<PAGE>
August 1997
Dear Valued Customer:
Enclosed are semi-annual reports for the portfolios available in your First
Providian Life and Health variable annuity contract.
Please take some time to review these reports, and if you have any questions,
call one of our customer service representatives at 1-800-866-6007, 9 a.m. to 5
p.m. Eastern time, Monday through Friday.
First Providian Life and Health is proud to have you as our customer.
Sincerely,
/s/ William L. Bussler
William Bussler
President, Financial Markets Division
First Providian Life and Health Insurance Company provides the variable annuity.
Securities are offered through Providian Securities Corporation, 400 West Market
Street, Louisville, KY 40202. Both are subsidiaries of Providian Corporation.
<PAGE>
PRESIDENT'S MESSAGE
Dear Fellow Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
American Leaders Fund II, a portfolio of Federated Insurance Series.
This report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with a commentary by the fund's portfolio manager, which is
followed by a complete listing of the fund's stock holdings and the fund's
financial statements.
At the end of the reporting period, the selected high-quality stocks included 77
holdings that represent major industry groups and include leaders such as
Bristol-Myers Squibb, Chevron, Exxon, General Motors, Intel, ITT,
Kimberly-Clark, Merck, Mobil, PepsiCo, Rubbermaid and Wal-Mart. The fund's
holdings performed very well in a stock market that was highly favorable during
most of the reporting period.
The fund achieved a six-month total return of 17.98% through income of $0.10 per
share, capital gains of $0.36 per share, and a net asset value increase of
14.68%.* On June 30, 1997, total net assets reached $222.2 million.
Thank you for participating in the long-term growth potential of American
companies through Federated American Leaders Fund II. We trust you were pleased
with the strong performance of your investment. As always, we welcome your
comments and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
The U.S. stock market continues to show surprising strength in 1997. However,
the volatility on a daily basis has increased as investors remain uncertain with
regard to the direction of the economy and interest rates. Our focus on quality
and strict valuation parameters should continue to benefit our shareholders.
The dangers of "market timing" were apparent during the second quarter of 1997.
In early April, the conventional wisdom was that the economy was too strong,
which would force the Federal Reserve Board (the "Fed") to increase interest
rates in an effort to thwart inflation. Many investors began reducing their
exposure to U.S. equities. What followed was an apparent slowdown in the economy
which convinced investors that there would be no need to change current interest
rates. This renewed optimism led to a market increase from the low single digits
to a 20% total return by June 30, 1997.
While we do believe that there are some industries and numerous stocks that are
overvalued, we do not believe that market timing is a logical way to help
protect our shareholders. We believe our valuation disciplines which force us to
exit overpriced securities and focus on undervalued situations are in our
shareholders best interests. Given current valuations, our recent emphasis has
been on high-quality, well-run companies which for various reasons have not
fully participated in the unprecedented bull market of the past two and a half
years.
Our largest industry underweight continues to be Technology as the valuations
continue at all time highs and the fundamental picture is not as robust as it
was two years ago. Conversely, we remain overweight in Energy as we believe
global industrialization should continue to expand demand while historic under
investment has kept supply constrained.
COMMENTS ON TRANSACTIONS:
SUN COMPANY, INC.-- The largest refiner in the United States which is in the
midst of a company restructuring, as well as an improving fundamental outlook
for its industry. Additionally, its yield is 50% greater than the market
overall.
LEXMARK INTERNATIONAL GROUP "A"-- An IBM spinoff which manufactures printers for
personal computers. Lexmark, along with Hewlett Packard, have been gaining
market share in the laser printer market at the expense of their Japanese
competitors.
VIACOM, INC. -- Dominant franchises such as MTV and Blockbuster Video in the
Entertainment industry, allow us to diversify and do so at unprecedented low
valuations.
READERS DIGEST ASSOCIATION, INC. -- Has high-quality, globally recognized
products which have been under pressure as management has had a flawed strategy
of trying to sell more products to their existing clients versus increasing
their client base. The stock currently trades at valuations, we believe, reflect
<PAGE>
investors emotions, not the value of the company. While we admit this is a
turnaround situation, the current yield of 6.3% gives us incentive to be
patient.
DOW CHEMICAL CO.-- Has been shunned by investors who are concerned about the
"polyethelene cycle." Current valuations are extremely low for this dominant
company. They have been behind competitors in restructuring efforts, allowing
for more future potential.
FEDERATED AMERICAN LEADERS FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--92.7%
BASIC INDUSTRY--5.2%
31,500 Betz Laboratories, Inc. $ 2,079,000
28,000 Consolidated Papers, Inc. 1,512,000
26,500 Dow Chemical Co. 2,308,812
65,000 Morton International, Inc. 1,962,188
106,500 USX-U.S. Steel Group, Inc. 3,734,156
Total 11,596,156
CONSUMER DURABLES--5.4%
71,000 Borg-Warner Automotive, Inc. 3,838,437
49,000 Centex Corp. 1,990,625
30,000 General Motors Corp. 1,670,625
149,500 Rubbermaid, Inc. 4,447,625
Total 11,947,312
CONSUMER NON-DURABLES--10.0%
34,500 CPC International, Inc. 3,184,781
42,000 Kimberly-Clark Corp. 2,089,500
99,500 PepsiCo, Inc. 3,737,469
40,000 Philip Morris Cos., Inc. 1,775,000
52,500 RJR Nabisco Holdings Corp. 1,732,500
105,500 Russell Corp. 3,125,438
37,500 Tambrands, Inc. 1,870,313
20,500 Unilever N.V., ADR 4,469,000
Total 21,984,001
ENERGY MINERALS--12.6%
39,000 Amerada-Hess Corp. 2,166,937
35,500 Chevron Corp. 2,624,781
45,500 Exxon Corp. 2,798,250
40,000 Mobil Corp. 2,795,000
</TABLE>
FEDERATED AMERICAN LEADERS FUND II
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY MINERALS--CONTINUED
103,400 Occidental Petroleum Corp. $ 2,592,221
45,200 Royal Dutch Petroleum Co., ADR 2,457,750
144,000 Sun Co., Inc. 4,464,000
20,000 Texaco, Inc. 2,175,000
136,000 USX Corp. 3,927,000
53,000 Unocal Corp. 2,057,063
Total 28,058,002
FINANCE--12.4%
29,000 Allstate Corp. 2,117,000
62,900 Bear Stearns Cos., Inc. 2,150,394
36,000 (a)Boston Properties, Inc. 990,000
26,000 CIGNA Corp. 4,615,000
44,000 Federal National Mortgage Association 1,919,500
66,000 Marsh & McLennan Cos., Inc. 4,710,750
54,500 Morgan Stanley, Dean Witter, Discover & 2,346,906
Co.
32,500 National City Corp. 1,706,250
76,000 Nationwide Financial Services, Inc., 2,018,750
Class A
27,000 Republic New York Corp. 2,902,500
33,533 Travelers Group, Inc. 2,114,675
Total 27,591,725
HEALTH CARE--9.9%
42,500 Abbott Laboratories 2,836,875
33,500 American Home Products Corp. 2,562,750
91,500 (a)Biomet, Inc. 1,704,187
50,500 Bristol-Myers Squibb Co. 4,090,500
58,000 Columbia/HCA Healthcare Corp. 2,280,125
87,500 Healthsource, Inc. 1,897,656
20,500 Merck & Co., Inc. 2,121,750
</TABLE>
FEDERATED AMERICAN LEADERS FUND II
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCKS--CONTINUED
<C> <S> <C>
HEALTH CARE--CONTINUED
45,500 United Healthcare Corp. $ 2,366,000
53,000 (a)Vencor, Inc. 2,239,250
Total 22,099,093
PRODUCER MANUFACTURING--6.0%
157,500 ITT Industries, Inc. 4,055,625
77,500 Ingersoll-Rand Co. 4,785,625
89,000 (a)Lexmark Intl. Group, Class A 2,703,375
18,500 Loews Corp. 1,852,313
Total 13,396,938
RETAIL TRADE--5.3%
83,200 Dayton-Hudson Corp. 4,425,200
243,500 (a)K Mart Corp. 2,982,875
126,500 Wal-Mart Stores, Inc. 4,277,281
Total 11,685,356
SERVICES--4.9%
71,500 Block (H&R), Inc. 2,305,875
96,500 Browning-Ferris Industries, Inc. 3,208,625
111,500 Readers Digest Association, Inc., Class A 3,198,656
44,400 (a)Viacom, Inc., Class A 1,307,025
31,500 (a)Viacom, Inc., Class B 945,000
Total 10,965,181
TECHNOLOGY--8.5%
66,500 AMP, Inc. 2,776,375
57,500 (a)Cabletron Systems, Inc. 1,627,969
42,000 General Motors Corp., Class H 2,425,500
20,500 Hewlett-Packard Co. 1,148,000
8,500 Intel Corp. 1,205,406
28,000 International Business Machines Corp. 2,525,250
</TABLE>
FEDERATED AMERICAN LEADERS FUND II
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
TECHNOLOGY--CONTINUED
50,000 Lucent Technologies, Inc. $ 3,603,125
78,500 (a)Storage Technology Corp. 3,493,250
Total 18,804,875
TRANSPORTATION--2.2%
32,000 (a)AMR Corp. 2,960,000
62,000 CNF Transportation, Inc. 1,999,500
Total 4,959,500
UTILITIES--10.3%
41,000 Coastal Corp. 2,180,687
30,000 Columbia Gas System, Inc. 1,957,500
35,500 GTE Corp. 1,557,563
101,000 Houston Industries, Inc. 2,165,188
95,300 MCI Communications Corp. 3,648,203
135,500 P G & E Corp. 3,285,875
61,000 SBC Communications, Inc. 3,774,375
295,000 (a)Tele-Communications, Inc., Class A 4,388,125
Total 22,957,516
TOTAL COMMON STOCKS (IDENTIFIED COST 206,045,655
$167,118,349)
(B)REPURCHASE AGREEMENT--7.3%
$ 16,195,000 BT Securities Corporation, 6.00%, dated
6/30/1997, due 7/1/1997
(AT AMORTIZED COST) 16,195,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 222,240,655
$183,313,349)(C)
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $183,313,914.
The net unrealized appreciation of investments on a federal tax basis
amounts to $38,926,741 which is comprised of $39,687,323 appreciation and
$760,582 depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($222,178,742) at June 30, 1997.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF ASSETS AND LIABILITIES
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$183,313,349 and tax cost $183,313,914) $222,240,655
Income receivable 334,640
Total assets 222,575,295
LIABILITIES:
Payable for investments purchased $ 340,771
Payable to Bank 13,030
Payable for taxes withheld 5,509
Accrued expenses 37,243
Total liabilities 396,553
NET ASSETS for 12,694,935 shares outstanding $222,178,742
NET ASSETS CONSIST OF:
Paid in capital $176,611,281
Net unrealized appreciation of investments 38,927,306
Accumulated net realized gain on investments 6,593,041
Undistributed net investment income 47,114
Total Net Assets $222,178,742
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$222,178,742 / 12,694,935 shares outstanding $17.50
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $13,015) $ 1,628,438
Interest 197,878
Total income 1,826,316
EXPENSES:
Investment advisory fee $ 653,872
Administrative personnel and services fee 67,341
Custodian fees 12,150
Transfer and dividend disbursing agent fees and expenses 10,370
Directors'/Trustees' fees 1,027
Auditing fees 6,500
Legal fees 2,302
Portfolio accounting fees 32,512
Share registration costs 27,232
Printing and postage 15,743
Insurance premiums 1,991
Miscellaneous 7,193
Total expenses 838,233
Waivers--
Waiver of investment advisory fee (93,342)
Net expenses 744,891
Net investment income 1,081,425
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 6,597,074
Net change in unrealized appreciation of investments 22,015,13
Net realized and unrealized gain on investments 28,612,204
Change in net assets resulting from operations $ 29,693,629
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,081,425 $ 1,422,431
Net realized gain (loss) on investments ($6,597,074 and
$3,738,194, respectively, as computed for federal tax purposes) 6,597,074 3,780,324
Net change in unrealized appreciation 22,015,130 12,783,766
Change in net assets resulting from operations 29,693,629 17,986,521
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,145,629) (1,311,113)
Distributions from net realized gains (3,728,320) (450,672)
Change in net assets resulting from distributions to shareholders (4,873,949) (1,761,785)
SHARE TRANSACTIONS--
Proceeds from sale of shares 70,594,437 89,014,893
Net asset value of shares issued to shareholders in payment of
distributions declared 4,873,946 1,761,418
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Cost of shares redeemed (20,325,785) (13,298,117)
Change in net assets resulting from share transactions 55,142,598 77,478,194
Change in net assets 79,962,278 93,702,930
NET ASSETS:
Beginning of period 142,216,464 48,513,534
End of period (including undistributed net investment income
of $47,114 and $111,318, respectively) $222,178,742 $142,216,464
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.26 $ 12.80 $ 9.74 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.09 0.19 0.20 0.19
Net realized and unrealized gain (loss) on 2.61 2.54 3.06 (0.26)
investments
Total from investment operations 2.70 2.73 3.26 (0.07)
LESS DISTRIBUTIONS
Distributions from net investment income (0.10) (0.18) (0.19) (0.19)
Distributions in excess of net investment income(b) -- -- (0.01) --
Distributions from net realized gain on investments (0.36) (0.09) -- --
Total distributions (0.46) (0.27) (0.20) (0.19)
NET ASSET VALUE, END OF PERIOD $ 17.50 $ 15.26 $ 12.80 $ 9.74
TOTAL RETURN(C) 17.98% 21.58% 33.71% (0.70%)
Ratios to average net assets
Expenses 0.85%* 0.85% 0.85% 0.54%*
Net investment income 1.23%* 1.54% 2.03% 2.58%*
Expense waiver(d) 0.11%* 0.22% 1.36% 25.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $222,179 $142,216 $48,514 $ 2,400
Average commission rate paid(e) $ 0.06 $ 0.0012 -- --
Portfolio turnover 31% 90% 43% 32%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 10, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (start of business) to January 31, 1994, the fund had no investment
activity.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principals. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED AMERICAN LEADERS FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated American Leaders Fund II
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The primary investment objective of the Fund is to achieve long-term
growth of capital. The Fund's secondary objective is to provide income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
<PAGE>
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS-- Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair market
value.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES-- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES-- The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a period
not to exceed five years from the Fund's commencement date.
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 amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
Shares sold 4,334,883 6,346,064
Shares issued to shareholders in payment of distributions declared 304,670 124,400
Shares redeemed (1,266,853) (938,427)
Net change resulting from share transactions 3,372,700 5,532,037
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.75% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
<PAGE>
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES-- Organizational and start-up administrative service
expenses of $47,855 were borne initially by Adviser. The Fund has agreed to
reimburse Adviser for the organizational and start-up administrative expenses
during the five-year period following effective date. For the period ended June
30, 1997, the Fund paid $12,761 pursuant to this agreement.
GENERAL-- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
PURCHASES $98,187,761
SALES $57,377,549
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
FEDERATED AMERICAN LEADERS
FUND II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 313916405
G00433-04 (8/97)
[Graphic]
FEDERATED EQUITY INCOME FUND II
SEMI-ANNUAL REPORT AND SUPPLEMENT TO THE PROSPECTUS DATED APRIL 22, 1997
<PAGE>
A. Please insert the following "Financial Highlights" table as page 1 of the
stand-alone prospectus and page 8 of the combined prospectus. In addition,
please add the headings "Financial Highlights" and "Financial Highlights --
Federated Equity Income Fund II" to the respective Table of Contents.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
JUNE 30, 1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.11
Net realized and unrealized gain (loss) on investments 1.16
Total from investment operations 1.27
LESS DISTRIBUTIONS
Distributions from net investment income (0.11)
NET ASSET VALUE, END OF PERIOD $11.63
TOTAL RETURN(B) 12.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.95%*
Net investment income 2.85%*
Expense waiver/reimbursement(c) 6.81%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,316
Average commission rate paid(d) $0.0330
Portfolio turnover 16.72%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 30, 1997 (date of initial
public investment) to June 30, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the third sentence of the first paragraph of the section
entitled "Voting Rights" on page 11 of the stand-alone prospectus and replace
with the following:
"As of July 7, 1997, Aetna Retirement Services Central Valuation Unit, Hartford,
Connecticut owned 100.00% of the voting securities of Federated Equity Income
Fund II, and therefore, may for certain purposes be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders."
C. Please delete the tenth sentence of the first paragraph of the section
entitled "Voting Rights" on page 36 of the combined prospectus and replace with
the following:
"As of July 7, 1997, Aetna Retirement Services Central Valuation Unit, Hartford,
Connecticut owned 100.00% of the voting securities of Federated Equity Income
Fund II, and therefore, may for certain purposes be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders."
D. Please insert the following Financial Statements after the section entitled
"Performance Information" on page 12 of the stand-alone prospectus and page 37
of the combined prospectus. In addition, please add the heading "Financial
Statements" to the respective Table of Contents after the heading "Performance
Information."
FEDERATED EQUITY INCOME FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS -- 69.5%
BASIC INDUSTRY -- 4.8%
6,500 Allegheny Teledyne, Inc. $175,500
2,000 Du Pont (E.I.) de Nemours & Co. 125,750
1,600 Eastman Chemical Co. 101,600
1,700 Imperial Chemical Industries, PLC, ADR 96,688
Total 499,538
CONSUMER DURABLES -- 1.1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3,100 Ford Motor Co. 117,025
CONSUMER NON-DURABLES -- 13.1%
2,800 Avon Products, Inc. 197,575
4,400 General Mills, Inc. 286,550
3,900 Guinness PLC, ADR 190,829
6,400 Heinz (H.J.) Co. 295,200
3,400 Philip Morris Cos., Inc. 150,875
4,600 Tambrands, Inc. 229,425
Total 1,350,454
ENERGY MINERALS -- 6.4%
3,800 Exxon Corp. 233,700
3,400 Mobil Corp. 237,575
6,200 YPF Sociedad Anonima, ADR 190,650
Total 661,925
FEDERATED EQUITY INCOME FUND II
SHARES VALUE
COMMON STOCKS -- CONTINUED
FINANCE -- 7.1%
3,400 First Union Corp. $ 314,500
6,400 Mellon Bank Corp. 288,800
2,000 NationsBank Corp. 129,000
Total 732,300
HEALTH CARE -- 7.1%
3,400 American Home Products Corp. 260,100
2,800 Bristol-Myers Squibb Co. 226,800
2,400 Merck & Co., Inc. 248,400
Total 735,300
PRODUCER MANUFACTURING -- 6.7%
7,300 Dresser Industries, Inc. 271,925
2,800 General Electric Co. 183,050
3,500 Textron, Inc. 232,313
Total 687,288
RETAIL TRADE -- 1.8%
3,500 Penney (J.C.) Co., Inc. 182,656
SERVICES -- 2.5%
4,500 Block (H&R), Inc. 145,125
3,300 Browning-Ferris Industries, Inc. 109,725
Total 254,850
TECHNOLOGY -- 10.4%
4,500 Avnet, Inc. 258,750
4,400 Electronic Data Systems Corp. 180,400
2,600 General Dynamics Corp. 195,000
2,800 International Business Machines Corp. 252,525
1,800 Lockheed Martin Corp. 186,413
Total 1,073,088
FEDERATED EQUITY INCOME FUND II
SHARES VALUE
COMMON STOCKS -- CONTINUED
TRANSPORTATION -- 1.2%
1,700 Union Pacific Corp. $ 119,850
UTILITIES -- 7.3%
2,715 Duke Power Co. 130,171
1,600 Enron Corp. 65,300
2,100 NIPSCO Industries, Inc. 86,756
2,100 Portland General Corp. 83,344
2,500 SBC Communications, Inc. 154,688
3,300 Sprint Corp. 173,663
1,500 Williams Cos., Inc. (The) 65,625
Total 759,547
TOTAL COMMON STOCKS (IDENTIFIED COST $6,655,570) 7,173,821
PREFERRED STOCKS -- 18.9%
CONSUMER DURABLES -- 1.2%
9,100 Mattel, Inc., Conv. Pfd., Series C, $.41 128,537
ENERGY MINERALS -- 1.2%
2,200 (a)(b)Tosco Corp., Conv. Pfd. 122,485
FINANCE -- 8.1%
1,500 Frontier Insurance Group, Inc., Conv. Pfd., $3.13 113,250
600 (a)Frontier Insurance Group, Inc., Conv. Pfd., $3.13 45,300
800 Jefferson-Pilot Corp., Conv. Pfd., $5.26 91,800
1,800 Merrill Lynch & Co., Inc., STRYPES 67,500
2,100 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 173,250
5,400 National Australia Bank, Ltd., Melbourne, Exchangeable
Capital Unit, $1.97 150,862
3,300 SunAmerica, Inc., PERCS 143,963
400 SunAmerica, Inc., PERCS, Series E, $3.10 43,350
Total 829,275
</TABLE>
FEDERATED EQUITY INCOME FUND II
<PAGE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
PREFERRED STOCKS -- CONTINUED
HEALTH CARE -- 1.5%
1,600 Aetna, Inc., Conv. Pfd., $4.76 $ 150,000
PRODUCER MANUFACTURING -- 1.8%
1,150 Case Corp., Cumulative Conv. Pfd., Series A, $4.50 189,493
SERVICES -- 1.7%
1,800 Browning-Ferris Industries, Inc., ACES, $2.8 59,850
8,500 Hollinger International Publishing, Inc., Conv. Pfd., 97,750
$.95
300 Ikon Office Solutions, Inc., Conv. Pfd., Series BB, $5.04 19,312
Total 176,912
TECHNOLOGY -- 1.6%
1,900 Microsof Corp., Cumulative Conv. Pfd., Series A, $2.20 165,300
UTILITIES -- 1.8%
1,500 (a)CalEnergy Co., Inc., Conv. Pfd. 85,087
100 CalEnergy Co., Inc., Conv. Pfd., $3 .13 7,390
1,200 (b)Salomon, Inc., DECS, Series CSN, $3.48 76,650
200 Williams Cos., Inc. (The), Conv. Pfd., $3.50 20,610
Total 189,737
TOTAL PREFERRED STOCKS (IDENTIFIED COST $1,810,996) 1,951,739
CORPORATE BONDS -- 9.4%
CONSUMER DURABLES -- 1.1%
$ 95,000 Magna International, Inc., Conv. Bond, 5.00%, 10/15/2002 114,119
ENERGY MINERALS -- 1.5%
130,000 Diamond Offshore Drilling, Inc., Conv. Bond, 3.75%, 149,907
2/15/2007
HEALTH CARE -- 2.8%
300,000 (a)Roche Holdings, Inc., LYON, 5/6/2012131,250
130,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 162,314
Total 293,564
</TABLE>
FEDERATED EQUITY INCOME FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
RETAIL TRADE -- 1.8%
$ 100,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, $ 119,631
10/1/2003
75,000 Saks Holdings, Inc., Conv. Bond, 5.50%, 9/15/2006 67,031
Total 186,662
TECHNOLOGY -- 2.2%
75,000 (a) EMC Corp. Mass, Sub. Note, 3.25%, 3/15/2002 82,717
115,000 (a)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 143,935
Total 226,652
TOTAL CORPORATE BONDS (IDENTIFIED COST $926,831) 970,904
(C)REPURCHASE AGREEMENT -- 9.2%
945,000 BT Securities Corporation, 6.00%, dated 6/30/1997, due
7/1/1997
(AT AMORTIZED COST) 945,000
TOTAL INVESTMENTS (IDENTIFIED COST $10,338,397)(D) $ 11,041,464
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At June 30, 1997, these securities amounted
to $199,135 which represents 1.9% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $10,338,397. The
net unrealized appreciation of investments on a federal tax basis amounts to
$703,067 which is comprised of $724,554 appreciation and $21,487
depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($10,315,955) at June 30, 1997.
The following acronyms are used throughout this portfolio:
ACES -- Adjustable Convertible Extendable Securities ADR -- American Depository
Receipt DECS -- Dividend Enhanced Convertible Stock LYON -- Liquid Yield Option
Note PERCS -- Preferred Equity Redemption Cumulative Stock PLC -- Public Limited
Company STRYPES -- Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $11,041,464
$10,338,397)
Cash 194,871
Income receivable 22,258
Total assets 11,258,593
LIABILITIES:
Payable for investments purchased $885,815
Accrued expenses 56,823
Total liabilities
NET ASSETS for 887,375 shares outstanding $10,315,955
NET ASSETS CONSIST OF:
Paid in capital $ 9,610,723
Net unrealized appreciation of investments 703,067
Accumulated net realized gain on investments 323
Undistributed net investment income 1,842
Total Net Assets
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$10,315,955 / 887,375 shares outstanding $11.63
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND II
STATEMENT OF OPERATIONS
PERIOD ENDED JUNE 30, 1997* (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 43,840
Interest 16,096
Total income 59,936
EXPENSES:
Investment advisory fee $ 11,822
Administrative personnel and services fee 50,343
Custodian fees 2,433
Transfer and dividend disbursing agent fees and expenses 8,566
Legal fees 1,075
Portfolio accounting fees 21,631
Share registration costs 8,148
Printing and postage 9,678
Insurance premiums 1,612
Miscellaneous 6,991
Total expenses 122,299
Waivers and reimbursements --
Waiver of investment advisory fee $ (11,822)
Reimbursement of other operating expenses (95,523)
Total waivers and reimbursements (107,345)
Net expenses 14,954
Net investment income 44,982
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 323
Net change in unrealized appreciation of investment 703,067
Net realized and unrealized gain on investments 703,390
Change in net assets resulting from operations $ 748,372
</TABLE>
* For the period from January 30, 1997 (date of initial public investment) to
June 30, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PERIOD
ENDED
(UNAUDITED)
JUNE 30, 1997*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 44,982
Net realized gain on investments ($323, as computed for federal tax purposes ) 323
Net change in unrealized appreciation 703,067
Change in net assets resulting from operations 748,372
DISTRIBUTIONS TO SHAREHOLDERS -
Distributions from net investment income (43,140)
SHARE TRANSACTIONS --
Proceeds from sale of shares 10,735,318
Net asset value of shares issued to shareholders in payment of
distributions declared 38,778
Cost of shares redeeme (1,163,373)
Change in net assets resulting from share transactions 9,610,723
Change in net assets 10,315,955
NET ASSETS:
Beginning of period --
End of period (including undistributed net investment income of $1,842) $10,315,955
</TABLE>
<PAGE>
* For the period from January 30, 1997 (date of initial public investment) to
June 30, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED EQUITY INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Equity Income Fund II
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund's investment objective is to provide above average income and
capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities, listed corporate bonds,
(other fixed income and asset-backed securities), and unlisted securities and
private placement securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Listed equity
securities are valued at the last sale price reported on a national securities
exchange. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued securities
on the trade date and maintains security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a period
not to exceed five years from the Fund's commencement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Trustees. The Fund
will not incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
Additional information on each restricted security held at June 30, 1997, is as
follows:
<PAGE>
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Salomon, Inc. 1/2/1997 - 6/9/1997 $ 72,118
Tosco Corp. 1/2/1997 - 7/2/1997 161,962
</TABLE>
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 amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
JUNE 30, 1997*
<S> <C>
Shares sold 992,540
Shares issued to shareholders in payment of distributions declared 3,510
Shares redeemed (108,675)
Net change resulting from share transactions 887,375
</TABLE>
* For the period from January 30, 1997 (date of initial public investment) to
June 30, 1997.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver at any time
at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp., the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to 0.25% of the average daily net assets of the Fund shares,
annually, to compensate Federated Securities Corp. For the period ended June 30,
1997, the Fund did not incur a distribution services fee.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
PURCHASES $9,976,271
SALES $ 583,954
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
<PAGE>
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
FEDERATED EQUITY INCOME FUND II
SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS
DATED APRIL 22, 1997
JUNE 30, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 313916801
G01305-01 (7/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
Growth Strategies Fund II, a portfolio of Federated Insurance Series.
This report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with a commentary by the fund's portfolio managers, which is
followed by a complete listing of the fund's growth stock holdings and the
financial statements.
Federated Growth Strategies Fund II is managed to pursue long-term investment
growth through a highly diversified portfolio of common stocks issued by large,
quality companies. At the end of the reporting period, the fund's 130 holdings
included well-known names such as Allstate, Avon, Coca-Cola, Dell Computer,
General Electric, Home Depot, Intel, Johnson & Johnson, Microsoft, Nike, Pfizer,
Sony and Travelers Group.
This diversified portfolio performed very well in the continued favorable stock
market environment during the six-month reporting period. The fund's total
return of 14.60% was due to a net asset value increase of 14%, a capital gains
distribution of $0.07 per share, and an income distribution totaling $0.02 per
share.* On June 30, 1997, total net assets reached $31.4 million.
Thank you for putting your money to work in quality American companies through
Federated Growth Strategies Fund II. We trust you were pleased with the positive
performance of your investment. As always, we welcome your comments and
suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
The stock market was a great place to be in the second quarter of 1997. Stock
prices rose more than many had expected, largely owing to positive surprises
with regard to both inflation, which was lower than forecasted, and profits,
which exceeded consensus expectations. The price to earnings ratio of the
<PAGE>
Standard & Poor's Index of 500 Common Stocks* ("S&P 500") has risen as consensus
expectations for inflation have been reduced, and confidence that profits will
continue to grow has risen. This confidence has been augmented by recent data
suggesting that the pace of economic growth has moderated. The second quarter of
the year, we believe, can be summarized in four points:
* bond yields started the quarter at nearly 7.10%, traded up to almost 7.20%,
then drifted lower to end the quarter at 6.78%,
* big and small stocks alike (as measured by S&P 500 and the Standard & Poor's
600 Small Cap Index*, respectively) did great, up 17.5% and 18.1%,
respectively, as did the NASDAQ Over-the-Counter Composite Index,** which rose
18.6%,
* market breadth was much broader than in the first quarter, as positive
earnings releases were spread out across stocks of all sizes and
* the quarter altered investors' opinions with regard to the strength of the
economy, as weaker economic statistics combined with decelerating inflation
indicators to ebb fears of higher interest rates, helping both stocks and
bonds to start pricing in a moderating economy for the rest of 1997.
The moderating economic data helped the TECHNOLOGY sector become the strongest
performer for the quarter, as investors moved into high-growth areas. Other
outperforming sectors included HEALTH CARE (aided again by large drug
companies), PRODUCER MANUFACTURING (heavily weighted with GENERAL ELECTRIC) and
FINANCE. The sectors that lagged notably included the most economically
sensitive sectors, namely, BASIC INDUSTRY, TRANSPORTATION and CONSUMER DURABLES.
We maintain our conviction that the economy will grow more slowly than expected
throughout the second half of 1997. Recent declines in indicators of consumer
purchases, the continued lack of core price inflation at either the producer or
consumer level and the absence of growth in capital goods orders (excluding
defense and aircraft orders) all tell us the current pace of economic growth is
not sustainable. As consensus views on the economy shift to reflect more
moderation, money should flow into stocks that are less sensitive to the
strength of the economy. Consequently, as we have for the last several quarters,
we continue to favor, with modest overweights, sectors that offer the potential
for stronger secular growth namely TECHNOLOGY, FINANCE and HEALTH CARE. We are
also modestly underweight in economically sensitive sectors such as PRODUCER
MANUFACTURING, BASIC INDUSTRY, CONSUMER DURABLES and UTILITIES.
* Standard & Poor's Index of 500 Common Stocks and Standard & Poor's 600 Small
Cap Index are unmanaged composite indices of common stocks in industrial,
transportation and financial and public utility companies, and can be used to
compare total returns of funds whose portfolios are invested primarily in
common stocks. Investments cannot be made in an index.
** NASDAQ Over-the-Counter Composite Index is an unmanaged index covering 4,500
stocks traded over the counter. It represents many small company stocks, but
is heavily influenced by about 100 of the largest NASDAQ stocks.
Investments cannot be made in an index.
