)
Federal Home Loan Bank Disc. Note, 6.00%,
due 11/25/1996 $1,525,000 $ 1,491,747
U.S. Treasury Bills, 5.01%, due 8/1/1996 1,500,000 1,493,561
-----------
2,985,308
TOTAL SHORT-TERM SECURITIES (Cost $5,231,264) 5,231,264
-----------
TOTAL INVESTMENTS (100.00%) (Cost $25,714,901) $26,983,102
===========
</TABLE>
*Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $27,265,594 and $31,988,479 respectively.
Net unrealized appreciation for tax purposes aggregated $1,268,201, of which
$1,892,231 related to appreciated investment securities and $624,030 related
to depreciated investment securities. The aggregate cost of securities is the
same for book and tax purposes.
See accompanying notes.
10
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $37,251,772)
(Note l)-See accompanying schedule $40,232,663
Cash 16,217
Dividends, interest and other receivables 31,782
-----------
TOTAL ASSETS 40,280,662
LIABILITIES
Accounts payable and accrued expenses 58,764
-----------
TOTAL LIABILITIES 58,764
-----------
NET ASSETS $40,221,898
===========
Net Assets consist of:
Paid-in capital $32,264,100
Undistributed net investment income 610,426
Accumulated undistributed net realized gain on investment
securities and futures contracts 4,447,909
Net unrealized appreciation on investment securities and
futures contracts 2,899,463
-----------
NET ASSETS, for 2,850,008 shares outstanding $40,221,898
===========
NET ASSET VALUE, offering and redemption price per share $14.11
===========
</TABLE>
See accompanying notes.
11
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 683,324
Interest 421,989
-----------
Total investment income 1,105,313
EXPENSES (Note 2)
Investment advisory and management fees 355,357
Custody and accounting fees 103,664
Professional fees 15,859
Directors' fees and expenses 6,000
Other expenses 14,007
-----------
Total expenses 494,887
-----------
Net investment income 610,426
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 1)
Net realized gain (loss) on:
Investment securities 4,727,851
Futures contracts (35,836)
-----------
Net realized gain 4,692,015
Change in unrealized appreciation (depreciation) on:
Investment securities (1,195,635)
Futures contracts (85,708)
-----------
Change in unrealized appreciation (1,281,343)
-----------
Net gain on investments 3,410,672
-----------
Net increase in net assets resulting from operations $ 4,021,098
===========
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Zweig Asset Allocation Portfolio
Statement of Changes in Net Assets
YEAR ENDED JUNE 30,
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 610,426 $ 947,151
Net realized gain (loss) on investments 4,692,015 (80,477)
Change in net unrealized appreciation (1,281,343) 3,944,541
------------------------
Net increase in net assets resulting from
operations 4,021,098 4,811,215
Distributions to shareholders from:
Net investment income (946,985) (248,100)
Capital share transactions:
Proceeds from sales of shares 4,764,144 7,443,090
Proceeds from reinvested distributions 946,985 248,100
Cost of shares redeemed (5,299,505) (7,081,317)
------------------------
Net increase in net assets resulting from share
transactions 411,624 609,873
------------------------
Total increase in net assets 3,485,737 5,172,988
NET ASSETS
Beginning of period 36,736,161 31,563,173
------------------------
End of period (including undistributed net investment
income of $610,426 and $946,985, respectively) $40,221,898 $36,736,161
========================
OTHER INFORMATION
Shares:
Sold 345,159 640,047
Issued through reinvestment of distributions 71,107 21,399
Redeemed (386,701) (598,871)
------------------------
Net increase 29,565 62,575
========================
</TABLE>
See accompanying notes.
13
<PAGE>
Zweig Asset Allocation Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 13.02 $ 11.44 $ 10.81 $10.00
Income from investment operations:
Net investment income 0.21 0.33 0.10 0.08
Net realized and unrealized gain on
investments 1.21 1.33 0.58 0.73
------------------------------------------------
Total from investment operations 1.42 1.66 0.68 0.81
Less distributions:
From net investment income (0.33) (0.08) (0.05) -
------------------------------------------------
Net asset value, end of period $ 14.11 $ 13.02 $ 11.44 $10.81
================================================
TOTAL RETURN (A) 11.06% 14.57% 6.27% 14.86%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in
thousands) $40,222 $36,736 $31,563 $3,856
Ratio of expenses to average net
assets (C) 1.25% 1.20% 1.39% 1.51%
Ratio of net investment income to
average net assets (C) 1.55% 2.73% 1.67% 1.40%
Portfolio turnover rate 105% 45% 101% 12%
</TABLE>
(A) Total returns for periods of less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) The ratios of expenses and net investment income to average net assets
before voluntary expense reimbursement were 4.87% and (1.17%), respectively,
for the period December 14, 1992 (commencement of operations) through June
30, 1993. (Note 2)
14
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (87.8%)
AGRICULTURAL PRODUCTION-CROPS (0.5%)
RJR Nabisco Holdings Corporation 6,200 $ 192,200
APPAREL AND ACCESSORY STORES (1.0%)
Ross Stores, Inc. 11,200 389,900
BUSINESS SERVICES (0.7%)
Comdisco, Inc. 5,600 149,100
Computervision Corporation* 5,000 50,000
Radius, Inc.* 45 121
Teradyne, Inc.* 4,200 72,450
----------
271,671
CHEMICALS AND ALLIED PRODUCTS (4.4%)
Albemarle Corporation 7,200 131,400
B.F. Goodrich Company 3,500 130,813
Cabot Corporation 1,000 24,500
Cytec Industries, Inc.* 2,200 188,100
Imperial Chemical Industries Plc 3,800 186,675
International Specialty Products, Inc. 4,500 49,500
Norsk Hydro 2,600 127,075
Olin Corporation 3,100 276,675
Rohm & Haas Company 2,800 175,700
Terra Industries, Inc. 13,800 170,775
Union Carbide Corporation 7,900 314,025
----------
1,775,238
</TABLE>
15
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COAL MINING (0.1%)
Zeigler Coal Holding Company 2,500 $ 40,000
COMMUNICATIONS (1.4%)
Sprint Corporation 5,100 214,200
Tele Danmark 6,800 172,550
Telefonica de Espana 2,900 159,863
--------
546,613
DEPOSITORY INSTITUTIONS (12.9%)
Ahmanson (H.F.) & Company 6,900 186,300
Allied Irish Banks 100 3,113
Bank of Boston Corporation 9,200 455,400
Bankamerica Corporation 2,900 219,675
Bankunited Financial Corporation* 5,200 39,000
Cal Fed Bancorp, Inc.* 7,300 133,225
Chase Manhattan Corporation 8,104 572,345
City National Corporation 13,500 212,625
Coast Savings Financial* 1,500 49,125
Crestar Financial Corporation 400 21,350
Dime Bancorp, Inc.* 7,500 97,500
First American Corporation 3,800 160,312
First Union Corporation 4,600 280,025
Great Western Financial 7,300 174,287
Hibernia Corporation 3,500 38,063
Imperial Bancorp* 8,000 193,000
Leader Financial Corporation 3,600 160,200
Long Island Bancorp, Inc. 6,800 207,825
Nationsbank Corporation 1,800 148,725
</TABLE>
16
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (12.9%)(CONTINUED)
North Fork Bancorporation 1,700 $ 44,413
Peoples Bank Bridgeport 8,300 185,194
Peoples Heritage Financial Group, Inc. 7,900 161,456
RCSB Financial, Inc. 8,000 206,500
Republic New York Corporation 2,600 161,850
Riggs National Corporation 13,300 162,094
TCF Financial Corporation 5,200 172,900
T R Financial Corporation 6,100 166,606
Unionbancal Corporation 4,600 242,650
Wells Fargo & Company 500 119,437
Zions Bancorporation 2,700 197,269
----------
5,172,464
EATING AND DRINKING PLACES (0.5%)
Foodmaker, Inc.* 23,100 199,238
ELECTRIC, GAS AND SANITARY SERVICES (18.4%)
Allegheny Power System, Inc. 5,400 166,725
American Electric Power 4,000 170,500
American Water Works, Inc. 3,000 120,750
Atlantic Energy, Inc. 4,000 73,000
Baltimore Gas & Electric 6,100 173,087
Boston Edison Company 5,800 147,900
Central Maine Power 7,200 104,400
Columbia Gas System 10,500 547,312
DTE Energy Company 5,600 172,900
Dominion Resources, Inc. 4,500 180,000
Eastern Enterprises 4,500 149,625
</TABLE>
17
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (18.4%)(CONTINUED)
Edison International 9,500 $167,437
E1 Paso Natural Gas Company 4,900 188,650
Entergy Corporation 7,700 218,488
General Public Utilities Corporation 5,800 204,450
Idaho Power Company 5,400 168,075
Illinova Corporation 10,900 313,375
IPALCO Enterprises, Inc. 7,200 189,000
Long Island Lighting Company 10,800 180,900
MCN Corporation 8,200 199,875
MidAmerican Energy Company 10,200 175,950
New England Electric System 3,300 120,037
New York State Electric & Gas 5,400 131,625
Noram Energy Corporation 15,100 164,213
Northern States Power 3,300 162,937
Oneok, Inc. 2,700 67,500
Pacific Gas & Electric 6,300 146,475
Peoples Energy Corporation 6,000 201,000
Pinnacle West Corporation 16,800 510,300
Portland General Corporation 4,900 151,288
PowerGen Plc 5,800 172,550
Public Service Company of Colorado 3,300 121,275
Public Service Company of New Mexico* 8,700 178,350
Rochester Gas & Electric 3,700 79,550
Texas Utilities Company 4,000 171,000
Tucson Electric Power Company* 6,000 81,000
Unicom Corporation 8,800 245,300
United Illuminating Company 4,500 168,188
Utilicorp United, Inc. 5,600 154,700
</TABLE>
18
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (18.4%)(CONTINUED)
Washington Water Power Company 1,900 $ 35,388
Westcoast Energy, Inc. 9,300 139,500
Western Resource 6,200 185,225
---------
7,399,800
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT (2.2%)
Advanced Semiconductor* 9,300 99,975
Ameridata Technologies, Inc.* 10,600 168,275
Burr-Brown Corporation* 7,600 132,050
Cypress Semiconductor Corporation* 5,000 60,000
Electro Scientific Industries, Inc.* 4,100 84,562
Hadco Corporation* 8,200 174,250
Silicon Valley Group, Inc.* 7,900 148,619
---------
867,731
ENGINEERING AND MANAGEMENT SERVICES (0.03%)
Bet Plc 900 12,712
FABRICATED METAL PRODUCTS (0.4%)
Wyman-Gordon Company* 8,200 145,037
FOOD AND KINDRED PRODUCTS (1.8%)
Archer Daniels Midland Company 7,792 149,022
IBP,Inc. 20,600 569,075
---------
718,097
</TABLE>
19
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD STORES (0.3%)
Great Atlantic & Pacific Tea Company 1,100 $ 36,163
Smith's Food & Drug Centers 2,959 70,646
--------
106,809
FORESTRY (0.5%)
Rayonier, Inc. 5,200 197,600
GENERAL BUILDING CONTRACTORS (0.7%)
Empresas ICA Sociedad Controladora 14,300 198,412
U.S. Home Corporation* 3,600 88,650
--------
287,062
GENERAL MERCHANDISE STORES (1.1%)
Carson Pirie Scott & Company* 1,000 26,750
Equitable of Iowa Companies 1,600 56,800
Mercantile Stores Company, Inc. 2,600 152,425
Shopko Stores, Inc. 1,700 27,413
Waban, Inc.* 7,600 181,450
--------
444,838
HEALTH SERVICES (1.3%)
Maxicare Health Plans, Inc.* 7,600 144,875
Ornda Healthcorp* 9,700 232,800
Universal Health Services* 6,200 161,975
--------
539,650
</TABLE>
20
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOLDING AND OTHER INVESTMENT OFFICES (0.7%)
CWM Mortgage Holdings, Inc. 10,100 $ 171,700
Thornburg Mortgage Asset Corporation 6,800 110,500
---------
282,200
INDUSTRIAL MACHINERY AND EQUIPMENT (5.5%)
Agco Corporation 11,200 310,800
Applied Magnetics Corporation* 8,300 87,150
Case Corporation 6,400 307,200
Data General Corporation* 11,100 144,300
Digital Equipment* 2,000 90,000
Global Industries Technology, Inc.* 5,200 83,200
Harris Corporation 4,100 250,100
Innovex, Inc. 12,200 211,975
International Business Machines Corporation 3,900 386,100
Kulicke & Soffa Industries* 2,900 42,050
Parker Hannifin Corporation 3,800 161,025
Tecumseh Products Company 800 43,200
Toro Company 2,700 89,437
---------
2,206,537
INSTRUMENTS AND RELATED PRODUCTS (1.0%)
ICN Pharmaceuticals 7,800 181,350
Measurex Corporation 6,700 195,975
---------
377,325
</TABLE>
21
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (7.2%)
Ace, Ltd. 4,300 $ 202,100
Ambac, Inc. 2,200 114,675
American Bankers Insurance Group, Inc. 4,000 175,000
American Financial Group, Inc. 3,100 93,388
Arbatax International, Inc.* 4,750 24,047
Capital Re Corporation 600 22,050
Conseco, Inc. 4,800 192,000
Delphi Financial Group, Inc.* 5,800 155,150
Exel Limited 2,400 169,200
Equitable Companies, Inc. 6,900 171,638
Fremont General Corporation 3,800 87,400
Loews Corporation 4,200 331,275
Old Republic International 600 12,900
Penncorp Financial Group, Inc. 3,200 101,600
Pioneer Financial Services, Inc. 2,400 39,900
Presidential Life Corporation 6,700 69,094
Providian Corporation 4,000 171,500
Reliance Group Holdings, Inc. 15,400 115,500
Reliastar Financial Corporation 700 30,187
Safeco Corporation 4,800 170,100
TIG Holdings, Inc. 5,500 159,500
Travelers Group, Inc. 2,400 109,500
Twentieth Century Industries 3,500 58,187
United Insurance Companies 4,600 104,362
Vesta Insurance Group, Inc. 2,800 93,450
---------
2,973,703
</TABLE>
22
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
METAL MINING (1.6%)
Asarco, Inc. 5,400 $149,175
Cyprus Amax Minerals Company 4,800 108,600
Freeport McMoran, Inc. 4,800 170,400
Phelps Dodge 3,200 199,600
--------
627,775
MISCELLANEOUS RETAIL (0.8%)
Jack Eckerd Corporation* 7,800 176,475
Revco Drug Stores, Inc.* 6,900 164,738
--------
341,213
NONDEPOSITORY INSTITUTIONS (0.8%)
AT&T Capital Corporation 3,900 170,625
Finova Group, Inc. 300 14,625
Textron, Inc. 1,500 119,812
--------
305,062
OIL & GAS DISTRACTION (0.09%)
BJ Services Company Warrants* 340 4,505
USX-Marathon Group, Inc. 1,500 30,188
--------
34,693
PAPER AND ALLIED PRODUCTS (3.3%)
Abitibi Price, Inc. 4,900 66,762
Boise Cascade Corporation 6,300 230,738
Bowater, Inc. 4,500 169,312
Consolidated Papers, Inc. 3,400 176,800
International Paper Company 10,677 393,714
</TABLE>
23
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER AND ALLIED PRODUCTS (3.3%)(CONTINUED)
Longview Fibre Company 1,300 $ 22,100
Mercer International, Inc.* 6,300 84,263
Westvaco Corporation 6,400 191,200
----------
1,334,889
PETROLEUM AND COAL PRODUCTS (2.8%)
Coastal Corporation 8,700 363,225
Elf Aquitane 3,400 124,950
Repsol S.A. 8,100 281,475
Tesoro Petroleum Corporation* 5,800 66,700
Texaco, Inc. 2,000 167,750
Valero Energy Corporation 4,300 107,500
----------
1,111,600
PRIMARY METAL INDUSTRIES (2.4%)
AK Steel Holding Corporation 3,300 129,112
Alumax, Inc.* 8,400 255,150
British Steel Plc 4,600 116,725
Mueller Industries, Inc.* 800 33,200
Quanex Corporation 3,600 85,050
Reynolds Metals Company 4,800 250,200
USX-U.S. Steel Company 3,800 107,825
----------
977,262
RAILROAD TRANSPORTATION (0.4%)
Canadian Pacific, Ltd. 7,800 171,600
</TABLE>
24
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (0.4%)
Goodyear Tire & Rubber Company 3,500 $ 168,875
SECURITY AND COMMODITY BROKERS (3.4%)
AG Edwards, Inc. 5,100 138,338
Alex Brown, Inc. 3,600 203,400
Bear Stearns Companies, Inc. 6,615 156,279
BHC Financial, Inc. 8,100 112,388
Lehman Brothers Holdings 9,500 235,125
Morgan Stanley Group 3,400 167,025
Quick & Reilly Group, Inc. 5,000 162,500
Salomon, Inc. 4,700 206,800
----------
1,381,855
STONE, CLAY & GLASS PRODUCTS (1.4%)
Hanson Plc 11,800 168,150
LaFarge Corporation 3,000 60,750
Lone Star Industries* 3,300 110,963
Owens-Illinois, Inc.* 4,600 73,600
Schuller Corporation* 14,900 154,587
----------
568,050
TRANSPORATION EQUIPMENT (0.9%)
Chrysler Corporation 1,901 117,862
Dana Corporation 1,700 52,700
Volvo AB 8,800 199,100
----------
369,662
</TABLE>
25
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION BY AIR (4.6%)
AMR Corporation* 2,400 $ 218,400
Alaska Airgroup, Inc.* 9,100 249,112
America West Airlines, Inc.* 10,700 235,400
British Airways Plc 1,700 145,775
Continental Airlines* 4,100 253,175
Delta Airlines 3,600 298,800
KLM Royal Dutch Air 3,900 123,825
Northwest Airlines Corporation* 4,000 157,750
US Air Group, Inc.* 9,500 171,000
-----------
1,853,237
WATER TRANSPORTATION (0.6%)
Stolt-Nielsen S.A. 9,200 165,025
Transportacion Maritima Mexicana S.A. 9,000 66,375
-----------
231,400
WHOLESALE TRADE-DURABLE GOODS (0.9%)
Arrow Electronics, Inc.* 3,200 138,000
Avnet, Inc. 3,000 126,375
Marshall Industries* 2,000 56,000
Wyle Electronics 1,000 33,125
-----------
353,500
WHOLESALE TRADE-NONDURABLE GOODS (0.8%)
Caraustar Industries, Inc. 6,200 165,850
Foxmeyer Health Corporation* 10,200 151,725
Swedish Match AB* 580 17,980
-----------
335,555
-----------
TOTAL COMMON STOCKS (Cost $32,331,762) 35,312,653
</TABLE>
26
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (12.2%)
U.S. GOVERNMENT AGENCY (5.1%)
Federal National Mortgage Assoc. Discount Note,
5.28%, due 7/30/1996 $ 2,050,000 $ 2,041,281
U.S. GOVERNMENT AGENCY-COLLATERALIZED MORTGAGE
OBLIGATIONS (5.2%)
Fed. Home Loan Mort. Corp., 5.26%, due 7/15/1996 2,100,000 2,095,704
U.S. GOVERNMENT OBLIGATIONS (1.3%)
U.S. Treasury Bills, 4.85%, due 7/5/1996 50,000 49,973
U.S. Treasury Bills, 4.89%, due 7/5/1996 25,000 24,986
U.S. Treasury Bills, 4.91%, due 7/5/1996 50,000 49,973
U.S. Treasury Bills, 4.935%, due 7/5/1996 85,000 84,953
U.S. Treasury Bills, 5.045%, due 8/29/1996 300,000 297,520
-----------
507,405
REPURCHASE AGREEMENT (0.6%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $281,875) 275,620 275,620
-----------
TOTAL SHORT-TERM SECURITIES (Cost $4,920,010) 4,920,010
-----------
TOTAL INVESTMENTS (100.0%) (Cost $37,251,772) $40,232,663
===========
</TABLE>
27
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
FUTURES CONTRACTS
CONTRACT
EXPIRATION AMOUNT AT UNREALIZED
DATE VALUE LOSS
------------------------------------
<S> <C> <C> <C>
28 S&P 500 Futures
Contracts-Short+ 9/19/96 $9,475,200 $ (81,428)
========================
</TABLE>
+ The above futures contracts are collateralized by a U.S. Treasury Bill at
$210,000 par value, due 7/5/96 and a U.S. Treasury Bill at $300,000 par value,
due 8/29/96.
* Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $40,041,080 and $33,306,468, respectively.
Net unrealized appreciation for tax purposes aggregated $2,973,912 of which
$4,054,379 related to appreciated investment securities and $1,080,467 related
to depreciated investment securities. The aggregate cost of securities is
$37,258,751 for tax purposes.
See accompanying notes.
28
<PAGE>
<TABLE>
Nicholas-Applegate Balanced Portfolio
Statement of Assets and Liabilities
June 30, 1996
ASSETS
<S> <C>
Investment in securities, at value (cost $44,832,576)
(Note l)-See accompanying schedule $49,827,401
Cash 38,746
Receivable for investment securities sold 348,151
Dividends, interest and other receivables 256,368
-----------
TOTAL ASSETS 50,470,666
LIABILITIES
Payable for investment securities purchased 948,639
Accounts payable and accrued expenses 59,250
-----------
TOTAL LIABILITIES 1,007,889
-----------
NET ASSETS $49,462,777
===========
Net Assets consist of:
Paid-in capital $39,069,844
Undistributed net investment income 924,428
Accumulated undistributed net realized gain on investments 4,473,680
Net unrealized appreciation on investment securities 4,994,825
-----------
NET ASSETS, for 3,374,014 shares outstanding $49,462,777
===========
NET ASSET VALUE, offering and redemption price per share $ 14.66
===========
</TABLE>
See accompanying notes.
29
<PAGE>
<TABLE>
<CAPTION>
Nicholas-Applegate Balanced Portfolio
Statement of Operations
Year Ended June 30, 1996
<S> <C>
INVESTMENT INCOME
Dividends $ 275,313
Interest 1,119,604
----------
Total investment income 1,394,917
EXPENSES (Note 2)
Investment advisory and management fees 312,334
Custody and accounting fees 126,094
Professional fees 15,859
Directors' fees and expenses 6,000
Other expenses 10,202
----------
Total expenses 470,489
----------
Net investment income 924,428
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 6,092,935
Change in unrealized appreciation on investment securities (1,004,611)
----------
Net gain on investments 5,088,324
----------
Net increase in net assets resulting from operations $6,012,752
==========
</TABLE>
See accompanying notes.
