<PAGE>
[ LOGO ] ----------------------------------------------------------------------
THE LEGENDS FUND, INC.
ANNUAL REPORT
JUNE 30, 1997
<PAGE>
The Legends Fund, Inc.
Annual Report
June 30, 1997
Contents
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 . . . . . . . . . . . . . . . . . . . . . . . . .50
Zweig Equity (Small Cap) Portfolio . . . . . . . . . . . . . . . . . . .59
Pinnacle Fixed Income Portfolio. . . . . . . . . . . . . . . . . . . . .89
ARM Capital Advisors Money Market Portfolio. . . . . . . . . . . . . . .98
Morgan Stanley Asian Growth Portfolio. . . . . . . . . . . . . . . . . 104
Morgan Stanley Worldwide High Income Portfolio . . . . . . . . . . . . 115
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 126
Portfolio Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . 134
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 ARM SECURITIES
CORPORATION, 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.
<PAGE>
THE LEGENDS FUND, INC.
- --------------------------------------------------------------------------------
The Annual Report for the fiscal year ended June 30, 1997 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 total returns for the fiscal years
ended June 30, 1997 and 1996, respectively, are listed below:
YEAR ENDED YEAR ENDED
PORTFOLIO JUNE 30, 1997 JUNE 30, 1996
---------------------------------------------------------------------------
Renaissance Balanced 13.78% 12.68%
Zweig Asset Allocation 18.63% 11.06%
Nicholas-Applegate Balanced 14.12% 13.53%
Harris Bretall Sullivan & Smith Equity Growth 30.23% 13.59%
Dreman Value 33.78% 31.22%
Zweig Equity (Small Cap) 20.37% 18.69%
Pinnacle Fixed Income (managed by J.P. Morgan
Investment Management) 7.33% 3.29%
ARM Capital Advisors Money Market 4.38% 4.55%
Morgan Stanley Asian Growth (1.01)% 7.19%
Morgan Stanley Worldwide High Income 26.32% 18.41%
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, 1997. You will also find
detailed information of the holdings of each Portfolio as of June 30, 1997,
as well other important financial information.
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, 1997, 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, 1997, 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, 1997 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 18, 1997
2
<PAGE>
Renaissance Balanced Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $24,733,757)
-See accompanying schedule $ 26,877,961
Dividends and interest receivable 197,815
-------------
TOTAL ASSETS 27,075,776
LIABILITIES
Cash overdraft 5,676
Accounts payable and accrued expenses 35,163
-------------
TOTAL LIABILITIES 40,839
-------------
NET ASSETS $ 27,034,937
-------------
-------------
Net Assets consist of:
Paid-in capital $ 22,235,475
Undistributed net investment income 905,452
Accumulated undistributed net realized gain on investments 1,749,806
Net unrealized appreciation on investment securities 2,144,204
-------------
NET ASSETS, for 2,143,114 shares outstanding $ 27,034,937
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 12.61
-------------
-------------
SEE ACCOMPANYING NOTES.
3
<PAGE>
Renaissance Balanced Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 159,576
Interest 1,022,946
-------------
Total investment income 1,182,522
EXPENSES
Investment advisory and management fees 175,631
Custody and accounting fees 72,954
Professional fees 14,369
Directors' fees and expenses 4,893
Other expenses 9,223
-------------
Total expenses 277,070
-------------
Net investment income 905,452
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,749,806
Change in unrealized appreciation on investment securities 876,003
-------------
Net gain on investments 2,625,809
-------------
Net increase in net assets resulting from operations $ 3,531,261
-------------
-------------
SEE ACCOMPANYING NOTES.
4
<PAGE>
Renaissance Balanced Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 905,452 $ 758,801
Net realized gain on investments 1,749,806 2,972,263
Change in net unrealized appreciation 876,003 (423,724)
---------------------------
Net increase in net assets resulting from operations 3,531,261 3,307,340
Distributions to shareholders from:
Net investment income (758,801) (914,654)
Net realized gain (2,673,112) -
---------------------------
Total distributions to shareholders (3,431,913) (914,654)
Capital share transactions:
Proceeds from sales of shares 2,452,037 3,559,180
Proceeds from reinvested distributions 3,431,913 914,654
Cost of shares redeemed (6,051,714) (6,795,362)
---------------------------
Net decrease in net assets resulting
from share transactions (167,764) (2,321,528)
---------------------------
Total increase (decrease) in net assets (68,416) 71,158
NET ASSETS
Beginning of period 27,103,353 27,032,195
---------------------------
End of period (including undistributed net
investment income of $905,452 and
$758,801, respectively) $ 27,034,937 $ 27,103,353
---------------------------
---------------------------
OTHER INFORMATION
Shares:
Sold 199,141 286,131
Issued through reinvestment of distributions 291,594 74,583
Redeemed (487,221) (548,725)
---------------------------
Net increase (decrease) 3,514 (188,011)
---------------------------
---------------------------
</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,
1997 1996 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 12.67 $ 11.61 $ 10.40 $ 10.42 $ 10.00
Income from investment operations:
Net investment income 0.44 0.36 0.42 0.20 0.13
Net realized and unrealized gain
(loss) on investments 1.18 1.10 0.99 (0.11) 0.29
------------------------------------------------------------------------
Total from investment operations 1.62 1.46 1.41 0.09 0.42
Less distributions:
From net investment income (0.37) (0.40) (.17) (0.11) -
From net realized gain (1.31) - (.03) - -
------------------------------------------------------------------------
Total distributions (1.68) (0.40) (.20) (0.11) -
------------------------------------------------------------------------
Net asset value, end of period $ 12.61 $ 12.67 $ 11.61 $ 10.40 $ 10.42
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN (a) 13.78% 12.68% 13.71% 0.73% 7.70%
RATIOS AND SUPPLEMENTAL DATA (b)
Net assets, end of period (in thousands) $ 27,035 $ 27,103 $ 27,032 $ 25,046 $ 7,799
Ratio of expenses to average net
assets (C) 1.03% 1.01% 0.96% 1.06% 1.24%
Ratio of net investment income to
average net assets (c) 3.35% 2.69% 3.53% 2.72% 2.36%
Portfolio turnover rate 90% 107% 71% 85% 29%
Average commission paid per equity
share traded (d) $ .0600
</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.
(d) Disclosure required for fiscal years beginning after September 1, 1995.
6
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (34.9%)
AGRICULTURAL PRODUCTION CROPS (1.6%)
RJR Nabisco Holdings Corporation 13,400 $ 442,200
APPAREL & OTHER FINISHED PRODUCTS (1.5%)
Liz Claiborne, Inc. 8,600 400,975
CHEMICALS & ALLIED PRODUCTS (1.9%)
Bristol-Meyers Squibb Company 6,300 510,300
BUSINESS SERVICES (3.8%)
Computer Associates International, Inc. 8,400 467,775
HBO & Company 7,725 532,059
----------
999,834
DEPOSITORY INSTITUTIONS (1.7%)
First Chicago NBD Corporation 7,385 446,793
FOOD & KINDRED PRODUCTS (1.8%)
Archer Daniels Midland 21,100 495,850
INDUSTRIAL MACHINERY & EQUIPMENT (5.2%)
Gateway 2000, Inc.* 14,400 467,100
Ingersoll-Rand Company 8,100 500,175
Western Digital Corporation* 13,400 423,775
----------
1,391,050
INSURANCE CARRIERS (1.6%)
Loews Corporation 4,300 430,538
7
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
MISCELLANEOUS RETAIL (1.8%)
Staples, Inc.* 20,800 $ 482,300
OIL & GAS EXTRACTION (1.6%)
USX-Marathon Group 14,700 424,463
PETROLEUM & COAL PRODUCTS (1.6%)
Phillips Petroleum Company 10,000 437,500
PRIMARY METAL INDUSTRIES (1.7%)
USX-U.S. Steel Company 13,400 469,838
PRINTING & PUBLISHING (2.2%)
Gannett Company 6,000 592,498
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (1.5%)
Nike, Inc. 6,925 404,247
SECURITY & COMMODITY BROKERS, DEALERS (1.7%)
Morgan Stanley, Dean Witter, Discover and
Company 10,890 468,951
TRANSPORTATION EQUIPMENT (3.7%)
General Motors Corporation 7,100 395,381
Paccar, Inc. 12,800 594,400
----------
989,781
----------
TOTAL COMMON STOCKS (Cost $7,299,768) 9,387,118
8
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
--------------------------
GOVERNMENT SECURITIES (53.0%)
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES (11.6%)
Federal National Mortgage Association Medium
Term Notes, 6.41%, due 3/8/2006 $ 3,200,000 $ 3,112,512
U.S. GOVERNMENT OBLIGATIONS (41.4%)
U.S. Treasury Notes
5.875%, due 2/28/1999 2,760,000 2,753,542
6.125%, due 12/31/2001 2,690,000 2,663,530
6.375%, due 4/30/1999 1,980,000 1,990,514
6.50%, due 5/15/2005 700,000 698,684
6.875%, due 5/15/2006 700,000 714,546
7.00%, due 7/15/2006 525,000 540,094
7.25%, due 5/15/2004 1,700,000 1,771,978
-----------
11,132,888
-----------
TOTAL GOVERNMENT SECURITIES (Cost $14,188,546) 14,245,400
SHORT-TERM SECURITIES (12.1%)
U.S. GOVERNMENT OBLIGATIONS (10.0%)
Federal Home Loan Bank Discount Note,
5.7037%, due 11/21/1997 1,450,000 1,418,494
U.S. Treasury Bill, 5.16%, due 12/11/1997 1,300,000 1,269,481
-----------
2,687,975
9
<PAGE>
Renaissance Balanced Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
SHORT-TERM SECURITIES (CONTINUED)
REPURCHASE AGREEMENT (2.1%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by
U.S. Treasury Note, 6.125%, due 5/15/1998,
value $570,650) $ 557,468 $ 557,468
------------
TOTAL SHORT-TERM SECURITIES (Cost $3,245,443) 3,245,443
------------
TOTAL INVESTMENTS (100.0%) (Cost $24,733,757) $ 26,877,961
------------
------------
*Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $20,674,047 and $21,420,449
respectively. At June 30, 1997, net unrealized appreciation for tax purposes
aggregated $2,144,204, of which $2,255,987 related to appreciated investment
securities and $111,783 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, 1997
ASSETS
Investment in securities, at value (cost $33,086,173)
-See accompanying schedule $ 42,786,617
Dividends, interest and other receivables 154,887
-------------
TOTAL ASSETS 42,941,504
LIABILITIES
Cash overdraft 34,397
Accounts payable and accrued expenses 59,090
-------------
TOTAL LIABILITIES 93,487
-------------
NET ASSETS $ 42,848,017
-------------
-------------
Net Assets consist of:
Paid-in capital $ 32,974,797
Undistributed net investment income 529,058
Accumulated undistributed net realized loss on investments (254,884)
Net unrealized appreciation on investment securities and
futures contracts 9,599,046
-------------
NET ASSETS, for 2,929,288 shares outstanding $ 42,848,017
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 14.63
-------------
-------------
SEE ACCOMPANYING NOTES.
11
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 826,965
Interest 226,438
-------------
Total investment income 1,053,403
EXPENSES
Investment advisory and management fees 369,657
Custody and accounting fees 110,897
Professional fees 14,200
Directors' fees and expenses 4,893
Other expenses 24,698
-------------
Total expenses 524,345
-------------
Net investment income 529,058
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment securities 3,397,934
Futures contracts (3,571,389)
-------------
Net realized gain (loss) (173,455)
Change in unrealized appreciation (depreciation) on:
Investment securities 6,719,553
Futures contracts (19,970)
-------------
Change in unrealized appreciation 6,699,583
-------------
Net gain on investments 6,526,128
-------------
Net increase in net assets resulting from operations $ 7,055,186
-------------
-------------
SEE ACCOMPANYING NOTES.
12
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 529,058 $ 610,426
Net realized gain (loss) on investments (173,455) 4,692,015
Change in net unrealized appreciation 6,699,583 (1,281,343)
---------------------------
Net increase in net assets resulting from operations 7,055,186 4,021,098
Distributions to shareholders from:
Net investment income (610,426) (946,985)
Net realized gain (4,529,338) -
---------------------------
Total distributions to shareholders (5,139,764) (946,985)
Capital share transactions:
Proceeds from sales of shares 2,859,514 4,764,144
Proceeds from reinvested distributions 5,139,764 946,985
Cost of shares redeemed (7,288,581) (5,299,505)
---------------------------
Net increase in net assets resulting from share
transactions 710,697 411,624
---------------------------
Total increase in net assets 2,626,119 3,485,737
NET ASSETS
Beginning of period 40,221,898 36,736,161
---------------------------
End of period (including undistributed net investment
income of $529,058 and $610,426, respectively) $ 42,848,017 $ 40,221,898
---------------------------
---------------------------
OTHER INFORMATION
Shares:
Sold 206,859 345,159
Issued through reinvestment of distributions 396,248 71,107
Redeemed (523,827) (386,701)
---------------------------
Net increase 79,280 29,565
---------------------------
---------------------------
</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,
1997 1996 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 14.11 $ 13.02 $ 11.44 $ 10.81 $ 10.00
Income from investment operations:
Net investment income 0.19 0.21 0.33 0.10 0.08
Net realized and unrealized gain
on investments 2.20 1.21 1.33 0.58 0.73
------------------------------------------------------------------------
Total from investment operations 2.39 1.42 1.66 0.68 0.81
Less distributions:
From net investment income (0.22) (0.33) (0.08) (0.05) -
From net realized gain (1.65) - - - -
------------------------------------------------------------------------
Total distributions (1.87) (0.33) (0.08) (0.05) -
------------------------------------------------------------------------
Net asset value, end of period $ 14.63 $ 14.11 $ 13.02 $ 11.44 $ 10.81
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN (a) 18.63% 11.06% 14.57% 6.27% 14.86%
RATIOS AND SUPPLEMENTAL DATA (b)
Net assets, end of period (in
thousands) $ 42,848 $ 40,222 $ 36,736 $ 31,563 $ 3,856
Ratio of expenses to average net
assets (c) 1.28% 1.25% 1.20% 1.39% 1.51%
Ratio of net investment income to
average net assets (c) 1.29% 1.55% 2.73% 1.67% 1.40%
Portfolio turnover rate 89% 105% 45% 101% 12%
Average commission paid per
equity share traded (d) $ .0262
</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.
(d) Disclosure required for fiscal years beginning after September 1, 1995.
14
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (94.5%)
AGRICULTURAL PRODUCTION - CROPS (0.8%)
RJR Nabisco Holdings Corporation 10,400 $ 343,200
AMUSEMENT & RECREATION SERVICES (0.5%)
King World Productions, Inc. 6,000 210,000
APPAREL & ACCESSORY (2.0%)
Kmart Corporation (a) 9,500 116,375
Ross Stores, Inc. 22,400 731,500
----------
847,875
AUTO REPAIR, SERVICES & PARKING (0.3%)
Ryder System, Inc. 4,000 132,000
BUSINESS SERVICES (2.0%)
Comdisco, Inc. 14,250 370,500
Fiserv, Inc. (a) 7,083 316,964
Radius, Inc. (a) 45 13
Stratus Computer, Inc. (a) 3,100 155,000
----------
842,477
CHEMICALS & ALLIED PRODUCTS (1.0%)
Desc S.A. De C.V. 1,515 44,124
International Specialty Products, Inc. (a) 7,400 104,063
Methanex Corporation 9,000 82,406
Nova Corporation 2,800 23,800
Occidental Petroleum Corporation 7,000 175,438
----------
429,831
COAL MINING (0.1%)
Zeigler Coal Holding Company 2,600 60,775
15
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS (1.8%)
British Telecommunications Plc 1,200 $ 89,100
Mastec, Inc. (a) 4,900 231,831
Tele Danmark 6,200 161,975
Telefonos De Mexico 6,400 305,600
----------
788,506
DEPOSITORY INSTITUTIONS (7.1%)
Ahmanson (H.F.) & Company 2,500 107,500
Astoria Financial Corporation 3,200 152,000
Bankamerica Corporation 7,600 490,675
Bankunited Financial Corporation (a) 2,000 20,125
City National Corporation 10,200 245,438
Coast Savings Financial (a) 2,600 118,138
Dime Bancorp, Inc. 11,200 196,000
Glendale Federal Bank FSB (a) 5,500 143,688
Golden West Financial Corporation 1,600 112,000
Imperial Bancorp (a) 13,200 381,150
North Fork Bancorporation 10,200 218,025
Popular, Inc. 4,000 160,750
RCSB Financial, Inc. 6,100 291,656
St. Paul Bancorp, Inc. 2,300 76,475
T R Financial Corporation 12,200 308,050
----------
3,021,670
EATING & DRINKING PLACES (1.2%)
CKE Restaurants, Inc. 4,200 132,825
Foodmaker, Inc. (a) 23,100 378,263
----------
511,088
16
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES (15.4%)
Allegheny Power System, Inc. 4,900 $ 130,769
Baltimore Gas & Electric 5,900 157,456
Boston Edison Company 3,000 79,125
Centerior Energy Corporation 15,300 171,169
CMS Energy Corporation 9,100 320,775
Columbia Gas System 9,600 626,400
Delmarva Power and Light Company 4,500 85,781
Edison International 15,700 390,538
Enersis S.A. 4,200 149,363
Entergy Corporation 12,800 350,400
GPU, Inc. 10,100 362,338
Hawaiian Electric Industries, Inc. 2,500 96,563
Houston Industries, Inc. 4,100 87,894
Illinova Corporation 10,000 220,000
Ipalco Enterprises, Inc. 10,000 312,500
Long Island Lighting Company 3,600 82,800
MidAmerican Energy Company 1,900 32,894
Montana Power Company 5,800 134,488
National Fuel Gas Company 4,800 201,300
New York State Electric & Gas 7,900 164,913
Niagra Mohawk Power Corporation 10,300 88,194
Noram Energy Corporation 15,700 239,425
Northern States Power 1,800 93,150
OGE Energy Corporation 2,600 118,300
Pacific Enterprises 4,000 134,500
People's Energy Corporation 8,500 318,219
PG&E Corporation 3,700 89,725
Pinnacle West Corporation 19,500 586,219
17
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES (15.4%) (CONTINUED)
PP&L Resources, Inc. 8,300 $ 165,481
Public Service Enterprises Group 7,100 177,500
Sierra Pacific Resources 4,000 128,000
TransCanada Pipelines Ltd 4,500 90,563
Utilicorp United, Inc. 4,900 142,713
Washington Gas Light Company 1,900 47,738
----------
6,577,193
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (2.4%)
Aeroquip-Vickers, Inc. 4,500 212,625
Hadco Corporation (a) 7,500 489,375
Portugal Telecom S.A. 5,400 216,675
Sony Corporation 1,200 105,600
----------
1,024,275
FOOD & KINDRED PRODUCTS (0.3%)
Adolph Coors Company 4,900 129,850
FOOD STORES (0.3%)
Great Atlantic & Pacific Tea Company 4,900 133,219
FURNITURE & FIXTURES (0.9%)
Ethan Allen Interiors, Inc. 1,800 102,600
Furniture Brands International, Inc. (a) 8,400 162,750
Johnson Controls, Inc. 3,400 139,613
----------
404,963
18
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
FURNITURE & HOME FURNISHINGS STORES (0.3%)
Pier 1 Imports, Inc. 4,500 $ 119,250
GENERAL BUILDING CONTRACTORS (1.1%)
Centex Corporation 3,300 134,063
Lennar Corporation 2,700 86,231
Pulte Corporation 2,600 89,863
Toll Brothers, Inc. (a) 4,400 80,850
U.S. Home Corporation (a) 3,300 87,656
----------
478,663
GENERAL MERCHANDISE STORES (3.1%)
Carson Pirie Scott & Company (a) 1,000 31,750
Dayton-Hudson Corporation 6,600 351,038
Federated Department Stores (a) 6,200 215,450
Fred Meyer, Inc. (a) 4,600 237,763
Proffitt's, Inc. (a) 1,300 56,956
Shopko Stores, Inc. 2,600 66,300
Waban, Inc. (a) 2,400 77,250
Woolworth Corporation (a) 12,700 304,800
----------
1,341,307
HEALTH SERVICES (0.8%)
Beverly Enterprises, Inc. (a) 9,400 152,750
Lincare Holdings, Inc. (a) 2,900 124,791
Universal Health Services (a) 1,800 69,300
----------
346,841
19
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
HOLDING & OTHER INVESTMENT OFFICES (0.6%)
Merry Land and Investment Company, Inc. 4,400 $ 95,425
Thornburg Mortgage Asset Corporation 6,800 146,200
----------
241,625
INDUSTRIAL MACHINERY & EQUIPMENT (7.1%)
AGCO Corporation 3,100 111,406
Applied Magnetics Corporation (a) 3,000 67,875
Camco International, Inc. 1,800 98,550
Case Corporation 1,600 110,200
Caterpillar, Inc. 1,700 182,538
Data General Corporation (a) 11,100 288,600
Harris Corporation 3,700 310,800
Ingersoll-Rand Company 1,800 111,150
Innovex, Inc. (a) 24,400 706,051
Kaydon Corporation 2,700 133,988
Seagate Technology, Inc. 2,900 102,044
Storage Technology Corporation (a) 6,700 298,150