FEDERATED GROWTH STRATEGIES FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--96.7%
BASIC INDUSTRY--3.9%
5,600 BMC Industries, Inc. $ 191,800
5,500 Freeport-McMoRan Copper & Gold, Inc., Class B 171,187
5,400 Monsanto Co. 232,537
2,700 Praxair, Inc. 151,200
9,500 (a)Royal Group Technologies Ltd. 251,750
9,200 (a)Steel Dynamics, Inc. 230,000
Total 1,228,474
CONSUMER DURABLES--3.1%
6,100 Carlisle Cos., Inc. 212,737
4,600 Honda Motor Co. Ltd., ADR 276,862
6,300 Leggett and Platt, Inc. 270,900
2,300 Sony Corp., ADR 202,400
Total 962,899
CONSUMER NON-DURABLES--9.5%
3,800 Avon Products, Inc. 268,137
4,000 Campbell Soup Co. 200,000
3,900 Coca-Cola Co. 263,250
2,400 Colgate-Palmolive Co. 156,600
1,900 Gillette Co. 180,025
4,500 Interstate Bakeries Corp. 266,906
3,900 (a)Jones Apparel Group, Inc. 186,225
4,400 Kimberly-Clark Corp. 218,900
2,700 Nike, Inc., Class B 157,612
7,700 Philip Morris Cos., Inc. 341,687
1,900 Procter & Gamble Co. 268,375
6,000 (a)Tommy Hilfiger Corp. 241,125
7,000 Universal Corp. 222,250
Total 2,971,092
FEDERATED GROWTH STRATEGIES FUND II
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY MINERALS--8.6%
4,400 (a)BJ Services Co. $ 235,950
8,100 Baker Hughes, Inc. 313,369
2,826 British Petroleum Co. PLC, ADR 211,656
4,100 (a)Diamond Offshore Drilling, Inc. 320,312
3,300 (a)ENSCO International, Inc. 174,075
5,200 (a)Global Marine, Inc. 120,900
7,000 (a)Nabors Industries, Inc. 175,000
8,900 (a)Oryx Energy Co. 188,012
4,100 (a)Petroleum Geo-Services, ADR 200,387
5,800 (a)Rowan Companies, Inc. 163,487
3,200 Royal Dutch Petroleum Co., ADR 174,000
4,000 (a)Smith International, Inc. 243,000
4,500 Unocal Corp. 174,656
Total 2,694,804
FINANCE--18.9%
1,650 Aegon N.V. 115,654
5,550 Aflac, Inc. 262,237
6,800 Ahmanson (H.F.) & Co. 292,400
3,900 Allstate Corp. 284,700
1,600 American International Group, Inc. 239,000
6,100 Bank of New York Co., Inc. 265,350
4,500 BankAmerica Corp. 290,531
9,100 (a)Catellus Development Corp. 164,937
3,200 Citicorp 385,800
7,600 Conseco, Inc. 281,200
13,425 MBNA Corp. 491,691
2,500 MGIC Investment Corp. 119,844
5,500 Mellon Bank Corp. 248,187
3,200 Merrill Lynch & Co., Inc. 190,800
</TABLE>
FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCE--CONTINUED
4,525 Morgan Stanley, Dean Witter, Discover & Co. $ 194,858
6,000 NationsBank Corp. 387,000
300 Providian Corp. 9,637
3,800 Providian Financial Corp. 122,075
8,300 Schwab (Charles) Corp. 337,706
6,900 SunAmerica, Inc. 336,375
3,800 T. Rowe Price Associates 196,175
7,466 Travelers Group, Inc. 470,825
6,400 Travelers Group, Inc., Class A 255,200
Total 5,942,182
HEALTH CARE--13.8%
6,600 (a)BioChem Pharma, Inc. 146,850
6,300 (a)Centocor, Inc. 195,694
4,000 Guidant Corp. 340,000
4,600 HBO & Co. 316,825
10,200 (a)HEALTHSOUTH Corp. 254,362
3,700 Johnson & Johnson 238,187
5,700 Jones Medical Industries, Inc. 270,750
2,600 Lilly (Eli) & Co. 284,213
4,600 (a)Liposome Co., Inc. 41,113
3,600 Merck & Co., Inc. 372,600
2,800 (a)Oxford Health Plans, Inc. 200,900
3,700 Pfizer, Inc. 442,150
3,600 (a)Quintiles Transnational Corp. 250,650
7,900 (a)Safeskin Corp. 232,556
2,900 Teva Pharmaceutical Industries, Ltd., ADR 187,775
6,000 (a)Universal Health Services, Inc., Class B 231,000
4,000 (a)Vencor, Inc. 169,000
1,300 Warner-Lambert Co. 161,525
Total 4,336,150
</TABLE>
FEDERATED GROWTH STRATEGIES FUND II
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
PRODUCER MANUFACTURING--6.1%
9,100 (a)Cable Design Technologies, Class A $ 267,881
3,800 (a)EVI, Inc. 159,600
6,800 General Electric Co. 444,550
4,300 Precision Castparts Corp. 256,388
3,900 Tyco International, Ltd. 271,294
7,700 (a)U.S. Filter Corp. 209,825
10,100 (a)U.S. Office Products Co. 308,681
Total 1,918,219
RETAIL TRADE--4.1%
5,200 (a)Bed Bath & Beyond, Inc. 157,950
9,200 (a)General Nutrition Cos., Inc. 257,600
2,200 Home Depot, Inc. 151,663
12,100 Pier 1 Imports, Inc. 320,650
3,200 (a)Safeway, Inc. 147,600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9,900 TJX Cos., Inc. 261,113
Total 1,296,576
SERVICES--3.0
3,500 (a)HFS, Inc. 203,000
5,400 New York Times Co., Class A 267,300
13,500 (a)Philip Services Corp. 214,313
6,500 (a)USA Waste Services, Inc. 251,063
Total 935,676
TECHNOLOGY--19.4%
5,600 (a)ADC Telecommunications, Inc. 186,900
6,400 (a)Advanced Micro Devices, Inc. 230,400
2,900 (a)Altera Corp. 146,450
5,500 (a)Applied Materials, Inc. 389,469
2,200 (a)Ascend Communications 86,625
5,300 (a)Cadence Design Systems, Inc. 177,550
FEDERATED GROWTH STRATEGIES FUND II
SHARES VALUE
COMMON STOCKS--CONTINUED
TECHNOLOGY--CONTINUED
1,800 (a)Cisco Systems, Inc. $ 120,825
3,200 (a)Compaq Computer Corp. 317,600
1,900 (a)Dell Computer Corp. 223,131
9,100 (a)FORE Systems, Inc. 123,988
5,400 (a)HNC Software 205,875
3,100 Intel Corp. 439,619
18,100 (a)Iomega Corp. 359,738
7,200 (a)LSI Logic Corp. 230,400
4,800 Lucent Technologies, Inc 345,900
8,600 (a)Mastech Corp 173,075
5,100 (a)Microsoft Corp. 644,513
2,700 (a)Netscape Communications 86,569
3,300 (a)Oracle Corp. 166,238
3,300 (a)Qualcomm, Inc. 167,888
4,800 (a)Rambus, Inc. 223,200
7,700 (a)Sun Microsystems, Inc. 286,584
4,900 Telefonaktiebolaget LM Ericsson, Class B 192,938
3,300 (a)Tellabs, Inc. 184,388
1,700 Texas Instruments, Inc. 142,906
2,900 United Technologies Corp. 240,700
Total 6,093,469
TRANSPORTATION--0.8
8,700 Expeditors International Washington, Inc. 246,863
UTILITIES--5.5%
6,500 (a)CalEnergy Co., Inc. 247,000
11,900 Cincinnati Bell, Inc. 374,850
6,200 (a)IXC Communications, Inc. 162,750
3,400 (a)Qwest Communications International, Inc. 92,650
4,800 Sonat, Inc. 246,000
FEDERATED GROWTH STRATEGIES FUND II
SHARES OR
PAR VALUE VALUE
COMMON STOCKS--CONTINUED
UTILITIES--CONTINUED
3,300 Telefonos de Mexico, Class L, ADR $ 157,575
13,700 (a)WorldCom, Inc. 438,400
Total 1,719,225
TOTAL COMMON STOCKS (IDENTIFIED COST $26,001,814) 30,345,629
PREFERRED STOCKS--0.4%
TRANSPORTATION--0.4%
1,600 Continental Airlines, Inc., Conv. Pfd., $4.25
(IDENTIFIED COST $12,125) 126,411
(B)REPURCHASE AGREEMENT--5.3%
$ 1,670,000 BT Securities Corporation, 6.00%, dated 6/30/1997,
due 7/1/1997 (AT AMORTIZED COST) 1,670,000
TOTAL INVESTMENTS (IDENTIFIED COST $27,773,939)(C) $32,142,040
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $27,773,939. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,368,101 which is comprised of $4,646,528 appreciation and $278,427
depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($31,377,323) at June 30, 1997.
The following acronyms are used throughout this portfolio:
ADR --American Depositary Receipt
PLC --Public Limited Company
<PAGE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C> <C>
Total investments in securities, at value (identified and tax cost $27,773,939) $32,142,040
Cash 2,594
Income receivable 10,720
Receivable for investments sold 439,910
Total assets 32,595,264
LIABILITIES:
Payable for investments purchased $1,185,524
Payable for taxes withheld 140
Accrued expenses 32,277
Total liabilities 1,217,941
NET ASSETS for 2,153,533 shares outstanding $31,377,323
NET ASSETS CONSIST OF:
Paid in capital $26,329,707
Net unrealized appreciation of investments 4,368,101
Accumulated net realized gain on investments 561,022
Undistributed net investment income 118,493
Total Net Assets $31,377,323
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$31,377,323 / 2,153,533 shares outstanding $14.57
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $1,295) $ 97,442
Interest 48,118
Total income 145,560
EXPENSES:
Investment advisory fee $ 86,319
Administrative personnel and services fee 61,987
Custodian fees 6,445
Transfer and dividend disbursing agent fees and expenses 10,640
Directors'/Trustees' fees 715
Auditing fees 4,620
Legal fees 1,085
Portfolio accounting fees 24,443
Share registration costs 3,926
Printing and postage 9,935
Insurance premiums 1,901
Miscellaneous 2,439
Total expenses 214,455
Waivers and reimbursements --
Waiver of investment advisory fee $ (64,048)
Reimbursement of other operating expenses (51,988)
Total waivers and reimbursements (116,036)
Net expenses 98,419
Net investment income 47,141
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 569,166
Net change in unrealized appreciation of investments 2,848,564
Net realized and unrealized gain on investments 3,417,730
Change in net assets resulting from operations $3,464,871
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GROWTH STRATEGIES FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
<S> <C> <C>
Net investment income $ 47,141 $ 37,473
Net realized gain on investments and foreign currency
transactions ($569,166 and $110,051, respectively, as computed for
federal tax purposes) 569,166 101,778
Net change in unrealized appreciation of investments 2,848,564 1,511,965
Change in net assets resulting from operations 3,464,871 1,651,216
NET EQUALIZATION CREDITS (DEBITS)-- 71,396 72,517
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (37,404) (700)
Distributions from net realized gains on investments and foreign
currency transactions (109,556) --
Change in net assets resulting from distributions to
shareholders (146,960) (700)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT INCOME) --
<S> <C> <C>
Proceeds from sale of shares 11,630,124 15,118,252
Net asset value of shares issued to shareholders in payment of
distributions declared 146,049 698
Cost of shares redeemed (773,006) (224,666)
Change in net assets resulting from share transactions 11,003,167 14,894,284
Change in net assets 14,392,474 16,617,317
NET ASSETS:
Beginning of period 16,984,849 367,532
End of period (including undistributed net investment income of
$118,493 and $37,360, respectively) $31,377,323 $16,984,849
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GROWTH STRATEGIES FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED DECEMBER 31,
JUNE 30, 1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.80 $10.30 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.03
Net realized and unrealized gain (loss)
on investments 1.81 2.45 0.27
Total from investment operations 1.86 2.50 0.30
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.004) --
Distributions from net realized gain on investments (0.07) -- --
Total distributions (0.09) (0.004) --
NET ASSET VALUE, END OF PERIOD $14.57 $12.80 $10.30
TOTAL RETURN(B) 14.60% 24.32% 3.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.66%* 0.85% 0.85%*
Net investment income 0.32%* 0.55% 1.91%*
Expense waiver/reimbursement(c) 0.78%* 3.87% 76.95%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $31,377 $16,985 $ 368
Average commission rate paid(d) $0.0574 $0.0376 --
Portfolio turnover 70% 96% 4%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 9, 1995 (date of initial
public investment) to December 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GROWTH STRATEGIES FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Growth Strategies Fund II
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.
<PAGE>
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES-- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
EQUALIZATION-- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of Fund shares (equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the transaction)
is credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
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 amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without per value).
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Shares sold 872,823 1,310,281
Shares issued to shareholders in payment of distributions declared 11,312 64
Shares redeemed (57,407) (19,226)
Net change resulting from share transactions 826,728 1,291,119
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and
<PAGE>
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $26,766,710
SALES $15,365,114
</TABLE>
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED GROWTH STRATEGIES FUND II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic]
FEDERATED INVESTORS
Federated Securities Corp., Distributor
Cusip 313916702
G00433-08 (8/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Fellow Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
High Income Bond Fund II, a portfolio of Federated Insurance Series.
This report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with a commentary by the fund's portfolio manager, which is
followed by a complete listing of the fund's high-yield bond holdings and the
financial statements.
Amid a strong economic environment, the fund's broadly diversified, carefully
researched portfolio of more than 220 high-yield, lower-rated bonds* rewarded
shareholders with a total return of 6.07%.** Contributing to this total return
were a very healthy income stream totaling $0.46 per share, capital gains
totaling $0.04 per share, and an $0.11 increase in net asset value. On June 30,
1997, total net assets reached $101.4 million.
Thank you for participating in the income opportunities of high-yield corporate
bonds through the diversification and professional management of Federated High
Income Bond Fund II. We trust you were pleased with the performance of your
investment. As always, we welcome your comments and suggestions.
<PAGE>
Very sincerely yours,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
**Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
High-yield bonds delivered outstanding returns in the first half of 1997 on both
a relative and absolute basis. These returns were driven by an almost ideal
economic performance by the domestic economy. First quarter growth was very
strong while second quarter slowed to a respectable but perhaps more sustainable
pace. From a high-yield bond perspective, the continued strong performance of
the economy resulted in low default rates and modestly tighter yield spreads
between high-yield bonds and treasury securities. Perhaps more remarkable, this
strong economic growth occurred without rekindling inflationary pressures.
Despite a 25 basis point increase in the Federal funds rate by the Federal
Reserve Board (the "Fed"), interest rates on 10-year treasury securities rose
only seven basis points. Strong economic growth, good corporate earnings growth,
and low inflation drove stock prices to record levels. The strong equity market
provided high-yield issuers with increased financial flexibility and provided
increased equity value "protection" to high-yield securities. Finally,
high-yield bonds benefited from extremely strong demand during the reporting
period which offset a record amount of new issue activity. Mutual funds
continued to have inflows while insurance companies and pension funds continued
to allocate money to the high-yield market. Also, structured products such as
collateralized bond obligations allocated substantial dollars to the high-yield
sector. These factors contributed to the outstanding returns for the high-yield
sector. For example, the Lehman Brothers High Yield Bond Index* returned 5.82%
over the reporting period, outperforming the Lehman Brothers Aggregate Bond
Index,* a measure of high-quality bond performance, which returned 3.09% over
the reporting period.
The fund, with a return of 6.07%,** performed very well over the reporting
period outperforming both the Lehman Brothers High Yield Bond Index and the
Lipper High Current Yield Fund Average which returned 5.99%.*** The fund
benefited from good security selection during the reporting period avoiding most
of the deteriorating credit situation in the quarter such as PENN TRAFFIC,
HARVARD INDUSTRIES and GRAND UNION. Several sector and specific holdings
performed well above the overall market. The fund's holdings in the Australian
cable TV market rebounded strongly from depressed year end levels. The fund's
radio holdings, especially preferred stocks of AMERICAN RADIO and CHANCELLOR
BROADCASTING, performed very well as investors' comfort level with the
consolidation occurring in the radio industry increased. The fund's holdings in
the domestic cable area such as CABLEVISION SYSTEMS and COMCAST performed very
well as investors focused on the value in well-run, highly clustered cable
operators. This was highlighted by Microsoft's $1 billion equity investment in
Comcast. Finally, specific holdings such as JOHNSTOWN AMERICA, BAYOU STEEL,
MILLICOM INTERNATIONAL, NEXTEL and CURTICE-BURNS FOODS turned in good
performance during the reporting period based on company specific events. On the
negative side, the fund's position in WIRELESS ONE, a microwave cable TV
operator underperformed as questions about this technology's competitiveness
continued. Also, the fund's position in ROYAL OAK, a gold mining company
underperformed due to weak gold prices.
* Lehman Brothers High Yield Bond Index is an unmanaged index which includes
fixed rate, public nonconvertible, non-investment grade issues that are rated
Ba1 or lower by Moody's Investors Service. Lehman Brothers Aggregate Bond
Index is an unmanaged total return index measuring both the capital price
changes and income provided by the underlying universe of securities, weighted
by market value outstanding. Investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
*** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories indicated. These figures do not reflect sales
charges.
Our outlook for the high-yield market continues to be optimistic, especially as
we look out over the balance of 1997. We see nothing to alter our outlook for
steady economic growth and modest inflation. From a portfolio perspective, the
fund's largest sector exposures continue to be telecommunications, cable TV, and
broadcasting. Many of the fund's telecommunications positions such as TELEPORT
and QWEST COMMUNICATIONS are benefiting from technology advances and
deregulation. The domestic cable TV market is rapidly changing as new delivery
devices such as satellite broadcasters attempt to gain subscribers. We believe
that the new entrants will expand the overall market while large well managed,
well clustered traditional operators will continue to do well. The fund also has
<PAGE>
exposure to the United Kingdom cable TV and telecommunication market which is in
its early stage of development. We think these issuers will gain market share
and eventually consolidate benefiting high-yield issuers. Recently, the fund has
increased exposure in the oil and gas industry focusing on the drilling sector
and producers who will benefit from expanding production. Finally, the fund has
modestly increased the overall quality of the portfolio in response to the
spread tightening that has occurred over the past six months.
FEDERATED HIGH INCOME BOND FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--89.6%
AEROSPACE & DEFENSE--0.3%
$ 250,000 Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 $ 254,375
AUTOMOBILE--2.8%
225,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 252,000
8/1/2004
350,000 Aftermarket Technology Co., Sr. Sub. Note, Series D,
12.00%,
8/1/2004 392,000
825,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 938,437
4/15/2006
350,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 364,875
450,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 480,375
100,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 101,000
100,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 100,750
250,000 (a)Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 252,813
6/15/2007
Total 2,882,250
BANKING--1.2%
1,125,000 First Nationwide Escrow Corp., Sr. Sub. Note, 1,240,313
10.625%, 10/1/2003
BEVERAGE & TOBACCO--0.8%
450,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 469,687
400,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note,
0/11.625%,
2/15/2003 396,000
Total 865,687
BROADCAST RADIO & TV--5.2%
200,000 (a)Capstar Radio Broadcasting Partners, Sr. Sub. Note,
9.25%,
7/1/2007 195,000
250,000 (a)Chancellor Radio Broadcasting Co., Sr. Sub. Note, 250,000
8.75%, 6/15/2007
250,000 Chancellor Radio Broadcasting Co., Sr. Sub. Note,
9.375%,
10/1/2004 260,625
200,000 Jacor Communications, Inc., Sr. Sub. Note, 9.75%, 208,500
12/15/2006
550,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 567,875
12/1/2006
</TABLE>
FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
CORPORATE BONDS--CONTINUED
BROADCAST RADIO & TV--CONTINUED
$ 500,000 (a)Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, $ 490,000
6/15/2007
400,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 424,084
6/30/2005
525,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 574,875
5/15/2006
150,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 155,250
10.00%, 12/15/2003
575,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 595,125
10.00%, 9/30/2005
250,000 (a)Sinclair Broadcast Group, Inc., Sr. Sub. Note 243,750
9.00%, 7/15/2007
50,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 49,250
12/15/2006
600,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 615,000
10.25%, 12/15/2005
475,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 501,125
2/15/2005
150,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 148,125
1/15/2006
Total 5,278,584
BUILDING & DEVELOPMENT--0.4%
250,000 (a)American Builders & Contractors Supply Co., Inc.,
Sr. Sub. Note,
10.625%, 5/15/2007 258,750
150,000 Building Materials Corp. of America, Sr. Note, 153,375
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> 8.625%, 12/15/2006 <C>
Total 412,125
BUSINESS EQUIPMENT & SERVICES--1.7%
300,000 (a)Electronic Retailing Systems International, Inc.,
Sr. Disc. Note,
0/13.00%, 2/1/2004 208,500
325,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 361,156
500,000 Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 547,500
11/1/2006
500,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 570,625
5/1/2005
Total 1,687,781
CABLE TELEVISION--12.5%
200,000 Australis Holdings Pty Limited, Unit, 0/15.00%, 148,000
11/1/2002
275,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 200,093
550,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 497,750
7/15/2004
200,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 228,000
11.625%, 2/15/2005
150,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 157,500
2/15/2013
</TABLE>
FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
CORPORATE BONDS--CONTINUED
CABLE TELEVISION--CONTINUED
$ 100,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, $ 109,500
5/15/2016
375,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 390,000
11/1/2005
650,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 692,250
5/15/2006
425,000 Charter Communications Southeast, L.P., Sr. Note,
11.25%,
3/15/2006 456,875
900,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 949,500
600,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 459,048
2,000,000 (a)Diamond Cable Communications PLC, Sr. Disc. Note,
0/10.75%,
2/15/2007 1,160,000
1,000,000 EchoStar Satellite Broadcasting Corp., Sr. Disc.
Note, 0/13.125%,
3/15/2004 715,000
1,100,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 761,750
0/11.50%, 2/1/2006
475,000 International Cabletel, Inc., Sr. Disc. Note, 368,125
0/12.75%, 4/15/2005
400,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 448,000
2/15/2005
400,000 Lenfest Communications Inc., Sr. Note, 8.375%, 395,000
11/1/2005
300,000 Pegasus Media, Note, 12.50%, 7/1/2005 325,500
400,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority
Note, 10.00%,
12/1/2007 432,000
400,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority
Note, 10.00%,
3/15/2005 436,000
400,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 439,000
12/1/2015
750,000 Tele-Communications, Inc., Sr. Note, 6.875%, 2/15/2006 710,903
225,000 (a)TCI Satellite Entertainment, Inc., Sr. Sub. Disc.
Note, 0/12.25%,
2/15/2007 133,875
200,000 (a)TCI Satellite Entertainment, Inc., Sr. Sub. Note, 200,500
10.875%, 2/15/2007
1,800,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 1,314,000
650,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 396,500
5/15/2006
150,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 96,000
100,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 27,500
Total 12,648,169
</TABLE>
FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
CORPORATE BONDS--CONTINUED
CHEMICALS & PLASTICS--3.9%
$ 350,000 Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 $ 372,750
300,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 315,000
9/15/2008
200,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 229,000
8/15/2005
100,000 (a)Foamex L.P., Sr. Sub. Note, 9.875%, 6/15/2007 103,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
600,000 Harris Chemical North America, Inc., Sr. Note, 618,000
10.25%, 7/15/2001
500,000 ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 520,625
150,000 ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 159,750
383,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 428,205
450,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 400,500
10/15/2005
975,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note,
0/13.50%, 8/15/2008 650,813
150,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 150,000
6/1/2003
Total 3,947,643
CLOTHING & TEXTILES--3.1%
200,000 (a)Collins & Aikman Floorcoverings, Inc., Sr. Sub.
Note, 10.00%, 1/15/2007 203,500
450,000 (a)GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 455,625
450,000 (a)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 473,625
250,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 262,500
1,650,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 1,724,250
12/15/2005
Total 3,119,500
CONSUMER PRODUCTS--3.6%
400,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 420,000
150,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 162,750
150,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 164,250
13.75%, 8/1/2002
450,000 ICON Fitness Corp., Sr. Disc. Note, 0/14.00%, 247,500
11/15/2006
150,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 169,500
7/15/2002
525,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 534,188
12/15/2003
450,000 Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 475,875
2/15/2004
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
CONSUMER PRODUCTS--CONTINUED
$ 50,000 Revlon Consumer Products Corp., Note, 9.375%, $ 51,688
4/1/2001
625,000 Revlon Consumer Products Corp., Sr. Sub. Note, 670,313
10.50%, 2/15/2003
450,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 477,000
300,000 Syratech Corp., Sr. Note, 11.00%, 4/15/2007 320,250
Total 3,693,314
CONTAINER & GLASS PRODUCTS--1.6%
575,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 605,906
450,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 478,125
10/15/2004
300,000 Packaging Resources Inc., Sr. Note, 11.625%, 5/1/2003 313,500
250,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 260,625
12/15/2006
Total 1,658,156
ECOLOGICAL SERVICES & EQUIPMENT--1.7%
700,000 (a)Allied Waste Industries, Inc., Sr. Disc. Note, 442,750
0/11.30%, 6/1/2007
850,000 (a)Allied Waste North America, Inc., Sr. Sub. Note, 912,687
10.25%, 12/1/2006
200,000 ICF Kaiser International, Inc., Sr. Sub. Note, 207,000
13.00%, 12/31/2003
225,000 (b)Mid-American Waste Systems, Inc., Sr. Sub. Note,
12.25%, 2/15/2003 115,875
Total 1,678,312
ELECTRONICS--1.4%
500,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 558,750
8/1/2003
500,000 (a)Fairchild Semiconductor Corp., Sr. Sub. Note, 530,000
10.125%, 3/15/2007
50,000 (a)Therma-Wave, Inc., Sr. Note, 10.625%, 5/15/2004 53,500
225,000 (a)Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 229,500
Total 1,371,750
FINANCIAL INTERMEDIARIES--0.7%
375,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 384,787
300,000 Olympic Financial Ltd., Unit, 11.50%, 3/15/2007 306,000
Total 690,787
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
FOOD & DRUG RETAILERS--1.3%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
$ 375,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, $ 417,187
11/15/2005
150,000 (a)DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 149,250
725,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 781,188
Total 1,347,625
FOOD PRODUCTS--1.9%
400,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 441,000
2/1/2005
650,000 International Home Foods, Inc., Sr. Sub. Note, 671,125
10.375%, 11/1/2006
300,000 (a)MBW Foods Inc., Sr. Sub. Note, 9.875%, 2/15/2007 305,250
100,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 87,000
8/15/2003
350,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 392,000
Total 1,896,375
FOREST PRODUCTS--2.8%
50,000 Container Corp. of America, Sr. Note, 11.25%, 54,750
5/1/2004
100,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 105,500
450,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 466,875
200,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note,
10.625%, 4/15/2005 190,000
200,000 Riverwood International Corp., Sr. Sub. Note, 181,000
10.875%, 4/1/2008
500,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 562,500
100,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 104,500
800,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 848,000
400,000 Uniforet Inc., Sr. Note, 11.125%, 10/15/2006 376,000
Total 2,889,125
HEALTHCARE--3.1%
675,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 756,000
5/1/2006
250,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 255,000
10/1/2006
200,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 208,000
6/15/2005
200,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 202,000
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
HEALTHCARE--CONTINUED
$ 900,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, $ 990,000
3/1/2005
700,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 714,000
1/15/2007
Total 3,125,000
HOME PRODUCTS & FURNISHINGS--0.3%
300,000 (a)Falcon Building Products, Inc., Sr. Sub. Disc.
Note, 0/10.50%, 6/15/2007 181,500
150,000 (a)Falcon Building Products, Inc., Sr. Sub. Note, 150,750
9.50%, 6/15/2007
Total 332,250
HOTELS, MOTELS, INNS & CASINOS--0.4%
350,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 378,875
2/1/2008
INDUSTRIAL PRODUCTS & EQUIPMENT--4.2%
150,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 155,625
400,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 442,000
12.50%, 7/15/2005
300,000 (a)Continental Global Group, Inc., Sr. Note, 11.00%, 315,750
4/1/2007
400,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 432,000
10/1/2006
250,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 267,500
11.375%, 7/1/2001
300,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 309,750
300,000 International Knife & Saw, Inc., Sr. Sub. Note, 323,250
11.375%, 11/15/2006
100,000 Johnstown America Industries, Inc., Sr. Sub. Note,
11.75%, 8/15/2005 105,250
525,000 (a)MMI Products, Inc., Sr. Sub. Note, 11.25%, 559,125
4/15/2007
250,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 266,250
400,000 (a)Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 426,000
125,000 (a)Roller Bearing Co. of America, Inc., Sr. Sub. Note, 127,813
9.625%, 6/15/2007
500,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 522,500
Total 4,252,813
LEISURE & ENTERTAINMENT--4.9%
1,150,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 822,250
3/15/2006
100,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 108,500
FEDERATED HIGH INCOME BOND FUND II
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
LEISURE & ENTERTAINMENT--CONTINUED
$ 300,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, $ 316,500
6/1/2003
150,000 (a)KSL Recreation Group, Inc., Sr. Sub. Note, 10.25%, 156,750
5/1/2007
150,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 166,875
175,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 182,875
1,225,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 1,261,750
6/15/2005
2,000,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 1,955,000
Total 4,970,500
MACHINERY & EQUIPMENT--1.8%
500,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 517,500
1/31/2003
600,000 Clark Material Handling Corp., Sr. Note, 10.75%, 631,500
11/15/2006
233,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 277,270
400,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 442,000
Total 1,868,270
METALS & MINING--0.4%
400,000 Royal Oak Mines, Inc., Sr. Sub. Note, 11.00%, 388,000
8/15/2006
OIL & GAS--4.8%
775,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 846,687
325,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 321,750
100,000 Falcon Drilling Co., Inc., Sr. Note, 8.875%, 101,500
3/15/2003
150,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 156,000
50,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 55,750
3/15/2005
350,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 343,000
8.50%, 2/15/2007
600,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 622,500
9.50%, 11/1/2006
100,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 103,000
11/15/2003
250,000 Mesa Operating Company, Sr. Sub. Note, 10.625%, 285,313
7/1/2006
100,000 (a)Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 101,500
150,000 (a)Petsec Energy, Inc., Sr. Sub. Note, 9.50%, 150,000
6/15/2007
500,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 518,750
5/1/2007
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
OIL & GAS--CONTINUED
$ 675,000 United Meridian Corp., Sr. Sub. Note, 10.375%, $ 734,063
10/15/2005
300,000 (a)United Refining Co., Sr. Note, 10.75%, 6/15/2007 298,500
250,000 (a)XCL, Ltd., Unit, 13.50%, 5/1/2004 256,250
Total 4,894,563
PRINTING & PUBLISHING--2.3%
750,000 Affiliated Newspaper Investments, Inc., Sr. Disc.
Note, 0/13.25%,
7/1/2006 680,625
150,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 167,250
7/1/2004
200,000 Hollinger International Publishing, Inc., Sr. Sub.
Note, 9.25%,
2/1/2006 205,000
350,000 Hollinger International Publishing, Inc., Sr. Sub.
Note, 9.25%,
3/15/2007 360,500
250,000 K-III Communications Corp., Company Guarantee, Series
B, 8.50%,
2/1/2006 252,825
450,000 Petersen Publishing Co., L.L.C., Sr. Sub. Note, 504,000
11.125%, 11/15/2006
125,000 (a)Von Hoffmann Press, Inc., Sr. Sub. Note, 10.375%, 130,625
5/15/2007
Total 2,300,825
REAL ESTATE--0.4%
335,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 378,550
RETAILERS--0.8%
425,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 456,875
9/1/2003
325,000 (a)Leslie's Poolmart, Inc., Sr. Note, 10.375%, 334,750
7/15/2004
Total 791,625
SERVICES--1.4%
300,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 332,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
600,000 Intertek Finance PLC, Sr. Sub. Note, 10.25%, 628,500
11/1/2006
450,000 KinderCare Learning Centers, Inc., Sr. Sub. Note, 435,375
9.50%, 2/15/2009
Total 1,396,125
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
STEEL--2.1%
$ 375,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, $ 418,125
8/1/2004
300,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 304,500
400,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 393,000
500,000 GS Technologies Operating Co., Inc., Sr. Note, 540,000
12.00%, 9/1/2004
225,000 GS Technologies Operating Co., Inc., Sr. Note, 246,938
12.25%, 10/1/2005
200,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 186,750
9.875%, 12/15/2001
Total 2,089,313
SURFACE TRANSPORTATION--2.8%
425,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 434,562
11/15/2005
350,000 (a)Chemical Leaman Corp., Sr. Note, 10.375%, 6/15/2005 357,875
500,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 555,000
500,000 Statia Terminals International N.V., 1st Mtg. Note,
11.75%,
11/15/2003 530,000
750,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 823,125
200,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 193,000
Total 2,893,562
TELECOMMUNICATIONS & CELLULAR--10.8%
350,000 American Communications Services Inc., Sr. Disc.
Note, 0/12.75%,
4/1/2006 197,750
250,000 Arch Communications Group, Inc., Sr. Disc. Note,
0/10.875%,
3/15/2008 133,125
1,050,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 719,250
0/10.875%, 3/1/2006
525,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 343,875
0/11.875%, 11/1/2006
575,000 Cellular Communications International, Inc., Sr.
Disc. Note, 13.25%
accrual, 8/15/2000 442,750
350,000 (a)Cellular Communications of Puerto Rico, Inc., Sr.
Sub. Note, 10.00%,
2/1/2007 346,500
500,000 (a)Comcast Cellular Holdings, Inc., Sr. Note, 9.50%, 506,250
5/1/2007
1,400,000 Intermedia Communications of Florida, Inc., Sr. Disc.
Note,
0/12.50%, 5/15/2006 980,000
FEDERATED HIGH INCOME BOND FUND II
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--CONTINUED
$ 900,000 (a)McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 $ 576,000
1,000,000 Millicom International Cellular S.A., Sr. Disc. Note,
0/13.50%,
6/1/2006 723,750
175,000 NEXTEL Communications, Inc., Sr. Disc. Note, 153,125
0/11.50%, 9/1/2003
600,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 465,000
8/15/2004
250,000 Nextlink Communications, L.L.C., Sr. Note, Series AI,
12.50%,
4/15/2006 268,750
425,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 410,125
10/15/2008
500,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 487,500
8/1/2007
400,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 390,000
8/1/2003
300,000 PhoneTel Technologies, Inc., Sr. Note, 12.00%, 305,250
12/15/2006
650,000 (a)Qwest Communications International, Inc., Sr. Note,
10.875%,
4/1/2007 708,500
450,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 452,250
1,350,000 Teleport Communications Group, Inc., Sr. Disc. Note,
0/11.125%,
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
7/1/2007 968,625
75,000 Teleport Communications Group, Inc., Sr. Note, 79,875
9.875%, 7/1/2006
500,000 (a)Telesystem International Wireless, Inc., Sr. Disc.