30
<PAGE>
Nicholas-Applegate Balanced Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 924,428 $ 936,566
Net realized gain (loss) on investments 6,092,935 (283,310)
Change in net unrealized appreciation
(depreciation) (1,004,611) 6,479,460
--------------------------
Net increase in net assets resulting from
operations 6,012,752 7,132,716
Distributions to shareholders from:
Net investment income (935,896) (386,000)
Capital share transactions:
Proceeds from sales of shares 5,298,577 7,522,637
Proceeds from reinvested distributions 935,896 386,000
Cost of shares redeemed (7,629,163) (8,232,738)
--------------------------
Net decrease in net assets resulting from share
transactions (1,394,690) (324,101)
--------------------------
Total increase in net assets 3,682,166 6,422,615
NET ASSETS
Beginning of period 45,780,611 39,357,996
--------------------------
End of period (including undistributed net investment
income of $924,428 and $935,896, respectively) $49,462,777 $45,780,611
==========================
OTHER INFORMATION
Shares:
Sold 380,150 641,113
Issued through reinvestment of distributions 68,284 32,590
Redeemed (550,111) (689,568)
--------------------------
Net decrease (101,677) (15,865)
==========================
</TABLE>
See accompanying notes.
31
<PAGE>
Nicholas-Applegate Balanced Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 3,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
----------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
-------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 13.17 $ 11.27 $ 11.50 $10.00
Income from investment operations:
Net investment income 0.27 0.27 0.09 0.11
Net realized and unrealized gain
(loss) on investments 1.49 1.74 (0.29) 1.39
-------------------------------------------------
Total from investment operations 1.76 2.01 (0.20) 1.50
Less distributions:
From net investment income (0.27) (0.11) (0.03) --
-------------------------------------------------
Net asset value, end of period $ 14.66 $ 13.17 $ 11.27 $11.50
=================================================
TOTAL RETURN (A) 13.53% 17.92% (1.70%) 26.07%
RATIOS AND SUPPLEMENTAL DATA (B)
Net Assets, end of period (in
thousands) $49,463 $45,781 $39,358 $5,567
Ratio of expenses to average net
assets (C) 0.98% 0.94% 1.03% 1.25%
Ratio of net investment income to
average net assets (C) 1.92% 2.20% 1.69% 1.70%
Portfolio turnover rate 127% 108% 56% 21%
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) The ratios of expenses and net investment income to average net assets
before voluntary expense reimbursement were 3.87% and (0.72%), respectively,
for the period December 3, 1992 (commencement of operations) through June
30, 1993. (Note 2)
32
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (63.5%)
AMUSEMENT & RECREATION SERVICES (0.5%)
Grand Casinos, Inc.* 8,850 $ 227,888
APPAREL & ACCESSORY STORES (1.3%)
Gap, Inc. 10,900 350,163
Ross Stores, Inc. 9,200 320,275
----------
670,438
APPAREL & OTHER TEXTILE PRODUCTS (0.7%)
Liz Claiborne, Inc. 10,500 363,563
BUSINESS SERVICES (12.9%)
Adaptec, Inc.* 7,200 340,650
America Online, Inc.* 5,700 248,663
BMC Software, Inc.* 5,800 345,825
Cadence Design Systems, Inc.* 11,550 389,813
Cisco Systems, Inc.* 9,000 510,188
Computer Associates International, Inc. 5,760 410,400
GTECH Holdings Corporation* 9,700 287,363
HBO & Company 7,400 500,425
McAfee Associated, Inc.* 9,300 456,281
Microsoft Corporation* 3,200 384,200
Oracle Corporation 8,300 327,331
Parametric Technologies, Inc.* 6,700 290,194
Peoplesoft, Inc.* 6,000 426,750
</TABLE>
33
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (12.9%)(CONTINUED)
Primark Corporation 6,700 $ 218,588
Rational Software Corporation* 5,700 307,444
Structural Dynamics Research* 11,400 249,375
Sun Microsystems, Inc.* 12,400 730,050
----------
6,423,540
CHEMICALS & ALLIED PRODUCTS (1.7%)
Jones Medical Industries, Inc. 8,850 292,603
Medeva Plc 18,500 286,750
Watson Pharmaceutical, Inc.* 7,700 291,638
----------
870,991
COMMUNICATIONS (0.7%)
LCI International, Inc.* 10,500 329,438
DEPOSITORY INSTITUTIONS (2.4%)
MBNA Corporation 10,100 287,850
Nationsbank Corporation 1,700 140,463
Standard Federal Bancorporation 3,300 127,050
TCF Financial Corporation 9,600 319,200
Zions Bancorporation 4,100 299,556
----------
1,174,119
EATING & DRINKING PLACES (0.6%)
Outback Steakhouse, Inc.* 8,000 275,000
</TABLE>
34
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS, & SANITARY (2.6%)
Noram Energy Corporation 38,000 $ 413,250
USA Waste Services, Inc.* 16,300 482,888
Williams Companies, Inc. 7,800 386,100
----------
1,282,238
ELECTRICAL & ELECTRONIC MACHINERY EQUIPMENT (4.6%)
Ascend Communications, Inc.* 9,700 545,019
C-Cube Microsystems, Inc.* 5,000 165,313
Cascade Communications Corporation* 9,400 639,775
Maxim Integrated Products* 8,800 240,350
PairGain Technologies, Inc.* 11,600 719,925
----------
2,310,382
ENGINEERING & MANAGEMENT SERVICES (3.0%)
Corrections Corporation of America* 7,300 511,000
Gartner Group, Inc.* 7,200 264,150
Paychex, Inc. 6,200 297,988
Quintiles Transnational Corporation* 6,200 406,100
---------
1,479,238
FOOD STORES (0.6%)
Vons Companies, Inc.* 8,400 313,950
FURNITURE & FIXTURES (0.6%)
Herman Miller, Inc. 9,400 287,288
</TABLE>
35
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FURNITURE & HOMEFURNISHINGS STORES (0.6%)
CompUSA, Inc.* 8,500 $ 290,063
GENERAL MERCHANDISE STORES (0.6%)
TJX Companies, Inc. 8,900 300,375
HEALTH SERVICES (0.8%)
Health Management Associates, Inc.* 11,500 232,875
Idexx Laboratories, Inc.* 3,700 144,763
----------
377,638
HOTELS & OTHER LODGING PLACES (2.8%)
HFS, Inc.* 7,200 504,000
Hilton Hotels Corporation 2,200 247,500
La Quinta Inns, Inc. 9,600 321,600
Marriott International, Inc. 6,300 338,625
----------
1,411,725
INDUSTRIAL MACHINERY & EQUIPMENT (3.4%)
Iomega Corporation* 12,500 360,156
Komag, Inc.* 10,600 278,250
US Robotics Corporation* 8,800 751,300
Western Digital Corporation* 12,100 316,113
----------
1,705,819
INSTRUMENTS & RELATED PRODUCTS (3.2%)
Becton Dickinson & Company 4,000 321,000
Luxottica Group 3,900 286,163
</TABLE>
36
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSTRUMENTS & RELATED PRODUCTS (3.2%)(CONTINUED)
Medtronic, Inc. 6,200 $ 347,200
Sci Systems, Inc.* 9,400 382,463
Target Therapeutics, Inc.* 5,900 241,900
----------
1,578,726
INSURANCE CARRIERS (1.1%)
Conseco, Inc. 7,400 296,000
Oxford Health Plans* 6,700 275,119
----------
571,119
METAL MINING (0.5%)
Getchell Gold Corporation* 8,300 273,900
MISCELLANEOUS MANUFACTURING INDUSTRIES (1.5%)
Callaway Golf Company 11,800 392,350
Tiffany & Company 5,000 365,000
----------
757,350
MISCELLANEOUS RETAIL (2.1%)
Bed, Bath & Beyond, Inc.* 12,400 329,375
Jack Eckerd Corporation * 13,400 303,175
Longs Drug Stores, Inc. 2,600 116,025
Staples, Inc.* 15,100 293,506
----------
1,042,081
</TABLE>
37
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NONDEPOSITORY INSTITUTIONS (0.9%)
Green Tree Financial Corporation 9,800 $ 306,250
The Money Store, Inc. 5,800 127,238
----------
433,488
OIL & GAS EXTRACTION (3.3%)
Parker & Parsley Petroleum Company 12,800 355,200
Phillips Petroleum Company 7,800 326,625
Reading & Bates Corporation* 24,700 546,488
Sonat Offshore Drilling, Inc. 8,100 409,050
----------
1,637,363
PAPER & ALLIED PRODUCTS (0.6%)
Avery Dennison Corporation 5,700 312,788
PETROLEUM & COAL PRODUCTS (0.4%)
Valero Energy Corporation 7,600 190,000
PRINTING & PUBLISHING (0.3%)
Meredith Corporation 3,600 150,300
RAILROAD TRANSPORTATION (0.2%)
Canadian Pacific, Ltd. 5,500 121,000
SECURITY & COMMODITY BROKERS (2.7%)
Bear Stearns Companies, Inc. 10,375 245,109
Lehman Brothers Holdings, Inc. 11,000 272,250
Morgan Stanley Group, Inc. 4,600 225,975
</TABLE>
38
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SECURITY & COMMODITY BROKERS
(2.7%)(CONTINUED)
Paine Webber Group, Inc. 14,100 $ 334,875
Salomon, Inc. 5,900 259,600
-----------
1,337,809
TRANSPORTATION BY AIR (2.4%)
AMR Corporation* 3,500 318,500
America West Airlines, Inc.* 15,700 345,400
Continental Airlines* 5,900 364,325
Northwest Airlines Corporation* 4,600 181,413
-----------
1,209,638
TRANSPORTATION EQUIPMENT (1.8%)
Chrysler Corporation 4,900 303,800
Gentex Corporation* 14,200 275,125
Harsco Corporation 4,600 309,350
-----------
888,275
WATER TRANSPORTATION (0.9%)
Tidewater, Inc. 9,700 425,588
WHOLESALE TRADE - DURABLE GOODS (0.7%)
Omnicare, Inc. 13,600 360,400
WHOLESALE TRADE - NONDURABLE GOODS (0.5%)
Phillip Morris Company, Inc. 2,300 239,200
-----------
TOTAL COMMON STOCK (Cost $26,393,484) 31,622,718
</TABLE>
39
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
LONG-TERM DEBT SECURITIES (32.1%)
U.S. GOVERNMENT OBLIGATIONS (32.1%)
Tennessee Valley Authority, 6.375%, due 6/15/2005 $3,750,000 $ 3,604,088
U.S. Treasury Note, 6.25%, due 2/15/2003 1,890,000 1,856,623
U.S. Treasury Note, 7.25%, due 5/15/2004 3,800,000 3,937,142
U.S. Treasury Note, 7.50%, due 5/15/2002 3,210,000 3,360,453
U.S. Treasury Note, 8.25%, due 7/15/1998 3,120,000 3,243,334
-----------
TOTAL LONG-TERM DEBT SECURITIES (Cost $16,236,049) 16,001,640
-----------
SHORT-TERM SECURITIES (4.4%)
REPURCHASE AGREEMENT (4.4%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $2,248,594) 2,203,043 2,203,043
-----------
TOTAL SHORT-TERM SECURITIES (Cost $2,203,043) 2,203,043
-----------
TOTAL INVESTMENTS (100.0%) (Cost $44,832,576) $49,827,401
===========
</TABLE>
*Non-income producing
40
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $58,118,518 and $59,765,188, respectively.
Net unrealized appreciation for tax purposes aggregated $4,994,825, of which
$6,455,631 related to appreciated investment securities and $1,460,806 related
to depreciated investment securities. The aggregate cost of securities is the
same for book and tax purposes.
See accompanying notes.
41
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $19,365,268)
(Note l)-See accompanying schedule $23,814,826
Cash 6,912
Dividends and interest receivable 24,532
-----------
TOTAL ASSETS 23,846,270
LIABILITIES
Accounts payable and accrued expenses 35,861
-----------
TOTAL LIABILITIES 35,861
-----------
NET ASSETS $23,810,409
===========
Net Assets consist of:
Paid-in capital $17,617,592
Undistributed net investment income 5,649
Accumulated undistributed net realized gain on investments 1,737,610
Net unrealized appreciation on investment securities 4,449,558
-----------
NET ASSETS, for 1,643,237 shares outstanding $23,810,409
===========
NET ASSET VALUE, offering and redemption price per share $14.49
===========
</TABLE>
See accompanying notes.
42
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 179,605
Interest 56,689
----------
Total investment income 236,294
EXPENSES (Note 2)
Investment advisory and management fees 143,566
Custody and accounting fees 58,243
Professional fees 15,859
Directors' fees and expenses 6,000
Regulatory fees 1,747
Other expenses 5,230
----------
Total expenses 230,645
----------
Net investment income 5,649
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 1,737,610
Change in unrealized appreciation on investment securities 778,867
----------
Net gain on investments 2,516,477
----------
Net increase in net assets resulting from operations $2,522,126
==========
</TABLE>
See accompanying notes.
43
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 5,649 $ 17,603
Net realized gain on investments 1,737,610 311,876
Change in net unrealized appreciation (depreciation) 778,867 3,972,691
-----------------------------
Net increase in net assets resulting from operations 2,522,126 4,302,170
Distributions to shareholders from:
Net investment income (17,603) -
Net realized gain (152,435) -
-----------------------------
Total distributions to shareholders (170,038) -
Capital share transactions:
Proceeds from sales of shares 10,057,765 5,228,036
Proceeds from reinvested distributions 170,038 -
Cost of shares redeemed (5,162,758) (3,829,957)
-----------------------------
Net increase in net assets resulting from share
transactions 5,065,045 1,398,079
-----------------------------
Total increase in net assets 7,417,133 5,700,249
NET ASSETS
Beginning of period 16,393,276 10,693,027
-----------------------------
End of period (including undistributed net investment
income of $5,649 and $17,603, respectively) $23,810,409 $16,393,276
=============================
OTHER INFORMATION
Shares:
Sold 726,912 485,092
Issued through reinvestment of distributions 12,192 -
Redeemed (371,133) (352,447)
-----------------------------
Net increase 367,971 132,645
=============================
</TABLE>
See accompanying notes.
44
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 8,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------------------------ THROUGH JUNE 30,
1996 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 12.85 $ 9.36 $ 9.71 $10.00
Income from investment operations:
Net investment income (loss) - (E) 0.01 (0.02)(C) -
Net realized and unrealized gain
(loss) on investments 1.74 3.48 (0.33) (0.29)
--------------------------------------------------------
Total from investment operations 1.74 3.49 (0.35) (0.29)
Less distributions:
From net investment income (0.01) - - -
From net realized gain (0.09) - - -
--------------------------------------------------------
Total distributions (0.10) - - -
--------------------------------------------------------
Net asset value, end of period $ 14.49 $ 12.85 $ 9.36 $ 9.71
========================================================
TOTAL RETURN (A) 13.59% 37.29% (3.60%) (5.16%)
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in
thousands) $23,810 $16,393 $10,693 $5,143
Ratio of expenses to average net
assets (D) 1.04% 1.05% 1.29% 1.34%
Ratio of net investment income (loss)
to average net assets (D) 0.03% 0.13% (0.17%) (0.06%)
Portfolio turnover rate 58% 31% 38% 6%
</TABLE>
(A) Total returns for periods of less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) Net investment loss per share has been calculated using the weighted monthly
average number of shares outstanding.
(D) The ratios of expenses and net investment income to average net assets
before voluntary expense reimbursement were 3.52% and (1.94%), respectively,
for the period ended December 8, 1992 (commencement of operations) through
June 30, 1993. (Note 2)
(E) Less than $0.01 per share.
45
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (98.3%)
BUILDING MATERIALS & GARDEN SUPPLIES (2.3%)
Home Depot, Inc. 10,000 $ 540,000
BUSINESS SERVICES (17.7%)
Adobe Systems, Inc. 9,700 346,169
Autodesk, Inc. 14,900 444,206
Automatic Data Processing 13,800 533,025
Cisco Systems, Inc.* 9,000 510,188
Electronic Arts* 13,800 367,425
First Data Corporation 6,200 493,675
Interpublic Group of Companies, Inc. 10,000 468,750
Microsoft Corporation* 3,900 468,244
Oracle Corporation* 14,850 585,644
----------
4,217,326
CHEMICALS & ALLIED PRODUCTS (14.1%)
Abott Laboratories 11,200 487,200
American Home Products Corporation 8,600 517,075
Amgen, Inc.* 7,900 425,613
Colgate-Palmolive Company 5,900 500,025
Du Pont (E.I.) De Nemours 5,900 466,838
Great Lakes Chemical Corporation 7,600 473,100
Merck & Company, Inc. 7,500 484,688
----------
3,354,539
COMMUNICATIONS (2.1%)
AT&T Corporation 8,000 496,000
</TABLE>
46
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (6.1%)
Bankamerica Corporation 6,500 $ 492,375
Norwest Corporation 14,000 488,250
Wells Fargo & Company 1,933 461,745
----------
1,442,370
EATING & DRINKING PLACES (2.1%)
Pepsico, Inc. 14,300 505,863
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (12.6%)
General Electric Company 6,000 519,000
General Instrument Corporation* 18,400 531,300
Intel Corporation 6,500 477,344
Kemet Corporation* 22,450 451,806
Lucent Technologies, Inc. 13,000 492,375
Tellabs, Inc.* 8,000 535,000
----------
3,006,825
ENGINEERING & MANAGEMENT (2.0%)
Fluor Corporation 7,200 470,700
FABRICATED METAL PRODUCTS (2.1%)
Illinois Tool Works, Inc. 7,500 507,187
FOOD & KINDRED PRODUCTS (2.0%)
General Mills, Inc. 8,700 474,150
</TABLE>
47
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FURNITURE & HOMEFURNISHINGS STORES (1.9%)
Circuit City Stores, Inc. 12,800 $ 462,400
GENERAL MERCHANDISE STORES (2.1%)
Wal-Mart Stores, Inc. 19,600 497,350
INDUSTRIAL MACHINERY & EQUIPMENT (5.3%)
Applied Materials, Inc.* 10,500 319,594
Hewlett-Packard Company 5,000 498,125
Silicon Graphics, Inc.* 18,900 453,600
----------
1,271,319
INSURANCE CARRIERS (3.7%)
American International Group 5,150 507,919
United Healthcare Corporation 7,600 383,800
----------
891,719
MISCELLANEOUS MANUFACTURING INDUSTRIES (4.2%)
Mattel, Inc. 16,800 480,900
Tyco International Limited 13,000 529,750
----------
1,010,650
MOTION PICTURES (2.1%)
Walt Disney Company 7,800 490,425
NONDEPOSITORY INSTITUTIONS (1.9%)
Dean Witter Discover & Company 8,000 458,000
</TABLE>
48
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS EXTRACTION (2.0%)
Schlumberger, Ltd. 5,600 $ 471,800
PRIMARY METAL INDUSTRIES (1.8%)
Nucor Corporation 8,600 435,375
RAILROAD TRANSPORTATION (2.0%)
Union Pacific Corporation 6,800 475,150
SECURITY & COMMODITY BROKERS (2.0%)
Charles Schwab Corporation 19,000 465,500
WHOLESALE TRADE - Durable Goods (4.1%)
Johnson & Johnson 10,000 495,000
Motorola, Inc. 7,600 477,850
-----------
972,850
WHOLESALE TRADE - Nondurable Goods (2.1%)
Gillette Company 8,100 505,238
-----------
TOTAL COMMON STOCK (Cost $18,973,178) 23,422,736
</TABLE>
49
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
SHORT-TERM SECURITIES (1.7%)
REPURCHASE AGREEMENT (1.7%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $403,594) $ 392,090 $ 392,090
-----------
TOTAL SHORT-TERM SECURITIES (Cost $392,090) 392,090
-----------
TOTAL INVESTMENTS (100.0%) (Cost $19,365,268) $23,814,826
===========
</TABLE>
*Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $16,903,094 and $12,021,598,
respectively. Net unrealized appreciation for tax purposes aggregated
$4,449,558, of which $4,669,279 related to appreciated investment securities
and $219,721 related to depreciated investment securities. The aggregate cost
of securities is the same for book and tax purposes.
See accompanying notes.
50
<PAGE>
Dreman Value Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $15,366,085)
(Note l)-See accompanying schedule $19,624,155
Cash 117,963
Dividends, interest and other receivables 55,022
-----------
TOTAL ASSETS 19,797,140
LIABILITIES
Accounts payable and accrued expenses 92,430
-----------
TOTAL LIABILITIES 92,430
-----------
NET ASSETS $19,704,710
===========
Net Assets consist of:
Paid-in capital $14,331,632
Undistributed net investment income 252,188
Accumulated undistributed net realized gain on investments 862,820
Net unrealized appreciation on investment securities 4,258,070
-----------
NET ASSETS, for 1,218,326 shares outstanding $19,704,710
===========
NET ASSET VALUE, offering and redemption price per share $16.17
===========
</TABLE>
See accompanying notes.
51
<PAGE>
Dreman Value Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 387,786
Interest 26,750
----------
Total investment income 414,536
EXPENSES (Note 2)
Investment advisory and management fees 85,287
Custody and accounting fees 46,697
Professional fees 15,859
Directors' fees and expenses 6,000
Regulatory fees 1,657
Foreign tax expense 2,399
Other expenses 5,351
----------
Total expenses before reimbursement 163,250
Less: expense reimbursement (Note 2) (902)
----------
Net expenses 162,348
----------
Net investment income 252,188
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 862,820
Change in unrealized appreciation on investment securities 2,857,141
----------
Net gain on investments 3,719,961
----------
Net increase in net assets resulting from operations $3,972,149
==========
</TABLE>
See accompanying notes.
