<PAGE>
The Legends Fund, Inc.
Annual Report
June 30, 1998
Contents
<TABLE>
<S> <C>
President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements, Financial Highlights, and Schedules of
Investments:
Harris Bretall Sullivan & Smith Equity Growth Portfolio. . . . 3
Scudder Kemper Value Portfolio . . . . . . . . . . . . . . . . 7
Zweig Asset Allocation Portfolio . . . . . . . . . . . . . . . 12
Zweig Equity (Small Cap) Portfolio . . . . . . . . . . . . . . 19
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . 27
Portfolio Performance. . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED
OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR 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>
[LETTERHEAD]
This 1998 Annual Report highlights a fine period for The Legends Fund, Inc. (the
"Fund"). We thank all of our current investors and wish to extend a special
welcome to all new investors who have joined us during the period.
Total returns for each of the Fund's portfolios for the fiscal years ended June
30, 1998 and 1997, respectively, are listed below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------
PORTFOLIO 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Harris Bretall Sullivan & Smith Equity Growth 29.11% 30.23%
Scudder Kemper Value (formerly known as Dreman Value and Zurich Kemper) 23.36% 33.78%
Zweig Asset Allocation 21.38% 18.63%
Zweig Equity (Small Cap) 23.72% 20.37%
</TABLE>
Included in this Annual Report is detailed information of the investment
holdings of each portfolio as of June 30, 1998, as well as other financial
information.
The Portfolios registered solid performance. The investment disciplines
available within the Fund span a broad spectrum, providing you with the choices
and flexibility to plan for the long-term. The Fund exists for the sole purpose
of helping to provide you with valuable tools for meeting your investment
objective.
Thank you for your continued confidence. If you have any questions, please feel
free to contact us at your convenience.
Sincerely,
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 Harris Bretall Sullivan & Smith
Equity Growth, Scudder Kemper Value (formally known as Dreman Value and Zurich
Kemper Value), Zweig Asset Allocation and Zweig Equity (Small Cap) portfolios),
including the schedules of investments, as of June 30, 1998, 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 each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
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, 1998 by correspondence with the custodian. As to securities relating to
uncompleted 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 and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios of the Fund at June 30, 1998 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 each of the
five years in the period then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
August 5, 1998
2
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Assets and Liabilities
June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities, at value (cost $24,988,958)--See accompanying schedule $38,079,627
Dividends and interest receivable 16,566
-----------
Total assets 38,096,193
LIABILITIES
Payable for investment securities purchased 394,966
Cash overdraft 6,796
Accounts payable and accrued expenses 32,543
-----------
Total liabilities 434,305
-----------
NET ASSETS $37,661,888
-----------
-----------
Net Assets consist of:
Paid-in capital $20,704,213
Accumulated undistributed net realized gain on investments 3,867,006
Net unrealized appreciation on investment securities 13,090,669
-----------
NET ASSETS, for 1,783,993 shares outstanding $37,661,888
-----------
-----------
NET ASSET VALUE, offering and redemption price per share $ 21.11
-----------
-----------
</TABLE>
Statement of Operations
Year Ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 256,173
Interest 51,005
-----------
Total investment income 307,178
EXPENSES
Investment advisory and management fees 199,561
Custody and accounting fees 88,849
Professional fees 8,150
Directors' fees and expenses 4,898
Other expenses 8,745
-----------
Total expenses 310,203
-----------
Net investment loss (3,025)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 3,870,031
Change in unrealized appreciation on investment securities 4,234,149
-----------
-----------
Net gain on investments 8,104,180
-----------
Net increase in net assets resulting from operations $ 8,101,155
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997
<S> <C> <C>
-------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) $ (3,025) $ 35,592
Net realized gain on investments 3,870,031 2,143,586
Change in net unrealized appreciation 4,234,149 4,406,962
-------------------------------
Net increase in net assets resulting from operations 8,101,155 6,586,140
Distributions to shareholders from:
Net investment income (35,592) (5,649)
Net realized gain (2,143,586) (1,737,610)
-------------------------------
Total distributions to shareholders (2,179,178) (1,743,259)
Capital share transactions:
Proceeds from sales of shares 12,618,333 5,927,647
Proceeds from reinvested distributions 2,179,178 1,743,259
Cost of shares redeemed (11,872,273) (7,509,523)
-------------------------------
Net increase in net assets resulting from share transactions 2,925,238 161,383
-------------------------------
Total increase in net assets 8,847,215 5,004,264
NET ASSETS
Beginning of period 28,814,673 23,810,409
-------------------------------
End of period (including undistributed net investment
income of $35,592 at June 30, 1997) $37,661,888 $28,814,673
-------------------------------
-------------------------------
OTHER INFORMATION
Shares:
Sold 650,111 394,049
Issued through reinvestment of distributions 118,950 119,672
Redeemed (629,133) (512,893)
-------------------------------
Net increase 139,928 828
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Harris Bretall Sullivan & Smith Equity Growth Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 17.53 $ 14.49 $ 12.85 $ 9.36 $ 9.71
Income from investment
operations:
Net investment income (loss) - (a) 0.02 -(a) 0.01 (0.02)(b)
Net realized and unrealized
gain (loss) on investments 4.90 4.13 1.74 3.48 (0.33)
------------------------------------------------------------------------------
Total from investment
Operations 4.90 4.15 1.74 3.49 (0.35)
Less distributions:
From net investment income (0.02) - (a) (0.01) - -
From net realized gain (1.30) (1.11) (0.09) - -
------------------------------------------------------------------------------
Total distributions (1.32) (1.11) (0.10) - -
------------------------------------------------------------------------------
Net asset value, end of period $ 21.11 $ 17.53 $ 14.49 $ 12.85 $ 9.36
------------------------------------------------------------------------------
------------------------------------------------------------------------------
TOTAL RETURN 29.11% 30.23% 13.59% 37.29% (3.60%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $37,662 28,815 $23,810 $16,393 $10,693
Ratio of expenses to average net
assets 0.95% 1.03% 1.04% 1.05% 1.29%
Ratio of net investment income
(loss) to average net assets (0.01%) 0.14% 0.03% 0.13% (0.17%)
Portfolio turnover rate 57% 46% 58% 31% 38%
</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
5
<PAGE>
Harris Bretall Sullivan & Smith
Schedule of Investments
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (97.7%)
BUILDING MATERIALS & GARDEN SUPPLIES (2.4%)
Home Depot, Inc. 11,000 $ 913,688
BUSINESS SERVICES (11.9%)
Autodesk, Inc. 19,000 732,214
Automatic Data Processing, Inc. 11,500 838,063
Cendant Corporation (a) 24,000 501,000
Microsoft Corporation (a) 9,000 975,656
Oracle Corporation (a) 29,000 711,406
The Interpublic Group of Companies, Inc. 13,000 788,938
-----------
4,547,277
CHEMICAL & ALLIED PRODUCTS (17.2%)
Abbott Laboratories 20,400 833,850
Bristol-Meyers Squibb Company 7,300 839,044
Colgate-Palmolive Company 9,300 818,400
Gillette Company 12,600 714,263
Merck & Company, Inc. 5,900 789,125
Pfizer, Inc. 7,800 847,763
Schering-Plough 9,700 888,763
The Procter & Gamble Company 8,900 810,455
-----------
6,541,663
DEPOSITORY INSTITUTIONS (6.2%)
Bankamerica Corporation 8,900 769,293
Citicorp 5,500 820,875
Norwest Corporation 21,000 784,875
-----------
2,375,043
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (8.1%)
General Electric Company 8,900 809,900
Intel Corporation 11,300 837,259
Linear Technology Corporation 9,900 597,094
Tellabs, Inc. (a) 11,900 851,966
-----------
3,096,219
FABRICATED METAL PRODUCTS (2.1%)
Illinois Tool Works, Inc. 12,000 800,250
FOOD & KINDRED PRODUCTS (4.1%)
Coca-Cola Company 10,000 855,000
Pepsico, Inc. 17,500 720,781
-----------
1,575,781
FOOD STORES (4.4%)
Starbucks Corporation (a) 17,800 950,631
The Kroger Company 16,600 711,725
-----------
1,662,356
GENERAL MERCHANDISE STORES (5.1%)
Dayton Hudson Corporation 19,700 955,450
Wal-Mart Stores, Inc. 16,100 978,075
-----------
1,933,525
INDUSTRIAL MACHINERY & EQUIPMENT (10.7%)
Applied Materials, Inc.(a) 26,700 788,484
Cisco Systems, Inc. (a) 10,500 966,984
Compaq Computer Corporation 29,900 848,413
Dover Corporation 20,500 702,125
Hewlett-Packard Company 12,600 754,425
-----------
4,060,431
INSTRUMENTS & RELATED PRODUCTS (2.3%)
Medtronic, Inc. 13,600 867,000
INSURANCE CARRIERS (2.3%)
American International Group, Inc. 6,125 894,250
<CAPTION>
NUMBER
OF SHARES VALUE
--------- ----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MISCELLANEOUS MANUFACTURING INDUSTRIES (4.5%)
Mattel, Inc. 19,200 $ 812,400
Tyco International, Ltd. 14,500 913,500
-----------
1,725,900
MOTION PICTURES (1.7%)
Walt Disney 6,300 661,894
PAPER & ALLIED PRODUCTS (2.0%)
Willamette Industries, Inc. 23,300 745,600
PRIMARY METAL INDUSTRIES (2.0%)
Aluminum Company of America (Alcoa) 11,500 758,281
SECURITY & COMMODITY BROKERS (4.1%)
Merrill Lynch & Company, Inc. 9,100 839,475
The Charles Schwab Corporation 22,000 715,000
-----------
1,554,475
TRANSPORTATION BY AIR (2.3%)
AMR Corporation (a) 10,300 857,475
WHOLESALE TRADE - DURABLE GOODS (2.2%)
Johnson & Johnson 11,100 818,625
WHOLESALE TRADE - NONDURABLE GOODS (2.1%)
Safeway, Inc. (a) 19,600 797,475
-----------
TOTAL COMMON STOCK (COST $24,096,539) $37,187,208
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------- ------
<S> <C> <C>
SHORT-TERM SECURITIES (2.3%)
REPURCHASE AGREEMENT (2.3%)
State Street Bank, 4.25%, due 7/01/98
(Dated 6/30/1998, collaterized by U.S.
Treasury Note, 7.875%, due 11/15/2007,
Value $904,700) $892,419 $ 892,419
-----------
TOTAL SHORT-TERM SECURITIES (Cost $892,419) 892,419
-----------
TOTAL INVESTMENTS (100.0%) (Cost $24,988,958) $38,079,627
-----------
-----------
</TABLE>
(a) non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1998, aggregated $19,529,725 and $17,905,872,
respectively. At June 30, 1998 net unrealized appreciation for tax purposes
aggregated $12,849,354 of which $13,453,104 related to appreciated
investment securities and $603,750 related to depreciated investment
securities. The aggregate cost of securities is $25,230,273 for tax
purposes.
SEE ACCOMPANYING NOTES.