Note, 0/13.25%,
6/30/2007 266,875
350,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 329,000
2/1/2004
700,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 710,500
4/15/2006
Total 10,964,625
UTILITIES--2.2%
325,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 349,375
1,400,000 California Energy Co., Inc., Sr. Note, 10.25%, 1,515,500
1/15/2004
350,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 387,446
Total 2,252,321
TOTAL CORPORATE BONDS (IDENTIFIED COST $87,639,287) 90,839,088
FEDERATED HIGH INCOME BOND FUND II
SHARES VALUE
PREFERRED STOCKS--4.5%
BANKING--0.3%
10,000 California Federal Preferred Capital Corp., REIT
Perpetual Pfd.
Stock, Series A, $2.28 $ 258,125
BROADCAST RADIO & TV--2.5%
6,298 American Radio Systems Corp., Cumulative Exchangeable
Pfd.
Stock, $11.38 673,924
2,500 (a)Capstar Broadcasting Partners, Sr. Pfd., $12.00 252,500
2,500 Chancellor Broadcasting Co., Cumulative PIK Pfd., 326,250
12.25%
5,700 (a)Chancellor Broadcasting Co., Exchangeable Pfd. 655,500
Stock, $12.00
1,000 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, 108,500
Series E
4,400 (a)Sinclair Broadcast Group, Inc., Pfd., Series A, 466,400
$11.63
Total 2,483,074
CABLE TELEVISION--0.4%
400 Pegasus Communications Corp., Unit, Series A, 12.75% 394,000
INDUSTRIAL PRODUCTS & EQUIPMENT--0.1%
150 (a)Fairfield Manufacturing Co., Inc., Exchangeable
Pfd. Stock,
Series A, $11.25 151,500
PRINTING & PUBLISHING--0.7%
3,551 K-III Communications Corp., Cumulative PIK Pfd., 388,865
Series B, 11.625%
3,500 K-III Communications Corp., Pfd., Series D, $10.00 356,125
Total 744,990
TELECOMMUNICATIONS & CELLULAR--0.2%
170 PanAmSat Corp., PIK Pfd., 12.75% 208,321
UTILITIES--0.3%
2,866 El Paso Electric Co., PIK Pfd., Series A, 11.40% 323,966
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,148,230) 4,563,976
FEDERATED HIGH INCOME BOND FUND II
SHARES VALUE
COMMON STOCKS--0.0%
BROADCAST RADIO & TV--0.0%
800 (b)Sullivan Broadcast Holdings Inc., Class B $ 8,000
BUSINESS EQUIPMENT & SERVICES--0.0%
300 (a)Electronic Retailing Systems International, Inc., 1,200
Warrants, 2/1/2004
CABLE TELEVISION--0.0%
200 Australis Holdings Pty Limited, Warrants 0
338 (b)Pegasus Communications Corp. 3,765
450 (b)Wireless One, Inc., Warrants, 10/19/2000 0
Total 3,765
CHEMICALS & PLASTICS--0.0%
425 (b)Sterling Chemicals Holdings, Inc., Warrants, 14,874
1/1/2008
CONSUMER PRODUCTS--0.0%
50 (b)Hosiery Corp. of America, Inc. 375
ECOLOGICAL SERVICES & EQUIPMENT--0.0%
960 (b)ICF Kaiser International, Inc., Warrants, 240
12/31/1998
PRINTING & PUBLISHING--0.0%
50 (b)Affiliated Newspaper Investments, Inc. 5,025
STEEL--0.0%
100 (a)(b)Bar Technologies, Inc., Warrants, 4/1/2001 4,500
TELECOMMUNICATIONS & CELLULAR--0.0%
375 (b)Cellular Communications International, Inc., 3,750
Warrants, 1/1/2000
TOTAL COMMON STOCKS (IDENTIFIED COST $11,483) 41,729
</TABLE>
<PAGE>
FEDERATED HIGH INCOME BOND FUND II
<TABLE>
<CAPTION>
PRINICPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY--1.4%
TREASURY NOTES--1.4%
$ 1,500,000 5.75%, 8/15/2003 (IDENTIFIED COST $1,414,453) $ 1,448,670
(C)REPURCHASE AGREEMENT--3.1%
3,165,000 BT Securities Corporation, 6.00%, dated 6/30/1997,
due 7/1/1997
(AT AMORTIZED COST) 3,165,000
TOTAL INVESTMENTS (IDENTIFIED COST $96,378,453)(D) $100,058,463
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At June 30, 1997, these securities amounted
to $14,734,788 which represents 14.5% of total net assets.
(b) Non-income producing security.
Mid-American and certain of it subsidiaries ( the "Debtors") filed for
relief under the provisions of Chapter 11 Bankruptcy Code on January 21,
1997. The Debtors and USA Waste Services, Inc. ("USA") and certain of its
affiliates subsequently closed on an Asset Purchase Agreement pursuant to
which USA acquired substantially all the Debtors' assets. A proposed
liquidating plan of reorganization has been filed. In addition, a group of
subordinated bondholders, which includes various funds managed by
Federated, has retained counsel and has filed suit for legal claims
involving fraud, misrepresentations and securities law violations regarding
Mid-American.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $96,378,453.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,680,010 which is comprised of $4,201,466 appreciation and
$521,456 depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($101,382,187) at June 30, 1997.
The following acronyms are used throughout this portfolio:
LLC --Limited Liability Corporation
LP --Limited Partnership
PIK --Payment in Kind
PLC --Public Limited Company
REIT --Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $96,378,453) $100,058,463
Cash 39,713
Income receivable 1,786,239
Receivable for investments sold 52,092
Total assets 101,936,507
LIABILITIES:
Payable for investments purchased $ 536,956
Accrued expenses 17,364
Total liabilities 554,320
NET ASSETS for 9,796,234 shares outstanding $101,382,187
NET ASSETS CONSIST OF:
Paid in capital $ 97,381,220
Net unrealized appreciation of investments 3,680,010
Accumulated net realized gain on investments 226,201
Undistributed net investment income 94,756
Total Net Assets $101,382,187
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$101,382,187 / 9,796,234 shares outstanding $10.35
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<PAGE>
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 88,699
Interest 3,846,123
Total income 3,934,822
EXPENSES:
Investment advisory fee $ 239,427
Administrative personnel and services fee 61,987
Custodian fees 5,007
Transfer and dividend disbursing agent fees and expenses 12,619
Directors'/Trustees' fees 980
Auditing fees 5,133
Legal fees 1,549
Portfolio accounting fees 31,435
Share registration costs 6,710
Printing and postage 20,000
Insurance premiums 1,749
Miscellaneous 7,500
Total expenses 394,096
Waiver of investment advisory fee (73,065)
Net expenses 321,031
Net investment income 3,613,791
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 228,400
Net change in unrealized appreciation of investments 1,300,295
Net realized and unrealized gain on investments 1,528,695
Change in net assets resulting from operations $5,142,486
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,613,791 $ 3,695,706
Net realized gain on investments ($228,400 and $290,512,
net gain, respectively, as computed for federal tax 228,400 290,512
purposes)
Net change in unrealized appreciation/depreciation 1,300,295 2,051,764
Change in net assets resulting from operations 5,142,486 6,037,982
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (3,628,830) (3,613,374)
Distributions from net realized gains (286,147) --
Change in net assets resulting from distributions to
shareholders (3,914,977) (3,613,374)
SHARE TRANSACTIONS--
Proceeds from sale of shares 44,619,298 55,826,183
Net asset value of shares issued to shareholders in
payment of
distributions declared 3,914,975 3,612,247
Cost of shares redeemed (14,422,905) (15,984,743)
Change in net assets resulting from share transactions 34,111,368 43,453,687
Change in net assets 35,338,877 45,878,295
NET ASSETS:
Beginning of period 66,043,310 20,165,015
End of period (including undistributed net investment
income of $94,756 and $109,795, respectively) $101,382,187 $ 66,043,310
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.24 $ 9.79 $ 8.87 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.45 0.88 0.85 0.75
Net realized and unrealized gain (loss) on investments 0.16 0.45 0.89 (1.12)
Total from investment operations 0.61 1.33 1.74 (0.37)
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.88) (0.82) (0.75)
Distributions in excess of net investment income(d) -- -- -- (0.01)
Distributions from net realized gain on investments (0.04) -- -- --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total distributions (0.50) (0.88) (0.82) (0.76)
NET ASSET VALUE, END OF PERIOD $ 10.35 $ 10.24 $ 9.79 $ 8.87
TOTAL RETURN(B) 6.07% 14.31% 20.38% (3.73%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.80% 0.41%*
Net investment income 9.06%* 9.23% 9.27% 9.11%*
Expense waiver/reimbursement(c) 0.18%* 0.59% 3.40% 10.01%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $101,382 $66,043 $20,165 $ 1,457
Portfolio turnover 17% 51% 48% 18%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to February 1, 1994, the fund had no public
investment.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated High Income Bond Fund II
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective is to seek high current income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS-- Listed corporate bonds are generally valued at the
mean of the latest bid and asked price as furnished by an independent pricing
service. Listed equity securities are valued at the last sale price reported
on a national securities exchange. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market
value.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES-- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
<PAGE>
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
RESTRICTED SECURITIES-- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Trustees. The Fund will not incur any registration costs
upon such resales. The Fund's restricted securities are valued the price
provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
Additional information on each restricted security held at June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Allied Waste Industries, Inc. 5/1/1997 - 5/8/1997 $ 416,707
Allied Waste North America, Inc. 11/25/1996 - 4/23/1997 881,000
American Builders & Contractors Supply Co., Inc. 5/2/1997 - 5/8/1997 250,750
Bar Technologies, Inc. 8/28/1996 5,588
Capstar Broadcasting Partners, Prf. 6/11/1997 250,000
Capstar Radio Broadcasting Partners 6/11/1997 199,212
Cellular Communications of Puerto Rico, Inc. 1/18/1997 - 2/3/1997 350,375
Chancellor Broadcasting Co., Prf. 1/17/1997 - 6/2/1997 590,700
Chancellor Radio Broadcasting Co. 6/18/1997 247,218
Chemical Leaman Corp. 1/10/1997 356,156
Collins & Aikman Floorcoverings, Inc. 1/29/1997 - 1/30/1997 201,625
Comcast Cellular Holdings, Inc. 5/5/1997 499,185
Continental Global Group, Inc. 3/26/1997 300,000
DiGiorgio Corp. 6/13/1997 150,000
Diamond Cable Communications, PLC 2/27/1997 - 5/1/1997 1,223,810
Electronic Retailing Systems International, Inc.
Warrants 6/17/1997 0
Electronic Retailing Systems International, Inc. 1/21/1997 215,448
Fairchild Semiconductor Corp. 3/6/1997 - 4/28/1997 502,813
Fairfield Manufacturing Co., Inc. 6/20/1995 - 1/16/1997 250,563
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
Falcon Building Products, Inc., 0/10.50% 6/5/1997 $ 180,671
Falcon Building Products, Inc., 9.50% 6/5/1997 150,000
Foamex L.P. 5/29/1997 100,000
GFSI, Inc. 2/20/1997 - 5/20/1997 454,125
Glenoit Corp. 3/16/1997 - 6/18/1997 457,490
KSL Recreation Group, Inc. 4/24/1997 150,000
Leslie's Poolmart, Inc. 6/6/1997 - 6/10/1997 328,563
MBW Foods, Inc. 2/5/1997 - 2/6/1997 303,750
MMI Products, Inc. 4/11/1997 - 5/23/1997 536,750
McLeod, Inc. 2/27/1997 - 5/1/1997 543,600
Neenah Corp. 4/23/1997 - 4/30/1997 407,250
Outdoor Systems, Inc. 6/17/1997 495,920
Oxford Automotive, Inc. 6/19/1997 250,777
Pacalta Resources Ltd. 6/13/1997 100,000
Petsec Energy, Inc. 6/6/1997 149,426
Qwest Communications International, Inc. 3/25/1997 - 4/18/1997 654,250
Roller Bearing Co. of America, Inc. 6/18/1997 125,000
Sinclair Broadcast Group, Inc., Pfd. 3/5/1997 - 4/17/1997 438,800
Sinclair Broadcast Group, Inc. 6/25/1997 243,575
TCI Satellite Entertainment, Inc., 0/12.25% 2/14/1997 129,884
TCI Satellite Entertainment, Inc., 10.875% 3/27/1997 176,500
Telesystem International Wireless, Inc. 6/24/1997 263,357
Therma-Wave, Inc. 5/9/1997 50,000
United Refining Co. 6/4/1997 300,875
Viasystems, Inc. 6/2/1997 225,000
Von Hoffmann Press, Inc. 5/15/1997 125,000
XCL, Ltd. 5/13/1997 250,000
</TABLE>
INVESTMENT RISKS-- Although the Fund has a diversified portfolio, the Fund has
89.6% of its portfolio invested in lower rated and comparable quality unrated
high-yield securities. Investments in higher yield securities are accomplished
by a greater degree of credit risk and the risk tends to be more sensitive to
economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly great for the holders of
high-yielding securities because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. The Fund held a
defaulted security with the value of $115,875, representing 0.11% of the
Fund's net assets at June 30, 1997.
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 amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
<PAGE>
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
Shares sold 4,366,366 5,638,009
Shares issued to shareholders in payment of distributions declared 382,982 365,049
Shares redeemed (1,403,122) (1,611,816)
Net change resulting from share transactions 3,346,226 4,391,242
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.60% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES-- Organizational expenses of $16,313 and start-up
administrative service expenses of $31,507 were borne initially by the
Adviser. The Fund has agreed to reimburse the Adviser for the organizational
and start-up administrative expenses during the five-year period following
effective date. For the period ended June 30, 1997, the Fund paid $4,350 and
$8,402, respectively, pursuant to this agreement.
GENERAL-- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
PURCHASES $43,034,589
SALES $13,018,697
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
<PAGE>
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
FEDERATED HIGH INCOME BOND FUND II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 313916306
G00433-02 (8/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
International Equity Fund II, a portfolio of Federated Insurance Series.
The report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with an investment review by the fund's portfolio manager, which
is followed by a complete listing of the fund's holdings as well as its
financial statements.
This international stock fund is managed for capital appreciation by investing
in large, successful corporations outside the United States.* At the end of the
reporting period, the fund's $27.8 million portfolio was invested in 26
countries across more than 183 issues. Corporations in Japan represented
approximately 27% of the portfolio, and corporations in the United Kingdom
represented approximately 14% of fund assets. These were the two largest
commitments made by the fund's manager.
During the reporting period, the international stock market and Federated
International Equity Fund II continued to turn in solid total return
performances, although not matching that of the soaring U.S. equity market. The
fund's total return was 11.97% over the six-month reporting period.**
Contributing to the total return were dividends totaling $0.01 per share and a
net asset value increase of 12%.
Thank you for joining the growing number of Federated International Equity Fund
II shareholders who have broadened their equity assets internationally.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
During the six-month reporting period, international stocks continued to
experience positive performance, but lagged the spectacular returns of U.S.
stocks. The international stock markets performed particularly well during the
last three months of the six-month reporting period, with the Morgan Stanley
Capital International Europe, Australia, and Far East Index ("EAFE")* showing a
gain of 12.98% for the April-June period following a decline of 1.6% in the
January-March period. Major events during the last three months of strong
performance included a good showing by the Japanese equity market, which rose
14.3% in local currency terms and by 23.7% in U.S. dollar terms.
<PAGE>
In this environment, Federated International Equity Fund II produced a six-month
total return of 11.97%.** These returns were slightly higher than the 11.21%
return of the fund's benchmark, the EAFE index, for the same period.
The fund's performance was strong across most of its portfolio, with notable
gains from the fund's holdings in Japan and Latin America. Our strategy of
seeking out fundamentally strong companies trading at attractive valuations has
remained consistent. This search led us to add MATSUSHITA COMMUNICATION
INDUSTRIAL, a leading supplier of cellular phones and other telecommunications
equipment to the Japanese market, to the fund. We also purchased RHONE POULENC
RORER, the pharmaceutical subsidiary of the French chemical giant RHONE POULENC,
which bid for the remainder of the company near the end of the quarter.
At the end of the reporting period, the fund's portfolio was diversified across
the following countries.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
COUNTRY OF PORTFOLIO COUNTRY OF PORTFOLIO
<S> <C> <C> <C>
Japan 27.17% Portugal 1.71%
United Kingdom 13.98% Singapore 1.34%
Germany 8.11% Korea 1.17%
Switzerland 7.35% Norway 1.16%
United States 5.98% Argentina 1.13%
France 5.80% Malaysia 1.02%
Hong Kong 4.46% Denmark 0.56%
Sweden 3.03% Finland 0.45%
Italy 2.80% New Zealand 0.43%
Brazil 2.74% Belgium 0.22%
Australia 2.47% Colombia 0.13%
Mexico 2.26% Indonesia 0.13%
Spain 2.20% Chile 0.10%
Netherlands 2.10%
</TABLE>
* The Morgan Stanley Capital International Europe, Australia, and Far East Index
is a market capitalization weighted foreign securities index, which is widely
used to measure the performance of European, Australian, New Zealand, and Far
Eastern stock markets. The index covers approximately 1,020 companies drawn
from 18 countries in the above regions. The index values its securities daily
in both U.S. dollars and local currency and calculates total returns monthly.
This index is unmanaged and investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
The top ten holdings were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
NAME COUNTRY OF ASSETS
<S> <C> <C>
Nippon Telegraph & Telephone Corp. Japan 1.66%
Shokoh Fund & Co. Japan 1.63%
Astra AB, Class A Sweden 1.40%
China EB-IHD Holdings Ltd. Hong Kong 1.35%
Woodside Petroleum Ltd. Australia 1.30%
Volkswagen AG Germany 1.24%
UBS - Union Bank of Switzerland Switzerland 1.23%
Matsushita Communication Japan 1.21%
Bridgestone Corp. Japan 1.17%
Groupe Danon BSN SA France 1.15%
</TABLE>
Total Percentage of Portfolio (Assets) 13.34%
Looking ahead, the economic recovery in Europe, accompanied by continued slow
growth in Japan -- as well as strong growth throughout the developing economies
- -- should bode well for company earnings in most parts of the world. We believe
that inflation should remain low and interest rates, with a few exceptions like
the U.K., will remain subdued. Politics are an issue, with the coming to power
of the Labour Party in the U.K. and the socialists in France, but left leaning
politicians will find the current financial environment very unforgiving of
policies that violate market principles.
With the rise in equity markets around the world, valuations have increased
virtually everywhere, but this should not be surprising in an environment of
declining inflation. We will continue to focus the fund on fundamentally strong
companies that are attractively valued given the long-term prospects for the
business. One of the areas that has continued to attract our attention is
Continental Europe, where corporations are continuing to restructure their
businesses and managements are paying increasing attention to shareholder value.
FEDERATED INTERNATIONAL EQUITY FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS -- 92.5%
ARGENTINA -- 1.1%
METALS - STEEL -- 0.2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
21,000 (a)Acindar Industria Argentina de Aceros SA $ 53,768
REAL ESTATE -- 0.1%
502 (a)IRSA Inversiones y Representaciones S.A., GDR 21,963
TELECOMMUNICATIONS -- 0.8%
2,200 (a)Telecom Argentina S.A., ADR 115,500
3,600 Telefonica de Argentina S.A., ADR 124,650
Total 240,150
TOTAL ARGENTINA 315,881
AUSTRALIA -- 2.5%
BANKING -- 0.4%
18,616 St. George Bank Ltd. 123,948
BROADCASTING & PUBLISHING -- 0.0%
238 (a)News Corp., Ltd. 1,142
ENERGY - OIL & GAS -- 0.7%
43,875 Santos Limited 184,693
ENERGY SOURCES -- 1.3%
42,000 Woodside Petroleum Ltd. 361,853
LEISURE & TOURISM -- 0.1%
11,000 (a)Aristocrat Leisure Ltd. 21,864
TOTAL AUSTRALIA 693,500
BELGIUM -- 0.2%
MERCHANDISING -- 0.2%
1,200 Delhaize-Le Lion 63,035
TOTAL BELGIUM 63,035
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
BRAZIL -- 0.7%
TELECOMMUNICATIONS -- 0.7%
1,458,000 (a)Telecomunicacoes Brasileiras SA $ 197,731
15,034 (a)Telecomunicacoes de Sao Paulo SA 4,909
TOTAL BRAZIL 202,640
CHILE -- 0.1%
BANKING -- 0.1%
400 (a)Banco BHIF, ADR 8,450
300 (a)Banco de A. Edwards, ADR 6,263
Total 14,713
ENERGY EQUIPMENT & SERVICES -- 0.0%
250 (a)(b)Chilectra S.A., ADR 7,195
METALS - NON FERROUS -- 0.0%
100 Sociedad Quimica Y Minera De Chile, ADR 6,613
TOTAL CHILE 28,521
COLOMBIA -- 0.1%
BANKING -- 0.1%
700 Banco Ganadero SA, ADR 25,200
700 Banco Industrial Colombiano, ADR 12,600
TOTAL COLOMBIA 37,800
DENMARK -- 0.6%
BANKING -- 0.4%
530 Den Danske Bank 51,564
900 Unidanmark, Class A 50,558
Total 102,122
HEALTH & PERSONAL CARE -- 0.2%
500 Novo-Nordisk, Class B 54,519
TOTAL DENMARK 156,641
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
FINLAND -- 0.5%
ELECTRICAL & ELECTRONICS -- 0.5%
1,700 Nokia AB-A $ 126,991
TOTAL FINLAND 126,991
FRANCE -- 5.9%
BANKING -- 1.6%
720 CLF-Dexia France 70,080
4,526 Compagnie Financiere de Paribas, Class A 312,685
1,346 Credit Commerical De France 57,031
Total 439,796
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.3%
1,518 Schneider SA 80,799
ENERGY SOURCES -- 0.3%
800 Total SA-B 80,862
FOOD & HOUSEHOLD PRODUCTS -- 1.2%
1,940 Group Danon 320,544
HEALTH & PERSONAL CARE -- 1.3%
2,100 Rhone-Poulenc Rorer, Inc. 190,838
1,300 Synthelabo 169,228
Total 360,066
INSURANCE -- 0.9%
2,300 AXA 143,048
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3,060 Scor SA 123,198
Total 266,246
LEISURE & TOURISM -- 0.3%
528 Accor SA 79,065
TOTAL FRANCE 1,627,378
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
GERMANY -- 7.9%
AUTOMOBILE -- 2.1%
2,780 (a)Daimler Benz AG $ 225,543
450 Volkswagen AG 344,963
Total 570,506
BANKING -- 1.9%
8,700 Bankgesellschaft Berlin AG 182,071
3,750 (a)Commerzbank AG, Frankfurt 106,215
1,860 Deutsche Bank, AG 108,672
3,280 Dresdner Bank Ag, Frankfurt 113,402
Total 510,360
CHEMICALS -- 0.3%
2,300 Bayer AG 88,381
ELECTRICAL & ELECTRONICS -- 0.3%
1,630 Siemens AG 96,776
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.3%
3,800 (a)Rofin-Sinar Technologies, Inc. 72,675
FOOD & HOUSEHOLD PRODUCTS -- 0.0%
58 (a)Henkel KGAA 3,076
HEALTH & PERSONAL CARE -- 0.7%
1,750 Schering AG 186,980
MACHINERY & ENGINEERING -- 1.7%
120 Linde AG 91,853
227 Mannesmann SA 101,129
1,200 Thyssen AG 284,158
Total 477,140
UNASSIGNED -- 0.5%
310 Viag AG 140,949
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
GERMANY -- CONTINUED
UTILITIES - ELECTRICAL & GAS -- 0.1%
950 RWE AG $ 40,852
TOTAL GERMANY 2,187,695
HONG KONG -- 4.5%
BANKING -- 0.3%
3,000 HSBC Holdings PLC 90,225
ENGINEERING -- 0.3%
262,000 (a)Jiangsu Expressway, Class H 93,000
MERCHANDISING -- 1.4%
126,000 China EB-IHD Holdings Ltd. 376,505
MULTI-INDUSTRY -- 0.4%
12,000 Hutchison Whampoa 103,778
REAL ESTATE -- 2.1%
16,000 (a)Cheung Kong 157,991
23,000 China Resources Enterprises Ltd. 112,813
35,000 Great Eagle Holdings 115,427
18,000 (a)New World Development Co. Ltd. 107,341
88,000 Sino Land Co. 95,414
Total 588,986
TOTAL HONG KONG 1,252,494
INDONESIA -- 0.1%
FINANCIAL SERVICES -- 0.1%
23,500 (a)PT Putra Surya Multidana 37,443
TOTAL INDONESIA 37,443
ITALY -- 2.8%
AUTOMOBILE -- 0.8%
140,000 Magneti Marelli SPA 236,413
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
ITALY -- CONTINUED
BANKING -- 0.1%
6,500 Bca Pop Di Milano $ 38,952
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL SERVICES -- 0.5%
68,000 Credito Italiano 124,431
MERCHANDISING -- 0.5%
25,500 La Rinascente S.P.A. 141,711
TELECOMMUNICATIONS -- 0.9%
22,000 Stet Societa Finanziaria Telefonica SPA 128,150
36,000 Telecom Italia Mobile SpA 116,500
Total 244,650
TOTAL ITALY 786,157
JAPAN -- 27.4%
AUTOMOBILE -- 0.7%
23,000 Sanden Corp. 192,637
BANKING -- 2.5%
8,000 Mitsubishi Trust & Banking Corp., Tokyo 126,330
18,000 Sumitomo Bank Ltd., Osaka 295,236
26,000 (a)Sumitomo Trust & Banking 279,009
Total 700,575
BROADCASTING & PUBLISHING -- 0.1%
7,000 Ikegami Tsushinki 40,612
CONSTRUCTION & HOUSING -- 0.5%
13,000 Hitachi Construction Machinery Co. Ltd. 125,894
DATA PROCESSING & REPRODUCTION -- 1.4%
19,000 Fujitsu Ltd. 263,567
4,000 I-O Data Device, Inc. 132,612
Total 396,179
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
JAPAN -- CONTINUED
ELECTRICAL & ELECTRONICS -- 3.0%
12,000 Aiwa Co. Ltd. $ 275,345
12,000 Hitachi Ltd. 134,008
12,000 Japan Radio Co. 131,914
14,000 NEC Corp. 195,428
1,000 Rohm Co. 102,949
Total 839,644
ELECTRONIC COMPONENTS, INSTRUMENTS -- 3.7%
3,000 Hirose Electric 205,723
4,000 Kyocera Corp. 317,571
4,800 Noritsu Koki Co. Ltd. 236,608
16,000 Taiyo Yuden Co. 263,828
Total 1,023,730
FINANCIAL SERVICES -- 1.6%
1,500 Shokoh Fund & Co. 454,109
HEALTH & PERSONAL CARE -- 1.6%
6,000 Sankyo Co. Ltd. 201,536
9,000 Takeda Chemical Industries 252,835
Total 454,371
INDUSTRIAL COMPONENTS -- 1.2%
14,000 (a)Bridgestone Corp. 324,900
INSURANCE -- 1.0%
41,000 Yasuda Fire & Marine Insurance Co. 275,432
MERCHANDISING -- 2.3%
1,600 (a)Autobacs Seven Co. 126,749
4,000 Ito-Yokado Co., Ltd. 232,071
8,000 Ministop Co. Ltd. 272,204
Total 631,024
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
JAPAN -- CONTINUED
PHARMACEUTICALS -- 0.7%
11,000 Daiichi Pharmaceutical Co. $ 193,858
REAL ESTATE -- 1.5%
29,000 Sumitomo Reality & Dev. 255,540
39,000 Tokyu Land Corp. 161,621
Total 417,161
RECREATION, OTHER CONSUMER GOODS -- 1.9%
6,000 Fuji Photo Film Co. 241,319
3,500 Nintendo Corp. Ltd. 293,143
Total 534,462
TELECOMMUNICATIONS -- 1.7%
10,000 Matsushita Communication 337,637
48 Nippon Telegraph & Telephone Corp. 460,653
Total 798,290
TRANSPORTATION - SHIPPING -- 0.8%
110,000 (a)Mitsui Osk Lines 226,487
UNASSIGNED -- 1.2%
TOTAL JAPAN 7,629,365
KOREA -- 1.2%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
AUTOMOBILE -- 0.1%
346 (a)Dongah Tire Ind. 20,534
BEVERAGE & TOBACCO -- 0.1%
270 Lotte Chilsung Beverage Co. 33,294
BUILDING MATERIALS & COMPONENTS -- 0.5%
5,200 (a)Hyundai Engineering & Construction Co. 133,514
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.4%
2,200 (a)Samsung Display Devices 123,349
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
KOREA -- CONTINUED
TELECOMMUNICATIONS -- 0.1%
1,854 (a)SK Telecom Co. Ltd., ADR $ 18,656
TOTAL KOREA 329,347
MALAYSIA -- 1.0%
ENERGY SOURCES -- 0.4%
27,000 Malakoff Bhd 117,670
FINANCIAL SERVICES -- 0.4%
20,000 AMMB Holdings Bhd 124,406
MACHINERY & ENGINEERING -- 0.2%
10,000 UMW Holdings Bhd 47,147
TOTAL MALAYSIA 289,223
MEXICO -- 2.3%
BANKING -- 0.5%
260,000 (a)Grupo Financiero Bancomer, S.A. de C.V., Class B 124,970
BEVERAGE & TOBACCO -- 0.5%
11,000 Fomento Economico Mexicano, SA de C.V., Class B 65,467
2,200 Pan American Beverage, Class A 72,325
Total 137,792
METALS - STEEL -- 0.3%
5,000 (a)Tubos de Acero de Mexico SA, ADR 92,188
TELECOMMUNICATIONS -- 1.0%
9,000 (a)Grup Iusacell S.A., ADR 165,375
2,400 Telefonos de Mexico, Class L, ADR 114,600
Total 279,975
TOTAL MEXICO 634,925
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
NETHERLANDS -- 2.1%
CHEMICALS -- 0.4%
740 Akzo Nobel NV $ 101,411
ENERGY SOURCES -- 0.6%
3,440 Royal Dutch Petroleum 178,931
MULTI-INDUSTRY -- 0.3%
1,127 (a)Hunter Douglas N.V. 95,883
RECREATION, OTHER CONSUMER GOODS -- 0.8%
4,100 PolyGram NV 215,141
TOTAL NETHERLANDS 591,366
NEW ZEALAND -- 0.4%
TELECOMMUNICATIONS -- 0.4%
24,000 Telecom Corp. of New Zealand 122,265
TOTAL NEW ZEALAND 122,265
NORWAY -- 1.2%
ENERGY SOURCES -- 0.6%
9,000 Saga Petroleum A.S., Class A 170,687
UTILITIES - ELECTRICAL & GAS -- 0.6%
6,300 Smedvig ASA, Class B 154,724
TOTAL NORWAY 325,411
PORTUGAL -- 1.7%
ELECTRICAL & ELECTRONICS -- 0.7%
10,750 (a)Electricidade de Portugal SA 197,276
TELECOMMUNICATIONS -- 1.0%
3,400 (a)(b)Telecel - Comunicacoes Pessoai 282,029
TOTAL PORTUGAL 479,305
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
COMMON STOCKS -- CONTINUED
SINGAPORE -- 1.4%
BROADCASTING & PUBLISHING -- 0.1%
1,000 Singapore Press Holdings Ltd. $ 20,144
ELECTRONIC COMPONENTS, INSTRUMENTS -- 0.5%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
8,000 (a)Creative Technology Ltd. 136,000
FOOD & HOUSEHOLD PRODUCTS -- 0.5%
40,800 (a)(b)Want Want Holdings 135,456
REAL ESTATE -- 0.3%
7,000 City Developments Ltd. 68,546
6,000 (a)Straits Steamship Land Ltd. 15,947
1,500 (a)Straits Steamship Land Ltd., Warrants 1,364
Total 85,857
TOTAL SINGAPORE 377,457
SPAIN -- 2.2%
BEVERAGE & TOBACCO -- 0.5%
3,300 Aguas De Barcelona 135,046
CONSTRUCTION & HOUSING -- 0.4%
880 Fomento de Construcciones y Contratas SA 112,217
ENERGY SOURCES -- 0.8%
4,940 Repsol SA 208,865
INSURANCE -- 0.1%
760 Corp Mapfre SA 40,437
MACHINERY & ENGINEERING -- 0.2%
385 Zardoya-Otis SA 50,663
TELECOMMUNICATIONS -- 0.2%
2,400 Telefonica de Espana 69,386
TOTAL SPAIN 616,614
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
SWEDEN -- 3.1%
BANKING -- 0.5%
12,000 Skand Enskilda BKN, Class A $ 129,533
BROADCASTING & PUBLISHING -- 0.4%
4,250 Marieberg Tidnings AB, Class A 105,488
HEALTH & PERSONAL CARE -- 1.4%
20,986 Astra AB, Class A 390,677
INDUSTRIAL COMPONENTS -- 0.1%
900 Autoliv, Inc. 35,212
INSURANCE -- 0.4%
2,680 Skandia Forsakrings AB 98,740
METALS - STEEL -- 0.3%
7,800 Avesta Sheffield AB, Class 90,246
TOTAL SWEDEN 849,896
SWITZERLAND -- 7.4%
BANKING -- 1.5%
500 Credit Suisse Group 64,212
300 UBS - Union Bank of Switzerland 343,151
Total 407,363
BEVERAGE & TOBACCO -- 0.7%
136 Richemont (Cie Fin) 196,548
CHEMICALS -- 0.9%
400 Clariant AG 258,904
FOOD & HOUSEHOLD PRODUCTS -- 0.2%
51 Nestle SA 67,278
HEALTH & PERSONAL CARE -- 1.8%
163 Novartis AG 260,577
25 (a)Roche Holding AG 226,113
Total 486,690
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C> <C>
COMMON STOCKS -- CONTINUED
SWITZERLAND -- CONTINUED
INSURANCE -- 1.4%
180 Schw Rueckversicherungs $ 254,589
315 Zurich Versicherungsgesellschaft 125,353
Total 379,942
LEISURE & TOURISM -- 0.4%
32 Reiseburo Kuoni AG, Class B 109,589
MULTI-INDUSTRY -- 0.1%
300 Oerlikon-Buhrle Holding AG 35,137
TRANSPORTATION - AIRLINES -- 0.4%
100 (a)Sairgroup 112,055
TOTAL SWITZERLAND 2,053,506
UNITED KINGDOM -- 14.1%
AEROSPACE & MILITARY TECHNOLOGY -- 0.4%
26,353 Rolls-Royce 100,498
BANKING -- 2.5%
35,000 Bank of Scotland, Edinburgh 224,982
11,500 Barclays PLC 228,279
24,000 Lloyds TSB Group PLC 246,598
Total 699,859
BEVERAGE & TOBACCO -- 0.7%
17,000 Scottish & Newcastle PLC 182,883
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
BUSINESS & PUBLIC SERVICES -- 0.4%
7,700 Hyder PLC 103,865
CONSTRUCTION & HOUSING -- 0.4%
7,400 Berkeley Group PLC 86,386
6,583 Redland PLC 37,273
Total 123,659
</TABLE>
<TABLE>
<CAPTION>
FEDERATED INTERNATIONAL EQUITY FUND II
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
ELECTRICAL & ELECTRONICS -- 0.2%
9,800 General Electric Co. PLC $ 58,589
ENERGY SOURCES -- 0.9%
20,600 British Petroleum Co. PLC 256,260
FOOD & HOUSEHOLD PRODUCTS -- 0.7%
157 Grand Metropolitan PLC 1,514
13,000 Reckitt & Colman PLC 194,191
Total 195,705
HEALTH & PERSONAL CARE -- 0.7%
4,549 Smithkline Beecham Corp. 83,747
3,000 Zeneca Group 99,219
Total 182,966
LEISURE & TOURISM -- 0.9%
7,000 Airtours PLC 135,455
20,000 Rank Group PLC 126,729
Total 262,184
MISCELLANEOUS MATERIALS & COMMODITIES -- 0.3%
10,170 Morgan Crucible Co. PLC 75,535
MULTI-INDUSTRY -- 0.8%
8,392 Tomkins PLC 36,336
24,000 Unigate 193,042
Total 229,378
PHARMACEUTICALS -- 0.8%
55,000 Medeva PLC 235,390
TELECOMMUNICATIONS -- 1.1%
25,200 British Telecommunication PLC 187,165
23,000 Vodafone Group PLC 112,225
Total 299,390
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
COMMON STOCKS -- CONTINUED
UNITED KINGDOM -- CONTINUED
UNASSIGNED -- 0.4%
36,000 (a)LucasVarity PLC $ 124,698
UTILITIES - ELECTRICAL & GAS -- 2.9%
51,000 National Grid Group PLC 184,299
15,000 National Power Co. PLC 130,393
37,000 Scottish Power PLC 240,303
32,600 Southern Electric PLC 239,957
Total 794,952
TOTAL UNITED KINGDOM 3,925,811
TOTAL COMMON STOCKS (IDENTIFIED COST $22,597,329) 25,740,667
PREFERRED STOCKS -- 2.4%
BRAZIL -- 2.0%
ENERGY SOURCES -- 1.1%
1,055,000 (a)Petroleo Brasileiro SA, Preference 293,024
TELECOMMUNICATIONS -- 0.4%
345,000 (a)Telecomunicacoes de Sao Paulo SA, Preference 112,644
UTILITIES - ELECTRICAL & GAS -- 0.5%
270,000 Centrais Eletricas Brasileiras SA, Preference, Series B 161,014
TOTAL BRAZIL 566,682
GERMANY -- 0.4%
FOOD & HOUSEHOLD PRODUCTS -- 0.1%
322 Henkel KGAA, Pfd. 18,278
MACHINERY & ENGINEERING -- 0.3%
180 Gea AG, Vorzugsaktien 69,767
TOTAL GERMANY 88,045
TOTAL PREFERRED STOCKS (IDENTIFIED COST $389,445) 654,727
</TABLE>
FEDERATED INTERNATIONAL EQUITY FUND II
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <C> <C>
(C)REPURCHASE AGREEMENT -- 6.0%
$1,680,000 BT Securities Corporation, 6.00%, dated 6/30/1997,
due 7/1/1997 (AT AMORTIZED COST) $ 1,680,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL INVESTMENTS (IDENTIFIED COST $24,666,774)(D) $28,075,394
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At June 30, 1997, these securities amounted
to $424,680 which represents 1.5% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $24,666,774. The
net unrealized appreciation of investments on a federal tax basis amounts to
$3,408,620 which is comprised of $3,685,954 appreciation and $277,334
depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($27,831,518) at June 30, 1997.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PLC -- Public Limited Company
SPA -- Standby Purchase Agreement
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $24,666,774) $28,075,394
Cash 5,493
Income receivable 104,784
Receivable for investments sold 458,316
Total assets 28,643,987
LIABILITIES:
Payable for investments purchased $ 742,916
Net payable for foreign currency exchange contracts purchased 5,932
Payable for taxes withheld 9,215
Accrued expenses 54,406
Total liabilities 812,469
NET ASSETS for 2,230,237 shares outstanding $27,831,518
NET ASSETS CONSIST OF:
Paid in capital $24,063,257
Net unrealized appreciation of investments and translation of
assets and liabilities in foreign currency 3,408,116
Accumulated net realized gain on investments and foreign
currency transactions 208,015
Undistributed net investment income 152,130
Total Net Assets $27,831,518
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$27,831,518/2,230,237 shares outstanding $12.48
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $36,475) $ 241,971
Interest 46,673
Total income 288,644
EXPENSES:
Investment advisory fee $ 106,760
Administrative personnel and services fee 61,987
Custodian fees 43,905
Transfer and dividend disbursing agent fees and expenses 9,724
Directors'/Trustees' fees 676
Auditing fees 6,284
Legal fees 6,155
Portfolio accounting fees 29,534
Share registration costs 1,624
Printing and postage 17,254
Insurance premiums 1,000
Miscellaneous 4,804
Total expenses 289,707
Waivers and reimbursements --
Waiver of investment advisory fee $ (106,760)
Reimbursement of other operating expenses (48,950)
Total waivers and reimbursements (155,710)
Net expenses 133,997
Net investment income 154,647
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency transactions (net of foreign
taxes withheld of $152) 389,308
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Net change in unrealized appreciation of investments and translation of assets
and liabilities in foreign currency 2,283,548
Net realized and unrealized gain on investments and foreign currency 2,672,856
Change in net assets resulting from operations $ 2,827,503
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income
Net realized gain (loss) on investments and foreign currency $ 154,647 $ 94,720
transactions ($389,308 net gain and $155,662 net loss, respectively,
as computed for federal tax purposes) 389,308 (231,600)
Net change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currency 2,283,548 1,010,299
Change in net assets resulting from operations 2,827,503 873,419
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (25,486) (31,449)
SHARE TRANSACTIONS--
Proceeds from sale of shares 8,515,855 12,772,774
Net asset value of shares issued to shareholders in payment of
distributions declared 25,486 31,448
Cost of shares redeemed (1,263,556) (654,035)
Change in net assets resulting from share transactions 7,277,785 12,150,187
Change in net assets 10,079,802 12,992,157
NET ASSETS:
Beginning of period 17,751,716 4,759,559
End of period (including undistributed net investment income
of $152,130 and $22,969, respectively) $27,831,518 $17,751,716
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1996
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.16 $ 10.35 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.11** 0.07
Net realized and unrealized gain on investments and
foreign currency 1.27 0.75 0.28
Total from investment operations 1.33 0.86 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.01) (0.05) --
NET ASSET VALUE, END OF PERIOD $ 12.48 $ 11.16 $10.35
TOTAL RETURN(B) 11.97% 8.32% 3.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.25%* 1.25% 1.22%*
Net investment income 1.44%* 0.89% 1.63%*
Expense waiver/reimbursement(c) 1.45%* 3.05% 11.42%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $27,832 $17,752 4,760
Average commission rate paid(d) $0.0047 $0.0030 --
Portfolio turnover 115% 103% 34%
</TABLE>
* Computed on an annualized basis.