52
<PAGE>
Dreman Value Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 252,188 $ 190,518
Net realized gain on investments 862,820 110,922
Change in net unrealized appreciation (depreciation) 2,857,141 1,497,538
-----------------------------
Net increase in net assets resulting from operations 3,972,149 1,798,978
Distributions to shareholders from:
Net investment income (190,236) (115,316)
Net realized gain (110,864) (33,184)
-----------------------------
Total distributions to shareholders (301,100) (148,500)
Capital share transactions:
Proceeds from sales of shares 7,569,421 2,443,372
Proceeds from reinvested distributions 301,100 148,500
Cost of shares redeemed (2,713,770) (2,317,614)
-----------------------------
Net increase in net assets resulting from share
transactions 5,156,751 274,258
-----------------------------
Total increase in net assets 8,827,800 1,924,736
NET ASSETS
Beginning of period 10,876,910 8,952,174
-----------------------------
End of period (including undistributed net investment
income of $252,188 and $190,236, respectively) $19,704,710 $10,876,910
=============================
OTHER INFORMATION
Shares:
Sold 517,405 218,818
Issued through reinvestment of distributions 21,840 13,171
Redeemed (184,651) (208,122)
-----------------------------
Net increase 354,594 23,867
=============================
</TABLE>
See accompanying notes.
53
<PAGE>
Dreman Value Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 12.59 $ 10.66 $10.45 $10.00
Income from investment operations:
Net investment income 0.18 0.26 0.12 0.11
Net realized and unrealized gain on investments 3.70 1.85 0.17 0.34
------------------------------------------
Total from investment operations 3.88 2.11 0.29 0.45
Less distributions:
From net investment income (0.19) (0.14) (0.08) -
From net realized gain (0.11) (0.04) - -
------------------------------------------
Total distributions (0.30) (0.18) (0.08) -
------------------------------------------
Net asset value, end of period $ 16.17 $ 12.59 $10.66 $10.45
==========================================
TOTAL RETURN (A) 31.22% 19.98% 2.80% 8.25%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in thousands) $19,705 $10,877 $8,952 $1,671
Ratio of expenses to average net assets 1.06% 1.13% 1.40% 1.24%
Ratio of net investment income to average net assets 1.65% 1.98% 1.98% 2.00%
Ratio of expenses to average net assets before voluntary expense
reimbursement (Note 2) 1.07% 1.13% 1.61% 8.43%
Ratio of net investment income to average net assets before voluntary
expense reimbursement (Note 2) 1.64% 1.98% 1.76% (1.49%)
Portfolio turnover rate 18% 29% 9% 5%
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
54
<PAGE>
Dreman Value Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (99.8%)
APPAREL & ACCESSORY STORES (0.6%)
Cato Corporation* 7,400 $ 43,938
J. Baker, Inc. 7,300 56,119
Payless Shoesource Inc.* 560 17,780
-------
117,837
APPAREL & OTHER TEXTILE PRODUCTS (4.8%)
Haggar Corporation 3,800 50,588
Liz Claiborne, Inc. 11,400 394,725
VF Corporation 8,200 488,925
-------
934,238
AUTO REPAIR, SERVICES, & PARKING (0.7%)
PHH Corporation 2,300 131,100
BUSINESS SERVICES (1.1%)
Insurance Auto Auctions, Inc.* 6,000 58,875
Pitney Bowes, Inc. 3,400 162,350
-------
221,225
CHEMICALS & ALLIED PRODUCTS (4.2%)
Bristol-Meyers Squibb Company 1,000 90,000
Eli Lilly & Company 2,500 162,500
Glaxo Holdings 5,200 139,100
Jean Philippe Fragrances, Inc. 8,500 71,719
Merck & Company, Inc. 1,600 103,400
Rexene Corporation 6,800 67,150
Pharmacia & Upjohn, Inc. 4,265 189,259
-------
823,128
</TABLE>
55
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
COMMUNICATIONS (0.8%)
Atlantic Tele-Network, Inc.* 6,500 $ 154,375
DEPOSITORY INSTITUTIONS (20.3%)
Ahmanson (H.F.) & Company 10,000 270,000
Bankamerica Corporation 4,000 303,000
Bankers Trust New York Corporation 5,300 391,538
Compass Bancshares, Inc. 2,500 82,188
Cullen/Frost Bankers, Inc. 1,600 44,600
First Chicago NBD Corporation 8,326 325,755
First Commerce Corporation 1,800 63,900
First Financial Corporation 1,800 40,725
First Union Corporation 3,800 231,325
Fleet Financial Group, Inc. 1,700 73,950
Great Western Financial 11,000 262,625
J.P. Morgan & Company 1,500 126,938
Keycorp 6,000 232,500
Liberty Bancorp, Inc. 1,400 50,138
Long Island Bancorp, Inc. 3,000 91,688
Nationsbank Corporation 2,500 206,563
North Side Savings Bank 1,600 55,300
PNC Bank Corporation 26,510 788,673
Roosevelt Financial Group, Inc. 3,700 71,456
T R Financial Corporation 2,300 62,819
Wells Fargo & Company 900 214,988
----------
3,990,669
</TABLE>
56
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICE (5.9%)
Columbia Gas System 18,100 $ 943,463
KCS Energy, Inc. 7,400 212,750
-------
1,156,213
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (5.8%)
Burr-Brown Corporation* 2,000 34,750
Exar Corporation* 5,500 70,813
General Electric Company 7,200 622,800
Intel Corporation 2,800 205,625
Read-Rite Corporation* 4,100 57,656
Texas Instruments, Inc. 3,100 154,613
-------
1,146,257
ENGINEERING & MANAGEMENT SERVICES (1.1%)
Blount International, Inc. 6,700 211,050
FABRICATED METAL PRODUCTS (0.1%)
Sturm Ruger & Company 400 18,600
FOOD & KINDRED PRODUCTS (0.9%)
Nestle SA 3,000 171,000
FOOD STORES (0.5%)
Giant Food, Inc. 3,000 107,625
GENERAL BUILDING CONTRACTORS (0.5%)
Del E. Webb Corporation 5,300 106,000
</TABLE>
57
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
GENERAL MERCHANDISE STORES (5.7%)
Dayton-Hudson Corporation 5,000 $ 515,625
May Department Stores Company 3,500 153,125
TJX Companies, Inc. 13,300 448,875
---------
1,117,625
HEALTH SERVICES (1.5%)
Tenet Healthcare Corporation* 13,400 286,425
HOLDING COMPANIES & OTHER INVESTMENT OFFICES (0.1%)
U.S. Industries, Inc.* 450 10,856
HOTELS & OTHER LODGING PLACES (1.0%)
Bally Entertainment Corporation 7,100 195,250
INDUSTRIAL MACHINERY & EQUIPMENT (1.8%)
Apple Computer 5,300 110,969
Asyst Technologies, Inc.* 2,400 42,900
Diamond Multimedia Systems* 2,300 21,706
Proxima Corporation* 3,300 39,600
Stewart & Stevenson 3,700 83,250
Western Digital Corporation* 2,400 62,700
-------
361,125
INSTRUMENTS & RELATED PRODUCTS (1.9%)
Baxter International, Inc. 1,500 70,875
Becton Dickinson & Company 2,500 200,625
Electroglas, Inc.* 4,400 62,425
</TABLE>
58
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSTRUMENTS & RELATED PRODUCTS (1.9%)(CONTINUED)
Sofamor Danek Group, Inc.* 600 $ 16,650
Tech-Sym Corporation* 600 17,850
----------
368,425
INSURANCE AGENTS, BROKERS & SERVICES (1.6%)
Humana, Inc.* 17,800 318,175
INSURANCE CARRIERS (6.5%)
American General Corporation 6,800 247,350
American International Group 2,250 221,906
Arbatax International, Inc.* 3,650 18,478
Guaranty National Corporation 3,400 61,200
Integon Corporation 3,800 76,475
Lawyers Title Corporation 2,100 37,800
Ohio Causalty Corporation 3,000 105,000
Travelers Group, Inc. 1,800 82,125
US Healthcare, Inc. 7,800 428,502
----------
1,278,836
LUMBER & WOOD PRODUCTS (1.8%)
Louisiana-Pacific Corporation 15,800 349,575
MISCELLANEOUS RETAIL (0.5%)
Sports & Recreation, Inc.* 11,400 104,025
</TABLE>
59
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NONDEPOSITORY INSTITUTION (10.0%)
Federal Home Loan Mortgage Corporation 10,100 $ 863,550
Federal National Mortgage Association 26,800 897,800
First Financial Carribean 3,700 74,463
Imperial Credit Industries* 4,400 134,475
----------
1,970,288
NONMETALLIC MINERALS, EXCEPT FUELS (0.3%)
Amcol International Corporation 3,500 52,719
OIL & GAS EXTRACTION (1.4%)
Atlantic Richfield Company 1,500 177,750
Giant Industries, Inc. 5,200 75,400
Seitel, Inc.* 500 13,688
----------
266,838
PAPER & ALLIED PRODUCTS (0.5%)
Mercer International, Inc.* 7,300 97,638
PETROLEUM & COAL PRODUCTS (1.8%)
Amoco Corporation 3,500 253,313
Tesoro Petroleum Corporation* 7,900 90,850
----------
344,163
PRIMARY METAL INDUSTRIES (1.3%)
AK Steel Holding Corporation 2,100 82,163
Mueller Industries, Inc.* 2,900 120,350
Quanex Corporation 1,900 44,888
----------
247,401
</TABLE>
60
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
RAILROAD TRANSPORTATION (0.8%)
Burlington Northern Santa Fe 1,900 $ 153,663
SPECIAL TRADE CONTRACTORS (0.2%)
Fedders Corporation* 6,000 42,750
STONE, CLAY, & GLASS PRODUCTS (0.7%)
Hanson Plc 9,000 128,250
TEXTILE MILL PRODUCTS (2.5%)
Fruit of the Loom, Inc.* 19,000 484,500
TOBACCO PRODUCTS (0.8%)
UST, Inc. 4,400 150,700
TRANSPORTATION BY AIR (1.3%)
Airborne Freight Corporation 3,200 83,200
Federal Express Corporation* 2,100 172,200
----------
255,400
TRANSPORTATION EQUIPMENT (4.1%)
Fleetwood Enterprises 4,000 124,000
Ford Motor Company 19,900 644,263
Simpson Industries 4,600 42,263
----------
810,526
</TABLE>
61
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE - DURABLE GOODS (0.3%)
Heilig-Meyers Company 2,400 $ 57,600
WHOLESALE TRADE - NONDURABLE GOODS (4.3%)
Burlington Coat Factory Warehouse* 8,500 89,250
Phillip Morris Company, Inc. 7,200 748,800
-----------
838,050
TOTAL COMMON STOCKS (Cost $15,322,109) 19,580,120
CORPORATE BONDS (0.0%)
SECURITIES & COMMODITY BROKERS (0.0%)
Everen Capital Corporation, 13.5%, due 9/15/2007 $ 3,400 3,655
-----------
TOTAL CORPORATE BONDS (Cost $3,596) 3,655
SHORT-TERM SECURITIES (0.2%)
REPURCHASE AGREEMENT (0.2%)
State Street Bank, 4.00%, due 7/1/1996 (Dated
6/28/96, collateralized by U.S. Treasury Bond,
9.25%, due 2/15/2016, value $450,756) 40,380 40,380
-----------
TOTAL SHORT-TERM SECURITIES (Cost $40,380) 40,380
-----------
TOTAL INVESTMENTS (100.0%) (Cost $15,366,085) $19,624,155
===========
</TABLE>
62
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $7,794,228 and $2,717,434,
respectively. Net unrealized appreciation for tax purposes aggregated
$4,256,770, of which $4,724,855 related to appreciated investment securities
and $468,085 related to depreciated investment securities The aggregate cost
of securities is $15,367,385 for tax purposes.
See accompanying notes.
63
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value (cost $10,365,111)
(Note l)-See accompanying schedule $11,697,568
Dividends, interest and other receivables 36,919
-----------
TOTAL ASSETS 11,734,487
LIABILITIES
Cash overdraft 6,887
Accounts payable and accrued expenses 29,481
-----------
TOTAL LIABILITIES 36,368
-----------
NET ASSETS $11,698,119
===========
Net Assets consist of:
Paid-in capital $ 9,400,588
Undistributed net investment income 103,880
Accumulated undistributed net realized gain on
investment securities and futures contracts 884,252
Net unrealized appreciation on investment securities
and futures contracts 1,309,399
-----------
NET ASSETS, for 859,408 shares outstanding $11,698,119
===========
NET ASSET VALUE, offering and redemption price per share $ 13.61
===========
</TABLE>
See accompanying notes.
64
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 181,268
Interest 74,550
----------
Total investment income 255,818
EXPENSES (Note 2)
Investment advisory and management fees 102,926
Custody and accounting fees 44,735
Professional fees 15,859
Directors' fees and expenses 6,000
Other expenses 9,407
----------
Total expenses before reimbursement 178,927
Less: expense reimbursement (Note 2) (26,989)
----------
Net expenses 151,938
----------
Net investment income 103,880
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note 1)
Net realized gain (loss) on:
Investment securities 1,556,551
Futures contracts (211,249)
----------
Net realized gain 1,345,302
Change in unrealized appreciation (depreciation) on:
Investment securities 197,814
Futures contracts (7,229)
----------
Change in unrealized appreciation 190,585
----------
Net gain on investments 1,535,887
----------
Net increase in net assets resulting from operations $1,639,767
==========
</TABLE>
See accompanying notes.
65
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 103,880 $ 119,424
Net realized gain (loss) on investments 1,345,302 (389,775)
Change in net unrealized appreciation 190,585 1,043,789
--------------------------
Net increase in net assets resulting from operations 1,639,767 773,438
Distributions to shareholders from:
Net investment income (119,225) (40,100)
Net realized gains - (50,400)
--------------------------
Total distributions to shareholders (119,225) (90,500)
Capital share transactions:
Proceeds from sales of shares 4,407,015 1,913,641
Proceeds from reinvested distributions 119,225 90,500
Cost of shares redeemed (2,382,455) (2,244,234)
--------------------------
Net increase (decrease) in net assets resulting
from share transactions 2,143,785 (240,093)
--------------------------
Total increase in net assets 3,664,327 442,845
NET ASSETS
Beginning of period 8,033,792 7,590,947
--------------------------
End of period (including undistributed net investment
income of $103,880 and $119,325, respectively) $11,698,119 $ 8,033,792
==========================
OTHER INFORMATION
Shares:
Sold 343,946 178,821
Issued through reinvestment of distributions 9,733 8,378
Redeemed (185,655) (208,320)
--------------------------
Net increase (decrease) 168,024 (21,121)
==========================
</TABLE>
See accompanying notes.
66
<PAGE>
Zweig Equity (Small Cap) Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
--------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.62 $10.65 $10.11 $ 10.00
Income from investment operations:
Net investment income 0.11 0.17 0.15 0.05
Net realized and unrealized gain on investments 2.04 0.93 0.50 0.06
-----------------------------------------------
Total from investment operations 2.15 1.10 0.65 0.11
Less distributions:
From net investment income (0.16) (0.06) (0.11) --
From net realized gain -- (0.07) -- --
-----------------------------------------------
Total distributions (0.16) (0.13) (0.11) --
-----------------------------------------------
Net asset value, end of period $ 13.61 $11.62 $10.65 $ 10.11
===============================================
TOTAL RETURN (A) 18.69% 10.39% 6.53% 2.02%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in thousands) $11,698 $8,034 $7,591 $ 2,116
Ratio of expenses to average net assets 1.55% 1.55% 1.72% 1.61%
Ratio of net investment income to average net assets 1.06% 1.54% 1.75% 0.84%
Ratio of expenses to average net assets before
voluntary expense reimbursement (Note 2) 1.83% 1.59% 2.14% 7.29%
Ratio of net investment income (loss) to average net
assets before voluntary expense reimbursement (Note 2) 0.78% 1.50% 1.32% (1.80%)
Portfolio turnover rate 101% 67% 249% 15%
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
67
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------
<S> <C> <C>
COMMON STOCKS (83.7%)
AGRICULTURAL PRODUCTION-CROPS (0.4%)
RJR Nabisco Holdings Corporation 1,600 $49,600
AGRICULTURAL PRODUCTION-LIVESTOCK (0.1%)
Golden Poultry Company, Inc. 1,200 11,625
APPAREL AND ACCESSORY STORES (0.3%)
Claire's Stores, Inc. 650 17,956
Ross Stores,Inc. 600 20,888
-------
38,844
AUTO REPAIR, SERVICES AND PARKING (.05%)
PHH Corporation 100 5,700
BUILDING MATERIALS & GARDEN SUPPLIES (0.1%)
Shelter Components Corporation 950 16,031
BUSINESS SERVICES (2.1%)
Aaron Rents, Inc. 1,400 18,288
ADT, Ltd.* 1,200 22,650
Advanced Technology Labs, Inc.* 400 14,650
Comdisco, Inc. 550 14,644
Computer Data Systems, Inc. 600 13,538
Computervision Corporation* 1,900 19,000
Electro Rent Corporations* 2,200 53,350
Norstan, Inc.* 900 33,975
</TABLE>
68
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (2.1%)(CONTINUED)
Orbotech, Ltd.* 1,200 $ 15,600
PCI Services, Inc.* 1,000 19,250
Pinkertons, Inc.* 100 2,312
Radius, Inc.* 16 43
Teradyne, Inc.* 300 5,175
Volt Information Sciences, Inc.* 400 17,650
---------
250,125
CHEMICALS AND ALLIED PRODUCTS (3.2%)
Albemarle Corporation 700 12,775
Bio-Rad Laboratories* 750 26,906
Cabot Corporation 400 9,800
Collagen Corporation 100 1,913
Cytec Industries* 200 17,100
Desc. S.A.-Spons ADR* 800 16,800
Electrochemical Industries Frutar* 200 250
Goodrich (B.F.) Company 400 14,950
Imperial Chemical Industries Plc 1,000 49,125
Incstar Corporation* 400 2,150
International Specialty Products, Inc. 1,400 15,400
Macdermid, Inc. 300 21,075
Medeva Plc 700 10,850
Montedison S.P.A. 5,500 33,000
Olin Corporation 200 17,850
Rohm & Haas Company 800 50,200
Shanghai Petro-ADR 600 17,100
Stepan Company 100 1,813
</TABLE>
69
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS AND ALLIED PRODUCTS (3.2%)(CONTINUED)
Terra Industries, Inc. 1,600 $ 19,800
Union Carbide Corporation 900 35,775
---------
374,632
COAL MINING (0.1%)
Ziegler Coal Holding Company 1,000 16,000
COMMUNICATIONS (1.9%)
Atlantic Tele-Network, Inc.* 600 14,250
Sprint Corporation 1,300 54,600
Tele Danmark A/S 2,900 73,588
Telefonica De Espana 1,500 82,687
---------
225,125
DEPOSITORY INSTITUTIONS (11.3%)
Ahmanson (H.F.) & Company 500 13,500
Allied Irish Banks 300 9,338
Astoria Financial 600 16,313
Banco Coml Portugues 900 10,350
Banco Latinoamericano de Exportaciones, S.A. 300 16,875
Bank of Boston Corporation 1,500 74,250
Bank of Montreal 600 14,700
Bankamerica Corporation 1,100 83,318
Banknorth Group, Inc. 400 13,850
Banponce Corporation 800 36,050
Barclays Plc 400 19,000
Boston Bancorp 300 13,013
</TABLE>
70
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (11.3%)(CONTINUED)
Cal Fed Bancorp, Inc.* 1,700 $ 31,025
Chase Manhattan Corporation 612 43,223
City National Corporation 900 14,175
Coast Savings Financial, Inc.* 600 19,650
Colonial Bancgroup, Inc. 300 10,050
Comerica, Inc. 301 13,432
Commercial Federal Corporation 300 11,475
Community First Bankshares 500 11,750
Corus Bankshares, Inc. 200 6,075
Crestar Financial Corporation 300 16,013
Cullen/Frost Bankers, Inc. 200 5,575
CVB Financial Corporation 2 34
Eagle Financial Corporation 210 5,224
First American Corporation* 300 12,656
First Citizens Bancshares 200 12,550
First Empire State Corporation 100 24,100
First Union Corporation 300 18,263
Firstbank Puerto Rico 800 18,400
Great Western Financial Corporation 1,100 26,263
Hibernia Corporation 1,600 17,400
Hubco, Inc. 450 9,534
Imperial Bancorp* 432 10,422
Investors Financial Services Corporation 32 738
Leader Financial Corporation 300 13,350
Long Island Bancorp, Inc. 300 9,169
National Australia Bank 100 4,638
National Westminster Bank Plc 1,300 74,750
</TABLE>
71
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (11.3%)(CONTINUED)
Nationsbank Corporation 1,000 $ 82,625
New York Bancorp, Inc. 500 12,750
North Fork Bancorporation 1,046 27,327
Peoples Bank Bridgeport 800 17,850
Peoples Heritage Financial Group 800 16,350
Provident Bancorp, Inc. 150 5,306
RCSB Financial, Inc. 700 18,069
Republic New York Corporation 1,200 74,700
Riggs National Corporation 2,300 28,031
Santa Monica Bank 900 11,475
Silicon Valley Bancshares* 500 12,937
Sovereign Bancorp, Inc. 1,400 14,087
Sterling Bancorp-NY 1,400 15,400
T R Financial Corporation 600 16,388
TCF Financial Corporation 400 13,300
Unionbancal Corporation 600 31,650
UST Corporation* 1,100 16,500
Washington Mutual, Inc. 400 12,000
Wells Fargo & Company 200 47,775
Westamerica Bankcorporation 200 10,125
Westcorp 561 9,958
Westpac Banking 2,100 47,250
Zions Bankcorporation 300 21,919
---------
1,324,263
</TABLE>
72
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
EATING AND DRINKING PLACES (0.4%)
CKE Restaurants, Inc. 700 $17,850
Darden Restaurants, Inc. 1,100 11,825
Foodmaker, Inc.* 1,900 16,388
NPC International, Inc.* 600 6,000
-------