Tandem Computers, Inc. (a) 9,200 186,300
Tecumseh Products Company 600 35,963
Timken Company 5,000 177,813
Western Digital Corporation (a) 4,200 132,825
----------
3,054,253
INSURANCE CARRIERS (9.4%)
Ace Ltd 3,100 229,013
Aegon N.V. 1,738 121,745
Allmerica Financial Corporation 2,000 79,750
Ambac, Inc. 4,200 320,775
20
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (9.4%) (CONTINUED)
American Bankers Insurance Group, Inc. 3,800 $ 240,113
American General Corporation 1,881 89,818
Capital Re Corporation 500 26,750
Cigna Corporation 1,300 230,750
CMAC Investment Corporation 1,800 85,950
Delphi Financial Group, Inc. (a) 7,099 273,312
Equitable Companies, Inc. 11,200 372,400
Equitable of Iowa Companies 1,500 84,000
Fremont General Corporation 6,500 261,625
Horace Mann Educators Corporation 1,700 83,300
Loews Corporation 5,900 590,738
NAC Re Corporation 1,700 82,238
Old Republic International Corporation 4,700 142,469
Presidential Life Corporation (a) 6,700 130,022
Providian Financial Corporation (a) 4,000 128,500
Reliance Group Holdings, Inc. 21,000 249,375
Reliastar Financial Corporation 800 58,500
Tig Holdings, Inc. 2,300 71,875
W.R. Berkley Corporation 1,300 76,050
----------
4,029,068
LOCAL & INTERURBAN PASSENGER TRANSIT (0.2%)
Canadian National Railway Company 2,400 105,000
METAL MINING (0.5%)
Asarco, Inc. 4,300 131,688
Phelps Dodge 1,200 102,225
----------
233,913
21
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.7%)
Hexcel Corporation (a) 4,000 $ 69,000
Johns Manville Corporation 18,800 222,075
----------
291,075
MISCELLANEOUS RETAIL (0.2%)
Zale Corporation (a) 4,700 93,119
NONDEPOSITORY INSTITUTIONS (0.5%)
Countrywide Credit Industries, Inc. 6,900 215,194
NONMETALLIC MINERALS, EXCEPT FUELS (0.1%)
De Beers Consolidated Mines 400 14,763
OIL & GAS EXTRACTION (7.0%)
Amerada Hess Corporation 2,800 155,575
Apache Corporation 2,200 71,500
Enserch Exploration, Inc. (a) 4,000 43,750
Helmerich & Payne, Inc. 7,500 432,188
Kerr-McGee Corporation 3,400 215,475
Marine Drilling Companies, Inc. (a) 6,200 121,288
Newfield Exploration Company (a) 4,400 88,000
Nuevo Energy Company (a) 2,000 82,000
Oryx Energy Company 11,800 249,275
Parker & Parsley Petroleum Company 3,300 116,738
Royal Dutch Petroleum Company 2,800 152,250
Santa Fe Energy Resources, Inc. (a) 8,800 129,250
Seacor Smit, Inc. (a) 1,700 88,931
Tuboscope Vetco International Corporation (a) 9,200 183,425
22
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
OIL & GAS EXTRACTION (7.0%) (CONTINUED)
Union Texas Petro Holdings, Inc. 4,500 $ 94,219
USX-Marathon Group 7,600 219,450
Vintage Petroleum, Inc. 3,000 92,250
Weatherford Enterra, Inc. (a) 3,900 150,150
YPE Sociedad Anonima 10,500 322,875
----------
3,008,589
PAPER & ALLIED PRODUCTS (0.4%)
James River Corporation of Virginia 4,800 177,600
PETROLEUM & COAL PRODUCTS (4.5%)
Coastal Corporation 8,300 441,456
Elf Aquitaine 5,200 283,075
Ente Nazionale Idrocarburi SPA 900 51,188
Murphy Oil Corporation 3,700 180,375
Phillips Petroleum Company 3,300 144,375
Sun Company, Inc. 4,400 136,400
Texaco, Inc. 1,800 195,750
Total S.A. 2,100 106,313
Unocal Corporation 5,100 197,944
Valero Energy Corporation 5,500 199,375
----------
1,936,251
PRIMARY METAL INDUSTRIES (3.0%)
AK Steel Holding Corporation 3,300 145,613
Alumax, Inc. (a) 4,600 174,513
British Steel Plc 9,000 227,250
Inland Steel Industries, Inc. 5,300 138,463
23
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
PRIMARY METAL INDUSTRIES (3.0%) (CONTINUED)
LTV Corporation 9,200 $ 131,100
Mueller Industries, Inc. (a) 800 35,000
Pohang Iron & Steel Ltd 6,900 220,800
Quanex Corporation 300 9,206
USX-U.S. Steel Company 5,800 203,363
----------
1,285,308
RAILROAD TRANSPORTATION (1.4%)
Canadian Pacific Ltd 12,900 366,844
CSX Corporation 4,100 227,550
----------
594,394
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.3%)
Premark International, Inc. 5,200 139,100
SECURITY & COMMODITY BROKERS, DEALERS (5.1%)
A.G. Edwards, Inc. 5,500 235,125
Bear Stearns Companies, Inc. 12,825 438,455
Donaldson Lufkin & Jenrette, Inc. 900 53,775
Lehman Brothers Holdings 14,000 567,000
Paine Webber Group, Inc. 10,100 353,500
Raymond James Financial, Inc. 3,900 106,763
Salomon, Inc. 7,400 411,625
----------
2,166,243
STONE, CLAY, & GLASS PRODUCTS (1.3%)
LaFarge Corporation 800 19,600
Lone Star Industries 3,000 135,938
24
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
STONE, CLAY, & GLASS PRODUCTS (1.3%) (CONTINUED)
Owens-Illinois, Inc. (a) 4,800 $ 148,800
Southdown, Inc. 2,500 109,063
USG Corporation (a) 3,200 116,800
Vitro S.A. (a) 3,600 40,500
----------
570,701
TEXTILE MILL PRODUCTS (0.1%)
Mohawk Industries, Inc. (a) 2,700 61,088
TRANSPORTATION BY AIR (4.6%)
Airborne Freight Corporation 3,700 154,938
America West Holdings Corporation (a) 8,800 127,600
AMR Corporation (a) 3,400 314,500
British Airways Plc 1,600 183,900
Continental Airlines (a) 3,800 132,763
Delta Air Lines, Inc. 1,000 82,000
Federal Express Corporation (a) 1,600 92,400
KLM Royal Dutch Air 5,439 167,929
Southwest Airlines 4,900 126,788
UAL Corporation (a) 6,100 436,531
USAir Group, Inc. (a) 3,700 129,500
----------
1,948,849
TRANSPORTATION EQUIPMENT (3.6%)
Chrysler Corporation 8,502 278,972
Ford Motor Company 5,000 188,750
General Motors Corporation 2,400 133,650
Honda Motor Company Ltd 1,500 90,281
25
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION EQUIPMENT (3.6%) (CONTINUED)
Mascotech, Inc. 4,400 $ 91,850
Navistar International (a) 9,700 167,325
Paccar, Inc. 7,200 334,350
Trinity Industries 7,300 231,775
Volvo AB (a) 600 16,088
----------
1,533,041
TRANSPORTATION SERVICES (0.3%)
Gatx Corporation 2,000 115,500
TRUCKING & WAREHOUSING (0.3%)
CNF Transportation, Inc. 3,500 112,875
WATER TRANSPORTATION (0.1%)
Alexander & Baldwin, Inc. 300 7,847
WHOLESALE TRADE - DURABLE GOODS (0.3%)
Borg-Warner Automotive, Inc. 2,400 129,750
WHOLESALE TRADE-NONDURABLE GOODS (1.5%)
Burlington Coat Factory Warehouse (a) 5,100 99,450
Pennzoil Company 3,600 276,300
Supervalu, Inc. 2,800 96,600
Universal Corporation 5,200 165,100
----------
637,450
----------
TOTAL COMMON STOCKS (Cost $30,745,135) 40,445,579
26
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
--------------------------
SHORT-TERM SECURITIES (5.5%)
U.S. GOVERNMENT AGENCY (3.5%)
Federal National Mortgage Association
Discount Note, 5.25%, due 7/2/1997 $ 1,500,000 $ 1,499,773
U.S. GOVERNMENT OBLIGATIONS (1.5%)
U.S. Treasury Bills
4.65%, due 7/31/1997 25,000 24,903
5.15%, due 7/17/1997 600,000 598,627
------------
623,530
REPURCHASE AGREEMENT (0.5%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S.
Treasury Notes, 6.125%, due 5/15/1998,
value $222,200) 217,735 217,735
------------
TOTAL SHORT-TERM SECURITIES (Cost $2,341,038) 2,341,038
------------
TOTAL INVESTMENTS (100.0%) (Cost $33,086,173) $ 42,786,617
------------
------------
27
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
FUTURES CONTRACTS
UNREALIZED
EXPIRATION CONTRACT GAIN
DATE AMOUNT (LOSS)
---------------------------------------------
53 Mid-Cap S&P 500
Futures Contracts-Short (b) 9/19/97 $ 7,674,400 $ (173,898)
15 S&P 500
Futures Contracts-Short (b) 9/19/97 6,676,875 72,500
-----------------------------
$14,351,275 $ (101,398)
-----------------------------
-----------------------------
(a) Non-income producing
(b) At June 30, 1997, the market value of assets pledged to cover margin
requirements for open futures contracts was $598,627.
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $32,636,317 and $37,620,880
respectively. At June 30, 1997, net unrealized appreciation for tax
purposes aggregated $9,693,260 of which $10,020,026 related to appreciated
investment securities and $326,766 related to depreciated investment
securities. The aggregate cost of securities is $33,093,357 for tax
purposes.
SEE ACCOMPANYING NOTES.
28
<PAGE>
Nicholas-Applegate Balanced Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $42,385,345)
-See accompanying schedule $ 49,976,483
Dividends, interest and other receivables 296,029
-------------
TOTAL ASSETS 50,272,512
LIABILITIES
Cash overdraft 20,800
Accounts payable and accrued expenses 55,843
-------------
TOTAL LIABILITIES 76,643
-------------
NET ASSETS $ 50,195,869
-------------
-------------
Net Assets consist of:
Paid-in capital $ 38,904,356
Undistributed net investment income 796,624
Accumulated undistributed net realized gain on investments 2,903,751
Net unrealized appreciation on investment securities 7,591,138
-------------
NET ASSETS, for 3,347,602 shares outstanding $ 50,195,869
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 14.99
-------------
-------------
SEE ACCOMPANYING NOTES.
29
<PAGE>
Nicholas-Applegate Balanced Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 160,543
Interest 1,121,815
-------------
Total investment income 1,282,358
EXPENSES
Investment advisory and management fees 319,584
Custody and accounting fees 132,750
Professional fees 14,200
Directors' fees and expenses 4,893
Other expenses 12,446
-------------
Total expenses 483,873
-------------
Net investment income 798,485
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,901,890
Change in unrealized appreciation on investment securities 2,596,313
-------------
Net gain on investments 5,498,203
-------------
Net increase in net assets resulting from operations $ 6,296,688
-------------
-------------
SEE ACCOMPANYING NOTES.
30
<PAGE>
Nicholas-Applegate Balanced Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 798,485 $ 924,428
Net realized gain on investments 2,901,890 6,092,935
Change in net unrealized appreciation 2,596,313 (1,004,611)
---------------------------
Net increase in net assets resulting from operations 6,296,688 6,012,752
Distributions to shareholders from:
Net investment income (924,428) (935,896)
Net realized gain (4,473,680) -
---------------------------
Total distributions to shareholders (5,398,108) (935,896)
Capital share transactions:
Proceeds from sales of shares 4,494,468 5,298,577
Proceeds from reinvested distributions 5,398,108 935,896
Cost of shares redeemed (10,058,064) (7,629,163)
---------------------------
Net decrease in net assets resulting from
share transactions (165,488) (1,394,690)
---------------------------
Total increase in net assets 733,092 3,682,166
NET ASSETS
Beginning of period 49,462,777 45,780,611
---------------------------
End of period (including undistributed net investment
income of $796,624 and $924,428, respectively) $ 50,195,869 $ 49,462,777
---------------------------
---------------------------
OTHER INFORMATION
Shares:
Sold 303,463 380,150
Issued through reinvestment of distributions 380,650 68,284
Redeemed (710,525) (550,111)
---------------------------
Net decrease (26,412) (101,677)
---------------------------
---------------------------
</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,
1997 1996 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 14.66 $ 13.17 $ 11.27 $ 11.50 $ 10.00
Income from investment operations:
Net investment income 0.24 0.27 0.27 0.09 0.11
Net realized and unrealized gain
(loss) on investments 1.73 1.49 1.74 (0.29) 1.39
------------------------------------------------------------------------
Total from investment operations 1.97 1.76 2.01 (0.20) 1.50
Less distributions:
From net investment income (0.28) (0.27) (0.11) (0.03) -
From net realized gains (1.36) - - - -
------------------------------------------------------------------------
Total distributions (1.64) (0.27) (0.11) (0.03) -
------------------------------------------------------------------------
Net asset value, end of period $ 14.99 $ 14.66 $ 13.17 $ 11.27 $ 11.50
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN (a) 14.12% 13.53% 17.92% (1.70%) 26.07%
RATIOS AND SUPPLEMENTAL DATA (b)
Net Assets, end of period (in
thousands) $ 50,196 $ 49,463 $ 45,781 $ 39,358 $ 5,567
Ratio of expenses to average net
assets (c) 0.98% 0.98% 0.94% 1.03% 1.25%
Ratio of net investment income to
average net assets (c) 1.62% 1.92% 2.20% 1.69% 1.70%
Portfolio turnover rate 132% 127% 108% 56% 21%
Average commission paid per
equity share traded (d) $ .0600
</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.
(d) Disclosure required for fiscal years beginning after September 1, 1995.
32
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (66.4%)
APPAREL & ACCESSORY STORES (1.2%)
Ross Stores, Inc. 18,400 $ 600,875
APPAREL & OTHER FINISHED PRODUCTS (1.3%)
Jones Apparel Group, Inc.* 10,200 487,050
Liz Claiborne, Inc. 3,700 172,513
----------
659,563
CHEMICALS & ALLIED PRODUCTS (1.9%)
Cytec Industries, Inc.* 5,600 209,300
Dura Pharmaceuticals, Inc.* 2,700 107,494
Herbalife International, Inc. 13,900 225,006
Jones Medical Industries, Inc. 1,850 87,875
Medeva Plc 18,500 316,813
----------
946,488
BUSINESS SERVICES (10.4%)
Altera Corporation* 6,200 313,294
America Online, Inc.* 5,600 311,500
BMC Software, Inc.* 11,600 643,075
Cadence Design Systems, Inc.* 8,250 276,375
Compuware Corporation* 15,800 756,425
Equifax 3,600 133,875
HBO & Company 7,400 509,675
Keane, Inc.* 6,400 332,800
McAfee Associated, Inc.* 13,950 879,709
Microsoft Corporation* 3,400 429,994
33
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (10.4%) (CONTINUED)
Parametric Technology Company* 2,100 $ 89,316
Peoplesoft, Inc.* 9,600 505,800
----------
5,181,838
COMMUNICATIONS (0.8%)
Mastec, Inc.* 8,400 397,425
DEPOSITORY INSTITUTIONS (3.6%)
Greenpoint Financial Corporation 5,500 366,094
MBNA Corporation 2,050 75,081
Security Capital Corporation 3,800 359,338
Star Banc Corporation 7,200 304,200
State Street Corporation 7,300 337,625
United States Trust Corporation 7,200 336,150
----------
1,778,488
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (4.5%)
American Power Conversion* 12,500 236,328
Intel Corporation 3,300 467,259
LSI Logic Corporation* 8,400 268,800
PairGain Technologies, Inc.* 10,800 167,738
Sanmina Corporation* 6,300 394,538
Tellabs, Inc.* 7,600 424,175
Vitesse Semiconductor Corporation* 9,600 313,500
----------
2,272,338
FABRICATED METAL PRODUCTS (0.7%)
Crane Company 8,000 334,500
34
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
FOOD & KINDRED PRODUCTS (1.7%)
Interstate Bakeries Corporation 7,600 $ 450,775
Smithfield Foods, Inc.* 6,800 418,625
----------
869,400
FOOD STORES (0.8%)
General Nutrition Companies, Inc.* 13,800 385,538
FURNITURE & FIXTURES (2.1%)
Ethan Allen Interiors, Inc. 6,200 353,400
Herman Miller, Inc. 18,800 674,450
----------
1,027,850
GENERAL BUILDING CONTRACTORS (0.7%)
Centex Corporation 9,100 369,688
GENERAL MERCHANDISE STORES (1.6%)
TJX Companies, Inc. 17,800 469,475
Woolworth Corporation* 14,500 348,000
----------
817,475
INDUSTRIAL MACHINERY & EQUIPMENT (12.9%)
Caterpillar, Inc. 3,300 354,338
Compaq Computer Corporation* 4,500 446,625
Comverse Technology, Inc.* 5,400 281,813
Cooper Cameron Corporation* 9,200 430,100
Creative Technology Ltd* 18,100 305,438
Dell Computer Corporation* 5,800 680,956
EVI, Inc.* 9,200 386,400
Gateway 2000, Inc.* 14,200 460,613
35
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY & EQUIPMENT (12.9%) (CONTINUED)
Jabil Circuit, Inc.* 7,400 $ 618,825
Kaydon Corporation 3,500 173,688
Quantum Corporation* 14,400 292,950
Seagate Technology, Inc.* 3,000 105,563
Smith International, Inc.* 9,300 564,975
Timken Company 11,000 391,188
Varco International, Inc.* 8,600 277,350
Western Digital Corporation* 21,600 683,100
----------
6,453,922
INSTRUMENTS & RELATED PRODUCTS (1.9%)
Guidant Corporation 5,600 476,000
Sci Systems, Inc.* 7,400 471,750
----------
947,750
INSURANCE CARRIERS (4.3%)
Aegon N.V. 4,300 301,269
Conseco, Inc. 4,500 166,500
Loews Corporation 1,400 140,175
Orion Capital Corporation 5,600 413,000
Oxford Health Plans* 6,700 480,934
Torchmark Corporation 4,900 349,125
Travelers Group, Inc. 4,866 306,862
----------
2,157,865
MISCELLANEOUS RETAIL (2.0%)
Amway Asia Pacific Ltd 9,300 405,713
Bed Bath & Beyond, Inc.* 1,900 57,772
36
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
MISCELLANEOUS RETAIL (2.0%) (CONTINUED)
Borders Group, Inc.* 8,100 $ 195,413
Costco Companies, Inc.* 10,000 329,063
----------
987,961
NONDEPOSITORY INSTITUTIONS (0.5%)
Green Tree Financial Corporation 6,700 238,688
OIL & GAS EXTRACTION (2.4%)
Global Marine, Inc.* 17,900 416,175
Marine Drilling Companies, Inc.* 17,800 348,213
Rowan Companies, Inc.* 8,900 250,869
USX-Marathon Group 6,900 199,238
----------
1,214,495
PETROLEUM & COAL PRODUCTS (0.2%)
Phillips Petroleum Company 2,700 118,125
PRIMARY METAL INDUSTRIES (0.7%)
Bethlehem Steel Corporation* 33,300 347,569
PRINTING AND PUBLISHING (0.6%)
Valassis Communications, Inc.* 11,700 280,800
RAILROAD TRANSPORTATION (0.5%)
Canadian Pacific Ltd 8,200 233,188
RUBBER & MISC. PLASTICS PRODUCTS (0.7%)
Premark International, Inc. 13,700 366,475
37
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
---------------------
COMMON STOCKS (CONTINUED)
STONE, CLAY, & GLASS PRODUCTS (0.7%)
Corning, Inc. 6,100 $ 339,313
TEXTILE MILL PRODUCTS (1.2%)
Fruit of the Loom, Inc.* 8,900 275,900
Unifi, Inc. 9,200 343,850
----------
619,750
TRANSPORTATION BY AIR (2.7%)
British Airways Plc 3,500 402,281
Continental Airlines* 9,700 338,894
Delta Air Lines, Inc. 3,500 287,000
UAL Corporation* 4,200 300,563
----------
1,328,738
TRANSPORTATION EQUIPMENT (0.9%)
Chrysler Corporation 3,200 105,000
Coltec Industries, Inc.* 17,200 335,400
----------
440,400
WHOLESALE TRADE - DURABABLE GOODS (1.4%)
Federal-Mogul Corporation 11,000 385,000
Sybron International Corporation* 7,700 307,038
----------
692,038
WHOLESALE TRADE - NONDURABLE GOODS (1.5%)
Safeway, Inc.* 16,170 745,841
----------
TOTAL COMMON STOCKS (Cost $25,640,020) 33,154,384
38
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (6.6%)
DEPOSITORY INSTITUTIONS (1.2%)
Citicorp Capital I, 7.933%, due 2/15/2027 $ 200,000 $ 200,264
Swiss Bank Corporation, 7.75%, due 9/1/2026 400,000 408,352
----------
608,616
NONDEPOSITORY INSTITUTIONS (5.4%)
AT&T Capital Corporation, 6.39%, due 1/22/1999 350,000 350,672
Case Equipment Loan Trust, 6.45%,
due 3/15/2004 320,000 320,350
Community Program Loan Trust, 4.50%,
due 4/1/2029 850,000 595,266
Countrywide Home Loan, 7.45%, due 9/16/2003 360,000 366,984
Discover Card Master Trust I, 5.40%,
due 11/16/2001 375,000 371,250
Lehman Brothers Holdings, Inc., 6.85%,
due 10/8/1999 300,000 301,617
Standard Credit Card Master Trust, 5.50%,
due 2/7/2000 385,000 380,907
----------
2,687,046
----------
TOTAL CORPORATE BONDS (Cost $3,298,531) 3,295,662
GOVERNMENT BONDS (0.3%)
GOVERNMENT AGENCY (0.3%)
Hydro-Quebec, 8.40%, due 1/15/2022 160,000 173,117
----------
TOTAL GOVERNMENT BONDS (Cost $174,018) 173,117
39
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
GOVERNMENT SECURITIES (26.1%)
U.S. GOVERNMENT AGENCY - COLLATERALIZED
MORTGAGE OBLIGATIONS (2.9%)
Federal Home Loan Mortgage Corporation
6.00%, due 6/15/2001 $ 400,000 $ 399,625
6.15%, due 2/15/2022 430,000 411,859
6.50%, due 12/17/2022 350,000 334,576
9.00%, due 6/01/2006 295,335 306,687
----------
1,452,747
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES (1.5%)
Government National Mortgage
Association, 7.50%, due 8/15/2025 766,529 771,557
U.S. GOVERNMENT OBLIGATIONS (21.7%)
U.S. Treasury Bonds
8.50%, due 2/15/2020 80,000 94,775
9.25%, due 2/15/2016 1,400,000 1,751,526
12.00%, due 8/15/2013 70,000 98,536
U.S. Treasury Notes
5.50%, due 11/15/1998 300,000 298,218
5.875%, due 10/31/1998 950,000 948,965
5.875%, due 8/15/1998 80,000 79,975
6.25%, due 2/15/2003 1,890,000 1,875,239
7.25%, due 5/15/2004 1,800,000 1,876,212
7.50%, due 2/15/2005 1,225,000 1,296,197
8.25%, due 7/15/1998 830,000 849,713
40
<PAGE>
Nicholas-Applegate Balanced Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
--------------------------
GOVERNMENT SECURITIES (CONTINUED)
U.S. GOVERNMENT OBLIGATIONS (21.7%) (CONTINUED)
U.S. Treasury Strips, 0.0%, due 5/15/2006 $ 3,000,000 $ 1,678,290
-----------
10,847,646
-----------
TOTAL GOVERNMENT SECURITIES (Cost $12,991,406) 13,071,950
SHORT-TERM SECURITIES (0.6%)
REPURCHASE AGREEMENT (0.6%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S.