6
<PAGE>
Scudder Kemper Value Portfolio
Statement of Assets and Liabilities
June 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $38,374,694)--See accompanying schedule $46,392,148
Cash 36,798
Dividends and interest receivable 47,691
-----------
Total assets 46,476,637
LIABILITIES
Accounts payable and accrued expenses 40,755
-----------
Total liabilities 40,755
-----------
NET ASSETS $46,435,882
-----------
-----------
Net Assets consist of:
Paid-in capital $33,120,436
Undistributed net investment income 591,315
Accumulated undistributed net realized gain on investments 4,706,677
Net unrealized appreciation on investment securities 8,017,454
-----------
NET ASSETS, for 2,209,349 shares outstanding $46,435,882
-----------
-----------
NET ASSET VALUE, offering and redemption price per share $21.02
-----------
-----------
Statement of Operations
Year Ended June 30, 1998
INVESTMENT INCOME
Dividends (net foreign taxes withheld of $1,750) $ 674,269
Interest 268,556
-----------
Total investment income 942,825
EXPENSES
Investment advisory and management fees 228,476
Custody and accounting fees 101,991
Professional fees 7,399
Directors' fees and expenses 4,898
Other expenses 8,746
-----------
Total expenses 351,510
-----------
Net investment income 591,315
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 4,706,677
Change in unrealized appreciation on investment securities 2,439,355
-----------
Net gain on investments 7,146,032
-----------
Net increase in net assets resulting from operations $ 7,737,347
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
7
<PAGE>
Scudder Kemper Value Portfolio
Statement of Change in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997
-------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 591,315 $ 408,549
Net realized gain on investments 4,706,677 5,724,307
Change in net unrealized appreciation 2,439,355 1,320,029
-------------------------------
Net increase in net assets resulting from operations 7,737,347 7,452,885
Distributions to shareholders from:
Net investment income (408,549) (252,188)
Net realized gain (5,723,007) (862,820)
-------------------------------
Total distributions to shareholders (6,131,556) (1,115,008)
Capital share transactions:
Proceeds from sales of shares 16,280,118 12,411,821
Proceeds from reinvested distributions 6,131,556 1,115,008
Cost of shares redeemed (8,512,037) (8,638,962)
-------------------------------
Net increase in net assets resulting from share transactions 13,899,637 4,887,867
-------------------------------
Total increase in net assets 15,505,428 11,225,744
NET ASSETS
Beginning of period 30,930,454 19,704,710
-------------------------------
End of period (including undistributed net investment income of $591,315 and
$408,549, respectively) $46,435,882 $30,930,454
-------------------------------
-------------------------------
OTHER INFORMATION
Shares:
Sold 798,312 689,365
Issued through reinvestment of distributions 327,252 64,391
Redeemed (415,791) (472,506)
-------------------------------
Net increase 709,773 281,250
-------------------------------
-------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Scudder Kemper Value Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 20.63 $ 16.17 $ 12.59 $ 10.66 $ 10.45
Income from investment
operations:
Net investment income 0.26 0.26 0.18 0.26 0.12
Net realized and unrealized gain
on investments 4.08 5.04 3.70 1.85 0.17
----------------------------------------------------------------------------------
Total from investment operations 4.34 5.30 3.88 2.11 0.29
Less distributions:
From net investment income (0.26) (0.19) (0.19) (0.14) (0.08)
From net realized gain (3.69) (0.65) (0.11) (0.04) -
----------------------------------------------------------------------------------
Total distributions (3.95) (0.84) (0.30) (0.18) (0.08)
----------------------------------------------------------------------------------
Net asset value, end of period $ 21.02 $ 20.63 $ 16.17 $ 12.59 $ 10.66
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
TOTAL RETURN 23.36% 33.78% 31.22% 19.98% 2.80%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 46,436 $ 30,930 $19,705 $ 10,877 $ 8,952
thousands)
Ratio of expenses to average net
assets 0.94% 1.05% 1.06% 1.13% 1.40%
Ratio of net investment income to
average net assets 1.58% 1.62% 1.65% 1.98% 1.98%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 0.94% 1.05% 1.07% 1.13% 1.61%
Ratio of net investment income to
average net assets before
voluntary expense reimbursement 1.58% 1.62% 1.64% 1.98% 1.76%
Portfolio turnover rate 57% 88% 18% 29% 9%
</TABLE>
9
<PAGE>
Scudder Kemper Value Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (89.5%)
CHEMICAL & ALLIED PRODUCTS (4.9%)
Dow Chemical Company 5,500 $ 531,781
Eastman Chemical Company 5,600 348,600
Praxair, Inc. 30,000 1,404,375
-----------
2,284,756
COMMUNICATIONS (1.2%)
GTE Corporation 10,000 556,250
DEPOSITORY INSTITUTIONS (17.4%)
Bankamerica Corporation 13,800 1,192,838
Bankers Trust Corporation 5,300 615,131
First Union Corporation 20,300 1,182,475
H. F. Ahmanson & Company 16,600 1,178,600
J.P. Morgan & Company 3,500 409,938
Nationsbank Corporation 10,000 765,000
Norwest Corporation 24,300 908,213
PNC Bank Corporation 19,210 1,033,733
Washington Mutual, Inc. 7,500 325,547
Wells Fargo & Company 1,200 442,800
-----------
8,054,275
EATING & DRINKING PLACES (4.5%)
McDonald's Corporation 10,000 690,000
Wendy's International, Inc. 60,000 1,410,000
-----------
2,100,000
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (1.9%)
AMP, Inc. 25,500 876,563
FABRICATED METAL PRODUCTS (1.6%)
Crown Cork & Seal Company, Inc. 16,000 760,000
FOOD & KINDRED PRODUCT (1.4%)
Nestle S.A. 6,000 636,000
FORESTRY (3.5%)
Georgia Pacific (Timber GRP.) 60,000 1,383,750
Georgia-Pacific Corporation 4,000 235,750
-----------
1,619,500
INDUSTRIAL MACHINERY & EQUIPMENT (6.6%)
Diebold, Inc. 29,600 854,700
Hewlett-Packard Company 5,300 317,338
Hussmann International, Inc. 40,000 742,500
Minnesota Mining and Manufacturing Company 10,900 895,844
Pitney Bowes, Inc. 5,700 274,313
-----------
3,084,695
INSTRUMENTS & RELATED PRODUCTS (4.2%)
Baxter International, Inc. 8,600 462,788
BARD, (C. R.) INC. 15,800 601,388
Raytheon Company 15,000 886,875
-----------
1,951,051
INSURANCE CARRIERS (3.1%)
American General Corporation 13,200 939,675
American International Group 3,375 492,750
-----------
1,432,425
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LUMBER & WOOD PRODUCTS (1.7%)
Louisiana-Pacific Corporation 43,300 $ 790,225
NONDEPOSITORY INSTITUTIONS (9.3%)
Associates First Capital Corporation 6,552 503,685
Federal National Mortgage Association 31,000 1,883,250
Federal Home Loan Corporation 41,500 1,953,094
-----------
4,340,029
OIL & GAS EXTRACTION (6.8%)
Atlantic Richfield Company 15,800 1,234,375
Burlington Resources, inc. 20,000 861,250
Enron Corporation 20,000 1,081,250
-----------
3,176,875
PAPER & ALLIED PRODUCTS (3.2%)
Sonoco Products Company 38,500 1,164,625
Union Camp Corporation 6,200 307,675
-----------
1,472,300
PETROLEUM & COAL PRODUCTS (6.6%)
Amoco Corporation 40,000 1,665,000
Chevron Corporation 6,000 498,375
Exxon Corporation 12,700 905,669
-----------
3,069,044
PRIMARY METAL INDUSTRIES (2.7%)
Nucor Corporation 27,000 1,242,000
RAILROAD TRANSPORTATION (0.9%)
Burlington Northern Santa Fe 4,200 412,388
TOBACCO PRODUCTS (3.8%)
Philip Morris Company, INC. 44,500 1,752,188
TRANSPORTATION BY AIR (1.0%)
FOX Corporation (a) 7,200 451,800
TRANSPORTATION EQUIPMENT (3.2%)
Ford Motor Company 25,000 1,475,000
-----------
TOTAL COMMON STOCK (Cost $33,519,910) $41,537,364
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT-TERM SECURITIES (10.5%)
REPURCHASE AGREEMENT (10.5%)
State Street Bank, 4.25%, due 7/1/1998
(Dated 6/30/1998, collaterized by U.S.
Treasury Note, 8.375%, due 8/15/2008,
Value $4,939,000) $4,854,784 $ 4,854,784
-----------
TOTAL SHORT-TERM SECURITIES (Cost $4,854,784) 4,854,784
-----------
TOTAL INVESTMENTS (100.0%) (Cost $38,374,694) $46,392,148
-----------
-----------
</TABLE>
10
<PAGE>
Schudder Kemper Value Portfolio
Schedule of Investments (continued)
(a) Non-income producing
OTHER INFORMATION:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1998, aggregated $27,071,060 and $17,137,956,
respectively. At June 30, 1998 net unrealized appreciation for tax purposes
aggregated $8,017,454 of which $8,722,827 related to appreciated investment
securities and $705,373 related to depreciated investment securities. The
aggregate cost of securities is the same for book and tax purposes.
SEE ACCOMPANYING NOTES.
11
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Assets and Liabilities
June 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $35,815,307)--See
accompanying schedule $ 47,458,322
Dividends and interest receivable 63,470
------------
Total assets 47,521,792
LIABILITIES
Cash overdraft 5,792
Accounts payable and accrued expenses 65,790
------------
Total liabilities 71,582
------------
NET ASSETS $ 47,450,210
------------
------------
Net Assets consist of:
Paid-in capital $ 29,393,557
Undistributed net investment income 365,323
Accumulated undistributed net realized gain on investments 6,092,615
Net unrealized appreciation on investment securities 11,598,715
------------
NET ASSETS, for 2,702,833 shares outstanding $ 47,450,210
------------
NET ASSET VALUE, offering and redemption price per share $ 17.56
------------
------------
Statement of Operations
Year Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $13,974) $ 705,010
Interest 201,666
------------
Total investment income 906,676
EXPENSES
Investment advisory and management fees 394,520
Custody and accounting fees 123,995
Professional fees 9,194
Directors' fees and expenses 4,898
Other expenses 8,746
------------
Total expenses 541,353
------------
Net investment income 365,323
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on:
Investment securities 7,829,774
Futures contracts (1,475,297)
------------
Net realized gain 6,354,477
Change in unrealized appreciation on:
Investment securities 1,942,571
Futures contracts 57,098
------------
Net unrealized appreciation 1,999,669
------------
Net gain on investments 8,354,146
------------
Net increase in net assets resulting from operations $ 8,719,469
------------
------------
SEE ACCOMPANYING NOTES.