52,063
Electric & Other Electric Equipment (4.0%)
Advanced Semiconductor Materials International N.V.* 600 6,450
Bairnco Corporation 1,000 7,250
Bel Fuse, Inc.* 600 10,013
Burr-Brown Corporation* 550 9,556
Charter Power Systems 700 24,150
Chips & Technologies, Inc.* 1,000 9,688
Computer Products, Inc.* 2,400 40,800
CTS Corporation 400 18,800
Cypress Semiconductor Corporation* 900 10,800
Electro Scientific Industries, Inc.* 300 6,187
Electroulux AB 900 45,338
Genlyte Group, Inc.* 2,300 17,538
Hadco Corporation* 1,000 21,250
Harman International 415 20,439
Helen of Troy, Ltd.* 800 22,500
Kollmorgen Corporation 800 11,800
Lamson & Sessions Company* 2,200 26,125
Moog, Inc.* 500 12,250
Park Electrochemical Corporation 800 16,000
Powell Industries, Inc.* 300 3,506
</TABLE>
73
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC & OTHER ELECTRIC EQUIPMENT (4.0%)(CONTINUED)
Richardson Electronics, Ltd. 300 $ 3,000
Silicon Valley Group, Inc.* 600 11,287
Siliconix, Inc.* 1,700 37,825
Standard Microsystems Corporation* 700 10,631
Tadiran Ltd. 500 13,500
Technitrol, Inc. 600 23,775
Thomas Industries, Inc. 500 9,562
Watkins-Johnson Company 300 8,212
Xicor, Inc.* 1,100 12,856
--------
471,088
ELECTRIC, GAS AND SANITARY SERVICES (11.5%)
Allegheny Power System 600 18,525
American Electric Power 300 12,787
American Water Works, Inc. 200 8,050
Atlantic Energy, Inc. 1,000 18,250
Atmos Energy Corporation 600 18,375
Baltimore Gas & Electric 1,200 34,050
Bay State Gas 400 11,150
Boston Edison Company 500 12,750
Centerior Energy Corporation 1,500 11,062
Central Louisiana Electric, Inc. 300 7,988
Central Maine Power 800 11,600
Cipsco, Inc. 300 11,587
CMS Energy Corporation 300 9,262
Columbia Gas System 500 26,063
Commonwealth Energy System 700 18,025
</TABLE>
74
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (11.5%)(CONTINUED)
Dominion Resources, Inc. 600 $24,000
DQE, Inc. 200 5,500
DTE Energy Company 600 18,525
Eastern Enterprises 300 9,975
Edison International 3,500 61,688
E1 Paso Natural Gas 400 15,400
Empresa Nacional Electric 200 12,525
Energynorth, Inc. 100 1,950
Entergy Corporation 2,800 79,450
General Public Utilities 1,800 63,450
Idaho Power Company 400 12,450
IES Industries, Inc. 500 14,938
Illinova Corporation 800 23,000
Indiana Energy, Inc. 700 20,038
Interstate Power Company 800 25,700
Ipalco Enterprises, Inc. 600 15,750
Laclede Gas Company 700 15,663
Long Island Lighting 1,100 18,425
MCN Corporation 500 12,188
Midamerican Energy Company 800 13,800
National Fuel Gas Company 400 14,400
New England Electric System 400 14,550
New York State Electric & Gas 800 19,500
Noram Energy Corporation 1,300 14,137
Northern States Power 700 34,562
Northwestern Public Service Company 900 24,187
NUI Corporation 600 10,725
</TABLE>
75
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (11.5%)(CONTINUED)
Oneok, Inc. 600 $15,000
Pacific Gas & Electric 1,400 32,550
Peoples Energy Corporation 400 13,400
Piedmont Natural Gas Company 600 13,875
Pinnacle West Corporation 900 27,338
Portland General Corporation 800 24,700
Powergen Plc 500 14,875
Providence Energy Corporation 300 5,175
Public Service Company of Colorado 400 14,700
Public Service Company of New Mexico* 900 18,450
Rochester Gas & Electric 600 12,900
Shandong Huaneng Power 1,500 12,375
South Jersey Industries 700 14,875
Southern Union Company* 573 12,606
Texas Utilities Company 500 21,375
TNP Enterprises 1,300 36,887
Tucson Electric Power Company* 620 8,370
Unicom Corporation 2,700 75,263
United Illuminating Company 400 14,950
Utilicorp United, Inc. 500 13,812
Washington Gas Light Company 800 17,600
Washington Water Power 1,000 18,625
Westcoast Energy, Inc. 900 13,500
Western Resource 400 11,950
Wicor, Inc. 400 15,100
WPL Holdings, Inc. 400 13,150
</TABLE>
76
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (11.5%)(CONTINUED)
Yankee Energy Systems, Inc. 600 $ 13,050
York Research Corporation* 1,300 13,812
----------
1,346,263
ENGINEERING AND MANAGEMENT SERVICES (0.3%)
Bet Plc 2,100 29,663
Blount International, Inc. 300 9,450
----------
39,113
FABRICATED METAL PRODUCTS (0.5%)
Ameron International Corporation 500 19,750
Butler Manufacturing, Inc. 150 5,100
Nortek, Inc.* 800 9,300
Shiloh Industries, Inc.* 100 1,588
United Dominion Industries 200 4,600
Wyman-Gordon Company* 1,100 19,456
----------
59,794
FOOD AND KINDRED PRODUCTS (0.7%)
Archer-Daniels-Midland 1,905 36,433
IBP, Inc. 1,000 27,625
Morningstar Group, Inc.* 500 5,625
Orange Company, Inc. 1,200 9,600
----------
79,283
</TABLE>
77
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD STORES (0.6%)
Great Atlantic & Pacific Tea Company 400 $13,150
Riser Foods, Inc. 1,600 38,400
Schultz Sav O Stores, Inc. 700 9,012
Smith's Food & Drug Centers 243 5,802
-------
66,364
FORESTRY (0.5%)
Rayonier, Inc. 600 22,800
Weyerhaeuser Company 800 34,000
-------
56,800
FURNITURE AND FIXTURES (0.3%)
Bush Industries 400 13,600
Chromcraft Revington, Inc.* 100 2,338
Falcon Products, Inc. 160 2,300
Kinetic Concepts 1,300 20,312
-------
38,550
FURNITURE AND HOMEFURNISHINGS STORES (0.2%)
Inacom Corporation* 600 11,287
Pier 1 Imports, Inc. 800 11,900
-------
23,187
GENERAL BUILDING CONTRACTORS (0.7%)
Continental Homes Holding Corporation 900 19,350
Empresas ICA S.A. 1,300 18,038
Lennar Corporation 400 10,000
</TABLE>
78
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
GENERAL BUILDING CONTRACTORS (0.7%)(CONTINUED)
MDC Holdings, Inc 1,600 $10,800
Redman Industries, Inc.* 800 16,300
U.S. Home Corporation* 500 12,312
-------
86,800
GENERAL MERCHANDISE STORES (0.5%)
Carson Pirie Scott & Company* 500 13,375
Mercantile Stores Company, Inc 200 11,725
Shopko Stores, Inc 1,000 16,125
Waban, Inc.* 700 16,712
-------
57,937
HEALTH SERVICES (0.4%)
Health Images, Inc 900 10,462
Maxicare Health Plans* 600 11,438
Ornda Healthcorp* 300 7,200
Universal Health Services* 500 13,063
-------
42,163
HEAVY CONSTRUCTION, EXCEPT BUILDING (0.1%)
Granite Construction, Inc 750 17,438
HOLDING AND OTHER INVESTMENT OFFICES (0.6%)
Asset Investors Corporation 4,500 15,750
CWM Mortgage Holdings, Inc. 1,300 22,100
HRE Properties 200 3,050
Koger Equity, Inc.* 800 10,700
</TABLE>
79
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HOLDING AND OTHER INVESTMENT OFFICES (0.6%)(CONTINUED)
MGI Properties, Inc. 600 $10,275
Thornburg Mortgage Asset Corporation 800 13,000
-------
74,875
INDUSTRIAL MACHINERY AND EQUIPMENT (5.7%)
Advanced Logic Research, Inc.* 1,600 13,100
Agco Corporation 1,500 41,625
Ampco-Pittsburgh 1,200 13,950
Applied Magnetics Corporation* 1,100 11,550
Applied Power, Inc. 400 11,200
BHA Group,Inc. 660 9,075
Cascade Corporation 1,000 13,125
Case Corporation 1,100 52,800
Commercial Intertech Corporation 400 10,300
Data General Corporation* 700 9,100
Digital Equipment* 800 36,000
Fedders Corporation* 2,400 17,100
Gardner Denver Machinery* 700 18,462
Gleason Corporation 600 23,400
Global Industrial Technologies, Inc.* 1,900 30,400
Harris Corporation 100 6,100
Innovex, Inc. 1,100 19,112
Intergraph Corporation* 700 8,575
International Business Machines Corporation 700 69,300
Katy Industries 400 6,000
Kaydon Corporation 200 8,600
Komag, Inc.* 700 18,375
</TABLE>
80
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY AND EQUIPMENT (5.7%)(CONTINUED)
Kulicke & Soffa Industries* 700 $ 10,150
Kysor Industrial Corporation 500 12,125
Lindsay Manufacturing Company 300 11,963
Lufkin Industries, Inc. 900 18,338
Mestek Inc.* 800 11,900
Met-Pro Corporation 100 1,862
Nam Tai Electronics 300 3,319
Parker Hannifin Corporation 600 25,425
Robbins & Myers, Inc. 400 18,100
SPS Technologies, Inc.* 600 42,300
Tecumseh Products Company 300 16,200
Timken Company 300 11,625
Toro Company 600 19,875
Trident Microsystems, Inc.* 700 8,881
Twin Disc, Inc. 100 2,338
Valmont Industries 300 10,088
-------
671,738
INSTRUMENTS AND RELATED PRODUCTS (1.5%)
Amcast Industrial Corporation 700 14,175
Coherent, Inc.* 300 15,712
Conmed Corporation* 500 13,281
Cooper Companies, Inc.* 1,400 16,450
Core Industries, Inc. 300 4,313
Electroglas, Inc.* 400 5,675
Esterline Technologies Corporation* 1,400 35,000
Fluke Corporation 300 12,113
</TABLE>
81
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSTRUMENTS AND RELATED PRODUCTS (1.5%)(CONTINUED)
Galileo Electro-Optics Corporation* 1,300 $ 31,119
ICN Pharmaceuticals 600 13,950
LTX Corporation* 300 1,856
Measurex Corporation 400 11,700
Starrett (L.S.) Company 200 5,200
--------
180,544
INSURANCE CARRIERS (6.3%)
20th Century Industries 700 11,638
Ace, Ltd. 400 18,800
Allied Group, Inc. 400 17,350
Ambac, Inc. 300 15,637
American Annuity Group, Inc. 1,620 21,060
American Bankers Insurance Group 400 17,500
American Financial Group, Inc. 400 12,050
American Travellers Corporation* 600 13,762
Arbatax International, Inc.* 700 3,544
Bankers Life Holding Corporation 800 17,700
Capital Re Corporation 400 14,700
CNA Financial Corporation* 100 10,300
Conseco, Inc. 400 16,000
Enhance Financial Services Group 600 16,800
Equitable Companies, Inc. 800 19,900
Equitable of Iowa Companies 700 24,850
Exel Limited 800 56,400
First American Financial Corporation 500 16,875
First Colony Corporation 500 15,500
</TABLE>
82
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (6.3%)(CONTINUED)
Fremont General Corporation 700 $ 16,100
Gainsco, Inc. 1,000 9,875
Liberty Financial Companies 400 13,550
Life Re Corporation 600 18,525
Loews Corporation 900 70,987
MAIC Holdings, Inc.* 100 3,763
MMI Companies, Inc. 500 15,438
NAC Re Corporation 100 3,350
National Re Corporation 300 11,325
Nymagic,Inc. 200 3,775
Old Republic International Corporation 1,500 32,250
Orion Capital Corporation 200 10,200
Penncorp Financial Group, Inc. 600 19,050
Pioneer Financial Services, Inc. 1,200 19,950
Presidential Life Corporation 400 4,125
Providian Corporation 300 12,863
Pxre Corporation 300 7,312
Reliance Group Holdings 1,800 13,500
Reliastar Financial Corporation 314 13,541
Sierra Health Services* 400 12,600
TIG Holdings, Inc. 400 11,600
Transatlantic Holdings 200 14,025
Travelers Group, Inc. 1,350 61,594
United Fire & Casualty Company 100 3,300
United Insurance Companies 300 6,806
Vesta Insurance Group 400 13,350
-------
763,120
</TABLE>
83
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LEATHER AND LEATHER PRODUCTS (0.1%)
Weyco Group, Inc. 200 $ 8,150
LUMBER AND WOOD PRODUCTS (0.4%)
Champion Enterprises, Inc.* 600 12,525
Macmillan Bloedel 1,800 23,850
Skyline Corporation 400 10,000
--------
46,375
METAL MINING (0.9%)
Asarco, Inc. 600 16,575
Cleveland-Cliffs, Inc. 500 19,563
Cyprus Amax Minerals Company 1,200 27,150
Freeport McMoran, Inc. 400 14,200
Phelps Dodge 500 31,187
--------
108,675
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.7%)
Hexcel Corporation* 1,400 21,350
Nacco Industries 500 27,688
Oneida, Ltd. 1,200 22,500
Schuller Corporation* 1,300 13,487
--------
85,025
MISCELLANEOUS RETAIL (0.2%)
Jack Eckerd Corporation* 600 13,575
National Media Corporation* 700 12,338
--------
25,913
</TABLE>
84
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
NONDEPOSITORY INSTITUTIONS (1.1%)
Aames Financial Corporation 450 $ 16,144
AT&T Capital Corporation 400 17,500
Finova Group, Inc. 200 9,750
First Financial Caribbean Corporation 800 16,100
Fund American Enterprise, Inc. 300 24,300
Textron, Inc. 400 31,950
United Companies Financial Corporation 330 11,261
--------
127,005
NONMETALLIC MINERALS, EXCEPT FUELS (0.2%)
Florida Rock Industries 200 5,175
Vulcan Materials Company 300 17,812
--------
22,987
OIL & GAS EXTRACTION (1.0%)
Belden & Blake Corporation* 700 14,787
BJ Service Warrants* 120 1,590
Cliffs Drilling Company* 700 23,538
Digicon, Inc.* 1,700 28,475
Mitchell Energy & Development Corporation 700 13,475
RPC Energy Services, Inc.* 700 8,050
Tetra Technologies, Inc.* 400 7,000
Tuboscope Vetco International Corporation* 1,200 13,500
USX-Marathon Group, Inc. 700 14,088
--------
124,503
</TABLE>
85
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER AND ALLIED PRODUCTS (2.5%)
Abitibi Price, Inc. 800 $ 10,900
Boise Cascade Corporation 600 21,975
Bowater, Inc. 500 18,812
Consolidated Papers, Inc. 300 15,600
International Paper Company 1,207 44,508
Interpool, Inc. 800 14,600
James River Corporation of Virginia 400 10,550
Longview Fibre Company 700 11,900
Mercer International, Inc.* 800 10,700
Mosinee Paper Corporation 133 3,608
P.H. Glatfelter Company 500 9,188
Potlatch Corporation 500 19,562
Republic Group, Inc. 800 11,400
Temple-Inland, Inc. 600 28,050
Westvaco Corporation 2,050 61,244
--------
292,597
PERSONAL SERVICES (0.2%)
Jenny Craig, Inc.* 1,100 19,662
PCA International, Inc. 200 3,300
--------
22,962
PETROLEUM AND COAL PRODUCTS (1.8%)
Coastal Corporation 1,800 75,150
Elf Aquitane 600 22,050
Fina, Inc. 500 27,625
Repsol 1,000 34,750
</TABLE>
86
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PETROLEUM AND COAL PRODUCTS (1.8%)(CONTINUED)
Sasol, Ltd. 2,300 $ 24,581
Tesoro Petroleum Corporation* 1,000 11,500
Valero Energy Corporation 500 12,500
--------
208,156
PRIMARY METAL INDUSTRIES (3.8%)
AK Steel Holding Corporation 500 19,562
Alumax Inc.* 700 21,263
British Steel Plc 2,400 60,900
Carpenter Technology 700 22,400
Chaparral Steel Company 1,400 18,375
Lone Star Technologies* 900 10,013
Maxxam, Inc.* 300 11,775
Mueller Industries, Inc.* 800 33,200
Pitt-Des Moines, Inc. 100 4,250
Quanex Corporation 900 21,263
Reynolds Metals Company 700 36,487
RMI Titanium Company* 900 21,150
Roanoke Electric Steel Corporation 1,600 22,000
Steel of West Virginia, Inc.* 300 2,625
Texas Industries, Inc. 700 48,037
Tredegar Industries, Inc. 1,250 37,813
Tremont Corporation* 400 14,450
Tubos De Acero De Mexico* 2,600 24,537
USX-U.S. Steel Company 400 11,350
--------
441,450
</TABLE>
87
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PRINTING AND PUBLISHING (0.3%)
Devon Group, Inc.* 300 $ 9,675
Graphic Industries 1,700 16,787
Quebecor Inc. 900 14,288
--------
40,750
RAILROAD TRANSPORTATION (0.1%)
Canadian Pacific Ltd. 700 15,400
RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS (0.7%)
AEP Industries, Inc. 480 20,160
American Filtrona Corporation 300 9,338
Furon Company 800 19,800
Goodyear Tire & Rubber Company 300 14,475
Gundle/SLT Environmental, Inc.* 500 3,125
Spartech Corporation 1,400 14,875
--------
81,773
SECURITY AND COMMODITY BROKERS (2.8%)
A.G. Edwards, Inc. 500 13,562
Alex Brown, Inc. 400 22,600
Atalanta Sosnoff Capital* 700 6,869
Bear Stearns Companies, Inc. 730 17,246
Fahnestock Viner Holdings, Inc. 1,900 24,819
Inter-regional Financial Group 300 7,800
Jefferies Group 800 24,800
Lehman Brothers Holdings, Inc. 900 22,275
McDonald & Company Investments 500 9,875
</TABLE>
88
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SECURITY AND COMMODITY BROKERS (2.8%)(CONTINUED)
Morgan Keegan, Inc. 400 $ 5,300
Morgan Stanley Group, Inc. 600 29,475
Quick & Reilly Group, Inc. 872 28,340
Raymond, James Financial Corporation 700 15,838
Salomon, Inc 1,400 61,600
Sherwood Group, Inc.* 300 3,413
Value Line, Inc. 500 17,562
Waterhouse Investor Services* 300 11,137
----------
322,511
SPECIAL TRADE CONTRACTORS (0.3%)
Apogee Enterprises, Inc. 600 20,475
Layne Christensen Company* 800 10,200
----------
30,675
STONE, CLAY & GLASS PRODUCTS (1.5%)
Centex Construction Products 1,200 16,950
Hanson Plc 1,000 14,250
Intermet Corporation* 1,900 26,481
LaFarge Corporation 1,000 20,250
Lone Star Industries* 900 30,262
Medusa Corporation 1,100 34,100
Owens-Illinois, Inc.* 700 11,200
Puerto Rican Cement Company, Inc. 500 15,563
Southdown, Inc. 700 16,450
----------
185,506
</TABLE>
89
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TEXTILE MILL PRODUCTS (0.3%)
Chemfab Corporation* 900 $ 12,938
Culp, Inc. 987 13,571
Springs Industries, Inc. 400 20,200
----------
46,709
TOBACCO PRODUCTS (0.02%)
Swedish Match AB* 80 2,480
TRANSPORATION EQUIPMENT (2.4%)
A.O. Smith Corporation 100 2,500
Avondale Industries, Inc.* 1,000 17,938
Chrysler Corporation 500 31,000
Coachmen Industries, Inc. 1,100 38,500
Dana Corporation 500 15,500
Greenbrier Companies, Inc. 700 9,713
Harsco Corporation 200 13,450
Northrop Grumman Corporation 200 13,625
Oshkosh Truck Corporation 1,000 14,312
Regal Beloit 1,000 19,750
Sequa Corporation* 500 21,562
Teledyne, Inc. 500 18,062
Todd Shipyards Corporation* 500 3,750
Transtechnology Corporation 600 10,650
Trinity Industries 100 3,400
Varlen Corporation 753 15,918
Volvo AB 1,800 40,725
----------
290,355
</TABLE>
90
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION SERVICES (0.3%)
CSX Corporation 400 $ 19,300
PS Group Holdings, Inc.* 1,200 16,500
------------
35,800
TRANSPORTATION BY AIR (3.3%)
Alaska Airgroup, Inc.* 800 21,900
America West Airlines* 1,000 22,000
AMR Corporation* 1,000 91,000
British Airways Plc 900 77,175
Continental Airlines* 400 24,700
Delta Air Lines Inc. 1,100 91,300
KLM Royal Dutch Airlines, N.V. 810 25,718
Northwest Airlines* 400 15,775
US Air Group, Inc.* 1,000 18,000
------------
387,568
WATER TRANSPORTATION (0.5%)
Oglebay Norton Company 700 32,462
Stolt-Nielsen, S.A. 900 16,144
Transportacions Maritima Mexicana, S.A. 1,400 10,325
------------
58,931
WHOLESALE TRADE-DURABLE GOODS (2.1%)
Arrow Electronics, Inc.* 300 12,937
Avnet, Inc. 300 12,637
Barnes Group, Inc. 300 15,338
Bearings, Inc. 700 18,900
</TABLE>
91
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE-DURABLE GOODS (2.1%)(CONTINUED)
Bell Industries, Inc.* 895 $ 14,991
Castle (A.M.) & Company 1,250 29,531
Commercial Metals Company 33 1,097
Hughes Supply, Inc. 900 31,275
Marshall Industries* 400 11,200
Reliance Steel & Aluminum 600 21,900
Rexel, Inc.* 1,700 24,013
United Industrial Corporation 600 3,675
Wyle Electronics 400 13,250
Wynn's International, Inc. 1,375 38,844
------------
249,588
WHOLESALE TRADE-NONDURABLE GOODS (0.8%)
Bindley Western Industries 400 6,700
Caraustar Industries, Inc. 600 16,050
Culbro Corporation* 300 17,888
Donnkenny, Inc.* 600 11,662
Foxmeyer Health Corporation* 800 11,900
Howell Corporation 300 4,069
United Stationers, Inc.* 800 18,900
World Fuel Services Corporation 350 6,344
------------
93,513
------------
TOTAL COMMON STOCKS (Cost $8,461,965) 9,794,422
</TABLE>
92
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (16.3%)
U.S. GOVERNMENT AGENCY (8.1%)
Federal National Mortgage Assoc., Discount Note,
5.28%, due 7/30/1996 $ 950,000 $ 945,959
U.S. GOVERNMENT AGENCY-COLLATERALIZED MORTGAGE
OBLIGATIONS (6.3%)
Fed. Home Loan Mort. Corp., 5.26%, due 7/15/1996 735,000 733,497
U.S. GOVERNMENT OBLIGATIONS (1.1%)
U.S. Treasury Bills, 4.93%, due 7/5/1996 25,000 24,986
U.S. Treasury Bills, 4.95%, due 7/5/1996 50,000 49,973
U.S. Treasury Bills, 4.97%, due 7/5/1996 50,000 49,972
-----------
124,931
REPURCHASE AGREEMENT (0.8%)
State Street Bank, 4%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond 9.25%, due 2/15/2016, value $450,756) 98,759 98,759
-----------
TOTAL SHORT-TERM SECURITIES (Cost $1,903,146) 1,903,146
-----------
TOTAL INVESTMENTS (100.0%) (Cost $10,365,111) $11,697,568
===========
</TABLE>
93
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
FUTURES CONTRACTS
CONTRACT
EXPIRATION AMOUNT AT UNREALIZED
DATE VALUE LOSS
---------------------------------------
<S> <C> <C> <C>
7 S&P 500 Futures
Contracts-Short+ 9/19/96 $2,368,800 $(23,058)
=======================
</TABLE>
+The above futures contracts are collateralized by a U.S. Treasury Bill at
$125,000 par value, due 7/5/96.
*Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $9,601,882 and $8,556,713, respectively.
Net unrealized appreciation for tax purposes aggregated $1,331,128, of which
$1,489,004 related to appreciated investment securities and $157,876 related to
depreciated investment securities. The aggregate cost of securities is
$10,366,439 for tax purposes.
See accompanying notes.
94
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $10,405,473)
(Note l)-See accompanying schedule $10,329,106
Receivable for investment securities sold 247,018
Interest and other receivables 150,149
-----------
TOTAL ASSETS 10,726,273
LIABILITIES
Payable for investment securities purchased 672,514
Accounts payable and accrued expenses 25,637
-----------
TOTAL LIABILITIES 698,151
-----------
NET ASSETS $10,028,122
===========
Net Assets consist of:
Paid-in capital $ 9,874,934
Undistributed net investment income 328,028
Accumulated undistributed net realized loss on investments (98,473)
Net unrealized depreciation on investment securities (76,367)
-----------
NET ASSETS, for 940,767 shares outstanding $10,028,122
===========
NET ASSET VALUE, offering and redemption price per share $ 10.66
===========
</TABLE>
See accompanying notes.
95
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest $ 416,344
EXPENSES (Note 2)
Investment advisory and management fees 52,456
Custody and accounting fees 42,940
Professional fees 15,859
Directors' fees and expenses 6,000
Other expenses 6,849
----------
Total expenses before reimbursement 124,104
Less: expense reimbursement (Note 2) (39,568)
----------
Net expenses 84,536
----------
Net investment income 331,808
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (Note l)
Net realized gain on investments 39,828
Change in unrealized appreciation on investment securities (188,379)
----------
Net loss on investments (148,551)
----------
Net increase in net assets resulting from operations $ 183,257
==========
</TABLE>
See accompanying notes.
96
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 331,808 $ 272,169
Net realized gain on investments 39,828 32,319
Change in net unrealized appreciation
(depreciation) (188,379) 253,467
-------------------------
Net increase in net assets resulting from
operations 183,257 557,955
Distributions to shareholders from:
Net investment income (268,795) (98,000)
Capital share transactions:
Proceeds from sales of shares 5,775,502 2,673,991
Proceeds from reinvested dividends 268,795 98,000
Cost of shares redeemed (1,346,134) (2,676,948)
-------------------------
Net increase in net assets resulting from share
transactions 4,698,163 95,043
-------------------------
Total increase in net assets 4,612,625 554,998
NET ASSETS
Beginning of period 5,415,497 4,860,499
-------------------------
End of period (including undistributed net
investment income of $328,028 and $268,795,
respectively) $10,028,122 $ 5,415,497
=========================
OTHER INFORMATION
Shares:
Sold 541,094 263,300
Issued through reinvestment of dividends 25,172 9,744
Redeemed (123,043) (261,523)
-------------------------
Net increase 443,223 11,521
=========================
</TABLE>
See accompanying notes.
97
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Financial Highlights
<TABLE>
<CAPTION>
JANUARY 5, 1993
(COMMENCEMENT)
YEAR ENDED JUNE 30, OF OPERATIONS
----------------------- THROUGH JUNE 30,
1996 1995 1994 1993
-----------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.88 $10.00 $10.43 $ 10.00
Income from investment operations:
Net investment income 0.39 0.56 0.20 0.19
Net realized and unrealized gain
(loss) on investments (0.03) 0.53 (0.52) 0.24
-----------------------------------------
Total from investment operations 0.36 1.09 (0.32) 0.43
Less distributions:
From net investment income (0.58) (0.21) (0.11) -
-----------------------------------------
Net asset value, end of period $ 10.66 $10.88 $10.00 $ 10.43
=========================================
TOTAL RETURN (A) 3.29% 11.08% (3.06%) 8.67%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in
thousands) $10,028 $5,415 $4,861 $ 906
Ratio of expenses to average net
assets 1.32% 1.40% 1.56% 1.56%
Ratio of net investment income to
average net assets 5.18% 5.41% 3.62% 3.86%
Ratio of expenses to average net
assets before voluntary expense
reimbursement (Note 2) 1.94% 1.59% 2.49% 15.72%
Ratio of net investment income
(loss) to average net assets
before voluntary expense
reimbursement (Note 2) 4.56% 5.22% 2.68% (1.64%)
Portfolio turnover rate 392% 432% 527% 103%
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
J.P. Morgan Investment Management, Inc. became sub-adviser of the Portfolio
effective April 1, 1996 (see note 2).
98
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
CORPORATE BONDS (23.0%)
AUTO REPAIR, SERVICES, & PARKING (1.9%)
World Omni Automobile Lease Securitization Trust
Series 96-A, Class 1A, 6.30%, due 6/25/2002 $200,000 $ 199,531
DEPOSITORY INSTITUTIONS (3.4%)
Midland Bank PLC, 7.625% due 11/28/2025 200,000 202,628
Trans Financial Bank N.A., 6.320%, due 10/17/1997 150,000 149,525
----------
352,153
ELECTRIC, GAS, & SANITARY SERVICES (1.8%)
Columbia Gas System, 7.620%, due 11/28/2025 200,000 188,034
NONDEPOSITORY INSTITUTIONS (12.5%)
Caterpillar Financial Asset Trust, Series 96, Class A3,
6.30%, due 2/15/2005 250,000 249,766
Chase Manhattan Credit Card Master Trust, Series 96-3,
Class A, 7.04%, due 2/15/2005 200,000 202,312
First Omni Bank Credit Card Master Trust 96, Class A,
6.65%, due 9/15/2003 200,000 199,500
Ford Motor Credit Corporation, 5.750%, due 01/25/2001 135,000 128,863
Ford Motor Credit Corporation, 7.470%, due 7/29/1999 300,000 306,624
Sears Credit Account Master Trust, Series 96, Class A,
6.50%, due 10/15/2003 200,000 199,938
----------
1,287,003
</TABLE>
99
<PAGE>
Pinnacle Fixed Income Ponfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
TRANSPORTATION EQUIPMENT (3.4%)
Premier Auto Trust 95, Class A5, 6.150%, due 3/6/2000 $350,000 $ 347,071
----------
TOTAL CORPORATE BONDS (Cost $2,380,840) 2,373,792
GOVERNMENT SECURITIES (72.6%)
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE
OBLIGATIONS (10.1%)
Fed. Home Loan Mort. Corp., Gold, 6.00% due 4/1/2011 150,517 142,568
Fed. Home Loan Mort. Corp., Remic Series 1694, 6.50%,
due 9/15/2023 310,000 293,917
Fed. Home Loan Mort. Corp., Gold, 6.50% due 3/1/2026 201,374 188,599
Fed. Home Loan Mort. Corp., Gold, 7.00% due 4/1/2026 151,249 145,624
Fed. Home Loan Mort. Corp., 8.00% due 5/1/2014 64,451 65,937
Fed. Home Loan Mort. Corp., 8.50% due 8/1/2026* 200,000 204,969
----------
1,041,614
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (32.1%)
Federal National Mortgage Assoc., 6.00%, due 4/1/2026 201,507 183,244
Federal National Mortgage Assoc., Class G, 6.50%,
due 11/25/2007 300,000 289,125
Federal National Mortgage Assoc., 7.00%, due 1/1/2026 351,294 337,899
Federal National Mortgage Assoc., 7.00%, due 4/1/2026 137,487 132,459
Federal National Mortgage Assoc., 7.50%, due 1/1/2026 246,101 242,793
Federal National Mortgage Assoc., 7.50%, due 5/1/2026 131,892 130,119
Federal National Mortgage Assoc., 7.50%, due 7/1/2026* 270,000 266,876
Federal National Mortgage Assoc., 7.50%, due 11/1/2025 303,000 298,928
</TABLE>
100
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------
<S> <C> <C>
GOVERNMENT SECURITIES (CONTINUED)
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (32.1%)(CONTINUED)
Federal National Mortgage Assoc., 8.00%, due 4/1/2026 $ 141,711 $ 142,774
Federal National Mortgage Assoc., 8.50%, due 5/1/2009 130,238 132,680
Federal National Mortgage Assoc., 9.00%, due 5/1/2025 190,350 198,617
Govt. National Mortgage Assoc., 7.00%, due 3/15/2026 201,414 193,106
Govt. National Mortgage Assoc., 7.50%, due 1/15/2026 254,208 250,553
Govt. National Mortgage Assoc., 8.00%, due 11/15/2006 21,343 21,906
Govt. National Mortgage Assoc., 8.00%, due 11/15/2006 31,210 32,107
Govt. National Mortgage Assoc., 8.00%, due 4/15/2022 255,045 258,233
Govt. National Mortgage Assoc., 8.00%, due 8/1/2026* 200,000 201,468
----------
3,312,887
U.S. GOVERNMENT OBLIGATIONS (26.9%)
U.S. Treasury Bond, 7.125%, due 2/15/2023 100,000 101,078
U.S. Treasury Bond, 8.50%, due 2/15/2020 240,000 279,862
U.S. Treasury Note, 5.625%, due 1/31/1998 510,000 506,894
U.S. Treasury Note, 5.75%, due 9/30/1997 360,000 359,323
U.S. Treasury Note, 5.75%, due 8/15/2003 90,000 85,711
U.S. Treasury Note, 6.25%, due 2/15/2003 250,000 245,585
U.S. Treasury Note, 6.37%, due 3/31/2001 540,000 537,635
U.S. Treasury Note, 6.50%, due 5/15/2005 100,000 98,687
U.S. Treasury Note, 6.875%, due 3/31/2000 185,000 187,688
U.S. Treasury Note, 7.25%, due 5/15/2004 100,000 103,609
U.S. Treasury Note, 7.625%, due 2/15/2025 45,000 48,488
U.S. Treasury Note, 8.125%, due 8/15/2019 200,000 224,500
----------
2,779,060
</TABLE>
101
<PAGE>
Pinnacle Fixed Income Portfolio
(formerly Mitchell Hutchins Fixed Income Portfolio)
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
FOREIGN GOVERNMENT OBLIGATIONS (3.5%)
Quebec Province, 7.125%, due 2/9/2024 $ 300,000 $ 274,131
Republic of Italy, 6.875%, due 9/27/2023 100,000 90,172
------------
364,303
TOTAL GOVERNMENT SECURITIES (Cost $7,567,183) 7,497,864
SHORT-TERM SECURITIES (4.4%)
REPURCHASE AGREEMENT (4.4%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $467,656) 457,450 457,450
------------
TOTAL SHORT-TERM SECURITIES (Cost $457,450) 457,450
------------
TOTAL INVESTMENTS (100.00%) (Cost $10,405,473) $ 10,329,106
============
</TABLE>
* Security purchased on a delayed delivery basis. (Note 1)
OTHER INFORMATION:
Purchases and sales of securities excluding short-term securities, for the year
ended June 30, 1996, aggregated $29,279,979 and $24,403,861, respectively. Net
unrealized depreciation for tax purposes aggregated $78,692, of which $97,623
related to depreciated investment securities and $18,931 related to appreciated
investment securities. The aggregate cost of securities for tax purposes is
$10,407,798.
See accompanying notes.
102
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at amortized cost
(Note 1)-See accompanying schedule $ 8,833,114
Interest and other receivables 58,404
-----------
TOTAL ASSETS 8,891,518
LIABILITIES
Cash overdraft 14,149
Accounts payable and accrued expenses 21,522
-----------
TOTAL LIABILITIES 35,671
-----------
NET ASSETS, for 8,855,847 shares outstanding $ 8,855,847
===========
NET ASSET VALUE, offering and redemption price per share $ 1.00
===========
</TABLE>
See accompanying notes.
103
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest $ 504,693
EXPENSES (Note 2)
Investment advisory and management fees 54,685
Custody and accounting fees 44,614
Professional fees 15,859
Directors' fees and expenses 6,000
Regulatory fees 1,850
Other expenses 3,934
---------
Total expenses before reimbursement 126,942
Less: expense reimbursement (Note 2) (29,263)
---------
Net expenses 97,679
---------
Net investment income 407,014
---------
Net increase in net assets resulting from operations $ 407,014
=========
</TABLE>
See accompanying notes.
104
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 407,014 $ 267,641
Distributions to shareholders from:
Net investment income (407,014) (267,641)
Capital share transactions:
Proceeds from sales of shares 18,569,332 11,346,439
Proceeds from reinvested distributions 407,014 267,641
Cost of shares redeemed (16,873,594) (10,313,402)
---------------------------
Net increase in net assets resulting from share
transactions 2,102,752 1,300,678
---------------------------
Total increase in net assets 2,102,752 1,300,678
NET ASSETS
Beginning of period 6,753,095 5,452,417
---------------------------
End of period $ 8,855,847 $ 6,753,095
===========================
OTHER INFORMATION
Shares:
Sold 18,569,332 11,346,439
Issued through reinvestment of distributions 407,014 267,641
Redeemed (16,873,594) (10,313,402)
---------------------------
Net increase 2,102,752 1,300,678
===========================
</TABLE>
See accompanying notes.
105
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Financial Highlights
<TABLE>
<CAPTION>
JANUARY 12, 1993
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
---------------------------------------- THROUGH JUNE 30,
1996 1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.05 0.04 0.02 0.01
Less distributions:
From net investment income (0.05) (0.04) (0.02) (0.01)
---------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========================================================
TOTAL RETURN (A) 4.55% 4.30% 2.04% 1.66%
RATIOS AND SUPPLEMENTAL DATA (B)
Net Assets, end of period (in
thousands) $ 8,856 $ 6,753 $ 5,452 $ 754
Ratio of expenses to average net
assets 1.12% 1.15% 1.29% 1.34%
Ratio of net investment income to
average net assets 4.67% 4.31% 2.19% 1.67%
Ratio of expenses to average net
assets before voluntary expense
reimbursement (Note 2) 1.46% 1.27% 2.08% 22.41%
Ratio of net investment income (loss)
to average net assets before
voluntary expense reimbursement
(Note 2) 4.33% 4.20% 1.40% (2.05%)
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
ARM Capital Advisors, Inc. began managing the Portfolio directly without a
sub-adviser effective April 1, 1996 (see note 2).
106
<PAGE>
ARM Capital Advisors Money Market Porfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (100.0%)
CORPORATE BONDS (94.7%)
AUTO REPAIR, SERVICES, & PARKING (6.8%)
Hertz Corporation, 5.36%, due 7/12/1996 $ 400,000 $ 399,345
PHH Corporation, 5.79%, due 9/16/1996* 200,000 199,980
---------
599,325
DEPOSITORY INSTITUTIONS (7.7%)
Bankers Trust New York Corporation, 5.3%, due 7/3/1996 328,000 327,903
Nationsbank Corporation, 4.75%, due 8/15/1996 100,000 99,879
Wachovia Bank & Trust Co., 5.8125%, due 1/3/1997* 250,000 249,858
---------
677,640
ELECTRIC, GAS, & SANITARY SERVICES (2.8%)
WMX Technologies Inc., 5.37%, due 8/12/1996 250,000 248,434
GENERAL MERCHANDISE STORES(5.0%)
Sears Roebuck Acceptance Corporation, 5.38%,
due 7/18/1996 442,000 440,877
INSURANCE CARRIERS (4.5%)
American General Finance Corporation, 5.42%, due 10/9/1996 405,000 398,903
NONDEPOSITORY INSTITUTIONS (66.3%)
American Express Credit Corporation, 5.28%, due 7/2/1996 404,000 403,941
Associate Corporation, 5.29%, due 7/1/1996 405,000 405,000
Avco Financial Services Inc., 5.37%, due 8/12/1996 404,000 401,466
Beneficial Corporation, 5.31%, due 7/9/1996 409,000 408,517
Chevron Corporation, 5.25%, due 7/5/1996 415,000 414,758
</TABLE>
107
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
NONDEPOSITORY INSTITUTIONS (66.3%)(CONTINUED)
CIT Group Holdings, 5.38, due 7/26/1996 $ 230,000 $ 229,141
CIT Group Holdings, 7.125%, due 11/15/1996 200,000 201,138
Ford Motor Credit Corporation, 5.37%, due 7/16/1996 425,000 424,049
General Electric Capital Corporation, 5.37%, due
7/17/1996 432,000 430,969
General Motors Acceptance Corporation, 5.32%, due
7/15/1996 200,000 199,586
General Motors Acceptance Corporation, 5.34%, due
7/15/1996 205,000 204,574
Household Finance Corporation, 5.31%, due 7/8/1996 410,000 409,577
IBM Credit Corporation, 5.35%, due 7/11/1996 406,000 405,397
John Deere Capital Corporation, 5.42%, due 10/11/1996 395,000 388,934
Morgan Guaranty Trust Company, 5.25%, due 1/15/1997 200,000 200,097
Norwest Bancorp, 7.875%, due 1/30/1997 400,000 405,753
Prudential Funding Corporation, 5.31%, due 7/10/1996 320,000 319,575
----------
5,852,472
SECURITY & COMMODITY BROKERS (1.7%)
Merrill Lynch and Company, Inc., 4.9%, due 10/28/1996 150,000 147,546
----------
TOTAL CORPORATE BONDS (Cost $8,365,197) 8,365,197
</TABLE>
108
<PAGE>
ARM Capital Advisors Money Market Portfolio
(formerly Mitchell Hutchins Money Market Portfolio)
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------------
<S> <C> <C>
GOVERNMENT SECURITIES (5.3%)
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (2.3%)
Federal National Mortgage Assoc., 5.68%,
due 10/7/1996 $ 200,000 $ 200,075
U.S. GOVERNMENT OBLIGATIONS (3.0%)
U.S. Treasury Bills, 4.88%, due 8/29/1996 270,000 267,842
---------
TOTAL GOVERNMENT SECURITIES (Cost $468,020) 467,917
---------
TOTAL SHORT-TERM SECURITIES (100.0%) (Cost $8,833,114) $8,833,114
==========
* Variable rate note or floating note; rate shown effective at 6/30/96.
See accompanying notes.
</TABLE>
109
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $13,775,095)
(Note 1)-See accompanying schedule $14,825,464
Cash 56,019
Receivable for investment securities sold 138,030
Dividends, interest and other assets 71,647
-----------
TOTAL ASSETS 15,091,160
LIABILITIES
Payable for investment securities purchased 96,750
Accounts payable and accrued expenses 42,315
-----------
TOTAL LIABILITIES 139,065
-----------
NET ASSETS $14,952,095
===========
Net Assets consist of:
Paid-in capital $13,979,950
Accumulated undistributed net realized loss on investments and
foreign currency transactions (78,248)
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 1,050,393
-----------
NET ASSETS, for 1,377,245 shares outstanding $14,952,095
===========
NET ASSET VALUE, offering and redemption price per share $ 10.86
===========
See accompanying notes.
</TABLE>
110
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $16,511) $197,211
Interest 36,008
--------
Total investment income 233,219
EXPENSES (Note 2)
Investment advisory and management fees 133,310
Custody and accounting fees 115,178
Professional fees 15,861
Directors' fees and expenses 6,000
Other expenses 8,165
--------
Total expenses before reimbursement 278,514
Less: expense reimbursement (Note 2) (28,405)
--------
Net expenses 250,109
--------
Net investment loss (16,890)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY (Note 1)
Net realized loss on:
Investment securities (21,414)
Foreign currency transactions (7,184)
--------
Net realized loss (28,598)
Change in unrealized appreciation on:
Investment securities 832,439
Translation of assets and liabilities in foreign currencies (325)
--------
Change in unrealized appreciation 832,114
--------
Net gain on investments and foreign currencies 803,516
--------
Net increase in net assets resulting from operations $786,626
========
</TABLE>
See accompanying notes.
111
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (16,890) $ 72,537
Net realized loss on investments and foreign
currency transactions (28,598) (100,052)
Change in net unrealized appreciation on
investments and translation of assets and liabilities
in foreign currency 832,114 218,279
--------------------------
Net increase in net assets resulting from
operations 786,626 190,764
Distributions to shareholders from:
Net investment income (46,376) (500)
Net realized gain on investments (14,536) --
--------------------------
Total distributions (60,912) (500)
Capital share transactions:
Proceeds from sales of shares 5,146,338 12,547,902
Proceeds from reinvested distributions 60,912 500
Cost of shares redeemed (3,805,532) (1,819,360)
--------------------------
Net increase in net assets resulting from share
transactions 1,401,718 10,729,042
--------------------------
Total increase in net assets 2,127,432 10,919,306
NET ASSETS
Beginning of period 12,824,663 1,905,357
--------------------------
End of period (including undistributed net
investment income of $14,748 at June 30, 1995) $14,952,095 $12,824,663
==========================
OTHER INFORMATION
Shares:
Sold 482,863 1,262,727
Issued through reinvestment of distributions 6,543 49
Redeemed (371,590) (193,842)
--------------------------
Net increase 117,816 1,068,934
==========================
</TABLE>
See accompanying notes.