Treasury Note, 6.125%, due 5/15/1998,
value $287,850) 281,370 281,370
-----------
TOTAL SHORT-TERM SECURITIES (Cost $281,370) 281,370
-----------
TOTAL INVESTMENTS (100.0%) (Cost $42,385,345) $49,976,483
-----------
-----------
* Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $63,003,192 and $66,396,138,
respectively. At June 30, 1997, net unrealized appreciation for tax purposes
aggregated $7,591,138, of which $8,191,035 related to appreciated investment
securities and $599,897 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, 1997
ASSETS
Investment in securities, at value (cost $20,588,655)
-See accompanying schedule $ 29,445,175
Cash 19,790
Dividends and interest receivable 14,637
-------------
TOTAL ASSETS 29,479,602
LIABILITIES
Payable for investment securities purchased 626,676
Accounts payable and accrued expenses 38,253
-------------
TOTAL LIABILITIES 664,929
-------------
NET ASSETS $ 28,814,673
-------------
-------------
Net Assets consist of:
Paid-in capital $ 17,778,975
Undistributed net investment income 35,592
Accumulated undistributed net realized gain on investments 2,143,586
Net unrealized appreciation on investment securities 8,856,520
-------------
NET ASSETS, for 1,644,065 shares outstanding $ 28,814,673
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 17.53
-------------
-------------
SEE ACCOMPANYING NOTES.
42
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 244,363
Interest 47,306
-------------
Total investment income 291,669
EXPENSES
Investment advisory and management fees 160,836
Custody and accounting fees 66,809
Professional fees 14,200
Directors' fees and expenses 4,893
Other expenses 9,339
-------------
Total expenses 256,077
-------------
Net investment income 35,592
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,143,586
Change in unrealized appreciation on investment securities 4,406,962
-------------
Net gain on investments 6,550,548
-------------
Net increase in net assets resulting from operations $ 6,586,140
-------------
-------------
SEE ACCOMPANYING NOTES.
43
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 35,592 $ 5,649
Net realized gain on investments 2,143,586 1,737,610
Change in net unrealized appreciation 4,406,962 778,867
--------------------------------
Net increase in net assets resulting from operations 6,586,140 2,522,126
Distributions to shareholders from:
Net investment income (5,649) (17,603)
Net realized gain (1,737,610) (152,435)
--------------------------------
Total distributions to shareholders (1,743,259) (170,038)
Capital share transactions:
Proceeds from sales of shares 5,927,647 10,057,765
Proceeds from reinvested distributions 1,743,259 170,038
Cost of shares redeemed (7,509,523) (5,162,758)
--------------------------------
Net increase in net assets resulting from share
transactions 161,383 5,065,045
--------------------------------
Total increase in net assets 5,004,264 7,417,133
NET ASSETS
Beginning of period 23,810,409 16,393,276
--------------------------------
End of period (including undistributed net investment
income of $35,592 and $5,649, respectively)
$ 28,814,673 $ 23,810,409
--------------------------------
--------------------------------
OTHER INFORMATION
Shares:
Sold 394,049 726,912
Issued through reinvestment of distributions 119,672 12,192
Redeemed (512,893) (371,133)
--------------------------------
Net increase 828 367,971
--------------------------------
--------------------------------
</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
1997 1996 1995 1994 JUNE 30, 1993
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 14.49 $ 12.85 $ 9.36 $ 9.71 $ 10.00
Income from investment operations:
Net investment income (loss) 0.02 - (a) 0.01 (0.02)(b) -
Net realized and unrealized gain
(loss) on investments 4.13 1.74 3.48 (0.33) (0.29)
----------------------------------------------------------------------------
Total from investment operations 4.15 1.74 3.49 (0.35) (0.29)
Less distributions:
From net investment income -(a) (0.01) - - -
From net realized gain (1.11) (0.09) - - -
----------------------------------------------------------------------------
Total distributions (1.11) (0.10) - - -
----------------------------------------------------------------------------
Net asset value, end of period $ 17.53 $ 14.49 $ 12.85 $ 9.36 $ 9.71
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TOTAL RETURN (c) 30.23% 13.59% 37.29% (3.60%) (5.16%)
RATIOS AND SUPPLEMENTAL DATA (d)
Net assets, end of period
(in thousands) $ 28,815 $ 23,810 $ 16,393 $ 10,693 $ 5,143
Ratio of expenses to average net
assets (e) 1.03% 1.04% 1.05% 1.29% 1.34%
Ratio of net investment income
(loss) to average net assets (e) 0.14% 0.03% 0.13% (0.17%) (0.06%)
Portfolio turnover rate 46% 58% 31% 38% 6%
Average commission paid per equity
share traded (f) $ .0600
</TABLE>
(a) Less than $0.01 per share.
(b) Net investment loss per share has been calculated using the weighted
monthly average number of shares outstanding.
(c) Total returns for periods of less than one year are not annualized.
(d) Data expressed as a percentage are annualized as appropriate.
(e) 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.
(f) Disclosure required for fiscal years beginning after September 1, 1995.
45
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (93.3%)
BUSINESS SERVICES (10.6%)
Autodesk, Inc. 17,000 $ 651,844
Automatic Data Processing 11,500 540,500
Interpublic Group of Companies, Inc. 10,000 613,125
Microsoft Corporation* 5,500 695,578
Oracle Corporation* 12,600 634,331
-------------
3,135,378
CHEMICALS & ALLIED PRODUCTS (17.9%)
Abbott Laboratories 10,000 667,500
American Home Products Corporation 7,500 573,750
Amgen, Inc.* 8,700 505,416
Bristol-Meyers Squibb Company 7,600 615,600
Colgate-Palmolive Company 11,800 769,950
Merck & Company, Inc. 7,500 776,248
Pfizer, Inc. 6,000 717,000
Schering-Plough 13,400 641,525
-------------
5,266,989
DEPOSITORY INSTITUTIONS (6.1%)
Bankamerica Corporation 10,000 645,625
Citicorp 4,500 542,531
Norwest Corporation* 10,800 607,500
-------------
1,795,656
EATING & DRINKING PLACES (1.8%)
McDonald's Corporation 11,000 531,438
46
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (11.1%)
General Electric Company 10,000 $ 653,750
Intel Corporation 5,000 707,969
Linear Technology Corporation 10,000 516,563
Lucent Technologies, Inc. 10,500 756,656
Tellabs, Inc.* 11,500 641,844
-------------
3,276,782
FABRICATED METAL PRODUCTS (2.5%)
Illinois Tool Works, Inc. 15,000 749,063
FOOD & KINDRED PRODUCTS (6.5%)
Coca-Cola Company 8,650 583,875
Conagra, Inc. 9,200 589,950
Pepsico, Inc.* 20,000 751,250
-------------
1,925,075
GENERAL MERCHANDISE STORES (2.3%)
Wal-Mart Stores, Inc. 19,600 662,725
INDUSTRIAL MACHINERY & EQUIPMENT (6.6%)
Applied Materials, Inc.* 10,500 743,203
Cisco Systems, Inc.* 9,000 604,406
Compaq Computer Corporation* 6,150 610,388
-------------
1,957,997
INSTRUMENTS & RELATED PRODUCTS (2.0%)
Medtronic, Inc. 7,200 583,200
47
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (6.5%)
American International Group 4,350 $ 649,781
Oxford Health Plans* 9,100 653,209
United Healthcare Corporation 11,500 598,000
-------------
1,900,990
MISCELLANEOUS MANUFACTURING INDUSTRIES (4.7%)
Mattel, Inc. 19,000 643,625
Tyco International Ltd 10,500 730,406
-------------
1,374,031
MOTION PICTURES (2.1%)
Walt Disney 7,800 625,950
RAILROAD TRANSPORTATION (2.1%)
Union Pacific Corporation 8,700 613,350
SECURITY & COMMODITY BROKERS(2.0%)
Merrill Lynch & Company 10,100 602,213
WHOLESALE TRADE - DURABLE GOODS (2.2%)
Johnson & Johnson 10,000 643,750
WHOLESALE TRADE - NONDURABLE GOODS (6.2%)
Gillette Company 7,000 663,250
Safeway, Inc. 12,300 567,338
Sysco Corporation 16,000 584,000
-------------
1,814,588
-------------
48
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TOTAL COMMON STOCKS (Cost $18,602,655) $ 27,459,175
SHORT-TERM SECURITIES (6.7%)
REPURCHASE AGREEMENT (6.7%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S. Treasury
Note, 6.125%, due 5/15/1998, value $2,030,100) $ 1,986,000 1,986,000
--------------
TOTAL SHORT-TERM SECURITIES (Cost $1,986,000) 1,986,000
--------------
TOTAL INVESTMENTS (100.0%) (Cost $20,588,655) $ 29,445,175
--------------
--------------
</TABLE>
* Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $10,887,252 and $13,401,361,
respectively. At June 30, 1997, net unrealized appreciation for tax
purposes aggregated $8,856,520, of which $8,914,571 related to appreciated
investment securities and $58,051 related to depreciated investment
securities. The aggregate cost of securities is the same for book and tax
purposes.
SEE ACCOMPANYING NOTES.
49
<PAGE>
Dreman Value Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $25,309,118)
-See accompanying schedule $ 30,887,217
Cash 19,382
Dividends, interest and other receivables 63,868
-------------
TOTAL ASSETS 30,970,467
LIABILITIES
Accounts payable and accrued expenses 40,013
-------------
TOTAL LIABILITIES 40,013
-------------
NET ASSETS $ 30,930,454
-------------
-------------
Net Assets consist of:
Paid-in capital $ 19,219,499
Undistributed net investment income 408,549
Accumulated undistributed net realized gain on investments 5,724,307
Net unrealized appreciation on investment securities 5,578,099
-------------
NET ASSETS, for 1,499,576 shares outstanding $ 30,930,454
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 20.63
--------------
--------------
SEE ACCOMPANYING NOTES.
50
<PAGE>
Dreman Value Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 559,690
Interest 115,425
-------------
Total investment income 675,115
EXPENSES
Investment advisory and management fees 164,290
Custody and accounting fees 68,244
Professional fees 14,200
Directors' fees and expenses 4,893
Foreign tax expense 4,891
Other expenses 10,048
-------------
Total expenses 266,566
-------------
Net investment income 408,549
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 5,724,307
Change in unrealized appreciation on investment securities 1,320,029
-------------
Net gain on investments 7,044,336
-------------
Net increase in net assets resulting from operations $ 7,452,885
-------------
-------------
SEE ACCOMPANYING NOTES.
51
<PAGE>
Dreman Value Portfolio
Statement of Changes in Net Assets
YEAR ENDED JUNE 30,
1997 1996
------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 408,549 $ 252,188
Net realized gain on investments 5,724,307 862,820
Change in net unrealized appreciation 1,320,029 2,857,141
------------------------------
Net increase in net assets
resulting from operations 7,452,885 3,972,149
Distributions to shareholders from:
Net investment income (252,188) (190,236)
Net realized gain (862,820) (110,864)
------------------------------
Total distributions to shareholders (1,115,008) (301,100)
Capital share transactions:
Proceeds from sales of shares 12,411,821 7,569,421
Proceeds from reinvested distributions 1,115,008 301,100
Cost of shares redeemed (8,638,962) (2,713,770)
-------------------------------
Net increase in net assets resulting
from share transactions 4,887,867 5,156,751
-------------------------------
Total increase in net assets 11,225,744 8,827,800
NET ASSETS
Beginning of period 19,704,710 10,876,910
-------------------------------
End of period (including undistributed
net investment income of $408,549
and $252,188, respectively) $ 30,930,454 $ 19,704,710
------------------------------
------------------------------
OTHER INFORMATION
Shares:
Sold 689,365 517,405
Issued through reinvestment of distributions 64,391 21,840
Redeemed (472,506) (184,651)
------------------------------
Net increase 281,250 354,594
------------------------------
------------------------------
SEE ACCOMPANYING NOTES.
52
<PAGE>
Dreman Value Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------------------------------------------ THROUGH
1997 1996 1995 1994 JUNE 30, 1993
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 16.17 $ 12.59 $ 10.66 $ 10.45 $ 10.00
Income from investment operations:
Net investment income 0.26 0.18 0.26 0.12 0.11
Net realized and unrealized gain on investments 5.04 3.70 1.85 0.17 0.34
----------------------------------------------------------------------
Total from investment operations 5.30 3.88 2.11 0.29 0.45
Less distributions:
From net investment income (0.19) (0.19) (0.14) (0.08) -
From net realized gain (0.65) (0.11) (0.04) - -
----------------------------------------------------------------------
Total distributions (0.84) (0.30) (0.18) (0.08) -
----------------------------------------------------------------------
Net asset value, end of period $ 20.63 $ 16.17 $ 12.59 $ 10.66 $ 10.45
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL RETURN (a) 33.78% 31.22% 19.98% 2.80% 8.25%
RATIOS AND SUPPLEMENTAL DATA (b)
Net assets, end of period (in thousands) $ 30,930 $ 19,705 $ 10,877 $ 8,952 $ 1,671
Ratio of expenses to average net assets 1.05% 1.06% 1.13% 1.40% 1.24%
Ratio of net investment income to
average net assets 1.62% 1.65% 1.98% 1.98% 2.00%
Ratio of expenses to average net
assets before voluntary expense reimbursement 1.05% 1.07% 1.13% 1.61% 8.43%
Ratio of net investment income to
average net assets before voluntary expense
reimbursement 1.62% 1.64% 1.98% 1.76% (1.49%)
Portfolio turnover rate 88% 18% 29% 9% 5%
Average commission paid per equity
share traded (c) $ .0512
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Data expressed as a percentage are annualized as appropriate.
(c) Disclosure required for fiscal years beginning after September 1, 1995.
53
<PAGE>
Dreman Value Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
-----------------------
COMMON STOCKS (79.2%)
CHEMICALS & ALLIED PRODUCTS( 0.6%)
Glaxo Holdings 4,100 $ 171,431
COMMUNICATIONS (6.0%)
GTE Corporation 23,000 1,009,122
U.S. West Media Group* 42,000 850,500
-------------
1,859,622
DEPOSITORY INSTITUTIONS (14.0%)
Ahmanson (H.F.) & Company 10,000 430,000
Bankamerica Corporation 8,000 516,500
Bankers Trust New York Corporation 5,300 461,100
Citicorp 4,500 542,531
First Union Corporation 3,800 351,500
J.P. Morgan & Company 3,500 365,313
Keycorp 6,000 335,250
Nationsbank Corporation 5,000 322,500
PNC Bank Corporation 16,510 687,229
Wells Fargo & Company 1,200 323,400
-------------
4,335,323
EATING & DRINKING PLACES (4.2%)
Boston Chicken, Inc.* 40,000 558,750
Darden Restaurants, Inc. 83,000 752,188
-------------
1,310,938
ELECTRIC GAS & SANITARY SERVICES (5.2%)
Duke Power Company 20,000 958,750
Southern Company 30,000 656,250
-------------
1,615,000
54
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-----------------------
COMMON STOCKS (CONTINUED)
FOOD & KINDRED PRODUCTS (6.5%)
Nestle SA 6,000 $ 396,337
Wendy's International, Inc. 30,000 778,125
Whitman Corporation 33,000 835,313
-------------
2,009,775
FORESTRY (0.7%)
Georgia-Pacific Corporation 2,700 230,513
GENERAL MERCHANDISE STORES (2.6%)
J C Penney, Inc. 12,000 626,250
May Department Stores Company 3,500 165,375
-------------
791,625
INSTRUMENTS & RELATED PRODUCTS (4.4%)
Bard (C.R.), Inc. 9,100 330,444
Raytheon Company 6,000 306,000
Xerox Corporation 9,300 733,538
-------------
1,369,982
INSURANCE CARRIERS (3.2%)
American General Corporation 6,800 324,700
American International Group 2,250 336,094
Travelers Group, Inc. 5,000 315,313
-------------
976,107
LUMBER & WOOD PRODUCTS (1.3%)
Louisiana-Pacific Corporation 18,800 397,150
55
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-----------------------
COMMON STOCKS (CONTINUED)
NONDEPOSITORY INSTITUTIONS (6.3%)
Fannie Mae 21,800 $ 951,025
Federal Home Loan Mortgage Corporation 17,500 601,563
Student Loan Marketing Association 3,000 381,000
-------------
1,933,588
OIL & GAS EXTRACTION (0.7%)
Atlantic Richfield Company 3,000 211,500
PAPER & ALLIED PRODUCTS (4.1%)
Sonoco Products Company 32,000 974,000
Union Camp Corporation 6,100 305,000
-------------
1,279,000
PETROLEUM & COAL PRODUCTS (2.4%)
Amoco Corporation 5,000 434,688
Chevron Corporation 4,000 295,750
-------------
730,438
PRIMARY METAL INDUSTRIES (2.2%)
Nucor Corporation 12,000 678,000
PRINTING & PUBLISHING (2.8%)
News Corporation Ltd 45,000 866,250
RAILROAD TRANSPORTATION (0.6%)
Burlington Northern Santa Fe 1,900 170,763
56
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
NUMBER OF
SHARES
OR PRINCIPAL
AMOUNT VALUE
---------------------------
COMMON STOCKS (CONTINUED)
TOBACCO PRODUCTS (5.6%)
Philip Morris Company, Inc. 30,600 $ 1,357,874
UST, Inc. 13,200 366,300
-------------
1,724,174
TRANSPORTATION BY AIR (1.9%)
Federal Express Corporation* 10,200 589,050
TRANSPORTATION EQUIPMENT (3.9%)
Ford Motor Company 32,000 1,208,000
-------------
TOTAL COMMON STOCKS (Cost $18,880,130) 24,458,229
SHORT-TERM SECURITIES (20.8%)
REPURCHASE AGREEMENT (20.8%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by
U.S. Treasury Note, 6.125%, due 5/15/1998,
value $6,559,950) $ 6,428,988 6,428,988
-------------
TOTAL SHORT-TERM SECURITIES (Cost $6,428,988) 6,428,988
-------------
TOTAL INVESTMENTS (100.0%) (Cost $25,309,118) $ 30,887,217
-------------
-------------
57
<PAGE>
Dreman Value Portfolio
Schedule of Investments (continued)
* Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $19,710,671 and $21,880,553,
respectively. At June 30, 1997, net unrealized appreciation for tax purposes
aggregated $5,578,099, of which $5,776,695 related to appreciated investment
securities and $198,596 related to depreciated investment securities. The
aggregate cost of securities is the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
58
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $8,460,923)
-See accompanying schedule $11,149,793
Cash 16,777
Dividends, interest and other receivables 19,341
-----------
TOTAL ASSETS 11,185,911
LIABILITIES
Accounts payable and accrued expenses 24,738
-----------
TOTAL LIABILITIES 24,738
-----------
NET ASSETS $11,161,173
-----------
-----------
Net Assets consist of:
Paid-in capital $ 7,894,272
Undistributed net investment income 103,886
Accumulated undistributed net realized gain on investment
securities and futures contracts 499,755
Net unrealized appreciation on investment securities and
futures contracts 2,663,260
-----------
NET ASSETS, for 751,598 shares outstanding $11,161,173
-----------
-----------
NET ASSET VALUE, offering and redemption price per share $ 14.85
-----------
-----------
SEE ACCOMPANYING NOTES.
59
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $4,788) $ 171,743
Interest 93,311
-----------
Total investment income 265,054
EXPENSES
Investment advisory and management fees 112,524
Custody and accounting fees 50,013
Professional fees 14,200
Directors' fees and expenses 4,893
Other expenses 8,811
-----------
Total expenses before reimbursement 190,441
Less: expense reimbursement (29,273)
-----------
Net expenses 161,168
-----------
Net investment income 103,886
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment securities 1,142,748
Futures contracts (666,051)
-----------
Net realized gain 476,697
Change in unrealized appreciation (depreciation) on:
Investment securities 1,356,413
Futures contracts (2,552)
-----------
Change in unrealized appreciation 1,353,861
-----------
Net gain on investments 1,830,558
-----------
Net increase in net assets resulting from operations $ 1,934,444
-----------
-----------
SEE ACCOMPANYING NOTES.
60
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 103,886 $ 103,880
Net realized gain on investments 476,697 1,345,302
Change in net unrealized appreciation 1,353,861 190,585
--------------------------
Net increase in net assets resulting from operations 1,934,444 1,639,767
Distributions to shareholders from:
Net investment income (103,880) (119,225)
Net realized gains (861,194) -
--------------------------
Total distributions to shareholders (965,074) (119,225)
Capital share transactions:
Proceeds from sales of shares 2,797,773 4,407,015
Proceeds from reinvested distributions 965,074 119,225
Cost of shares redeemed (5,269,163) (2,382,455)
--------------------------
Net increase (decrease) in net assets resulting
from share transactions (1,506,316) 2,143,785
--------------------------
Total increase (decrease) in net assets (536,946) 3,664,327
NET ASSETS
Beginning of period 11,698,119 8,033,792
--------------------------
End of period (including undistributed net investment
income of $103,886 and $103,880, respectively) $11,161,173 $11,698,119
--------------------------
--------------------------
OTHER INFORMATION
Shares:
Sold 205,116 343,946
Issued through reinvestment of distributions 74,878 9,733
Redeemed (387,804) (185,655)
--------------------------
Net increase (decrease) (107,810) 168,024
--------------------------
--------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
Zweig Equity (Small Cap) Portfolio
Financial Highlights
<TABLE>
<CAPTION>
DECEMBER 14,
1992
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
------------------------------------------------------- THROUGH JUNE 30,
1997 1996 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 13.61 $ 11.62 $ 10.65 $ 10.11 $ 10.00
Income from investment operations:
Net investment income 0.16 0.11 0.17 0.15 0.05
Net realized and unrealized gain
on investments 2.41 2.04 0.93 0.50 0.06
------------------------------------------------------------------------
Total from investment operations 2.57 2.15 1.10 0.65 0.11
Less distributions:
From net investment income (0.14) (0.16) (0.06) (0.11) -
From net realized gain (1.19) - (0.07) - -
------------------------------------------------------------------------
Total distributions (1.33) (0.16) (0.13) (0.11) -
------------------------------------------------------------------------
Net asset value, end of period $ 14.85 $ 13.61 $ 11.62 $ 10.65 $ 10.11
------------------------------------------------------------------------
------------------------------------------------------------------------
TOTAL RETURN (a) 20.37% 18.69% 10.39% 6.53% 2.02%
RATIOS AND SUPPLEMENTAL DATA (b)
Net assets, end of period (in thousands) $ 11,161 $ 11,698 $ 8,034 $ 7,591 $ 2,116
Ratio of expenses to average net assets 1.55% 1.55% 1.55% 1.72% 1.61%
Ratio of net investment income to
average net assets 0.97% 1.06% 1.54% 1.75% 0.84%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 1.82% 1.83% 1.59% 2.14% 7.29%
Ratio of net investment income (loss) to
average net assets before voluntary
expense reimbursement 0.70% 0.78% 1.50% 1.32% (1.80%)
Portfolio turnover rate 59% 101% 67% 249% 15%
Average commission paid per
equity share traded (c) $ .0276
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Data expressed as a percentage are annualized as appropriate.