**Per share information presented is based upon the monthly average number of
shares outstanding.
(a) Reflects operations for the period from May 5, 1995 (date of initial public
investment) to December 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
<PAGE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERNATIONAL EQUITY FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated International Equity Fund
II (the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to obtain a total return on its
assets.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Listed equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value. With respect to valuation of foreign securities, trading in
foreign cities may be completed at times which vary from the closing of the
New York Stock Exchange. Therefore, foreign securities are valued at the
latest closing price on the exchange on which they are traded prior to the
closing of the New York Stock Exchange. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at the foreign exchange rate in
effect at noon, Eastern time, on the day the value of the foreign security is
determined.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
However, federal taxes may be imposed on the Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding
taxes on foreign interest and dividends have been provided for in accordance
with the Fund's understanding of the applicable country's tax rules and
rates.
At last fiscal year-end date, the Fund, for federal tax purposes, had a
capital loss carryforward of $172,758, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such capital
loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2003 $ 17,096
2004 $ 155,662
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign currency
exchange contracts as a way of managing foreign exchange risk. The Fund may
enter into foreign currency exchange contracts as purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
<PAGE>
crosshedge against either specific transactions or portfolio positions. The
objective of the Fund's foreign currency hedging transactions is to reduce the
risk that the U.S. dollar value of the Fund's foreign currency denominated
securities will decline in value due to changes in foreign currency exchange
rates. All foreign currency exchange contracts are "marked to market" daily at
the applicable translation rates resulting in unrealized gains or losses.
Realized gains or losses are recorded at the time the foreign currency exchanged
contract is offset into a closing transaction or by delivery or receipt of the
currency. Risk may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
At June 30, 1997, the Fund had outstanding foreign exchange contracts set forth
below:
<TABLE>
<CAPTION>
IN UNREALIZED
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
CONTRACTS PURCHASED DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Italian Lira 7/1/1997 - 467,651,918 $ 278,398 $ 275,159 $ (3,239)
7/2/1997
Japanese Yen 7/1/1997 14,597,172 129,064 127,353 (1,711)
Portuguese Escudo 7/1/1997 7,699,662 44,123 43,745 (378)
$ 451,585 $ 446,257 $ (5,328)
CONTRACTS SOLD
French Franc 7/1/1997 5,879 $ 1,001 $ 1,000 $ 1
British Pound 7/1/1997 - 256,639 426,720 427,381 (661)
Sterling 7/2/1997
Singapore Dollar 7/3/1997 44,225 30,989 30,933 56
$ 458,710 $ 459,314 $ (604)
Net Unrealized
Depreciation on
Foreign Exchange
Contracts $ (5,932)
</TABLE>
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Trustees. The Fund
will not incur any registration costs upon such reseals. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
Additional information on each restricted security held at June 30, 1997 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Chilectra S.A., ADR 2/28/1996 $ 5,428
Telecel -- Comunicacoes Pessoai 3/11/1997 -
4/24/1997 $287,906
Want Want Holdings 4/21/1997 -
4/22/1997 $116,200
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 amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
<PAGE>
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Shares sold 748,682 1,188,525
Shares issued to shareholders in payment of distributions declared 2,349 3,009
Shares redeemed (111,081) (60,899)
Net change resulting from share transactions 639,950 1,130,635
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Global Research Corp., the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to 1.00% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $15,465 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five year period following effective date.
For the period ended June 30, 1997, the Fund paid $2,835 pursuant to this
agreement.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
PURCHASES $29,815,867
SALES $23,127,989
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
<PAGE>
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
FEDERATED INTERNATIONAL EQUITY FUND II
SEMI-ANNUAL REPORT TO SHAREHOLDERS
JUNE 30, 1997
Federated Insurance Series
[Graphic]
Federated Securities Corp., Distributor
Cusip 313916603
G00433-06 (8/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
Prime Money Fund II, a portfolio of Federated Insurance Series.
The report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with an investment review by the fund's portfolio manager, which
is followed by a complete listing of the fund's holdings and its financial
statements.
This high-quality money market mutual fund keeps your ready cash pursuing daily
income while keeping your principal stable.* And, you have convenient, daily
access to your money.
To provide a competitive daily yield, the fund invests in a diversified
portfolio of high-quality money market securities. At the end of the reporting
period, the portfolio was invested in commercial paper (38%), repurchase
agreements (26.2%), variable rate notes (18.6%), certificates of deposit (9.6%)
and short-term notes (7.5%).
During the reporting period, the fund paid a total of $0.02 per share in
dividends to shareholders while maintaining a stable $1.00 share price. On June
30, 1997, total net assets reached $62.4 million.
Thank you for choosing Federated Prime Money Fund II to put your cash to work
pursuing income every day. We'll continue to keep you up to date on your
investment, and welcome your comments and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment in
the fund is not insured or guaranteed by the U.S. government.
INVESTMENT REVIEW
Federated Prime Money Fund II invests in money market instruments maturing in
thirteen months or less. The average maturity of these securities, computed on a
dollar-weighted basis, is restricted to 90 days or less. Portfolio securities
must be rated in one of the two highest short-term rating categories by one or
more of the nationally recognized statistical rating organizations or be of
comparable quality to securities having such ratings. Typical security types
include, but are not limited to, commercial paper, certificates of deposit, time
deposits, variable rate demand notes and repurchase agreements.
For the first quarter of 1997, nearly all economic statistics showed that an
economic growth spurt continued. Private sector job gains along with some
acceleration in wage gains supported both hefty retail sales and an uptick in
the saving rate. Consumer confidence continued upward to 129.6% while the
manufacturing sector held its own, as evidenced by the capacity utilization rate
of 83.5%. In the second quarter of 1997, however, the consumer seemed to briefly
step to the sidelines despite the unemployment rate reaching a 20-year low of
4.8%.
Although economic growth kept pace, inflation remained benign. Overall the
consumer price index rose just 1.4% during the time period, while the producer
<PAGE>
price index actually declined 3.4% on an annualized basis. Energy prices
drastically declined during the period, while news on the wage inflation front
was also positive. The employment cost index during the first quarter rose just
0.8% and rose 0.7% during the second quarter.
Thirty-day commercial paper started the reporting period at 5.39% on January 1,
1997, rose as high as 5.60% in late March, near the time the Federal Reserve
Board (the "Fed") raised rates on March 25, 1997. Since that time, 30-day
commercial paper has been trading in a 5.55% - 5.60% range.
The Fed raised the target federal funds rate on March 25, 1997, from 5.25% to
5.50% in order to prevent a rise in inflation. The increase was largely
anticipated and had been reflected prior to the actual increase.
The target average maturity range for the fund remained in the 35-45 day target
range for the entire reporting period, reflecting a neutral position regarding
Fed policy. Given the concentrated nature of much of the fund's current asset
base, however, the actual average maturity has been somewhat lower. In
structuring the fund, there is continued emphasis placed on positioning 30-35%
of the fund's core assets in variable rate demand notes and accomplishing a
modest barbell structure.
During the six-month reporting period ended June 30, 1997, the net assets of
Federated Prime Money Fund II increased from $45.7 million to $62.4 million
while the 7-day net yield increased from 4.77% to 4.92%.* The effective average
maturity of the fund on June 30, 1997, was 35 days.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.
FEDERATED PRIME MONEY FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<S> <C>
SHORT-TERM NOTES -- 7.5%
BANKING--4.0%
$ 500,000 Bayerische Landesbank- NY, 6.250%, 4/15/1998 $ 499,885
2,000,000 SALTS II - III Cayman Islands Corp., (Bankers Trust Int'l PLC Swaps
Agmt.) 5.863% - 6.065%, 9/18/1997 - 12/18/1997 2,000,000
Total 2,499,885
BROKERAGE--1.6%
1,000,000 Goldman Sachs Group, LP, 5.850%, 7/28/1997 1,000,000
FINANCE-AUTO--1.6%
1,000,000 Chase Manhattan Auto Owner Trust 1997-B, 5.744%, 7/10/1998 1,000,000
FINANCE - EQUIPMENT--0.3%
188,867 Capita Equipment Receivables Trust 1996-1, 5.600%, 10/15/1997 188,867
TOTAL SHORT-TERM NOTES 4,688,752
CERTIFICATES OF DEPOSIT--9.6%
BANKING--9.6%
1,500,000 National Bank of Canada, Montreal, 5.750%, 7/14/1997 1,500,000
2,500,000 Royal Bank of Canada, Montreal, 5.586% - 6.000%,
9/26/1997 - 4/6/1998 2,501,717
2,000,000 Societe Generale, Paris, 5.590%, 9/3/1997 1,999,959
TOTAL CERTIFICATES OF DEPOSIT 6,001,676
COMMERCIAL PAPER--38.0%
BANKING--8.0%
2,000,000 Bank of Nova Scotia, Toronto, 5.709%, 8/26/1997 1,982,484
2,000,000 Commonwealth Bank of Australia, Sydney, 5.493% - 5.909%,
7/30/1997 - 10/3/1997 1,980,676
1,000,000 ING US Funding, (Guaranteed by Internationale Nederlanden
Bank N.V.), 5.520%, 7/8/1997 998,956
Total 4,962,116
</TABLE>
FEDERATED PRIME MONEY FUND II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
COMMERCIAL PAPER -- CONTINUED
BROKERAGE--8.0%
$ 2,000,000 Goldman Sachs Group, LP, 5.656%, 7/2/1997 $ 1,999,686
3,000,000 Merrill Lynch & Co., Inc., 5.591%, 7/7/1997 2,997,225
Total 4,996,911
ELECTRICAL EQUIPMENT--0.8%
500,000 Whirlpool Financial Corp., (Whirlpool Corp. Support Agreement),
5.786%, 7/25/1997 498,087
FINANCE - AUTOMOTIVE--3.5%
2,200,000 General Motors Acceptance Corp., 5.700% - 5.953%,
7/3/1997 - 10/6/1997 2,196,261
FINANCE - COMMERCIAL--16.1%
1,000,000 Asset Securitization Cooperative Corp., 5.721%, 8/7/1997 994,203
2,000,000 Beta Finance, Inc., 5.867% - 5.888%, 11/14/1997 1,956,858
1,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.634%, 7/8/1997 998,911
1,150,000 Falcon Asset Securitization Corp., 5.620%, 7/10/1997 1,148,390
1,000,000 General Electric Capital Corp., 5.440%, 8/6/1997 994,700
3,000,000 Greenwich Funding Corp., 5.624% - 5.779%, 7/1/1997 - 9/22/1997 2,986,951
1,000,000 PREFCO-Preferred Receivables Funding Co., 5.702%, 7/9/1997 998,751
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Total 10,078,764
FINANCE - RETAIL--1.6%
1,000,000 New Center Asset Trust, A1+/P1 Series, 5.690%,
9/3/1997 990,027
TOTAL COMMERCIAL PAPER 23,722,166
(A)NOTES - VARIABLE--18.6%
BANKING--13.8%
160,000 Alabama State IDA, (Wellborn Cabinet, Inc.),
Tax Revenue Bonds, (Amsouth Bank N.A.,
Birmingham LOC), 5.740%, 7/2/1997 160,000
200,000 Capital One Funding Corp., SERIES 1995-A,
(Bank One, Indianapolis, IN LOC), 5.630%, 7/3/1997 200,000
190,000 Denver Urban Renewal Authority, (Series 1992-B),
(Banque Paribas, Paris LOC), 5.950%, 7/3/1997 190,000
FEDERATED PRIME MONEY FUND II
PRINCIPAL
AMOUNT VALUE
(A)NOTES - VARIABLE -- CONTINUED
BANKING -- CONTINUED
$ 185,000 Franklin County, OH, (Edison Wielding),
(Series 1995), (Huntington National Bank,
Columbus, OH LOC), 5.840%, 7/3/1997 $ 185,000
1,000,000 Kenny, Donald R. and Cheryl A., Series 1996-C,
(Star Bank, N.A., Cincinnati LOC), 5.760%, 7/3/1997 1,000,000
2,000,000 Liquid Asset Backed Securities Trust, Series 1997-1,
(Westdeutsche Landesbank Girozentrale Swap
Agreement), 5.688%, 7/15/1997 2,000,000
1,000,000 Liquid Asset Backed Securities Trust, Series 1997-3
Senior Notes, (Westdeutsche Landesbank Girozentrale
Swap Agreement, Guaranteed by AMBAC), 5.751%,
9/27/1997 1,000,000
575,000 Madison, WI Community Development Authority,
Series 1997-B Hamilton Point Apts., (Bank One,
Milwaukee, WI N.A. LOC), 5.810%, 7/3/1997 575,000
278,000 Maryland State IDFA, (Human Genome), (Series 1994),
(First National Bank of Maryland, Baltimore LOC),
5.760%, 6/30/1997 278,000
330,000 Mississippi Business Finance Corp., Metalloy Project,
(Comerica Bank, Detroit, MI LOC), 5.710%, 7/3/1997 330,000
375,010 Pelham City, IDB, (Columbus Bank and Trust Co.,
GA LOC), 5.910%, 7/3/1997 375,010
550,000 REAL I Funding Corp., Casto Realty Investments
Series 1996, (Huntington National Bank, Columbus,
OH LOC), 5.710%, 7/3/1997 550,000
984,664 Rabobank Optional Redemption Trust,
Series 1997-101 (Rabobank Guarantee), 5.852%,
7/15/1997 984,664
370,000 Roby Company Ltd. Partnership, (Huntington
National Bank, Columbus, OH LOC), 5.710%, 7/3/1997 370,000
185,000 Southeast Regional Holdings, LLC, (Series 1995-A),
(Columbus Bank and Trust Co., GA LOC), 5.910%,
7/3/1997 185,000
199,000 Vista Funding Corp., (Series 1994-A), (Fifth Third
Bank of Northwestern OH LOC), 5.710%, 7/3/1997 199,000
Total 8,581,674
INSURANCE--4.8%
1,000,000 General American Life Insurance Company, 5.888%,
7/21/1997 1,000,000
1,000,000 Jackson National Life Insurance Company, 5.900%,
7/25/1997 1,000,000
FEDERATED PRIME MONEY FUND II
PRINCIPAL
AMOUNT VALUE
(A)NOTES - VARIABLE -- CONTINUED
INSURANCE -- CONTINUED
$1,000,000 Travelers Insurance Company, 5.873%, 7/1/1997 $ 1,000,000
Total 3,000,000
TOTAL NOTES -- VARIABLE 11,581,674
(B)REPURCHASE AGREEMENTS--26.2%
2,000,000 Chase Government Securities, Inc., 6.150%, dated
6/30/1997, due 7/1/1997 2,000,000
5,000,000 Fuji Government Securities, Inc., 6.000%, dated
6/30/1997, due 7/1/1997 5,000,000
2,000,000 Goldman Sachs Group, LP, 6.150%, dated
6/30/1997, due 7/1/1997 2,000,000
5,000,000 PaineWebber Group, Inc., 6.000%, dated
6/30/1997, due 7/1/1997 5,000,000
1,972,000 Swiss Bank Capital Markets, 5.930%, dated
6/30/1997, due 7/1/1997 1,972,000
395,000 UBS Securities, Inc., 5.900%, dated 6/30/1997,
due 7/1/1997 395,000
TOTAL REPURCHASE AGREEMENTS 16,367,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 62,361,268
</TABLE>
(a) Floating rate note with current rate and next reset date shown.
(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($62,372,613) at June 30, 1997.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDFA -- Industrial
<PAGE>
Development Finance Authority LOC -- Letter of Credit LP -- Limited Partnership
PLC -- Public Liability Company LLC -- Limited Liability Corporation
(See Notes which are an integral part of the Financial Statements)
FEDERATED PRIME MONEY FUND II
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and value $62,361,268
Cash 5,974
Income receivable 236,839
Total assets 62,604,081
Income distribution payable $ 231,468
NET ASSETS for 62,372,613 shares outstanding $62,372,613
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$62,372,613 / 62,372,613 shares outstanding $ 1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PRIME MONEY FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,618,942
EXPENSES:
Investment advisory fee $ 145,769
Administrative personnel and services fee 61,987
Custodian fees 7,111
Transfer and dividend disbursing agent fees and expenses 11,140
Directors'/Trustees' fees 996
Auditing fees 6,343
Legal fees 1,990
Portfolio accounting fees 19,930
Share registration costs 2,786
Printing and postage 18,097
Insurance premiums 904
Miscellaneous 4,750
Total expenses 281,803
Waivers --
Waiver of investment advisory fee (47,289)
Net expenses 234,514
Net investment income $ 1,384,428
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PRIME MONEY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,384,428 $ 1,446,378
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,384,428) (1,446,378)
SHARE TRANSACTIONS--
Proceeds from sale of shares 117,960,881 214,683,781
Net asset value of shares issued to shareholders in payment of
distributions declared 1,137,886 1,446,378
Cost of shares redeemed (102,381,486) (188,312,731)
Change in net assets resulting from share transactions 16,717,281 27,817,428
Change in net assets 16,717,281 27,817,428
NET ASSETS:
Beginning of period 45,655,332 17,837,904
End of period $ 62,372,613 $ 45,655,332
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED PRIME MONEY FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JUNE 30, YEAR ENDED JUNE 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Net investment income 0.02 0.05 0.05 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.05) (0.05) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.36% 4.75% 5.20% 0.50%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.80% 0.80%*
Net investment income 4.72%* 4.68% 5.12% 4.26%*
Expense waiver(c) 0.16%* 0.57% 2.69% 71.84%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $62,373 $45,655 $17,838 $ 552
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 18, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 10,
1993 (start of business) to November 17, 1994 the fund had no public
investment.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED PRIME MONEY FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Prime Money Fund II (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is to provide current income consistent with stability of
principal and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Fund uses the amortized cost method to value its
portfolio securities in accordance with Rule 2a-7 under the Act. Investments
in other open-end regulated investment companies are valued at net asset
value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES -- The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being amortized
over a period not to exceed five years from the Fund's commencement date.
<PAGE>
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 amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At June
30, 1997, capital paid-in aggregated $62,372,613.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Shares sold 117,960,881 214,683,781
Shares issued to shareholders in payment of distributions declared 1,137,886 1,446,378
Shares redeemed (102,381,486) (188,312,731)
Net change resulting from share transactions 16,717,281 27,817,428
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $22,430 were borne
initially by the Adviser. The Fund has agreed to reimburse the Adviser for
the organizational expenses during the five year period following effective
date. For the period ended June 30, 1997, the Fund paid $5,981 pursuant to
this agreement.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
<PAGE>
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including the possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED PRIME MONEY FUND II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic]
FEDERATED INVESTORS
Federated Securities Corp., Distributor
Cusip 313916504
G00433-05 (8/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
Utility Fund II, a portfolio of Federated Insurance Series.
This report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with a commentary by the fund's portfolio managers, which is
followed by a complete listing of the fund's utility holdings and the fund's
financial statements.
Utilities can be a wise investment because they provide critical, ongoing
services to every civilized society. By investing primarily in the common stocks
of U.S. and foreign utility companies, Federated Utility Fund II helps
shareholders participate in the income and growth opportunities of this staple
market.
Amid a favorable environment for utilities, the fund produced a strong six-month
total return of 8.98%.* Contributing to the total return were dividend income
totaling $0.21 per share, capital gains totaling $0.26 per share, and net asset
value growth of $0.56 per share. On June 30, 1997, total net assets reached
$77.4 million.
Thank you for participating in the income and growth opportunities of utility
stocks through Federated Utility Fund II. As always, we welcome your comments
and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
The second quarter of 1997 was quite positive for the utility sectors, though
not as strong as the overall market. The Standard & Poor's Electric Index had a
total return of 5.3%, Standard & Poor's Telephone Index returned 12.5%, and
Standard & Poor's Natural Gas Index returned 7.7%.* The fund performed well in
comparison, with a total return of 9.1%.**
Second quarter news for the electric industry included unexpected legislative
setbacks in Texas and Illinois as the industry's transition from a regulated
monopoly to a competitive open market hit another snag. There was, however,
positive news in Michigan, which we expect will pass favorable legislation later
this year. Additionally, there are other bright spots. Companies continue to
diversify into other utility sectors and to other parts of the world to attempt
to increase their profit growth. The "convergence" of the electric and gas
industries continues, as companies merge to become regional, and eventually
national, providers of integrated energy services. We continue to position the
fund to benefit from these trends.
DUKE POWER, the fund's largest holding, merged in June with PanEnergy to become
Duke Energy. Duke's promising new market of providing gas and electricity from a
single source doubles the company's expected earnings growth rate from 4% to 8%.
PACIFICORP, another holding of the fund, agreed to acquire The Energy Group of
<PAGE>
England. This merger will combine a low-cost electric provider in the western
U.S. with a large, deregulated utility in England and Peabody Coal, the largest
private coal producer in the world. The new company will have a competitive
advantage in providing low-cost power in the U.S., England, and Australia (the
three largest deregulated energy markets in the world).
We remain enthusiastic about the prospects for the fund. All three utility
subsectors--electric, gas, and telephone, appear inexpensive versus the broad
market. The relative dividend yield on electrics, for example, is the highest in
twenty years. Furthermore, the defensive characteristics of utilities should
come back in favor when investors again recognize the value of seeking high and
reliable dividend yields, steady earnings, and moderate growth.
THEMES:
1. High-quality domestic utilities with superior dividend growth prospects.
2. Utilities with astute managers who can capitalize on changes in the industry.
3. Diversification of the fund's risk by including non-utility companies and
international utilities.
COMMENTS REGARDING SELECTED PURCHASES:
ELECTRICIDADE DE PORTUGAL has excellent earnings and dividend growth potential
from more efficient management, now that the government has made it a private
company.
BOSTON PROPERTIES is a high-quality real estate investment trust that owns
office properties in the northeast. It has a 6.5% yield and is expected to
benefit from the improvement in real estate markets.
PG & E provides exposure to California, the only major state to set definite
rules for transition to competition. The company plans to divest its generating
plants and become a distributor of gas and electric that will generate large
cash flows.
* The Standard & Poor's Utilities (electric power companies) Index, the Standard
& Poor's Telephone Index and the Standard & Poor's Natural Gas Distributors &
Pipe Lines Index are capitalization-weighted indices of all stocks designed to
measure the performance of the electric power utilities company sector, the
telephone sector and the natural gas distributors and pipe line sector,
respectively, of the Standard & Poor's 500 Index. Indices are unmanaged, and
investments cannot be made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
FEDERATED UTILITY FUND II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
<S> <C>
COMMON STOCKS--74.5%
CONSUMER DURABLES--0.5%
9,700 Ford Motor Co. $ 366,175
CONSUMER NON-DURABLES--2.0%
34,100 Philip Morris Cos., Inc. 1,513,188
ELECTRIC UTILITIES: CENTRAL--9.4%
70,500 CMS Energy Corp. 2,485,125
28,100 Cinergy Corp. 978,231
79,700 DPL, Inc. 1,962,612
44,200 NIPSCO Industries, Inc. 1,826,013
Total 7,251,981
ELECTRIC UTILITIES: EAST--3.1%
64,500 DQE, Inc. 1,822,125
15,600 GPU, Inc. 559,650
Total 2,381,775
ELECTRIC UTILITIES: SOUTH--13.1%
65,988 Duke Energy Co. 3,163,300
48,300 FPL Group, Inc. 2,224,819
72,100 Southern Co. 1,577,188
68,000 TECO Energy, Inc. 1,738,250
41,500 Texas Utilities Co. 1,429,156
Total 10,132,713
ELECTRIC UTILITIES: WEST--6.0%
26,000 P G & E Corp. 630,500
53,700 Pacificorp 1,181,400
</TABLE>
FEDERATED UTILITY FUND II
VALUE
IN U.S.
<PAGE>
<TABLE>
<CAPTION>
SHARES DOLLARS
<S> <C>
COMMON STOCKS--CONTINUED
ELECTRIC UTILITIES: WEST--CONTINUED
66,300 Pinnacle West Capital Corp. $ 1,993,144
21,900 Portland General Corp. 869,156
Total 4,674,200
ENERGY MINERALS--0.5%
6,800 Exxon Corp. 418,200
FINANCE--3.4%
12,600 (a)Boston Properties, Inc. 346,500
56,900 Meditrust, REIT 2,268,887
Total 2,615,387
MAJOR U.S. TELECOMMUNICATIONS--18.4%
34,900 Ameritech Corp. 2,371,019
54,500 BellSouth Corp. 2,527,437
54,700 GTE Corp. 2,399,962
57,900 MCI Communications Corp. 2,216,484
36,686 SBC Communications, Inc. 2,269,946
46,100 Sprint Corp. 2,426,013
Total 14,210,861
NATURAL GAS DISTRIBUTION--4.3%
53,700 MCN Corp. 1,644,562
5,600 New Jersey Resources Corp. 175,700
44,400 Pacific Enterprises 1,492,950
Total 3,313,212
NON-U.S. UTILITIES--12.1%
174,500 China Light and Power Co. Ltd. 988,803
86,550 (a)Electricidade de Portugal SA 1,588,299
57,200 Empresa Nacional Electricidad SA, ADR 1,290,575
23,000 Korea Electric Power Corp., ADR 429,812
FEDERATED UTILITY FUND II
VALUE
IN U.S.