112
<PAGE>
Morgan Stanley Asian Growth Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JUNE 15, 1994
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------- THROUGH JUNE 30,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.18 $ 10.00 $10.00
Income from investment operations:
Net investment income (loss) (0.01) 0.01 0.00 (C)
Net realized and unrealized gain on
investments 0.74 0.17 --
--------------------------------------
Total from investment operations 0.73 0.18 --
Less distributions:
From net investment income (0.04) (0.00) (C) --
From net realized gain (0.01) -- --
--------------------------------------
Total distributions (0.05) -- --
--------------------------------------
Net asset value, end of period $ 10.86 $ 10.18 $10.00
======================================
TOTAL RETURN (A) 7.19% 1.80% 0.52%
RATIOS AND SUPPLEMENTAL DATA (B)
Net assets, end of period (in thousands) $14,952 $12,825 $1,905
Ratio of expenses to average net assets 2.00% 1.92% 0.75%
Ratio of net investment income to average
net assets (0.13%) 0.76% 0.59%
Ratio of expenses to average net assets
before voluntary expense
reimbursement (Note 2) 2.21% 1.92% 9.79%
Ratio of net investment income to average
net assets before voluntary expense
reimbursement (Note 2) (0.34%) 0.76% (8.44%)
Portfolio turnover rate 51% 30% --
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) Less than $0.01 per share.
113
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-------------------------
<S> <C> <C>
COMMON STOCKS (91.9%)
CHINA (0.2%)
Yizheng Chemical Fibre Company 150,000 $ 33,137
HONG KONG (27.0%)
Asia Satellite Telecommunications Holdings, Ltd. 8,000 23,719
Cheung Kong Holdings, Ltd. 83,000 597,780
China Light & Power Company, Ltd. 23,000 104,293
Citic Pacific, Ltd. 52,000 210,265
CP Pokphand Company 119,000 47,273
Guangdong Investments 155,000 98,081
Hang Seng Bank, Ltd. 26,800 270,053
Harbin Power Equipment Company 97,000 14,536
Hong Kong Electric Holdings, Ltd. 22,000 67,074
Hong Kong Telecommunications, Ltd. 217,000 389,668
Hopewell Holdings 75,000 40,694
HSBC Holdings Plc. 29,855 451,256
Hutchison Whampoa, Ltd. 82,000 515,896
New World Infrastructure, Ltd. 63,000 292,183
Sun Hung Kai Properties 36,000 363,921
Swire Pacific, Ltd. 35,000 299,553
Varitronix International, Ltd. 35,000 73,023
Wharf Holdings, Ltd. 35,000 125,247
----------
3,984,515
INDIA (0.7%)
Graism Industries 1,000 18,630
Hindalco Industries, Ltd. 1,000 37,875
Mahindra & Mahindra, Ltd. 4,000 47,000
----------
103,505
</TABLE>
114
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDONESIA (8.4%)
Binamtara Cita 26,500 $ 33,317
Private Astra International 51,000 73,985
Private Bank International Indonesia 16,500 81,560
Private Barito Pacific Timber 35,000 22,942
Private Gudang Garam 54,000 231,528
Private Hanjaya Mandala Sampoerna 13,000 148,077
Private Indah Kiat Pulp & Paper Corporation 105,000 102,676
Private Indocement 20,000 68,773
Private Kalbe Farma 16,500 36,879
Private Semen Gresik 11,000 32,033
Private Sorini Corporation 20,000 110,037
Private Suba Indah 10,000 7,737
Private Telekomunikasi Indonesia 198,500 300,758
---------
$1,250,302
MALAYSIA (21.5%)
Ammb Holdings Berhad 6,000 84,202
Edaran Otomobil Nasional 17,000 162,911
Genting Berhad 50,000 390,938
Industrial Oxygen Incorporated Berhad 50,000 69,366
Konsortium Perkapalan Berhad 3,000 24,791
Leader Universal Holdings Berhad 27,000 76,323
Magnum Corporation Berhad 22,000 37,225
Malayan Banking Berhad 39,000 375,301
Malaysian International Shipping Berhad 50,000 155,373
Petronas Gas Berhad 67,000 287,450
Public Bank Berhad 26,000 71,933
</TABLE>
115
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MALAYSIA (21.5%) (CONTINUED)
Renong Berhad* 109,000 $ 173,945
Renong Berhad Warrants 13,625 3,824
Renong Berhad Rights* 21,800 9,877
Resorts World Berhad 50,000 286,688
Sime Darby Berhad 28,000 77,466
TA Enterprise Berhad 48,000 75,060
Telekom Malaysia Berhad 43,000 382,759
Tenaga Nasional Berhad 68,000 286,287
United Engineers, Ltd. 22,000 152,606
----------
3,184,325
PHILIPPINES (5.5%)
Ayala Corporation 23,800 46,624
Ayala Land, Inc. 29,000 52,043
C&P Homes, Inc. 92,100 80,003
DMCI Holdings, Inc. 63,300 45,318
JG Summit Holdings 476,700 178,376
Manila Electric Company 11,500 120,752
Petron Corporation 214,275 98,179
Philippine Long Distance Telephone Company 2,200 131,042
SM Prime Holdings, Ltd. 242,160 62,875
----------
815,212
SINGAPORE (13.5%)
City Developments, Ltd. 2,000 23,717
Comfort Group, Ltd. 84,000 83,333
CSA Holding, Ltd. 32,000 31,519
</TABLE>
116
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
-----------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SINGAPORE (13.5%) (CONTINUED)
DBS Land,Ltd. 9,000 $ 29,549
Development Bank of Singapore 19,000 236,961
Fraser & Neave, Ltd. 7,200 74,490
Kay Hian James Capel Holdings, Ltd. 75,000 79,188
Keppel Corporation, Ltd. 27,000 225,765
Overseas Chinese Banking 23,000 268,920
Overseas Chinese Banking Rights 2,300 -
Sembawamg Corporation, Ltd. 11,000 54,563
Singapore Airlines, Ltd. 14,000 147,817
Singapore Press Holdings 7,200 141,327
Singapore Technologies 52,000 137,812
Straits Steamship Land 28,000 93,651
Straits Steamship Land Warrants 20,250 25,399
Straits Trading Company 20,000 52,438
Sunright, Ltd. 48,000 49,320
United Overseas Bank 26,000 248,724
----------
2,004,493
SOUTH KOREA (0.2%)
Samsung Electronics 687 35,552
TAIWAN (0.7%)
Want Want Holdings 40,000 107,600
THAILAND (11.6%)
Advanced Information Service 3,200 57,843
Bangkok Bank Company, Ltd. 23,700 321,065
</TABLE>
117
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
THAILAND (11.6%) (CONTINUED)
Finance One Company, Ltd. 29,600 $ 191,171
National Finance & Securities Company, Ltd. 31,000 137,951
Phantra Thanakit Company, Ltd. 11,000 76,675
Shinawatra Computer Company 3,500 75,808
Siam Cement Company 1,020 50,050
Siam Commercial Bank Company 20,600 298,539
Telecomasia Corporation* 65,900 144,683
Thai Farmers Bank 27,300 298,878
United Communication Industry 5,200 69,625
-----------
1,722,288
UNITED STATES (2.6%)
Guangshen Railway 1,000 19,125
Korea Electric Power Corporation 3,000 72,750
Korea Mobil Telecom 6,000 96,750
Pohang Iron & Steel 2,500 60,938
Samsung Electronics America 2,641 136,671
-----------
386,234
TOTAL COMMON STOCK (Cost $12,576,794) $13,627,163
</TABLE>
118
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (8.1%)
REPURCHASE AGREEMENT (8.1%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $1,223,594) $1,198,301 $ 1,198,301
-----------
TOTAL SHORT-TERM SECURITIES (Cost $1,198,301) 1,198,301
-----------
TOTAL INVESTMENTS (100.0%) (Cost $13,775,095) $14,825,464
===========
</TABLE>
* Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1996, aggregated $6,713,800 and $6,378,020, respectively.
Net unrealized appreciation for tax purposes aggregated $1,050,393, of which
$1,657,517 related to appreciated investment securities and $607,124 related
to depreciated investment securities. The aggregate cost of securities is
$13,775,094 for tax purposes.
119
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
As of June 30, 1996, the Portfolio had investments in the following industries.
The allocation is based on the percentage of total Portfolio investments.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
INDUSTRY
Agricultural Services 0.5%
Amusement & Recreation Services 4.8
Chemicals & Allied Products 0.5
Communications 8.3
Depository Institutions 21.7
Electric, Gas, & Sanitary Services 5.1
Electronic & Other Electric Equipment 4.2
Food & Kindred Products 1.6
Forestry 0.2
Furniture & Homefurnishings Stores 0.2
Government 8.5
Holding & Other Investment Offices 20.9
Hotels & Other Lodging Places 0.8
Industrial Machinery & Equipment 0.5
Miscellaneous Manufacturing Industries 0.5
Nondepository Institutions 0.5
Oil & Gas Extraction 1.9
Paper & Allied Products 0.7
Primary Metal Industries 0.8
Printing & Publishing 1.0
Railroad Transportation 0.1
Real Estate 4.6
Securities & Commodity Brokers 0.9
Stone, Clay, & Glass Products 1.0
Tobacco Products 2.6
Transportation by Air 3.0
Transportation Equipment 1.9
Water Transportation 1.3
Wholesale Trade - Durable Goods 1.4
-----------
100.0%
===========
</TABLE>
See accompanying notes.
120
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Assets and Liabilities
June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value (cost $5,557,146)
(Note l)--See accompanying schedule $5,566,424
Cash 204
Receivable for investment securities sold 186,006
Interest and other assets 112,138
----------
TOTAL ASSETS 5,864,772
LIABILITIES
Payable for investment securities purchased 52,237
Accounts payable and accrued expenses 23,067
----------
TOTAL LIABILITIES 75,304
----------
NET ASSETS $5,789,468
==========
Net Assets consist of:
Paid-in capital $5,112,018
Undistributed net investment income 615,642
Accumulated undistributed net realized gain on investments 52,530
Net unrealized appreciation on investment securities 9,278
----------
NET ASSETS, for 515,009 shares outstanding $5,789,468
==========
NET ASSET VALUE, offering and redemption price per share $ 11.24
==========
</TABLE>
See accompanying notes.
121
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Operations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 1,726
Interest 728,096
----------
Total investment income 729,822
EXPENSES (Note 2)
Investment advisory and management fees 52,196
Custody and accounting fees 43,207
Professional fees 15,861
Directors' fees and expenses 6,000
Regulatory fees 1,135
Other expenses 7,893
----------
Total expenses before reimbursement 126,292
Less: expense reimbursement (Note 2) (12,689)
----------
Net expense 113,603
----------
Net investment income 616,219
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (Note 1)
Net realized gain on investments 142,020
Change in unrealized depreciation on investment securities 276,653
----------
Net gain on investments 418,673
----------
Net increase in net assets resulting from operations $1,034,892
==========
</TABLE>
See accompanying notes.
122
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
-------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 616,219 $ 533,032
Net realized gain (loss) on investments 142,020 (83,442)
Change in net unrealized depreciation 276,653 (267,375)
-------------------------
Net increase in net assets resulting from operations 1,034,892 182,215
Distributions to shareholders from:
Net investment income (532,957) (300)
Net realized gain on investments (6,625) -
-------------------------
Total distributions (539,582) (300)
Capital share transactions:
Proceeds from sales of shares 1,113,906 9,617,478
Proceeds from reinvested distributions 539,582 300
Cost of shares redeemed (2,601,227) (4,245,280)
-------------------------
Net increase (decrease) in net assets from share
transactions (947,739) 5,372,498
-------------------------
Total increase (decrease) in net assets (452,429) 5,554,413
NET ASSETS
Beginning of period 6,241,897 687,484
-------------------------
End of period (including undistributed net investment
income of $615,642 and $532,957, respectively) $ 5,789,468 $ 6,241,897
=========================
OTHER INFORMATION
Shares:
Sold 103,380 966,462
Issued through reinvestment of distributions 54,452 30
Redeemed (242,988) (435,053)
-------------------------
Net increase (decrease) (85,156) 531,439
=========================
</TABLE>
See accompanying notes.
123
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JUNE 15, 1994
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
--------------------- THROUGH JUNE 30,
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.40 $10.00 $10.00
Income from investment operations:
Net investment income 1.25 0.89 0.00(C)
Net realized and unrealized gain
(loss) on investments 0.54 (0.49) -
-------------------------------------
Total from investment operations 1.79 0.40 -
Less distributions:
From net investment income (0.94) (0.00)(C) -
From net realized gain on investments (0.01) - -
-------------------------------------
Total distributions (0.95) - -
-------------------------------------
Net asset value, end of period $11.24 $10.40 $10.00
=====================================
TOTAL RETURN(A) 18.41% 4.00% 0.79%
RATIOS AND SUPPLEMENTAL DATA(B)
Net assets, end of period (in
thousands) $5,789 $6,242 $ 687
Ratio of expenses to average net
assets 1.85% 1.61% 0.85%
Ratio of net investment income to
average net assets 10.04% 9.28% 0.80%
Ratio of expenses to average net
assets before voluntary expense
reimbursement (Note 2) 2.06% 1.61% 24.78%
Ratio of net investment income to
average net assets before voluntary
expense reimbursement (Note 2) 9.83% 9.28% (23.13%)
Portfolio turnover rate 122% 142% -
</TABLE>
(A) Total returns for periods less than one year are not annualized.
(B) Data expressed as a percentage are annualized as appropriate.
(C) Less than $0.01 per share.
124
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments
June 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------------------
<S> <C> <C>
CORPORATE BONDS (89.8%)
ARGENTINA (4.9%)
Banco De Galicia, 9.00%, due 11/1/2003 $300,000 $270,000
BRAZIL (8.5%)
Iochpe-Maxion S.A., 12.375%, due ll/8/2002(a) 500,000 472,500
MEXICO (5.2%)
Cemex SA de C.V., 9.50%, due 9/20/2001 300,000 289,875
UNITED STATES (71.2%)
Algoma Steel Inc. 130,000 126,100
Aircraft Lease Portfolio Securitization, 12.75%,
due 6/15/2006(a) 50,000 49,875
Asia Pulp and Paper International Finance, Ltd., 11.75%,
due 10/1/2005 55,000 56,375
Big V Supermarkets, 11.00%, due 2/15/2004 20,000 18,675
Cablevision Systems, 9.875%, due 5/15/2006 45,000 43,425
Collins & Aikman, 11.50%, due 4/15/2006 20,000 20,250
Comcast Cellular, 0.0%, due 3/5/2000(b) 40,000 27,400
Comcast Corporation, 9.375%, due 5/15/2005 30,000 28,875
Contintental Cablevision, 9.50%, due 8/1/2013 45,000 48,600
Courtyard by Marriott, 10.75%, due 2/1/2008 50,000 49,000
Crown Paper Company, 11.00%, due 9/1/2005 55,000 52,388
DR Structured Finance (Kmart), 7.60%, due 8/15/2007 92,205 78,520
Echostar Satellite Broadcasting, 13.125%, due 3/15/2004(a) 100,000 61,750
Exide Corporation, 2.90%, due 12/15/2005 5,000 2,725
G-1 Holdings, 0.0%, due 10/1/1998(b) 30,000 24,075
Gaylord Container, 11.50%, due 5/15/2001 15,000 15,338
Gaylord Container, 12.75%, due 5/15/2005(c) 15,000 15,806
</TABLE>
125
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
UNITED STATES (71.2%)(CONTINUED)
Grand Casinos, Inc., 10.125%, due 12/1/2003 $ 10,000 $ 10,250
HMC Acquisition Properties, 9.00%, due 12/15/2007 35,000 31,850
Home Holdings, 8.625%, due 12/15/2003 35,000 21,264
Homeside Inc., 11.25%, due 5/15/2003(a) 15,000 15,450
Host Marriott Travel Plaza, 9.50%, due 5/15/2005 50,000 47,750
Industrias Metallurgicas Pescarmona S.A., 11.75%,
due 3/27/1998(a) 250,000 253,125
Iochpe-Maxion S.A., 12.375%, due 11/8/2002(a) 250,000 236,250
La Quinta Inns Inc., 9.25%, due 5/15/2003 25,000 25,438
Lenfest Communications, 10.50%, due 6/15/2006(a) 90,000 82,125
Lenfest Communications, 8.375%, due 11/1/2005 10,000 10,115
Marcus Cable Company, 14.25%, due 12/15/2005(c) 85,000 52,275
MDC Holdings, 11.125%, due 12/15/2003 15,000 14,325
MFS Communications Company Inc., 8.875%,
due 1/15/2006(c) 115,000 69,575
Midland Cogeneration Venture, 10.33%, due 7/23/2002 7,715 8,130
Midland Cogeneration Venture, 10.33%, due 7/23/2002 12,461 13,131
Midland Funding II, 11.75%, due 7/23/2005 15,000 15,669
Nextel Communications, 9.75%, due 8/15/2004(c) 175,000 102,813
Norcal Waste System, 12.75%, due 11/15/2005 (a) 35,000 36,400
Nuevo Energy Company, 9.50%, due 4/15/2006 35,000 34,475
Occidente Y Caribe Cel, 0.0%, due 3/15/2004(a),(b) 75,000 38,250
Owens-Illinois Inc., 11.00%, due 12/1/2003 30,000 32,250
Philippine Long Distance Telephone, 9.25%, due 6/30/2006 15,000 15,174
Reliance Group Holdings, 9.00%, due 11/15/2000 55,000 54,450
Revlon Worldwide, 0.0%, due 3/15/1998(b) 55,000 45,719
RJR Nabisco Inc., 8.75%, due 8/15/2005 20,000 19,790
</TABLE>
126
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
UNITED STATES (71.2%)(CONTINUED)
Rogers Cablesystems, 10.00%, due 3/15/2005 $ 50,000 $ 49,250
Ministry Finance Russia, 3.00%, due 5/14/2003(a) 2,620,000 1,120,047
SD Warren Company, 12.00%, due 12/15/2004 45,000 47,475
Six Flags Theme Parks, 12.25%, due 6/15/2005(c) 150,000 127,875
Smiths Food & Drug Centers, 11.25%, due 5/15/2007 40,000 40,300
Southland Corporation, 5.00%, due 12/15/2003 45,000 35,100
Stone Container, 10.75%, due 10/1/2002 100,000 101,000
TCI Communications Inc., 7.875%, due 2/15/2026 70,000 61,652
Telewest Plc., 0.0%, due 10/1/2007(c) 60,000 35,400
Time Warner Inc., 10.25%, due 7/1/2006(a) 70 67,690
TLC Beatrice International Holdings, 11.50%, due
10/1/2005 30,000 30,300
Trump Atlantic City, 11.25%, due 5/1/2006 30,000 30,150
Unisys Corporation, 12.00%, due 4/15/2003(a) 70,000 71,575
Viacom International, 8.00%, due 7/7/2006 75,000 68,625
Westpoint Stevens, 9.375%, due 12/15/2005 75,000 72,375
----------
3,964,034
TOTAL CORPORATE BONDS (Cost $4,987,131) 4,996,409
</TABLE>
127
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-----------------------
<S> <C> <C>
SHORT-TERM SECURITIES (10.2%)
REPURCHASE AGREEMENT (10.2%)
State Street Bank, 4.00%, due 7/1/1996
(Dated 6/28/96, collateralized by U.S. Treasury
Bond, 9.25%, due 2/15/2016, value $582,969) $570,015 $ 570,015
----------
TOTAL SHORT-TERM SECURITIES (Cost $570,015) 570,015
----------
TOTAL INVESTMENTS (100.0%) (Cost $5,557,146) $5,566,424
==========
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities excluding short-term securities, for the year
ended June 30, 1996, aggregated $6,713,800 and $8,634,617, respectively. Net
unrealized appreciation for tax purposes aggregated $5,477, of which $65,841
related to appreciated investment securities and $60,364 related to depreciated
investment securities. The aggregate cost of securities is $5,560,947 for tax
purposes.
128
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
As of June 30,1996, the Portfolio had investments in the following industries.
The allocation is based on the percentage of total Portfolio investments.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
INVESTMENTS
-----------
<S> <C>
INDUSTRY
Agricultural Production - Crops 0.4%
Amusement & Recreation Services 2.5%
Apparel & Other Textile Products 1.3%
Business Services 1.3%
Chemicals & Allied Products 0.8%
Communications 10.8%
Depository Institutions 4.9%
Electric, Gas, & Sanitary Services 1.3%
Electronic & Other Electric Equipment 1.1%
Finance, Taxation & Monetary Policy 20.5%
Food Stores 1.4%
General Building Contractors 0.3%
Government 10.2%
Holding & Other Investment Offices 2.2%
Hotels & Other Lodging Places 2.2%
Industrial Machinery & Equipment 12.7%
Insurance Carriers 0.4%
Motion Pictures 1.2%
Nondepository Institutions 4.0%
Oil & Gas Extraction 0.6%
Paper & Allied Products 2.7%
Primary Metal Industries 2.3%
Printing & Publishing 1.2%
Stone, Clay, & Glass Products 5.8%
Textile Mill Products 0.4%
Wholesale Trade - Durable Goods 6.0%
Wholesale Trade - Nondurable Goods 1.5%
-----
100.0%
=====
</TABLE>
129
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
(a) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
(b) Deferred interest obligation; currently zero coupon under terms of initial
offering.
(c) Variable rate note or floating note; rate shown effective at 6/30/96.
See accompanying notes.
130
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements
June 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Legends Fund, Inc. (the "Fund") was formed as a Maryland corporation on July
22, 1992. The Fund is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund has ten
investment portfolios (the "Portfolios"): Renaissance Balanced, Zweig Asset
Allocation, Nicholas-Applegate Balanced, Harris Bretall Sullivan & Smith Equity
Growth, Dreman Value, Zweig Equity (Small Cap), Pinnacle Fixed Income (formerly
known as Mitchell Hutchins Fixed Income), ARM Capital Advisors Money Market
(formerly known as Mitchell Hutchins Money Market), Morgan Stanley Asian Growth,
and Morgan Stanley Worldwide High Income. SBM Financial Services, Inc. ("SBM
Financial Services"), a registered broker-dealer under the Securities Exchange
Act of 1934 and a member of the National Association of Securities Dealers,
Inc., distributes shares of the Fund to the variable annuity separate accounts
of Integrity Life Insurance Company ("Integrity") and its wholly owned
subsidiary, National Integrity Life Insurance Company ("National Integrity").