(c) Disclosure required for fiscal years beginning after September 1, 1995.
62
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (86.1%)
AGRICULTURAL PRODUCTION - CROPS (0.5%)
Chiquita Brands International 400 $ 5,500
RJR Nabisco Holdings Corporation 1,500 49,500
---------
55,000
AGRICULTURAL PRODUCTION - LIVESTOCK (0.1%)
Golden Poultry Company, Inc. 600 8,325
AMUSEMENT & RECREATIONAL SERVICES (0.1%)
Hollywood Park, Inc. (a) 400 5,825
King World Productions, Inc. 300 10,500
---------
16,325
APPAREL & ACCESSORY STORES (1.0%)
Dress Barn, Inc. (a) 400 7,788
Genesco, Inc. (a) 2,100 29,794
Goody's Family Clothing, Inc. (a) 300 8,250
Kmart Corporation (a) 700 8,575
Ross Stores, Inc. 1,400 45,719
Wet Seal, Inc. (a) 400 12,613
---------
112,739
BUILDING MATERIALS & GARDEN SUPPLIES (0.1%)
Central Garden and Pet Company (a) 200 4,975
Shelter Components Corporation 87 1,033
---------
6,008
63
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
BUSINESS SERVICES (1.4%)
Advanced Technology Labs, Inc. (a) 500 $ 21,438
Comdisco, Inc. 1,575 40,950
Electro Rent Corporation (a) 2,000 49,750
McGrath Rentcorp 800 16,000
Orbotech Ltd (a) 500 16,000
Stratus Computer, Inc. (a) 300 15,000
---------
159,138
CHEMICALS & ALLIED PRODUCTS (1.7%)
Cambrex Corporation 100 3,975
Church & Dwight Company, Inc. 200 5,350
Creative BioMolecules, Inc. (a) 1,500 10,734
Dexter Corporation 100 3,200
ICN Pharmaceuticals, Inc. 500 14,344
International Specialty Products, Inc. (a) 2,400 33,750
MacDermaid, Inc. 900 41,288
Methanex Corporation (a) 800 7,325
Montedison SPA 200 1,350
NBTY, Inc. (a) 400 11,150
Nova Corporation (a) 2,100 17,850
Occidental Petroleum Corporation 700 17,544
Terra Industries, Inc. 1,600 18,600
---------
186,460
COAL MINING (0.1%)
Zeigler Coal Holding Company 700 16,363
64
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS (0.8%)
Atlantic Tele-Network, Inc. (a) 1,000 $ 12,500
Mastec, Inc. (a) 100 4,731
Tele Danmark 1,100 28,738
Telefonos de Mexico 800 38,200
----------
84,169
DEPOSITORY INSTITUTIONS (8.9%)
Ahmanson (H.F.) & Company 200 8,600
Albank Financial Corporation 200 7,950
Allied Irish Banks 700 32,681
Astoria Financial Corporation 500 23,750
Bank of Montreal 1,200 46,950
Bankamerica Corporation 600 38,738
Bankers Corporation 200 5,613
CitFed Bancorp, Inc. 200 7,700
Coast Savings Financial (a) 300 13,631
Colonial Bancgroup, Inc. 600 14,550
Corporation Bancaria de Espana S.A. 100 2,838
CVB Financial Corporation 2 48
Dime Bancorp, Inc. 200 3,500
Downey Financial Corporation 700 16,538
F.N.B. Corporation 105 3,373
First Citizens BancShares, Inc. 200 17,800
Firstbank Puerto Rico 800 20,700
FirstFed Financial Corporated (a) 500 15,531
Glendale Federal Bank FSB (a) 600 15,675
Imperial Bancorp (a) 712 20,559
Investors Financial Services Corporation 32 1,496
65
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (8.9%) (CONTINUED)
MAF Bancorp, Inc. 500 $ 21,063
New York Bancorp, Inc. 1,300 45,175
North Fork Bancorporation 2,692 57,542
ONBANCorp, Inc. 200 10,188
Peoples Heritage Financial Group, Inc. 800 30,200
Popular, Inc. 1,600 64,300
Provident Bankshares Corporation 420 17,404
RCSB Financial, Inc. 800 38,250
Republic New York Corporation 500 53,750
Riggs National Corporation, Washington D.C. 300 6,131
Santa Monica Bank 900 19,013
Security Capital Corporation 100 9,456
Silicon Valley Bancshares (a) 800 36,200
Sovereign Bancorp, Inc. 1,440 22,005
St. Paul Bancorp, Inc. 300 9,975
Sterling Bancorp 1,400 26,075
Sumitomo Bank of California 300 8,756
TR Financial Corporation 1,600 40,400
Trans Financial, Inc. 400 11,175
Trust Company of New Jersey 300 5,756
UnionBanCal Corporation 200 14,438
USBANCORP, Inc. 200 10,838
UST Corporation 1,600 35,750
Washington Mutual, Inc. 600 35,869
Westpac Banking 1,300 38,919
----------
986,849
66
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
EATING & DRINKING PLACES (0.9%)
CKE Restaurants, Inc. 900 $ 28,463
Foodmaker, Inc. (a) 3,300 54,038
Ryan's Family Steak Houses, Inc. (a) 1,500 12,797
Showbiz Pizza Time, Inc. (a) 400 10,575
----------
105,873
EDUCATIONAL SERVICES (0.1%)
Berlitz International, Inc. (a) 200 4,988
ELECTRIC, GAS & SANITARY SERVICES (7.0%)
Allegheny Power System, Inc. 300 8,006
Aquila Gas Pipeline Corporation 1,000 13,938
Atlantic Energy, Inc. 800 13,450
Baltimore Gas & Electric 500 13,344
Black Hills Corporation 200 5,700
Boston Edison Company 500 13,188
California Water Service Company 200 8,800
Centerior Energy Corporation 1,400 15,663
CMS Energy Corporation 500 17,625
Columbia Gas System 600 39,150
Delmarva Power and Light Company 200 3,813
DQE, Inc. 200 5,650
Edison International 1,600 39,800
Enersis S.A. 500 17,781
Entergy Corporation 1,400 38,325
GPU, Inc. 300 10,763
Hawaiian Electric Industries, Inc. 100 3,863
Houston Industries, Inc. 400 8,575
67
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES (7.0%) (CONTINUED)
Huaneng Power International, Inc. (a) 400 $ 10,200
Illinova Corporation 800 17,600
Ipalco Enterprises, Inc. 900 28,125
KU Energy Corporation 400 13,650
Long Island Lighting Company 400 9,200
MidAmerican Energy Holdings Company 1,200 20,775
Montana Power Company 300 6,956
National Fuel Gas Company 700 29,356
New England Electric System 400 14,800
New York State Electric & Gas 700 14,613
Niagara Mohawk Power Corporation (a) 1,000 8,563
Noram Energy Corporation 1,300 19,825
Northern States Power 100 5,175
Northwest Natural Gas Company 300 7,856
Pacific Enterprises 400 13,450
People's Energy Corporation 600 22,463
PG&E Corporation 400 9,700
Pinnacle West Corporation 1,300 39,081
PP&L Resources, Inc. 400 7,975
Public Service Company of New Mexico 300 5,363
Public Service Enterprises Group 1,600 40,000
Shandong Huaneng Power 2,700 29,025
Sierra Pacific Resources 600 19,200
Texas Utilities Company 400 13,775
TNP Enterprises, Inc. 1,600 37,100
TransCanada Pipelines Ltd 100 2,013
Utilicorp United, Inc. 500 14,563
Washington Gas Light Company 600 15,075
68
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES (7.0%) (CONTINUED)
Westcoast Energy, Inc. 800 $ 14,550
Western Gas Resources, Inc. 100 1,950
York Research Corporation (a) 1,100 8,456
----------
777,867
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (4.7%)
Aeroquip-Vickers, Inc. 300 14,175
Bairnco Corporation 1,000 8,000
Bel Fuse, Inc. (a) 600 7,988
Chips & Technologies, Inc. (a) 1,000 10,344
CTS Corporation 500 34,469
Electrolux Ab 600 43,388
Genlyte Group, Inc. (a) 2,000 26,375
Hadco Corporation (a) 1,000 65,195
Hutchinson Technology, Inc. (a) 400 9,713
Kollmorgen Corporation 700 11,069
Kuhlman Corporation 800 25,800
Lamson & Sessions Company (a) 2,100 17,456
Moog, Inc. (a) 500 15,625
Plexus Corporation (a) 400 22,363
Portugal Telecom S.A. 1,300 52,163
Powell Industries, Inc. (a) 300 4,500
Siliconix, Inc. (a) 500 13,531
Sony Corporation 400 35,200
Tadiran Ltd 900 25,763
69
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC & OTHER ELECTRIC EQUIPMENT (4.7%) (CONTINUED)
Technitrol, Inc. 2,000 $ 54,750
Thomas Industries, Inc. 600 17,250
Xicor, Inc. (a) 700 4,134
-----------
519,251
ENGINEERING & MANAGEMENT SERVICES (0.1%)
Stone & Webster, Inc. 200 8,538
FABRICATED METAL PRODUCTS (1.0%)
Alliant Techsystems, Inc. (a) 200 11,000
Ameron, Inc. 500 28,313
NCI Building Systems, Inc. (a) 400 12,925
Nortek, Inc. (a) 800 19,300
Shiloh Industries, Inc. (a) 700 13,913
Wyman-Gordon Company (a) 1,100 29,769
-----------
115,220
FOOD & KINDRED PRODUCTS (0.6%)
Adolph Coors Company 500 13,250
Morningstar Group, Inc. (a) 500 14,703
Orange-Company, Inc. 1,100 8,525
Pepsi-Gemex S.A. (a) 600 7,500
Pilgrim's Pride Corporation 700 8,269
Savannah Foods & Industries, Inc. 400 7,025
Triangle Pacific Corporation (a) 200 6,350
-----------
65,622
70
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
FOOD STORES (0.2%)
Great Atlantic & Pacific Tea Company 700 $ 19,031
Ruddick Corporation 300 4,950
-----------
23,981
FURNITURE & HOME FURNISHINGS STORES (0.2%)
Inacom Corporation (a) 600 18,713
FURNITURE & FIXTURES (0.7%)
Ethan Allen Interiors, Inc. 500 28,500
Furniture Brands International, Inc. (a) 1,300 25,188
Johnson Controls, Inc. 400 16,425
Kimball International 100 4,019
La-Z-Boy, Inc. 200 7,200
-----------
81,332
GENERAL BUILDING CONTRACTORS (0.9%)
Centex Corporation 600 24,375
Contl Homes Holding Corporation 900 15,863
Lennar Corporation 300 9,581
Pulte Corporation 200 6,913
Southern Energy Homes, Inc. (a) 200 1,813
Standard-Pacific Corporation 900 9,225
Toll Brothers, Inc. (a) 300 5,513
US Home Corporation (a) 600 15,938
Webb (Del E.) Corporation 400 6,500
-----------
95,721
71
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
GENERAL MERCHANDISE STORES (1.4%)
Carson Pirie Scott & Company (a) 600 $ 19,050
Dayton-Hudson Corporation 500 26,594
Federated Department Stores (a) 500 17,375
Fred Meyer, Inc. (a) 600 31,013
Proffitt's, Inc. (a) 100 4,381
Shopko Stores, Inc. 1,600 40,800
Waban, Inc. (a) 500 16,094
Woolworth Corporation (a) 500 12,000
-----------
167,307
HEALTH SERVICES (0.5%)
Beverly Enterprises, Inc. (a) 700 11,375
Integrated Health Services, Inc. 100 3,850
RoTech Medical Corporation (a) 900 18,084
Universal Health Services (a) 500 19,250
-----------
52,559
HEAVY CONSTRUCTION, EXCEPT BUILDING (0.1%)
Granite Construction, Inc. 50 988
HOLDING & OTHER INVESTMENT OFFICES (0.6%)
Dynex Capital, Inc. 600 8,363
Koger Equity, Inc. 400 7,300
MGI Properties, Inc. 500 11,031
RFS Hotel Investors, Inc. 400 7,200
Thornburg Mortgage Asset Corporation 1,500 32,250
-----------
66,144
72
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY & EQUIPMENT (6.5%)
Advanced Logic Research, Inc. (a) 1,600 $ 24,550
AGCO Corporation 300 10,781
Ampco-Pittsburgh 1,200 17,625
Applied Magnetics Corporation (a) 100 2,263
Applied Power, Inc. 400 20,650
B H A Group, Inc. 616 11,704
Case Corporation 100 6,888
Caterpillar, Inc. 500 53,688
Creative Technology Ltd (a) 800 13,500
Data General Corporation (a) 1,000 26,000
DT Industries, Inc. 200 7,125
Gardner Denver Machinery, Inc. (a) 1,400 40,950
Gleason Corporation 600 27,900
Global Industrial Technologies, Inc. (a) 700 14,350
Graco, Inc. 600 18,075
Harris Corporation 100 8,400
Innovex, Inc. 1,800 52,088
Jabil Circuit, Inc. (a) 400 33,450
Katy Industries 400 5,950
Kaydon Corporation 500 24,813
Lexmark International Group, Inc. (a) 100 3,038
Lincoln Electric Company 100 3,481
Lindsay Manufacturing Company 450 14,738
Lufkin Industries, Inc. 800 21,000
Manitowoc Company, Inc. 300 14,025
Mestek, Inc. (a) 700 14,438
Met-Pro Corporation 150 2,269
Raymond Corporation 500 16,344
73
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY & EQUIPMENT (6.5%) (CONTINUED)
Robbins & Meyers, Inc. 1,300 $ 43,388
Seagate Technology, Inc. (a) 100 3,519
SPS Technologies, Inc. (a) 700 49,525
Storage Technolgy Corporation (a) 500 22,250
Tandem Computers, Inc. (a) 1,300 26,325
Tecumseh Products Company 300 17,981
Timken Company 1,000 35,563
Twin Disc, Inc. 100 2,875
Valmont Industries 600 11,513
-----------
723,022
INSTRUMENTS & RELATED PRODUCTS (1.2%)
Coherent, Inc. (a) 400 17,863
Cooper Companies, Inc. (a) 1,400 32,550
Core Industries, Inc. 300 7,425
Esterline Technologies Corporation (a) 1,400 49,263
Fluke Corporation 300 17,775
Starrett (L.S.) Company 200 6,375
Zygo Corporation (a) 200 6,050
-----------
137,301
INSURANCE CARRIERS (8.6%)
Ace Ltd 500 36,938
Aegon N.V. 304 21,305
Allmerica Financial Corporation 400 15,950
Ambac, Inc. 600 45,825
American Annuity Group, Inc. 1,820 32,760
American Bankers Insurance Group, Inc. 400 25,275
74
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (8.6%) (CONTINUED)
American General Corporation 221 $ 10,553
Capital Re Corporation 600 32,100
Capitol Transamerica Corporation 200 5,475
Chartwell Re Corporation 100 3,000
Citizens Corporation 300 8,288
CMAC Investment Corporation 100 4,775
CNA Financial Corporation (a) 100 10,544
Conseco, Inc. 1,403 51,911
Delphi Financial Group, Inc. (a) 612 23,562
Enhance Financial Services Group, Inc. 700 30,713
Equitable Companies, Inc. 400 13,300
Equitable of Iowa Companies 700 39,200
Exel Ltd 1,000 52,750
Financial Security Assurance Holding 100 3,894
Fremont General Corporation 900 36,225
Liberty Financial Companies, Inc. 900 44,888
Life Re Corporation 700 32,638
Life USA Holdings, Inc. (a) 600 8,531
Loews Corporation 600 60,075
MAIC Holdings, Inc. (a) 200 8,125
MFC Bancorp Ltd 500 4,266
NAC Re Corporation 200 9,675
National Western Life Insurance Company (a) 200 17,500
Nymagic, Inc. 200 4,125
Old Republic International Corporation 1,900 57,594
Orion Capital Corporation 300 22,125
Presidential Life Corporation 900 17,466
Providian Financial Corporation (a) 700 22,488
75
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (8.6%) (CONTINUED)
Reliance Group Holdings, Inc. 4,700 $ 55,813
Reliastar Financial Corporation 314 22,961
RLI Corporation 200 7,288
Security-Connecticut Corporation 200 11,013
Selective Insurance Group (a) 200 9,688
Tig Holdings, Inc. 400 12,500
Transatlantic Holdings, Inc. 300 29,775
-----------
962,877
LEATHER & LEATHER PRODUCTS (0.1%)
Weyco Group, Inc. 200 13,475
LUMBER & WOOD PRODUCTS (0.4%)
Champion Enterprises, Inc. (a) 792 11,880
Fibreboard Corporation (a) 400 22,000
TJ International, Inc. 600 14,138
-----------
48,018
METAL MINING (0.7%)
Asarco, Inc. 500 15,313
Brush Wellman, Inc. 500 10,469
Cleveland-Cliffs, Inc. 600 24,450
Imperial Credit Mortgage Holdings 300 8,138
O'Sullivan Industries Holdings, Inc. (a) 500 8,281
Southern Peru Copper Corporation 800 15,600
-----------
82,251
76
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
NONMETALLIC MINERALS, EXCEPT FUELS (0.6%)
De Beers Consolidated Mines 500 $ 18,453
Florida Rock Industries 500 20,313
Vulcan Materials Company 400 31,400
-----------
70,166
MISCELLANEOUS MANUFACTURING INDUSTRIES (0.6%)
Johns Manville Corporation 600 7,088
Mine Safety Appliances Company 200 12,350
Oneida Ltd 1,100 29,356
Russ Berrie & Company, Inc. 700 15,356
-----------
64,150
MISCELLANEOUS RETAIL (0.3%)
Cash America International, Inc. 800 8,400
World Fuel Services Corporation 350 7,656
Zale Corporation (a) 700 13,869
-----------
29,925
NONDEPOSITORY INSTITUTIONS (0.7%)
AmeriCredit Corporation (a) 900 18,900
First Financial Caribbean Corporation 400 12,825
Firstplus Financial Group, Inc. (a) 600 20,400
Imperial Credit Industries (a) 900 18,534
Mercury Finance Company 3,500 8,531
-----------
79,190
77
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
OIL & GAS EXTRACTION (4.9%)
Apache Corporation 200 $ 6,500
Belden & Blake Corporation (a) 1,000 27,000
Benton Oil & Gas Company (a) 700 10,500
Berry Petroleum Company 600 11,400
Cabot Oil and Gas Corporation 100 1,763
Chieftain International, Inc. (a) 200 4,388
Cliffs Drilling Company (a) 2,000 73,000
Cross Timbers Oil Company 150 2,888
Devon Energy Corporation 400 14,700
Forest Oil Corporation (a) 100 1,469
Helmerich & Payne, Inc. 200 11,525
Kerr-McGee Corporation 300 19,013
Lomak Petroleum, Inc. 400 7,125
Louis Dreyfus Natural Gas (a) 400 6,500
Marine Drilling Companies, Inc. (a) 900 17,606
Mesa, Inc. (a) 300 1,725
Mitchell Energy & Development Corporation 1,200 24,600
Oryx Energy Company (a) 700 14,788
Parker & Parsley Petroleum Company 600 21,225
Plains Resources Inc. (a) 1,000 14,750
Pool Energy Services Company (a) 600 10,931
RPC Energy Services, Inc. (a) 700 10,325
Santa Fe Energy Resources, Inc. (a) 900 13,219
Seacor Smit, Inc. (a) 200 10,463
St. Mary Land & Exploration Company 200 6,988
Tuboscope Vetco International Corporation (a) 600 11,963
Union Texas Petro Holdings, Inc. 600 12,563
USX-Marathon Group 1,700 49,088
78
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
OIL & GAS EXTRACTION (4.9%) (CONTINUED)
Veritas DGC, Inc. (a) 2,400 $ 54,600
Vintage Petroleum, Inc. 500 15,375
YPE Sociedad Anonima 1,800 55,350
-----------
543,330
PAPER & ALLIED PRODUCTS (1.1%)
Asia Pulp & Paper Company Ltd (a) 500 7,563
Grupo Indus Durango (a) 1,200 18,300
Interpool, Inc. 1,650 24,338
James River Corporation of Virigina 600 22,200
Mail-Well, Inc. (a) 450 12,825
Mosinee Paper Corporation 949 23,073
Republic Gypsum Company 880 17,710
-----------
126,009
PETROLEUM & COAL PRODUCTS (2.2%)
Coastal Corporation 1,100 58,506
Elf Aquitaine 700 38,106
Ente Nazionale Idrocarburi SPA 300 17,063
Fina, Inc. 500 31,875
Imperial Oil Ltd 100 5,138
Murphy Oil Corporation 300 14,625
Phillips Petroleum Company 700 30,625
Sun Company, Inc. 500 15,500
Texaco, Inc. 100 10,875
79
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
PETROLEUM & COAL PRODUCTS (2.2%) (CONTINUED)
Total S.A. 200 $ 10,125
Unocal Corporation 100 3,881
Valero Energy Corporation 100 3,625
-----------
239,944
PRIMARY METAL INDUSTRIES (5.1%)
AK Steel Holding Corporation 500 22,063
Alumax, Inc. (a) 600 22,763
British Steel Plc 1,700 42,925
Chaparral Steel Company 500 7,469
Inland Steel Industries, Inc. 600 15,675
Lone Star Technologies (a) 1,700 48,663
LTV Corporation 500 7,125
Mueller Industries, Inc. (a) 1,200 52,500
Oregon Metallurgical Corporation (a) 400 11,250
Oregon Steel Mills, Inc. 800 15,950
Pohang Iron & Steel Ltd 2,100 67,200
Quanex Corporation 400 12,275
RMI Titanium Company (a) 1,300 35,425
Roanoke Electric Steel Corporation 1,200 19,875
Tredegar Industries, Inc. 1,550 86,025
Tremont Corporation (a) 700 30,713
Tubos De Acero De Mex (a) 3,600 66,375
USX-U.S. Steel Company 200 7,013
-----------
571,284
80
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
PRINTING & PUBLISHING (0.6%)
Bowne & Company, Inc. 200 $ 6,975
CSS Industries, Inc. (a) 100 3,163
Gibson Greetings, Inc. (a) 1,000 22,563
Graphic Industries 1,500 19,875
Quebecor, Inc. 800 14,900
Standard Register Company 100 3,063
----------
70,539
RAILROAD TRANSPORTATION (0.4%)
Canadian Pacific Ltd 1,700 48,344
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS (0.9%)
American Filtrona Corporation 300 12,413
Furon Company 800 25,100
Gundle/SLT Environmental, Inc. (a) 500 2,500
Petro-Canada 300 4,875
Premark International, Inc. 600 16,050
Spartech Corporation 2,400 31,200
Vans, Inc. (a) 200 3,019
----------
95,157
SECURITY & COMMODITY BROKERS (3.6%)
Bear Stearns Companies, Inc. 1,286 43,965
Donaldson Lufkin & Jenrette, Inc. 600 35,850
Edwards (A.G.), Inc. 900 38,475
Interra Financial, Inc. 700 29,356
Jefferies Group, Inc. 1,100 62,700
Lehman Brothers Holdings 1,400 56,700
81
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
SECURITY & COMMODITY BROKERS (3.6%) (CONTINUED)
Paine Webber Group, Inc. 200 $ 7,000
Quick & Reilly Group, Inc. 908 21,111
Raymond James Financial, Inc. 1,650 45,169
Salomon, Inc. 1,000 55,625
Value Line, Inc. 200 8,775
----------
404,726
SPECIAL TRADE CONTRACTORS (0.4%)
Apogee Enterprises, Inc. 1,300 27,869
Layne, Inc. (a) 800 17,550
----------
45,419