</TABLE>
12
<PAGE>
Zweig Asset Allocation Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1998
---------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 365,323 $ 529,058
Net realized gain (loss) on investments 6,354,477 (173,455)
Change in net unrealized appreciation 1,999,669 6,699,583
---------------------------------
Net increase in net assets resulting from operations 8,719,469 7,055,186
Distributions to shareholders from:
Net investment income (529,058) (610,426)
Net realized gain -- (4,529,338)
---------------------------------
Total distributions to shareholders (529,058) (5,139,764)
Capital share transactions:
Proceeds from sales of shares 4,280,221 2,859,514
Proceeds from reinvested distributions 529,058 5,139,764
Cost of shares redeemed (8,397,497) (7,288,581)
---------------------------------
Net increase (decrease) in net assets resulting from share transactions (3,588,218) 710,697
---------------------------------
Total increase in net assets 4,602,193 2,626,119
NET ASSETS
Beginning of period 42,848,017 40,221,898
---------------------------------
End of period (including undistributed net investment income of
$365,323 and $529,058, respectively) $ 47,450,210 $ 42,848,017
---------------------------------
OTHER INFORMATION
Shares:
Sold 258,491 206,859
Issued through reinvestment of distributions 32,534 396,248
Redeemed (517,480) (523,827)
---------------------------------
Net increase (decrease) (226,455) 79,280
---------------------------------
---------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
Zweig Asset Allocation Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 14.63 $ 14.11 $ 13.02 $ 11.44 $ 10.81
Income from investment operations:
Net investment income 0.14 0.19 0.21 0.33 0.10
Net realized and unrealized gain on
investments 2.97 2.20 1.21 1.33 0.58
-----------------------------------------------------------------------------
Total from investment operations 3.11 2.39 1.42 1.66 0.68
Less distributions:
From net investment income (0.18) (0.22) (0.33) (0.08) (0.05)
From net realized gain -- (1.65) -- -- --
-----------------------------------------------------------------------------
Total distributions (0.18) (1.87) (0.33) (0.08) (0.05)
-----------------------------------------------------------------------------
Net asset value, end of period $ 17.56 $ 14.63 $14.11 $13.02 $11.44
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
TOTAL RETURN 21.38% 18.63% 11.06% 14.57% 6.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $ 47,450 $ 42,848 $ 40,222 $ 36,736 $ 31,563
Ratio of expenses to average net
assets 1.18% 1.28% 1.25% 1.20% 1.39%
Ratio of net investment income to
average net assets 0.80% 1.29% 1.55% 2.73% 1.67%
Portfolio turnover rate 65% 89% 105% 45% 101%
</TABLE>
14
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (86.6%)
AGRICULTURAL PRODUCTION - CROPs (0.5%)
RJR Nabisco Holdings Corporation 10,400 $ 247,000
APPAREL & ACCESSORIES STORES (2.3%)
Footstar, Inc. (a) 2,600 124,800
Ross Stores, Inc. 22,400 966,000
-----------
1,090,800
APPAREL & OTHER TEXTILE PRODUCTS (0.4%)
VF Corporation 3,500 180,250
AUTO REPAIR SERVICES, & PARKING (0.3%)
Ryder System, Inc. 4,900 154,656
BUSINESS SERVICES (0.7%)
Comdisco, Inc. 3,300 62,700
Sterling Software, Inc.(a) 5,900 174,419
Stratus Computer, Inc. (a) 3,800 96,188
-----------
333,307
CHEMICALS & ALLIED PRODUCTS (3.2%)
Albemarle Corporation 8,700 191,944
B.F. Goodrich Company 4,000 198,500
Desc S.A. de C.V. 15 298
International Specialty Products, Inc. (a) 7400 137,825
Lyondell Petrochemical Company 8,400 255,675
Methanex Corporation (a) 4,500 39,375
Millenium Chemicals, Inc. 10,200 345,525
NOVA Corporation 2,800 32,375
The Dexter Corporation 5,300 168,606
W.R. Grace & Company (a) 8,700 148,444
-----------
1,518,567
DEPOSITORY INSTITUTIONS (3.3%)
Banco Frances del Rio de la Plata S.A. 400 9,175
Coast Federal (a) 1,000 15,188
Golden State Bancorp (a) 5,500 29,391
Golden State Bancorp, Inc. 5,500 163,625
Golden West Financial Corporation 1,900 201,994
H. F. Ahmanson & Company 8 568
Imperial Bancorp (a) 17,800 534,000
T R Financial Corporation 12,200 510,494
Webster Financial Corporation 3,200 106,400
-----------
1,570,835
EATING AND DRINKING PLACES (1.6%)
Brinker International, Inc. (a) 9,800 188,650
Darden Restaurants, Inc. 12,300 195,263
Foodmaker, Inc. (a) 23,100 389,813
-----------
773,726
ELECTRIC GAS & SANITARY SERVICES (12.0%)
Baltimore Gas and Electric 7,600 236,075
BEC Energy 4,400 182,600
Central & South West Corporation 7,600 204,250
Conectiv, Inc. 150 5,438
Consolidated Edison, Inc. 2,300 105,944
DTE Energy Company 7,100 286,663
Edison International 15,700 464,131
Endesa S.A. 6,400 138,400
Energy East Corporation 7,900 328,838
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC GAS & SANITARY SERVICES (12.0%) (CONTINUED)
FirstEnergy Corporation 8,032 $ 246,984
FPL Group, Inc. 4,300 270,900
Gener S.A. 8,000 146,000
GPU, Inc. 10,700 404,594
Houston Industries, Inc. 6,600 203,775
Ipalco Enterprises, Inc. 4,800 213,300
Laidlaw Environmental Services, Inc. 18,480 66,990
MidAmerican Energy Holdings Company 3,200 69,200
Minnesota Power & Light Company 6,300 250,425
New England Electric System 2,200 95,150
Pinnacle West Capital Corporation 19,500 877,500
PP&L Resources, Inc. 8,300 188,306
Public Service Enterprise Group, Inc. 3,000 103,313
Questar Corporation 3,000 58,875
Sempra Energy (a) 7,500 208,125
UtiliCorp United, Inc. 4,900 184,669
Westcoast Energy, Inc. 8,200 182,963
-----------
5,723,408
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT (1.3%)
Aeroquip-Vickers, Inc. 5,300 309,388
Portugal Telecom S.A. 1,900 100,581
Whirlpool Corporation 3,100 213,125
-----------
623,094
FABRICATED METAL PRODUCTS (0.3%)
Ball Corporation (b) 2,000 80,375
Mark IV Industries, Inc. 3,200 69,200
-----------
149,575
FOOD & KINDRED PRODUCTS (1.5%)
Adolph Coors Companys 5,500 187,688
Pepsi-Gemex S.A. 1,600 19,300
The Earthgrains Company 5,400 301,725
-----------
508,713
FOOD STORES (0.1%)
The Great Atlantic & Pacific Tea Company 1,200 39,675
FURNITURE & FIXTURES (1.7%)
Ethan Allen Interiors, Inc. 4,200 209,738
Furniture Brands International, Inc. (a) 10,700 300,269
Knoll, Inc. (a) 2,700 79,650
Lear Corporation (a) 4,500 230,906
-----------
820,563
GENERAL BUILDING CONTRACTORS (1.5%)
Centex Corporation 8,100 305,775
Kaufman & Broad Home Corporation 3,100 98,425
Lennar Corporation 2,700 79,650
Pulte Corporation 3,800 113,525
U.S. Home Corporation (a) 3,300 136,125
-----------
733,500
GENERAL MERCHANDISE STORES (3.1%)
Dayton Hudson Corporation 13,200 640,200
Dillard's, Inc. 5,100 211,331
Federated Department Stores (a) 7,200 387,450
Kmart Corporation (a) 10,900 209,825
Shopko Stores, Inc 800 27,200
-----------
1,476,006
</TABLE>
15
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HEALTH SERVICES (0.8%)
Integrated Health Services, Inc. 6,800 $ 255,000
Sun Healthcare Group, Inc. (a) 10,000 146,250
-----------
401,250
HEAVY CONSTRUCTION, EXCEPT BUILDINGS (0.4%)
McDermott International, Inc. 5,100 175,631
HOLDING & OTHER INVESTMENT OFFICES (1.0%)
CarrAmerica Realty Corporation 3,800 107,825
Duke Realty Investments, Inc. 3,500 82,906
Felcor Suite Hotels, Inc. 2,600 81,575
Liberty Property Trust 7,300 186,606
-----------
458,912
HOTELS & OTHER LODGING PLACES (0.6%)
Prime Hospitality Corporation (a) 9,700 169,144
Sun International Hotels, Ltd. (a) 2,300 104,650
-----------
273,794
INDUSTRIAL MACHINERY & EQUIPMENT (5.7%)
AGCO Corporation 3,100 63,731
Case Corporation 1,600 77,200
Caterpillar, Inc. 4,400 232,650
Cincinnati Milacron, Inc. 2,500 60,781
Compaq Computer Corporation 3,780 107,258
Cummins Engine Company, Inc. 2,400 123,000
Deere & Company 2,300 121,613
Harris Corporation 1,700 75,969
Ingersoll-Rand Company 2,700 118,969
Kaydon Corporation 5,400 190,688
Kennametal, Inc. 3,500 146,125
Lexmark International Group, Inc. (a) 4,600 280,600
Modine Manufacturing Company 2,700 93,572
Parker-Hannifin Corporation 4,700 179,188
Storage Technology Corporation (a) 14,800 641,950
Tecumseh Products Company 600 31,669
Timken Company 6,400 197,200
-----------
2,742,163
INSTRUMENTS & RELATED PRODUCTS (0.2%)
Input/Output, Inc. (a) 4,600 81,938
INSURANCE CARRIERS (8.3%)
Allmerica Financial Corporation 2,400 156,000
Allstate Corporation 2,800 256,375
Ambac Financial Group, Inc. 3,700 216,450
Capital Re Corporation 500 35,813
Conseco, Inc. 2,100 98,175
Delphi Financial Group, Inc. (a) 7,240 407,703
Everest Reinsurance Holdings, Inc. 6,100 234,469
Equitable Companies, Inc. (b) 11,800 884,263
Financial Security Assurance Holding, Ltd. 1,600 94,000
Fremont General Corporation 7,000 379,313
Liberty Financial Companies, Inc. 5,400 186,300
Lincoln National Corporation 2,200 201,025
Loews Corporation 1,700 148,113
NAC Re Corporation 1,700 90,738
Nationwide Financial Services, Inc. 3,400 173,400
Old Republic International Corporation 8,850 259,416
Presidential Life Corporation 6,700 143,631
Reliance Group Holdings, Inc. 900 15,750
-----------
3,980,934
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LOCAL & INTERURBAN PASSENGER TRANSIT (0.6%)
Canadian National Railway Company 3,300 $ 175,313
Laidlaw, Inc. 8,400 102,375
-----------
277,688
MISCELLANEOUS RETAIL (1.0%)
Fingerhut Companies, Inc. 10,900 359,700
Zale Corporation 4,100 130,431
-----------
490,131
MISCELLANEOUS MANUFACTUING INDUSTRIES (0.1%)
Hexcel Corporation (a) 2,900 65,613
NONDEPOSITORY INSTITUITIONS (0.2%)
Associates First Capital Corporation 41 3,152
Indymac Mortgage Holdings, Inc. 3,700 84,175
-----------
87,327
OIL & GAS EXTRACTION (1.3%)