ARM Capital Advisors, Inc. ("ARM Capital Advisors") a SEC-registered investment
adviser, provides management services to the Fund pursuant to a Management
Agreement (the "Management Agreement") effective February 1, 1996. Integrity
previously served in this capacity for the Fund.
ARM Financial Group, Inc. ("ARM") is the ultimate parent of ARM Capital
Advisors, Integrity, National Integrity, and SBM Financial Services. ARM
specializes in the asset accumulation business, providing retail and
institutional customers with products designed to serve the growing retirement
and long-term savings markets as well as providing other asset management
services. At June 30, 1996, ARM had approximately $6.6 billion of assets under
management.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
131
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITY VALUATION
Stocks that are traded on a national exchange are valued at the last sale price
on the exchange on which they are primarily traded, or, it there is no sale, at
the mean between the current bid and asked prices. Over-the-counter securities
for which market quotations are readily available are valued at the mean of the
current bid and asked prices.
Short-term debt securities with remaining maturities of 61 days or more for
which reliable quotations are readily available are valued at current market
quotations. Short-term investments with remaining maturities of 60 days or less
are valued using the amortized cost method of valuation, which approximates
market value. For the ARM Capital Advisors Money Market Portfolio ("Money Market
Portfolio"), portfolio securities are valued using the amortized cost method of
valuation. Bonds and other fixed-income securities (other than short-term
securities described above) are valued using market quotations provided by a
pricing service under procedures approved by the Fund's Board of Directors.
Futures contracts and options thereon and option contracts traded on a
commodities exchange or board of trade are valued at the closing settlement
price. Futures and option positions or any other securities or assets for which
reliable market quotations are not readily available or for which valuation
cannot be provided by a pricing service approved by the Board of Directors of
the Fund are valued at fair value as determined in good faith by the Board of
Directors.
SECURITY TRANSACTIONS
Securities transactions are accounted for as of trade date net of brokerage
fees, commissions, and transfer fees. Interest income is accrued daily. Dividend
income is recorded on the ex-dividend date. Premiums and discounts on securities
purchased are amortized using the effective interest method. Realized gains and
losses on sales of investments are determined on the basis of nearest average
for all of the portfolios except Zweig Asset Allocation Portfolio, which uses
the first-in-first-out method.
Securities purchased on a when-issued or delayed-delivery basis may be settled
a month or more after the trade date. Securities purchased on a when-issued
basis are included in the portfolio and are subject to market value fluctuations
during the period. At June 30,
132
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1996, the Pinnacle Fixed Income Portfolio had segregated specific assets to be
utilized to settle its outstanding commitments related to securities purchased
on a delayed-delivery basis.
FEDERAL INCOME TAX MATTERS
The Fund complied with the requirements of the Internal Revenue Code applicable
to regulated investment companies and distributed its taxable net investment
income and net realized gains. Therefore, no provision for federal or state
income tax is required.
At June 30, 1996, the Pinnacle Fixed Income Portfolio and the Morgan Stanley
Asian Growth Portfolio have accumulated net realized capital loss carryovers of
$96,149 (expiring in 2003 and 2004) and $78,248 (expiring in 2004),
respectively.
DIVIDEND DISTRIBUTIONS
Dividends from net investment income and distributions from net realized gains
are declared and distributed annually, except that the Money Market Portfolio
declares dividends from net investment income each business day and distributes
them monthly. Dividends and distributions are recorded on the ex-dividend date.
All dividends are reinvested in additional full and fractional shares of the
related Portfolios.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences, which may result in distribution reclassifications, are
primarily due to differing treatments for foreign currency transactions, futures
transactions, passive foreign investment companies, capital losses, and losses
deferred due to wash sales.
FUTURES CONTRACTS
Certain Portfolios may enter into futures contracts to protect against adverse
movement in the price of securities in the Portfolio or to enhance investment
performance. When entering into a futures contract, changes in the market price
of the contracts are recognized as unrealized gains or losses by marking each
contract to market at the end of each trading day through a variation margin
account. When a futures contract is closed, the Portfolios record a gain or loss
equal to the difference between the value of the
133
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contract at the time it was opened and the value at the time it was closed. The
face amount of the futures contracts shown in the Schedule of Investments
reflects each contract's value at June 30, 1996.
The use of futures contracts involves, to varying degrees, elements of market
risk in excess of the amount recognized in the statement of assets and
liabilities. The Portfolios bear the market risk which arises from any changes
in contract values.
FOREIGN CURRENCY TRANSLATION
Investment securities and other assets and liabilities denominated in a foreign
currency are translated into U.S. dollars based upon current exchange rates at
year end. Purchases and sales of securities, income receipts, and expense
payments are translated into U.S. dollars at the prevailing rate on the
respective dates of the transactions. The effects of changes in foreign currency
exchange rates on investments in securities are included in net realized and
unrealized gain or loss on investments in the Statement of Operations.
The Morgan Stanley Asian Growth, the Morgan Stanley Worldwide High Income, and
the Pinnacle Fixed Income Portfolios may engage in forward foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities, and to protect the value of specific portfolio positions. Forward
foreign currency exchange contracts involve elements of market risk in excess of
the amount reflected in the statement of assets and liabilities. The Portfolios
bear the risk of an unfavorable change in the foreign exchange rate underlying
the forward contract. Additionally, losses may arise if the counterparties do
not perform under the contracts' terms.
Morgan Stanley Asian Growth Portfolio has open forward foreign exchange
contracts at June 30, 1996 to hedge against changes in the foreign currency
exchange rates between the trade and settlement dates.
134
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Morgan Stanley Asian Growth and Morgan Stanley Worldwide High Income
Portfolios have relatively large investments in countries with limited or
developing capital markets that may involve greater risk than investments in
more developed markets and as a result the prices of such investments may be
volatile. The consequences of political, social, or economic changes in these
markets may have disruptive effects on the market prices of the Portfolios'
investments and the income they generate.
OTHER
Organization costs of $11,416 incurred during 1994 were deferred and are being
amortized over five years by both the Morgan Stanley Asian Growth and Morgan
Stanley Worldwide High Income Portfolios.
On August 25, 1994, Integrity purchased for its own account approximately
450,000 shares of the Morgan Stanley Worldwide High Income Portfolio, at the net
asset value on such date, for an aggregate purchase price of $4.5 million. As of
June 30, 1996, approximately 73,000 shares, having a fair value of $800,000 and
constituting 14.1% of the outstanding shares of the Portfolio, were held by
Integrity for its own account.
On April 2, 1996, Integrity purchased for its own account approximately 479,000
shares of the Pinnacle Fixed Income Portfolio, at the net asset value on such
date, for an aggregate purchase price of $5.1 million. As of June 30, 1996,
approximately 478,000 shares, having a fair value of approximately $5.1 million
and constituting 50.8% of the outstanding shares of the Portfolio were held by
Integrity for its own account.
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
ARM Capital Advisors entered into a sub-advisory agreement with a registered
investment adviser ("Sub-Adviser") for each of the Portfolios. ARM Capital
Advisors, not the Fund, pays the sub-advisory fee to each of the Sub-Advisers.
On February 16, 1996, the Board of Directors of the Fund voted to terminate the
sub-advisory agreements with Mitchell Hutchins Asset Management, Inc., the Sub-
Adviser to the Mitchell Hutchins Fixed Income Portfolio and the Mitchell
Hutchins Money Market Portfolio, respectively. The two sub-advisory agreements
were terminated effective March 31, 1996. ARM Capital Advisors entered into a
sub-advisory contract with J.P. Morgan Investment Management, Inc. to serve as
Sub-Adviser to the Pinnacle Fixed Income Portfolio ("Fixed Income Portfolio")
(formerly known as Mitchell Hutchins Fixed
135
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
Income Portfolio) effective April 1, 1996. The Board of Directors also voted to
reduce the annual advisory fees relating to the Fixed Income Portfolio from .90%
to .70% of average net assets, effective as of April 1, 1996. ARM Capital
Advisors will compensate the Sub-Adviser of the Fixed Income Portfolio at the
annual rate of .50% of average net assets of the Portfolio. As of April 1, 1996,
ARM Capital Advisors became the sole investment manager of the Money Market
Portfolio (formerly known as the Mitchell Hutchins Money Market Portfolio). The
Board of Directors also voted to reduce the annual advisory fee relating to the
Money Market Portfolio from .65% to .50% of average net assets, effective as of
April 1, 1996.
Following a change of control at Dreman Value Management, L.P., ("DVM, L.P.")
the sub-advisory agreement between the Fund's manager and DVM, L.P.
automatically terminated. Dreman Value Advisors, Inc., as successor to DVM,
L.P., agreed with the Fund's manager to continue to provide sub-advisory
services to the Portfolio on an interim basis without compensation until such
time as a sub-advisory agreement was approved by the Portfolio's shareholders.
Sub-advisory fees, therefore, were not paid or accrued from September 1, 1995
through November 6, 1995 for the Dreman Value Portfolio.
Listed below are management and sub-advisory fees payable as a percentage of
average net assets.
<TABLE>
<CAPTION>
MANAGEMENT SUB-ADVISORY
PORTFOLIO FEE FEE
---------------------------------------------------------------------------
<S> <C> <C>
Renaissance Balanced 0.65% 0.50%
Zweig Asset Allocation 0.90 0.75
Nicholas-Applegate Balanced 0.65 0.50
Harris Bretall Sullivan & Smith Equity Growth 0.65 0.50
Dreman Value 0.65 0.50
Zweig Equity (Small Cap) 1.05 0.90
Pinnacle Fixed Income 0.70 0.50
ARM Capital Advisors Money Market 0.50 --
Morgan Stanley Asian Growth 1.00 0.85
Morgan Stanley Worldwide High Income 0.85 0.70
</TABLE>
136
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
Under the Management Agreement, ARM Capital Advisors provides certain management
services to the Fund, and the Fund is responsible for certain of its direct
operating expenses. ARM Capital Advisors has voluntarily agreed to reimburse
each of the Portfolios for operating expenses (excluding management fees) above
an annual rate of 0.5% of average net assets, with the exception of the two
Morgan Stanley Portfolios, for which the annual voluntary expense limitation
(excluding management fees) is 1.0% of average net assets. ARM Capital Advisors
has reserved the right to withdraw or modify its policy of expense reimbursement
for the Portfolios.
The Renaissance Balanced, Zweig Asset Allocation, Nicholas-Applegate Balanced,
Harris Bretall Sullivan & Smith Equity Growth, Dreman Value, Morgan Stanley
Asian Growth and Zweig Equity (Small Cap) Portfolios placed a portion of their
transactions with brokerage firms which may be considered affiliates of the Fund
under the Investment Company Act of 1940. The commissions paid to these firms
were approximately $104,000 in the aggregate during the fiscal year ended June
30, 1996.
Certain officers and directors of the Fund are also officers of ARM, SBM
Financial Services, ARM Capital Advisors, Integrity and National Integrity. The
Fund does not pay any amounts to compensate these individuals.
3. CAPITAL SHARES
At June 30, 1996, the Fund had authority to issue one billion (1,000,000,000)
shares of common stock, $.001 par value each, in any class or classes as
determined by the Board of Directors. At such date, the Board of Directors had
authorized ten classes of shares, as follows: 55,000,000 shares each for the
Renaissance Balanced, Zweig Asset Allocation, Nicholas-Applegate Balanced,
Harris Bretall Sullivan & Smith Equity Growth, Dreman Value, Zweig Equity (Small
Cap), Pinnacle Fixed Income, Morgan Stanley Asian Growth, and Morgan Stanley
Worldwide High Income Portfolios and 100,000,000 shares for the Money Market
Portfolio.
At June 30, 1996, Integrity, through its Separate Account II, and National
Integrity, through its Separate Account II, were the record owners of all the
outstanding shares of the Fund.
137
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The Legends Fund, Inc.
Portfolio Performance
June 30, 1996
RENAISSANCE BALANCED PORTFOLIO
Comparison of change in value of $10,000 investment in
Renaissance Balanced Portfolio, the S&P 500, and a composite index
consisting of 60% of the S&P 500, 30% of Lehman Brothers
Government/Corporate Bond Index, and 10% of 90-day Treasury Bill Yield
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
60% S&P
30% Lehman
Renaissance Balanced 10% 90-Day Treasury S&P
Portfolio Bill Yield 500
-------------------- ------------------- -------
<S> <C> <C> <C>
12/14/92 $10,000 $10,000 $10,000
6/30/96 $13,454 $15,036 $17,032
</TABLE>
. Average annual total return since inception: 8.72%.
. Total return for the fiscal year ended June 30, 1996: 12.68%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992. Index performances
for the month of December 1992 have been prorated to conform to the
commencement date of the Portfolio (except for the S&P 500).
. Past performance is not predictive of future performance.
Stocks moved higher during the second quarter, as the S&P 500 posted all-time
highs during May 1996. Inflows into stock mutual funds totaled $122 billion in
the first five months of 1996 (compared to $128 billion during all of 1995) and
helped push stocks to all-time highs.
138
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The Legends Fund,Inc.
Portfolio Performance (continued)
June 30, 1996
RENAISSANCE BALANCED PORTFOLIO (CONTINUED)
Bond yields moved higher as well, with long-term Treasury yields rising above
7%, their highest level since August 1995. The bond market fears excessive
economic growth, since it raises the possibility of the Federal Reserve acting
to raise interest rates. News of strong retail and auto sales helped to send
bond yields higher. By contrast, inflation remained contained, with the core
rate of inflation (the Consumer Price Index, less food and energy components)
rising at only a 2.67% rate through the end of May 1996. Real bond yields (bond
yields minus inflation) now stand at unusually high levels.
Funds were shifted out of the stock market in the Portfolio during May 1996 as a
result of the strength in stock prices and increases in interest rates.
Capturing these gains was prudent since stocks historically struggled during
periods of rising interest rates, and the rise in bond yields this year has
increased the level of competition for the stock market. In contrast, bond
yields now look very attractive, and the Portfolio acted to increase the bond
allocation to 40% during the second quarter of the calendar year, focusing on
Treasury issues with about 10 years to maturity.
From a relative standpoint, bonds appear equally attractive in price relative to
stocks. With today's 10-year Treasury note yield of 6.71% and an S&P 500
dividend yield of 2.20%, the ratio of 10-year Treasury note yields to the S&P
500 now stands at 3.05%, its highest level since 1987. Historically, this yield
ratio has been a reasonably good predictor of subsequent relative performance
between stocks and bonds. As the ratio rises, the likelihood of bonds
outperforming stocks rises as well. At today's levels, the ratio suggests a good
investment opportunity in bonds.
The Portfolio is now allocated approximately 40/40/20 among stocks, bonds and
cash equivalents. Stock positions remain focused on issues selling at attractive
valuations with strong prospects for increased earnings. The Treasury note
positions are poised to capture the benefit of any future rate declines while
still providing an attractive level of yield "compensation." The defensive cash
allocation will be used to capture the benefits of any possible stock or bond
market decline.
139
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The Legends Fund, Inc.
Portoflio Peformance (continued)
June 30, 1996
ZWEIG ASSET ALLOCATION PORTFOLIO
Comparison of change in value of $10,000 investment in
Zweig Asset Allocation Portfolio and the S&P 500
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Zweig Asset Allocation Portfolio S&P 500
-------------------------------- -------
<S> <C> <C>
12/14/92 $10,000 $10,000
06/30/96 $14,620 $17,032
</TABLE>
. Average annual total return since inception: 11.31%.
. Total return for the fiscal year ended June 30, 1996: 11.06%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992.
. Past performance is not predictive of future performance.
140
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)
For the twelve months ended June 30, 1996, the Portfolio returned 11.06%, versus
25.98% for the S&P 500.
Our research has deteriorated to a low-neutral reading as our models have
indicated rising risk. Due to the strengthening U.S. economy and the increased
threat of inflation, bonds have not been performing well. This usually affects
the stock market adversely. Investor sentiment is poor as public optimism
continues to rise. There are signs of excessive speculation in everything from
the number of investment clubs to the low percentage of cash held by most mutual
funds. Market momentum indicators have turned negative as well.
Due to a stock market that favored high-flying stocks, the Portfolio's results
lagged the benchmarks. Our stock selection process, which pays equal homage to
growth and value factors, would not allow us to buy what our model considered to
be risky stocks, yet these stocks have led the market so far this year. Though
not necessarily predictive, this is often the case during the latter stages of a
bull market.
The outperformance by the less stable segments of the market is illustrated by
the performance of the retail sector (excluding grocery stores) of the S&P 500.
This sector gained 30% during the first half of 1996. The average price/earnings
ratio of these stocks is 29, while their average earnings growth rate is only
4.1%. In other words, one of the strongest performing sectors in the market cost
an average 17% more than the S&P 500, yet grew less than half as much. Simply
put, people are paying a lot for these stocks, given the stocks' earnings
trends.
It is instructive of the portfolio style to note the structure of the Portfolio
today compared with a year ago, and how it got from there to here. Though the
Portfolio's actual market exposure is not much different now than a year ago,
how it got to the respective mid-year points could not be more different. A year
ago, bonds were rallying and the supply of stock was rapidly shrinking. We
systematically increased the Portfolio's market exposure through the first half
of 1995. This year, however, we have been steadily reducing its market exposure.
The character of the Portfolio's equity exposure is also quite different from a
year ago. At June 30, 1995, we heavily favored technology stocks. At June 30,
1996, technology holdings are well below
141
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)
the market's weighting. We have also increased investment in defensive industry
groups, such as utilities, a sector which made up less than 5% of the Portfolio
a year ago.
The point of all this is the Portfolio's flexibility. It is evident in both our
asset allocation and our stock selection. Personal comfort is not an issue in
determining the asset mix or industry exposure. This is one of the benefits of a
quantitative style. If our indicators warn that risk levels are rising, we will
cut back. If our stock selection model signals that utility stocks have the best
combination of growth and value characteristics, we will invest there.
NICHOLAS-APPLEGATE BALANCED PORTFOLIO
Comparison of change in value of $10,000 investment in Nicholas-Applegate
Balanced Portfolio, the S&P 500, and a composite index consisting of
60% of the S&P 500 and 40% of Lehman Brothers Intermediate Treasury Bond Index.
60% S & P 500
Nicholas-Applegate 40% Lehman Intermediate
Balanced Portfolio Treasury Bond Index S & P 500
------------------ ----------------------- ---------
12/14/92 $10,000 $10,000 $10,000
6/30/96 $15,129 $14,997 $17,032
142
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
NICHOLAS-APPLEGATE BALANCED PORTFOLIO (CONTINUED)
. Average annual total return since inception: 12.28%.
. Total return for the fiscal year ended June 30, 1996: 13.53%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992.
. Past performance is not predictive of future performance.
Several forces which helped move stocks higher include stronger than expected
economic growth, strong cash flows into equity mutual funds and an overall
positive environment for corporate earnings and profit growth. Investors this
year have focused their attention on solid earnings growth. This was evident as
growth companies outperformed value companies. The Russell 1000 Growth Index
returned 6.4% and 12.1% for the quarter ended and six months ended June 30,
1996, respectively. This compared to value stocks, as evidenced by the Russell
1000 Value Index, which returned 1.8% and 7.8% for the same time periods,
respectively. This compares favorably to the broad equity market as illustrated
by the S&P 500 which returned 4.5% for the quarter ended June 30, 1996 and 10.2%
for the first six months of 1996. Some of the top performing sectors during the
quarter included retail, based on continued strong sales; utilities, which had a
strong June as the broad market weakened; and consumer non-durables. Technology
stocks also did well despite a difficult June, especially among software and
technology services-related companies. Some of the bottom performing sectors
included consumer durables and raw materials, both affected by rising interest
rates and inflation uncertainty.
For bond investors, the year has been much more difficult. 1996 began with
positive expectations--a slow growth economy, declining interest rates and
little inflation worry. Several developments, however, weakened these
expectations as well as bond market confidence. First, the failure of Congress
and the Clinton administration to reach an agreement on a seven year plan which
would have culminated in a balanced federal budget. Second, accelerating
economic growth, reflected in surprising employment gains began in February and
continued into April and May. Finally, due to bad winter weather, oil and
natural gas prices soared resulting in increased inflation fears. With this
backdrop, the 30-year U.S. government bond, which began the year yielding 5.9%,
rose to over 7% during March and April and closed June below that level. Lehman
Brothers Government/Corporate Index returned 0.5% during the second quarter
ended June 30, 1996 and -1.9% over the first six months of 1996. At the
beginning of May 1996, within our balanced portfolios, we shortened the average
duration of the U.S. Government Securities from 5.72 years to 4.91 years.
143
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
NICHOLAS-APPLEGATE BALANCED PORTFOLIO (CONTINUED)
At Nicholas-Applegate, we build portfolios one growth stock at a time. Our
philosophy focuses on identifying dynamic growth companies managing change and
growing their earnings and businesses today, not just the typical growers of the
past. Our disciplined approach systematically evaluates 4,000 domestic companies
based upon their earnings growth, sustainability of earnings growth and strong
relative price strength in order to identify the most attractive growth stocks.
As a result, at the end of June 1996, we continued to have a significant
technology weighting across all of our portfolios. We have sold, however,
several semi-conductor companies and purchased several software issues based
upon their strong earnings growth. Other areas where we continue to find good
growth opportunities are healthcare services and consumer services. Consistent
with our strategy, the Nicholas-Applegate Balanced Portfolio remained invested
approximately 60% in growth stocks, 37% U.S. Governments and the remainder in
cash.
As the equity market has continued to advance for the past seven quarters,
headlines are once again asking, "Have stock prices peaked?" For Americans
today, we believe the true risk is not the loss of principal but the loss of
purchasing power. "How will I send my child to college? Will I have enough money
to retire?" Stocks have historically been a powerful tool to increase purchasing
power over time. In the short term, we believe it is anyone's guess as to how
stock prices might perform. However, for the long-term investor concerned about
building wealth for the future, we are committed to identifying the most dynamic
growth companies we believe will help you achieve investment success.