STONE, CLAY, & GLASS PRODUCTS (2.8%)
Centex Construction Products, Inc. 1,800 35,100
Hanson Plc 100 2,500
Intermet Corporation 2,800 45,063
Lafarge Corporation 1,100 26,950
Lone Star Industries 1,400 63,438
Medusa Corporation 1,100 42,213
Owens-Illinois, Inc. (a) 600 18,600
Southdown, Inc. 1,200 52,350
USG Corporation (a) 600 21,900
Vitro S.A. (a) 400 4,500
----------
312,614
82
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
TEXTILE MILL PRODUCTS (0.6%)
Chemfab Corporation (a) 900 $ 18,900
Culp, Inc. 987 17,889
Guilford Mills, Inc. 900 18,731
Interface, Inc. 300 6,694
Mohawk Industries, Inc. (a) 100 2,263
Russell Corporation 100 2,963
Tultex Corporation (a) 400 2,450
-----------
69,890
LOCAL & INTERURBAN PASSENGER TRANSIT (0.1%)
Canadian National Railway Company 200 8,750
Greyhound Lines, Inc. (a) 1,500 6,656
-----------
15,406
TRANSPORTATION BY AIR (2.6%)
Airborne Freight Corporation 400 16,750
Alaska Airgroup, Inc. (a) 600 15,375
AMR Corporation (a) 700 64,750
British Airways Plc 500 57,469
Continental Airlines (a) 400 13,975
Delta Air Lines, Inc. 700 57,400
Federal Express Corporation (a) 100 5,775
KLM Royal Dutch Air (a) 839 25,904
UAL Corporation (a) 300 21,469
USAir Group, Inc. (a) 400 14,000
-----------
292,867
83
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION EQUIPMENT (3.5%)
AAR Corporation 400 $ 12,925
Arvin Industries, Inc. 600 16,350
Avondale Industries, Inc. (a) 1,100 23,306
Chrysler Corporation 1,400 45,938
Coachmen Industries, Inc. 1,200 20,550
Dana Corporation 500 19,000
Ford Motor Company 1,000 37,750
General Motors Corporation 100 5,569
Honda Motor Company Ltd 100 6,019
Mascotech, Inc. 700 14,613
MotivePower Industries Inc. (a) 1,000 15,938
Paccar, Inc. 400 18,575
Sequa Corporation (a) 900 50,738
Standard Products Company 600 15,150
Transtechnology Corporation 600 13,650
Trinity Industries 500 15,875
UNC, Inc. 500 7,313
Volvo AB (a) 1,700 45,581
-----------
384,840
TRANSPORTATION SERVICES (0.5%)
Gatx Corporation 400 23,100
PS Group Holdings, Inc. 1,200 15,450
Yellow Corporation (a) 500 11,156
-----------
49,706
84
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
------------------------
COMMON STOCKS (CONTINUED)
TRUCKING & WAREHOUSING (0.1%)
CNF Transportation, Inc. 200 $ 6,450
Roadway Express, Inc. 300 6,938
----------
13,388
WATER TRANSPORTATION (0.2%)
Oglebay Norton Company 100 4,400
OMI Corporation (a) 1,300 12,431
Stolt-Nielsen S.A. 300 5,700
----------
22,531
WHOLESALE TRADE - DURABLE GOODS (2.3%)
Aviall, Inc. (a) 500 7,000
Barnes Group, Inc. 1,300 38,513
Borg-Warner Automotive, Inc. 200 10,813
Hughes Supply, Inc. 1,200 48,000
Minerals & Resources Corporation Ltd S.A. 100 2,316
Reliance Steel & Aluminum Company 1,050 27,300
Rexel, Inc. (a) 1,700 31,450
Simpson Manufacturing Company (a) 300 7,875
Specialty Equipment Companies, Inc. (a) 500 7,375
United Industrial Corporation 500 4,469
Universal Forest Products 500 7,281
Wynn's International, Inc. 2,362 67,022
----------
259,414
85
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES
OR PRINCIPAL
AMOUNT VALUE
------------------------
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE - NONDURABLE GOODS (0.8%)
Burlington Coat Factory Warehouse (a) 600 $ 11,700
Howell Corporation 100 2,000
Insilco Corporation (a) 100 3,713
Pennzoil Company 400 30,700
SUPERVALU, Inc. 100 3,450
United Stationers, Inc. (a) 700 16,975
Universal Corporation 600 19,050
-----------
87,588
-----------
TOTAL COMMON STOCKS (Cost $6,909,981) 9,598,851
SHORT-TERM SECURITIES (13.9%)
U.S. GOVERNMENT AGENCY (7.6%)
Federal National Mortgage Association Discount
Note, 5.40%, due 7/21/1997 $ 850,000 847,450
U.S. GOVERNMENT OBLIGATIONS (1.3%)
U.S. Treasury Bills, 5.15%, due 7/17/1997 150,000 149,657
86
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
------------------------
SHORT-TERM SECURITIES (CONTINUED)
REPURCHASE AGREEMENT (5.0%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S. Treasury
Note, 6.125%, due 5/15/1998, value $565,600) $ 553,835 $ 553,835
------------
TOTAL SHORT-TERM SECURITIES (Cost $1,550,942) 1,550,942
------------
TOTAL INVESTMENTS (100.0%) (Cost $8,460,923) $ 11,149,793
--------------
--------------
87
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
FUTURES CONTRACTS
UNREALIZED
EXPIRATION CONTRACT GAIN
DATE AMOUNT (LOSS)
------------------------------------------
8 Mid-Cap S&P 500
Futures Contracts-Short (b) 9/19/97 $ 1,158,400 $ (26,225)
6 Russell 2000
Futures Contracts-Short (b) 9/19/97 1,196,700 (5,313)
1 S&P 500
Futures Contract-Short (b) 9/18/97 445,125 5,928
---------------------------
$ 2,800,225 $ (25,610)
---------------------------
---------------------------
(a) Non-income producing
(b) At June 30, 1997, the market value of assets pledged to cover margin
requirements for open futures contracts was $149,657.
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $5,205,539 and $7,900,271, respectively.
At June 30, 1997, appreciation for tax purposes aggregated $2,688,323, of
which $2,758,963 related to net unrealized appreciated investment securities
and $70,640 related to depreciated investment securities. The aggregate cost
of securities is $8,461,470 for tax purposes.
SEE ACCOMPANYING NOTES.
88
<PAGE>
Pinnacle Fixed Income Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $9,209,624)
-See accompanying schedule $ 9,286,579
Cash 17,845
Receivable for investment securities sold 169,267
Interest and other receivables 88,040
------------
TOTAL ASSETS 9,561,731
LIABILITIES
Payable for investment securities purchased 170,558
Accounts payable and accrued expenses 17,926
------------
TOTAL LIABILITIES 188,484
------------
NET ASSETS $ 9,373,247
------------
------------
Net Assets consist of:
Paid-in capital $ 8,853,880
Undistributed net investment income 551,509
Accumulated undistributed net realized loss on investments (109,097)
Net unrealized appreciation on investment securities 76,955
------------
NET ASSETS, for 846,474 shares outstanding $ 9,373,247
------------
------------
NET ASSET VALUE, offering and redemption price per share $ 11.07
------------
------------
SEE ACCOMPANYING NOTES.
89
<PAGE>
Pinnacle Fixed Income Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Interest $ 670,103
EXPENSES
Investment advisory and management fees 68,188
Custody and accounting fees 49,818
Professional fees 15,246
Directors' fees and expenses 4,893
Other expenses 7,972
----------
Total expenses before reimbursement 146,117
Less: expense reimbursement (29,379)
----------
Net expenses 116,738
----------
Net investment income 553,365
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (12,480)
Change in unrealized appreciation on investment securities 153,322
----------
Net gain on investments 140,842
----------
Net increase in net assets resulting from operations $ 694,207
----------
----------
SEE ACCOMPANYING NOTES.
90
<PAGE>
Pinnacle Fixed Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 553,365 $ 331,808
Net realized gain (loss) on investments (12,480) 39,828
Change in net unrealized appreciation (depreciation) 153,322 (188,379)
---------------------------
Net increase in net assets resulting from operations 694,207 183,257
Distributions to shareholders from:
Net investment income (328,028) (268,795)
Capital share transactions:
Proceeds from sales of shares 848,067 5,775,502
Proceeds from reinvested dividends 328,028 268,795
Cost of shares redeemed (2,197,149) (1,346,134)
---------------------------
Net increase (decrease) in net assets resulting from
share transactions (1,021,054) 4,698,163
---------------------------
Total increase (decrease) in net assets (654,875) 4,612,625
NET ASSETS
Beginning of period 10,028,122 5,415,497
---------------------------
End of period (including undistributed net investment
income of $551,509 and $328,028, respectively) $ 9,373,247 $ 10,028,122
---------------------------
---------------------------
OTHER INFORMATION
Shares:
Sold 78,342 541,094
Issued through reinvestment of dividends 30,407 25,172
Redeemed (203,042) (123,043)
---------------------------
Net increase (decrease) (94,293) 443,223
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
91
<PAGE>
Pinnacle Fixed Income Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JANUARY 5, 1993
(COMMENCEMENT OF
YEAR ENDED JUNE 30, OPERATIONS)
------------------------------------------------------- THROUGH JUNE 30,
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 10.66 $ 10.88 $ 10.00 $ 10.43 $ 10.00
Income from investment operations:
Net investment income 0.67 0.39 0.56 0.20 0.19
Net realized and unrealized gain
(loss) on investments 0.10 (0.03) 0.53 (0.52) 0.24
--------------------------------------------------------------------------
Total from investment operations 0.77 0.36 1.09 (0.32) 0.43
Less distributions:
From net investment income (0.36) (0.58) (0.21) (0.11) -
--------------------------------------------------------------------------
Net asset value, end of period $ 11.07 $ 10.66 $ 10.88 $ 10.00 $ 10.43
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL RETURN (a) 7.33% 3.29% 11.08% (3.06%) 8.67%
RATIOS AND SUPPLEMENTAL DATA (b)
Net assets, end of period
(in thousands) $ 9,373 $ 10,028 $ 5,415 $ 4,861 $ 906
Ratio of expenses to average
net assets 1.20% 1.32% 1.40% 1.56% 1.56%
Ratio of net investment income
to average net assets 5.68% 5.18% 5.41% 3.62% 3.86%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 1.50% 1.94% 1.59% 2.49% 15.72%
Ratio of net investment income
(loss) to average net assets before
voluntary expense reimbursement 5.38% 4.56% 5.22% 2.68% (1.64%)
Portfolio turnover rate 99% 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 the sub-adviser of the Portfolio
effective April 1, 1996. Mitchell Hutchins Asset Management, Inc. provided
sub-advisory services prior to April 1, 1996.
92
<PAGE>
Pinnacle Fixed Income Portfolio
Schedule of Investments
June 30, 1997
PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (45.2%)
AUTO REPAIR, SERVICES, & PARKING (3.2%)
World Omni Automobile Lease Securitization Trust
Series 96-A, Class 1A, 6.30%, due 6/25/2002 $ 194,085 $ 194,358
Series 96-B, Class A1, 5.95%, due11/15/2002 100,000 100,188
-----------
294,546
COMMUNICATIONS (2.7%)
TCI Communications Inc., 7.875%, due 2/15/2026 60,000 57,660
United States West Cap Funding Inc., 7.90%,
due 2/1/2027 90,000 90,918
Worldcom Inc., 7.75%, due 4/1/2027 100,000 102,253
-----------
250,831
DEPOSITORY INSTITUTIONS (10.2%)
ABN AMRO Bank NV (Chicago), 7.55%, due 6/28/2006 200,000 206,274
Banc One Corporation, 7.625%, due 10/15/2026 100,000 98,998
Midland Bank Plc, 7.625%, due 6/15/2006 200,000 205,970
Nationsbank Corporation Medium Term Note, 5.75%, 200,000 193,654
due 1/25/2001
Nationsbank Corporation, 7.25%, due 10/15/2025 100,000 95,823
Trans Financial Bank N.A., 6.32%, due 10/17/1997 150,000 150,221
-----------
950,940
ELECTRIC, GAS & SANITARY SERVICES (4.4%)
Columbia Gas System, 7.62%, due 11/28/2025 200,000 194,494
Hydro Quebec, 9.50%, due 11/15/2030 175,000 211,967
-----------
406,461
NONDEPOSITORY INSTITUTIONS (16.0%)
Caterpillar Financial Asset Trust, Series 96,
Class A3, 6.30%, due 5/25/2002 250,000 249,688
93
<PAGE>
Pinnacle Fixed Income Portfolio
Schedule of Investments
PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
NONDEPOSITORY INSTITUTIONS (16.0%) (CONTINUED)
First Omni Bank Credit Card Master Trust 96,
Class A, 6.65%, due 9/15/2003 $ 200,000 $ 200,500
Ford Motor Credit Corporation, 5.75%,
due 1/25/2001 135,000 130,972
Ford Motor Credit Corporation, 7.47%,
due 7/29/1999 300,000 305,898
General Motors Acceptance Corporation, 6.7%, 300,000 301,569
due 6/24/1999
Sears Credit Account Master Trust, Series 96,
Class A, 6.50%, due 10/15/2003 200,000 200,875
The Money Store, Class 97B A3, 6.52%,
due 5/15/2014 100,000 99,859
-----------
1,489,361
TRANSPORTATION EQUIPMENT (6.1%)
Nationsbank Auto Owner Trust, 6.125%,
due 7/15/1999 216,383 216,788
Premier Auto Trust 95, Class A5, 6.15%,
due 3/06/2000 350,000 350,917
-----------
567,705
WHOLESALE TRADE - DURABLE GOODS (2.6%)
Eastman Chemical Company, 7.25%, due 1/15/2024 100,000 95,479
Gulf Canada Resources Limited, 8.25%,
due 3/15/2017 50,000 51,188
NGC Corporation, 7.625%, due 10/15/2026 100,000 99,235
-----------
245,902
-----------
TOTAL CORPORATE BONDS ($4,175,479) 4,205,746
GOVERNMENT SECURITIES (54.4%)
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE
OBLIGATIONS (10.1%)
Federal Home Loan Mortgage Corporation,
Gold Series, 8.50%, due 8/1/2026 174,361 181,171
94
<PAGE>
Pinnacle Fixed Income Portfolio
Schedule of Investments
PRINCIPAL
AMOUNT VALUE
-------------------------
GOVERNMENT SECURITIES (CONTINUED)
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE
OBLIGATIONS (10.1%) (CONTINUED)
Federal Home Loan Mortgage Corporation,
(continued)
Gold Series, 6.00%, due 4/1/2011 $ 137,378 $ 132,570
Gold Series, 6.50%, due 3/1/2026 192,869 184,973
Gold Series, 7.00%, due 2/1/2026 142,421 139,974
REMIC Series 1694, 6.50%, due 9/15/2023 310,000 302,250
-----------
940,938
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES (32.7%)
Federal National Mortgage Association,
6.00%, due 4/1/2026 198,685 185,088
6.50%, due 11/25/2007 300,000 294,843
7.00%, due 1/1/2026 334,516 328,244
7.00%, due 4/1/2026 136,005 133,455
7.00%, due 4/1/2026 381,295 374,146
7.50%, due 7/1/2026 165,136 165,704
7.50%, due 8/1/2027* 170,000 170,106
8.00%, due 3/1/2027 1,500 1,533
8.00%, due 4/1/2026 1,167 1,194
8.50%, due 5/1/2009 105,784 109,156
Government National Mortgage Association,
7.00%, due 3/15/2026 191,766 188,230
7.50%, due 1/15/2026 244,008 244,694
7.50%, due 2/15/2027 99,458 99,738
8.00%, due 4/15/2022 232,997 239,838
8.00%, due 7/15/2005 18,770 19,427
8.00%, due 8/15/2026 192,258 196,703
8.00%, due 11/15/2006 24,944 25,867
95
<PAGE>
Pinnacle Fixed Income Portfolio
Schedule of Investments
PRINCIPAL
AMOUNT VALUE
-------------------------
GOVERNMENT SECURITIES (CONTINUED)
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES (32.7%) (CONTINUED)
Government National Mortgage Association,
(continued)
9.00%, due 11/15/2017 $ 147,856 $ 158,759
9.00%, due 9/15/2017 92,509 99,330
-----------
3,036,055
U.S. GOVERNMENT OBLIGATIONS (10.6%)
U.S. Treasury Bonds,
6.75%, due 8/15/2026 100,000 98,969
7.125%, due 2/15/2023 75,000 77,250
U.S. Treasury Notes,
5.875%, due 2/15/2000 100,000 99,203
5.875%, due 11/15/2005 100,000 95,672
6.25%, due 4/30/2001 170,000 169,522
6.375%, due 9/30/2001 195,000 195,031
6.625%, due 6/30/2001 94,000 94,881
6.875%, due 5/15/2006 35,000 35,727
7.5%, due 2/15/2005 100,000 105,812
-----------
972,067
FOREIGN GOVERNMENT OBLIGATIONS (1.0%)
Republic of Italy, 6.875%, due 9/27/2023 100,000 93,780
-----------
TOTAL GOVERNMENT SECURITIES (Cost $4,996,152) 5,042,840
96
<PAGE>
Pinnacle Fixed Income Portfolio
Schedule of Investments
PRINCIPAL
AMOUNT VALUE
-------------------------
SHORT-TERM SECURITIES (0.4%)
REPURCHASE AGREEMENT (0.4%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S. Treasury
Note, 6.125%, due 5/15/1998, value $40,400) $ 37,993 $ 37,993
-------------
TOTAL SHORT-TERM SECURITIES (Cost $37,993) 37,993
-------------
TOTAL INVESTMENTS (100.0%) (Cost $9,209,624) $ 9,286,579
-------------
-------------
* Security purchased on a delayed delivery basis
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $9,509,763 and $9,936,708, respectively.
At June 30, 1997, net unrealized appreciation for tax purposes aggregated
$70,528, of which $84,697 related to appreciated investment securities and
$14,169 related to depreciated investment securities. The aggregate cost of
securities is $9,216,051 for tax purposes.
SEE ACCOMPANYING NOTES.
97
<PAGE>
ARM Capital Advisors Money Market Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at amortized cost
-See accompanying schedule $ 8,377,535
Cash 12,091
Interest and other receivables 3,603
------------
TOTAL ASSETS 8,393,229
LIABILITIES
Accounts payable and accrued expenses 17,586
------------
TOTAL LIABILITIES 17,586
------------
NET ASSETS, paid-in capital for 8,375,643 shares outstanding $ 8,375,643
------------
------------
NET ASSET VALUE, offering and redemption price per share $ 1.00
------------
------------
SEE ACCOMPANYING NOTES.
98
<PAGE>
ARM Capital Advisors Money Market Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Interest $ 462,722
EXPENSES
Investment advisory and management fees 43,053
Custody and accounting fees 49,592
Professional fees 17,254
Directors' fees and expenses 4,884
Other expenses 7,009
------------
Total expenses before reimbursement 121,792
Less: expense reimbursement (35,814)
------------
Net expenses 85,978
------------
Net investment income 376,744
------------
Net increase in net assets resulting from operations $ 376,744
------------
------------
SEE ACCOMPANYING NOTES.
99
<PAGE>
ARM Capital Advisors Money Market Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 376,744 $ 407,014
Distributions to shareholders from:
Net investment income (376,744) (407,014)
Capital share transactions at net asset value of $1.00
per share:
Proceeds from sales of shares 22,641,513 18,569,332
Proceeds from reinvested distributions 376,744 407,014
Cost of shares redeemed (23,498,461) (16,873,594)
---------------------------
Net increase (decrease) in net assets resulting
from share transactions (480,204) 2,102,752
---------------------------
Total increase (decrease) in net assets (480,204) 2,102,752
NET ASSETS
Beginning of period 8,855,847 6,753,095
---------------------------
End of period $ 8,375,643 $ 8,855,847
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
100
<PAGE>
ARM Capital Advisors Money Market Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JANUARY 12, 1993
(COMMENCEMENT OF
YEAR ENDED JUNE 30, OPERATIONS)
---------------------------------------------------------- THROUGH JUNE 30,
1997 1996 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.04 0.05 0.04 0.02 0.01
Less distributions:
From net investment income (0.04) (0.05) (0.04) (0.02) (0.01)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN (a) 4.38% 4.55% 4.30% 2.04% 1.66%
RATIOS AND SUPPLEMENTAL DATA (b)
Net Assets, end of period (in
thousands) $ 8,376 $ 8,856 $ 6,753 $ 5,452 $ 754
Ratio of expenses to average
net assets 1.00% 1.12% 1.15% 1.29% 1.34%
Ratio of net investment income
to average net assets 4.38% 4.67% 4.31% 2.19% 1.67%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 1.42% 1.46% 1.27% 2.08% 22.41%
Ratio of net investment income
(loss) to average net assets before
voluntary expense reimbursement 3.96% 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. Mitchell Hutchins Asset Management, Inc.
provided sub-advisory services prior to April 1, 1996.