BJ Services Company (a) 3,000 87,188
Equitable Resources, Inc. 2,900 88,450
Helmerich & Payne, Inc. 7,900 175,775
Rowan Companies, Inc. (a) 3,400 66,088
Seacor Smith, Inc. (a) 2,100 128,756
Vintage Petroleum, Inc. 3,300 62,288
-----------
608,545
PETROLEUM & COAL PRODUCTS (3.0%)
Ashland, Inc. 4,100 211,663
Elf Aquitaine 5,200 369,200
Sun Company, Inc. 5,000 194,063
The Costal Corporation 9,100 635,294
-----------
1,410,220
PRIMARY METAL INDUSTRIES (3.1%)
AK Steel Holding Corporation 5,000 89,375
Alumax, Inc. (a) 2,305 106,894
Bethlehem Steel Corporation (a) 19,700 245,019
Inland Steel Industries, Inc. 6,400 180,400
Mueller Industries, Inc. (a) 1,600 59,400
Pohang Iron & Steel, Ltd. 8,500 102,000
Precision Castparts Corporation 3,700 197,488
Texas Industries, Inc. 4,200 222,600
The LTV Corporation 3,300 31,556
USX-U.S. Steel Group, Inc. 7,200 237,600
-----------
1,472,332
PRINTING & PUBLISHING (0.2%)
World Color Press, Inc. (a) 2,200 77,000
RAILROAD TRANSPORTATION (1.2%)
Burlington Northern Santa Fe Corporation 2,000 196,375
Canadian Pacific, Ltd. 12,900 366,038
-----------
562,413
RUBBER & MISCELLANEOUS PLASTIC PRODUCTS (0.4%)
EVI Weatherford, Inc.(a) 5 186
Premark International, Inc. 6,100 196,725
-----------
196,911
SECURITY & COMMODITY BROKERS (6.7%)
A.G. Edwards, Inc. 8,250 352,172
Donaldson, Lufkin & Jenrette, Inc. (a) 3,000 152,438
Legg Mason, Inc. 300 17,269
</TABLE>
16
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SECURITY & COMMODITY BROKERS (6.7%) (CONTINUED)
Lehman Brothers Holdings 13,100 $ 1,016,062
Merril Lynch & Company, Inc. 1,400 129,150
Paine Webber Group, Inc. 16,500 707,438
Raymond James Financial, Inc. 1,700 50,894
The Bear Stearns Companies, Inc. (b) 13,925 791,984
-----------
3,217,407
STONE, CLAY & GLASS PRODUCTS (2.0%)
Hanson Plc 3,700 112,155
Lafarge Corporation 2,300 90,419
Lone Star Industries 3,000 231,188
Southdown, Inc. 3,300 235,538
USG Corporation 4,200 227,325
Vitro SA 1,800 11,475
-----------
908,100
TEXTILE MILL PRODUCTS (0.5%)
Burlington Industries, Inc. 6,800 95,625
Mohawk Industries, Inc. (a) 4,850 153,684
-----------
249,309
TRANSPORTATION BY AIR (5.8%)
Airborne Freight Corporation (b) 9,000 314,438
America West Holdings Corporation (a) 4,300 122,819
AMR Corporation (a) 6,400 532,800
Continental Airlines (a) 4,800 292,200
Delta Air Lines, Inc. 1,200 155,100
KLM Royal Dutch 6,206 254,058
Southwest Airlines 9,400 278,475
UAL Corporation (a) 6,100 475,800
US Air Group, Inc. (a) 4,200 332,850
-----------
2,758,540
TRANSPORTATION EQUIPMENT (6.5%)
Arvin Industries, Inc. 2,900 105,306
Brunswick Corporation 6,700 165,825
Chrysler Corporation 9,702 546,950
Cordant Technologies, Inc. 4,700 216,788
Dana Corporation 3,900 208,650
Fleetwood Enterprises, Inc. 4,700 188,000
Ford Motor Company 6,000 354,000
Honda Motor Company, Ltd. 1,000 71,438
Navistar International 10,600 306,075
Northrop Grumman Corporation 2,000 206,250
PACCAR, Inc. 8,200 427,681
Trinity Industries 8,400 348,600
-----------
3,145,563
TRANSPORTATION SERVICES (0.4%)
GATX Corporation 4,600 201,825
TRUCKING & WAREHOUSING (1.1%)
CNF Transportation, Inc. 3,500 148,750
USFreightways Corporation 6,200 203,631
Werner Enterprises, Inc. 9,500 181,094
-----------
533,475
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
WATER TRANSPORTATION (0.5%)
Royal Caribbean Cruises, Ltd. 2,700 $ 214,650
WHOLESALE TRADE - DURABLE GOODS (0.2%)
Borg-Warner Automotive, Inc. 2,400 115,350
WHOLESALE TRADE - NONDURABLE GOODS (1.0%)
Burlington Coat Factory Warehouse 6,120 137,700
SUPERVALU, Inc. 2,800 124,250
Universal Corporation 5,200 194,350
------------
456,300
------------
TOTAL COMMON STOCK (Cost $29,464,000) $ 41,106,996
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES (13.4%) AMOUNT VALUE
------ -----
<S> <C> <C>
U.S. Government Agency (12.4%)
Federal Home Loan Mortgage
Corporation Discount Note,
5.44%, due 7/10/1998 $ 2,300,000 $ 2,296,872
Federal Home Loan Mortgage
Corporation Discount Note,
5.44%, due 7/10/1998 900,000 898,776
Federal Home Loan Mortgage
Corporation Discount Note,
5.49%, due 7/27/1998 500,000 498,018
Federal Home Loan Mortgage
Corporation Discount Note,
5.44%, due 7/17/1998 2,200,000 2,194,681
------------
5,888,347
U.S. GOVERNMENT OBLIGATIONS (0.3%)
U.S. Treasury Bills, 4.85%,
Due 7/23/1998 (b) 100,000 99,704
U.S. Treasury Bills, 4.87%,
Due 7/23/1998 (b) 50,000 49,851
------------
149,555
REPURCHASE AGREEMENT (0.7%)
State Street Bank, 4.25%, due
7/1/1998 (Dated 6/30/1998, collaterized
by U.S. Treasury Note, 7.25%, due
5/15/2016 value $321,750) 313,424 313,424
------------
TOTAL SHORT-TERM SECURITIES (Cost $6,351,307) 6,351,326
------------
TOTAL INVESTMENTS (100.0%) (Cost $35,815,307) $ 47,458,322
------------
------------
</TABLE>
(a) Non-income producing
(b) A portion of the security was pledged to cover margin requirements for
futures contracts. At the period end, the value of the securities
pledged amounted to $934,804.
17
<PAGE>
Zweig Asset Allocation Portfolio
Schedule of Investments (continued)
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Expiration Contract Unrealized
Date Amount Loss
---------- -------- ----------
<S> <C> <C> <C>
4 S&P 500
Futures Contracts - Short Sept. 1998 $1,143,000 $ (44,300)
</TABLE>
Other Information:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1998, aggregated $25,256,225 and $34,367,169,
respectively. At June 30, 1998 net unrealized appreciation for tax purposes
aggregated $11,643,015 of which $12,628,365 related to appreciated
investment securities and $985,350 related to depreciated investment
securities. The aggregate cost of securities is the same for book and tax
purposes.
SEE ACCOMPANYING NOTES.
18
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Assets and Liabilities
June 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $12,332,056)--See $ 14,678,911
accompanying schedule
Cash 17,393
Dividends, interest and other receivable 10,794
------------
Total assets 14,707,098
LIABILITIES
Accounts payable and accrued expenses 18,648
------------
Total liabilities 18,648
------------
NET ASSETS $ 14,688,450
------------
------------
Net Assets consist of:
Paid-in capital $ 9,260,692
Undistributed net investment income 34,791
Accumulated undistributed net realized gain on investments 3,046,112
Net unrealized appreciation on investment securities 2,346,855
------------
NET ASSETS, for 835,756 shares outstanding $ 14,688,450
------------
------------
NET ASSET VALUE, offering and redemption price per share $ 17.58
------------
------------
Statement of Operations
Year Ended June 30, 1998
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3,747) $ 165,602
Interest 73,140
------------
Total investment income 238,742
EXPENSES
Investment advisory and management fees 135,678
Custody and accounting fees 50,565
Professional fees 9,592
Directors' fees and expenses 4,898
Other expenses 8,745
------------
Total expenses before reimbursement 209,478
Less: expense reimbursement (5,527)
------------
Net expenses 203,951
------------
Net investment income 34,791
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on:
Investment securities 3,382,005
Futures contracts (360,955)
------------
Net realized gain 3,021,050
Change in unrealized appreciation (depreciation) on:
Investment securities (342,015)
Futures contracts 25,610
------------
Net unrealized depreciation (316,405)
------------
Net gain on investments 2,704,645
------------
Net increase in net assets resulting from operations $ 2,739,436
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Zweig Equity (Small Cap) Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 34,791 $ 103,886
Net realized gain on investments 3,021,050 476,697
Change in net unrealized appreciation (depreciation) (316,405) 1,353,861
---------------------------
Net increase in net assets resulting from operations 2,739,436 1,934,444
Distributions to shareholders from:
Net investment income (103,886) (103,880)
Net realized gain (473,364) (861,194)
---------------------------
Total distributions to shareholders (577,250) (965,074)
Capital share transactions:
Proceeds from sales of shares 4,519,161 2,797,773
Proceeds from reinvested distributions 577,250 965,074
Cost of shares redeemed (3,731,320) (5,269,163)
---------------------------
Net increase (decrease) in net assets resulting from share transactions 1,365,091 (1,506,316)
---------------------------
Total increase (decrease) in net assets 3,527,277 (536,946)
NET ASSETS
Beginning of period 11,161,173 11,698,119
---------------------------
End of period (including undistributed net investment income of $34,791 and
$103,886, respectively) $ 14,688,450 $ 11,161,173
---------------------------
---------------------------
OTHER INFORMATION
SHARES:
Sold 281,798 205,116
Issued through reinvestment of distributions 35,368 74,878
Redeemed (233,008) (387,804)
---------------------------
Net increase (decrease) 84,158 (107,810)
---------------------------
---------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
Zweig Equity (Small Cap) Portfolio
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 14.85 $ 13.61 $ 11.62 $ 10.65 $ 10.11
Income from investment
operations:
Net investment income 0.04 0.16 0.11 0.17 0.15
Net realized and unrealized gain
on investments 3.48 2.41 2.04 0.93 0.50
--------------------------------------------------------------------------------
Total from investment operations 3.52 2.57 2.15 1.10 0.65
Less distributions:
From net investment income (0.14) (0.14) (0.16) (0.06) (0.11)
From net realized gain (0.65) (1.19) -- (0.07) --