144
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
Comparison of change in value of $10,000 investment in
Harris Bretall Sullivan & Smith Equity Growth Portfolio and the S&P 500
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
HARRIS BRETALL SULLIVAN &
SMITH EQUITY GROWTH PORTFOLIO S&P 500
----------------------------- -------
<S> <C> <C>
12/14/92 $10,000 $10,000
6/30/96 $14,597 $17,032
</TABLE>
. Average annual total return since inception: 11.21%.
. Total return for the fiscal year ended June 30, 1996: 13.59%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992.
. Past performance is not predictive of future performance.
For the fiscal year ended June 30, 1996, the Portfolio finished up 13.59%. This
follows the fiscal year ended June 30, 1995, when the Portfolio finished up
37.29%. Double digit returns, as we have enjoyed, occur most often during
economic periods we call "The Virtuous Cycle," a period of time when interest
rates are stable or declining, earnings are rising, and price/earnings ratios
are expanding. Our long-term forecast is for the Virtuous Cycle scenario, and
hence, we remain bullish for the long-term.
145
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
However, part of the reason performance eased from 37.29% to 13.59% for the
fiscal years ended June 30, 1995 and 1996, respectively, is the interruption of
the Virtuous Cycle scenario. Market forces drove interest rates higher during
the Fall of 1995 as the negotiations for the Federal Budget broke down.
Technology stocks, which led the Portfolio to the great return for 1995, came
under selling pressure in 1996. Corporate earnings continued on a positive
trend, but concerns have surfaced that the rate of growth will slow in the year
ahead. Presently, economists and market strategists are debating the future
growth of the economy.
While we remain confident in the Virtuous Cycle forecast, an economic slowdown
in the short-term seems likely. Over the last twelve months, stock prices, to
some degree, have reflected this economic slowdown. While this pattern could
persist over the short-term, our longer outlook suggests that stocks are fairly
priced now, and should they fall further, would represent an enticing long-term
opportunity.
Our commitment to the technology sector continues. Because of the fast-growing
nature of this sector, there exists an element of volatility to the prices of
these companies. Since our equity selection process seeks high-quality
companies, we invest in the better capitalized, more seasoned enterprises.
Moreover, we combined this quantitative analysis with qualitative conclusions
derived from the personal meetings held regularly between our analytical team
and the senior management of the companies in the technology industry.
Currently, the Portfolio is overweighted in technology relative to the S&P 500
index; we expect that to continue as a characteristic of the Portfolio. Indeed,
we contend that over the next decade, the technology sector will grow to become
20% to 25% of the U.S. Gross Domestic Product ("GDP").
We strongly encourage investors to take the long-term approach. We believe that
by the end of the decade, the Dow Jones Industrial Average will approach 10,000.
When that occurs, investors who bought high quality growth stock portfolios in
1996 and 1997 should be well rewarded.
146
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
DREMAN VALUE PORTFOLIO
Comparison of change in value of $10,000 investment in
Dreman Value Portfolio and the S&P 500
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
DREMAN VALUE PORTFOLIO S&P 500
----------------------- -------
<S> <C> <C>
12/14/92 $10,000 $10,000
6/30/96 $16,909 $17,032
</TABLE>
. Average annual total return since inception: 15.97%.
. Total return for the fiscal year ended June 30, 1996: 31.22%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992.
. Past performance is not predictive of future performance.
The second quarter of 1996 saw the U.S. equity market repeat its solid first
quarter performance, rising 4.5% for three months and 10.0% in the first half of
the year. Our equity portfolios have trailed the S&P 500 over the past six
months as growth stocks have outpaced their value stocks counterparts.
The most significant dynamics through June have occurred not in the equity
market, but in the bond market. Since December 31, 1995, yields on 30-year U.S.
Treasury Bonds have risen from 5.95% to 7.14% at June 30, 1996. To date, we
have seen little impact on the equity market from this increase in rates.
147
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
DREMAN VALUE PORTFOLIO (CONTINUED)
Over the balance of the year, we expect the Federal Reserve to possibly increase
short-term interest rates. We also anticipate solid economic growth, though not
at the same brisk pace that the first half has seen.
Specific to the Portfolio, we have been looking to reduce positions in the
pharmaceutical stocks. While earnings have increased in a familiar fashion, the
companies' respective stock prices have shot up dramatically. As such, most of
the stocks are selling at price-to-earnings multiples at or above the overall
market.
New portfolio additions have come from two areas. First, we purchased several
stocks that we categorize as "soft" cyclicals. These include Pitney Bowes,
Burlington Northern and Westinghouse. We expect these types of companies to
perform well in this expanding economy. The second area, is energy, where we
have increased our exposure especially to companies that have large natural gas
operations.
While we do not expect our equity portfolio to repeat its 30% plus gain of 1995,
we certainly expect the last half of 1996 (being an election year) to yield
solid equity market returns.
148
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
Comparison of change in value of $10,000 investment in
Zweig Equity (Small Cap) Portfolio and the Value Line Geometric Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
ZWEIG EQUITY VALUE LINE
(SMALL CAP) GEOMETRIC
PORTFOLIO INDEX
------------ ----------
<S> <C> <C>
12/14/92 $10,000 $10,000
6/30/96 $14,102 $13,509
</TABLE>
. Average annual total return since inception: 10.18%.
. Total return for the fiscal year ended June 30, 1996: 18.69%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on December 14, 1992.
. Past performance is not predictive of future performance.
For the twelve months ended June 30, 1996, the Portfolio returned 18.69% versus
13.80% for the Value Line Geometric Index.
Our research has deteriorated to a low-neutral reading as our models have
indicated rising risk. Due to the strengthening U.S. economy and the increased
threat of inflation, bonds have not been performing well. This usually affects
the stock market adversely. Investor sentiment is poor as public optimism
continues to rise. There are signs of excessive speculation in everything from
the number
149
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
ZWEIG EQUITY (SMALL CAP) PORTFOLIO (CONTINUED)
of investment clubs to the low percentage of cash held by most mutual funds.
Market momentum indicators have turned negative as well.
Part of the reason that the Portfolio's results lagged the benchmarks was that
the environment for selecting stocks was one of the least friendly, for our
style, that we have seen in some time.
We select stocks using a computer model that analyzes companies based on a
number of different growth and value criteria, and ranks them accordingly.
Simply put, we tend to favor lower price/earnings ratios (or the amount a stock
costs relative to its profits) and higher earnings growth rates. Obviously,
these extreme combinations rarely can be found in individual stocks, since
companies with strong growth rates generally command higher valuations. But by
focusing on stocks with favorable relationships between growth and value
characteristics, we are able to construct a portfolio which consistently has
higher growth than the market for a lower price--a much more favorable
risk/reward relationship.
The environment this year, unfortunately, has been characterized by
outperformance in the riskier and less fundamentally stable segments of the
market. For example, the Russell 2000, a widely used barometer of small-company
stock performance, can be broken down by industry group. Consider its Consumer
Discretionary and Service sector, which accounts for about 17% of the index and
was up approximately 23% through June. This sector's average price/earnings
ratio is almost twice that of the S&P 500, while its earnings growth is only 15%
to 20% better than that of the market. In other words, one of their strongest
performing sectors of the market had very little in the way of improving profits
to support investor enthusiasm. Needless to say, given our style, stocks with
this type of valuation and earnings growth will be unlikely to have significant
representation in the Portfolio. Though periods with this type of activity occur
from time to time, experience has shown that they are short-lived and that our
balanced, disciplined approach works well over time.
150
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
PINNACLE FIXED INCOME PORTFOLIO
Comparison of change in value of $10,000 investment in
Pinnacle Fixed Income Portfolio and the Salomon
Brothers Broad Investment-Grade Bond Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Salomon Bros.
Broad Investment-
Pinnacle Fixed Income Grade Bond Index
--------------------- -----------------
<S> <C> <C>
12/14/92 $ 10,000 $ 10,000
6/30/96 $ 11,599 $ 12,413
</TABLE>
. Average annual total return since inception: 4.34%.
. Total return for the fiscal year ended June 30, 1996: 3.29%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on January 5, 1993. Index performance has
been prorated to conform to the commencement date of the Portfolio.
. Past performance is not predictive of future performance.
Interest rates continued upward during the quarter as economic strength
generated uncertainty regarding Federal Reserve action. The March and May 1996
employment numbers showed that the economy added 140,000 and 348,000 new
positions, respectively--significantly more than expected in each instance. The
first quarter GDP report offered that the economy grew at a 2.8% pace during the
first three months of the year, although 1.7% was expected. Inflation data
remained benign throughout the period.
J.P. Morgan Investment Management assumed management of the Portfolio on April
1, 1996. Duration had a neutral effect on performance. In the beginning of the
quarter, the duration was
151
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
PINNACLE FIXED INCOME PORTFOLIO (CONTINUED)
longer than the benchmark. However, we scaled back to a neutral position in May
1996 and eventually ended the quarter slightly longer than the index. Emphasis
on yield-advantaged sectors of the market contributed to the portfolio's
performance.
We will maintain the Portfolio's overweight in mortgage-backed and asset-backed
securities based on expectations of stable spreads relative to U.S. Treasuries.
We expect a Federal Reserve interest rate increase over the next few months, and
we anticipate a flattening of the yield curve caused by rising short-term
interest rates. Thus, we plan to lengthen duration on further weakness and will
consider shortening duration if the market strengthens.
MORGAN STANLEY ASIAN GROWTH PORTFOLIO
Comparison of change in value of $10,000 investment in
Morgan Stanley Asian Growth Portfolio and the MSCI Combined
Far East Free Ex-Japan Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Morgan Stanley MSCT Combined
Asian Growth Far East Free
Portfolio Ex-Japan Index
-------------- --------------
<S> <C> <C>
12/14/92 $10,000 $10,000
6/30/96 $10,912 $11,310
</TABLE>
152
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
. Average annual total return since inception: 4.36%.
. Total return for the fiscal year ended June 30, 1996: 7.19%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on June 15, 1994.
. Past performance is not predictive of future performance.
The Hong Kong market rose over 6.6% and almost 11% during the first and second
half of the fiscal year, respectively. However, during the second quarter of
1996 the market faltered. Sentiment on Hong Kong continued to be weighed down by
fears of rising interest rates in the U.S. and by uncertainties associated with
the return of the territory to China next year. With 1997 approaching, the
stepping up of Chinese interests in Hong Kong becomes increasingly evident. This
was manifested in the restructuring of shareholdings in Dragonair and Cathay
Pacific with China National Aviation Corporation (CNAC) becoming the single
largest shareholder in Dragonair and Citi Pacific stepping up interest in Cathay
Pacific. The residential market recovered strongly with prices rising by 10-15%,
helped by lower mortgage rates. Capital values and rents of office properties
also appeared to have bottomed out. Hong Kong Telecom faced heavy selling
pressure due to uncertainties over possible regulatory changes and a more
competitive operating environment in the future.
After a decline of over 5.6% during the first half of the fiscal year, the
Malaysian market surprised many with a rally--the market advanced over 9% during
the second half. By June, the market in Malaysia and the surprise return of
Tengku Razzaleigh (former opposition rival to the Prime Minister) to the United
Malay National Organization have fortified Mahathir's stronghold on the dominant
political party and reassured him of an unassailable position in the upcoming
party elections at the end of the year. On the economic front, trade statistics
through the year to April 1996 appear to indicate a bottoming out of the current
account deficit. However, a more convincing reduction in the current account
from the present 8% to GDP is only expected in 1998. Loan growth remained
alarmingly high at above 30%, which prompted the Central Bank to raise the
Statutory Reserve Ratio twice this year to 13.5% (+2%). In addition, rising
interest rates, a crunch in margin financing for speculative shares combined
with an impending dilution in weighting in the rebalanced benchmark Morgan
Stanley Capital International ("MSCI") indices caused weakness in share prices
in June.
The Singapore market gained 6.71% in the first half of the fiscal year as a
result of solid economic growth, low inflation and a strong electronics sector.
During the second half of the fiscal year, the market was flat due to the
Government's announcement of anti-speculation measures in May to cool
153
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
the residential property market resulting in heavy selling of residential
property stocks. Meanwhile, stocks which were recently included in the MSCI
indices came under the spotlight, with Singapore Telecom and STIC (Singapore
Technologies) rising strongly before profit-taking pared their gains. Share
price performance of banks remained lackluster due to concerns over slow
earnings growth, while news from the marine section were still bleak.
Thailand was one of the worst performing markets--down 10.25%. The Thailand
market fell 2.4% for the quarter ended June 30, 1996 and remained one of the
worst performing markets in Asia. Rumors about bad debts in finance companies
and banks sparked panic selling. There was also talk of property companies not
being able to service their debt. On the macroeconomics front, the trade deficit
improved in May but loans growth, exports and FDI continued to slow. Fears that
the slowdown in the economy may accelerate prompted the central bank to allow
some commercial banks to lower lending rates. Lastly, there were major downward
earnings revisions in sectors like banks, finance companies and
telecommunications.
The Indonesian market was flat in the first half of the fiscal year but gained
over 16% during the second half of the fiscal year. However, political unrest
coupled with a reduction in the country weighting within the rebalanced MSCI
indices sparked off heavy institutional selling in the Indonesian market in
June. Rioting in the streets in support of the ousted Megawati Sukamo, former
chairperson of PDI (effectively the only opposition party) ignited fears among
investors. The continued weak performance in exports, which led to an upward
revision in the current account deficit for 1996 and a widening of the Rupiah
band to accelerate the currency depreciation, were factors that reduced
investors' enthusiasm towards the market. This, together with increased cash
calls, anticipation of a second tranche placement of PT Telkom's shares weighed
down investors' sentiment in the market.
The Korean market turned in one of the worst performances with a decline of 16%.
The Korean market was plagued by concerns over trade and current account
deficits, which arose from lower growth of such major exports as semiconductors,
textiles and automobiles. The government's planned W 2.5 trillion new equity
supply in the third quarter of the fiscal year ended June 30, 1996 also
discouraged stock investment. The persistent weakness of the market was also
attributable to the liquidation of close to W 1 trillion of outstanding margin
positions.
The Phillipines, on the other hand, was one of the best performers during the
second half of the fiscal year, with a 23% rise, and ended the fiscal year with
a net gain of over 10%. The market ended the year with a strong second quarter
1996 of more than 16%. Upward earnings revision continued in
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June 30, 1996
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
the second quarter 1996, making it the market with the strongest earnings
momentum in Asia. On the economic front, GNP grew to 6.2% in the first quarter
of 1996 versus 5.7% in the fourth quarter of 1995, and interest rates inched up
slightly on the T-bill auction. Moreover, index-linked buying helped the market,
led by Petron which rose 33% this quarter. Mid-cap and small-cap stocks took a
breather from the heavy rally over the last few months.
The Taiwan market suffered during the first half as a result of the tiff over
reunification with China. The Chinese missiles caused nervous selling. After the
elections in March 1996, reconciliation dominated the dialog between the two
countries. This "cooling off" brought confidence back to the market, which
surged over 36% during the second half of the fiscal year, ending the year with
a net gain of 24%. The Central Bank continued to ease monetary policy. Money
supply growth began to pick up after a period of contraction. The market
rebounded sharply in April following the easing of cross-strait tensions and on
news that MSCI was proposing to include Taiwan in its indices. The market saw
moderate profit-taking in May, before another wave of buying in June sent the
index up another 13% when Taiwan's weighting in the MSCI indices turned out to
be higher than what most investors had expected.
After a dismal 16% decline during the first half of the fiscal year, the Indian
market gained an impressive 24% as political succession became clearer.
Valuations became attractive after the earlier decline and the new government
promised further reforms. The market rally was encouraged by Prime Minister
Gowda's plans to continue with liberalization and reforms. The market was lifted
further by strong corporate results.
In China, earnings for 1995 were below analysts' expectations and austerity
measures were blamed for the earnings shortfall. Since then, the authorities
have selected 300 companies which will be given priority loans in the second
half of 1996, signifying a fiscal stimulus. In addition, news that the Guangdong
government wanted to revive the stock market led to further buying frenzy. The
MSCI China Free Index ended the quarter virtually unchanged, while the Shenzhen
and Shanghai Stock Indices rose 21% and 5%, respectively.
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1996
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO
Comparison of change in value of $10,000 investment in
Morgan Stanley Worldwide High Income Portfolio, the J.P. Morgan Emerging Market
Bond Index, and a composite index consisting of 50% of the J.P. Morgan
Emerging Market Bond Index and 50% of Lehman Brothers Aggregate Bond Index
50% JP Morgan
Emerging Mkt. Bond
JP Morgan 50% Lehman Bros.
Morgan Stanley Emerging Market Aggregate Bond
Worldwide High Income Bond Index Index
--------------------- --------------- ------------------
12/14/92 $10,000 $10,000 $10,000
6/30/96 $12,315 $14,225 $12,987
. Average annual total return since inception: 10.73%.
. Total return for the fiscal year ended June 30, 1996: 18.41%.
. Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
. Portfolio commenced operations on June 15, 1994. Index performances for the
month of June 1994 have been prorated to conform to the commencement date
of the Portfolio.
. Past performance is not predictive of future performance.
The last twelve months in the emerging markets debt have been gratifying.
Following a period when default probabilities in emerging markets rose
considerably, bond markets were becalmed by U.S. Treasury, International
Monetary Fund ("IMF") and World Bank support for Mexico and Argentina.
Multilateral support not withstanding, governments irrespective of their
political complexions deepened their commitments to reform and deregulation
across the emerging market universe.
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Portfolio Performance (continued)
June 30, 1996
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)
A slow down in growth and declining inflation prompted a rally in G7 fixed
income markets rallied in the second half of 1995. Markets, particularly in the
U.S., questioned the slowdown thesis in early 1996 and the yield curve moved up
120-150 basis points during the course of the first half of 1996. In what was to
become a regular feature of the market, any signs of growth in the economy
caused sharp sell-offs in the U.S. bond markets during 1996. Emerging markets
debt did not trend with the U.S. bond market in 1996. Improving credit stories
in emerging market countries successively counteracted the negative influence of
rising interest rates. Emerging market debt continues to be viewed with
skepticism and therefore remains mispriced and offers potential above average
risk adjusted returns. Its gradual acceptance by the mainstream institutional
investors should drive spreads lower as the market becomes more efficient.
The broadly diversified nature of the portfolio, both in terms of credit and
country risks, has reduced volatility and at the same time captured attractive
returns available in the market. The portfolio has been defensively positioned
to minimize the affect of rising rates.
The nonperforming loans of Russia, Panama and Peru and the high-yielding sector,
comprising of Venezuela and Ecuador, outperformed during 1996. Investors were
attracted by the possibility of dramatic spread tightening and high yields.
Among the major Latins, Brazil outperformed Argentina and Mexico on the back of
hopes that the politicians would deliver on constitutional and structural
reforms. The corporate Ecuador sector rallied as corporations regained access to
the capital markets and domestic economies bounced back from recessions in 1995.
Mexican external debt trailed the market despite being able to refinance its
1996 amortizations at very attractive terms. Lingering concerns over the fragile
economic recovery in the domestic non-tradable sector and the need for an
adjustment in the nominal value of the exchange rate made investors shy away
from Mexican bonds. The domestic political situation continues to warrant a
close watch as the investigation of various financial scandals could unearth all
kinds of skeletons in the cupboards of the ruling elites.
Based on the prospects of an economic rebound in 1996, Argentine assets rallied
in the last quarter of 1995 but underperformed the market in 1996, despite signs
that an economic recovery was underway. We reduced our allocation to Argentina
marginally in 1996 as tax receipts continued to stagnate and the fiscal targets
agreed to with the IMF continued to look ambitious. High unemployment and low
consumer confidence continue to be a drag on the recovery. Despite abundant
liquidity in the banking system, a consumption and trade led economic recovery
is taking
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June 30, 1996
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)
a long time to take hold. Unless a durable and sustained recovery becomes a
reality in the second half of 1996, Argentina faces a difficult economic future
in the months ahead. Rising U.S. interest rates and a firm dollar will prove to
be a considerable headwind for the currency convertibility plan to weather. We
do not anticipate making any changes to our allocation to Argentina in the
immediate future.
Brazil came under close scrutiny as a leading academic questioned the
sustainability of the "Real Plan." (Brazil changed its currency to the Real in
late 1994.) Questions related to its burgeoning internal debt and overvalued
exchange rates led some to draw parallels with Mexico's situation in 1994. We do
not believe that Brazil and Mexico should be put in the same basket. Brazil's
economic performance is far less dependent on external capital, (in fact it
could be argued that a withdrawal of short-term capital will probably be of
benefit) and the overvaluation of its currency less significant, for any
comparisons to Mexico to setoff any alarm bells at this juncture. There is no
doubt that the long-run sustainability of the Real Plan requires a fiscal
adjustment. Political wrangling should not be allowed to derail the process of
stabilization. Progress towards implementing a fiscal adjustment remains one of
the elements that we would be watching for to justify maintaining our allocation
to Brazil. We increased our allocations toward the end of the quarter as the
Brazilian administration sought to counteract market pressure related to the
stagnation of its various reform proposals in the legislature by becoming more
ambitious in the fields of privatization and deregulation of the economy. Our
allocations to Brazil have remained largely unchanged for most of the year.
We increased exposure to Russian bonds because of expected economic
stabilization and relative political stability after a long period of economic
transition. To finance deficits and attract foreign capital, Russia would need
to normalize relations with its external creditors.
The high yielding markets of Ecuador and Bulgaria witnessed volatility as
Ecuador braced for the second round of its presidential elections and Bulgaria
coped with economic distress after swallowing the bitter pill of an IMF program.
Despite a negative U.S. rate environment in first half of 1996, emerging debt
has performed well. Improvement in economic fortunes of most of the countries
included in the universe has delivered handsome returns. What is underway is the
dramatic rerating of this asset class, a process that was interrupted by the
Mexican crisis of 1994. Barring changes in the economic outlook of the various
countries, this process has not yet been finished.
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This Annual Report is not to be construed as an offering for sale directly or
indirectly of any interest in the Fund. No offering is made except in
conjunction with a prospectus which must precede or accompany this report.
[LOGO] Principal offices located at:
200 East Wilson Bridge Road
Worthington, Ohio 43085