101
<PAGE>
ARM Capital Advisors Money Market Portfolio
Schedule of Investments
June 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------
<S> <C> <C>
SHORT-TERM SECURITIES (100.0%)
COMMERCIAL PAPER (97.3%)
NONDEPOSITORY INSTITUTIONS (91.3%)
American Express, 5.52%, due 7/1/1997 $ 423,000 $ 423,000
Associate Corporation, 5.54%, due 7/8/1997 500,000 499,458
Avco Financial Service, Inc., 5.58%, due 7/7/1997 500,000 499,535
Beneficial Corporation, 5.54%, due 7/3/1997 415,000 413,526
Chevron Corporation, 5.50%, due 7/9/1997 420,000 419,487
Cit Group Holdings, 5.53%, due 7/21/1997 419,000 417,713
Ford Motor Credit Corporation, 5.52%, due 7/15/1997 418,000 417,103
General Electric Capital Corporation, 5.55%, due 7/23/1997 403,000 401,633
General Motors, 5.50%, due 7/3/1997 415,000 414,873
Household Finance Corporation, 5.50%, due 7/14/1997 419,000 418,168
IBM Credit Corporation, 5.53%, due 7/18/1997 414,000 412,919
John Deere Capital Corportation, 5.50%, due 7/10/1997 419,000 418,424
New Center Asset Trust, 5.52%, due 7/25/1997 418,000 416,462
Norwest Financial, Inc., 5.53%, due 7/17/1997 416,000 414,978
Prudential Funding Corporation, 5.52%, due 7/16/1997 416,000 415,043
San Paolo U.S. Financing Company, 5.49%, due 7/2/1997 430,000 429,934
Sears, 5.55%, due 7/22/1997 406,000 404,686
Texaco, 5.55%, due 7/11/1997 414,000 413,362
-----------
7,650,304
</TABLE>
102
<PAGE>
ARM Capital Advisors Money Market Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
COMMERCIAL PAPER (CONTINUED)
INSURANCE CARRIERS (6.0%)
American General Finance Life, 5.55%, due
7/11/1997 $ 499,000 $ 498,231
-----------
TOTAL COMMERCIAL PAPER (Cost $8,148,535) 8,148,535
OTHER SHORT-TERM SECURITIES (2.7%)
REPURCHASE AGREEMENT (2.7%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S. Treasury
Note, 6.125%, due 5/15/1998, value $237,350) 229,000 229,000
-----------
TOTAL OTHER SHORT-TERM SECURITIES (Cost $229,000) 229,000
-----------
TOTAL SHORT-TERM SECURITIES (100.0%) (Cost $8,377,535) $ 8,377,535
-----------
-----------
OTHER INFORMATION:
The aggregate cost of securities is the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
103
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $11,602,551)
-See accompanying schedule $ 12,799,601
Receivable for investment securities sold 271,084
Dividends, interest and other receivables 103,811
Deferred organization costs 4,455
-------------
TOTAL ASSETS 13,178,951
LIABILITIES
Cash overdraft 124,182
Payable for investment securities purchased 181,330
Accounts payable and accrued expenses 52,420
-------------
TOTAL LIABILITIES 357,932
-------------
NET ASSETS $ 12,821,019
-------------
-------------
Net Assets consist of:
Paid-in capital $ 12,017,446
Accumulated undistributed net realized loss on
investments and foreign currency transactions (380,424)
Net unrealized appreciation on investments and
assets and liabilities in foreign currencies 1,183,997
-------------
NET ASSETS, for 1,192,105 shares outstanding $ 12,821,019
-------------
-------------
NET ASSET VALUE, offering and redemption price per share $ 10.75
-------------
-------------
SEE ACCOMPANYING NOTES.
104
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $23,311) $ 183,184
Interest 38,560
-------------
Total Investment Income 221,744
EXPENSES
Investment advisory and management fees 135,034
Custody and accounting fees 211,247
Professional fees 17,240
Directors' fees and expenses 4,893
Other expenses 8,272
-------------
Total expenses before reimbursement 376,686
Less: expense reimbursement (129,929)
-------------
Net expenses 246,757
-------------
Net investment loss (25,013)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized loss on:
Investment securities (302,176)
Foreign currency transactions (8,418)
-------------
Net realized loss (310,594)
Change in unrealized appreciation (depreciation) on:
Investment securities 146,681
Foreign currency (13,077)
-------------
Net unrealized appreciation 133,604
Net loss on investments and foreign currencies (176,990)
-------------
Net decrease in net assets resulting from operations $ (202,003)
-------------
-------------
SEE ACCOMPANYING NOTES.
105
<PAGE>
Morgan Stanley Asian Growth Portfolio
Statement of Changes in Net Assets
YEAR ENDED JUNE 30,
1997 1996
-------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (25,013) $ (16,890)
Net realized loss on investments and
foreign currency transactions (310,594) (28,598)
Change in net unrealized appreciation on
investments and translation of assets and
liabilities in foreign currency 133,604 832,114
-------------------------------
Net increase (decrease) in net
assets resulting from operations (202,003) 786,626
Distributions to shareholders from:
Net investment income - (46,376)
Net realized gain on investments - (14,536)
-------------------------------
Total distributions - (60,912)
Capital share transactions:
Proceeds from sales of shares 1,785,077 5,146,338
Proceeds from reinvested distributions - 60,912
Cost of shares redeemed (3,714,150) (3,805,532)
-------------------------------
Net increase (decrease) in net
assets resulting from share transactions (1,929,073) 1,401,718
-------------------------------
Total increase (decrease) in net assets (2,131,076) 2,127,432
NET ASSETS
Beginning of period 14,952,095 12,824,663
-------------------------------
End of period $ 12,821,019 $ 14,952,095
-------------------------------
-------------------------------
OTHER INFORMATION
Shares:
Sold 169,723 482,863
Issued through reinvestment of distributions - 6,543
Redeemed (354,863) (371,590)
-------------------------------
Net increase (decrease) (185,140) 117,816
-------------------------------
-------------------------------
SEE ACCOMPANYING NOTES.
106
<PAGE>
Morgan Stanley Asian Growth Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JUNE 15, 1994
(COMMENCEMENT
YEAR ENDED JUNE 30, OF OPERATIONS)
----------------------------------------------------- THROUGH JUNE 30,
1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.86 $ 10.18 $ 10.00 $ 10.00
Income from investment operations:
Net investment income (loss) (0.02) (0.01) 0.01 - (a)
Net realized and unrealized gain (loss) on investments (0.09) 0.74 0.17 -
-----------------------------------------------------------------------
Total from investment operations (0.11) 0.73 0.18 -
Less distributions:
From net investment income - (0.04) - (a) -
From net realized gain - (0.01) - -
-----------------------------------------------------------------------
Total distributions - (0.05) - -
-----------------------------------------------------------------------
Net asset value, end of period $ 10.75 $ 10.86 $ 10.18 $ 10.00
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TOTAL RETURN (b) (1.01%) 7.19% 1.80% 0.52%
RATIOS AND SUPPLEMENTAL DATA (c)
Net assets, end of period (in thousands) $ 12,821 $ 14,952 $ 12,825 $ 1,905
Ratio of expenses to average net assets 2.00% 2.00% 1.92% 0.75%
Ratio of net investment income (loss) to
average net assets (0.19%) (0.13%) 0.76% 0.59%
Ratio of expenses to average net assets
before voluntary expense reimbursement 2.96% 2.21% 1.92% 9.79%
Ratio of net investment income (loss) to
average net assets before voluntary expense reimbursement (1.15%) (0.34%) 0.76% (8.44%)
Portfolio turnover rate 91% 51% 30% -
Average commission paid per equity
share traded (d) $ .0104
</TABLE>
(a) Less than $0.01 per share.
(b) Total returns for periods less than one year are not annualized.
(c) Data expressed as a percentage are annualized as appropriate.
(d) Disclosure required for fiscal years beginning after September 1, 1995.
107
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments
June 30, 1997
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (96.1%)
CHINA (1.1%)
First Tractor Company* 43,000 $ 28,308
Qingling Motors Company 117,000 60,410
Zhejiang Expressway Company* 196,000 47,564
------------
136,282
HONG KONG (35.9%)
Cheung Kong Holdings Ltd 83,000 819,609
China Merchants Hai Hong 16,000 49,774
China Resources Enterprise Ltd 110,000 539,564
Dao Heng Bank Group Ltd 25,000 136,827
Guangshen Railway Company Ltd 71,000 31,160
Hang Seng Bank 15,400 219,659
Henderson Land Development 53,000 470,343
HSBC Holdings Plc 23,855 717,467
Hutchison Whampoa 66,000 570,802
New World Development Company 40,000 238,544
Ng Fung Hong Ltd 40,000 59,894
Shanghai Industrial Holdings Ltd 70,000 435,523
Shenzhen Fangda Company Ltd-B Shares 23,000 33,400
Sun Hung Kai Properties 23,000 276,849
------------
4,599,415
INDONESIA (8.1%)
Bank International Indonesia Warrants 9,021 3,524
Bank Negara Indonesia 154,000 98,150
Bimantara Citra 28,500 49,805
Hanjaya Mandala Sampoern 16,000 61,020
108
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
INDONESIA (8.1%) (CONTINUED)
Matahari Putra Prima 42,000 $ 84,622
PT Astra International* 40,000 164,474
PT Bank International Indonesia* 101,503 87,647
PT Gudang Garam 15,000 62,911
PT Indofood Surkes 38,400 88,421
PT Mayora Indah 42,000 23,746
PT Putra Surya Multidana* 143,000 227,847
PT Telekomunikasi 48,500 79,271
------------
1,031,438
LUXEMBOURG (2.9%)
Korea Asia Fund* 41 374,125
MALAYSIA (15.2%)
Arab Malaysian Corporation 11,000 40,967
Berjaya Group Berhad, A Shares 122,000 149,842
Berjaya Sports Toto Berhad 13,000 61,292
Commerce Asset Holdings* 43,000 113,292
Commerce Asset Holdings Warrants 8,000 475
Commerce Asset Holdings Warrants 5,000 -
Dialog Group Berhad 8,000 115,689
Edaran Otomobil Nasional 12,000 102,219
Genting Berhad 24,000 115,055
IJM Corporation 29,000 60,895
Jaya Tiasa Holdings Berhad 23,000 115,729
Leader Universal Holding 27,000 48,566
Lityan Holdings Berhad 1,000 12,183
Malayan Banking Berhad 16,000 167,987
Malaysian Pacific Industries 9,000 39,223
109
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
MALAYSIA (15.2%) (CONTINUED)
Malaysian Resources Corporation 18,000 $ 49,564
Multi-Purpose Holdings 29,000 40,674
Rashid Hussain Berhad Warrants 2,714 -
Rashid Hussain Berhad* 19,000 120,444
Resorts World Berhad 48,000 144,532
Sime Darby Berhad 94,000 312,837
United Engineers Ltd 18,000 129,794
------------
1,941,259
PHILIPPINES (3.6%)
Ayala Land Inc., B Shares 181,625 166,985
Digital Telecom Phillipines, Inc.* 490,000 47,373
DMCI Holdings* 189,600 62,539
Fil-Estate Land, Inc* 90,000 26,274
Manila Electric Company, B Shares 17,485 86,179
SM Prime Holdings Ltd 237,760 70,311
------------
459,661
SINGAPORE (12.5%)
Development Bank Singapore 9,000 113,310
Electronic Resources Ltd 36,000 56,655
Electronic Resources Ltd Warrants 18,000 11,961
Jg Summit Holdings, B Shares 105,600 21,620
Jurong Shipyard Ltd 13,000 56,375
Natsteel Ltd 93,000 236,777
Noble Group Ltd* 167,000 130,260
Oversea Chinese Banking 11,160 115,526
Pacific Century Regional* 32,000 44,541
110
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
SINGAPORE (12.5%) (CONTINUED)
Parkway Holdings 20,000 $ 89,529
Singapore Press Holdings Ltd 12,200 245,758
Sm Summit Holdings Ltd 105,000 79,317
Super Coffeemix Manufacturing* 223,000 185,612
United Overseas Bank 9,000 92,537
Wing Tai 43,000 123,914
------------
1,603,692
SOUTH KOREA (4.8%)
Kookmin Bank* 6,145 129,813
Korea Electric Power 15,500 292,001
Samsung Electronics 3,328 197,183
Samsung Electronics-New 54 1,507
------------
620,504
TAIWAN (7.1%)
Acer, Inc.* 16,000 278,000
Asustek Computer, Inc.* 21,000 231,735
Siliconware Precision Industries* 14,000 238,000
Want Want Holdings* 48,000 159,360
------------
907,095
THAILAND (4.9%)
Bangkok Bank 16,700 119,622
Big C Supercenter Public 28,000 9,239
Eastern Water Resources 10,900 13,159
111
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
NUMBER
OF SHARES VALUE
-------------------------
COMMON STOCKS (CONTINUED)
THAILAND (4.9%) (CONTINUED)
I.C.C. International 3,000 $ 9,779
Matichon Public Company Ltd 6,000 14,487
Nation Multimedia Group 9,000 19,920
National Petrochemical Plc 78,600 83,819
Post Publishing Company 8,000 8,370
Quality House Plc 11,000 3,895
Robinson Dept Store 33,000 12,217
Siam Commercial Bank 20,900 89,151
Sino-Thai Engr* 7,000 20,282
Thai Farmers Bank 20,300 89,859
Thai Magnetic Public Company 37,000 65,513
Thai Rung Union Car 4,000 15,050
Thai Stanley Electric 5,000 10,865
Thai Storage Battery Plc 6,000 6,278
Thai Theparos Food 7,000 11,268
United Communication Industry 6,400 27,557
------------
630,330
------------
TOTAL COMMON STOCKS (Cost $11,099,122) 12,303,801
112
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (3.9%)
TAIWAN (3.9%)
Far Eastern Textile, 4.00%, due 10/7/2006 $ 190,000 $ 252,700
Nan Ya Plastics, 1.75%, due 7/19/2001 170,000 243,100
------------
495,800
TOTAL CORPORATE BONDS (Cost $503,429) 495,800
------------
TOTAL INVESTMENTS (100.00%)(Cost $11,602,551) $ 12,799,601
------------
------------
* Non-income producing
FOREIGN EXCHANGE CONTRACTS
At June 30, 1997, Morgan Stanley Asian Growth Portfolio has the following
open forward foreign exchange contracts to sell currency (excluding foreign
currency contracts used for purchase and sale settlements):
Settlement Contract Contract Current Unrealized
Currency Date Amount Rate Rate Loss
- --------------------------------------------------------------------------------
Thai Bat 8/18/1997 12,797,100 26.55 25,897 $ (12,153)
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $12,215,482 and $12,886,729,
respectively. At June 30, 1997, net unrealized appreciation for tax
purposes aggregated $1,197,050, of which $2,186,561 related to appreciated
investment securities and $989,511 related to depreciated investment
securities. The aggregate cost of securities is the same for book and tax
purposes.
SEE ACCOMPANYING NOTES.
113
<PAGE>
Morgan Stanley Asian Growth Portfolio
Schedule of Investments (continued)
As of June 30,1997, the Portfolio had investments in the following industries.
PERCENT OF
TOTAL
INVESTMENTS
-----------
INDUSTRY
Amusement & Recreation Services 0.9%
Automotive Dealers & Service Stations 1.3
Chemicals & Allied Products 0.1
Communications 1.0
Depository Institutions 16.8
Electric, Gas, & Sanitary Services 3.7
Electronic & Other Electric Equipment 6.2
Fabricated Metal Products 0.3
Food & Kindred Products 4.1
General Building Contractors 0.5
General Merchandise Stores 0.8
Heavy Construction, Excluding Buildings 4.0
Holding & Other Investment Offices 8.4
Hotels & Other Lodging Places 1.1
Industrial Machinery & Equipment 4.2
Instruments & Related Products 0.2
Miscellaneous Manufacturing Industries 3.4
Nondepository Institutions 3.1
Oil & Gas Extraction 0.9
Paper & Allied Products 2.2
Primary Metal Industries 2.9
Printing & Publishing 2.3
Railroad Transportation 0.2
Real Estate 25.3
Textile Mill Products 2.0
Tobacco Products 1.0
Transportation Equipment 0.5
Wholesale Trade - Durable Goods 1.4
Wholesale Trade - Nondurable Goods 1.2
-----------
100.0%
-----------
-----------
SEE ACCOMPANYING NOTES.
114
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Assets and Liabilities
June 30, 1997
ASSETS
Investment in securities, at value (cost $7,170,825)
-See accompanying schedule $ 7,593,075
Receivable for investment securities sold 128,217
Cash 8,121
Deferred organization costs 4,461
------------
TOTAL ASSETS 7,733,874
------------
LIABILITIES
Payable for investment securities purchased 165,735
Accounts payable and accrued expenses 22,788
------------
TOTAL LIABILITIES 188,523
------------
NET ASSETS $ 7,545,351
------------
------------
Net Assets consist of:
Paid-in capital $ 6,039,988
Undistributed net investment income 557,201
Accumulated undistributed net realized gain on investments
and foreign currency transactions 525,912
Net unrealized appreciation on investment securities 422,250
------------
NET ASSETS, for 589,274 shares outstanding $ 7,545,351
------------
------------
NET ASSET VALUE, offering and redemption price per share $ 12.80
------------
------------
SEE ACCOMPANYING NOTES.
115
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Operations
Year Ended June 30, 1997
INVESTMENT INCOME
Dividends $ 4,548
Interest 659,570
------------
Total investment income 664,118
EXPENSES
Investment advisory and management fees 55,370
Custody and accounting fees 50,955
Professional fees 17,240
Directors' fees and expenses 6,010
Other expenses 7,731
------------
Total expenses before reimbursement 137,306
Less: expense reimbursement (16,779)
------------
Net expense 120,527
------------
Net investment income 543,591
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investment securities 525,912
Foreign currency transactions (2,296)
------------
Net realized gain 523,616
Change in unrealized appreciation on investment securities 412,972
------------
Net gain on investments 936,588
------------
Net increase in net assets resulting from operations $ 1,480,179
------------
------------
SEE ACCOMPANYING NOTES.
116
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 543,591 $ 616,219
Net realized gain on investments and foreign
currency transactions 523,616 142,020
Change in net unrealized appreciation 412,972 276,653
---------------------------
Net increase in net assets resulting from operations 1,480,179 1,034,892
Distributions to shareholders from:
Net investment income (599,736) (532,957)
Net realized gain on investments (52,530) (6,625)
---------------------------
Total distributions (652,266) (539,582)
Capital share transactions:
Proceeds from sales of shares 2,951,997 1,113,906
Proceeds from reinvested distributions 652,266 539,582
Cost of shares redeemed (2,676,293) (2,601,227)
---------------------------
Net increase (decrease) in net assets from share
transactions 927,970 (947,739)
---------------------------
Total increase (decrease) in net assets 1,755,883 (452,429)
NET ASSETS
Beginning of period 5,789,468 6,241,897
---------------------------
End of period (including undistributed net investment
income of $557,201 and $615,642, respectively) $ 7,545,351 $ 5,789,468
---------------------------
---------------------------
OTHER INFORMATION
Shares:
Sold 241,908 103,380
Issued through reinvestment of distributions 56,848 54,452
Redeemed (224,491) (242,988)
---------------------------
Net increase (decrease) 74,265 (85,156)
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
117
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Financial Highlights
<TABLE>
<CAPTION>
JUNE 15, 1994
(COMMENCEMENT OF
YEAR ENDED JUNE 30, OPERATIONS)
----------------------------------------- THROUGH JUNE 30,
1997 1996 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.24 $ 10.40 $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.90 1.25 0.89 -(a)
Net realized and unrealized gain (loss)
on investments 1.91 0.54 (0.49) -
-----------------------------------------------------------
Total from investment operations 2.81 1.79 0.40 -
Less distributions:
From net investment income (1.15) (0.94) -(a) -
From net realized gain on investments (0.10) (0.01) - -
-----------------------------------------------------------
Total distributions (1.25) (0.95) - -
-----------------------------------------------------------
Net asset value, end of period $ 12.80 $ 11.24 $ 10.40 $ 10.00
-----------------------------------------------------------
-----------------------------------------------------------
TOTAL RETURN (b) 26.32% 18.41% 4.00% 0.79%
RATIOS AND SUPPLEMENTAL DATA (c)
Net assets, end of period
(in thousands) $ 7,545 $ 5,789 $ 6,242 $ 687
Ratio of expenses to average
net assets 1.85% 1.85% 1.61% 0.85%
Ratio of net investment income
to average net assets 8.35% 10.04% 9.28% 0.80%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 2.11% 2.06% 1.61% 24.78%
Ratio of net investment income (loss)
to average net assets before voluntary
expense reimbursement 8.09% 9.83% 9.28% (23.13%)
Portfolio turnover rate 124% 122% 142% -
</TABLE>
(a) Less than $0.01 per share.
(b) Total returns for periods less than one year are not annualized.
(c) Data expressed as a percentage are annualized as appropriate.