SHARES DOLLARS
COMMON STOCKS--CONTINUED
NON-U.S. UTILITIES--CONTINUED
42,700 National Power Co. PLC, ADR $ 1,502,506
70 Nippon Telegraph & Telephone Corp. 671,785
324,500 Stet Societa Finanziaria Telefonica SPA 1,126,491
11,800 Telecomunicacoes Brasileiras SA, ADR 1,790,650
Total 9,388,921
OIL/GAS TRANSMISSION--1.4%
25,000 Williams Cos., Inc. (The) 1,093,750
WATER SUPPLY--0.3%
12,800 American Water Works Co., Inc. 273,600
TOTAL COMMON STOCKS (IDENTIFIED COST $50,142,993) 57,633,963
CONVERTIBLE PREFERRED STOCKS--18.2%
BASIC INDUSTRY--2.4%
7,800 (a)Amcor Ltd., PRIDES 413,400
41,700 Coeur d'Alene Mines Corp., Conv. Pfd., $1.49 698,475
19,000 Merrill Lynch & Co., Inc., STRYPES, Series
IMC Global 712,500
Total 1,824,375
CELLULAR TELEPHONE--1.0%
16,600 Airtouch Communications, Inc., Conv. Pfd.,
Series C, $2.13 796,800
ENERGY MINERALS--1.1%
15,500 (a)(b)Tosco Corp., Conv. Pfd. 862,963
FINANCE--4.5%
7,300 Merrill Lynch & Co., Inc., STRYPES, $4.09 500,050
16,200 Merrill Lynch & Co., Inc., STRYPES, Series
MGIC, $3.12 1,336,500
22,900 National Australia Bank, Ltd., Melbourne,
Exchangeable Capital Unit, $1.97 639,769
14,600 Salomon, Inc., DECS, $2.03 492,750
12,600 SunAmerica, Inc., PERCS, 8.5% 549,675
Total 3,518,744
FEDERATED UTILITY FUND II
SHARES VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
CONVERTIBLE PREFERRED STOCKS--CONTINUED
HEALTH CARE--1.0%
7,900 Aetna, Inc., Conv. Pfd., $4.76 $ 740,625
NATURAL GAS DISTRIBUTION--0.2%
3,300 MCN Corp., PRIDES, $8.00 179,437
OIL/GAS TRANSMISSION--1.8%
13,700 Williams Cos., Inc. (The), Conv. Pfd., $3.50 1,411,785
SERVICES--3.2%
25,000 Browning-Ferris Industries, Inc., ACES, $2.58 831,250
6,500 (b)CalEnergy Co., Inc., Conv. Pfd. 368,713
38,000 Hollinger International Publishing, Inc.,
Conv. Pfd., $.95 437,000
7,800 TCI Communications, Inc., Exchangeable Pfd.
Stock, $5.00 803,400
Total 2,440,363
TECHNOLOGY--1.9%
16,500 Microsoft Corp., Cumulative Conv. Pfd.,
Series A, $2.20 1,435,500
UTILITIES--1.1%
14,200 Salomon, Inc., DECS, Series CSN, $3.48 907,025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $12,684,009) 14,117,617
CONVERTIBLE CORPORATE BONDS--4.1%
HEALTH CARE--2.6%
$ 800,000 Alza Corp., Conv. Bond, 5.00%, 5/1/2006 811,792
1,800,000 (b)Roche Holdings, Inc., LYON, 5/6/2012 787,500
300,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 374,571
Total 1,973,863
NON-U.S. UTILITIES--0.3%
245,000 Korea Electric Power Corp., Conv. Bond, 5.00%,
8/1/2001 242,702
FEDERATED UTILITY FUND II
SHARES VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
CONVERTIBLE CORPORATE BONDS--CONTINUED
TECHNOLOGY--1.2%
$ 745,000 (b)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 $ 932,449
TOTAL CONVERTIBLE CORPORATE BONDS (IDENTIFIED
COST $2,857,178) 3,149,014
(C)REPURCHASE AGREEMENT--3.6%
2,800,000 BT Securities Corporation, 6.00%, dated 6/30/1997,
due 7/1/1997 (AT AMORTIZED COST) 2,800,000
TOTAL INVESTMENTS (IDENTIFIED COST $68,484,180)(D) $ 77,700,594
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At June 30, 1997, these securities amounted
to $2,951,625 which represents 3.8% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $68,484,180. The
net unrealized appreciation of investments on a federal tax basis amounts to
$9,216,414 which is comprised of $9,702,462 appreciation and $486,048
depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($77,394,033) at June 30, 1997.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities
ADR --American Depositary Receipt
DECS --Dividend Enhanced Convertible Stock
LYON --Liquid Yield Option Note
PERCS --Preferred Equity Redemption Cumulative Stock
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
REIT --Real Estate Investment Trust
SPA --Standby Purchase Agreement
STRYPES --Structured Yield Product Exhangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND II
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified and tax cost $68,484,180) $77,700,594
Cash 39,071
Income receivable 243,844
Receivable for investments sold 1,242,289
Total assets 79,225,798
LIABILITIES:
Payable for investments purchased $ 1,821,448
Payable for taxes withheld 10,317
Total liabilities 1,831,765
NET ASSETS for 6,257,442 shares outstanding $77,394,033
NET ASSETS CONSIST OF:
Paid in capital $67,374,321
Net unrealized appreciation of investments and
translation of assets and liabilities
in foreign currency 9,217,210
Accumulated net realized gain on investments
and foreign currency transactions 679,020
Undistributed net investment income 123,482
Total Net Assets $77,394,033
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
$77,394,033 / 6,257,442 shares
outstanding $12.37
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes
withheld of $21,425) $ 1,418,236
Interest 132,458
Total income 1,550,694
EXPENSES:
Investment advisory fee $ 255,800
Administrative personnel and
services fee 61,987
Custodian fees 4,750
Transfer and dividend disbursing
agent fees and expenses 12,250
Directors'/Trustees' fees 1,250
Auditing fees 6,344
Legal fees 1,750
Portfolio accounting fees 24,250
Share registration costs 1,240
Printing and postage 20,000
Insurance premiums 2,250
Miscellaneous 8,000
Total expenses 399,871
Waiver--
Waiver of investment
advisory fee (108,415)
Net expenses 291,456
Net investment income 1,259,238
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on investments and
foreign currency transactions 695,889
Net change in unrealized appreciation
of investments and translation of assets
and liabilities in foreign currency 4,185,014
Net realized and unrealized gain on
investments and foreign currency 4,880,903
Change in net assets resulting
from operations $ 6,140,141
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,259,238 $ 1,890,779
Net realized gain (loss) on investments
and foreign currency transactions
($695,889 and $1,464,419 net gains,
respectively, as computed for federal
tax purposes) 695,889 1,471,710
Net change in unrealized appreciation/
depreciation of investments and
translation of assets and liabilities
in foreign currency 4,185,014 2,758,768
Change in net assets resulting
from operations 6,140,141 6,121,257
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,226,946) (1,821,526)
Distributions from net realized gains
on investments and foreign currency
transactions (1,464,468) (192,047)
Change in net assets resulting from
distributions to shareholders (2,691,414) (2,013,573)
SHARE TRANSACTIONS--
Proceeds from sale of shares 14,299,254 36,577,954
Net asset value of shares issued to
shareholders in payment of distributions
declared 2,691,411 2,013,573
Cost of shares redeemed (6,602,895) (8,821,081)
Change in net assets resulting
from share transactions 10,387,770 29,770,446
Change in net assets 13,836,497 33,878,130
NET ASSETS:
Beginning of period 63,557,536 29,679,406
End of period (including undistributed
net investment income of $123,482 and
$91,190, respectively) $77,394,033 $63,557,536
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JUNE 30, YEAR ENDED DECEMBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.81 $11.03 $ 9.29 $ 9.48
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.42 0.45 0.34
Net realized and unrealized gain
(loss) on investments 0.82 0.82 1.74 (0.19)
Total from investment operations 1.03 1.24 2.19 0.15
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.41) (0.45) (0.34)
Distributions from net
realized gain on investments (0.26) (0.05) -- --
Total distributions (0.47) (0.46) (0.45) (0.34)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NET ASSET VALUE, END OF PERIOD $12.37 $11.81 $ 11.03 $9.29
TOTAL RETURN(B) 8.98% 11.56% 24.18% 1.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85%* 0.85% 0.85% 0.60%*
Net investment income 3.69%* 3.92% 4.62% 4.77%*
Expense waiver/reimbursement(c) 0.32%* 0.51% 2.24% 54.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $77,394 $63,558 $29,679 $ 974
Average commission rate paid(d) $0.0357 $0.0402 -- --
Portfolio turnover 25% 63% 62% 73%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to April 13, 1994, the net investment income
was distributed to the fund's adviser.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Utility Fund II (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to achieve high current income and
moderate capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS-- Listed corporate bonds, (other fixed income and asset-
backed securities), and unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Listed equity securities are
valued at the last sale price reported on a national securities exchange.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. With respect to valuation of foreign
securities, trading in foreign cities may be completed at times which vary
from the closing of the New York Stock Exchange. Therefore, foreign securities
are valued at the latest closing price on the exchange on which they are
traded prior to the closing of the New York Stock Exchange. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at the foreign
exchange rate in effect at noon, eastern time, on the day the value of the
foreign security is determined.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
<PAGE>
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS-- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. Risks may arise upon entering these
transactions from the potential inability of counterparts to meet the terms of
their commitments and from unanticipated movements in security prices or
foreign exchange rates. The foreign currency transactions are adjusted by the
daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purpose as unrealized until the settlement
date.
At June 30, 1997, the Fund had outstanding foreign currency commitments as set
forth below:
<TABLE>
<CAPTION>
UNREALIZED
SETTLEMENT CONTRACTS TO CONTRACTS APPRECIATION
DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Contracts Sold:
Hong Kong Dollar July 3, 1997 51,340 $ 6,627 $ 6,626 $(1)
Italian Lira July 2, 1997 37,931,250 22,318 22,313 (5)
Net Unrealized
(Depreciation)
on Foreign
Exchange Contracts (6)
</TABLE>
FOREIGN CURRENCY TRANSLATION-- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and
collected or paid are adjusted when reported by the custodian bank. The Fund
does not isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES-- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Trustees. The Fund will not incur any registration costs
upon such resales. The Fund's restricted securities are valued at the price
available, at the fair value as determined by the Fund's pricing committee.
Additional information on each restricted security held at June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Tosco Corp. 12/10/1996-5/30/1997 $799,994
CalEnergy Co., Inc. 2/28/1997-5/30/1997 329,188
Roche Holdings, Inc. 4/29/1997 709,011
Solectron Corp. 2/15/1996-6/4/1997 753,847
</TABLE>
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 amounts of assets, liabilities, expenses and
<PAGE>
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTH YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
Shares sold 1,201,323 3,296,405
Shares issued to shareholders in
payment of distributions declared 229,915 180,323
Shares redeemed (556,026) (785,968)
Net change resulting from share transactions 875,212 2,690,760
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSE -- Organizational and/or start-up administrative
service expenses of $49,266 were borne initially by the Adviser. The Fund has
agreed to reimburse the Adviser for the organizational and/or start-up
administrative expenses during the five-year period following effective date.
For the period ended June 30, 1997, the Fund paid $6,569 pursuant to this
agreement.
GENERAL-- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and in-kind
contributions), for the period ended June 30, 1997, were as follows:
PURCHASES $24,397,784
SALES $16,732,861
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
At June 30, 1997, the diversification of countries was as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY NET ASSETS
<S> <C>
Brazil 2.3%
Chile 1.7%
Hong Kong 1.3%
Italy 1.5%
Japan 0.9%
Korea 0.9%
Portugal 2.1%
Switzerland 1.0%
United Kingdom 2.0%
</TABLE>
TRUSTEES
John F. Donahue
<PAGE>
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information
FEDERATED
UTILITY
FUND II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Cusip 313916108
G00433-03 (8/97)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to shareholders for Federated
Fund for U.S. Government Securities II, a portfolio of Federated Insurance
Series.
The report covers the six-month period from January 1, 1997, through June 30,
1997. It begins with an investment review by the fund's portfolio manager, which
is followed by a complete listing of the fund's holdings as well as its
financial statements.
To pursue an attractive level of income, the fund invests primarily in short-
to-intermediate-term U.S. government mortgage-backed securities and U.S.
Treasury notes and bonds.
During the six-month reporting period, the fund produced a net total return of
3.01%.* The fund paid dividends totaling $0.29 per share. On June 30, 1997, the
fund's total net assets stood at $44.4 million.
Thank you for pursuing income through the diversification and professional
management of Federated Fund for U.S. Government Securities II. Your
comments and suggestions are always welcome.
Sincerely,
[Graphic]
J. Christopher Donahue
President
August 15, 1997
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
<PAGE>
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
INVESTMENT REVIEW
Federated Fund for U.S. Government Securities II provides shareholders with a
professionally managed portfolio of U.S. government securities. The fund is
managed for specific maturity levels according to management's assumptions on
market risk and volatility. Current investment strategy emphasizes a diversified
range of mortgage securities with coupons averaging 7.48% and a weighted average
effective duration of 4.0 years.
After the torrid rate of growth in the first quarter of 1997, the pace of
economic activity slowed down to a more tolerable level during the second
quarter. Consumers appeared to have moderated their spending, and the
manufacturing sector had a pull back after the large increase in inventories
during the first quarter. Personal income grew faster than inflation, and the
Treasury market continued its range bound trading pattern.
During this semi-annual reporting period, mortgages turned in a stellar
performance, having benefited from stable Treasury rates and declining implied
volatilities. On a total rate of return basis for the first six months of 1997,
mortgages outperformed Treasuries by 110 basis points. The question at this
juncture is: will the outperformance continue going forward in the mortgage
market? Currently, fund management is cautious on mortgages due to near-term
risks. These risks include a pickup in volatility as well as a breakout from our
current trading range.
Portfolio activity during this reporting period focused on purchases of seasoned
30-year mortgage securities. In addition, the fund did modest extension swaps in
the core position of U.S. Treasuries. This strategy gave the fund, for the six-
month period ended June 30, 1997, a net total return of 3.01%* versus a blend of
the Lehman Government and Mortgage Indices** return of 3.22%
As of June 30, 1997, total net assets were $44.4 million and the average 30-day
net yield as calculated under Securities and Exchange Commission guidelines was
6.22%* based upon the net asset value of $10.10.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance information does not reflect the charges and
expenses of a variable annuity or variable life insurance contract.
** The indices are a blend of 40% Lipper General U.S. Government Funds and 60%
Lehman Brothers Mortgage-Backed Securities Index. Lipper General U.S.
Government Funds invest at least 65% of assets in U.S. Government and agency
issues. Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated. Lipper figures do not
reflect sales charges. Lehman Brothers Mortgage-Backed Securities Index is
composed of all fixed rate, securitized mortgage pools by the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"), including GNMA Graduated Payment Mortgages. Indexes are unmanaged
and investments cannot be made in an index.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C>
INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS--17.0%
$ 2,500,000 Federal Farm Credit Bank, 6.320%, 10/30/1998 $ 2,515,950
500,000 Federal Farm Credit Bank, 8.650%, 10/1/1999 525,725
900,000 Federal Farm Credit Bank, 9.000%, 3/7/2000 960,138
1,500,000 Federal Home Loan Bank System, 6.285%, 6/26/2000 1,496,625
1,000,000 Federal Home Loan Bank System, 6.830%, 7/17/2001 1,014,350
1,000,000 Federal Home Loan Bank System, 8.600%, 8/25/1999 1,048,710
TOTAL INTERMEDIATE-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $7,528,148) 7,561,498
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--63.8%
9,084,110 Federal Home Loan Mortgage Corp., 6.00% - 9.00% ,
9/1/2010 - 7/1/2026 9,068,041
9,917,366 Federal National Mortgage Association, 6.50% - 10.00%,
8/1/2011 - 2/1/2027 9,905,842
9,066,900 Government National Mortgage Association, 6.50% - 11.00%,
9/15/2015 - 7/15/2026 9,312,578
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $28,129,365) 28,286,461
U.S. TREASURY OBLIGATIONS--17.4%
1,100,000 U.S. Treasury Bonds, 6.000%, 2/15/2026 984,962
900,000 U.S. Treasury Bonds, 9.250%, 2/15/2016 1,126,539
690,000 U.S. Treasury Bonds, 11.250%, 2/15/2015 1,002,715
1,000,000 U.S. Treasury Notes, 6.250%, 2/28/2002 994,660
1,000,000 U.S. Treasury Notes, 6.625%, 3/31/2002 1,009,200
1,500,000 U.S. Treasury Notes, 7.000%, 7/15/2006 1,543,950
1,000,000 U.S. Treasury Notes, 7.250%, 8/15/2004 1,042,530
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $7,642,237) 7,704,556
</TABLE>
Federated Fund for U.S. Government Securities II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) REPURCHASE AGREEMENT--0.9%
$ 380,000 BT Securities Corporation, 6.00%, dated 6/30/1997, due 7/1/1997
(AT AMORTIZED COST) $ 380,000
TOTAL INVESTMENTS (IDENTIFIED COST $43,679,750)(B) $ 43,932,515
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
The investment in the repurchase agreement is through participation in a
joint account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $43,679,750.
The net unrealized appreciation of investments on a federal tax basis
amounts to $252,765 which is comprised of $330,133 appreciation and
$77,368 depreciation at June 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($44,369,652) at June 30, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1997 (UNAUDITED)
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $43,679,750) $ 43,932,515
Income receivable 512,955
Prepaid expenses 46,872
Total assets 44,492,342
LIABILITIES:
Payable to Bank $ 97,160
Accrued expenses 25,530
Total liabilities 122,690
NET ASSETS for 4,392,706 shares outstanding $ 44,369,652
NET ASSETS CONSIST OF:
Paid in capital $ 44,139,538
Net unrealized appreciation of investments 252,765
Accumulated net realized loss on investments (152,223)
Undistributed net investment income 129,572
Total Net Assets $ 44,369,652
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$44,369,652 / 4,392,706 shares outstanding $10.10
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,353,450
EXPENSES:
Investment advisory fee $ 116,987
Administrative personnel and services fee 61,985
Custodian fees 10,057
Transfer and dividend disbursing agent fees and expenses 8,692
Directors'/Trustees' fees 1,259
Auditing fees 4,501
Legal fees 1,736
Portfolio accounting fees 23,418
Share registration costs 1,741
Printing and postage 17,124
Insurance premiums 1,784
Miscellaneous 8,879
Total expenses 258,163
Waivers and reimbursements--
Waiver of investment advisory fee $ (101,223)
Reimbursement of other operating expenses by the adviser (98)
Total waivers and reimbursements (101,321)
Net expenses 156,842
Net investment income 1,196,608
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (22,328)
Net change in unrealized appreciation of investments 54,621
Net realized and unrealized gain on investments 32,293
Change in net assets resulting from operations $ 1,228,901
</TABLE>
<PAGE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,196,608 $ 1,410,381
Net realized gain (loss) on investments ($22,328 net loss
and $129,895 net loss, respectively, as computed for
federal tax purposes) (22,328) (129,895)
Net change in unrealized appreciation/depreciation 54,621 21,469
Change in net assets resulting from operations 1,228,901 1,301,955
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,136,086) (1,344,598)
Distributions from net realized gains -- (68,239)
Change in net assets resulting from distributions to
shareholders (1,136,086) (1,412,837)
SHARE TRANSACTIONS--
Proceeds from sale of shares 17,726,106 36,293,161
Net asset value of shares issued to shareholders in payment
of distributions declared 1,136,008 1,406,120
Cost of shares redeemed (9,549,824) (14,888,081)
Change in net assets resulting from share transactions 9,312,290 22,811,200
Change in net assets 9,405,105 22,700,318
NET ASSETS:
Beginning of period 34,964,547 12,264,229
End of period (including undistributed net investment
income of $129,572 and $69,050, respectively) $ 44,369,652 $ 34,964,547
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JUNE 30, YEAR ENDED DECEMBER 31,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.09 $ 10.29 $ 9.99 $ 9.99
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.59 0.54 0.27
Net realized and unrealized gain (loss) on investments -- (0.18) 0.30 --
Total from investment operations 0.30 0.41 0.84 0.27
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.57) (0.54) (0.27)
Distributions from net realized gain on investments -- (0.04) -- --
Total distributions (0.29) (0.61) (0.54) (0.27)
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 10.09 $ 10.29 $ 9.99
TOTAL RETURN(B) 3.01% 4.20% 8.77% 2.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.80% 0.48%*
Net investment income 6.14%* 6.00% 6.00% 3.99%*
Expense waiver/reimbursement(c) 0.52%* 1.01% 4.81% 32.83%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $44,370 $34,965 $12,264 $1,244
Portfolio turnover 35% 97% 65% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 29, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 8,
1993 (start of business), to March 28, 1994, net investment income was
distributed to the fund's adviser.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 (UNAUDITED)
1. ORGANIZATION
<PAGE>
Federated Insurance Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of eight portfolios. The financial
statements included herein are only those of Federated Fund for U.S. Government
Securities II (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The investment objective of the Fund is to provide current
income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS-- U.S. government securities are generally valued at the
mean of the latest bid and asked price as furnished by an independent pricing
service. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES-- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At December 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $129,895, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted
by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2004 $129,895
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DOLLAR ROLL TRANSACTIONS-- The Fund enters into dollar roll transactions, with
respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which the
Fund sells mortgage securities to financial institutions and simultaneously
agrees to accept substantially similar (same type, coupon and maturity)
securities at a later date at an agreed upon price. Dollar roll transactions
are short-term financing arrangements which will not exceed twelve months. The
Fund will use the proceeds generated from the transactions to invest in short-
term investments, which may enhance the Fund's current yield and total return.
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 amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1997 1996
<S> <C> <C>
Shares sold 1,763,505 3,618,961
Shares issued to shareholders in
payment of distributions declared 113,302 140,342
Shares redeemed (950,413) (1,484,884)
Net change resulting from share transactions 926,394 2,274,419
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.60% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES-- Organizational expenses of $51,572 were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective date.
For the period ended June 30, 1997, the Fund paid $13,753 pursuant to this
agreement.
GENERAL-- Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended June 30, 1997, were as follows:
PURCHASES $23,300,473
SALES $13,684,506
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Variable funds are not bank deposits or obligations, are not guaranteed by any
<PAGE>
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in variable funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
FEDERATED
FUND FOR U.S.
GOVERNMENT
SECURITIES II
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JUNE 30, 1997
FEDERATED INSURANCE SERIES
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Cusip 313916207
G00433-01 (8/97)
[Graphic]
<PAGE>
- --------------------------------------------------------------------------------
DFA Investment Dimensions Group Inc.
VA SMALL VALUE PORTFOLIO
VA LARGE VALUE PORTFOLIO
VA INTERNATIONAL VALUE PORTFOLIO
VA INTERNATIONAL SMALL PORTFOLIO
VA SHORT-TERM FIXED PORTFOLIO
VA GLOBAL BOND PORTFOLIO
Semi-Annual
Report
Six Months Ended May 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
SEMI-ANNUAL REPORT
(UNAUDITED)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Statements of Net Assets
VA Small Value Portfolio.............................................. 1
VA Large Value Portfolio.............................................. 11
VA International Value Portfolio...................................... 14
VA International Small Portfolio...................................... 19
VA Short-Term Fixed Portfolio......................................... 25
VA Global Bond Portfolio.............................................. 27
Statements of Operations.................................................. 29
Statements of Changes in Net Assets....................................... 31
Financial Highlights...................................................... 34
Notes to Financial Statements............................................. 37
</TABLE>
This report is submitted for the information of the Fund's shareholders. It is
not authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
i
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
VA SMALL VALUE PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE+
------ -------
<S> <C> <C>
COMMON STOCKS -- (95.8%)
*3-D Systems Corp............................................ 1,000 $ 7,250
AAR Corp..................................................... 1,400 43,400
*ACX Technologies, Inc....................................... 1,900 40,375
APL, Ltd..................................................... 2,100 63,525
*APS Holding Corp. Class A................................... 1,000 9,937
*AST Research, Inc........................................... 800 4,187
*Accell International Corp................................... 400 1,200
*Acceptance Insurance Companies, Inc......................... 1,300 27,300
*Acclaim Entertainment, Inc.................................. 2,500 10,312
Aceto Corp................................................... 440 5,940
*Acme Metals, Inc............................................ 1,000 15,250
*Adage, Inc.................................................. 400 1,612
*Adflex Solutions, Inc....................................... 700 11,462
*Advanced Logic Research, Inc................................ 1,000 11,062
*Advanced Marketing Services, Inc............................ 500 5,187
*Advanced Technology Labs, Inc............................... 1,100 42,969
Advantage Bancorp, Inc....................................... 250 9,719
Advest Group, Inc............................................ 700 11,375
*Aeroflex, Inc............................................... 1,000 4,000
*Aerovox, Inc................................................ 400 1,925
*Air Methods Corp............................................ 300 816
Airborne Freight Corp........................................ 1,800 68,850
*Alamco, Inc................................................. 400 6,100
*Alarmguard Holdings, Inc.................................... 1,000 6,500
*Alaska Air Group, Inc....................................... 1,100 27,362
Albank Financial Corp........................................ 1,200 46,200
*Aldila, Inc................................................. 800 3,950
Alfa Corp.................................................... 1,800 22,950
Alico, Inc................................................... 200 3,850
*Alliance Entertainment Corp................................. 2,300 2,012
*Alliance Semiconductor Corp................................. 2,500 20,781
Allied Healthcare Products, Inc.............................. 200 1,200
*Allied Holdings, Inc........................................ 100 987
*Allied Research Corp........................................ 300 2,512
*Allwaste, Inc............................................... 600 5,025
*Alpha Industries, Inc....................................... 500 3,687
*Alpha Technologies Group, Inc............................... 500 1,469
Alpharma, Inc. Class A....................................... 700 11,725
Amcast Industrial Corp....................................... 700 17,150
Amcore Financial, Inc........................................ 300 8,437
*America West Holdings Corp. Class B......................... 1,800 27,675
*American Banknote Corp...................................... 1,600 6,800
American Eagle Group, Inc.................................... 300 187
*American Eagle Outfitters, Inc.............................. 800 9,050
*American Ecology Corp....................................... 700 962
*American Freightways Corp................................... 1,900 25,887
American Heritage Life Investment Corp....................... 1,200 34,800
*American Mobile Satellite Corp.............................. 700 6,212
*American Pacific Corp....................................... 700 4,528
*American Software, Inc. Class A............................. 300 2,203
*American Waste Services, Inc. Class A....................... 2,100 3,675
*Ameristar Casinos, Inc...................................... 1,200 6,600
<CAPTION>
SHARES VALUE+
------ -------
<S> <C> <C>
*Ameriwood Industries International Corp..................... 400 $ 2,875
Ameron, Inc.................................................. 300 16,650
*Ames Department Stores, Inc................................. 1,100 8,903
Ampco-Pittsburgh Corp........................................ 400 5,250
*Amrep Corp.................................................. 600 2,250
*Amtech Corp................................................. 800 4,300
*Amtran, Inc................................................. 800 6,900
Amvestors Financial Corp..................................... 691 12,179
Analogic Corp................................................ 100 3,244
Andover Bancorp, Inc. DE..................................... 480 13,800
Angelica Corp................................................ 800 14,400
*Ann Taylor Stores Corp...................................... 2,000 46,500
*Ansaldo Signal N.V.......................................... 250 1,437
*Antec Corp.................................................. 3,000 36,750
*Anuhco, Inc................................................. 300 2,700
*Apertus Technologies, Inc................................... 900 1,336
*Apogee, Inc................................................. 1,200 5,100
*Applied Extrusion Technologies, Inc......................... 500 5,937
*Applied Signal Technologies, Inc............................ 300 2,109
*Arcadia Financial, Ltd...................................... 2,900 30,087
*Arch Communications Group, Inc.............................. 1,500 11,906
*Arden Industrial Products, Inc.............................. 600 3,150
*Argosy Gaming Corp.......................................... 1,000 3,125
*Arkansas Best Corp.......................................... 1,700 10,147
*Artisoft, Inc............................................... 1,100 2,750
*Artistic Greetings, Inc..................................... 500 2,187
Arvin Industries, Inc........................................ 1,900 52,725
*Asante Technologies, Inc.................................... 400 1,562
Ashland Coal, Inc............................................ 1,200 32,100
*Astec Industries, Inc....................................... 900 10,575
*Astrosystems, Inc........................................... 400 2,150
*Astrotech International Corp................................ 800 4,200
*Asyst Technologies, Inc..................................... 300 11,981
*Atchison Casting Corp....................................... 200 3,425
*Atkinson (Guy F.) of California............................. 500 3,469
*Atlantic Gulf Communities Corp.............................. 500 2,812
*Atlantic Tele-Network, Inc.................................. 1,000 12,500
*Atlantis Plastics, Inc...................................... 200 1,425
*Au Bon Pain, Inc. Class A................................... 600 3,787
*Audiovox Corp. Class A...................................... 800 5,250
*Autoinfo, Inc............................................... 600 1,069
*Avatex Corp................................................. 1,400 1,575
*Aviall, Inc................................................. 800 11,800
*Avid Technology, Inc........................................ 1,900 44,650
*Avondale Industries, Inc.................................... 500 9,437
*Aydin Corp.................................................. 400 4,500
*Aztar Corp.................................................. 3,300 23,100
Aztec Manufacturing Co....................................... 500 6,125
BEI Electronics, Inc......................................... 600 5,250
*BI, Inc..................................................... 1,000 6,906
*BMC West Corp............................................... 1,000 13,312
*BPI Packaging Technologies, Inc............................. 300 558
BSB Bancorp, Inc............................................. 600 20,662
*BTU International, Inc...................................... 200 787
Badger Meter, Inc............................................ 200 5,000
</TABLE>
1
1
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ --------
<S> <C> <C>
Bairnco Corp................................................. 900 $ 6,412
Baker (J.), Inc.............................................. 1,200 9,750
*Baker (Michael) Corp........................................ 700 4,856
*Baldwin Piano & Organ Co.................................... 300 4,125
*Baldwin Technology, Inc. Class A............................ 1,400 3,850
*Bally Total Fitness Holding Corp............................ 1,000 8,187
*Bancinsurance Corp.......................................... 500 2,031
*Bank Plus Corp.............................................. 1,000 10,750
*Bank United Financial Corp. Class A......................... 200 1,962
BankAtlantic Bancorp, Inc. Class B........................... 1,000 13,812
Bankers Corp................................................. 1,100 27,775
*Banner Aerospace, Inc....................................... 2,300 18,400
*Banyan System, Inc.......................................... 1,600 2,950
*Basin Exploration, Inc...................................... 900 6,525
Bassett Furniture Industries, Inc............................ 1,200 30,075
Bay View Capital Corp........................................ 600 30,225
*Bayou Steel Corp. Class A................................... 900 2,925
*Be Aerospace, Inc........................................... 1,400 33,775
*Beazer Homes USA, Inc....................................... 700 10,762
*Bel Fuse, Inc............................................... 400 5,550
*Belden & Blake Corp......................................... 1,000 26,687
*Bell Industries, Inc........................................ 300 5,587
*Bell Microproducts, Inc..................................... 500 5,594
*Bell Sports Corp............................................ 700 4,550
*Bellwether Exploration Co................................... 500 4,969
*Ben & Jerry's Homemade, Inc. Class A........................ 500 6,750
*Berlitz International, Inc.................................. 900 21,487
*Bertuccis, Inc.............................................. 700 4,156
*Best Buy Co., Inc........................................... 3,000 40,875
Bindley Western Industries, Inc.............................. 600 13,200
Binks Sames Corp............................................. 300 12,675
*Bio Vascular, Inc........................................... 500 2,437
*Bio-Rad Laboratories, Inc. Class A.......................... 400 10,200
*Bird Corp................................................... 400 1,525
Birmingham Steel Corp........................................ 2,500 40,000
Blair Corp................................................... 500 8,062
Blessings Corp............................................... 1,000 10,500
*Blowout Entertainment, Inc.................................. 11 15
*Bluegreen Corp.............................................. 700 2,187
Bob Evans Farms, Inc......................................... 2,700 38,306
*Boca Research, Inc.......................................... 1,000 6,531
*Bombay Co., Inc............................................. 2,400 10,800
*Bon-Ton Stores, Inc......................................... 900 5,822
*Books-a-Million, Inc........................................ 1,400 7,175
*Boomtown, Inc............................................... 800 6,450
*Borland International, Inc.................................. 1,400 10,062
Bowne & Co., Inc............................................. 1,800 53,775
*Boyd Gaming Corp............................................ 4,500 26,437
*Brazos Sportswear, Inc...................................... 50 456
*Brock International, Inc.................................... 300 1,200
*Brothers Gourmet Coffees, Inc............................... 800 1,750
*Brown & Sharpe Manufacturing Co. Class A.................... 700 9,975
Brown Group, Inc............................................. 5,600 100,800
Brush Wellman, Inc........................................... 900 19,125
