[ FRONT COVER ]
THE WOODWARD VARIABLE ANNUITY
PATHMAKER
ANNUAL REPORT DECEMBER 31, 1995
o ITT HARTFORD LIFE & ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT SIX
o THE WOODWARD VARIABLE ANNUITY FUND
KEEPING YOU ON THE RIGHT FINANCIAL PATH
[ WOODWARD FUNDS LOGO ART ]
<PAGE>
<TABLE>
<CAPTION>
Dear Contractholders:
<S> <C>
Stronger sectors: In 1996, we expect the current economic
Exports recovery/expansion to enter its sixth year. Good
Capital spending growth in exports is anticipated due to the
competitive strength of U.S. manufacturers and a
moderate expansion of the economies of our major
trading partners. Business spending is likely to show
continued good growth, but the rate of gain is likely
Real GDP growth of about 2.0% to be much below the rate of gain in 1995. Likely to
depress growth is a reduction in the rate of
inventory accumulation. The rate of inflation is
expected to be about in line with 1995. For 1996,
real GDP is expected to show a gain of about 2.0
percent (new chain-weight basis*) with inflation on a
CPI inflation about in a 2.5 to 3.0% range CPI basis in a range of 2.5 to 3.0 percent.
Beginning in February, 1994, the Federal Reserve
increased the Fed funds rate in seven steps from 3.0
percent to 6.0 percent. This series of moves was a
pre-emptive action aimed at preventing the buildup of
Fed funds rate raised to 6.0%-- then lowered to 5.25% inflationary pressures in the economy. It was also a
signal to the capital markets of the Fed's
determination to control inflation. On July 6, 1995,
in reaction to a slowing in the growth rate of the
economy, the Fed cut the Fed funds target rate by 25
basis points. On December 19 and January 31, the Fed
made two additional 25 basis point cuts to 5.25%,
reflecting their view that in recent months inflation
has been somewhat more favorable than they had
Federal Reserve policy intent is somewhat restraining anticipated and that there has been a reduction in
inflationary expectations. In our view, despite these
reductions, Federal Reserve policy is still somewhat
restraining and is putting some downward pressure on
the growth rate of the economy.
Consumer spending to show moderate growth 1996 is expected to be another year of moderate
growth for consumer spending. Last year, in part as a
reaction to an increased burden of debt, there was
increased sensitivity to increases in light vehicle
sticker prices and in prices net of discounts. We
expect these factors to continue to influence light
vehicle sales in 1996, and that as a result, sales
Light vehicle sales in a range of 14.5 to 15.0 will be in a range of 14.5 to 15.0 million units,
million units compared to a total of 14.7 million units in 1995.
The computers and software category is likely to be
one of the stronger sectors within consumer spending.
A small recovery in housing starts to approximately
1.40 million units from an estimated 1.35 million
units in 1995 will help the growth of outlays for
furniture, appliances, carpeting and other household
Housing starts of about 1.40 million units equipment.
Little change is expected in the inflation rate in
1996. The lagged effects of the slowing in growth
last year compared to 1994 have kept inflationary
pressure subdued. Consumers are cautious, and are
Inflationary pressure subdued likely to remain so in an environment in which many
feel threatened by the restructuring of corporations
large and small. In this environment consumers are
very price conscious and strongly resist price
increases. While on an overall basis, the CPI
inflation rate is likely to be about unchanged
compared to last year, we expect inflation in the
transportation sector to decline, as the increase in
used car prices falls well short of the 1995 rise of
CPI inflation in range of 2.5 to 3.0% 10.4 percent. Slightly higher inflation is expected
in housing, as vacancy rates in apartment buildings
diminish. For the year, Consumer Price Index is
projected to show an increase of 2.5 to 3.0 percent,
compared to an increase of 2.8 percent in 1995.
Modest continued growth in 1997 At the end of 1996, we expect the economy to be
showing reasonably balanced growth, with a modest
further expansion anticipated for 1997.
We hope you find this information useful and
informative and thank you for your continued interest
and support.
Sincerely,
/s/ George Abel
George Abel
/TABLE
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<TABLE>
<CAPTION>
ITT Hartford Life & Annuity Insurance Company
Separate Account Six
Statements of Assets & Liabilities
December 31, 1995
<S> <C>
Assets:
Woodward
Balanced
Fund
Shares 688,239
Cost $7,328,714
Market Value $7,753,012
Woodward
Growth/Value
Fund
Shares 272,222
Cost $2,904,152
Market Value $3,165,326
Woodward
Opportunity
Fund
Shares 400,890
Cost $4,271,604
Market Value $4,418,587
Woodward
Capital
Growth Fund
Shares 515,546
Cost $5,416,255
Market Value $5,863,145
Woodward
Money
Market Fund
Shares 655,679
Cost $ 655,679
Market Value $ 655,679
PCM Global
Growth
Shares 16,548
Cost $ 229,859
Market Value $ 251,197
PCM Global
Asset
Allocation
Fund
Shares 240,907
Cost $3,585,410
Market Value $3,890,642
PCM Diversified
Income Fund
Shares 92,663
Cost $ 961,887
Market Value $1,022,072
PCM U.S.
Government
and High
Quality
Bond Fund
Shares 95,703
Cost $1,227,398
Market Value $1,314,959
<CAPTION>
PCM U.S.
Woodward Woodward PCM PCM Global PCM Government
Woodward Woodward Woodward Capital Money Global Asset Diversified and High
Balanced Growth/Value Opportunity Growth Market Growth Allocation Income Quality Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Value $7,753,012 $3,165,326 $4,418,587 $5,863,145 $655,679 $ 251,197 $3,890,642 $1,022,072 $1,314,959
Dividends
receivable 0 0 0 0 277 0 0 0 0
Receivable from
fund shares
sold 0 0 0 0 0 29 0 0 151
Receivable
from ITT
Hartford Life
& Annuity
Insurance Co. 71,523 43,729 2,309 2,397 98 0 369 27,886 0
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Total Assets 7,824,535 3,209,055 4,420,896 5,865,542 656,054 251,226 3,891,011 1,049,958 1,315,110
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Liabilities:
Payable to ITT
Hartford
Life & Annuity
Insurance Co. 0 0 0 0 0 29 0 0 151
Payable for
fund shares
purchased 72,720 43,692 2,310 2,333 0 0 370 27,886 0
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Total
Liabilities 72,720 43,692 2,310 2,333 0 29 370 27,886 151
---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Net Assets $7,751,815 $3,165,363 $4,418,586 $5,863,209 $ 656,054 $ 251,197 $3,890,641 $1,022,072 $1,314,959
========== ========== ========== ========== ========= ========== ========== ========== ==========
Variable Annuity
Policies:
Units Owned by
Participants 678,687 270,551 402,309 512,959 637,117 21,336 332,770 91,387 115,951
Unit Price $11.421788 $11.699671 $10.983065 $11.430181 $1.029723 $11.773171 $11.691668 $11.184020 $11.340651
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ITT Hartford Life & Annuity Insurance Company
Separate Account Six
Statements of Operations
For the Period from Inception,
February 15, 1995, to December 31, 1995
PCM U.S.
Woodward Woodward PCM PCM Global PCM Government
Woodward Woodward Woodward Capital Money Global Asset Diversified and High
Balanced Growth/Value Opportunity Growth Market Growth Allocation Income Quality Bond
Fund Fund Fund Fund Fund Fund Fund Fund Fund
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $ 117,802 $ 26,329 $ 12,637 $ 23,259 $ 11,569 $ 0 $ 0 $ 0 $ 0
Expenses:
Mortality and
expense
undertakings (41,621) (17,647) (24,368) (33,304) (3,130) (1,539) (21,635) (5,681) (7,716)
Net investment
income(loss) 76,181 8,682 (11,731) (10,045) 8,439 (1,539) (21,635) (5,681) (7,716)
Net realized and
unrealized gain
(loss) on
investments:
Net realized gain
(loss) on security
transactions (38) (301) 22 (153) 0 (83) 220 14 149
Net unrealized
appreciation
of investments
during
the period 424,298 261,174 146,983 446,890 0 21,338 305,231 60,185 87,562
Net gains on
investments 424,260 260,873 147,005 446,737 0 21,255 305,451 60,199 87,711
Net increase in net
assets resulting
from operations $ 500,441 $ 269,555 $ 135,274 $ 436,692 $ 8,439 $ 19,716 $ 283,816 $ 54,518 $79,995
<CAPTION>
ITT Hartford Life & Annuity Insurance Company
Separate Account Six
Statements of Changes in Net Assets
For the Period from Inception,
February 15, 1995, to December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment
income (loss) $ 76,181 $ 8,682 $ (11,731) $ (10,045) $ 8,439 $ (1,539) $ (21,635) $ (5,681) $(7,716)
Net realized
gain (loss)
on security
transactions (38) (301) 22 (153) 0 (83) 220 14 149
Net unrealized
appreciation
of investments
during the
period 424,298 261,174 146,983 446,890 0 21,338 305,231 60,185 87,562
Net increase in
net assets
resulting from
operations 500,441 269,555 135,274 436,692 8,439 19,716 283,816 54,518 79,995
Unit transactions:
Premiums 6,886,652 2,785,446 3,995,211 5,237,946 607,825 153,142 3,409,768 913,625 1,236,786
Net transfers 427,840 142,382 322,557 243,179 44,272 78,454 232,158 81,213 13,399
Surrenders (63,118) (32,020) (34,456) (54,608) (4,482) (115) (35,101) (27,284) (15,221)
Net increase in
net assets
resulting
from unit
transactions 7,251,374 2,895,808 4,283,312 5,426,517 647,615 231,481 3,606,825 967,554 1,234,964
Total increase
in net assets 7,751,815 3,165,363 4,418,586 5,863,209 656,054 251,197 3,890,641 1,022,072 1,314,959
Net Assets:
Beginning of
Period 0 0 0 0 0 0 0 0 0
End of Period $7,751,815 $3,165,363 $4,418,586 $5,863,209 $656,054 $251,197 $3,890,641 $1,022,072 $1,314,959
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SEPARATE ACCOUNT SIX
ITT HARTFORD LIFE & ANNUITY
INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Organization:
Separate Account Six (the Account) is a separate investment account
within ITT Hartford Life & Annuity Insurance Company (the Company) and is
registered with the Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act of 1940, as amended. Both the
Company and the Account are subject to supervision and regulation by the
Department of Insurance of the State of Connecticut and the SEC. The Account
commenced operations on February 15, 1995. The Account invests deposits by
variable life contractholders of the Company in various mutual funds as
directed by the contractholders.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting principles
in the investment company industry:
a) Security Transactions--
Security transactions are recorded on the trade date (date the order
to buy or sell is executed). Cost of investments sold is determined on
the basis of identified cost. Dividend and capital gains income are
accrued as of the ex-dividend date.