118
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments
June 30, 1997
PRINCIPAL
AMOUNT VALUE
------------------------
CORPORATE BONDS (88.7%)
ALGERIA (2.7%)
Algeria Loan Agreement, 6.625%, due 3/31/2005 $ 229,711 $ 201,428
ARGENTINA (9.1%)
Acindar Industrias Argentina, 11.30%,
due 11/12/1998 (c) 200,000 208,500
Industrias Metalurgicas Pescarmona S.A., 11.75%,
due 3/27/1998 (a) 250,000 259,844
Republic of Argentina, 6.75%, due 3/31/2005 (c) 242,500 228,405
-----------
696,749
BRAZIL (9.4%)
Banco Do Brasil S.A., 9.375%, due 6/15/2007 (a) 100,000 99,750
Brazil NMB L, 6.938%, due 4/15/2009 (c) 500,000 438,437
Republic of Brazil, 10.125%, due 5/15/2027 88,000 84,832
Republic of Brazil, 8.00%, due 4/15/2014 (c) 112,065 90,107
-----------
713,126
BULGARIA (4.8%)
Bulgaria, 6.563%, due 7/28/2011 (c) 500,000 361,562
CANADA (1.2%)
Rogers Cablesystems, 10.00%, due 3/15/2005 70,000 75,600
Rogers Communications, Inc., 9.125%, due 1/15/2006 15,000 15,075
-----------
90,675
119
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
------------------------
CORPORATE BONDS (CONTINUED)
COLUMBIA (0.8%)
Occidente Y Caribe Cellular, 0.0%,
due 3/15/2004 (b) $ 85,000 $ 63,750
Occidente Y Caribe Warrants 340 3
-----------
63,753
ECUADOR (1.4%)
Consorcio Ecuatoriano Te, 14.00%, due 5/1/2002 100,000 106,250
INDONESIA (3.3%)
APP International Finance BV, 8.297%,
due 6/28/1999 (c) 250,000 248,227
IVORY COAST (1.8%)
Ivory Coast, 2.00%, due 12/29/2049 (d) 400,000 133,500
MEXICO (4.1%)
Cemex SA de C.V., 9.50%, due 9/20/2001 (a) 300,000 310,500
NIGERIA (1.7%)
Nigeria Promissory Notes, 5.092%, due 1/5/2010 250,000 130,937
PANAMA (2.0%)
Republic of Panama, 7.875%, due 2/13/2002 150,000 149,250
PERU (5.9%)
Peru Republic, 3.25%, due 3/7/2017 (c)(d) 750,000 448,125
120
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
RUSSIA (1.9%)
Ministry Finance Russia, 3.00%, due 5/14/2003 (a) $ 220,000 $ 147,620
UNITED STATES (32.8%)
Advanced Micro Devices, Inc., 11.00%, due 8/1/2003 55,000 61,256
Aircraft Lease Portfolio Securitization Ltd,
12.75%, due 6/15/2006 (a) 49,863 53,758
Amresco, Inc., 10.00%, due 3/15/2004 40,000 41,050
Anthem Insurance Company, Inc., 9.00%,
due 4/1/2027 (a) 75,000 77,200
Big Flower Press, 8.875%, due 7/1/2007 (a) 60,000 58,950
Brooks Fiber Properties, 0.0%, due 11/1/2006 (b) 120,000 78,150
Brooks Fiber Properties, 10.00%, due 6/1/2007 (a) 10,000 10,175
Cablevision Systems, 9.875%, due 5/15/2006 55,000 58,575
Cleveland Electric Illuminating Company, 8.375%,
due 12/1/2011 20,000 20,150
Comcast Cellular, 9.50%, due 5/01/2007 (a) 50,000 50,250
Courtyard By Marriott, 10.75%, due 2/01/2008 50,000 54,063
Digital Equipment, 8.625%, due 11/1/2012 15,000 15,248
Dr. Structured Finance, 7.60%, due 8/15/2007 86,935 82,845
Echostar Satellite Broadcasting, 0.0%,
due 3/15/2000 (b) 25,000 18,000
First Nationwide Holdings, 10.625%,
due 10/1/2003 (a) 50,000 54,750
Gaylord Container Corporation, 11.50%,
due 5/15/2001 75,000 78,844
Globalstar LP/Capital, 11.375%, due 2/15/2004 (a) 60,000 60,150
Grand Casinos, Inc., 10.125%, due 12/01/2003 60,000 62,400
HMC Acquisition Properties, 9.00%, due 12/15/2007 35,000 35,569
121
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS (CONTINUED) -----------------------
UNITED STATES (32.8%) (CONTINUED)
Horseshoe Gaming, 9.375%, due 6/15/2007 (a) $ 35,000 $ 35,175
Host Marriott Travel Plaza, 9.50%, due 5/15/2005 50,000 52,375
ISP Holdings, Inc., 9.00%, due 10/15/2003 70,000 72,100
IXC Communications, Inc., 12.50%, due 10/1/2005 40,000 45,350
Kmart Corporation, 7.75%, due 10/1/2012 35,000 32,025
Midland Cogeneration Vent, 10.33%, due 7/23/2002 6,836 7,314
Midland Funding Corporation I, 10.33%,
due 7/23/2002 36,803 39,380
Midland Funding Corporation II, 11.75%,
due 7/23/2005 15,000 17,460
Navistar Financial Corporation, 9.00%,
due 6/1/2002 (a) 10,000 10,238
Nextel Communications, 0.00%, due 8/15/2004 (b) 200,000 153,000
Norcal Waste Systems, 13.00%, due 11/15/2005 (c) 85,000 95,200
Nuevo Energy Company, 9.50%, due 4/15/2006 35,000 36,400
Outdoor Systems, 8.875%, due 6/15/2007 (a) 65,000 63,050
Paramount Communications, 8.25%, due 8/1/2022 60,000 57,433
Qwest Communications International, 10.875%,
due 4/1/2007 (a) 40,000 43,450
Riggs Capital Trust, 8.875%, due 3/15/2027 (a) 50,000 50,875
SD Warren Company, 12.00%, due 12/15/2004 65,000 72,150
Sinclair Broadcasting, 9.00%, due 7/15/2007 (a) 25,000 24,281
Snyder Oil Corporation, 8.75%, due 6/15/2007 40,000 39,800
Southland Corporation, 5.00%, due 12/15/2003 80,000 67,300
Station Casinos, Inc., 9.75%, due 4/15/2007 (a) 50,000 50,500
TCI Satellite Entertainment, 0.0%,
due 2/15/2007 (a) (b) 105,000 62,993
Tele Communications, Inc., 9.25%, due 1/15/2023 65,000 67,679
Teleport Communications, 0.0%, due 7/1/2001 (b) 100,000 72,250
122
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
NUMBER OF
SHARES
OR PRINCIPAL
AMOUNT VALUE
-------------------------
CORPORATE BONDS (CONTINUED)
UNITED STATES (32.8%) (CONTINUED)
Tenet Health Care Corporation, 8.625%,
due 1/15/2007 $ 40,000 $ 40,800
TLC Beatrice International Holdings, 11.50%,
due 10/01/2005 85,000 96,050
Transamerican Energy, 0.0%, due 6/15/2002 (a) (b) 15,000 10,823
Viacom International, 8.00%, due 7/7/2006 65,000 63,050
Vintage Petroleum, 8.625%, due 2/1/2009 45,000 44,831
-----------
2,494,715
VENEZUELA (5.8%)
Venezuela, 6.75%, due 3/31/2007 (c)(d) 476,190 442,920
-----------
TOTAL CORPORATE BONDS (Cost $6,343,948) 6,739,337
PREFERRED STOCKS (2.9%)
UNITED STATES (2.9%)
Sinclair Capital, 11.625%, due 3/15/2009 (a) 400 42,400
TCI Pacific Communications, 5.00%, due 7/31/2006 440 45,540
Time Warner, Inc., 10.25%, due 7/1/2016 117 129,843
-----------
217,783
-----------
TOTAL PREFERRED STOCKS (Cost $190,922) 217,783
123
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
PRINCIPAL
AMOUNT VALUE
-------------------------
SHORT-TERM SECURITIES (8.4%)
REPURCHASE AGREEMENT (8.4%)
State Street Bank, 4.25%, due 7/1/1997
(Dated 6/30/1997, collateralized by U.S. Treasury
Note, 6.15%, due 5/15/1998, value $651,450) $ 635,955 $ 635,955
-------------
TOTAL SHORT-TERM SECURITIES (Cost $635,955) 635,955
-------------
TOTAL INVESTMENTS (100.0%) (Cost $7,170,825) $ 7,593,075
-------------
-------------
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1997, aggregated $8,054,505 and $7,190,115, respectively.
At June 30, 1997, net unrealized appreciation for tax purposes aggregated
$421,243, of which $425,791 related to appreciated investment securities and
$4,548 related to depreciated investment securities. The aggregate cost of
securities is $7,171,832 for tax purposes.
(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 6/30/97.
(d) Front-loaded interest reduction bond; Brady Bond.
124
<PAGE>
Morgan Stanley Worldwide High Income Portfolio
Schedule of Investments (continued)
As of June 30, 1997, the Portfolio had investments in the following industries.
PERCENT OF
TOTAL
INVESTMENTS
-----------
INDUSTRY
Amusement & Recreation Services 0.9%
Business Services 0.9
Communications 12.6
Depository Institutions 2.2
Electric, Gas, & Sanitary Services 2.3
Electronic & Other Electric Equipment 2.5
Finance, Taxation, & Monetary Policy 3.6
Food Stores 1.0
Government 45.6
Health Services 0.6
Holding & Other Investment Offices 2.2
Hotels & Other Lodging Places 3.3
Industrial Machinery & Equipment 0.2
Insurance Carriers 1.1
Miscellaneous Manufacturing Industries 1.0
Motion Pictures 2.7
Nondepository Institutions 3.0
Oil & Gas Extraction 1.7
Paper & Allied Products 1.0
Printing & Publishing 0.8
Stone, Clay, & Glass Products 4.5
Wholesale Trade - Durable Goods 5.2
Wholesale Trade - Nondurable Goods 1.1
------
100.0%
------
------
125
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements
June 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Legends Fund, Inc. (the "Fund") was formed on July 22, 1992. The Fund is
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), 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, ARM
Capital Advisors Money Market, Morgan Stanley Asian Growth, and Morgan Stanley
Worldwide High Income. ARM Securities Corporation ("ARM Securities"), formerly
known as SBM Financial Services, Inc., 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 a variable annuity
separate account 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.
ARM Financial Group, Inc. ("ARM") is the ultimate parent of ARM Capital
Advisors, Integrity, National Integrity, and ARM Securities. ARM specializes in
the asset accumulation business, providing retail and institutional customers
with products and services designed to serve the growing long-term savings and
retirement markets. At June 30, 1997, ARM had approximately $5.6 billion of
assets under management.
ARM has entered into a purchase agreement dated May 21, 1997, pursuant to which
ARM has agreed to transfer substantially all of the operations of ARM Capital
Advisors to a newly formed subsidiary, ARM Capital Advisors, LLC, and to sell an
80% interest in such company to ARM Capital Advisors Holdings, LLC, an entity
controlled by Emad A. Zikry, the current President of ARM Capital Advisors. The
pending sale will allow ARM Capital Advisors, LLC to better compete with other
independent asset managers that are not affiliated with insurance companies.
After consummation of the pending sale, ARM Capital Advisors will be renamed
Integrity Capital Advisors, Inc. and will act as investment adviser to the Fund.
126
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for investment companies.
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, if 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. ARM Capital Advisors Money Market 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
127
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investments are determined on the basis of nearest average for all of the
portfolios except Zweig Asset Allocation, 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, 1997, Pinnacle Fixed Income 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, 1997, Pinnacle Fixed Income and Zweig Asset Allocation have
accumulated net realized capital loss carryovers of $99,915 (expiring in 2003,
2004 and 2005) and $356,076 (expiring in 2005), respectively.
DIVIDEND DISTRIBUTIONS
Dividends from net investment income and distributions from net realized gains
are declared and distributed annually, except that ARM Capital Advisors Money
Market 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.
128
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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, 1997.
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
the end of the period. 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.
Morgan Stanley Asian Growth, Morgan Stanley Worldwide High Income and Pinnacle
Fixed Income 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.
129
<PAGE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Morgan Stanley Asian Growth and Morgan Stanley Worldwide High Income 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with institutions that the Fund's
investment manager, ARM Capital Advisors, has determined are creditworthy
pursuant to criteria adopted by the Board of Directors. Each repurchase
agreement is recorded at cost. The Fund requires that the securities purchased
in a repurchase transaction be transferred to the custodian in a manner
sufficient to enable the Fund to obtain those securities in the event of a
default under the repurchase agreement. The value of the securities transferred
is monitored daily to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is equal to or greater than amounts
owed to the Fund under each repurchase agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
OTHER
On April 2, 1996, Integrity purchased for its own account approximately 479,000
shares of Pinnacle Fixed Income, at the net asset value on such date, for an
aggregate purchase price of $5.1 million. As of June 30, 1997, approximately
415,000 shares having a fair value of approximately $4.6 million and
constituting 49.0% of the outstanding shares of the Portfolio were held by
Integrity for its own account.
130
<PAGE>
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
ARM Capital Advisors has entered into a sub-advisory agreement with a registered
investment adviser ("Sub-Adviser") for each of the Portfolios except ARM Capital
Advisors Money Market. ARM Capital Advisors, not the Fund, pays the sub-advisory
fee to each of the Sub-Advisers.
Listed below are management and sub-advisory fees payable as a percentage of
average net assets:
PORTFOLIO MANAGEMENT FEE SUB-ADVISORY FEE
-----------------------------------------------------------------------
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
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.
Zweig Asset Allocation, Dreman Value, Morgan Stanley Asian Growth, and Zweig
Equity (Small Cap) placed a portion of their transactions with brokerage firms
which may be considered affiliates of the Fund under the Investment Company Act.
The commissions paid to these firms were approximately $67,000 in the aggregate
during the year ended June 30, 1997.
131
<PAGE>
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
Certain officers and directors of the Fund are also officers of ARM, ARM
Securities, ARM Capital Advisors, Integrity and National Integrity. The Fund
does not pay any amounts to compensate these individuals.
3. CAPITAL SHARES
At June 30, 1997, 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
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 and 100,000,000 shares for ARM Capital Advisors Money
Market.
At June 30, 1997, Integrity, through its variable annuity Separate Account II,
and National Integrity, through its variable annuity Separate Account II, were
the record owners of all the outstanding shares of the Fund.
4. SUBSEQUENT EVENTS
On July 23, 1997, Integrity and National Integrity (collectively, the
"Applicants") filed an application with the Securities and Exchange Commission
pursuant to Section 26(b) of the Investment Company Act for an order to approve
a substitution of the current Portfolios of the Fund (the "Substitution"). The
Substitution would entail the transfer of assets from a Portfolio within the
Fund to a new portfolio of an insurance trust mutual fund ("New Portfolio")
deemed to have (i) substantially similar investment strategies and (ii)
historically stronger investment performance and/or lower expense ratios (after
waivers and reimbursements). Shares of the Fund would be exchanged at net asset
value for shares of equivalent value of the New Portfolio. The costs of the
Substitution will be borne by the Applicants, and no fees, transfer charges or
sales charges to effect the Substitution will be imposed on the Fund, its
shareholders, or ultimately, the variable annuity contract holders. Prior to and
immediately following the Substitution, the account values of the variable
annuity contract holders will be the same. In addition, the Substitution will
not alter the tax or insurance benefits to contract holders or the contractual
obligation of the Applicants.
132
<PAGE>
4. SUBSEQUENT EVENTS (CONTINUED)
The Portfolios of the Fund affected by the Substitution and the New Portfolios
which will receive the assets are as follows:
Current Portfolio of Fund New Portfolio
------------------------- -------------
Renaissance Balanced Janus Aspen Series Balanced
Nicholas-Applegate Balanced Janus Aspen Series Balanced
Pinnacle Fixed Income JPM Bond
ARM Capital Advisors Money Market Janus Aspen Series Money Market
Morgan Stanley Asian Growth Morgan Stanley Asian Equity
Morgan Stanley Worldwide High Morgan Stanley Emerging Markets
Income Debt
Assuming approval by the Securities and Exchange Commission of the Substitution,
the Applicants will schedule the Substitution to occur on or about October 6,
1997, or as soon as practicable following the issuance of the order for the
Substitution, if later. It is anticipated that once the transfer of assets
occurs, the Fund will include four Portfolios: Zweig Asset Allocation, Harris
Bretall Sullivan & Smith Equity Growth, Dreman Value, and Zweig Equity (Small
Cap).
On August 15, 1997, the Board of Directors of the Fund authorized a
shareholder meeting, including the filing of proxy materials, to consider for
approval amendments to the Management Agreement between the Fund and ARM
Capital Advisors and sub-advisory agreements between the Fund and certain
Sub-Advisers with respect to reductions in sub-advisory fees. Assuming
shareholder approval, the management fees paid by the Fund to ARM Capital
Advisors would remain unchanged and the sub-advisory fees paid by ARM Capital
Advisors to each of the Sub-Advisers of Zweig Asset Allocation, Harris
Bretall Sullivan & Smith Equity Growth, Dreman Value, and Zweig Equity (Small
Cap), as a percentage of average net assets, would be reduced by 0.10% to
0.65%, 0.40%, 0.40%, and 0.80%, respectively.
133
<PAGE>
The Legends Fund, Inc.
Portfolio Performance
June 30, 1997
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]
<TABLE>
<CAPTION>
60% of the S&P 500, 30% of
Lehman Brothers Government/Corporate
Bond Index, and 10% of 90-Day
Date Renaissance Balanced Portfolio Treasury Bill Yield S&P
<S> <C> <C> <C>
12/14/92 $10,000 $10,000 $10,000
Dec 92 $9,930 $10,085 $10,088
Jun 93 $10,420 $10,629 $10,579
Dec 93 $10,985 $11,058 $11,102
Jun 94 $10,501 $10,709 $10,727
Dec 94 $10,604 $11,076 $11,248
Jun 95 $11,941 $12,832 $13,519
Dec 95 $13,135 $14,230 $15,471
Jun 96 $13,454 $15,036 $17,032
Dec 96 $14,374 $16,344 $19,021
Jun 97 $15,309 $18,524 $22,939
</TABLE>
- - Average annual total return since inception: 9.82%.
- - Total return for the fiscal year ended June 30, 1997: 13.78%.
- - 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.
134
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
RENAISSANCE BALANCED PORTFOLIO (CONTINUED)
The stock market has been the beneficiary of an exceptionally favorable
environment over the past year, with strong mutual fund inflows, rising
corporate earnings, and stable or declining interest rates resulting in a 35%+
gain in stock prices.
Throughout the past 12 months, Renaissance has maintained a defensive posture in
the Legends Fund Balanced portfolio, with stocks ranging from 30%-40% of the
total Portfolio. The current bull market in stocks has been the longest in 40
years without a "correction" in stock prices of 10% or more. Investors with only
recent experience in the financial markets should be forgiven if they believe
that stock prices never go down but only up. To put this in better perspective,
since 1900 there have been 65 years when the stock market has fallen 10% or more
from the prior year's high, working out to a correction of 10% or more every 18
months on average. The current bull market is already 80 months long.
By most measures, inflation is running well below 3% per year, a fact which
supports generally high valuations on financial assets such as stocks and bonds.
The S&P 500 is selling on a price/trailing earnings ("P/E") basis in the highest
10% of observations in the past 40 years. On a price/book value, price/sales, or
price/dividend basis, the S&P 500 is selling at its highest level ever.
What is noteworthy about the valuation of stocks is that these euphoric
valuations have not carried over into the bond market. While the P/E multiple on
stocks is slightly higher today than in periods of similar inflation in the
past, the yield on bonds is usually high when compared to historical experience.
For example, when inflation is less than 3%, the S&P 500 P/E has averaged about
18X and long-term government bond yields, 5.5%. By comparison, at quarter-end,
inflation was less than 3% and the S&P 500 P/E was about 22X while the long-term
government bond yields 6.8%. This indicates both potential risk in stocks and
potential opportunity in bonds.
We recognize that our conservative asset allocation posture these last 12 months
has detracted from investment returns. Nevertheless, our investment goal for the
Portfolio is to provide competitive rates of return while also incurring a low
level of volatility. This does not mean that we will produce exceptional returns
every year, and we have endured similar periods of temporarily disappointing
results in our 19-year history. However, we firmly believe that the Portfolio
will be exceptionally well served by our approach over the next several
quarters.
135
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
RENAISSANCE BALANCED PORTFOLIO (CONTINUED)
Since late April, declines in interest rates and advances in stock earnings have
slightly raised the attractiveness of stocks. However, current prices in the
stock market tend to already discount much good news regarding the economy.
Either continued gains in corporate earnings, a decline in stock prices, or
further declines in interest rates, would be necessary before the current
overvaluation of stocks relative to bonds becomes eliminated.
136
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
ZWEIG ASSET ALLOCATION PORTFOLIO
Comparison of change in value of $10,000 investment in
Zweig Asset Allocation Portfolio and the S&P 500
[GRAPH]
Date Zweig Asset
Allocation Portfolio S&P 500
12/14/92 $10,000 $10,000
Dec 92 $10,000 $10,088
Jun 93 $10,810 $10,579
Dec 93 $11,495 $11,102
Jun 94 $11,485 $10,727
Dec 94 $11,536 $11,248
Jun 95 $13,164 $13,519
Dec 95 $14,009 $15,471
Jun 96 $14,620 $17,032
Dec 96 $16,087 $19,021
Jun 97 $17,343 $22,939
- - Average annual total return since inception: 12.88%.
- - Total return for the fiscal year ended June 30, 1997: 18.63%.
- - 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.
137
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)
For the fiscal year ended June 30, 1997, the Portfolio returned 18.6% with an
average market exposure of 56%. Our benchmark S&P 500 Index returned 34.7%. The
performance shortfall was largely due to our significantly reduced market
exposure, which we maintained in deference to the readings of our research.
Our monetary research was neutral for the second half of 1996. In early 1997,
the Federal Reserve raised interest rates in a preemptive strike against
inflation. Partly for this reason, bond yields rose to over 7%, and the
combination of these factors caused our monetary work to downtick. In addition,
sector performance (cyclical stocks outperforming consumer stocks) suggested
continuing strength in the economy, causing our monetary indicators to fall well
below the neutral reading. This, in combination with our sentiment indicators,
which had been showing dangerous levels of optimism for several months, caused
us to reduce our exposure to approximately 50% in March. Bond prices began to
rally in late April, however, due to a number of factors. First, the economy
slowed marginally. Second, inflation data showed little threat. Third, budget
news out of Washington was extremely favorable. As bond yields dropped, we
systematically added to our exposure. As of June 30, 1997, we were 62% invested.
As of the date of this report we are 75% invested.
Our stock selection, which has worked well for us over the life of the
Portfolio, has lagged recently, contributing further to our underperformance. We
select stocks with above-average growth rates and below-average valuation. But
today's top-performing stocks are the very largest companies, which are selling
at high prices relative to their earnings. The Portfolio is more heavily
weighted to the mid-sized companies that are trading at what we consider more
reasonable prices.
Some industry groups did well for us during the twelve months. In the consumer
cyclical group, the stocks of retailing companies have benefited from strong
consumer spending and high levels of consumer confidence. In the financial
sector, brokerage stocks are doing well as the market continues to climb. The
Portfolio's airline stocks held us back in late 1996, but have earned strong
returns in 1997 because business travel, the most profitable area of the airline
business, has increased dramatically with the strong economy, and pricing is
firm.
Our holdings in utilities have held us back this year. We continue to hold them,
however, because their earnings are far more stable than that of most growth
stocks, while we believe their valuations make them good buys.
138
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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.