--------------------------------------------------------------------------------
Total distributions (0.79) (1.33) (0.16) (0.13) (0.11)
--------------------------------------------------------------------------------
Net asset value, end of period $ 17.58 $ 14.85 $ 13.61 $ 11.62 $ 10.65
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL RETURN 23.72% 20.37% 18.69% 10.39% 6.53%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $ 14,688 $ 11,161 $ 11,698 $ 8,034 $ 7,591
Ratio of expenses to average net
assets 1.52% 1.55% 1.55% 1.55% 1.72%
Ratio of net investment income
to average net assets 0.26% 0.97% 1.06% 1.54% 1.75%
Ratio of expenses to average net
assets before voluntary expense
reimbursement 1.56% 1.82% 1.83% 1.59% 2.14%
Ratio of net investment income
to average net assets before
voluntary expense reimbursement 0.22% 0.70% 0.78% 1.50% 1.32%
Portfolio turnover rate 113% 59% 101% 67% 249%
</TABLE>
21
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (84.1%)
AGRICULTURAL PRODUCTION-LIVESTOCK (0.7%)
Michael Foods, Inc. 1,700 $ 50,097
Pilgrim's Pride Corporation 2,200 44,000
---------
94,097
AGRICULTURAL SERVICES (0.1%)
Veterinary Centers of America, Inc (a) 400 7,538
AMUSEMENT & RECREATION SERVICES (0.5%)
Anchor Gaming Corporation (a) 500 38,906
Rio Hotel & Casino, Inc. (a) 1,500 28,313
---------
67,219
APPAREL & ACCESSORIES STORES (2.0%)
American Eagle Outfitters, Inc. (a) 400 15,413
Footstar, Inc. (a) 500 24,000
Goody's Family Clothing, Inc. (a) 1,600 87,500
The Buckle, Inc. (a) 1,350 39,825
The Cato Corporation 2,500 43,516
The Dress Barn, Inc. (a) 2,000 49,875
The Finish Line, Inc. (a) 1,200 33,750
---------
293,879
APPAREL & OTHER TEXTILE PRODUCTS (0.4%)
Kellwood Company 500 17,875
OshKosh B'Gosh, Inc. 300 13,425
Pillowtex Corporation 800 32,100
---------
63,400
AUTO REPAIR SERVICES & PARKING (0.2%)
Rollins Truck Leasing Corporation 2,700 33,413
BUILDING MATERIALS & GARDEN SUPPLIES (0.2%)
Central Garden and Pet Company (a) 200 6,213
Eagle Hardware & Garden, Inc. (a) 1,000 23,156
---------
29,369
BUSINESS SERVICES (2.1%)
ADVO, Inc. (a) 900 25,369
Boole & Babbage, Inc.(a) 900 21,544
Electro Rent Corporation (a) 3,000 67,125
Hummingbird Communications, Ltd. (a) 400 10,725
MAPICS, Inc. (a) 1,200 23,663
New Dimension Software, Ltd. (a) 200 6,694
Orbotech, Ltd. (a) 600 21,769
Platinum Software Corporation (a) 2,000 48,813
Renters Choice, Inc. (a) 700 19,950
Sterling Software, Inc. (a) 1,000 29,563
Stratus Computer, Inc. (a) 400 10,125
Symantec Corporation (a) 1,000 26,063
---------
311,403
CHEMICALS & ALLIED PRODUCTS (1.1%)
Albemarle Corporation 2,000 44,125
Gensia Sicor, Inc. (a) 900 3,572
International Specialty Products, Inc. (a) 4,100 76,363
LeaRonal, Inc. 200 4,775
Methanex Corporation (a) 900 7,875
The Dexter Corporation 200 6,363
W.R. Grace & Company (a) 1,400 23,888
---------
166,961
COMMUNICATIONS (0.1%)
Atlantic Tele-Network, Inc. (a) 400 4,975
Grupo Radio Centro S.A. de C.V. 500 5,563
---------
10,538
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS (3.9%)
Anchor Bancorp Wisconsin, Inc. 200 $ 7,856
Coast Federal (a) 300 4,556
CVB Financial Corporation 3 73
Downey Financial 1,535 50,175
First Republic Bank (a) 200 7,225
First Union Corporation 410 23,857
FirstFed Financial Corporation (a) 1,200 62,400
Flagstar Bancorp, Inc. 800 19,550
GBC Bancorp 1,200 31,875
MAF Bancorp, Inc. 850 31,131
NBT Bancorp, Inc. 300 7,631
PFF Bancorp, Inc. (a) 800 14,925
Republic Bancorp, Inc. 1,700 32,194
Riggs National Corporation 1,800 52,594
Sterling Bancorp 1,400 36,400
T R Financial Corporation 3,100 129,716
The Trust Company of New Jersey 400 10,813
Webster Financial Corporation 2,000 66,500
---------
589,471
EATING & DRINKING PLACES (1.3%)
Bob Evans Farms, Inc. 300 6,338
Brinker International, Inc. (a) 500 9,625
Foodmaker, Inc.(a) 3,500 59,063
Ruby Tuesday, Inc. 1,800 27,900
Showbiz Pizza Time, Inc. (a) 2,000 80,625
---------
183,551
ELECTRIC GAS & SANITARY SERVICES (3.9%)
BEC Energy 1,300 53,950
El Paso Electric Company (a) 6,400 58,800
Energen Corporation 1,700 34,212
Hawaiian Electric Industries, Inc. 600 23,813
Laidlaw Environmental Services, Inc. 6,800 24,650
MDU Resources Group, Inc. 1,000 35,688
MidAmerican Energy Holdings Company 2,400 51,900
Minnesota Power & Light Company 1,400 55,650
NICOR, Inc. 500 20,063
ONEOK, Inc. 600 23,925
Orange and Rockland Utilities, Inc. 500 26,844
Public Service Company of New Mexico 300 6,806
Rochester Gas and Electric Corporation 1,800 57,488
Sierra Pacific Resources 900 32,681
Southwest Gas Corporation 1,600 39,100
TNP Enterprises, Inc. 500 15,438
UtiliCorp United, Inc. 600 22,613
---------
583,621
ELECTRICAL & ELECTRONIC EQUIPMENT (3.6%)
Aeroquip-Vickers, Inc. 700 40,863
Bairnco Corporation 1,000 9,000
Bel Fuse, Inc. (a) 600 13,538
C&D Technologies, Inc. 400 23,200
CTS Corporation 1,500 44,250
Genlyte Group, Inc. (a) 2,700 71,972
</TABLE>
22
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL & ELECTRONIC EQUIP. (3.6%) (CONTINUED)
Kuhlman Corporation 1,400 $ 55,388
Moog, Inc. 500 19,093
Powell Industries, Inc. (a) 300 3,675
QLogic Corporation (a) 300 10,697
Tadiran, Ltd. 800 26,500
Technitrol, Inc. 2,800 111,825
Thomas Industries, Inc. 2,150 52,541
Triumph Group, Inc. (a) 700 29,400
Windemere-Durable Holdings, Inc. 300 10,744
---------
522,686
ENGINEERING & MANAGEMENT SERVICES (0.0%)
Jacobs Engineering Groups, Inc. (a) 200 6,425
FABRICATED METAL PRODUCTS (1.2%)
AptarGroup, Inc. 400 24,875
Ball Corporation 1,100 44,206
Mark IV Industries, Inc. 700 15,138
MascoTech, Inc. 700 16,800
NCI Building Systems, Inc. (a) 400 23,075
Tower Automotive, Inc. (a) 600 25,725
United Dominion Industries Ltd. 800 26,700
---------
176,519
FOOD & KINDRED PRODUCTS (1.0%)
Adolph Coors Company 1,100 37,538
Canandaigua Brands, Inc. (a) 1,100 54,106
Imperial Holly Corporation 1 6
Smithfield Foods, Inc. (a) 200 6,063
The Earthgrains Company 1,000 55,875
---------
153,588
FURNITURE & FIXTURES (1.1%)
Ethan Allen Interiors, Inc. 1,000 49,938
Furniture Brands International, Inc. (a) 2,400 67,350
Knoll, Inc. (a) 800 23,600
La-Z-Boy, Inc. 400 22,600
---------
163,488
FURNITURE & HOMEFURNISHINGS STORES (1.1%)
Inacom Corporation (a) 600 19,050
Musicland Stores Corporation (a) 2,700 37,800
The Maxim Group, Inc. (a) 400 7,950
Trans World Entertainment Corporation (a) 2,400 103,050
---------
167,850
GENERAL BUILDING CONTRATORS (3.4%)
American Homestar Corporation (a) 1,600 38,350
Centex Corporation 2,200 83,050
Crossmann Communities, Inc. (a) 500 15,203
D.R. Horton, Inc. 1,700 35,488
Del Webb Corporation 600 15,563
Kaufman & Broad Home Corporation 1,300 41,275
Lennar Corporation 1,879 55,431
M.D.C. Holdings, Inc. 400 7,900
McGrath Rentcorp 1,100 23,719
Pulte Corporation 1,200 35,850
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
GENERAL BUILDING CONTRATORS (3.4%) (CONTINUED)
Standard-Pacific Corporation 2,700 $ 55,688
The Ryland Group, Inc. 500 13,125
Toll Brothers, Inc. (a) 1,500 43,031
U.S. Home Corporation (a) 900 37,125
---------
500,798
GENERAL MERCHANDISE STORES (0.8%)
Ames Department Stores, Inc. (a) 3,500 92,203
ShopKo Stores, Inc. (a) 300 10,200
The Neiman Marcus Group, Inc. (a) 300 13,032
---------
115,435
HEALTH SERVICES (1.2%)
Beverly Enterprises, Inc. (a) 900 12,431
Hooper Holmes, Inc. 1,000 21,000
Integrated Health Services, Inc. 1,422 53,325
NovaCare, Inc. (a) 2,300 27,025
Sun Healthcare Group, Inc. 1,800 26,325
Universal Health Services, Inc. 500 29,188
---------
169,294
HEAVY CONSTRUCTON, EXCEPT BUILDINGS (0.1%)
Morrison Knudsen Corporation (a) 1,500 21,094
HOLDING & OTHER INVESTMENT OFFICES (3.5%)
American General Hospitality Corporation 1,100 23,375
Apartment Investment & Management Company 800 31,600
Bradley Real Estate, Inc. 1,200 25,350
CBL & Associates Properties, Inc. 1,100 26,675
Criimi Mae, Inc. 2,700 37,463
Elron Electronic Industies, Ltd. 2,100 36,816
Equity Inns, Inc. 3,400 44,838
Essex Property Trust, Inc. 900 27,900
Felcor Suite Hotels, Inc. 1,000 31,375
General Growth Properties 800 29,900
Highwoods Properties, Inc. 700 22,619
Impac Mortgage Holdings, Inc. 450 7,003
Innkeepers USA Trust 1,100 13,888
Kimco Realty Corporation 600 24,600
Liberty Property Trust 1,000 25,563
Manufactured Home Communities, Inc. 1,300 31,363
MGI Properties, Inc. 500 13,094
PEC Israel Economic Corporation (a) 800 19,100
Prentiss Properties Trust 300 7,294
RFS Hotel Investors, Inc. 1,900 36,100
San Juan Basin Royalty Trust 1,500 11,344
Sunstone Hotel Investors, Inc. 500 6,656
---------
533,916
HOTELS & OTHER LODGING PLACES (0.8%)
Bristol Hotel Company (A) 1,000 24,500
Capstar Hotel Company (A) 500 14,000
Prime Hospitality Corporation (A) 1,300 22,669
Servico, Inc. (A) 1,500 22,500
Sun International Hotels, Ltd. (A) 600 27,300
---------
110,969
</TABLE>
23
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY & EQUIPMENT (4.7%)
AGCO Corporation 400 $ 8,225
Ampco, Inc. 1,200 18,450
Anixter International, Inc. (a) 400 7,625
Astec Industries, Inc. (a) 400 13,650
Chart Industries, Inc. 600 14,325
Cincinnati Milacron, Inc. 1,400 34,038
DT Industries, Inc. 200 4,863
Gardner Denver Machinery, Inc. (a) 3,250 89,781
Gleason Corporation 2,100 59,063
Graco, Inc. 200 6,975
Indigo N.V. (a) 1,000 5,969
International Comfort Products Corporation (a) 1,300 15,763
Kaydon Corporation 1,000 35,313
Kennametal, Inc. 500 20,875
Lincoln Electric Holdings 200 4,425
Lufkin Industries, Inc. 800 26,350
Mestek, Inc. (a) 700 14,963
Met-Pro Corporation 150 2,241
Modine Manufacturing Company 400 13,863
MTI Technology Corporation (a) 400 3,656
Pentair, Inc. 200 8,500
Robbins & Meyers, Inc. 600 17,438