b) Security Valuation--
The investments in shares of the Woodward Variable Annuity Fund
(Balanced Fund, Growth/Value Fund, Opportunity Fund, Capital Growth
Fund and Money Market Fund) or the Putnam Capital Manager Trust (PCM
Global Growth Fund, PCM Global Asset Allocation Fund, PCM Diversified
Income Fund, PCM U.S. Government and High Quality Bond Fund) are
valued at the closing net asset value per share as determined by the
appropriate Fund as of December 31, 1995.
c) Federal Income Taxes--
The operations of the Account form a part of, and are taxed with, the
total operations of the Company, which is taxed as an insurance
company under the Internal Revenue Code. Under current law, no federal
income taxes are payable with respect to the operations of the
Account.
d) Uses 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 as of the date of the financial statements and the
reported amounts of income and expenses during the period. Operating
results in the future could vary from the amounts derived from
management's estimates.
3. Administration of the Account and Related Charges:
a) Mortality and Expense Undertakings--
The Company, as issuer of variable annuity contracts, makes deductions
for mortality and expense undertakings and, with respect to the
Account, receives a maximum annual fee of 1.25% of the Account's
average daily net assets. The Company also provides administrative
services and receives an annual fee of 0.15% of the Account's average
daily net assets.
b) Deduction of Annual Maintenance Fee--
Annual maintenance fees are deducted through termination of units of
interest from applicable contract owners' accounts, in accordance with
the terms of the contracts.
<PAGE>
Report of Independent Public Accountants
To ITT Hartford Life & Annuity Insurance Company Separate Account Six and to
the Owners of Units of Interest therein:
We have audited the accompanying statement of assets & liabilities of ITT
Hartford Life & Annuity Insurance Company Separate Account Six (the Account) as
of December 31, 1995, and the related statement of operations and the statement
of changes in net assets for the period from inception, February 15, 1995, to
December 31, 1995. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ITT Hartford Life & Annuity
Insurance Company Separate Account Six as of December 31, 1995, and the results
of its operations and the changes in its net assets for the period from
inception, February 15, 1995, to December 31, 1995, in conformity with
generally accepted accounting principles.
Hartford, Connecticut,
February 19, 1996. ARTHUR ANDERSEN LLP
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY BALANCED FUND
OBJECTIVE:
The Woodward Variable Annuity Balanced Fund (the "Fund") maintains a
portfolio of equities, fixed income and cash equivalent securities. The Fund's
objective is to achieve a long-term total return through a combination of
capital appreciation and current income. The Fund seeks to achieve its
investment objective through active management of the relative weights of
stocks, bonds and cash equivalents and by superior securities selection within
each of these major asset groups.
PERFORMANCE HIGHLIGHTS:
From the Fund's March 30 inception through the fiscal year ended
December 31, 1995, the net asset value increased from $10.00 to $11.27.
During this same period, the Fund provided a 15.2 percent return while the
blended return of the S&P 500 and the Lehman Aggregate Bond Index generated
a 20.2 percent return. This synthetic blend of indices has similar asset
allocation characteristics but is not subject to expenses of a mutual fund.
Since inception, the Fund's asset allocation between stocks and bonds
remained relatively constant at approximately 51 percent stocks and 35 percent
bonds. Cash equivalents rose slightly from 6 percent to 14 percent as we
reduced our exposure slightly to stocks and bonds. Dividends paid totaled
$0.25 per share.
The stock market ended 1995 with its third best year since 1948 as
measured by the S&P 500 Index's 37.5 percent return. The year ended December
31, 1995 with our equity portfolio providing an attractive absolute annual
return from virtually any historical perspective. In addition, as the year
proceeded and the market became more broad based, our relative performance
advanced versus the market and similar funds. The dichotomy between the S&P
500 Index return and the equity portion of our return can be explained in
large part due to the continued surge in a narrow group of large
capitalization stocks. Namely, the market was dominated by finance, technology
and healthcare companies averaging over $30 billion in market capitalization.
The risk profile associated with beating the index would require a level of
concentration that would violate our discipline to remain well diversified.
The merit to our low risk approach has gained favor as the technology sector
weakened and relative performance improved in the fourth quarter.
In the fixed income markets, yields declined across the yield curve
during the second half of the year as the Federal Reserve lowered the Fed
Funds rate to 5.50 percent during the fourth quarter of 1995 and the economy
showed more signs of sluggish growth with no signs of accelerating inflation.
Our strong fixed income performance both on an absolute basis and versus the
Lehman Aggregate Bond Index was the result of a number of strategies
performing well. Our position within Mortgage Backed Securities (MBS) was a
large positive, as it has been all year. The Fund benefited from declining
yields through price appreciation, particularly on discount Collateralized
Mortgage Obligations (CMOs). Also, premium CMOs backed by very seasoned high
coupon loans prepaid relatively slowly all year, thus enhancing return. The
high yield provided by Inverse Floater CMOs and the price appreciation of
discount inverse floaters and principal only CMOs made a significant
contribution to the higher return for the year. Moreover, our slightly longer
duration also helped performance. Our defensive position in longer Treasury
Strips had a slightly negative impact due to the modest steepening in the
yield curve. Our overweighting in 2-4 year Treasuries continues to be a
positive evidenced by the modest yield curve steepening that occurred in the
fourth quarter of 1995.
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<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY BALANCED FUND (Continued)
Growth of $10,000 Invested in the
Woodward Variable Annuity Balanced Fund, the Lipper Balanced Universe and a
60% S&P 500; 40% Lehman Aggregate Bond Index Blend
[ CHART ]
3/95 6/95 9/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund $10,000 $10,544 $11,010 $11,524
Lipper $10,000 $10,710 $11,302 $11,781
Index $10,000 $10,814 $11,413 $12,021
</TABLE>
<TABLE>
<CAPTION>
Since Inception (3/30/95)
Total Return
Through 12/31/95 Actual Annualized
---------------- ------ ----------
<S> <C> <C>
Woodward Variable Annuity 15.2% 20.2%
Balanced Fund
Lipper Balanced Universe 17.8% 23.5%(1)
60% S&P 500; 40% Lehman 20.2% 26.7%(2)
Aggregate Bond Index
<FN>
(1) Actual return for the year ended December 31, 1995
is 25.2%.
(2) Actual return for the year ended December 31, 1995
is 29.7%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY GROWTH/VALUE FUND
Objective:
The Woodward Variable Annuity Growth/Value Fund (the "Fund") seeks to
achieve long-term capital appreciation and, secondarily, to produce current
income approximating that prevailing within the general equity market. The
Fund strives to purchase issues, primarily of larger domestic companies, that
have superior growth potential and are judged mispriced by the market. The
Fund is broadly diversified and has market risk similar to the S&P 500.
Performance Highlights:
The stock market ended 1995 with its third best year since 1948 and its
best year since 1958. Mutual funds mirrored this rise, but at a more modest
rate. The Fund returned 17.2% since inception (March 30, 1995) through year
end 1995 as compared to the S&P 500 Index's 25.3% return for the same period.
The dichotomy between the S&P Index return and the Fund's return primarily
reflected two points. First, in contrast to most mutual funds, the S&P 500
Index is a cashless portfolio dominated by companies averaging over $30
billion in market capitalization. Second, during 1995, the S&P return was
dominated by the finance, technology and healthcare sectors. To have generated
larger returns, the Growth/Value Fund would have been forced to unduly
concentrate, thereby incurring unacceptable levels of risk. Net, the Fund's
annualized 22.8% return for 1995 was nearly two and one half times the stock
market's historic annual average return. It was a very good year to be a
common stock investor.
As the technology sector continued to weaken during the fourth quarter
and the market breadth widened, the Fund continued the performance rebound
begun during the third quarter. The Fund recorded a 5.4% return for the final
quarter of 1995, within one percent of the S&P return of 6.0%. This was good
progress when compared to other mutual funds. This Fund would be most closely
identified as a "Growth and Income" fund by Lipper Analytical Services. The
average fourth quarter return for Lipper Growth and Income funds was 4.5%. The
average diversified U.S. stock fund recorded a 3.1% return for the period. If
sector and foreign funds are included, the average stock fund return was 2.5%.