[GRAPH]
60% of the S&P
500 and 40% of
Lehman Brothers
Intermediate
Nicholas-Applegate Treasury Bond
Date Balanced Portfolio Index S&P
12/3/92 $10,000 $10,000 $10,000
Dec 92 $10,300 $10,143 $10,088
Jun 93 $11,500 $10,676 $10,579
Dec 93 $11,772 $11,089 $11,102
Jun 94 $11,301 $10,723 $10,727
Dec 94 $11,738 $11,063 $11,248
Jun 95 $13,326 $12,795 $13,519
Dec 95 $14,087 $14,151 $15,471
Jun 96 $15,129 $14,997 $17,032
Dec 96 $16,264 $16,288 $19,021
Jun 97 $17,266 $18,462 $22,939
- - Average annual total return since inception: 12.68%.
- - Total return for the fiscal year ended June 30, 1997: 14.12%.
- - Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
- - Portfolio commenced operations on December 3, 1992.
- - Past performance is not predictive of future performance.
139
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
NICHOLAS-APPLEGATE BALANCED PORTFOLIO (CONTINUED)
The Portfolio lagged a passive mix of S&P 500 stocks and bonds during the
period, due largely to unusual market conditions. Extreme market narrowness
during most of the term favored large capitalization "blue chip" stocks while
smaller and high earnings-growth companies were ignored at best.
Overall, the fiscal year ended June 30, 1997 was dominated by large cap stocks,
with a slight bias toward the "value" style. As one moves down the
capitalization spectrum, the market's favoritism of large cap stocks over
smaller cap, and value stocks over growth becomes more pronounced. For example,
the S&P 500 index returned 34.7% while the Russell 2000 Growth Index, a
benchmark of small capitalization growth stocks, returned only 4.5%. Divergence
of this magnitude is unprecedented.
The fourth quarter of 1996 and the first quarter of 1997 were particularly harsh
for high-growth stocks. Concerns about renewed inflation and the prospects of
higher interest rates scared investors away from high-growth and higher price-
to-earnings stocks while larger capitalization, value-oriented stocks remained
in positive territory.
The second quarter of 1997 saw a more evenly distributed market where no
investment style was particularly advantaged or disadvantaged. Small and "mid-
cap" stocks kept pace with large stocks, and growth stocks performed in line
with value stocks. This broadening of the market was encouraging after the
extremely narrow market we saw over the prior quarters. Continued broadening
into the higher growth segments should provide very favorable conditions for our
discipline.
Growth stock investing is founded on the fundamental relationship between a
company's earnings and its stock price. In seeking superior returns, Nicholas-
Applegate invests in companies that we feel have the best potential for positive
earnings acceleration. We are excited about and confident in the stocks in the
Portfolio and their potential to provide outstanding performance.
140
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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]
Harris Bretall
Sullivan & Smith
Equity Growth
Date Portfolio S&P 500
12/8/92 $10,000 $10,000
Dec 92 $10,050 $10,088
Jun 93 $9,710 $10,579
Dec 93 $10,050 $11,102
Jun 94 $9,360 $10,727
Dec 94 $10,460 $11,248
Jun 95 $12,850 $13,519
Dec 95 $13,771 $15,471
Jun 96 $14,597 $17,032
Dec 96 $15,692 $19,021
Jun 97 $19,010 $22,939
- - Average annual total return since inception: 15.12%.
- - Total return for the fiscal year ended June 30, 1997: 30.23%.
- - Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity certificates.
- - Portfolio commenced operations on December 8, 1992.
- - Past performance is not predictive of future performance.
141
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
For the fiscal year ended June 30, 1997, the Portfolio returned 30.2%. The
Portfolio performed well again during the quarter ended June 30, 1997, earning
18.0%, a return greater than the S&P 500. In large part, the performance results
stem from the selection of high quality, large capitalization growth companies,
which have attracted capital in the current economic environment.
Most clients and investors have been wondering when the good times will end and
if the stock market is overvalued; our answer to this concern is that the market
seems poised for a major, long-term Bull Run. Our internal models show that the
market appears fairly valued, given the current level of interest rates,
inflation, and corporate earnings growth. The lack of inflationary pressure, the
strength of the U.S. Dollar, the productivity gains made through the increased
use of technology, and the shrinking federal budget deficit all have led to
lower interest rates, and higher stock prices.
The stock market advance will very likely continue as long as inflation remains
tame, and corporate earnings continue to grow. Federal Reserve Board Chairman
Alan Greenspan's recent Humphrey-Hawkins testimony was quite positive for
financial markets. He described the current economic environment as
"exceptional;" this marks a change from his caution to market investors of
"irrational exuberance" from last December. What prompted this change? We sense
that Chairman Greenspan has finally adopted a more modern view of the economic
system. He sees how productivity increases can extend the current economic
expansion without inflationary pressures.
Looking forward, the companies that have the ability to expand output because of
revenue opportunities will continue to command higher earnings multiples due to
their consistent earnings growth. One of the reasons we have a strong commitment
to technology stocks is that we see the cost reducing benefits of technology
hardware and software and the enhanced marginal revenue produced. Our technology
advantage in the U.S. should help our companies compete successfully in
international business.
The recent expansion of NATO to include Russia furthers the argument for the
large capitalization growth companies that is the focus of the Portfolio.
Companies such as Microsoft, Coca Cola, General Electric, McDonald's, Colgate-
Palmolive, Disney, Citicorp and Pfizer have all benefited from the increased
international trade opportunities established with the end of the Cold War. We
invest in world class economic powers that are already positioned well for the
increased international competition.
142
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
Our outlook for the future remains positive. With a group of high quality, large
cap stocks, our Portfolio has performed very well. Historically, however, when
the cycle changes and corporate earnings slow, it is our Portfolio of growth
stocks that enjoy the relative earnings advantage. Since we are still enjoying
an expanding economy, our best times still seem ahead of us.
We remain steadfast in our prediction of the Dow reaching the 10,000 level
approaching the year 2000, and we see the long-term economic conditions set for
that move forward.
143
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
DREMAN VALUE PORTFOLIO
Comparison of change in value of $10,000 investment in
Dreman Value Portfolio and the S&P 500
[GRAPH]
Dreman Value
Date Portfolio S&P 500
12/14/92 $10,000 $10,000
Dec 92 $10,180 $10,088
Jun 93 $10,450 $10,579
Dec 93 $10,820 $11,102
Jun 94 $10,740 $10,727
Dec 94 $10,736 $11,248
Jun 95 $12,886 $13,519
Dec 95 $15,622 $15,471
Jun 96 $16,909 $17,032
Dec 96 $19,452 $19,021
Jun 97 $22,621 $22,939
- - Average annual total return since inception: 19.67%.
- - Total return for the fiscal year ended June 30, 1997: 33.78%.
- - 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.
144
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
DREMAN VALUE PORTFOLIO (CONTINUED)
Investment returns for the fiscal year ended June 30, 1997 have been excellent.
The market as measured by the S&P 500 appreciated 34.7%. This rate of return
exceeded the return forecast by even the most bullish of the Wall Street
prognosticators. Fundamentally, stock prices have been buoyed by continued
growth in the U.S. and global economies, relatively low inflation, a benign bond
market, moderately higher corporate profits and favorable actions in Washington
to deal with current and future fiscal affairs. In this context, continued
robust money flows to equity mutual funds from the public as well as continuing
investment from overseas investors to U.S. equities has provided a favorable
supply demand balance for equities. This fundamental and psychological backdrop
has proven more powerful than the Federal Reserve Board's interest rate hike and
the prior concerns of more increases to follow. The volatility in the market has
been extreme as investor perceptions and expectations have been far more
mercurial than warranted by the underlying fundamentals.
The reason for this large performance disparity between the funds and the S&P
500 relates to the two-tier performance within the market or what has become
known as the "Nifty Fifty" effect. Fifty large capitalization stocks which
comprise the Morgan Stanley Nifty Fifty Index, and incidentally about 40% of the
capitalization weighted S&P 500 Index, have performed materially better than the
S&P 500 and have overwhelmed the return of the average stock within the index.
These securities have benefited from the current fad toward indexation. For
perspective, the Morgan Stanley Nifty Fifty Index is up 41.7% for the last 12
months, well above the 34.7% return of the S&P 500 Index and the 27.5% return of
the average stock within the index. Narrow two-tier markets such as this have
appeared periodically in years past only to be followed by a reversion to the
mean and a more normal distribution of returns among securities.
With the market hovering around the 8,000 level for the Dow Jones Industrials,
the fact that most stocks have not faired as well suggests that some good values
are still available for patient investors. We have focused our research effort
on laggard stocks and groups currently down in price due to short term
fundamental or psychological problems. Securities of this ilk have found their
way onto our watch list and selectively into the Portfolio.
The Portfolio has performed well in a strong market setting in which relative
performance has been difficult to achieve. Results have been consistent with
continuing strong performance from our financial, consumer staple and consumer
cyclical sectors. The Portfolio continues to be well diversified in terms of
industry and security concentrations, while achieving P/E that is below market,
a dividend yield that is above market, earnings that are growing faster than
market, and financial qualities that are superior to market.
145
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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]
Zweig Equity (Small Value Line
Date Cap) Portfolio Geometric Index
12/14/92 $10,000 $10,000
Dec 92 $10,000 $10,106
Jun 93 $10,110 $10,611
Dec 93 $10,864 $11,260
Jun 94 $10,763 $10,482
Dec 94 $10,797 $10,582
Jun 95 $11,881 $11,862
Dec 95 $13,076 $12,624
Jun 96 $14,102 $13,509
Dec 96 $15,500 $14,311
Jun 97 $16,975 $16,010
- - Average annual total return since inception: 12.35%.
- - Total return for the fiscal year ended June 30, 1997: 20.37%.
- - 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.
146
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
ZWEIG EQUITY (SMALL CAP) PORTFOLIO (CONTINUED)
We are quite gratified by our performance over the twelve months ended June 30,
1997. During this period, the Portfolio returned 20.4%, surpassing the Value
Line Geometric Index, which returned 18.5% and the Russell 2000, which returned
16.3%. We were able to achieve this performance while keeping market exposure at
an average level of 57%. These results show that, although our Portfolio pursues
a risk-averse strategy, it can shine even in bull markets.
The Portfolio's superior performance is due to our strategy of participating
solidly on the upside, as our stock selection allowed us to do, and limited
losses during declines, which we did in the summer of 1996. Our reduced market
exposure at the time--under 65%--helped us avoid the pitfalls that beset our
fully invested peers. Our stock selection style, which focuses on stocks with
above-average earnings growth and below-average valuations, helped as well.
Funds that owned stocks with high price-earnings ratios were much harder hit
last summer than we were.
Our significant holdings in the financial services sector helped us during the
past twelve months. The extended bull market has meant rising stock prices for
brokerage firms. The favorable interest rate environment has benefited insurers.
Small regional banks have also benefited from the increased prosperity.
Basic materials stocks, another large holding in the Portfolio, are performing
well as a result of the strong economy. These companies prepare the materials
that are used in industry and building, such as cement and chemicals. Our
overweighting in capital goods stocks has added to the Portfolio's performance
as well. These companies make heavy machinery, which is in demand given the
growth in the economy.
147
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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]
Salomon Brothers
Pinnacle Fixed Broad Investment-
Date Income Portfolio Grade Bond Index
1/5/93 $10,000 $10,000
Jun 93 $10,430 $10,695
Dec 93 $10,564 $10,979
Jun 94 $10,109 $10,568
Dec 94 $10,156 $10,667
Jun 95 $11,229 $11,894
Dec 95 $11,893 $12,571
Jun 96 $11,599 $12,413
Dec 96 $12,111 $13,027
Jun 97 $12,448 $13,426
- - Average annual total return since inception: 5.00%.
- - Total return for the fiscal year ended June 30, 1997: 7.33%.
- - 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.
148
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
PINNACLE FIXED INCOME PORTFOLIO (CONTINUED)
Amid signs of slowing growth, subdued inflation, and an active Fed during the
six months ending December 31, 1996, a longer-than-benchmark duration strategy
had a positive impact on the Portfolio's performance. The Portfolio's aggressive
investment in mortgage-backed securities also fueled relative returns as this
sector was one of the market's best performers of 1996.
Spurred on by a potential increase in inflation signaled by a strong U.S.
economy and a historically tight labor market during the first quarter of 1997,
the Fed finally obliged the market during the last week of the first quarter
with an as-expected 0.25% increase in the overnight rate from 5.25% to 5.50%.
However, during the second quarter of 1997, slower growth combined with benign
inflation allowed the Federal Reserve to refrain from additional tightening of
monetary policy.
Within that environment during the first half of 1997, we maintained the
Portfolio's main themes of overweighting mortgages and investment grade
corporates while underweighting U.S. Treasuries. During the second quarter of
1997, the Portfolio's overweighting to the investment grade corporate sector
contributed positively to performance. We look to maintain the Portfolio's
current sector allocations.
We maintain that the recent slowdown in growth is temporary, as the economy is
fundamentally strong and monetary conditions continue to ease. We also support
the consensus that there will be a third quarter bounce-back in growth which
might lead to Federal Reserve intervention before calendar year-end.
149
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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]
Morgan Stanley MSCI Combined Far
Asian Growth East Free Ex-Japan
Date Portfolio Index
6/15/94 $10,000 $10,000
Jun 94 $10,000 $9,754
Dec 94 $9,280 $9,772
Jun 95 $10,180 $10,456
Dec 95 $10,279 $10,437
Jun 96 $10,912 $11,310
Dec 96 $10,852 $11,396
Jun 97 $10,812 $11,418
- - Average annual total return since inception: 2.60%.
- - Total return for the fiscal year ended June 30, 1997: (1.01)%.
- - 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.
150
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
The Portfolio underperformed the Morgan Stanley Capital International Combined
Free Ex-Japan Index during the fiscal year ended June 30, 1997 with a decline of
1.0% in its Net Asset Value ("NAV") versus a rise of 0.9% in the benchmark. The
bulk of the underperformance came in the six months ended December 31, 1996
during which the Portfolio trailed the index with a decrease of 0.5% in its NAV
compared with a gain of 2.1% in the benchmark. The differential was narrowed in
the subsequent six months ended June 30, 1997 with the Portfolio recording a
fall of 0.4% compared with an increase of 0.2% in the benchmark.
The performance of the Portfolio was adversely impacted mainly by the holdings
of Malaysia and Thailand equities. In Malaysia, two of the Portfolio's
significant positions in Genting Berhad and Resorts World Berhad were derated
due to the sharp drop in patronage at the highland casinos. Over in Thailand,
the Portfolio's holdings in the top three quality bank stocks, Bangkok Bank,
Thai Farmers Bank and Siam Commercial Bank were drawn down by the selloff in the
market as investors grew increasingly nervous over the deepening woes of the
economy.
The Portfolio, however, managed to claw back some of the underperformance in the
latter half of the fiscal year as a result of strong contributions from security
selections in Hong Kong, Indonesia, Taiwan, and South Korea. In Hong Kong, the
Portfolio's performance was boosted by its core holding in HSBC Holdings Plc,
which massively outperformed the market on the back of strong earnings growth
and favorable interest rate environment. The Portfolio's selective investments
in red chips such as Shanghai Industrial and China Resources also saw sterling
returns as investors swamped towards quality red chips which offer good proxies
to play on the evolving businesses owned by well connected mainland Chinese
shareholders.
The Portfolio was also well positioned to capture the turnaround in the
electronic sector by its holdings in Samsung Electronics in Korea, which is the
largest producer of dynamic random access memory chips in the world, as well as
Taiwanese electronics stocks such as Asustek which witnessed a strong surge in
order books and profits. Over in Indonesia, the Portfolio's major holding, Astra
International, was rerated following the announcement of strong motorcycle and
car sales despite threats of potential new competitors.
On asset allocation, the Portfolio saw positive contributions from its
overweight position in Hong Kong and its timely underweight position in
Malaysia. This was, however, partially offset by the Portfolio's underweight
position in Taiwan which significantly outperformed the region and its slightly
overweight position in the Thailand market which collapsed.
151
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
At June 30, 1997, the Portfolio was overweighted in Hong Kong (35.9% versus
33.3%), Korea (4.8% versus 5.9%), Singapore (12.5% versus 11.1%) and China (1.1%
versus 0.8%). It was underweighted everywhere else, most notably in Malaysia
(15.2% versus 18.4%).
The Portfolio's increased weight in Hong Kong (to 35.9%) stood it in good stead
as the Hong Kong market staged a sharp rebound from the first quarter. Euphoria
over China concept plays and in particular red chips led the way. Sentiment and
liquidity further contributed, as asset injection stories propelled the red
chips ever higher while traditional blue chip stocks languished. The rally
culminated in an all time high of 15,197 on the Hang Seng Index on June 27,
1997, the last trading day before the Handover. With the Handover complete, red
chip fever has subsided and talk of increasing the supply of residential units
in Hong Kong has caused the property sector to weaken. The Portfolio will be
looking to take its Hong Kong weighting down while shifting towards better value
blue chips such as the major property developers if they weaken further.
The Portfolio has also increased its weight in Korea to 4.8% and will continue
to look for good values in that market. The Korean economy appears to have
bottomed as positive export growth generated its first monthly trade surplus in
30 months. Equally encouraging, there are also signs that the Korean corporate
culture is finally changing. The zealousness with which many Korean companies
pursued market share gains and top line growth is finally beginning to shift
towards interest in the bottom line which should bode well for equity investors.
By contrast, the Portfolio sharply cut its weighting in Malaysia over the last
quarter, to 15.2%. Bank Negara's curbs on property lending and stock market
margin loans finally forced the economy to confront its problems with the
impending oversupply in the property market and an infrastructure spending
binge. The subsequent severity of the market fallout indicated an overstretched
market. Although the long term fundamentals for Malaysia remain good, short term
prospects are not promising, especially in the aftermath of the fallout from the
depegging of the Thai baht. The Portfolio is looking to maintain its underweight
in Malaysia barring unforeseen positive developments.
The Portfolio's weighting in Thailand has been taken down to 4.9%, due to a
combination of Portfolio sales and a collapsing market. During the quarter ended
June 30, 1997, confidence plummeted as the government resorted to capital
controls and jacked up interest rates to fend off the currency speculators. The
gloom was further compounded by news of a slowing economy as the mounting
financial crisis resulted in the suspension of 16 finance companies. The
depegging of the
152
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
MORGAN STANLEY ASIAN GROWTH PORTFOLIO (CONTINUED)
Thai baht at the beginning of July is the first step towards addressing the Thai
financial crisis. Recovery, however, will be a slow and painful process, and the
first sharp rally when the Baht broke is proving hard to sustain. The Portfolio
will selectively continue to seek to acquire good companies at "bombed-out"
prices, but it is still too early to bet on the Thai market.
The Thai financial crisis and the final depegging of the Thai Baht have brought
into focus the common ills of the fast growing Southeast Asian nations. Thailand
is further along the economic cycle but the pain it is going through has
heightened investors' wariness about the region in general and is likely to
prove a dampener on the markets in the near term. The collapse in the Thai
market and the correction in Malaysia, Singapore and the Philippines have
brought market valuations back to attractive levels, but short term sentiment
remains poor.
In summary, the Portfolio will continue to selectively seek to move out of more
extended markets like Hong Kong into the more distressed situations in Southeast
Asia.
153
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
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
[GRAPH]
50% JP Morgan
Emerging Market
Bond Index and
Morgan Stanley JP Morgan 50% of Lehman
Worldwide High Emerging Market Brothers Aggregate
Date Income Portfolio Bond Index Bond Index
6/15/94 $10,000 $10,000 $10,000
Jun 94 $10,000 $9,580 $9,784
Dec 94 $9,500 $9,731 $9,909
Jun 95 $10,400 $10,628 $10,935
Dec 95 $11,461 $12,319 $12,143
Jun 96 $12,315 $14,225 $12,987
Dec 96 $14,268 $17,162 $14,631
Jun 97 $15,557 $18,925 $15,606
- - Average annual total return since inception: 15.63%.
- - Total return for the fiscal year ended June 30, 1997: 26.32%.
- - 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.
154
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)
For the fiscal year ended June 30, 1997, The Worldwide High Income Portfolio
returned 26.3% versus the benchmark return of 20.2%. The Portfolio invests in
two primary markets, the emerging markets debt market and the U.S. high yield
bond market. Over the past year, our weighting in these two sectors has remained
relatively constant with about 60% of the Portfolio in emerging markets and 40%
in the U.S. high yield market. These two markets have been the best performing
fixed income markets in the world. In addition, our overweighting in the
emerging markets sector has been helpful since that sector has outpaced high
yield markedly.
Both sectors have benefited from strong economies both at home and abroad. The
strong economies have improved corporate and sovereign credit quality. In
addition, credit quality spreads narrowed across the board. As many market
commentators have stated, we seem to be in a financial sweet spot of good growth
and low inflation. These conditions tend to provide the greatest benefit to the
most junior securities (common stock) first and then subordinated or risky debt
(emerging markets and high yield). This is essentially what we have experienced
over the last year.
While our general allocation has remained the same, our allocation within
emerging markets has shifted meaningfully. We have diversified our emerging
markets position quite a bit. We now have investments in eight Latin countries
compared to four a year ago and have reduced our exposure to Brazil by three
percentage points. Our largest Latin positions are now in Argentina and Brazil
at about 9.5% each and Venezuela and Peru at about 6% each. Venezuela, spurred
by higher oil prices, performed very well after lagging the other markets for
several years.
We dramatically reduced our exposure to Russia. A year ago nearly 20% of the
Portfolio was in Russia. Today Russia accounts for about 2% of the Portfolio.
Russia had been one of the best performing markets in the world. We felt it was
prudent to take some profits and to spread our risk. Some of the proceeds of the
Russian sale funded positions in Africa, namely Algeria, Ivory Coast and
Nigeria.
Our positions in the U.S. high yield sector are similarly well diversified.
Approximately fifty different credits are represented in the Portfolio. Some of
our most profitable investments have been in the telecommunications and cable
television sectors. Rapid technological changes have frequently resulted in
alliances that have benefited bond holders. The most recent example is
Microsoft's announced intention to invest $1 billion into Comcast. This
announcement pushed up prices in virtually all cable television securities.
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The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1997
MORGAN STANLEY WORLDWIDE HIGH INCOME PORTFOLIO (CONTINUED)
The outlook continued to look good, probably too good for most people's comfort.
At this point, everyone seems to be looking for the first signs of inflation
pressures. So far none have managed to push the inflation statistics higher. The
other fear is that the Federal Reserve will make a preemptive strike and raise
short term interest rates. So far this has not happened. Longer term rates have
declined while shorter rates have remained firm resulting in a flatter yield
curve.
In nearly all of the financial markets, valuations are at levels that most
market participants have never seen. We believe the high interest income and the
move to freer markets and better credit quality will continue to make the
Worldwide High Income Portfolio a sound investment vehicle.
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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.
Principal offices located at:
[Logo] 515 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