Schawk, Inc. 1,700 25,500
SPS Technologies, Inc. (a) 1,800 105,253
Tecumseh Products Company 300 15,834
Terex Corporation (a) 2,100 59,850
The Manitowoc Company, Inc. 1,150 46,360
The Rauma Group 100 2,075
Twin Disc, Inc. 100 3,025
Woodward Governor Company 500 15,469
---------
699,717
INSTRUMENTS & RELATED PRODUCTS (2.3%)
Bacou USA, Inc. (a) 1,300 27,259
Canadian Marconi Company 1,000 12,938
Esterline Technologies Corporation (a) 2,800 57,575
Fossil, Inc. (a) 1,850 46,134
Mine Safety Appliances Company 600 44,025
MTS Systems Corporation 1,600 25,750
The Cooper Companies, Inc. (a) 1,400 51,013
The L.S. Starrett Company 200 7,900
VISX, Inc. (a) 1,100 65,725
---------
338,319
INSURANCE CARRIERS (7.8%)
Acceptance Insurance Companies, Inc. 1,100 27,019
Alfa Corporation 1,700 35,435
American Annuity Group, Inc. 2,920 70,263
AmerUs Life Holdings, Inc. 800 25,900
Capital Re Corporation 700 50,138
Chartwell Re Corporation 100 2,944
Citizens Corporation 1,000 31,313
Delphi Financial Group, Inc. (a) 1,024 57,664
Enhance Financial Services Group, Inc. 2,200 74,250
Everest Reinsurance Holdings, Inc. 1,100 42,281
FBL Financial Group, Inc. 1,700 43,563
Fidelity National Financial, Inc. 1,140 45,387
Financial Security Assurance Holding 600 35,250
Foremost Corp of America 1,100 26,538
Fremont General Corporation 1,300 70,444
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE CARRIERS (7.8%) (CONTINUED)
Land America Financial Group, Inc. 600 $ 34,350
Liberty Financial Companies, Inc. 2,300 79,350
Life Re Corporation 700 57,400
Medical Assurance, Inc. (a) 630 17,483
NAC Re Corporation 200 10,675
National Western Life Insurance Company (a) 200 24,463
Nationwide Financial Services, Inc. 700 35,700
Nymagic, Inc. 200 5,475
Orion Capital Corporation 600 33,525
Presidential Life Corporation 1,700 36,444
Reliance Group Holdings, Inc. 1,500 26,250
Renaissance Re Holdings, Ltd. 500 23,156
RLI Corporation 250 10,172
State Auto Financial Corporation 200 6,388
The First American Financial Corporation 600 54,000
Triad Guaranty, Inc. (a) 1,400 48,300
United Wisconsin Services, Inc. 400 11,350
Vesta Insurance Group, Inc. 600 12,788
---------
1,165,658
LEATHER & LEATHER PRODUCTS (0.8%)
Genesco, Inc. (a) 4,000 65,250
The Timberland Company (a) 400 28,775
Weyco Group, Inc. 600 16,313
---------
110,338
LOCAL & INTERURBAN PASSENGER TRANSIT (0.1%)
Greyhound Lines, Inc. (a) 1,500 9,094
LUMBER & WOOD PRODUCTS (0.4%)
MacMillan Bloedel, Ltd. 800 8,575
Premdor ,Inc. (a) 500 4,969
TJ International, Inc. 1,600 48,100
---------
61,644
METAL MINING (0.1%)
Anglogold Limited 480 9,739
MISCELLANEOUS MANUFACTURING INDUSTRIES (1.2%)
Hexcel Corporation (a) 1,000 22,625
NACCO Industries, Inc. 200 25,850
Oneida, Ltd. 1,650 50,531
Radica Games, Ltd. (a) 900 15,188
Russ Berrie and Company, Inc. 1,800 45,000
Valmet Oyj 100 3,488
Velcro Industries N.V. 100 13,975
---------
176,657
MISCELLANEOUS - RETAIL (0.9%)
Fingerhut Companies, Inc. 2,000 66,000
Garden Ridge Corporation (a) 400 7,788
Michaels Stores, Inc. (a) 400 14,113
Zale Corporation 1,200 38,175
---------
126,076
</TABLE>
24
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MOTION PICTURES (0.1%)
Avid Technology, Inc. (a) 500 $ 16,766
NONDEPOSITORY INSTITUTIONS (1.9%)
AmeriCredit Corporation (a) 600 21,413
ContiFinancial Corporation (a) 500 11,563
Doral Financial Corporation 4,000 69,500
Fund American Enterprises Holdings, Inc. 300 44,400
IMC Mortgage Company (a) 1,200 12,638
Indymac Mortgage Holdings, Inc. 1,000 22,750
Resource Bancshares Mortgage Group, Inc. 3,600 66,825
Xtra Corporation 500 30,250
---------
279,339
NONMETALLIC MINERALS, EXCEPT FUELS (0.2%)
Florida Rock Industries, 1,200 35,025
OIL & GAS EXTRACTION (2.2%)
Atwood Oceanics, Inc. (a) 100 3,981
Cliffs Drilling Company (a) 2,000 65,625
Helmerich & Payne, Inc. 600 13,350
Pool Energy Services Company (a) 700 10,369
RPC Energy Services, Inc. 3,100 38,750
Seacor Smit, Inc. (a) 700 42,919
Tuboscope, Inc. (a) 600 11,850
UTI Energy Corporation (a) 900 11,588
Veritas DGC, Inc. (a) (b) 2,500 124,844
---------
323,276
PAPER & ALLIED PRODUCTS (0.4%)
Chesapeake Corporation 700 27,256
Domtar, Inc. 500 3,375
Wausau-Mosinee Paper Corporation 1,329 30,390
---------
61,021
PETROLEUM & COAL PRODUCTS (0.2%)
FINA, Inc. 500 32,500
PRIMARY METAL INDUSTRIES (4.8%)
AFC Cable Systems, Inc. (a) 1,200 42,750
AK Steel Holding Corporation 1,200 21,450
Alumax, Inc. (a) 261 12,104
Armco, Inc. (a) 4,200 26,775
Bethlehem Steel Corporation (a) 4,000 49,750
Carpenter Technology Corporation 400 20,100
Curtiss-Wright Corporation 800 31,350
Encore Wire Corporation (a) 3,075 49,777
Intermet Corporation 2,800 50,925
Maverick Tube Corporation (a) 500 5,781
Mueller Industries, Inc. (a) 3,500 129,938
NS Group, Inc. (a) 500 5,063
Precision Castparts Corporation 100 5,338
RMI Titanium Company (a) 1,400 31,850
Roanoke Electric Steel Corporation 1,350 25,228
Superior TeleCom, Inc. 500 20,813
Texas Industries, Inc. 1,100 58,300
The LTV Corporation 500 4,781
Tredegar Industries, Inc. (a) 1,550 131,556
---------
723,629
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PRINTING & PUBLISHING (1.3%)
Banta Corporation 1,200 $ 36,825
Bowne & Company, Inc. 1,000 45,000
Merrill Corporation 2,000 44,313
Quebecor, Inc. 1,400 28,088
World Color Press, Inc. (a) 900 31,500
---------
185,726
RAILROAD TRANSPORTATION (0.1%)
Florida East Coast Inds. 400 11,700
REAL ESTATE (0.6%)
Parkway Properties, Inc. 100 2,950
Price Enterprises, Inc. 3,000 55,313
U.S. Restaurant Properties, Inc. 1,100 29,769
---------
88,032
RUBBER & MISCELLANEOUS PLASTIC PRODUCTS (1.1%)
Premark International, Inc. 1,500 48,375
Spartech Corporation 2,400 51,450
The Standard Products Company 1,600 45,000
The West Company, Inc. 500 14,157
---------
158,982
SECURITY & COMMODITY BROKERS (1.4%)
Everen Capital Corporation 400 11,200
Jefferies Group, Inc. (a) 2,600 106,600
McDoanld & Company Investments, Inc. 1,200 39,375
Morgan Keegan, Inc. 1,000 25,875
Raymond James Financial, Inc. 900 26,944
---------
209,994
SPECIAL TRADE CONTRACTORS (0.1%)
Dycom Industries, Inc. (a) 300 10,125
STONE, CLAY & GLASS PRODUCTS (2.3%)
Centex Construction Products, Inc. 2,600 100,100
Lone Star Industries 1,600 123,300
Southdown, Inc. 1,700 121,338
---------
344,738
TEXTILE MILL PRODUCTS (1.1%)
Burlington Industries, Inc. (a) 1,800 25,313
Chemfab Corporation (a) 900 18,731
Interface, Inc. 3,400 68,638
Mohawk Industries, Inc. (a) 950 30,103
Shaw Industries, Inc. 900 15,863
---------
158,648
TRANSPORTATION BY AIR (2.6%)
Airborne Freight Corporation 1,700 59,394
Alaska Airgroup, Inc. (a) 1,300 70,932
America West Holdings Corporation (a) 1,700 48,556
Comair Holdings, Inc. 2,100 64,772
Mesaba Holdings, Inc. 1,800 41,513
Midwest Express Holdings, Inc. (a) 150 5,428
SkyWest, Inc. 3,200 89,600
---------
380,195
</TABLE>
25
<PAGE>
Zweig Equity (Small Cap) Portfolio
Schedule of Investments (continued)
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION EQUIPMENT (4.0%)
A.O. Smith Corporation 500 $ 25,844
AAR Corporation 600 17,738
Arvin Industries, Inc. 1,400 50,838
Avondale Industries, Inc. (a) 2,600 71,906
Coachmen Industries, Inc. 1,200 31,350
Cordant Technologies, Inc. 1,000 46,125
Fleetwood Enterprises, Inc. 900 36,000
MotivePower Industries, Inc. (a) 2,200 53,900
Navistar International (a) 1,600 46,200
Sequa Corporation (a) 1,300 86,775
SPX Corporation 400 25,750
Superior Industries International 1,000 28,188
The Fairchild Corporation (a) 1,100 22,206
Thor Industires, Inc. 400 11,075
TransTechnology Corporation 600 15,413
Varlen Corporation 1,000 34,625
---------
603,933
TRANSPORTATION SERVICES (0.1%)
GATX Corporation 300 13,163
TRUCKING & WAREHOUSING (1.6%)
B. Hunt Transport Services, Inc. 1,700 60,669
M.S. Carriers, Inc. (a) 2,000 54,125
Roadway Express, Inc. 400 7,525
U.S. Freightways Corporation 2,200 72,256
Werner Enterprises, Inc. 2,125 40,508
---------
235,083
WATER TRANSPORTATION (0.6%)
Alexander & Baldwin, Inc. 1,500 43,593
Sea Containers, Ltd. 1,100 42,075
Stolt-Nielsen S.A. 100 1,713
---------
87,381
WHOLESALE TRADE - DURABLE GOODS (2.6%)
Aviall, Inc. (a) 700 9,581
Barnes Group, Inc. 2,300 62,244
Borg-Warner Automotive, Inc. 300 14,419
CHS Electronics, Inc. (a) 800 14,250
Exide Corporation 1,300 21,856
Hughes Supply, Inc. 200 7,325
Insight Enterprises, Inc. (a) 1,500 59,906
Reliance Steel & Aluminum Company 1,750 67,594
Simpson Manufacturing Company (a) 400 15,450
Specialty Equipment Companies, Inc. (a) 500 11,344
Thermo Ecotek Corporation (a) 800 12,500
United Industrial Corporation 500 6,500
VWR Scientific Products Corporation (a) 300 7,397
Wynn's International, Inc. 3,543 68,203
---------
378,569
<CAPTION>
NUMBER
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE - NONDURABLE GOODS (1.6%)
Burlington Coat Factory Warehouse 960 $ 21,600
Handleman Company (a) 1,200 13,800
Myers Industires, Inc. 1,500 36,000
United Stationers, Inc. (a) 1,600 103,700
Universal Corporation (a) 1,500 56,063
---------
231,163
---------
TOTAL COMMON STOCK (Cost $9,996,078) $ 12,342,752
PREFERRED STOCKS (0.0%)
UNITED STATES (0.0%)
Kimco Realty Corporation, 7.50%,
due, 12/31/2049 216 5,860
---------
TOTAL PREFERRED STOCKS (Cost $5,679) 5,860
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
SHORT-TERM SECURITIES (15.9%)
U.S. GOVERNMENT AGENCY (12.2%)
Federal Home Loan Mortgage Corporation
Discount Note, 5.44%, due 7/10/1998 $ 1,800,000 $ 1,797,552
U.S. GOVERNMENT OBLIGATIONS (0.7%)
U.S. Treasury bill, 4.85%, 100,000 99,704
due 7/23/1998 (b)
REPURCHASE AGREEMENT (3.0%)
State Street Bank, 4.25% due 7/1/1998
(Dated 6/30/98, collateralized by U.S.