Since inception, the net asset value of the Fund advanced from $10.00 to
$11.63 and distributions from net investment income totaled $0.13 per share.
Turnover during the year was moderate at approximately 17%. Cash was reduced
from 13.0% to 7.6% during the year. The Fund will remain as fully invested in
stocks as practicable. Cash will not be used for market timing or asset
allocation purposes.
As measured from virtually any historical perspective, the Fund provided
a very large absolute return during 1995. In addition, as the year proceeded
and the market became more broad based, the Fund's relative performance
advanced versus the market and similar funds. Although it is impossible to
predict whether 1996 will provide common stock investors with another year of
historically high returns, we are confident the Fund's balance provides the
appropriate mix of risk versus return for a long-term core equity investment.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY GROWTH/VALUE FUND (Continued)
Growth of $10,000 Invested in the
Woodward Variable Annuity Growth/Value Fund and the
Standard & Poor's 500 Index
[ CHART ]
3/95 6/95 9/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund $10,000 $10,477 $11,164 $11,720
Index $10,000 $10,953 $11,823 $12,534
</TABLE>
<TABLE>
<CAPTION>
Since Inception (3/30/95)
Total Return
Through 12/31/95 Actual Annualized
---------------- ------ ----------
<S> <C> <C>
Woodward Variable Annuity 17.2% 22.8%
Growth/Value Fund
S&P 500 Index* 25.3% 33.7%(1)
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Actual return for the year ended December 31, 1995
is 37.5%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY CAPITAL GROWTH FUND
Investment Objective:
The Woodward Variable Annuity Capital Growth Fund (the "Fund") invests in
common stocks of primarily domestic companies with prospects for superior,
sustainable annual earnings growth, ideally supported by strong, unit-driven
revenue growth and margin expansion as well as conservative financial
leverage. The Fund is intended for the investor whose principal objective is
long-term capital appreciation and, at the same time, is tolerant of variable
dividend income. The portfolio is managed with an average risk profile by
investing in larger, better managed companies having above average historical
earnings growth and consistency. The Fund is expected to outperform the broad
market and the average of similarly managed portfolios over time.
Performance Highlights:
From the Fund's March 30 inception through the fiscal year end ended
December 31, 1995, the net asset value of the Fund advanced from $10.00 to
$11.37. Distributions from net investment income totaled $0.05 per share.
Turnover during the year was very low but this was distorted because strong
cash inflows throughout the year allowed repositioning of individual stocks
within the Fund as necessary.
Since inception, the Fund returned 14.2%. Although this represents an
acceptable absolute return in its own right, the Fund lagged its benchmarks
for the year as a whole: the S&P 500 total return, which is not impacted by
transaction or management fees, was 25.3% during this same period. It is the
intent of Fund management to run this as a broadly diversified equity product,
with the expectation to do well in markets not defined by narrow leadership.
The year as a whole proved to be a difficult climate in which to excel
for broadly diversified, longer term oriented funds such as the Woodward
Variable Annuity Capital Growth Fund. Notwithstanding the very near-term
horizon, affected by modest but slowing economic growth, a stabilization in
growth expectations, and increasingly difficult earnings comparisons in the
operationally levered cyclical industries, the outlook for equities is
positive. Supportive forces for the equity market include both a monetary
policy with sufficient room for easing due to the absence of visible
inflationary pressures, and record levels of free cash flow generation.
Investing in high quality stocks is more relevant now than has been the case
all year, and we remain enthused about growth investing in general and the
prospects for the Woodward Variable Annuity Capital Growth Fund, in
particular, as we focus on companies with superior, top-line driven growth
opportunities.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY
CAPITAL GROWTH FUND (Continued)
Growth of $10,000 Invested in the
Woodward Variable Annuity Capital Growth Fund and the
Standard & Poor's 500 Index
[ CHART ]
3/95 6/95 9/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund $10,000 $10,364 $10,818 $11,423
Index $10,000 $10,953 $11,823 $12,534
</TABLE>
<TABLE>
<CAPTION>
Since Inception (3/30/95)
Total Return
Through 12/31/95 Actual Annualized
---------------- ------ ----------
<S> <C> <C>
Woodward Variable Annuity 14.2% 18.8%
Capital Growth Fund
S&P 500 Index* 25.3% 33.7%(1)
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Actual return for the year ended December 31, 1995
is 37.5%.
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY OPPORTUNITY FUND
Objective:
The Woodward Variable Annuity Opportunity Fund (the "Fund") maintains a
portfolio of stocks of smaller to mid-sized companies. The Fund's objective is
to achieve long-term capital appreciation and to maintain a moderate level of
dividend income. The Fund concentrates on quality companies with above average
growth potential and superior returns on investment.
Performance Highlights:
From the Fund's March 30 inception through the fiscal year ended December
31, 1995, small to mid-capitalization company stocks returned 22.6% as
measured by the Russell 2500 index. This compares to the 25.3% return for the
large capitalization oriented Standard & Poor's 500 Index. This marks the
second consecutive year that small-cap stocks have lagged their
large-capitalization counterparts.
The Fund returned 10.7% during this same period in 1995. Since inception,
the net asset value of the Fund increased from $10.00 to $11.02 and
distributions from net investment income were $.05 per share. While the
absolute return for the Fund was strong, it lagged behind the Russell 2500
Index, which is an unmanaged, broad based index of small to intermediate
capitalization equities. The Index has similar market capitalization
characteristics as the Fund but is not subject to the expenses of a mutual
fund.
The Fund's performance relative to the Russell 2500 was primarily the
result of two factors: 1) a market environment that favored high growth,
momentum oriented investment styles; and 2) a narrow market with only the
technology and financial services sectors outperforming the overall index. As
a result of the Fund's emphasis on companies exhibiting above average growth
with reasonable valuations, and the desire to keep the portfolio broadly
diversified, the Fund has typically lagged in the type of market environment
experienced in 1995.
Over the very long-term, small capitalization stocks have provided
returns superior to their large capitalization counterparts, but with more
volatility. The Fund employs a conservative approach intended to provide
exposure to small capitalization stocks while dampening the volatility
inherent in this sector of the market. This is done by: 1) focusing on high
quality companies with above average growth prospects; 2) utilizing a
disciplined valuation approach; and 3) being well diversified among various
market sectors. We believe this strategy has produced favorable performance in
a variety of market environments, and we are optimistic our approach will
prove rewarding over the long-term.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
WOODWARD VARIABLE ANNUITY OPPORTUNITY FUND (Continued)
Growth of $10,000 Invested in the
Woodward Variable Annuity Opportunity Fund and the
Standard & Poor's 500 and the Russell 2500 Stock Indices
[ CHART ]
3/95 6/95 9/95 12/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fund $10,000 $10,507 $11,021 $11,073
S&P 500 $10,000 $10,953 $11,823 $12,534
Russell 2500 $10,000 $10,890 $11,935 $12,261
</TABLE>
<TABLE>
<CAPTION>
Since Inception (3/30/95)
Total Return
Through 12/31/95 Actual Annualized
---------------- ------ ----------
<S> <C> <C>
Woodward Variable Annuity 10.7% 14.3%
Opportunity Fund
S&P 500 Index* 25.3% 33.7%(1)
Russell 2500 Index 22.6% 30.1%(2)
<FN>
* A broad-based, unmanaged equity index comprised
of larger U.S. publicly traded corporations.
(1) Actual return for the year ended December 31, 1995
is 37.5%.