*Buffets, Inc................................................ 1,900 16,981
*Buffton Corp................................................ 300 750
*Builders Transport, Inc..................................... 400 1,062
*Bull Run Corp. GA........................................... 1,200 2,700
*Burlington Coat Factory Warehouse Corp...................... 1,200 21,450
<CAPTION>
SHARES VALUE+
------ --------
<S> <C> <C>
*Buttrey Food & Drug Stores Co............................... 700 $ 7,350
CFX Corp..................................................... 300 5,025
CML Group, Inc............................................... 4,100 9,737
CPB, Inc..................................................... 200 7,050
CPI Corp..................................................... 1,000 18,750
*CSP, Inc.................................................... 200 1,425
CTS Corp..................................................... 400 27,600
Cadmus Communications Corp................................... 300 4,237
*Calcomp Technology, Inc..................................... 400 850
California Financial Holding Corp............................ 400 11,800
*California Microwave, Inc................................... 1,000 12,187
Calmat Co.................................................... 2,300 45,712
*Canandaigua Wine Co., Inc. Class A.......................... 1,800 55,912
*Capital Pacific Holdings, Inc............................... 200 537
Capital Re Corp.............................................. 1,200 52,650
Capsure Holdings Corp........................................ 1,300 16,250
*Cardinal Realty Services, Inc............................... 200 4,850
*Care Group, Inc............................................. 700 722
Carpenter Technology Corp.................................... 1,100 47,575
*Carson Pirie Scott & Co..................................... 800 25,800
Carter-Wallace, Inc.......................................... 2,900 47,850
Cash America International, Inc.............................. 2,400 23,400
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
*Casino America, Inc........................................ 2,200 5,156
*Casino Data Systems........................................ 1,000 4,375
*Casino Magic Corp.......................................... 2,200 3,094
*Catalina Lighting, Inc..................................... 600 2,175
*Catherines Stores Corp..................................... 500 2,156
Cato Corp. Class A.......................................... 2,000 9,750
*Celadon Group, Inc......................................... 1,000 11,250
*Celebrity, Inc............................................. 500 1,656
*Cell Genesys, Inc.......................................... 500 2,812
*Cellpro, Inc............................................... 800 5,100
Cenfed Financial Corp....................................... 484 13,945
Cenit Bancorp, Inc.......................................... 100 4,400
*Centennial Cellular Corp. Class A.......................... 1,600 22,600
*Centigram Communications Corp.............................. 500 5,719
*Central Sprinkler Corp..................................... 200 4,150
Centris Group, Inc.......................................... 300 5,662
Chaparral Steel Co.......................................... 1,800 27,000
*Charming Shoppes, Inc...................................... 8,800 46,475
*Chart House Enterprises, Inc............................... 700 4,900
*Checkpoint System, Inc..................................... 300 4,275
*Cherry Corp. Class A....................................... 600 7,087
*Cherry Corp. Class B....................................... 400 4,875
*Chic by His, Inc........................................... 1,000 6,875
*Chock Full O' Nuts Corp.................................... 500 2,937
*Chrysalis International Corp............................... 400 1,712
*Cidco, Inc................................................. 1,000 14,500
*Circuit Systems, Inc....................................... 300 1,678
*Citadel Holding Corp....................................... 300 975
*Citation Corp.............................................. 1,000 14,937
Citfed Bancorp, Inc......................................... 600 22,125
Citizens Banking Corp....................................... 800 26,100
*Civic Bancorp.............................................. 400 4,775
*Clean Harbors, Inc......................................... 800 1,200
Cleveland Cliffs, Inc....................................... 600 25,350
*Clintrials Research, Inc................................... 1,100 10,931
*Coast Distribution System.................................. 300 975
*Coast Savings Financial, Inc............................... 1,600 68,200
*Coastal Physician Group, Inc............................... 1,300 1,219
*Coastcast Corp............................................. 1,000 13,125
*Cobra Electronic Corp...................................... 1,000 3,062
</TABLE>
2
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
-------- --------
<S> <C> <C>
*Coeur d'Alene Mines Corp. ID................................ 2,000 $27,250
*Coho Energy, Inc............................................ 1,400 13,169
Collagen Corp................................................ 1,100 18,700
Commercial Intertech Corp.................................... 800 10,400
Commercial Metals Co......................................... 1,300 38,512
Computer Data Systems, Inc................................... 500 13,719
*Concord Fabrics, Inc. Class A............................... 200 1,325
*Cone Mills Corp. NC......................................... 2,000 17,250
*Conmed Corp................................................. 1,200 22,725
Continental Homes Holding Corp............................... 600 9,825
Cooker Restaurant Corp....................................... 500 5,750
*Copley Pharmaceutical, Inc.................................. 1,000 6,500
Core Industries, Inc......................................... 800 14,400
*Cornerstone Imaging, Inc.................................... 1,000 8,500
*Corrpro Companies, Inc...................................... 300 2,587
*Cortech, Inc................................................ 1,500 1,219
*Craig Corp.................................................. 300 5,062
*Criticare Systems, Inc...................................... 600 3,375
Cross (A.T.) Co. Class A..................................... 800 8,900
*Crosscomm Corp.............................................. 500 4,750
*Crown Central Petroleum Corp. Class A....................... 400 5,400
*Crown Central Petroleum Corp. Class B....................... 300 3,881
Crown Crafts, Inc............................................ 700 7,262
*Crown-Andersen, Inc......................................... 100 650
Cubic Corp................................................... 750 17,625
*Cybex International, Inc.................................... 400 4,100
*Cyrk, Inc................................................... 1,300 15,194
*Cytrx Corp.................................................. 700 2,887
*D&N Financial Corp.......................................... 600 10,762
*DBA Systems, Inc............................................ 400 2,275
*DII Group, Inc.............................................. 200 6,325
*DIY Home Warehouse, Inc..................................... 500 1,906
*DVI, Inc.................................................... 100 1,337
*Daka International, Inc..................................... 500 6,281
*Damark International, Inc. Class A.......................... 800 12,300
Daniel Industries, Inc....................................... 300 4,012
*Data Broadcasting Corp...................................... 1,200 5,925
*Data General Corp........................................... 600 12,825
*Data I/O Corp............................................... 500 2,906
*Data Race, Inc.............................................. 400 5,950
*Data Systems & Software, Inc................................ 500 2,562
*Dataflex Corp............................................... 400 1,325
*Datakey, Inc................................................ 200 550
*Datascope Corp.............................................. 500 9,562
*Dataware Technologies, Inc.................................. 500 1,719
*Datron Systems, Inc......................................... 200 2,050
*Datum, Inc.................................................. 300 7,331
*Dawson Geophysical Co....................................... 300 3,975
Daxor Corp................................................... 400 3,800
Deb Shops, Inc............................................... 1,100 4,744
*Deckers Outdoor Corp........................................ 500 3,719
Defiance, Inc................................................ 600 4,350
*Del Global Technologies Corp................................ 500 4,437
Delchamps, Inc............................................... 500 13,844
*Delta Woodside Industries, Inc.............................. 2,100 12,337
*Designs, Inc................................................ 1,300 5,525
*Detection Systems, Inc...................................... 300 5,550
*Detroit Diesel Corp......................................... 1,800 39,600
*Devcon International Corp................................... 400 2,125
*Dianon Systems, Inc......................................... 500 4,594
*Digi International, Inc..................................... 1,000 $ 9,062
Dime Financial Corp.......................................... 400 9,100
*Discount Auto Parts, Inc.................................... 1,500 27,937
*Dixie Group, Inc............................................ 1,000 8,250
*Dominion Bridge Corp........................................ 1,100 1,616
*Dominion Homes, Inc......................................... 300 1,387
*Donnkenny, Inc.............................................. 900 3,656
*Dover Downs Entertainment, Inc.............................. 100 1,912
Downey Financial Corp........................................ 1,575 31,500
*Dress Barn, Inc............................................. 1,900 32,537
*Drug Emporium, Inc.......................................... 1,100 4,812
*Durakon Industries, Inc..................................... 300 2,925
Dyersburg Corp............................................... 1,100 8,800
Dynamics Corp. of America.................................... 300 17,325
*Dynamics Research Corp...................................... 550 4,916
*E-Z-Em, Inc. Class A........................................ 300 2,475
*E-Z-Em, Inc. Class B........................................ 18 137
*EA Engineering Science & Technology, Inc.................... 500 937
*ECC International Corp...................................... 300 1,987
*EIS International, Inc...................................... 500 3,375
*ESCO Electronics Corp. Trust Receipts....................... 900 9,337
</TABLE>
<TABLE>
SHARES VALUE+
-------- --------
<S> <C> <C>
Eagle Financial Corp......................................... 300 8,250
Eastern Bancorp, Inc......................................... 300 7,856
Eastern Co................................................... 200 2,550
Eaton Vance Corp............................................. 1,600 39,400
Ecology & Environment, Inc. Class A.......................... 200 1,600
*Edison Brothers Stores, Inc................................. 1,900 1,306
*Edisto Resources Corp....................................... 1,100 11,000
Edo Corp..................................................... 300 2,062
*Education Alternatives, Inc................................. 500 2,250
*Egghead, Inc................................................ 1,500 7,031
Ekco Group, Inc.............................................. 1,600 8,200
*Electroglas, Inc............................................ 1,000 25,187
*Electromagnetic Sciences, Inc............................... 600 11,475
*Electronic Fab Technology, Inc.............................. 300 1,950
*Elek-Tek, Inc............................................... 1,000 1,625
*Emcon....................................................... 700 2,362
*Empire of Carolina, Inc..................................... 400 1,075
Energen Corp................................................. 900 29,700
Engle Homes, Inc............................................. 500 4,594
Enhance Financial Services Group, Inc........................ 800 33,400
*Environmental Elements Corp................................. 600 1,312
*Envirotest Systems Corp. Class A............................ 1,000 1,906
*Equitrac Corp............................................... 300 3,994
*Equity Oil Co............................................... 1,300 3,737
*Evans & Sutherland Computer Corp............................ 700 18,375
Evergreen Bancorp, Inc. DE................................... 800 12,100
*Evergreen Resources, Inc.................................... 500 4,625
*Exabyte Corp................................................ 1,800 25,087
*Exar Corp................................................... 500 9,281
Excel Industries, Inc........................................ 900 16,312
Exide Corp................................................... 2,100 45,937
*Exide Electronics Group, Inc................................ 600 6,862
*Ezcorp, Inc. Class A Non-Voting............................. 600 4,800
*FM Properties, Inc.......................................... 800 2,900
*FSI International, Inc...................................... 1,400 19,425
*FTP Software, Inc........................................... 2,700 15,356
Fab Industries, Inc.......................................... 500 15,625
*Failure Group, Inc.......................................... 600 3,600
</TABLE>
3
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ --------
<S> <C> <C>
*Fairchild Corp. Class A..................................... 1,300 $21,287
*Fansteel, Inc............................................... 700 5,162
*Farah, Inc.................................................. 900 7,987
Farrel Corp.................................................. 200 687
*Fibreboard Corp............................................. 500 27,187
*Fieldcrest Cannon, Inc...................................... 500 9,375
*Filenes Basement Corp....................................... 1,700 10,625
Fingerhut Companies, Inc..................................... 1,900 33,487
*First Alert, Inc............................................ 1,900 4,691
First American Financial Corp................................ 1,000 35,625
*First Cash, Inc............................................. 300 1,800
First Central Financial Corp................................. 1,000 1,375
*First Citizens Financial Corp............................... 220 6,132
First Defiance Financial Corp................................ 700 9,800
First Essex Bancorp.......................................... 500 8,562
First Financial Corp. of Western Maryland.................... 200 7,275
*First Merchants Acceptance Corp............................. 500 2,742
First Northern Capital Corp.................................. 400 8,000
First Palm Beach Bancorp, Inc................................ 300 8,887
*First Republic Bancorp, Inc................................. 600 12,000
First Savings Bank........................................... 200 4,187
First Southeast Financial Corp............................... 200 2,150
*First Team Sports, Inc...................................... 500 3,594
*FirstFed Financial Corp. DE................................. 900 24,525
*Fischer Imaging Corp........................................ 1,000 6,437
Fleming Companies, Inc....................................... 3,100 58,900
Flexsteel Industries, Inc.................................... 600 6,937
Florida Rock Industries, Inc................................. 800 26,800
*Florsheim Group, Inc........................................ 400 3,475
Fluke Corp................................................... 200 9,975
*Fluor Daniel/GTI, Inc....................................... 316 2,212
*Foodarama Supermarkets, Inc................................. 100 1,894
Forest City Enterprises, Inc. Class A........................ 450 19,856
*Foster (L.B.) Co. Class A................................... 800 3,225
*Franklin Electronic Publishers, Inc......................... 500 5,062
Freds, Inc. Class A.......................................... 800 10,750
Fremont General Corp......................................... 2,100 73,762
*Fresh Choice, Inc........................................... 500 1,859
Friedman Industries, Inc..................................... 551 3,375
*Friedmans, Inc. Class A..................................... 1,000 18,687
Frisch's Restaurants, Inc.................................... 648 9,477
*Fusion Systems Corp......................................... 400 12,475
*G-III Apparel Group, Ltd.................................... 600 3,544
*GC Companies, Inc........................................... 300 12,750
*GTI Corp.................................................... 500 3,281
*GZA Geoenvironmental Technologies, Inc...................... 300 816
*Galey & Lord, Inc........................................... 300 5,287
*Galileo Corp................................................ 600 4,312
Gamma Biologicals, Inc....................................... 300 1,256
*Gantos, Inc................................................. 500 1,484
Garan, Inc................................................... 400 7,950
*Garden Fresh Restaurant Corp................................ 100 981
*Gasonics International, Inc................................. 300 3,600
*Gehl Co..................................................... 500 7,750
*General Host Corp........................................... 2,094 6,282
General Housewares Corp...................................... 300 3,000
*Geneva Steel Co. Class A.................................... 800 1,900
*Genicom Corp................................................ 500 3,078
*Genlyte Group, Inc.......................................... 1,100 14,231
*Genus, Inc.................................................. 1,100 6,359
SHARES VALUE+
------ --------
<S> <C> <C>
*Geoscience Corp............................................. 200 $ 1,875
Gerber Scientific, Inc....................................... 1,400 26,425
*Giant Group, Ltd............................................ 400 2,800
Giant Industries, Inc........................................ 1,000 14,500
*Gibraltar Packaging Group, Inc.............................. 900 2,812
*Gibson Greetings, Inc....................................... 1,400 30,187
Giddings & Lewis, Inc........................................ 2,700 50,962
Gleason Corp................................................. 100 3,712
*Global Industrial Technologies, Inc......................... 900 16,650
*Global Village Communication, Inc........................... 900 3,178
*Golden Books Family Entertainment, Inc...................... 1,000 11,250
Golden Poultry Co., Inc...................................... 1,200 16,275
*Good Guys, Inc.............................................. 1,200 7,050
*Gottschalks, Inc............................................ 600 3,450
*Government Technology Services, Inc......................... 600 2,925
*Gradco Systems, Inc......................................... 700 2,931
Graham-Field Health Products, Inc............................ 1,100 11,687
*Grand Casinos, Inc.......................................... 3,300 42,487
Grand Premier Financial, Inc................................. 669 7,986
Granite Construction, Inc.................................... 1,300 26,000
Granite State Bankshares, Inc................................ 300 5,269
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Graphic Industries, Inc...................................... 900 9,844
Greater New York Savings Bank NY............................. 1,100 21,175
Green (A.P.) Industries, Inc................................. 600 5,550
Greenbrier Companies, Inc.................................... 1,300 14,625
*Greyhound Lines, Inc........................................ 1,800 7,537
*Grist Mill & Co............................................. 500 3,266
*Ground Round Restaurants, Inc............................... 1,000 1,484
Guaranty National Corp....................................... 1,400 30,100
Guilford Mills, Inc.......................................... 1,800 35,325
*Gundle/SLT Environmental, Inc............................... 1,100 5,775
HF Financial Corp............................................ 200 3,925
*HMG Worldwide Corp.......................................... 600 581
*HMN Financial, Inc.......................................... 500 11,062
*HS Resources, Inc........................................... 900 13,050
Haggar Corp.................................................. 300 4,031
*Hampton Industries, Inc..................................... 400 3,150
*Handleman Co................................................ 2,900 19,212
Handy & Harman............................................... 1,000 16,625
*Hanger Orthopedic Group, Inc................................ 700 6,256
*Harding Lawson Associates Group, Inc........................ 400 2,750
Harleysville Group, Inc...................................... 1,200 43,350
*Hartmarx Corp............................................... 2,800 27,650
*Harvey Entertainment Co..................................... 400 4,675
Harvey's Casino Resorts...................................... 500 8,437
*Hathaway Corp............................................... 400 1,050
*Hauser, Inc................................................. 900 5,512
Haverty Furniture Co., Inc................................... 700 8,269
*Healthcare Services Group, Inc.............................. 500 5,656
*Hechinger Co. Class A....................................... 2,600 3,250
*Hechinger Co. Class B....................................... 1,100 3,437
Heilig-Meyers Co............................................. 2,450 40,425
*Hein-Werner Corp............................................ 220 1,540
*Hi-Lo Automotive, Inc....................................... 500 1,312
*High Plains Corp............................................ 1,600 5,600
Hoenig Group, Inc............................................ 500 2,656
Home Port Bancorp, Inc....................................... 200 3,925
*Home State Holdings, Inc.................................... 500 234
Horizon Financial Corp....................................... 230 3,493
</TABLE>
4
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
SHARES VALUE+
---------- --------
*Horizon/CMS Healthcare Corp..................... 1,500 $27,375
*Hospital Staffing Services, Inc................. 300 731
*Hovnanian Enterprises, Inc. Class A............. 1,300 7,719
Hudson Foods, Inc. Class A....................... 1,500 23,812
Huffy Corp....................................... 800 10,400
Hughes Supply, Inc............................... 500 19,125
*Hugoton Energy Corp............................. 1,600 17,900
Hunt (J.B.) Transport Services, Inc.............. 2,400 36,150
Huntco, Inc. Class A............................. 300 4,012
*Hycor Biomedical, Inc........................... 600 1,125
*Hyde Athletic Industries, Inc. Class B.......... 300 1,500
*ICF Kaiser International, Inc................... 1,800 4,275
ICO, Inc......................................... 1,300 6,459
*ICU Medical, Inc................................ 500 4,406
*IEC Electronics Corp............................ 300 3,544
*IHOP Corp....................................... 800 22,550
*IPC Information Systems, Inc.................... 500 6,062
*ITI Technologies, Inc........................... 200 3,212
*Immulogic Pharmaceutical Corp................... 800 3,150
*Imperial Holly Corp............................. 600 7,350
*In Home Health, Inc............................. 900 1,350
*Inacom Corp..................................... 800 25,850
*Indenet, Inc.................................... 1,000 1,437
Indiana Federal Corp............................. 400 10,450
*Information Resources, Inc...................... 2,200 33,000
Ingles Market, Inc. Class A...................... 400 5,750
*Innodata Corp................................... 200 137
*Insituform Technologies, Inc. Class A........... 1,700 10,412
Insteel Industries, Inc.......................... 700 5,425
Instron Corp..................................... 1,000 12,500
*Insurance Auto Auctions, Inc.................... 1,000 7,937
Integrated Health Services, Inc.................. 1,300 46,800
*Integrated Process Equipment Corp............... 500 9,156
*Intelligent Electronics, Inc.................... 2,700 7,172
*Inter-Tel, Inc.................................. 900 14,175
*Intercel, Inc................................... 2,500 33,750
*Interface Systems, Inc.......................... 400 1,325
Interface, Inc. Class A.......................... 1,300 29,981
*Intergraph Corp................................. 3,700 26,016
*Interlinq Software Corp......................... 1,000 3,922
International Multifoods Corp.................... 1,500 42,375
*International Rectifier Corp.................... 4,200 70,350
*International Remote Imaging Systems, Inc....... 100 412
International Shipholding Corp................... 400 6,850
*International Technology Corp................... 350 2,537
*International Thoroughbred Breeders, Inc........ 800 3,600
*Interphase Corp................................. 900 7,087
Interpool, Inc................................... 150 2,100
Interstate Johnson Lane, Inc..................... 200 3,900
*Intertan, Inc................................... 900 3,375
Investors Financial Services Corp................ 223 7,889
Investors Financial Services Corp. Class A....... 43 1,521
Isco, Inc........................................ 200 1,625
*Isolyser Co., Inc............................... 3,100 12,206
*Isomedix, Inc................................... 300 4,687
*Iwerks Entertainment, Inc....................... 900 4,050
*J & J Snack Foods Corp.......................... 800 11,500
J & L Specialty Steel, Inc....................... 3,200 40,800
SHARES VALUE+
---------- --------
*J. Alexander's Corp............................. 300 $ 2,475
*JPE, Inc........................................ 200 1,350
JSB Financial, Inc............................... 900 39,150
Jackpot Enterprises, Inc......................... 100 1,062
*Jaclyn, Inc..................................... 200 850
*Jaco Electronics, Inc........................... 300 2,025
Jacobson Stores, Inc............................. 500 4,594
*Jan Bell Marketing, Inc......................... 2,200 4,950
*Jean Philippe Fragrances, Inc................... 500 2,937
John Alden Financial Corp........................ 1,500 31,875
*Johnson Worldwide Associates, Inc. Class A...... 500 6,219
Johnston Industries, Inc......................... 600 4,125
*Johnstown American Industries, Inc.............. 800 4,250
*Jones Intercable, Inc. Class A.................. 2,400 25,500
*Jos. A. Bank Clothiers, Inc..................... 1,000 3,750
*Jumbosports, Inc................................ 1,700 7,437
Justin Industries, Inc........................... 2,300 27,025
K Swiss, Inc. Class A............................ 300 3,975
*Kaiser Ventures, Inc............................ 600 5,737
Kaman Corp. Class A.............................. 1,800 24,638
Katy Industries, Inc............................. 800 12,500
Kellwood Co...................................... 1,800 47,025
*Kerr Group, Inc................................. 300 713
*Key Production Co., Inc......................... 800 7,600
*Key Tronic Corp................................. 500 2,938
*Keystone Consolidated Industries, Inc........... 598 5,382
*Kimmins Corp.................................... 300 1,106
*Kinark Corp..................................... 100 338
*Kinnard Investment, Inc......................... 300 1,781
Klamath First Bancorp, Inc....................... 1,000 18,375
Knape & Vogt Manufacturing Co.................... 500 8,000
*Kulicke & Soffa Industries, Inc................. 800 27,050
*LTX Corp........................................ 2,900 17,944
*Laboratory Corp. of America Holdings, Inc....... 1,000 2,875
*Laclede Steel Co................................ 200 813
*Ladd Furniture, Inc............................. 700 9,188
*Laidlaw Environmental Services, Inc............. 5,200 14,950
*Lamson & Sessions Co............................ 500 3,875
*Landair Services, Inc........................... 300 4,200
*Laserscope...................................... 600 3,750
Lawyers Title Corp............................... 800 14,400
*Learning Co., Inc............................... 3,400 24,225
*Lechters, Inc................................... 1,500 5,578
Lennar Corp...................................... 500 13,125
*Liberty Technologies, Inc....................... 500 1,688
*Life USA Holdings, Inc.......................... 1,000 12,063
Lillian Vernon Corp.............................. 300 4,725
Lindberg Corp.................................... 400 3,500
*Liuski International, Inc....................... 400 538
*Lodgenet Entertainment Corp..................... 1,000 10,938
*Logic Devices, Inc.............................. 200 463
*Loronix Information Systems, Inc................ 200 650
*Louis Dreyfus Natural Gas Corp.................. 350 5,556
Lufkin Industries, Inc........................... 600 14,213
Lukens, Inc. DE.................................. 1,300 25,513
*Luria (L.) & Son, Inc........................... 100 225
*M.H. Meyerson & Co., Inc........................ 200 988
MAF Bancorp, Inc................................. 826 34,486
*MAIC Holdings, Inc............................... 1,000 38,000
5
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
SHARES VALUE+
-------- --------
MDC Holdings, Inc................................ 900 $ 7,650
*MI Schottenstein Homes, Inc..................... 800 8,800
*MK Gold Corp.................................... 1,700 2,922
MMI Companies, Inc............................... 1,000 23,750
*MRS Technology, Inc............................. 200 209
*MS Carriers, Inc................................ 1,100 22,756
MTS Systems Corp................................. 800 20,550
*Mapinfo Corp.................................... 100 1,113
Marcus Corp...................................... 500 12,250
*Mariner Health Group, Inc....................... 1,900 22,681
Maritrans, Inc................................... 1,000 7,375
*Marker International............................ 1,300 5,688
*Marlton Technologies, Inc....................... 200 700
Marsh Supermarkets, Inc. Class A................. 300 4,013
Marsh Supermarkets, Inc. Class B................. 400 5,325
Maryland Federal Bancorp......................... 315 11,970
*Material Sciences Corp.......................... 300 4,200
*Matlack Systems, Inc............................ 200 1,475
*Matrix Pharmaceutical, Inc...................... 1,200 8,325
*Matrix Service Co............................... 800 6,750
*Mattson Technology, Inc......................... 100 1,056
*Maverick Tube Corp.............................. 600 18,038
*Maxwell Technologies, Inc....................... 400 7,900
*Maxxam, Inc..................................... 500 22,000
*Maxxim Medical, Inc............................. 700 10,238
*McFarland Energy, Inc........................... 400 5,175
*Medalliance, Inc. Liquidating Trust Escrow...... 800 0
*Medaphis Corp................................... 5,800 46,219
Medford Savings Bank MA.......................... 300 8,175
*Media 100, Inc.................................. 700 4,069
*Medical Graphics Corp........................... 200 825
*Melamine Chemicals, Inc......................... 500 5,875
Mercer International, Inc........................ 800 9,150
Merchants Bancorp, Inc........................... 200 7,525
*Meridian Data, Inc.............................. 800 3,325
Meridian Insurance Group, Inc.................... 600 8,925
*Merisel, Inc.................................... 2,500 4,453
*Merix Corp...................................... 500 8,000
*Mesa Air Group, Inc............................. 2,800 14,088
*Mesa, Inc....................................... 3,000 16,500
*Mesaba Holdings, Inc............................ 700 10,325
*Metatec Corp. Class A........................... 1,100 3,369
*Metra Biosystems, Inc........................... 100 488
*Metrocall, Inc.................................. 2,200 10,725
*Michael Anthony Jewelers, Inc................... 500 1,625
Michael Foods, Inc............................... 1,700 24,119
*Michaels Stores, Inc............................ 1,900 37,406
*Micro Warehouse, Inc............................ 2,300 39,531
*Microage, Inc................................... 1,200 21,675
*Micronics Computers, Inc........................ 1,100 3,163
*Microtest, Inc.................................. 200 838
*Microwave Power Dynamics, Inc................... 400 1,200
Mid America Banccorp............................. 848 17,702
*Midisoft Corp................................... 300 347
*Midwest Grain Products, Inc..................... 600 6,975
Mikasa, Inc...................................... 100 1,188
*Mikohn Gaming Corp.............................. 800 3,400
*Miltope Group, Inc.............................. 500 1,781
Mine Safety Appliances Co........................ 500 31,063
*Monarch Casino and Resort, Inc.................. 500 1,531
Monarch Machine Tool Co.......................... 300 2,250
SHARES VALUE+
------ -------
*Moog, Inc. Class A.............................. 500 $12,563
*Moore Medical Corp.............................. 100 1,125
*Moovies, Inc.................................... 500 2,859
*Morgan Products, Ltd............................ 700 6,213
*Morrow Snowboards, Inc.......................... 100 394
*Mother's Work, Inc.............................. 200 1,525
Movado Group, Inc................................ 625 13,984
*Movie Gallery, Inc.............................. 1,000 6,563
*Musicland Stores Corp........................... 2,900 5,800
NAC RE Corp...................................... 100 3,988
NBT Bancorp...................................... 771 15,998
NCH Corp......................................... 200 13,025
*NPS Pharmaceuticals, Inc........................ 200 2,075
*NS Group, Inc................................... 1,200 8,400
*NSA International, Inc.......................... 200 363
NSC Corp......................................... 1,000 1,813
NYMAGIC, Inc..................................... 1,000 19,375
Nacco Industries, Inc. Class A................... 505 25,692
Nash Finch Co.................................... 900 17,775
*Nashua Corp..................................... 500 5,813
*Nathans Famous, Inc.................. 400 1,225
*National Auto Credit, Inc............ 2,630 25,643
*National City Bancorp................ 726 14,974
*National Home Centers, Inc........... 500 891
*National Patent Development Corp..... 500 3,656
*National Picture and Frame Co........ 400 4,375
National Presto Industries, Inc....... 500 18,875
*National Steel Corp. Class B......... 1,200 16,200
National Technical Systems, Inc....... 100 384
*Natural Wonders, Inc................. 700 3,041
*Navistar International Corp.......... 1,000 16,625
*Neostar Retail Group, Inc............ 100 1
*Netframe Systems, Inc................ 1,000 1,063
*Netrix Corp.......................... 800 1,625
*Network Computing Devices, Inc....... 300 3,825
*Network Equipment Technologies, Inc.. 1,700 29,325
*New Brunswick Scientific Co., Inc.... 346 2,400
*New Horizons Worldwide, Inc.......... 600 5,925
New Jersey Resources Corp............. 1,500 46,688
Newmil Bancorp, Inc................... 200 1,950
Newport Corp.......................... 500 5,906
*Nexthealth, Inc...................... 700 1,269
*Noodle Kidoodle, Inc................. 700 2,538
*Nord Resources Corp.................. 1,400 4,025
*Nortek, Inc.......................... 1,100 25,575
North American Mortgage Co............ 700 14,088
*Northwestern Steel & Wire Co......... 1,600 3,850
*Norton McNaughton, Inc............... 700 3,631
Norwich Financial Corp................ 400 7,900
*Novacare, Inc........................ 5,600 70,700
*Nu-Kote Holding, Inc. Class A........ 2,000 5,250
*Nview Corp........................... 400 938
O'Sullivan Corp....................... 1,600 14,400
*O'Sullivan Industries Holdings, Inc.. 1,100 17,188
*O.I. Corp............................ 400 1,850
*OHM Corp............................. 1,900 15,200
*OMI Corp............................. 2,600 25,025
*Oak Technology, Inc.................. 1,500 14,156
*Offshore Logistics, Inc.............. 1,300 23,481
Oil-Dri Corp. of America.............. 100 1,538
*Old America Stores, Inc.............. 400 1,675
6
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
SHARES VALUE+
------ -------
*Old Dominion Freight Lines, Inc.............. 1,000 $12,750
*Olympic Steel, Inc........................... 700 11,550
OnbanCorp, Inc................................ 1,200 56,475
*One Price Clothing Stores, Inc............... 900 3,825
Oneida, Ltd................................... 900 21,488
*Oneita Industries, Inc....................... 600 488
*Onyx Acceptance Corp......................... 100 788
*Opinion Research Corp........................ 200 756
*Opta Food Ingredients, Inc................... 500 3,906
*Opti, Inc.................................... 700 3,653
Optical Coating Laboratory, Inc............... 1,000 10,500
*Option Care, Inc............................. 800 4,950
Orange Co., Inc............................... 700 5,425
*Orbital Sciences Corp........................ 2,400 39,750
Oregon Steel Mills, Inc....................... 1,700 31,875
*Oroamerica, Inc.............................. 700 3,413
*Orthologic Corp.............................. 1,000 5,938
Oshkosh Truck Corp. Class B................... 700 9,538
*Ostex International, Inc..................... 400 813
Outboard Marine Corp.......................... 1,700 25,075
*Outlook Group Corp........................... 400 1,800
Overseas Shipholding Group, Inc............... 1,800 33,975
Owosso Corp................................... 100 769
Oxford Industries, Inc........................ 700 16,888
*PICO Holdings, Inc........................... 500 2,063
*PLM International, Inc....................... 1,000 5,625
*PPT Vision, Inc.............................. 300 2,325
PXRE Corp..................................... 211 5,697
Pacific Scientific Co......................... 600 8,025
Palfed, Inc................................... 400 6,550
Pancho's Mexican Buffet, Inc.................. 400 700
*Par Technology Corp.......................... 1,000 9,750
*Paragon Trade Brands, Inc.................... 500 8,063