Treasury Note, 7.875%, 11/15/2007, value
$441,450) 433,043 433,043
----------
TOTAL SHORT-TERM SECURITIES (Cost $2,330,299) 2,330,299
----------
TOTAL INVESTMENTS (100.0%) (Cost $12,332,056) $ 14,678,911
----------
----------
</TABLE>
a. Non-income producing
Other Information:
Purchases and sales of securities, excluding short-term securities, for the
year ended June 30, 1998, aggregated $13,633,615 and $13,923,846,
respectively. At June 30, 1998 net unrealized appreciation for tax purposes
aggregated $2,346,785 of which $2,593,813 related to appreciated investment
securities and $247,028 related to depreciated investment securities. The
aggregate cost of securities is $12,332,126 for tax purposes.
SEE ACCOMPANYING NOTES.
26
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements
June 30, 1998
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 (the "1940 Act"), as an
open-end management investment company. As of June 30, 1998, the Fund has four
investment portfolios (the "Portfolios"): Harris Bretall Sullivan & Smith Equity
Growth, Scudder Kemper Value (formerly known as Dreman Value and Zurich Kemper
Value), Zweig Asset Allocation, and Zweig Equity (Small Cap). ARM Securities
Corporation ("ARM Securities"), 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").
Integrity Capital Advisors, Inc. ("Integrity Capital Advisors") (formerly known
as ARM Capital Advisors, Inc.), registered with the Securities and Exchange
Commission as an 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 Integrity 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, 1998, ARM had approximately $8.4 billion of
assets under management.
On July 23, 1997, Integrity and National Integrity (collectively, the
"Applicants") filed an application (amended on October 9, 1997) with the
Securities and Exchange Commission (the "SEC") pursuant to Section 26(b) of
the 1940 Act for an order to approve a substitution of certain portfolios of
the Fund (the "Substitution"). The Substitution involved 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).
27
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Substitution was approved by the SEC on November 14, 1997, and was effected
on that day. The former portfolios of the Fund affected by the Substitution and
the New Portfolios which received the assets are as follows:
<TABLE>
<CAPTION>
Former Portfolio of Fund New Portfolio
------------------------ -------------
<S> <C>
Renaissance Balanced Janus Aspen Series Balanced
Nicholas-Applegate Balanced Janus Aspen Series Balanced
Pinnacle Fixed Income J.P. Morgan (formerly JPM Bond)
ARM Capital Advisors Money Market Janus Aspen Series Money Market
Morgan Stanley Asian Growth Morgan Stanley Asian Equity
Morgan Stanley Worldwide High Income Morgan Stanley Emerging Markets Debt
</TABLE>
Shares of each former portfolio were redeemed in-kind and the redemption
proceeds were used to purchase shares of the New Portfolio. The costs of the
Substitution were borne by the Applicants, and no fees, transfer charges or
sales charges to effect the Substitution were 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 were the same. In addition, the Substitution did not
alter the tax or insurance benefits to contract holders or the contractual
obligation of the Applicants.
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.
28
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Bonds and other fixed-income securities (other than short-term
securities described above) are valued using market quotations provided by a
pricing service under procedures approved by the Fund's Board of Directors.
Futures contracts and options thereon and option contracts traded on a
commodities exchange or board of trade are valued at the closing settlement
price. Futures and option positions or any other securities or assets for which
reliable market quotations are not readily available or for which valuation
cannot be provided by a pricing service approved by the Board of Directors of
the Fund are valued at fair value as determined in good faith by the Board of
Directors.
SECURITY TRANSACTIONS
Securities transactions are accounted for as of trade date net of brokerage
fees, commissions and transfer fees. Interest income is accrued daily. Dividend
income is recorded on the ex-dividend date. Premiums and discounts on securities
purchased are amortized using the effective interest method. Realized gains and
losses on sales of investments are determined on the basis of nearest average
for all of the Portfolios except Zweig Asset Allocation, which uses the
first-in, first-out method.
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.
DIVIDEND DISTRIBUTIONS
Dividends from net investment income and distributions from net realized gains
are declared and distributed annually. Dividends and distributions are recorded
on the ex-dividend date. All dividends are reinvested in additional full and
fractional shares of the related Portfolios.
29
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 futures transactions, passive foreign
investment companies, capital losses, and losses deferred due to wash sales.
FUTURES CONTRACTS
Certain Portfolios may enter into futures contracts to protect against adverse
movement in the price of securities in the Portfolio or to enhance investment
performance. When entering into a futures contract, changes in the market price
of the contracts are recognized as unrealized gains or losses by marking each
contract to market at the end of each trading day through a variation margin
account. When a futures contract is closed, the Portfolios record a gain or loss
equal to the difference between the value of the 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, 1998.
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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with institutions that the Fund's
investment manager, Integrity 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.
30
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
2. Investment Advisory Agreements and Payments to Related Parties
Integrity Capital Advisors, the Fund's investment adviser, has entered into a
sub-advisory agreement with a registered investment adviser ("Sub-Adviser") for
each of the Portfolios. Integrity 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:
<TABLE>
<CAPTION>
SUB-ADVISORY
MANAGEMENT FEE FEE
--------------------------------------------------------------------------
<S> <C> <C>
Harris Bretall Sullivan & Smith Equity
Growth 0.65% 0.40%
Scudder Kemper Value 0.65 0.40
Zweig Asset Allocation 0.90 0.65
Zweig Equity (Small Cap) 1.05 0.80
</TABLE>
Amendments to the sub-advisory agreements were approved at a special meeting of
shareholders held on October 30, 1997. As a result of the amendments, the
management fees paid by the Fund to Integrity Capital Advisors remained
unchanged and the sub-advisory fees paid by Integrity Capital Advisors to each
of the Sub-Advisers of Harris Bretall Sullivan & Smith Equity Growth, Scudder
Kemper Value, Zweig Asset Allocation, and Zweig Equity (Small Cap), as a
percentage of average net assets, were reduced effective October 31, 1997, by
0.10% to the fees shown above.
Under the Management Agreement, Integrity Capital Advisors provides certain
management services to the Fund, and the Fund is responsible for certain of its
direct operating expenses. Integrity 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. Integrity Capital
Advisors has reserved the right to withdraw or modify its policy of expense
reimbursement for the Portfolios.
Zweig Asset Allocation, Scudder Kemper Value and Zweig Equity (Small Cap) placed
a portion of their transactions with brokerage firms which may be considered
affiliates of the Fund under the 1940 Act. The commissions paid to these firms
were approximately $55,000 in the aggregate during the year ended June 30, 1998.
31
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
2. INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES (CONTINUED)
Certain officers and directors of the Fund are also officers of ARM, ARM
Securities, Integrity Capital Advisors, Integrity, and National Integrity. The
Fund does not pay any amounts to compensate these individuals.
3. CAPITAL SHARES
At June 30, 1998, 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, four classes of shares
authorized by the Board of Directors were being offered as follows: 55,000,000
shares each for Harris Bretall Sullivan & Smith Equity Growth, Scudder Kemper
Value, Zweig Asset Allocation, and Zweig Equity (Small Cap).
At June 30, 1998, 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 EVENT
On July 10, 1998, a Special Meeting of Shareholders of the Fund was held to
consider: (1) approval of a new investment management agreement between the
Fund and Integrity Capital Advisors; (2) approval of new subadvisory
agreements pertaining to (a) Harris Bretall Sullivan and Smith Equity
Growth Portfolio, (b) Scudder Kemper Value Portfolio, (c) Zweig Asset
Allocation Portfolio, and (d) Zweig Equity (Small Cap) Portfolio; and (3)
approval of interim investment advisory agreements pertaining to (a) Harris
Bretall Sullivan and Smith Equity Growth Portfolio, (b) Scudder Kemper Value
Portfolio, (c) Zweig Asset Allocation Portfolio, and (d) Zweig Equity (Small
Cap) Portfolio. With respect to item (1), 6,806,221.482 shares voted for
approval, 67,083.488 shares voted against approval, and 499,342.477 shares
abstained. With respect to item (2)(a), 1,602,908.025 shares voted for
approval, 9,942.933 shares voted against approval, and 171,452.143 shares
abstained. With respect to item (2)(b), 1,924,209.620 shares voted for
approval, 9,691.203 shares voted against approval, and 115,533.059 shares
abstained. With respect to (2)(c), 2,544,605.829 shares voted for approval,
59,241.330 shares voted against approval, and 110,011.792 shares abstained.
With respect to item (2)(d), 759,303.326 shares voted for approval, 3,356.386
shares voted against approval, and 62,391.800 shares abstained. With respect
to item (3)(a), 1,614,127.405 shares voted for approval, 10,437.963 shares
voted against approval, and 159,737.733 shares abstained. With respect to
item (3)(b), 1,923,871.399 shares voted for approval, 12,073.474 shares voted
against approval, and 113,489.009 shares abstained. With respect to item
(3)(c), 2,555,463.060 shares voted for approval, 40,690.083 shares voted
against approval, and 117,705.807 shares abstained. With respect to item
(3)(d), 758,422.630 shares voted for approval, 3,356.386 shares voted against
approval, and 63,272.496 shares abstained. Accordingly, all matters
considered were approved.
32
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO
Comparison of the change in value of $10,000 invested in the
Harris Bretall Sullivan & Smith Equity Growth Portfolio and the S&P 500
[CHART]
Harris Bretall Sullivan & Smith Equity Growth Portfolio S&P 500
12/14/92 "$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"
Dec 97 "$21,149" "$25,142"
Jun 98 "$24,544" "$29,593"
- - Average annual total return since inception: 17.53%
- - Total return for the year ended June 30, 1998: 29.11%
- - Performance relates to the Portfolio and does not reflect separate
account variable annuity contracts.
- - Portfolio commenced operations on December 8, 1992.
- - Past performance is not predictive of future performance.
33
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION Despite the market turmoil last Fall caused by the
Asian economic crisis and many negative predictions by Wall Street analysts
at the 1997 calendar year ended, shareholders of the Portfolio enjoyed
another terrific return for the last 12 month period. For the year ended June
30, 1998, the Portfolio finished up 29.11%. Last year we stated our firm
belief that the Dow Jones Industrial Average would surpass the 10,000 level
by the end of the year 2000. While it is too early to declare victory, as of
June 30, 1998, the Dow needs only to move up approximately 11% over the next
18 months for this forecast to prove correct.
Over the last few years, equity returns have been higher than average,
economic growth has been consistently higher than expected, and inflation has
been remarkably tame. Under these conditions, corporate profits have grown,
fueling the stock market advance. Historically, conditions have rarely been
better; unfortunately, human nature is such that good fortune typically leads
individuals to wonder when it will end.
In April, we introduced the concept of "the Wall of Worry," which is
comprised of events that could negatively impact the financial markets.