(2) Actual return for the year ended December 31, 1995
is 31.7%
Past performance is not predictive of future performance.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY FUND
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
BALANCED GROWTH/VALUE OPPORTUNITY CAPITAL GROWTH MONEY MARKET
FUND FUND FUND FUND FUND
----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in securities:
At cost $10,304,271 $3,372,053 $4,643,314 $5,914,427 $1,116,942
=========== ========== ========== ========== ==========
At value (Note 2) $11,057,591 $3,682,218 $4,878,819 $6,425,745 $1,121,034
Cash -- -- -- -- 16,276
Receivable for securities sold 11,794 -- 66,978 -- --
Receivable for shares purchased 72,720 43,692 2,310 2,333 --
Income receivable 57,106 7,666 5,065 5,699 5,246
Deferred organization costs, net (Note 2) 25,155 25,155 25,155 25,155 25,155
Prepaids and other assets 12,774 4,560 6,484 5,489 11,910
----------- ---------- ---------- ---------- ----------
TOTAL ASSETS 11,237,140 3,763,291 4,984,811 6,464,421 1,179,621
----------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable for securities purchased 6,654 2,495 3,327 19,961 --
Accrued investment advisory fees 6,866 2,299 2,976 4,014 437
Accrued custodial fees 4,143 1,861 2,716 1,066 625
Dividends payable -- -- -- -- 495
Other payables and accrued expenses 8,601 2,945 3,427 4,444 2,172
----------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 26,264 9,600 12,446 29,485 3,729
----------- ---------- ---------- ---------- ----------
NET ASSETS $11,210,876 $3,753,691 $4,972,365 $6,434,936 $1,175,892
=========== ========== ========== ========== ==========
Net assets consist of:
Capital shares (unlimited number of shares
authorized, par value $.10 per share) $ 99,514 $ 32,280 $ 45,113 $ 56,584 $ 117,589
Additional paid-in capital 10,304,398 3,378,827 4,728,998 5,863,045 1,058,303
Accumulated undistributed net investment income 1,628 22 43 50 --
Accumulated undistributed net realized gains (losses) 52,016 32,397 (37,294) 3,939 --
Net unrealized appreciation on investments 753,320 310,165 235,505 511,318 --
----------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS $11,210,876 $3,753,691 $4,972,365 $6,434,936 $1,175,892
=========== ========== ========== ========== ==========
Shares of capital stock outstanding 995,136 322,802 451,125 565,837 1,175,892
=========== ========== ========== ========== ==========
Net asset value and redemption price per share $ 11.27 $ 11.63 $ 11.02 $ 11.37 $ 1.00
=========== ========== ========== ========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY FUND
STATEMENTS OF OPERATIONS
For the Period Ended December 31, 1995
BALANCED GROWTH/VALUE OPPORTUNITY CAPITAL GROWTH MONEY MARKET
FUND FUND FUND FUND FUND
-------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (Note 2):
Interest $182,069 $ 7,942 $ 12,754 $ 14,905 $ 35,048
Dividends 58,307 35,714 19,400 30,878 --
-------- -------- -------- -------- --------
TOTAL INVESTMENT INCOME 240,376 43,656 32,154 45,783 35,048
-------- -------- -------- -------- --------
EXPENSES (Notes 2, 3 and 5):
Investment advisory fee 40,501 12,510 16,064 20,847 2,731
Professional fees 13,669 13,524 14,396 13,524 13,524
Custodial fee 29,452 19,441 31,017 14,326 5,176
Transfer and dividend disbursing agent fees 3,337 3,321 3,344 3,346 3,246
Amortization of deferred organization costs 4,439 4,439 4,439 4,439 4,439
Marketing expense 26,604 26,604 26,604 26,604 26,604
Registration, filing fees and other expenses 8,242 2,056 2,178 3,872 8,156
Less: Expense reimbursement (80,459) (67,776) (80,078) (63,458) (60,828)
-------- -------- -------- -------- --------
NET EXPENSES 45,785 14,119 17,964 23,500 3,048
-------- -------- -------- -------- --------
NET INVESTMENT INCOME 194,591 29,537 14,190 22,283 32,000
-------- -------- -------- -------- --------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) 52,016 35,828 (36,276) 8,122 --
Net change in unrealized appreciation on
investments 753,320 310,165 235,505 511,318 --
-------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 805,336 345,993 199,229 519,440 --
-------- -------- -------- -------- --------
NET INCREASE IN NET ASSETS FROM OPERATIONS $999,927 $375,530 $213,419 $541,723 $ 32,000
======== ======== ======== ======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
BALANCED GROWTH/VALUE OPPORTUNITY CAPITAL GROWTH MONEY MARKET
FUND FUND FUND FUND FUND
------------- ------------ ----------- -------------- ------------
Period Ended Period Ended Period Ended Period Ended Period Ended
Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 194,591 $ 29,537 $ 14,190 $ 22,283 $ 32,000
Net realized gains (losses) 52,016 35,828 (36,276) 8,122 --
Net change in unrealized appreciation on
investments 753,320 310,165 235,505 511,318 --
----------- ---------- ---------- ---------- ----------
Net increase in net assets from operations 999,927 375,530 213,419 541,723 32,000
----------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS (Note 2):
From net investment income (192,963) (29,515) (14,147) (22,233) (32,000)
From realized gains -- (3,431) -- (4,183) --
In excess of realized gains -- -- (1,018) -- --
----------- ---------- ---------- ---------- ----------
Total distributions (192,963) (32,946) (15,165) (26,416) (32,000)
----------- ---------- ---------- ---------- ----------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 10,294,774 3,508,134 4,792,328 6,001,443 1,168,068
Net asset value of shares
issued in reinvestment of distributions to
shareholders 192,963 32,946 15,165 26,416 31,505
----------- ---------- ---------- ---------- ----------
10,487,737 3,541,080 4,807,493 6,027,859 1,199,573
Less: payments for shares redeemed (83,825) (129,973) (33,382) (108,230) (23,681)
----------- ---------- ---------- ---------- ----------
Net increase in net assets from capital share
transactions 10,403,912 3,411,107 4,774,111 5,919,629 1,175,892
----------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS 11,210,876 3,753,691 4,972,365 6,434,936 1,175,892
NET ASSETS:
Beginning of period -- -- -- -- --
----------- ---------- ---------- ---------- ----------
End of period $11,210,876 $3,753,691 $4,972,365 $6,434,936 $1,175,892
=========== ========== ========== ========== ==========
CAPITAL SHARE TRANSACTIONS:
Shares sold 985,257 331,700 452,879 573,282 1,168,068
Shares issued in reinvestment of
distributions to shareholders 17,604 2,942 1,398 2,411 31,505
----------- ---------- ---------- ---------- ----------
1,002,861 334,642 454,277 575,693 1,199,573
Less: shares redeemed (7,725) (11,840) (3,152) (9,856) (23,681)
----------- ---------- ---------- ---------- ----------
NET INCREASE IN SHARES OUTSTANDING 995,136 322,802 451,125 565,837 1,175,892
CAPITAL SHARES:
Beginning of period -- -- -- -- --
----------- ---------- ---------- ---------- ----------
End of period 995,136 322,802 451,125 565,837 1,175,892
=========== ========== ========== ========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY BALANCED FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 13.90%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $1,536,830 $1,536,830
----------
(Cost $1,536,830)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 34.16%
U.S. Treasury Securities -- 15.45%
Principal Strip from U.S. Treasury Securities
due:
11/15/18 100,000 24,289
8/15/20 450,000 97,956
Strip from U.S. Treasury Securities due:
5/15/13 250,000 86,937
U.S. Treasury Bonds:
12.750%, 11/15/10 300,000 456,936
10.375%, 11/15/12 150,000 207,375
U.S. Treasury Notes:
6.125%, 7/31/96 325,000 326,573
7.875%, 1/15/98 50,000 52,539
5.250%, 7/31/98 350,000 350,109
6.375%, 8/15/02 100,000 105,094
----------
(Cost $1,578,180) 1,707,808
----------
Agency Obligations -- 18.71%
Federal Home Loan Mortgage Corp. Gtd. Multi-Class
Mortgage Participation Ctfs.:
Series 11 Class D, 9.500%, 7/15/19 50,000 55,643
Series 22 Class C, 9.500%, 4/15/20 13,811 15,647
Series 47 Class F, 10.000%, 6/15/20 100,000 111,883
Series 1084 Class F, AR, 5/15/21 100,000 101,996
Series 1084 Class S, IF, 5/15/21 70,000 91,000
Series 1297 Class H, 7.500%, 1/15/20 39,217 40,177
Series 1360 Class PK, 10.000%, 12/15/20 25,000 28,699
Series 1378 Class H, 10.000%, 1/15/21 50,000 57,604
Series 1489 Class L, 5.500%, 4/15/08 83,485 81,452
Series 1491 Class MA, 6.750%, 11/15/22 130,357 128,825
Series 1483 Class E, 6.500%, 2/15/20 40,000 39,976
Series 1531 Class K, 6.000%, 4/15/08 86,704 84,101
Series 1585 Class NB, IF, 9/15/23 24,166 19,574
Series 1586 Class A, 6.000%, 9/15/08 33,592 32,322
Series 1604 Class SE, IF, 11/15/08 46,758 37,407
Series 1606 Class LD, IF, 5/15/08 30,763 23,082
Series 1686 Class A, 5.000%, 2/15/24 46,225 41,220
Series 1757-A Class A, 9.500%, 5/15/23 88,305 93,934
Series 1796-A Class S, IF, 2/15/09 25,000 18,875
Federal National Mortgage Assn. Pass Thru
Securities: Guaranteed Remic Trust:
1989 Class 69-G, 7.600%, 10/25/19 50,000 51,587
1990 Class 1-D, 8.800%, 1/25/20 50,000 53,128
1990 Class 143-J, 8.750%, 12/25/20 75,000 80,406
1991 Class 144-PZ, 8.500%, 6/25/21 71,161 75,277
1993 Class 32-K, 6.000%, 3/25/23 41,974 40,361
1993 Class 139-SG, IF, 8/25/23 86,582 67,128
1993 Class 155-LA, 6.500%, 5/25/23 43,397 42,812
1993 Class 190-SE, IF, 10/25/08 49,847 38,740
1993 Class 214-L, 6.000%, 12/25/08 83,876 82,900
1993 Class 223-FB, AR, 12/25/23 37,914 37,345
1993 Class 223-SB, IF, 12/25/23 14,582 11,666
1994 Class 19-C, 5.000%, 1/25/24 41,644 38,500
1995 Class 13-B, 6.500%, 3/25/09 96,054 93,922
1992-G Class 42-Z, 7.000%, 7/25/22 63,097 62,144
1994-G Class 13-ZB, 7.000%, 11/17/24 53,615 51,320
Government National Mortgage Assn. Pass Thru
Ctfs. Guaranteed Remic Series 1994, Class SA,
IF, 10/16/22 302,600 19,291
Government National Mortgage Assn. Pass Thru
Pool:
#297628, 8.000%, 9/15/22 38,093 39,795
#313110, 7.500%, 11/15/22 76,901 79,264
----------
(Cost $1,977,423) 2,069,003
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 3,776,811
----------
(Cost $3,555,603)
CORPORATE BONDS AND NOTES -- 0.91%
Finance -- 0.91%
Ford Credit Grantor Trust Asset Backed Ctf.
Series 1994-A, Class A, 6.350%, 5/15/99 52,136 52,679
Nationsbank Auto Grantor Trust Asset Backed Ctf.