Park Electrochemical Corp..................... 300 7,538
*Park-Ohio Industries, Inc.................... 700 9,056
*Parlux Fragrances, Inc....................... 1,000 2,750
Patrick Industries, Inc....................... 1,000 14,063
*Patterson Energy, Inc........................ 148 5,310
*Payless Cashways, Inc........................ 3,400 5,525
*Peak Technologies Group, Inc................. 300 5,381
*Penn Traffic Co.............................. 200 1,475
*Penn Treaty American Corp.................... 600 16,350
Penn Virginia Corp............................ 200 9,675
Pennfed Financial Services, Inc............... 500 12,125
Penwest, Ltd.................................. 400 7,750
*Peoples Choice TV Corp....................... 1,000 1,406
Peoples Heritage Financial Group, Inc......... 1,778 58,674
*Peoples Telephone Co., Inc................... 1,400 4,813
*Perfumania, Inc.............................. 600 2,250
*Perini Corp.................................. 400 2,875
*Petrocorp, Inc............................... 700 6,038
*Pharmaceutical Resources, Inc................ 1,000 2,625
*Pharmchem Laboratories, Inc.................. 500 2,047
Phillips-Van Heusen Corp...................... 2,500 35,000
Phoenix Duff & Phelps Corp.................... 2,800 21,000
Piccadilly Cafeterias, Inc.................... 900 9,338
Pilgrim Pride Corp............................ 1,600 20,000
Pillowtex Corp................................ 300 6,413
Pinnacle Bancshares, Inc...................... 100 2,194
*Pinnacle Systems, Inc........................ 200 3,638
Pioneer Financial Services, Inc............... 500 14,063
SHARES VALUE+
------ --------
Piper Jaffray Companies, Inc.................. 800 $15,700
*Pittencrieff Communications, Inc............. 600 2,456
Pittston Co. Burlington Group................. 1,700 43,775
*Planar Systems, Inc.......................... 300 3,544
Plasti-Line, Inc.............................. 100 1,031
*Players International, Inc................... 2,900 11,147
Ply-Gem Industries, Inc. DE................... 800 13,400
*Pollo Tropical, Inc.......................... 1,000 6,438
*Polymedica Industries, Inc................... 500 3,000
*Pool Energy Services Co...................... 1,200 19,875
Pope & Talbot, Inc............................ 1,100 18,150
Portsmouth Bank Shares, Inc................... 520 7,930
Poughkeepsie Savings Bank FSB NY.............. 1,100 7,288
*Premenos Technology Corp..................... 1,100 7,563
Presidential Life Corp........................ 2,900 41,869
*Price Communications Corp.................... 500 3,875
Price Enterprises, Inc........................ 1,300 24,050
*Primark Corp................................. 500 11,875
Prime Bancorp, Inc............................ 330 7,466
Primesource Corp.............................. 500 3,656
*Procyte Corp................................. 1,100 1,633
*Proffitts, Inc............................... 900 36,000
*Progress Software Corp....................... 500 8,656
Progressive Bank, Inc......................... 300 7,838
*Pronet, Inc.................................. 500 1,594
*Proteon, Inc................................. 700 1,772
*Protocol Systems, Inc........................ 300 2,269
Provident Bankshares Corp..................... 661 25,077
*Proxima Corp................................. 500 2,375
*Pulte Corp................................... 400 12,650
*Pure World, Inc.............................. 200 663
*QMS, Inc..................................... 900 2,925
*Quad Systems Corp............................ 200 1,875
Quaker Chemical Corp.......................... 500 8,188
*Quaker Fabric Corp........................... 700 11,288
Quaker State Corp............................. 2,700 40,838
*Quality Dining, Inc.......................... 1,400 8,094
*Quality Semiconductor, Inc................... 200 1,950
*Quality Systems, Inc......................... 1,000 7,688
Quanex Corp................................... 600 16,350
Quest Medical, Inc............................ 200 1,475
Quixote Corp.................................. 1,000 7,813
*R & B, Inc................................... 1,100 8,250
RCSB Financial, Inc........................... 1,300 53,300
RLI Corp...................................... 600 19,125
*RPC, Inc..................................... 1,200 16,350
*Rag Shops, Inc............................... 200 650
*Railtex, Inc................................. 500 9,188
*Rally's Hamburgers, Inc...................... 1,300 3,656
*Ramsay Health Care, Inc...................... 700 2,253
*Rare Hospitality International, Inc.......... 500 7,813
Raymond Corp.................................. 200 6,500
*Reading Entertainment, Inc................... 400 4,625
*Recoton Corp................................. 800 10,000
*Redwood Empire Bancorp....................... 200 2,625
Refac Technology Development Corp............. 300 2,044
*Regeneron Pharmaceuticals, Inc............... 500 5,188
*Rentrak Corp................................. 100 339
*Republic Automotive Parts, Inc............... 300 4,819
*Republic Engineered Steels, Inc.............. 100 144
*Response Oncology, Inc....................... 100 700
*Rex Stores Corp.............................. 500 5,125
7
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ -------
<S> <C> <C>
Rexene Corp.................................... 300 $ 4,463
*Riddell Sports, Inc........................... 700 3,281
*Ride, Inc..................................... 1,000 3,500
Riggs National Corp............................ 2,000 36,750
*Rightchoice Managed Care, Inc. Class A........ 300 3,525
*Rio Hotel & Casino, Inc....................... 400 5,850
Rival Co....................................... 600 8,438
Roanoke Electric Steel Corp.................... 200 3,275
*Roberds, Inc.................................. 500 2,688
*Rock Bottom Restaurants, Inc.................. 100 1,075
Rock-Tenn Co. Class A.......................... 800 12,100
*Rodman & Renshaw Capital Group, Inc........... 600 300
*Rohr, Inc..................................... 1,700 35,913
Rollins Truck Leasing Corp..................... 3,900 53,625
*Rottlund, Inc................................. 500 2,313
Rouge Steel Co. Class A........................ 900 13,275
*Ruby Tuesday, Inc............................. 1,000 21,500
*Ryans Family Steak Houses, Inc................ 3,500 31,938
Rykoff-Sexton, Inc............................. 900 17,213
Ryland Group, Inc.............................. 800 10,400
*S&K Famous Brands, Inc........................ 400 4,175
*SLH Corp...................................... 75 4,144
*SSE Telecom, Inc.............................. 500 3,438
*STM Wireless, Inc. Class A.................... 200 1,525
*Safety 1st, Inc............................... 200 1,313
*Salant Corp. DE............................... 1,600 5,600
*San Filippo (John B.) & Son, Inc.............. 800 4,900
Sanderson Farms, Inc........................... 100 1,494
*Sands Regent Casino Hotel..................... 400 875
*Schuler Homes, Inc............................ 1,800 10,238
*Scios-Nova, Inc............................... 3,100 19,569
Seafield Capital Corp.......................... 300 9,825
Sealright Co., Inc............................. 1,000 11,813
*Secom General Corp............................ 400 1,100
Security Capital Corp.......................... 200 18,375
Security Connecticut Corp...................... 500 24,313
Selective Insurance Group, Inc................. 1,000 44,438
*Sequa Corp. Class A........................... 1,000 48,813
*Sequent Computer Systems, Inc................. 3,100 52,119
*Serv-Tech, Inc................................ 600 3,300
*Service Merchandise Co., Inc.................. 5,300 17,225
*Sharper Image Corp............................ 500 1,813
Shelter Components, Inc........................ 300 3,638
*Shiloh Industries, Inc........................ 1,100 18,425
*Shoe Carnival, Inc............................ 800 6,150
*Sholodge, Inc................................. 600 8,175
*Shoney's, Inc................................. 558 3,139
Shopko Stores, Inc............................. 2,700 63,788
Showboat, Inc.................................. 1,300 25,675
Sifco Industries, Inc.......................... 400 5,800
*Sight Resource Corp........................... 700 2,756
*Signal Technology Corp........................ 600 4,425
*Signature Brands USA, Inc..................... 800 2,925
*Silicon Valley Group, Inc..................... 2,300 54,913
Simmons First National Corp. Class A........... 200 5,500
Simpson Industries, Inc........................ 1,100 11,206
*Sizzler International, Inc.................... 2,400 5,700
Skyline Corp................................... 900 22,163
Skywest, Inc................................... 600 8,963
Smith (A.O.) Corp.............................. 800 29,400
SHARES VALUE+
------ -------
Smith (A.O.) Corp. Convertible Class A......... 200 $ 7,338
*Softech, Inc.................................. 300 1,003
South Jersey Industries, Inc................... 300 6,713
Southdown, Inc................................. 1,500 60,563
*Southern Electronics Corp..................... 1,000 10,250
*Southwall Technologies, Inc................... 500 3,438
Southwest Bancshares, Inc. DE.................. 300 5,888
Southwest Securities Group, Inc................ 200 3,225
Southwestern Energy Co......................... 2,200 29,150
*Spacelabs Medical, Inc........................ 500 11,188
*Spaghetti Warehouse, Inc...................... 500 2,531
Spartan Motors, Inc............................ 1,000 7,500
*Sparton Corp.................................. 500 4,375
*Spec's Music, Inc............................. 400 300
*Specialty Chemical Resources, Inc............. 300 600
*Spectran Corp................................. 500 9,250
*Speizman Industries, Inc...................... 300 1,613
*Spelling Entertainment Group, Inc............. 5,600 37,800
*Sport Chalet, Inc............................. 600 1,688
*Sport Supply Group, Inc....................... 300 1,950
*Sportmart, Inc................................ 500 1,344
*Sportmart, Inc. Class A....................... 250 531
*Sports Club Co., Inc.......................... 600 3,000
St. Paul Bancorp, Inc.......................... 2,000 63,000
*Staff Builders, Inc. Class A.................. 400 800
*Standard Commercial Corp...................... 856 14,453
*Standard Management Corp...................... 200 1,150
*Standard Microsystems Corp.................... 1,100 9,763
Standard Motor Products, Inc. Class A.......... 1,100 15,125
Standard Pacific Corp. DE...................... 2,600 26,650
Standard Products Co........................... 1,400 34,825
*Staodyn, Inc.................................. 500 750
*Starcraft Corp................................ 200 563
Starret Corp................................... 300 3,000
Starrett (L.S.) Co. Class A.................... 200 5,950
*Starter Corp.................................. 2,300 10,350
*Station Casinos, Inc.......................... 2,600 23,075
*Steel of West Virginia, Inc................... 600 5,850
Steel Technologies, Inc........................ 500 5,219
Stepan Co...................................... 500 9,813
Stephan Co..................................... 200 1,850
Sterling Bancorp............................... 500 9,375
*Sterling Financial Corp. WA................... 600 10,950
Stewart Information Services Corp.............. 500 9,813
*Stokely USA, Inc.............................. 1,000 1,078
Stone & Webster, Inc........................... 800 34,300
*Strategic Distribution, Inc................... 1,500 5,906
*Stratus Computer, Inc......................... 1,200 54,900
Strawbridge & Clothier Class A................. 900 15,019
*Strouds, Inc.................................. 1,100 2,200
*Stuart Entertainment, Inc..................... 600 1,838
*Sulcus Computer Corp.......................... 800 1,400
Sumitomo Bank of California.................... 1,300 36,563
*Summa Four, Inc............................... 500 3,875
*Summit Care Corp.............................. 200 2,425
*Summit Technology, Inc........................ 500 3,844
*Sun Coast Industries, Inc..................... 200 675
*Sun Healthcare Group, Inc..................... 2,000 33,500
Sun Television and Appliances, Inc............. 1,500 3,094
*Sunrise Medical, Inc.......................... 2,000 25,750
</TABLE>
8
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ -------
<S> <C> <C>
*Sunrise Resources, Inc......................... 400 $ 1,450
Superior Surgical Manufacturing Co., Inc........ 300 3,450
*Suprema Specialties, Inc....................... 200 769
Susquehanna Bancshares, Inc..................... 1,100 42,763
*Swiss Army Brands, Inc......................... 700 8,356
*Syms Corp...................................... 1,500 14,625
*Syncor International Corp. DE.................. 900 8,325
*Syntellect, Inc................................ 700 2,297
*Syquest Technology, Inc........................ 900 1,786
*TBC Corp....................................... 400 3,050
TCBY Enterprises, Inc........................... 2,200 13,200
*TII Industries, Inc............................ 700 3,850
TJ International, Inc........................... 1,400 32,463
TR Financial Corp............................... 1,000 20,375
*TRC Companies, Inc............................. 300 1,088
Tab Products Co. DE............................. 400 3,775
*Taco Cabana, Inc............................... 1,300 6,581
*Tandy Crafts, Inc.............................. 1,000 4,875
*Tanknology Environmental, Inc.................. 1,200 2,025
*Tech-Sym Corp.................................. 300 9,563
Telxon Corp..................................... 500 9,250
*Tesoro Petroleum Corp.......................... 2,100 27,563
Texas Industries, Inc........................... 1,800 43,200
*Texas Micro, Inc............................... 1,000 3,406
*Thermo Power Corp.............................. 1,000 6,000
*Thermo Terratech, Inc.......................... 500 5,469
Thomas Industries, Inc.......................... 300 8,438
Thomaston Mills, Inc............................ 400 4,350
*Thompson PBE, Inc.............................. 300 1,388
*Thorn Apple Valley, Inc........................ 500 8,875
*Tipperary Corp................................. 500 2,219
*Titan Corp..................................... 1,000 4,125
Titan Holdings, Inc............................. 1,155 22,234
Titan International, Inc........................ 1,200 18,300
Toastmaster, Inc................................ 600 2,100
*Todd Shipyards Corp............................ 800 3,500
Tower Air, Inc.................................. 1,100 3,506
*Trans World Airlines, Inc...................... 3,000 25,688
*Trans World Entertainment Corp................. 800 12,050
*Transitional Hospitals Corp.................... 3,700 58,738
*Travel Ports of America, Inc................... 212 557
Treadco, Inc.................................... 500 4,875
*Tremont Corp. DE............................... 600 24,600
*Trend-Lines, Inc. Class A...................... 200 1,431
*Trident Microsystems, Inc...................... 800 11,450
*Trism, Inc..................................... 500 1,469
*Truevision, Inc................................ 1,300 2,600
*Tseng Laboratories, Inc........................ 1,100 4,125
*Tuesday Morning Corp........................... 700 18,900
*Tultex Corp.................................... 2,500 15,938
*Turner Corp.................................... 300 4,650
Twin Disc, Inc.................................. 200 4,800
*Tyler Corp..................................... 1,700 3,188
U.S. Bancorp, Inc............................... 500 23,813
*UNC, Inc....................................... 1,500 21,750
*URS Corp....................................... 719 7,909
*US Can Corp.................................... 600 9,750
UST Corp........................................ 570 12,041
USX-Delhi Group................................. 800 10,900
*Ultimate Electronics, Inc...................... 300 900
*Ultradata Corp................................. 100 306
SHARES VALUE+
------ -------
*Ultratech Stepper, Inc......................... 300 $ 6,094
Uni-Marts, Inc.................................. 500 2,563
Unico American Corp............................. 500 5,313
*Unimark Group, Inc............................. 200 1,325
*Uniroyal Technology Corp....................... 1,100 3,334
*United American Healthcare Corp................ 200 1,250
United Industrial Corp.......................... 1,400 11,550
*United Retail Group, Inc....................... 600 1,763
*United States Home Corp........................ 1,000 26,375
*Universal Electronics, Inc..................... 300 1,669
*Universal Hospital Services, Inc............... 300 4,425
*Universal International, Inc................... 400 425
*Universal Standard Medical Labs, Inc........... 500 1,688
*Uno Restaurant Corp............................ 600 3,525
*Uranuim Resources, Inc......................... 500 2,844
*Utilx Corp..................................... 600 2,550
*V Band Systems, Inc............................ 500 1,000
*VLSI Technology, Inc........................... 800 19,550
*VTEL Corp...................................... 600 3,656
*Vallen Corp.................................... 1,000 18,000
*Value City Department Stores, Inc.............. 2,100 18,113
Value Line, Inc................................. 1,000 36,500
*Valuevision International, Inc. Class A........ 2,700 10,547
*Variflex, Inc.................................. 200 975
Varlen Corp..................................... 110 2,764
*Vectra Technologies, Inc....................... 500 281
*Venture Stores, Inc............................ 1,500 3,938
Veritas DGC, Inc................................ 900 18,675
*Vertex Communications Corp..................... 200 4,638
*Veterinary Centers of America, Inc............. 1,000 12,188
*Vicorp Restaurants, Inc........................ 800 9,450
*Video Display Corp............................. 300 1,144
*Video Lottery Technologies, Inc................ 900 4,838
*Video Update, Inc.............................. 1,300 5,606
*Vie de France Corp............................. 700 984
Virco Manufacturing Corp........................ 600 12,525
Virginia Beach Federal Financial Corp........... 400 4,400
Virginia First Financial Corp................... 200 4,288
*WHX Corp....................................... 2,200 14,575
WLR Foods, Inc.................................. 1,306 12,978
Wabash National Corp............................ 200 4,425
Walbro Corp..................................... 400 7,975
*Wall Data, Inc................................. 600 14,963
Warren Bancorp, Inc............................. 300 5,025
*Washington Homes, Inc.......................... 700 2,625
Washington National Corp........................ 300 8,400
Washington Savings Bank FSB Waldorf, MD......... 400 2,000
Watkins-Johnson Co.............................. 500 15,813
Watts Industries, Inc. Class A.................. 1,600 39,800
Webb (Del) Corp................................. 1,100 16,775
Webster Financial Corp.......................... 739 29,930
*Weirton Steel Corp............................. 3,600 10,800
*Welcome Home, Inc.............................. 200 20
Wellman, Inc.................................... 2,500 44,688
*Wells-Gardner Electronics Corp................. 200 763
Werner Enterprises, Inc......................... 1,800 35,213
Wesbanco, Inc................................... 200 7,250
*West Coast Entertainment Corp.................. 200 950
</TABLE>
9
<PAGE>
VA SMALL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ -----------
<S> <C> <C>
Westco Bancorp, Inc................................... 300 $ 7,088
Westcorp, Inc......................................... 100 1,675
*Western Beef, Inc.................................... 500 4,531
*Weston (Roy F.), Inc. Class A........................ 600 1,800
*Whittaker Corp....................................... 700 7,788
*Wickes Lumber Co..................................... 200 1,063
*Williams Clayton Energy, Inc......................... 700 9,538
Wilshire Oil Co. of Texas............................. 500 2,688
Windmere Corp......................................... 1,400 20,650
Wiser Oil Co.......................................... 800 12,500
Wolohan Lumber Co..................................... 600 7,388
*Wonderware Corp...................................... 1,000 13,688
*Worldtex, Inc........................................ 1,200 8,550
Yankee Energy Systems, Inc............................ 900 20,813
*Yellow Corp.......................................... 2,400 46,050
York Financial Corp................................... 605 11,646
*Zale Corp............................................ 3,000 60,375
*Zemex Corp........................................... 728 5,187
Zenith National Insurance Corp........................ 1,500 37,500
*Zilog, Inc........................................... 2,000 44,500
*Zoll Medical Corp.................................... 400 3,500
Zurn Industries, Inc.................................. 600 15,900
-----------
TOTAL COMMON STOCKS
(Cost $10,391,981)................................... 12,213,413
-----------
RIGHTS/WARRANTS -- (0.0%)
*Amvestors Financial Corp. Warrants Class A
04/02/02............................................ 46 256
*Banner Aerospace, Inc. Rights 06/18/97............... 511 0
*Laboratory Corp. of America Holdings, Inc. Rights
06/16/97............................................ 81 651
-----------
TOTAL RIGHTS/WARRANTS
(Cost $488).......................................... 907
-----------
FACE
AMOUNT VALUE+
------ -----------
(000)
TEMPORARY CASH INVESTMENTS -- (3.8%)
Repurchase Agreement, PNC Capital Markets Inc. 5.25%,
06/02/97 (Collateralized by U.S. Treasury Notes
6.00%, 08/15/99)
(Cost $481,000)..................................... $ 481 $ 481,000
-----------
TOTAL INVESTMENTS -- (99.6%)
(Cost $10,873,469)++................................. 12,695,320
-----------
OTHER ASSETS AND LIABILITIES -- (0.4%)
Other Assets........................................ 71,369
Payable for Investment Securities Purchased......... (6,869)
Other Liabilities................................... (9,990)
-----------
54,510
-----------
NET ASSETS -- (100.0%) Applicable to 983,078
Outstanding $.01 Par Value Shares (100,000,000 Shares
Authorized).......................................... $12,749,830
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE................................................ $ 12.97
===========
</TABLE>
- ----------------------
+See Note B to Financial Statements.
*Non-Income Producing Securities
++Approximates cost for federal income tax purposes.
See accompanying Notes to Financial Statements.
10
<PAGE>
VA LARGE VALUE PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE+
------ --------
<S> <C> <C>
UNITED STATES -- (97.0%)
COMMON STOCKS -- (97.0%)
AK Steel Holding Corp........................................ 1,100 $ 42,762
*AMR Corp.................................................... 2,500 248,437
Advanta Corp. Class A........................................ 300 8,831
Advanta Corp. Class B Non-Voting............................. 500 13,906
Aetna, Inc................................................... 5,200 525,200
Ahmanson (H.F.) & Co......................................... 2,700 110,025
Albemarle Corp............................................... 1,100 20,625
Alexander & Baldwin, Inc..................................... 1,600 43,300
Alleghany Corp............................................... 100 21,325
*Alumax, Inc................................................. 1,500 57,937
Ambac, Inc................................................... 1,000 75,000
*Amdahl Corp................................................. 4,100 41,000
Amerada Hess Corp............................................ 3,200 171,200
*America West Holdings Corp. Class B......................... 1,100 16,912
American General Corp........................................ 6,500 287,625
*American Greetings Corp. Class A............................ 2,600 89,212
American National Insurance Co............................... 600 49,500
*Apple Computer, Inc......................................... 3,500 58,406
*Archer-Daniels Midland Co................................... 6,100 122,000
Argonaut Group, Inc.......................................... 300 8,737
Asarco, Inc.................................................. 1,200 37,350
Astoria Financial Corp....................................... 600 24,675
Avnet, Inc................................................... 800 50,400
BHC Communications, Inc. Class A............................. 100 10,950
Ball Corp.................................................... 900 26,212
Bankers Trust New York Corp.................................. 2,200 186,175
Bear Stearns Companies, Inc.................................. 3,161 102,732
Berkley (W.R.) Corp.......................................... 600 31,012
*Bethlehem Steel Corp........................................ 3,200 32,000
*Beverly Enterprises......................................... 2,800 39,550
Black & Decker Corp.......................................... 1,400 48,650
Block Drug Co., Inc. Class A................................. 300 13,237
Boise Cascade Corp........................................... 1,300 49,400
Borg Warner Automotive, Inc.................................. 400 19,500
*Boston Chicken, Inc......................................... 900 16,256
Bowater, Inc................................................. 1,200 59,250
*Brinker International, Inc.................................. 2,100 29,137
*Burlington Industries, Inc.................................. 1,600 17,600
Burlington Northern Santa Fe Corp............................ 5,000 415,000
CIGNA Corp................................................... 1,500 260,625
*CNA Financial Corp.......................................... 1,800 184,275
CNF Transportation, Inc...................................... 300 9,675
CSX Corp..................................................... 6,900 365,700
Caliber Systems, Inc......................................... 1,200 38,400
*California Federal Bank FSB, Los Angeles Contingent
Litigation Recovery Shares.................................. 70 1,046
Centex Corp.................................................. 800 31,900
Century Telephone Enterprises, Inc........................... 400 12,100
Champion International Corp.................................. 3,300 162,937
Chiquita Brands International, Inc........................... 1,600 24,600
*Chris-Craft Industries, Inc................................. 733 31,336
Chrysler Corp................................................ 21,700 688,975
Cincinnati Financial Corp.................................... 2,130 166,539
SHARES VALUE+
------ --------
Citizens Corp................................................ 1,300 $ 32,987
Coca-Cola Enterprises, Inc................................... 10,800 228,150
Comdicso, Inc................................................ 1,700 62,687
Commerce Bancshares, Inc..................................... 745 32,314
Commerce Group, Inc.......................................... 900 20,250
Comsat Corp. Series 1........................................ 1,300 29,250
*Consolidated Freightways Corp............................... 450 5,541
Coors (Adolph) Co. Class B................................... 1,000 24,375
Countrywide Credit Industries, Inc........................... 3,100 83,312
Cummins Engine Co., Inc...................................... 1,100 70,125
Cyprus Amax Minerals Co., Inc................................ 2,700 65,812
*DSC Communications Corp..................................... 800 20,450
*Darden Restaurants, Inc..................................... 5,000 41,875
*Digital Equipment Corp...................................... 4,800 172,200
Dillards, Inc. Class A....................................... 4,000 135,000
*Dime Bancorp, Inc........................................... 1,800 30,600
Donaldson, Lufkin & Jenrette, Inc............................ 1,500 78,937
Enserch Corp................................................. 1,000 21,375
*Enserch Exploration, Inc.................................... 3,600 39,150
Equitable Companies, Inc..................................... 5,500 173,250
Equitable of Iowa Companies.................................. 600 33,225
*Federated Department Stores, Inc............................ 6,300 233,100
Fina, Inc. Class A........................................... 700 46,156
Financial Security Assurance Holdings, Ltd................... 900 32,512
Finova Group, Inc............................................ 700 52,150
First Hawaiian, Inc.......................................... 1,200 42,525
Florida East Coast Industries, Inc........................... 300 32,475
Ford Motor Co................................................ 37,700 1,413,750
Fremont General Corp......................................... 1,000 35,125
GATX Corp.................................................... 600 34,050
General Motors Corp.......................................... 23,600 1,351,100
General Motors Corp. Class H................................. 3,700 203,962
Georgia-Pacific Corp......................................... 3,300 291,225
Golden West Financial Corp................................... 1,400 94,850
Great Atlantic & Pacific Tea Co., Inc........................ 1,100 30,387
Great Western Financial Corp................................. 3,900 189,150
Greenpoint Financial Corp.................................... 1,500 90,750
*HFS, Inc.................................................... 577 31,086
*Halter Marine Group, Inc.................................... 730 17,155
Heilig-Meyers Co............................................. 2,000 33,000
Helmerich & Payne, Inc....................................... 700 39,287
Hollinger International, Inc. Class A........................ 2,000 22,250
IVAX Corp.................................................... 300 3,225
Inland Steel Industries, Inc................................. 1,200 29,550
*Integrated Device Technology, Inc........................... 2,100 29,531
Integrated Health Services, Inc.............................. 1,000 36,000
International Paper Co....................................... 9,200 441,600
*International Speciality Products, Inc...................... 2,500 34,062
James River Corp. of Virginia................................ 2,400 84,300
*K Mart Corp................................................. 15,500 217,000
*Kaiser Aluminum Corp........................................ 2,700 31,050
LTV Corp..................................................... 2,900 40,600
Lafarge Corp................................................. 5,900 146,025
Lehman Brothers Holdings, Inc................................ 3,700 149,387
Lennar Corp.................................................. 500 13,125
Liberty Corp................................................. 1,000 39,750
</TABLE>
11
<PAGE>
VA LARGE VALUE PORTFOLIO
CONTINUED
SHARES VALUE+
------ --------
Liberty Financial Companies, Inc.................. 800 $ 35,900
Lincoln National Corp............................. 3,700 225,238
Loews Corp........................................ 4,100 398,725
Longs Drug Stores Corp............................ 200 4,750
Longview Fibre Co................................. 1,400 23,625
Louisiana-Pacific Corp............................ 4,000 78,000
MBIA, Inc......................................... 900 96,638
Mead Corp......................................... 1,400 89,250
Media General, Inc. Class A....................... 600 18,338
Mercantile Stores Co., Inc........................ 1,000 53,750
Mitchell Energy & Development Corp. Class A....... 1,200 26,550
Mitchell Energy & Development Corp. Class B....... 900 20,138
Morgan (J.P.) & Co., Inc.......................... 3,400 365,500
*Navistar International Corp...................... 2,200 36,575
*Nextel Communications Corp. Class A.............. 5,600 82,250
Norfolk Southern Corp............................. 3,700 359,363
*Novell, Inc...................................... 2,800 22,094
Occidental Petroleum Corp......................... 10,100 234,825
*Officemax, Inc................................... 3,400 47,175
Ogden Corp........................................ 1,400 27,300
Ohio Casualty Corp................................ 1,000 41,250
Old Republic International Corp................... 2,400 72,300
Overseas Shipholding Group, Inc................... 500 9,438
Pacific Century Financial Corp.................... 600 27,600
*Pacificare Health Systems, Inc. Class B.......... 52 4,118
Paine Webber Group, Inc........................... 1,300 46,150
Paul Revere Corp.................................. 1,000 42,750
Phelps Dodge Corp................................. 1,700 142,163
Potlatch Corp..................................... 700 30,013
*Pulte Corp....................................... 700 22,138
RJR Nabisco Holdings Corp......................... 8,540 276,483
Rayonier, Inc..................................... 700 30,013
Reliastar Financial Corp.......................... 200 12,825
Reynolds Metals Co................................ 2,600 176,475
*Russell Corp..................................... 200 6,125
Ryder System, Inc................................. 2,500 82,813
Safeco Corp....................................... 3,500 152,031
Saint Paul Companies, Inc......................... 2,200 157,575
Salomon, Inc...................................... 3,900 209,138
Sensormatic Electronics Corp...................... 2,100 32,813
Signet Banking Corp............................... 1,000 32,875
*Silicon Graphics, Inc............................ 1,100 20,763
*Smiths Food & Drug Centers, Inc. Class B......... 49 2,315
Southern New England Telecommunications Corp...... 300 11,700
*Spiegel, Inc. Class A Non-Voting................. 200 1,313
*Springs Industries, Inc. Class A................. 300 15,188
*St. Joe Corp..................................... 1,000 82,250
Stone Container Corp.............................. 3,700 50,875
Sun Co., Inc...................................... 1,100 32,863
TIG Holdings, Inc................................. 900 24,300
*Tandem Computers, Inc............................ 3,700 52,725
Tecumseh Products Co. Class A..................... 200 11,275
Telephone & Data Systems, Inc..................... 1,400 54,338
Temple-Inland, Inc................................ 1,400 84,700
SHARES VALUE+
------ --------
Tenneco, Inc...................................... 5,400 $241,650
*Teradyne, Inc.................................... 1,600 65,600
Terra Industries, Inc............................. 3,000 37,875
Timken Co......................................... 800 54,900
Transamerica Corp................................. 2,400 218,100
Trinity Industries, Inc........................... 2,100 63,000
Tyson Foods, Inc. Class A......................... 3,700 75,619
UMB Financial Corp................................ 315 12,698
USF&G Corp........................................ 3,600 77,400
USLIFE Corp....................................... 650 31,688
USX-Marathon Group, Inc........................... 7,100 211,225
USX-US Steel Group................................ 2,400 77,400
Union Camp Corp................................... 2,000 105,000
Union Pacific Corp................................ 3,400 230,350
Unionbancal Corp.................................. 1,800 119,250
*Unisys Corp...................................... 2,500 17,188
*United States Cellular Corp...................... 1,400 38,500
Unitrin, Inc...................................... 1,000 54,688
Valero Energy Corp................................ 1,200 42,900
Valhi, Inc........................................ 1,200 9,900
*Value Health, Inc................................ 1,300 26,325
*Viacom, Inc. Class A............................. 1,000 30,125
*Viacom, Inc. Class B............................. 9,300 276,094
*Vishay Intertechnology, Inc...................... 1,680 49,350
*Waban, Inc....................................... 900 27,338
*Weis Markets, Inc................................ 1,700 49,938
Wellman, Inc...................................... 1,000 17,875
Wesco Financial Corp.............................. 100 26,550
Westinghouse Electric Corp........................ 500 10,125
Westvaco Corp..................................... 2,900 90,625
Weyerhaeuser Co................................... 6,100 304,238
*Wheelabrator Technologies, Inc................... 4,600 59,225
Whirlpool Corp.................................... 300 14,963
Zurich Reinsurance Centre Holdings, Inc........... 800 31,100
----------
TOTAL COMMON STOCKS
(Cost $16,232,734)............................... 19,307,726
----------
PREFERRED STOCKS -- (0.0%)
*Pacificare Health Systems, Inc. 5% Cumulative,
Convertible, Redeemable Class A
(Cost $1,270)................................... 161,196
----------
TOTAL -- UNITED STATES
(Cost $16,234,004)................................. 19,308,922
----------
FRANCE -- (0.0%)
INVESTMENT IN CURRENCY -- (0.0%)
*French Francs
(Cost $1,918)..................................... 1,723
----------
GERMANY -- (0.0%)
INVESTMENT IN CURRENCY -- (0.0%)
*German Marks
(Cost $953)....................................... 852
----------
SWITZERLAND -- (0.0%)
INVESTMENT IN CURRENCY -- (0.0%)
*Swiss Francs
(Cost $622)....................................... 635
----------
12
<PAGE>
VA LARGE VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
VALUE+
-----------
<S> <C> <C>
SPAIN -- (0.0%)
INVESTMENT IN CURRENCY -- (0.0%)
*Spanish Peseta
(Cost $132)......................................... $ 115
-----------
UNITED KINGDOM -- (0.0%)
INVESTMENT IN CURRENCY -- (0.0%)
*British Pound Sterling
(Cost $10)......................................... 11
-----------
FACE
AMOUNT
--------
(000)
TEMPORARY CASH INVESTMENTS -- (2.3%)
Repurchase Agreement, PNC Capital Markets Inc. 5.25%,
06/02/97 (Collateralized by U.S. Treasury Notes
6.00%, 08/15/99)
(Cost $456,000)..................................... $ 456 456,000
-----------
TOTAL INVESTMENTS -- (99.3%)
(Cost $16,693,639)++................................ 19,768,258
-----------
OTHER ASSETS AND LIABILITIES -- (0.7%)
Other Assets......................................... 188,645
Payable for Investment Securities Purchased.......... (30,823)
Other Liabilities.................................... (11,843)
-----------
145,979
-----------
NET ASSETS -- (100.0%) Applicable to 1,391,211
Outstanding $.01 Par Value Shares (100,000,000
Shares Authorized).................................. $19,914,237
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE............................................... $ 14.31
===========
</TABLE>
- ---------------------
+See Note B to Financial Statements.