Individual resolution of these events could provide the optimism, and
subsequent buying power, necessary to propel stock prices higher. Today, the
greatest concerns are the continuing economic weakness in Asia and corporate
profits in the U.S. The troubles in Asia have been well publicized:
historically weak yen, anemic economic growth, contracting industrial
production, and significant weakness in Japan's financial institutions. With
respect to U.S. corporate earnings, analysts' estimates of second quarter S&P
500 earnings have been cut from 12.9% to 5.7% year over year. These revisions
reflect analysts' growing fear that a significant economic slowdown is coming.
We believe that the increasing pessimism concerning Asia and U.S. corporate
earnings is overdone. While the Asian economies and financial markets are
important to the U.S., the size and strength of U.S. economy is such that we
feel a recession is not very likely. Federal Reserve Chairman Alan Greenspan
hinted at this recently when he stated that inflation was a greater
possibility than a recession. As evidence, over the last 9 months, with the
Asian economies in turmoil, the U.S. economy has grown faster than expected.
Also over the same time, U.S. corporate profit growth rate has dropped to a
more modest level, but is still trending upward. The market has reacted with
stock prices higher by approximately 30%. With improvements in these two
fundamentals expected, we believe the market should continue to advance.
34
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
HARRIS BRETALL SULLIVAN & SMITH EQUITY GROWTH PORTFOLIO (CONTINUED)
For the U.S. markets, these factors signal to us that stock prices today are
attractive. We remain comfortable with the valuation of the market. The Asian
crises, combined with the lack of current inflationary pressure, appear
enough to prevent the Federal Reserve from pre-emptively raising interest
rates. With low interest rates and inflation, we think the current
price/earnings ratio seems appropriate. If earnings continue to grow, even at
a relatively modest pace, we believe that stock prices will follow upward.
Finally, the uncertainty in world markets continues to support the highest
quality, consistent growth companies as among the most attractive stocks for
investors - these are companies Harris Bretall seeks to own. In spite of, if
not because of the uncertainties, we continue to be very excited by the
prospects of the stock market going forward.
35
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
SCUDDER KEMPER VALUE PORTFOLIO
Comparison of the change in value of $10,000 invested in
Scudder Kemper Value Portfolio and the S&P 500
[CHART]
Scudder Kemper Value 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"
Dec 97 "$25,369" "$25,142"
Jun 98 "$27,905" "$29,593"
- - Average annual total return since inception: 20.34%
- - Total return for the fiscal year ended June 30, 1998: 23.36%
- - 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.
36
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
SCUDDER KEMPER VALUE PORTFOLIO (CONTINUED)
SUB-ADVISER'S DISCUSSION The U.S. equity market, as measured by the S&P 500,
enjoyed another strong year of returns, advancing approximately 30%. Positive
economic fundamentals such as low inflation, favorable interest rates, strong
employment, and improving consumer confidence have generated increased
expectations on the part of the average domestic investor who continues to
invest record amounts into equity mutual funds. Elsewhere, European economies
and stock markets have performed well in the months leading up to the
European Union as some of the more extreme economic inefficiencies have been
reduced or eliminated. At this time, it is clear that investors are placing a
great deal of confidence in the ability of the European Union to compete
globally as many share prices have risen dramatically over the last several
months.
Together, the strength of the U.S. and European economies has been sufficient
to offset the weaknesses in the Asian region that first became evident a
little over a year ago. Looking ahead, we believe that as long as Asian
problems persist, there is little chance of inflation and interest rates
moving meaningfully higher. However, we also expect that U.S. and European
companies will increasingly find it more difficult to raise prices on many
products and services, which will certainly make for a more challenging
earnings environment.
S&P 500 earnings have come in at a lower level than the consensus estimate of
a year ago; however, they have been in line with the lower estimates that
emerged after the Asian problems surfaced in the fall of last year. Earnings
for the S&P 500 came in at about 1% above year-ago levels, which were almost
3% below consensus forecasts. Indeed, 150 of the 500 companies in the S&P
500, or 37%, actually had lower earnings than a year ago and 100 companies,
or 20%, experienced earnings declines in excess of 15%. Interestingly,
economy sensitive, selected technology, capital goods and commodity-related
companies have fared the worst on balance while consumer related and stable
growth areas, which have benefited from the "benign deflation" and rising
discretionary income, have done best. While macro economic statistics have
been good, profit margins for economy sensitive industries have been under
pressure. Consensus forecasts call for an improving earnings trend later in
the year and a 7% increase in 1999.
Despite soft earnings, the Asian problems, and some global political
uncertainties, liquidity from mutual funds investors, overseas investors, and
perhaps some global asset allocation away from the trouble spots to the U.S.
as a haven, were sufficient to propel the market higher. Underneath the
strong returns of the capitalization-weighted S&P 500, particularly the
largest "Nifty Fifty" stocks, a reasonable but less robust picture of the
market is apparent. This phenomenon is basically reflected in the fact that
the approximate 30% gain for the S&P 500 contrasts to a gain of 25% for an
equal-weighted S&P 500, an unusually large 5% differential. This effect was
particularly visible in the most recent quarter, when the S&P 500 was up 3%
and the components on an equal-weighted basis were down 1.3%. In effect, the
breadth of the market (advancing versus declining issues) has been in a
downtrend since February. Selected market statistics illustrate this point.
Coincidentally, within the S&P 500 only 41% of the stocks outperformed the
index for the year.
37
<PAGE>
The Legends Fund, Inc.
Notes to Financial Statements (continued)
SCUDDER KEMPER VALUE PORTFOLIO (CONTINUED)
Over the last 12 months, fully 25% of all stocks have experienced negative
returns and in the second quarter 57% of all stocks were actually down in
price. In essence, the market has once again reverted to a two-tier market, a
pattern that has been off and on over the last couple of years.
Our Portfolio continues to favor the financial, basic industry, energy, and
consumer sectors. We continue to be light in the technology and utility
sectors. While returns trailed the S&P 500, the Portfolio is in our judgement
well positioned. We continue to experience better than market fundamentals
and have a Portfolio that is selling at a discount price/earnings ratio with
a well above market dividend yield. As the "Nifty Fifty" effect wanes we are
confident of a resumption in relative performance.
38
<PAGE>
The Legends Fund, Inc.
Portfolio Performance
June 30, 1998
ZWEIG ASSET ALLOCATION PORTFOLIO
Comparison of the change in value of $10,000 invested in the
Zweig Asset Allocation Portfolio and the S&P 500
[CHART]
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"
Dec 97 "$19,625" "$25,142"
Jun 98 "$21,052" "$29,593"
- - Average annual total return since inception: 14.37%
- - Total return for the year ended June 30, 1998: 21.38%
- - Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity contracts.
- - Portfolio commenced operations on December 14, 1992.
- - Past performance is not predictive of future performance.
39
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1998
ZWEIG ASSET ALLOCATION PORTFOLIO (CONTINUED)
SUBADVISER'S DISCUSSION For the year ended June 30, 1998, the Zweig Asset
Allocation Portfolio returned 21.38%, compared to 30.14% returned by the S&P
500 Composite Stock Price Index ("S&P 500").
Fundamentals and relative value came to the fore in the second half of 1997,
and the performance of our stock selection model improved. Our stock picking,
which focuses on stocks selling at low prices relative to their growth
characteristics, benefited in the second half of 1997 from exposure to
utilities, airlines and brokerage stocks. We took full advantage of the
improvement in stock selection as we raised market exposure consistently,
entering 1998 100% invested. A slight uptick in interest rates in January, as
well as concerns about potential deflation related to instability in the
Asian markets and increased volatility, prompted us to decrease our exposure,
ending the fiscal year 87% invested.
Though the Portfolio performed well most of the year, the last quarter of the
fiscal year proved difficult. Our computer stock selection model screens a
broad universe of 1,000 large company stocks for those that have a favorable
combination of growth and value characteristics. While this approach has
worked well over the long run, the environment during the last quarter was
challenging for this methodology - particularly when the benchmark is the S&P
500. Our analysis shows that stocks on the smaller end of the large-cap
spectrum have more favorable valuations than do very large company stocks.
The prevailing "size matters" sentiment has propelled financially strong
companies with brand names, such as Coca-Cola, to sell at abnormally high
price/earnings ratios, despite unremarkable growth rates. In contrast,
companies with more attractive earnings growth are trading at much lower
price/earnings ratios. Our discipline prevents us from ignoring traditional
benchmarks of value. Moreover, we believe that investing solely on the basis
of market capitalization is imprudent (market capitalization is calculated by
multiplying the number of a company's outstanding shares by the price per
share). We prefer to adhere to our proven process of choosing stocks with
relatively strong fundamentals and attractive valuations.
Our overweightings in retail and automobile stocks advanced the Portfolio's
performance significantly during the latter half of the year. Airline stocks
also did well, benefiting from low oil prices, increased spending by
consumers and pricing leverage - a key factor in an industry that is often
plagued by price wars. The Portfolio's utilities and tobacco stocks dragged
down returns during the second half, as did our energy holdings, which were
the victims of the same low oil prices that boosted our airline and auto
stocks. Our underweightings in consumer staples and pharmaceuticals (areas
that have greatly benefited from investors' notion that bigger is better)
also contributed to lower performance during the period. We declined to
allocate more assets to these sectors because we do not believe their
earnings trends justify excessive valuations.
40
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1998
ZWEIG EQUITY (SMALL CAP) PORTFOLIO
Comparison of the change in value of $10,000 invested in the
Zweig Equity (Small Cap) Portfolio and the Value Line Geometric Index
[CHART]
Zweig Equity (Small Cap) Portfolio Value Line 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"
Dec 97 "$19,388" "$17,326"
Jun 98 "$21,359" "$18,778"
- - Average annual total return since inception: 14.31%
- - Total return for the fiscal year ended June 30, 1998: 23.72%
- - Performance relates to the Portfolio and does not reflect separate account
charges applicable to variable annuity contracts.
- - Portfolio commenced operations on December 14, 1992.
- - Past performance is not predictive of future performance.
41
<PAGE>
The Legends Fund, Inc.
Portfolio Performance (continued)
June 30, 1998
ZWEIG EQUITY (SMALL CAP) PORTFOLIO (CONTINUED)
SUBADVISER'S DISCUSSION
For the year ended June 30, 1998, the Zweig (Small Cap) Portfolio returned
23.72%, significantly outperforming the 16.5% returned by the Russell 2000
index.
Our stock selection was strong throughout the year. We steadily increased our
exposure in the first half, ultimately ending 1997 100% invested amid a
favorable low inflation and low interest rate environment. We gradually
reduced our exposure in the second half of the fiscal year, finishing the
period 84% invested. A slight uptick in interest rates, as well as concerns
about the effect of the Asian crisis and increased volatility, accounted for
the reduction in exposure.
Small cap stocks experienced greater volatility in the second half of the
fiscal year as the strong U.S. economy began to show signs of weakening.
Though we continue to enjoy low interest rates and low inflation, many
companies reported lower earnings in the fourth quarter, indicating a slowing
of the economy. Small cap stocks tend to be more sharply affected by the
business cycle because they lack the stability and financial resources that
cushion large companies during economic downturns.
Our focus on stocks with low price/earnings ratios enabled us to outperform
many of our peers and do so with less volatility. Our holdings in the
financial and capital goods sectors during the first half of the year proved
most rewarding. Consumer cyclicals and retail chains produced strong returns
in the second half, benefiting from low unemployment and slight wage
inflation, which resulted in consumers spending more on discretionary items
like cars and clothes. Financial stocks also performed well, aided by
consolidation, good valuations and a continued demand for financial services.
42