Series 1995-A, Class A, 5.85%, 6/15/02 48,214 48,491
----------
TOTAL CORPORATE BONDS AND NOTES 101,170
----------
(COST $100,592)
Shares
-------
COMMON STOCKS -- 51.03%
Aerospace -- 1.35%
Boeing Co. 1,900 148,912
-----------
Air Transport -- 0.14%
Air Express International Corp. 700 16,100
-----------
Apparel -- 0.87%
Nine West Group, Inc. * 350 13,125
Russell Corp. 3,000 83,250
-----------
96,375
-----------
Banks -- 2.44%
Barnett Banks, Inc. 1,600 94,400
Charter One Financial, Inc. 550 16,844
Commerce Bancshares, Inc. 210 8,032
Fleet Financial Group, Inc. 3,200 130,400
TCF Financial Corp. 600 19,875
-----------
269,551
-----------
Business Machines -- 1.05%
Autodesk, Inc. 1,750 59,938
Diebold, Inc. 300 16,612
InterVoice, Inc. * 300 5,700
Komag, Inc. * 400 18,450
Xilinx, Inc. * 500 15,250
-----------
115,950
-----------
Business Services -- 3.91%
American Management System, Inc. * 450 13,500
CDI Corp. * 400 7,200
Deluxe Corp. 2,900 84,100
DST Systems, Inc. * 200 5,700
Dun & Bradstreet Corp. 1,500 97,125
G & K Services, Inc. Class A 400 10,200
Interpublic Group of Companies, Inc. 1,700 73,738
Omnicom Group, Inc. 400 14,900
SunGard Data Systems, Inc. * 500 14,250
WMX Technologies, Inc. 3,000 89,625
Zilog, Inc. * 600 21,975
-----------
432,313
-----------
Chemicals -- 2.91%
Dow Chemical Co. 1,300 91,488
Great Lakes Chemical Corp. 1,800 129,600
RPM, Inc. 1,000 16,500
Sigma-Aldrich Corp. 1,700 84,150
-----------
321,738
-----------
Construction -- 3.36%
Crane Co. 600 22,125
Masco Corp. 3,200 100,400
Stanley Works 2,000 103,000
York International Corp. 3,100 145,700
-----------
371,225
-----------
Consumer Durables -- 1.10%
Durakon Industries, Inc. * 400 5,000
Invacare Corp. 200 5,050
Leggett & Platt, Inc. 400 9,700
Rubbermaid, Inc. 4,000 102,000
-----------
121,750
-----------
Containers -- 0.62%
AptarGroup, Inc. 500 18,687
Crown Cork & Seal Co., Inc. * 1,200 50,100
-----------
68,787
-----------
Drugs and Medicine -- 5.77%
Abbott Laboratories 2,200 91,850
Bristol-Myers Squibb Co. 1,400 120,225
Community Health System, Inc. 300 10,688
Health Care & Retirement Corp. * 300 10,500
Merck & Co., Inc. 1,500 98,625
Scherer (R.P.) Corp. * 250 12,281
Schering-Plough Corp. 2,600 142,350
Sybron International Corp. * 600 14,250
US Healthcare, Inc. 2,700 125,550
Vivra, Inc. * 450 11,306
-----------
637,625
-----------
Electronics -- 2.23%
Allen Group Inc. 600 13,425
Belden, Inc. 850 21,888
Dynatech Corp. * 1,000 17,000
General Motors Corp. Class E 2,700 140,400
Holophane Corp. * 575 12,506
MEMC Electronic Materials * 350 11,419
Molex, Inc. Class A Non-Voting 450 13,781
3COM Corp. * 200 9,325
Vishay Intertechnology, Inc. * 200 6,300
-----------
246,044
-----------
Energy and Utilities -- 1.51%
Entergy Corp. 1,500 43,875
MCN Corp. 5,300 123,225
-----------
167,100
-----------
Energy Raw Materials -- 2.36%
Apache Corp. 600 17,700
Burlington Resources, Inc. 2,000 78,500
Schlumberger Ltd. 2,200 152,350
Southwestern Energy Co. 1,000 12,750
-----------
261,300
-----------
Food and Agriculture -- 1.85%
ConAgra, Inc. 1,700 70,125
Sysco Corp. 3,700 120,250
Universal Foods Corp. 350 14,044
-----------
204,419
-----------
Insurance -- 3.62%
American International Group, Inc. 1,225 113,312
Chubb Corp. 1,500 145,125
Citizens Corp. 700 13,038
First Colony Corp. 4,500 114,187
Transatlantic Holdings, Inc. 200 14,675
-----------
400,337
-----------
International Oil -- 0.64%
Royal Dutch Petroleum Co., N.Y.
Registry 500 70,562
-----------
Liquor -- 0.97%
Anheuser Busch Companies, Inc. 1,600 107,000
-----------
Media -- 2.29%
Banta Corp. 400 17,600
Gannett Co., Inc. 2,000 122,750
Washington Post Co. Class B 400 112,800
-----------
253,150
-----------
Miscellaneous and Conglomerates --
1.10%
Arctco, Inc. 600 7,800
Culligan Water Technologies, Inc. * 400 9,700
DENTSPLY International, Inc. 450 18,000
Department 56, Inc. * 150 5,756
Greenfield Industries, Inc. 650 20,313
Health Management Associates, Inc.
Class A * 550 14,369
Littlefuse, Inc. * 400 14,700
Minerals Technologies, Inc. 400 14,600
Wolverine Tube, Inc. * 450 16,875
-----------
122,113
-----------
Miscellaneous Finance -- 1.21%
A.G. Edwards, Inc. 600 14,325
Executive Risk, Inc. 600 17,400
FINOVA Group, Inc. 650 31,363
GMAC Investment Corp. 250 11,000
Idex Corp. 300 12,300
PMI Group, Inc. 450 20,362
Prudential Reinsurance Holding 700 16,362
Scotsman Industries, Inc. 600 10,575
-----------
133,687
-----------
Motor Vehicles -- 1.34%
Excel Industries, Inc. 800 11,200
General Motors Corp. 1,800 95,175
Harley-Davidson, Inc. 750 21,562
Myers Industries, Inc. 530 8,679
Superior Industries International 450 11,869
-----------
148,485
-----------
Non-Durables and Entertainment --
0.76%
Cracker Barrel Old Country Store,
Inc. 4,000 69,000
Lancaster Colony Corp. 400 14,900
-----------
83,900
-----------
Non-Ferrous Metals -- 0.07%
DT Industries, Inc. 600 8,100
-----------
Producer Goods -- 2.61%
General Electric Co. 1,400 100,800
Hubbell, Inc. Class B 400 26,300
Juno Lighting, Inc. 800 12,800
Stewart & Stevenson Services, Inc. 4,300 108,575
Teleflex, Inc. 200 8,200
Trimas Corp. 700 13,213
Watts Industries, Inc. Class A 800 18,600
-----------
288,488
-----------
Retail -- 0.92%
Cato Corp. Class A 1,600 12,400
Kohls Corp. * 200 10,500
Talbots, Inc. 250 7,188
Toys R Us * 3,300 71,775
-----------
101,863
-----------
Telephone -- 3.00%
AT&T Corp. 1,400 90,650
Century Telephone Enterprises, Inc. 3,000 95,250
MCI Communications Corp. 5,600 146,300
-----------
332,200
-----------
Travel and Recreation -- 0.13%
Callaway Golf Co. 650.00 14,706
-----------
Trucking and Freight -- 0.90%
Ryder System, Inc. 4,000 99,000
-----------
TOTAL COMMON STOCKS 5,642,780
-----------
(Cost $5,111,246)
TOTAL INVESTMENTS $11,057,591
===========
(Cost $10,304,271)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
THE WOODWARD VARIABLE ANNUITY BALANCED FUND
PORTFOLIO OF INVESTMENTS (Continued)
December 31, 1995
Notes to Portfolio of Investments
The Fund invests in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Some of these securities are collateralized
mortgage obligations (CMOs). CMOs are debt securities issued by U.S.
government agencies or by financial institutions and other mortgage lenders
which are collateralized by a pool of mortgages held under an indenture.
Adjustable Rate (AR)
Inverse Floaters represent securities that pay interest at a rate that
increases (decreases) with a decline (increase) in a specified index.
Interest Only (IO) represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. The face amount shown
represents the par value on the underlying pool. The yields on these
securities are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow paters are more volatile
and there is a greater risk that the initial investment will not be fully
recouped. These securities are subject to accelerated principal paydowns as a
result of prepayments or refinancing of the underlying pool of mortgage
instruments. As a result, interest income may be reduced considerably.
High Coupon Bonds (HB) (a.k.a. "IOettes") represent the right to receive
interest payments on an underlying pool of mortgages with similar risks as
those associated with IO securities. Unlike IO's the owner also has a right to
receive a very small portion of principal. The high interest rate results from
taking interest payments from other classes in the REMIC Trust and allocating
them to the small principal of the HB class.
Principal Only (PO) represents the right to receive the principal portion only
on an underlying pool of mortgage loans. The market value of these securities
is extremely volatile in response to changes in market interest rates. As
prepayment on the underlying mortgages of these securities increase, the yield
on these securities increases.
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY GROWTH/VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 7.59%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $ 279,343 $ 279,343
----------
(Cost $279,343)
Shares
------
COMMON STOCKS -- 92.41%
Aerospace -- 2.98%
Boeing Co. 1,400 109,725
----------
Apparel -- 1.66%
Russell Corp. 2,200 61,050
----------
Banks -- 4.47%
Barnett Banks, Inc. 1,200 70,800
Fleet Financial Group, Inc. 2,300 93,725
----------
164,525
----------
Business Machines -- 0.84%
Autodesk, Inc. 900 30,825
----------
Business Services -- 7.06%
Deluxe Corp. 2,200 63,800
Dun & Bradstreet Corp. 1,100 71,225
Interpublic Group of Companies, Inc. 1,300 56,387
WMX Technologies, Inc. 2,300 68,713
----------
260,125
----------
Chemicals -- 5.87%
Dow Chemical Co. 900 63,337
Great Lakes Chemical Corp. 1,300 93,600
Sigma-Aldrich Corp. 1,200 59,400
----------
216,337
----------
Construction -- 6.99%
Masco Corp. 2,300 72,162
Stanley Works 1,500 77,250
York International Corp. 2,300 108,100
----------
257,512
----------
Consumer Durables -- 2.08%
Rubbermaid, Inc. 3,000 76,500
----------
Containers -- 1.02%
Crown Cork & Seal Co. Inc. * 900 37,575
----------
Drugs and Medicine -- 11.46%
Abbott Laboratories Corp. 1,600 66,800
Bristol-Myers Squibb Co. 1,000 85,875
Merck & Co., Inc. 1,100 72,325
Schering-Plough Corp. 1,900 104,025
US HealthCare, Inc. 2,000 93,000
----------
422,025
----------
Electronics -- 2.82%
General Motors Corp. Class E 2,000 104,000
----------
Energy and Utilities -- 3.40%
Entergy Corp. 1,100 32,175
MCN Corp. 4,000 93,000
----------
125,175
----------
Energy Raw Materials -- 4.61%
Burlington Resources, Inc. 1,500 58,875
Schlumberger Ltd. 1,600 110,800
----------
169,675
----------
Food and Agriculture -- 3.84%
ConAgra, Inc. 1,300 53,625
Sysco Corp. 2,700 87,750
----------
141,375
----------
Insurance -- 7.49%
American International Group, Inc. 900 83,250
Chubb Corp. 1,100 106,425
First Colony Corp. 3,400 86,275
----------
275,950
----------
International Oil -- 1.53%
Royal Dutch Petroleum Co., N.Y. Registry 400 56,450
----------
Liquor -- 2.18%
Anheuser-Busch Companies, Inc. 1,200 80,250
----------
Media -- 4.80%
Gannett Co., Inc. 1,500 92,063
Washington Post Co. Class B 300 84,600
----------
176,663
----------
Motor Vehicles -- 1.87%
General Motors Corp. 1,300 68,738
----------
Non-Durables and Entertainment -- 1.22%
Cracker Barrel Old Country Store, Inc. 2,600 44,850
----------
Producer Goods -- 4.07%
General Electric Co. 1,100 79,200
Stewart & Stevenson Services, Inc. 2,800 70,700
----------
149,900
Retail -- 1.48%
----------
Toys R Us * 2,500 54,375
----------
Telephone -- 6.72%
AT&T Corp. 1,000 64,750
Century Telephone Enterprises, Inc. 2,300 73,025
MCI Communications Corp. 4,200 109,725
----------
247,500
----------
Trucking and Freight -- 1.95%
Ryder System, Inc. 2,900 71,775
----------
TOTAL COMMON STOCKS 3,402,875
----------
TOTAL INVESTMENTS $3,682,218
==========
(Cost $3,372,053)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 4.83%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96 (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05, and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $235,635 $ 235,635
----------
(Cost $235,635)
Shares
------
COMMON STOCKS -- 95.17%
Air Transport -- 1.51%
Air Express International Corp. 3,200 73,600
----------
Apparel -- 1.15%
Nine West Group, Inc. * 1,500 56,250
----------
Banks -- 4.45%
Charter One Financial, Inc. 2,750 84,219
Commerce Bancshares, Inc. 1,045 39,971
TCF Financial Corp. 2,800 92,750
----------
216,940
----------
Business Machines -- 5.69%
Autodesk, Inc. 1,700 58,225
Diebold, Inc. 1,300 71,987
InterVoice, Inc. * 1,300 24,700
Komag, Inc. * 1,400 64,575
Xilinx, Inc. * 1,900 57,950
----------
277,437
----------
Business Services -- 8.20%
American Management Systems, Inc. * 2,400 72,000
CDI Corp. * 1,500 27,000
DST Systems, Inc. * 900 25,650
G & K Services, Inc. Class A 1,800 45,900
Omnicom Group, Inc. 1,800 67,050
SunGard Data Systems, Inc. * 2,550 72,675
Zilog, Inc. * 2,450 89,731
----------
400,006
----------
Chemicals -- 1.43
RPM, Inc. 4,225 69,713
----------
Construction -- 2.31%
Crane Co. 3,050 112,469
----------
Consumer Durables -- 2.10%
Durakon Industries, Inc. * 2,200 27,500
Invacare Corp. 900 22,725
Leggett & Platt, Inc. 2,000 48,500
Sunrise Medical, Inc. * 200 3,700
----------
102,425
----------
Containers -- 1.76%
AptarGroup, Inc. 2,300 85,962
----------
Drugs and Medicine -- 5.85%
Community Health System, Inc. * 1,400 49,875
Health Care & Retirement Corp. * 1,400 49,000
Scherer (R.P.) Corp. * 900 44,212
Sybron International Corp.* 3,500 83,125
Vivra, Inc. * 2,350 59,044
----------
285,256
----------
Electronics -- 9.35%
Allen Group, Inc. 2,800 62,650
Belden, Inc. 3,900 100,425
Dynatech Corp. * 4,400 74,800
Holophane Corp. * 2,925 63,619
MEMC Electronic Materials * 1,450 47,306
Molex, Inc. Class A Non-Voting 1,825 55,891
3COM Corp. * 500 23,313
Vishay Intertechnology, Inc. * 900 28,350
----------
456,354
----------
Energy Raw Materials -- 2.84%
Apache Corp. 2,800 82,600
Southwestern Energy Co. 4,400 56,100
----------
138,700
----------
Food and Agriculture -- 1.15%
Universal Foods Corp. 1,400 56,175
----------
Insurance -- 3.10%
Citizens Corp. 3,600 67,050
Transatlantic Holdings, Inc. 1,150 84,381
----------
151,431
----------
Media -- 1.53%
Banta Corp. 1,700 74,800
----------
Miscellaneous and Conglomerates -- 11.38%
Arctco, Inc. 2,700 35,100
Culligan Water Technologies, Inc. * 2,000 48,500
DENTSPLY International, Inc. 1,950 78,000
Department 56, Inc. * 650 24,944
Greenfield Industries, Inc. 2,950 92,187
Health Management Associates, Inc. Class A * 2,650 69,231
Littlefuse, Inc. * 1,800 66,150
Minerals Technologies, Inc. 1,600 58,400
Wolverine Tube, Inc. * 2,200 82,500
----------
555,012
----------
Miscellaneous Finance -- 12.06%
CMAC Investment Corp. 1,400 61,600
A.G. Edwards, Inc. 3,100 74,012
Executive Risk, Inc. 2,600 75,400
FINOVA Group, Inc. 2,750 132,687
Idex Corp. 1,200 49,200
PMI Group, Inc. 1,750 79,188
Prudential Reinsurance Holdings 3,100 72,463
Scotsman Industries, Inc. 2,500 44,063
----------
588,613
----------
Motor Vehicles -- 4.84%
Excel Industries, Inc. 3,500 49,000
Harley-Davidson, Inc. 3,500 100,625
Myers Industries, Inc. 2,530 41,429
Superior Industries International 1,700 44,837
----------
235,891
----------
Non-Durables and Entertainment -- 1.45%
Lancaster Colony Corp. 1,900 70,775
----------
Non-Ferrous Metals -- 0.80%
DT Industries, Inc. 2,900 39,150
----------
Producer Goods -- 8.10%
Hubbell, Inc. Class B 1,700 111,775
Juno Lighting, Inc. 3,600 57,600
Stewart & Stevenson Services, Inc. 2,000 50,500
Teleflex, Inc. 700 28,700
Trimas Corp. 3,200 60,400
Watts Industries, Inc. Class A 3,700 86,025
----------
395,000
----------
Retail -- 2.73%
Cato Corp. Class A 7,400 57,350
Kohls Corp. * 900 47,250
Talbots, Inc. 1,000 28,750
----------
133,350
----------
Travel and Recreation -- 1.39%
Callaway Golf Co. 3,000 67,875
----------
TOTAL COMMON STOCKS 4,643,184
----------
(Cost $4,407,679)
TOTAL INVESTMENTS $4,878,819
==========
(Cost $4,643,314)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Description Face Amount Market Value
----------- ----------- ------------
<S> <C> <C>
TEMPORARY CASH INVESTMENT -- 3.88%
Salomon Brothers, Revolving Repurchase Agreement,
5.93%, 1/2/96, (secured by various U.S. Treasury
Strips with maturities ranging from 2/15/96
through 11/15/05 and U.S. Treasury Notes, 5.50%,
11/15/98, all held at Chemical Bank) $249,370 $ 249,370
----------
(Cost $249,370)
Shares
------
COMMON STOCKS -- 96.12%
Banks -- 3.27%
Banc One Corp. 1,200 45,300
Norwest Corp. 5,000 165,000
----------
210,300
----------
Business Machines -- 4.33%
Autodesk, Inc. 3,000 102,750
Microsoft Corp. * 2,000 175,500
----------
278,250
----------
Business Services -- 5.32%
Automatic Data Processing, Inc. 1,400 103,950
Interpublic Group of Companies, Inc. 3,000 130,125
WMX Technologies, Inc. 3,600 107,550
----------
341,625
----------
Chemicals -- 5.50%
Great Lakes Chemical Corp. 2,500 180,000
Sigma-Aldrich Corp. 3,500 173,250
----------
353,250
----------
Construction -- 5.28%
Fluor Corp. 3,000 198,000
York International Corp. 3,000 141,000
----------
339,000
----------
Consumer Durables -- 3.20%
Newell Co. 4,400 113,850
Rubbermaid, Inc. 3,600 91,800
----------
205,650
----------
Containers -- 2.92%
Crown Cork & Seal Co., Inc. * 4,500 187,875
----------
Drugs and Medicine -- 12.18%
Johnson & Johnson 2,200 188,375
Medtronic, Inc. 2,000 111,750
Pall Corp. 6,000 161,250
Stryker Corp. 3,000 157,500
United Healthcare Corp. 2,500 163,750
----------
782,625
----------
Electronics -- 6.82%
General Motors Corp. Class E 3,500 182,000
Hewlett Packard Co. 1,500 125,625
Intel Corp. 2,300 130,525
----------
438,150
----------
Energy and Utilities -- 2.08%
Enron Corp. 3,500 133,438
----------
Energy Raw Materials -- 3.78%
Schlumberger Ltd. 1,900 131,575
Western Atlas, Inc. * 2,200 111,100
----------
242,675
----------
Food and Agriculture -- 3.09%
CPC International, Inc. 1,000 68,625
Sysco Corp. 4,000 130,000
----------
198,625
----------
Insurance -- 6.01%
AFLAC, Inc. 4,000 173,500
American International Group, Inc. 2,300 212,750
----------
386,250
----------
Media -- 2.14%
Donnelley (R.R.) & Sons Co. 3,500 137,812
----------
Miscellaneous & Conglomerates -- 3.22%
Duracell International, Inc. 4,000 207,000
----------
Non-Durables and Entertainment -- 5.15%
Cracker Barrel Old Country Store, Inc. 9,000 155,250
Service Corp International 4,000 176,000
----------
331,250
----------
Producer Goods -- 3.24%
Illinois Tool Works, Inc. 1,600 94,400
Stewart & Stevenson Services, Inc. 4,500 113,625
----------
208,025
----------
Retail -- 7.00%
Albertsons, Inc. 3,000 98,625
Home Depot, Inc. 4,000 191,500
Toys R Us * 1,300 28,275
Walgreen Co. 4,400 131,450
----------
449,850
----------
Telephone -- 4.25%
AirTouch Communications, Inc. * 5,500 155,375
MCI Communications Corp. 4,500 117,563
----------
272,938
----------
Tobacco -- 1.30%
UST, Inc. 2,500 83,437
----------
Travel and Recreation -- 6.04%
Carnival Corp. Class A 5,000 121,875
Disney (Walt) Co. 2,400 141,600
Gaylord Entertainment Co. Class A 4,500 124,875
388,350
----------
TOTAL COMMON STOCKS 6,176,375
----------
(Cost $5,665,057)
TOTAL INVESTMENTS $6,425,745
==========
(Cost $5,914,427)
<FN>
* Non-income producing security
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE WOODWARD VARIABLE ANNUITY MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
December 31, 1995
Amortized
Cost
Description Face Amount (Note 2)
----------- ----------- --------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 32.19%
American General Finance, Inc. Master Note, 5.85%,
1/2/96 $ 25,000 $ 25,000
Paccar Leasing Corp. Master Note, 5.85%, 1/2/96 25,000 25,000
Pitney Bowes Credit Corp. Master Note, 5.80%,
1/2/96 25,000 25,000
Transamerica Finance Group, Inc. Master Note,
5.85%, 1/2/96 25,000 25,000
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.00%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 2/15/96 through 11/15/05 at various
interest rates ranging from 0.00% to 12.375%, all
held at Chemical Bank) 170,907 170,907
Nikko Securities Co. International, Inc., Revolving
Repurchase Agreement, 5.90%, 1/2/96 (secured by
various U.S. Treasury obligations with maturities
ranging from 5/31/96 through 8/15/00 at various
interest rates ranging from 0.00% to 8.75%, all
held at the Bank of New York) 90,000 90,000
----------
360,907
----------
COMMERCIAL PAPER -- 52.64%
Abbey National North America, 5.64%, 3/6/96 20,000 19,798
Air Products & Chemicals, Inc., 5.64%, 3/14/96 40,000 39,547
American Express Credit Corp., 5.62%, 6/14/96 20,000 19,498
B.A.T. Capital Corp., 5.77%, 1/23/96 20,000 19,930
Barton Capital Corp., 5.80%, 1/26/96 25,000 24,900
Bass Finance (C.I.) Ltd., 5.71%, 2/14/96 20,000 19,861
BCI Funding Corp., 5.74%, 2/9/96 20,000 19,877
BEAL Cayman Ltd., 5.73%, 2/23/96 20,000 19,833
CPC International, Inc., 5.69%, 2/9/96 20,000 19,877
Echlin, Inc., 5.76%, 1/18/96 40,000 39,892
Electronic Data Systems Corp., 5.56%, 3/21/96 45,000 44,451
Engelhard Corp., 5.75%, 1/19/96 30,000 29,914
Enterprise Funding Corp., 5.76%, 1/16/96 20,000 19,952
Explorer Pipeline Co., 5.76%, 1/24/96 25,000 24,908
International Lease Finance Corp., 5.76%, 1/9/96 20,000 19,974
Monsanto Co., 5.69%, 2/8/96 20,000 19,881
Preferred Receivable Funding Corp., 5.73%, 2/2/96 25,000 24,873
Ranger Funding Corp., 5.75%, 1/12/96 20,000 19,965
San Paolo U.S. Financial Co., 5.68%, 3/15/96 30,000 29,654
Sheffield Receivables Corp., 5.73%, 2/1/96 20,000 19,902
St. Michael Finance Ltd., 5.75%, 2/20/96 35,000 34,723
Sunbelt-Dix Inc., 5.79%, 2/13/96 20,000 19,863
Sweden (Kingdom of), 5.72%, 3/1/96 20,000 19,811
WMX Technologies, Inc., 5.50%, 9/9/96 20,000 19,258
----------
590,142
----------
NOTES -- 5.80%
J.P. Morgan, 5.75%, 8/7/96 20,000 19,976
Seattle First National Bank, 5.51%, 6/14/96 45,000 45,000
----------
64,976
----------
CERTIFICATES OF DEPOSIT -- 9.37%
Bayerische Vereinsbank AG, 5.95%, 7/22/96 20,000 20,000
Canadian Imperial Bank of Commerce, 5.95%, 10/23/96 20,000 20,000
Harris Trust & Savings Bank, 5.72%, 2/29/96 25,000 25,000
Royal Bank of Canada, 6.60%, 4/3/96 20,000 20,003
Toronto-Dominion Bank, Euro, 6.80%, 3/11/96 20,000 20,006
----------
105,009
----------
TOTAL INVESTMENTS $1,121,034
==========
</TABLE>
<PAGE>
THE WOODWARD VARIABLE ANNUITY FUND
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Commencement of Operations
The Woodward Variable Annuity Fund (the "Trust") was organized as a
Delaware business trust on November 7, 1994, and registered under the
Investment Company Act of 1940, as amended, as an open-end investment company.
As of December 31, 1995, the Trust consisted of five separate series of which
there were four Equity Funds and one Money Market Fund, as described below.
Equity Funds:
Woodward Variable Annuity Balanced Fund
Woodward Variable Annuity Growth/Value Fund
Woodward Variable Annuity Opportunity Fund
Woodward Variable Annuity Capital Growth Fund
Money Market Fund:
Woodward Variable Annuity Money Market Fund
The Trust commenced operations on March 30, 1995. Shares of the Trust are
made available to serve as the underlying investment media of the variable
annuity contracts issued by Separate Account Six of the ITT Hartford Life &
Annuity Insurance Company. Orders for the Trust's shares are executed in
accordance with the investment instructions of the contract owners.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed in
the preparation of the financial statements. The policies are in conformity
with generally accepted accounting principles for investment companies.
Following generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments
The Equity Funds value investment securities at market value which is
determined by a pricing service based upon quoted market prices or dealer
quotes. Securities for which market prices or dealer quotes are not readily
available are valued by the investment advisor, NBD Bank (NBD) in accordance
with procedures approved by the Board of Trustees.
Pursuant to Rule 2a-7 of the Investment Company Act of 1940, the Money
Market Fund utilizes the amortized cost method to determine the carrying value
of investment securities. Under this method, investment securities are valued
for both financial reporting and federal tax purposes at amortized cost and
any discount or premium is amortized from the date of acquisition to maturity.
The use of this method results in a carrying value which approximates market
value. Market value is determined based upon quoted market prices or dealer
quotes.
Investment security purchases and sales are accounted for on the day
after trade date by the Equity Funds and on the trade date for the Money
Market Fund.
The Trust invests in securities subject to repurchase agreements. Such
transactions are entered into only with institutions included on the Federal
Reserve System's list of institutions with whom the Federal Reserve open
market desk will do business. NBD, acting under the supervision of the Board
of Trustees, has established the following additional policies and procedures
relating to the Trust's investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by NBD to assure its
value remains at least equal to 102% of the repurchase agreement amount; and
3) funds are not disbursed by the Trust or its agent unless collateral is
presented or acknowledged by the collateral custodian.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount on debt instruments. Bond
premiums and discounts are amortized/accreted as required by the Internal
Revenue Code. Premiums and discounts on mortgage-backed securities are
amortized/accreted using the effective interest rate method. As prepayments on
the underlying mortgages increase or decrease the expected life, the yield is
adjusted to amortize/accrete the security to its new expected life. Dividends
are recorded on the ex-dividend date.
Federal Income Taxes
It is Woodward's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to distribute net investment income and realized gains to its
shareholders. Therefore, no federal income tax provision is required in the
accompanying financial statements.
Net realized gains differ for financial statement and tax purposes
primarily because of the recognition of wash sale transactions and
post-October 31 capital losses. Also, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were recorded by the funds.
Certain book-to-tax timing differences for the funds are reflected as excess
distributions in the Statements of Changes in Net Assets. These distributions
do not constitute a tax return of capital.
Shareholder Dividends
Dividends from net investment income are declared and paid quarterly by
the Equity Funds. Net realized capital gains are distributed annually.
Distributions from net investment income and net realized gains are made
during each year to avoid the 4% excise tax imposed on regulated investment
companies by the Internal Revenue Code.
On each business day except those holidays the New York Stock Exchange
(Exchange), NBD or its bank affiliates observe, the Money Market Fund net
investment income is declared as a dividend, at the close of the Exchange, to
shareholders of record at such close. Such dividends are paid monthly.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five year period beginning with the commencement of operations of each series.
Expenses
Expenses are charged daily as a percentage of the respective Fund's net
assets. The Trust monitors the rate at which expenses are charged to ensure
that a proper amount of expense is charged to income each year. This
percentage is subject to revision if there is a change in the estimate of the
future net assets of Woodward or a change in expectations as to the level of
actual expenses.
(3) Transactions with Affiliates
First of Michigan Corporation (FoM) and Essex National Securities, Inc.
(Essex) act as sponsors and co-distributors of Woodward's shares. Neither FoM
nor Essex is entitled to any fee pursuant to their Distribution Agreement with
the Trust.
NBD is the investment advisor pursuant to the Advisory Agreement. For its
advisory services to the Trust, NBD is entitled to a fee, computed daily and
payable monthly. Under the Advisory Agreement, NBD also provides the Trust
with certain administrative services, such as maintaining the Trust's general
ledger and assisting in the preparation of various regulatory reports. NBD
receives no additional compensation for such services.
NBD has agreed that it may waive its fees in whole or in part; and, if in
part, may specify the particular fund to which such waiver relates as may be
required to satisfy any expense limitation imposed by state securities laws or
other applicable laws. At present, no restrictive expense limitation is
imposed on the Trust. Restrictive limitations could be imposed as a result of
changes in current state laws and regulations in those states where the Trust
has qualified its shares, or by a decision of the Trustees to qualify the
shares in other states having restrictive expense limitations. For the period
ended December 31, 1995, NBD reimbursed the Balanced Fund, Growth/Value Fund,
Opportunity Fund, Capital Growth Fund and the Money Market Fund for certain
expenses in the amounts of $80,459, $67,776, $80,078, $63,458 and $60,828,
respectively.
NBD is also compensated for its services as the Trust Custodian, Transfer
Agent and Dividend Disbursing Agent, and is reimbursed for certain expenses
incurred on behalf of the Trust.
See Note 5 for a summary of fee rates and expenses pursuant to these
agreements.
(4) Investment Securities Transactions
Information with respect to investment securities and security
transactions based on the aggregate cost of investments for federal income tax
purposes, excluding short-term securities, is as follows:
<TABLE>
<CAPTION>
Balanced Growth/Value Opportunity
Fund Fund Fund
----------- ----------- ------------
<S> <C> <C> <C>
Gross Unrealized Gains $ 869,453 $ 368,851 $ 374,459
Gross Unrealized Losses (116,975) (59,980) (155,832)
----------- ---------- ----------
$ 752,478 $ 308,871 $ 218,627
=========== ========== ==========
Federal Income Tax Cost $10,305,113 $3,373,347 $4,660,192
Purchases $ 9,121,220 $3,414,752 $5,283,805
Sales & Maturities $ 845,127 $ 357,869 $ 839,848
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Money Market
Fund Fund
-------------- ------------
<S> <C> <C>
Gross Unrealized Gains $ 659,291 $ --
Gross Unrealized Losses (147,973) --
---------- ----------
$ 511,318 $ --
========== ==========
Federal Income Tax Cost $5,914,427 $1,121,034
Purchases $5,809,051 $8,666,719
Sales & Maturities $ 152,116 $7,549,777
</TABLE>
(5) Expenses
Following is a summary of total expense rates charged, advisory fee rates
payable to NBD, and amounts paid to NBD, pursuant to the agreements described
in Note 3 for the year ended December 31, 1995. The rates shown are stated as a
percentage of each fund's average net assets.
<TABLE>
<CAPTION>
Balanced Growth/Value Opportunity
Effective Date Fund Fund Fund
-------------- -------- ------------ -----------
<S> <C> <C> <C>
Expense Rates:
March 30 0.85% 0.85% 0.85%
NBD Advisory Fee:
March 30 0.75% 0.75% 0.75%
Amounts Paid:
Advisory Fee to NBD $ 40,501 $ 12,510 $ 16,064
Other Fees & Out of Pocket Expenses to NBD $ 32,789 $ 22,762 $ 34,361
Expense
Reimbursements by NBD $(80,459) $(67,776) $(80,078)
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Money Market
Effective Date Fund Fund
-------------- -------------- ------------
<S> <C> <C>
Expense Rates:
March 30 0.85% 0.50%
NBD Advisory Fee:
March 30 0.75% 0.45%
Amounts Paid:
Advisory Fee to NBD $ 20,847 $ 2,731
Other Fees & Out of Pocket Expenses to NBD $ 17,672 $ 8,422
Expense
Reimbursements by NBD $(63,458) $(60,828)
</TABLE>
(6) Equity of Affiliates:
As of December 31, 1995, Hartford Life Insurance Company held direct
interest in shares as follows:
<TABLE>
<CAPTION>
Percent of
Total
Shares Shares
------ ---------
<S> <C> <C>
Balanced Fund 306,897 30.84%
Growth/Value Fund 50,580 15.67%
Opportunity Fund 50,235 11.14%
Capital Growth Fund 50,291 8.89%
Money Market Fund 520,213 44.24%
</TABLE>
<PAGE>
THE WOODWARD VARIABLE ANNUITY FUND
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of how the Variable
Annuity Funds' net asset values have changed during the periods presented.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Funds and other information for the period presented.
<TABLE>
<CAPTION>
Balanced Growth/Value Opportunity Capital Growth Money Market
Fund Fund Fund Fund Fund
------------- ------------- ------------- -------------- -------------
Period Ended Period Ended Period Ended Period Ended Period Ended
Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
Income from investment operations:
Net investment income 0.25 0.13 0.05 0.05 0.03
Net realized and unrealized
gains on investments 1.27 1.63 1.02 1.38 --
----------- ---------- ---------- ---------- ----------
Total from investment operations 1.52 1.76 1.07 1.43 0.03
----------- ---------- ---------- ---------- ----------
Less distributions:
From net investment income (0.25) (0.13) (0.05) (0.05) (0.03)
From realized gains -- (0.00) -- (0.01) --
In excess of realized gains -- -- (0.00) -- --
----------- ---------- ---------- ---------- ----------
Total distributions (0.25) (0.13) (0.05) (0.06) (0.03)
----------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.27 $ 11.63 $ 11.02 $ 11.37 $ 1.00
=========== ========== ========== ========== ==========
Total Return (b) 20.15%(a) 22.75%(a) 14.20%(a) 18.82%(a) 5.41%(a)
Ratios/Supplemental Data
Net assets, end of period $11,210,876 $3,753,691 $4,972,365 $6,434,936 $1,175,892
Ratio of expenses to average net assets 0.85%(a) 0.85%(a) 0.85%(a) 0.85%(a) 0.50%(a)
Ratio of net investment income
to average net assets 3.61%(a) 1.78%(a) 0.67%(a) 0.81%(a) 5.27%(a)
Ratio of expenses to average
net assets without fee
waivers/ reimbursed expenses 2.34%(a) 4.93%(a) 4.64%(a) 3.15%(a) 10.48%(a)
Ratio of net investment income to
average net assets without fee
waivers/reimbursed expenses 2.12%(a) (2.30)%(a) (3.12)%(a) (1.49)%(a) (4.71)%(a)
Portfolio turnover rate 14.05% 17.47% 32.11% 4.46% N/A
Average commission rate $ 0.10 $ 0.14 $ 0.11 $ 0.11 N/A
<FN>
- ----------------
(a) Annualized for periods less than one year for comparability purposes.
Actual annual values may be less than or greater than those shown.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
The Woodward Variable Annuity Fund:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of THE WOODWARD VARIABLE ANNUITY FUND
(comprising, as indicated in Note 1, the Balanced, Growth/Value, Opportunity,
Capital Growth and Money Market Funds) as of December 31, 1995, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for the period from inception (as indicated in Note
1) through December 31, 1995. 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 physical counts and
confirmation of securities owned as of December 31, 1995, by inspection and
correspondence with custodians, banks and brokers. 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 respective funds constituting The Woodward Variable
Annuity Fund as of December 31, 1995, and the results of their operations, the
changes in their net assets and the financial highlights for the period from
inception (as indicated in Note 1) through December 31, 1995 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 19, 1996.
<PAGE>
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Woodward Form No.: WVA 08