*Non-Income Producing Securities
++Approximates cost for federal income tax purposes.
See accompanying Notes to Financial Statements.
13
<PAGE>
VA INTERNATIONAL VALUE PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
SHARES VALUE+
------ --------
JAPAN -- (33.8%)
COMMON STOCKS -- (32.3%)
Aichi Steel Works, Ltd........................... 4,000 $ 16,357
Aisin Seiki Co., Ltd............................. 2,000 30,928
Amada Co., Ltd................................... 3,000 25,387
*Aoki Corp....................................... 6,000 7,216
Aoyama Trading Co., Ltd.......................... 1,100 34,588
#Asahi Breweries, Ltd............................ 4,000 54,639
Ashikaga Bank, Ltd............................... 3,000 9,923
Atsugi Nylon Industrial Co., Ltd................. 5,000 16,710
Calpis Food Industry Co., Ltd.................... 2,000 12,010
#Casio Computer Co., Ltd......................... 3,000 23,608
Chiba Bank, Ltd.................................. 10,000 51,976
Chichibu Onoda Cement Corp....................... 8,000 32,028
*Chiyoda Fire and Marine Insurance Co., Ltd...... 5,000 20,189
Chugoku Bank, Ltd................................ 2,000 30,412
#Chuo Trust and Banking Co., Ltd................. 2,000 11,443
Citizen Watch Co., Ltd........................... 3,000 22,758
Dai Tokyo Fire & Marine Insurance Co., Ltd....... 4,000 22,337
Daicel Chemical Industries, Ltd.................. 4,000 15,361
Daido Steel Co., Ltd............................. 5,000 15,893
#Daikyo, Inc..................................... 3,000 10,670
Daito Trust Construction Co., Ltd................ 2,916 32,317
#Daiwa Bank, Ltd................................. 15,000 58,892
Daiwa House Industry Co., Ltd.................... 7,000 82,388
Daiwa Securities Co., Ltd........................ 19,000 139,888
Ezaki Glico Co., Ltd............................. 2,200 18,333
Fuji Photo Film Co., Ltd......................... 5,000 193,729
Fujisawa Pharmaceutical Co., Ltd................. 2,000 18,900
Fujita Corp...................................... 9,000 16,005
Fujitsu, Ltd..................................... 15,000 182,990
Fukuoka City Bank, Ltd........................... 4,712 19,836
Gunze, Ltd....................................... 4,000 18,213
*Hanwa Co., Ltd.................................. 5,000 12,672
*Haseko Corp..................................... 8,000 12,852
Higo Bank, Ltd................................... 3,000 18,557
Hiroshima Bank, Ltd.............................. 2,000 8,935
Hitachi Koki Co., Ltd............................ 2,000 14,296
Hitachi Maxell, Ltd.............................. 1,000 23,196
Hitachi Transport System, Ltd.................... 2,000 17,354
Hitachi, Ltd..................................... 47,000 500,687
#Hokkaido Bank, Ltd.............................. 7,000 8,660
#Hokkaido Takus Bank............................. 16,000 20,481
Hokuriku Bank, Ltd............................... 7,000 23,634
#Hyakujishi Bank, Ltd............................ 3,000 18,402
Inax Corp........................................ 2,000 13,935
Kajima Corp...................................... 13,000 72,706
Kamagai Gumi Co., Ltd............................ 6,000 9,794
Kamigumi Co., Ltd................................ 4,000 23,883
*Kandenko Co., Ltd............................... 3,000 23,711
Katokichi Co., Ltd............................... 1,000 18,471
Keiyo Bank, Ltd.................................. 5,000 20,490
Kinden Corp...................................... 2,000 26,632
Kiyo Bank, Ltd................................... 5,000 15,077
#Kokusai Denshin Denwa Co., Ltd.................. 900 57,990
SHARES VALUE+
------ --------
Kokusai Securities Co., Ltd...................... 2,000 $ 16,753
Komatsu, Ltd..................................... 9,000 68,041
Kureha Chemical Industry Co., Ltd................ 4,000 17,320
Kyudenko Corp.................................... 2,000 16,392
#Long Term Credit Bank of Japan, Ltd............. 35,000 114,261
Maeda Corp....................................... 2,000 11,082
Makita Corp...................................... 2,000 29,381
Marubeni Corp.................................... 22,000 93,557
Maruetsu, Inc.................................... 3,000 14,433
#Matsushita Electric Industrial Co., Ltd......... 31,000 583,247
Matsushita Electric Works, Ltd................... 4,000 44,330
*Mazda Motor Corp................................ 11,000 32,981
Michimen Corp.................................... 6,000 20,825
Mitsubishi Gas Chemical Co., Inc................. 5,000 18,514
Mitsubishi Oil Co., Ltd.......................... 4,000 19,931
Mitsui Fudosan Co., Ltd.......................... 4,000 50,515
Mitsui Trust & Banking Co., Ltd.................. 16,000 120,412
Mizuno Corp...................................... 2,000 12,509
Nagase & Co., Ltd................................ 2,000 13,557
Nanto Bank, Ltd.................................. 3,000 18,918
Nihon Cement Co., Ltd............................ 3,000 14,742
Nikko Securities Co., Ltd............... 20,000 118,900
#Nippon Credit Bank, Ltd................ 20,000 42,096
Nippon Meat Packers, Inc., Osaka........ 2,000 24,399
Nippon Oil Co., Ltd..................... 17,000 86,168
Nippon Sheet Glass Co., Ltd............. 4,000 14,811
Nippon Shinpan Co., Ltd................. 6,000 20,722
Nisshin Steel Co., Ltd.................. 12,000 29,897
Nisshinbo Industries, Inc............... 3,000 25,541
Nittetsu Mining Co., Ltd................ 2,000 14,656
*Nitto Boseki Co., Ltd.................. 7,000 23,153
#Noritz Corp............................ 1,000 11,340
Pioneer Electronic...................... 2,000 49,485
#San In Godo Bank, Ltd.................. 3,000 22,345
Sankyo Aluminum Industry Co., Ltd....... 3,000 10,438
#Sanyo Electric......................... 27,000 113,892
*Seino Transportation Co., Ltd.......... 2,000 21,649
Seksui House............................ 10,000 97,938
#Shiga Bank, Ltd........................ 4,000 19,278
Shinmaywa Industries, Ltd............... 2,000 14,124
Shionogi & Co., Ltd..................... 3,000 22,294
Shiseido Co., Ltd....................... 4,000 58,419
Sumitomo Corp........................... 15,000 132,732
Sumitomo Realty & Development Co., Ltd.. 7,000 55,026
#Taisei Corp............................ 14,000 60,017
Teijin, Ltd............................. 4,000 16,873
Toda Corp............................... 4,000 25,773
#Tokyo Sowa Bank........................ 4,000 14,261
Tokyo Steel Manufacturing Co., Ltd...... 1,500 18,557
Tokyo Style Co., Ltd.................... 1,000 13,832
Tokyo Tatemono Co., Ltd................. 4,000 21,065
Toyo Engineering Corp................... 3,000 13,402
Toyo Seikan Kaisha, Ltd................. 2,100 40,052
#Toyo Trust & Banking Co., Ltd.......... 11,000 78,153
14
<PAGE>
VA INTERNATIONAL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------- ----------
<S> <C> <C>
Toyota Tsusho Corp................................. 4,000 $ 23,333
Victor Co. of Japan, Ltd........................... 2,000 22,337
Yakult Honsha Co., Ltd............................. 2,000 21,649
Yamaguchi Bank..................................... 2,000 28,866
Yamaichi Securities Co., Ltd....................... 12,000 34,021
Yamato Kogyo Co., Ltd.............................. 2,000 19,759
#Yasuda Trust & Banking Co., Ltd................... 13,000 39,089
Yokogawa Electric Corp............................. 3,000 24,871
------ ----------
TOTAL COMMON STOCKS
(Cost $5,413,615).................................. 5,085,253
----------
INVESTMENT IN CURRENCY -- (1.5%)
*Japanese Yen
(Cost $243,895).................................. 243,685
----------
TOTAL -- JAPAN
(Cost $5,657,510).................................. 5,328,938
----------
UNITED KINGDOM -- (20.9%)
COMMON STOCKS -- (19.9%)
ASDA Group P.L.C................................... 18,900 36,937
Abbey National P.L.C............................... 4,000 57,479
Allied Domecq P.L.C................................ 8,000 58,099
Anglian Water P.L.C................................ 2,100 23,425
Arjo Wiggins Appleton P.L.C........................ 5,400 14,717
Associated British Foods P.L.C..................... 7,000 64,831
BAA P.L.C.......................................... 8,073 70,158
BG P.L.C........................................... 39,000 130,160
Barclays P.L.C..................................... 4,500 87,063
Bass P.L.C......................................... 8,800 113,888
British Land Co. P.L.C............................. 3,500 34,186
British Steel P.L.C................................ 16,300 40,568
British Telecommunications P.L.C................... 42,000 303,307
Burton Group P.L.C................................. 18,700 40,971
*Capital Shopping Centres P.L.C.................... 4,000 26,504
*Centrica P.L.C.................................... 30,000 31,334
Commercial Union P.L.C............................. 6,174 69,020
General Accident P.L.C............................. 4,500 66,427
Great Universal Stores P.L.C....................... 10,100 106,646
*Greenalls Group P.L.C............................. 3,000 23,036
Guardian Royal Exchange P.L.C...................... 7,361 33,577
Guinness P.L.C..................................... 15,000 139,046
Hyder P.L.C........................................ 1,614 21,349
Imperial Chemical Industries P.L.C................. 6,300 83,538
LaPorte P.L.C...................................... 2,000 21,445
Ladbroke Group P.L.C............................... 12,787 47,997
Lasmo P.L.C........................................ 8,700 34,786
Lonrho P.L.C....................................... 6,237 13,792
National Power P.L.C............................... 6,000 54,003
National Westminster Bank P.L.C.................... 16,729 202,988
Pilkington P.L.C................................... 7,916 16,213
Powergen P.L.C..................................... 6,000 68,299
RMC Group P.L.C.................................... 2,000 29,702
Redland P.L.C...................................... 4,110 21,967
Royal & Sun Alliance Insurance Group, Inc. P.L.C... 10,103 75,763
Safeway P.L.C...................................... 10,000 58,670
Sainsbury (J.) P.L.C............................... 16,090 91,775
Scottish & Newcastle P.L.C......................... 6,000 68,544
Sears P.L.C........................................ 12,100 15,205
Severn Trent P.L.C................................. 3,045 38,662
Shell Transport & Trading Co., P.L.C............... 7,500 147,370
*Slough Estates P.L.C.............................. 4,000 20,563
*Tarmac P.L.C...................................... 10,000 20,726
Tate & Lyle P.L.C.................................. 4,000 29,409
Tesco P.L.C........................................ 14,266 87,424
Thames Water P.L.C................................. 2,840 31,819
Unilever P.L.C..................................... 5,300 141,551
United Utilities P.L.C............................. 4,419 50,447
Whitbread P.L.C.................................... 4,200 54,321
Yorkshire Water P.L.C.............................. 3,016 18,483
TOTAL COMMON STOCKS
(Cost $2,619,429).................................... 3,138,10
---------
INVESTMENT IN CURRENCY -- (1.0%)
*British Pound Sterling
(Cost $156,365).................................. 155,602
---------
TOTAL -- UNITED KINGDOM
(Cost $2,775,794)................................ 3,293,792
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE+
------- ----------
<S> <C> <C>
GERMANY -- (9.5%)
COMMON STOCKS -- (8.9%)
#BASF AG.......................................... 4,000 147,455
#BHF Bank AG...................................... 1,000 27,794
Bankgesellschaft Berlin AG........................ 2,700 61,852
#Bayerische Hypotheken und Wechselbank AG......... 3,300 104,754
Bayerische Vereinsbank AG......................... 3,520 144,796
Berliner Kraft & Licht Bewag AG................... 1,000 23,405
*#Commerzbank AG.................................. 2,000 58,748
#Deutsche Bank AG................................. 6,500 360,181
#Deutsche Lufthansa AG............................ 4,100 65,279
Deutsche Pfandbrief und Hypothekenbank AG, Depfa.. 500 29,403
#Dresdner Bank AG, Frankfurt...................... 2,900 101,475
Man AG, Muechen................................... 100 28,613
Siemens AG........................................ 1,700 95,823
Vereins & Westbank AG............................. 112 24,248
#Volkswagen AG.................................... 200 129,198
---------
TOTAL COMMON STOCKS
(Cost $1,172,561)................................. 1,403,024
---------
INVESTMENT IN CURRENCY -- (0.6%)
*German Marks
(Cost $88,663).................................. 88,518
---------
TOTAL -- GERMANY
(Cost $1,261,224)................................. 1,491,542
---------
FRANCE -- (7.5%)
COMMON STOCKS -- (6.9%)
AGF (Assurances Generales de France SA)........... 2,000 60,811
Banque Nationale de Paris......................... 3,100 127,287
Compagnie de Suez SA.............................. 1,124 56,901
Elf Aquitaine..................................... 1,609 160,844
Eridania Beghin-Say SA............................ 200 27,997
*Euro Disney SCA.................................. 11,400 17,874
Financiere de Paribas SA Series A................. 1,846 117,694
#Groupe Danone.................................... 500 75,277
LaFarge Coppee SA................................. 708 45,262
Peugeot SA........................................ 400 39,570
#Rhone-Poulenc SA Series A........................ 1,125 36,447
Saint Louis (SLB)................................. 100 23,060
Saint-Gobain...................................... 607 83,394
#Societe Generale Paris........................... 710 77,741
</TABLE>
15
<PAGE>
VA INTERNATIONAL VALUE PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ ----------
<S> <C> <C>
*Thomson-CSF ........................................ 900 $ 25,650
UAP SA .............................................. 4,830 117,403
----------
TOTAL COMMON STOCKS
(Cost $1,038,972) ..................................... 1,093,212
----------
INVESTMENT IN CURRENCY -- (0.6%)
*French Francs
(Cost $88,683) .................................... 88,137
----------
TOTAL -- FRANCE
(Cost $1,127,655) ..................................... 1,181,349
----------
SWITZERLAND -- (6.3%)
COMMON STOCKS -- (6.2%)
Baloise Holding, Basel .............................. 25 54,966
Banque Cantonale Vaudois ............................ 110 27,762
#Credit Suisse Holding, Zuerich (Namen) ............. 800 100,530
Julius Baer Holding AG, Zuerich ..................... 20 27,501
*Oerlikon-Buehrle Holding AG, Zuerich ............... 500 57,971
Pargesa Holding SA, Geneve .......................... 50 63,627
SBG (Schweizerische Bankgesellschaft) ............... 390 427,911
SBV (Schweizerischer Bankverein) (Namen) ............ 300 72,428
SIG (Schweizerische Industrie Gesellschaft Holding
AG), Neuhausen am Rheinfall ....................... 10 30,046
Schindler Holding AG, Hergiswil ..................... 25 32,167
Sulzer AG, Winterthur ............................... 50 39,378
*Swissair Schweizerische Luftverkehr AG, Zuerich .... 50 50,972
----------
TOTAL COMMON STOCKS
(Cost $805,867) ....................................... 985,259
----------
INVESTMENT IN CURRENCY -- (0.1%)
*Swiss Francs
(Cost $9,188) ..................................... 9,426
----------
TOTAL -- SWITZERLAND
(Cost $815,055) ....................................... 994,685
----------
NETHERLANDS -- (4.6%)
COMMON STOCKS -- (4.6%)
ABN Amro Holding NV ................................. 5,412 100,170
DSM NV .............................................. 515 51,151
Fortis Amev NV ...................................... 2,321 95,478
Heineken Holding NV Series A ........................ 500 73,305
Ing Groep NV ........................................ 2,958 130,935
KLM (Koninklijke Luchtvaart Mij NV) ................. 1,828 52,896
Koninklijke Hoogovens NV ............................ 724 36,162
Koninklijke KNP BT .................................. 1,500 30,970
Philips Electronics NV .............................. 2,800 153,431
----------
TOTAL COMMON STOCKS
(Cost $523,886) ....................................... 724,498
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Netherlands Guilder
(Cost $1,054) ..................................... 1,061
----------
RIGHTS/WARRANTS -- (0.0%)
*ABN Amro Holding NV Rights ......................... 1,353 0
*Ing Groep NV Rights 06/06/97 ....................... 10 7
----------
TOTAL RIGHTS/WARRANTS
(Cost $0) ............................................. 7
----------
TOTAL -- NETHERLANDS
(Cost $524,940) ....................................... 725,566
----------
HONG KONG -- (3.8%)
COMMON STOCKS -- (3.8%)
Amoy Properties, Ltd. ............................... 40,000 45,443
Chinese Estates Holdings, Ltd. ...................... 24,645 24,976
*Evergo China Holdings, Ltd. ........................ 3,838 550
#Great Eagle Holdings, Ltd. ......................... 7,177 25,387
Hang Lung Development Co., Ltd. ..................... 12,000 23,005
#Hongkong & Shanghai Hotels, Ltd. ................... 18,416 28,530
#Hopewell Holdings, Ltd. ............................ 70,000 39,085
Hysan Development Co., Ltd. ......................... 17,000 56,732
#Paliburg Holdings, Ltd. ............................ 36,000 47,173
#Sino Land Co., Ltd. ................................ 46,000 53,744
Wharf Holdings, Ltd. ................................ 38,000 170,230
Wheelock and Co., Ltd. .............................. 34,000 83,178
----------
TOTAL COMMON STOCKS
(Cost $482,156) ....................................... 598,033
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Hong Kong Dollars
(Cost $3,929) ..................................... 3,928
----------
RIGHTS/WARRANTS -- (0.0%)
*Hong Kong & Shanghai Hotels, Ltd. Warrants 12/10/98
(Cost $0) ......................................... 1,416 278
----------
TOTAL -- HONG KONG
(Cost $486,085) ....................................... 602,239
----------
AUSTRALIA -- (3.2%)
COMMON STOCKS -- (3.0%)
*Amcor, Ltd. ........................................ 4,441 29,465
Australia & New Zealand Banking Group, Ltd. ......... 6,048 41,464
Boral, Ltd. ......................................... 8,148 26,035
*CRA, Ltd. .......................................... 3,212 52,740
#CSR, Ltd. .......................................... 8,813 32,394
#Commonwealth Bank of Australia ..................... 6,520 70,182
MIM Holdings ........................................ 11,464 17,135
#National Australia Bank, Ltd. ...................... 5,695 81,562
News Corp., Ltd. .................................... 11,719 52,102
#Westpac Banking Corp. .............................. 11,200 60,898
----------
TOTAL COMMON STOCKS
(Cost $399,721) ....................................... 463,977
----------
INVESTMENT IN CURRENCY -- (0.2%)
*Australian Dollar
(Cost $29,111) .................................... 28,965
----------
TOTAL -- AUSTRALIA
(Cost $428,832) ....................................... 492,942
----------
ITALY -- (3.1%)
COMMON STOCKS -- (3.1%)
Banca Commerciale Italiana SpA ...................... 26,000 51,189
*Banca di Roma ...................................... 60,000 42,718
Credito Italiano .................................... 20,000 29,754
</TABLE>
16
<PAGE>
VA INTERNATIONAL VALUE PORTFOLIO
CONTINUED
SHARES VALUE+
------- --------
#Fiat SpA........................................... 66,000 $216,441
Ifil Finanziaria Partecipazioni SpA, Torino......... 8,000 23,567
*Ing Olivetti & C SpA, Ivrea........................ 25,000 7,276
#Istituto Bancario San Paolo Torino SpA............. 14,500 91,208
Italcementi Fabbriche Riunite Cemento SpA, Bergamo.. 5,000 29,090
------- --------
TOTAL COMMON STOCKS
(Cost $497,991)..................................... 491,243
--------
INVESTMENT IN CURRENCY -- (0.0%)
*Italian Lira
(Cost $53)........................................ 53
--------
TOTAL -- ITALY
(Cost $498,044)..................................... 491,296
--------
SWEDEN -- (2.6%)
COMMON STOCKS -- (2.6%)
Avesta Sheffield AB................................. 2,000 21,828
*Diligentia AB...................................... 560 6,401
Mo Och Domsjoe AB Series B.......................... 800 24,798
Naeckebro AB........................................ 110 1,463
Skandinaviska Enskilda Banken Series A.............. 5,600 57,862
Stora Kopparbergs Bergslags AB Series A............. 2,900 42,887
Svenska Cellulosa AB Series B....................... 1,300 27,285
#Svenska Handelsbanken Series A..................... 2,400 64,165
Swedish Match AB (Frueher Svenska Taendsticks AB)... 900 2,929
Volvo AB Series A................................... 2,400 66,645
Volvo AB Series B................................... 3,200 88,654
------- --------
TOTAL COMMON STOCKS
(Cost $317,118)..................................... 404,917
--------
INVESTMENT IN CURRENCY -- (0.0%)
*Swedish Krona
(Cost $5,642)..................................... 5,675
--------
RIGHTS/WARRANTS -- (0.0%)
*Volvo AB Series A Rights 06/11/97
(Cost $0)......................................... 5,600 1,497
------- --------
TOTAL -- SWEDEN
(Cost $322,760)..................................... 412,089
--------
SPAIN -- (2.6%)
COMMON STOCKS -- (2.6%)
Banco Central Hispanoamericano SA................... 2,600 83,880
#FESCA (Fuerzas Electricas de Cataluna SA) Series
A................................................. 3,920 34,158
#Iberdrola SA....................................... 17,400 211,182
#Sevillana de Electricidad SA....................... 3,843 36,809
#Union Electrica Fenosa SA.......................... 4,000 35,408
------- --------
TOTAL COMMON STOCKS
(Cost $317,275)..................................... 401,437
--------
SHARES VALUE+
------- --------
INVESTMENT IN CURRENCY -- (0.0%)
*Spanish Peseta
(Cost $1,308)..................................... $ 1,242
--------
TOTAL -- SPAIN
(Cost $318,583)..................................... 402,679
--------
MALAYSIA -- (2.4%)
COMMON STOCKS -- (2.3%)
Berjaya Group Berhad................................ 15,000 19,841
Berjaya Leisure Berhad.............................. 11,000 29,582
Golden Hope Plantations Berhad...................... 15,000 25,578
Kuala Lumpur Kepong Berhad.......................... 10,000 25,896
Malaysian Airlines System........................... 13,000 30,040
Malaysian Industrial Development Finance Berhad..... 11,000 15,952
Renong Berhad....................................... 17,000 24,382
Tan Chong Motor Holdings Berhad..................... 10,000 18,645
Tenaga Nasional Berhad.............................. 36,000 164,940
------- --------
TOTAL COMMON STOCKS
(Cost $383,700)....................................... 354,856
--------
INVESTMENT IN CURRENCY -- (0.1%)
*Malaysian Ringetts
(Cost $24,003).................................... 24,012
-------
TOTAL -- MALAYSIA
(Cost $407,703)..................................... 378,868
-------
BELGIUM -- (1.8%)
COMMON STOCKS -- (1.4%)
Banque Bruxelles Lambert............................ 100 26,971
Bekaert SA.......................................... 100 59,132
CMB (Cie Martime Belge)............................. 300 20,590
Cofinimmo SA........................................ 200 21,384
Electrafina SA...................................... 200 20,193
#Generale de Belgique SA............................ 500 46,086
#Groupe Bruxelles Lambert SA, Bruxelles............. 200 31,878
------ ------
TOTAL COMMON STOCKS
(Cost $207,810)..................................... 226,234
-------
INVESTMENT IN CURRENCY -- (0.4%)
*Belgian Francs
(Cost $60,344).................................... 59,994
------
TOTAL -- BELGIUM
(Cost $268,154)..................................... 286,228
-------
SINGAPORE -- (1.1%)
COMMON STOCKS -- (1.1%)
Neptune Orient Lines, Ltd........................... 23,000 20,770
Singapore Land, Ltd................................. 9,000 45,992
#Straits Steamship Land, Ltd........................ 17,000 50,697
United Industrial Corp., Ltd........................ 43,000 34,918
United Overseas Land, Ltd........................... 12,000 18,817
------ ------
TOTAL COMMON STOCKS
(Cost $184,649)..................................... 171,194
-------
INVESTMENT IN CURRENCY -- (0.0%)
*Singapore Dollars
(Cost $89).......................................... 88
-------
TOTAL -- SINGAPORE
(Cost $184,738)..................................... 171,282
-------
17
<PAGE>
VA INTERNATIONAL VALUE PORTFOLIO
CONTINUED
FACE
AMOUNT VALUE+
------------ ---------
(000)
TEMPORARY CASH INVESTMENTS -- (4.3%)
Repurchase Agreement, PNC Capital Markets Inc. 5.25%,
06/02/97 (Collateralized by U.S. Treasury Notes
6.00%, 08/15/99).................................... $ 679 $ 679,000
----------
TOTAL INVESTMENTS -- (107.5%)
(Cost $15,756,077)++................................. 16,932,495
----------
OTHER ASSETS AND LIABILITIES -- (-7.5%)
Other Assets......................................... 187,336
Payable for Investment Securities Purchased.......... (1,357,000)
Other Liabilities.................................... (8,565)
----------
(1,178,229)
----------
NET ASSETS -- (100.0%) Applicable to 1,356,804
Outstanding $.01 Par Value Shares
(100,000,000 Shares Authorized)...................... $15,754,266
----------
----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE................................................ $ 11.61
----------
----------
- - --------------------
+See Note B to Financial Statements.
*Non-Income Producing Securities
#Securities on Loan
++Approximates cost for federal income tax purposes.
See accompanying Notes to Financial Statements.
18
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE+
------------ ------------
<S> <C> <C>
JAPAN -- (31.1%)
COMMON STOCKS -- (31.1%)
Achilles Corp................................................ 6,000 $16,753
Aica Kogyo Co., Ltd.......................................... 3,000 15,979
Aichi Tokei Denki Co., Ltd................................... 3,000 12,139
Aida Engineering, Ltd........................................ 3,000 21,443
*Akai Electric Co., Ltd...................................... 9,000 29,845
Amada Metrecs Co., Ltd....................................... 3,000 30,155
#Arai-Gumi, Ltd.............................................. 1,200 7,711
Asahi Kogyosha Co., Ltd...................................... 3,000 12,500
Asahi Organic Chemicals Industry Co., Ltd.................... 3,000 15,593
Ashimori Industry Co., Ltd................................... 3,000 10,825
*Asics Corp.................................................. 7,000 14,433
*#Bank of Osaka, Ltd......................................... 9,000 17,397
#CKD Corp.................................................... 2,000 13,488
CMK Corp..................................................... 2,000 25,430
*Central Finance Co., Ltd.................................... 4,000 9,210
*Central Glass Co., Ltd...................................... 7,000 20,387
#Chiba Kogyo Bank, Ltd....................................... 800 22,612
*#Chori Co., Ltd............................................. 5,000 15,936
Chukyo Sogo Bank, Ltd........................................ 5,000 20,060
#Daido Hoxan, Inc............................................ 4,000 14,433
*Daiei OMC, Inc.............................................. 9,000 22,577
Daisan Bank, Ltd............................................. 4,000 19,588
*Daiwa Danchi Co., Ltd....................................... 5,000 19,802
*Daiwabo Co., Ltd............................................ 8,000 24,811
Ehime Bank, Ltd.............................................. 5,000 25,301
France Bed Co., Ltd.......................................... 4,000 21,409
*Fuji Kosan Co., Ltd......................................... 6,000 13,454
Fuji Kyuko Co., Ltd.......................................... 5,000 22,337
Fuji Oil Co., Ltd............................................ 3,000 20,103
Fuji Spinning Co., Ltd., Tokyo............................... 4,000 14,605
#Fujiko Co., Ltd............................................. 4,000 8,488
*Fujitsu General, Ltd........................................ 4,000 26,117
*Furukawa Battery Co., Ltd................................... 3,000 12,500
Gakken Co., Ltd.............................................. 3,000 15,077
*Godo Steel, Ltd............................................. 6,000 21,495
*Hitachi Seiki Co., Ltd...................................... 4,000 11,581
Hokkaido Gas Co., Ltd........................................ 4,000 11,856
Hokuriku Electric Industry Co., Ltd.......................... 4,000 16,048
Howa Machinery, Ltd.......................................... 5,000 13,144
Ichikoh Industries, Ltd...................................... 4,000 14,605
Iwasaki Electric Co., Ltd.................................... 4,000 15,189
Iwatsu Electric Co., Ltd..................................... 3,000 9,948
JDC Corp..................................................... 6,000 10,567
*#Japan Aviation Electronics Industry, Ltd................... 3,000 22,294
*Japan Coated Paper Manufacturing Co., Ltd................... 3,000 7,088
Japan Paper Industry Co., Ltd................................ 3,000 9,485
Japan Pulp and Paper Co., Ltd................................ 5,000 18,986
#Japan Transcity Corp........................................ 3,000 14,046
Japan Vilene Co., Ltd........................................ 3,000 12,732
Joshin Denki Co., Ltd........................................ 2,000 20,103
Kagome Co., Ltd.............................................. 3,000 18,557
*Kansai Kisen Kaisha......................................... 9,000 12,603
Kanto Auto Works, Ltd., Yokosuka............................. 3,000 18,041
Kanto Denka Kogyo Co., Ltd................................... 4,000 21,478
Kawada Industries, Inc....................................... 2,000 8,591
Kawai Musical Instruments Manufacturing Co., Ltd............. 5,000 16,108
#Keiyo Co., Ltd.............................................. 2,000 17,027
*Kenwood Corp................................................ 5,000 22,380
Kokusai Kogyo Co., Ltd....................................... 2,000 15,498
Komatsu Forklift Co., Ltd.................................... 3,000 16,263
Kosei Securities Co., Ltd.................................... 4,000 14,192
Kyodo Shiryo Co., Ltd........................................ 5,000 11,383
#Kyushu Bank, Ltd............................................ 4,000 15,567
#Life Corp................................................... 2,000 14,863
#Makino Milling Machine Co., Ltd............................. 4,000 32,474
Marudai Food Co., Ltd........................................ 5,000 21,692
*Maruyama Manufacturing Co., Inc............................. 3,000 9,665
Matsuo Bridge Co., Ltd....................................... 3,000 10,309
*Mitsubishi Shindoh Co., Ltd................................. 3,000 10,232
*Mitsubishi Steel Manufacturing Co., Ltd..................... 5,000 17,826
Mitsui Construction Co., Ltd................................. 6,000 10,567
#Mitsui High-Tec, Inc........................................ 1,000 23,625
*Mitsui Mining Co., Ltd...................................... 5,000 13,187
Mitsuuroko Co., Ltd.......................................... 3,000 18,299
*#Nagasakiya Co., Ltd. (Tokyo)............................... 5,000 16,065
Nakamuraya Co., Ltd.......................................... 3,000 13,428
Nakayama Steel Works, Ltd.................................... 5,000 21,048
#Nichias Corp................................................ 4,000 15,464
Nichiei Construction Co., Ltd................................ 2,000 12,113
*Nichimo Co., Ltd............................................ 5,000 15,206
Nichireki Co., Ltd........................................... 2,000 12,921
Nichiro Corp................................................. 5,000 14,003
Nifco, Inc................................................... 2,000 19,588
*Niigata Engineering Co., Ltd................................ 14,000 24,656
Nippon Beet Sugar Manufacturing Co., Ltd..................... 5,000 18,256
*#Nippon Carbon Co., Ltd..................................... 5,000 16,753
Nippon Chemi-Con Corp........................................ 5,000 25,215
Nippon Chemical Industrial Co., Ltd.......................... 2,000 14,330
*#Nippon Columbia Co., Ltd................................... 3,000 11,598
#Nippon Concrete Industries Co., Ltd......................... 3,000 9,768
#Nippon Densetsu Kogyo Co., Ltd.............................. 2,000 14,605
*Nippon Kasei Chemical Co., Ltd.............................. 5,000 12,113
Nippon Shinyaku Co., Ltd..................................... 3,000 25,773
*Nippon Steel Chemical Co., Ltd.............................. 6,000 20,722
Nippon Synthetic Chemical Industry Co., Ltd.................. 3,000 10,490
Nippon Thompson Co., Ltd..................................... 3,000 24,278
Nitsuko Corp................................................. 3,000 20,155
Nittetsu Mining Co., Ltd..................................... 3,000 21,985
*Nitto Boseki Co., Ltd....................................... 8,000 26,460
#Noritz Corp................................................. 2,000 22,680
OSG Corp..................................................... 3,000 21,649
*Odakyu Real Estate Co., Ltd................................. 4,000 14,055
*Okasan Securities Co., Ltd.................................. 7,000 18,222
*#Pacific Metals Co., Ltd.................................... 7,000 20,326
#Parco Co., Ltd.............................................. 2,000 15,979
</TABLE>
19
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ ----------
<S> <C> <C>
Prima Meat Packers, Ltd. ............................ 5,000 $ 9,364
Rasa Industries, Ltd. ............................... 3,000 18,686
Rheon Automatic Machinery Co., Ltd. ................. 2,000 12,887
#Ryobi, Ltd. ........................................ 5,000 18,900
SXL Corp. ........................................... 3,000 18,351
Sagami Co., Ltd. .................................... 3,000 16,495
Sakai Chemical Industry Co., Ltd. ................... 3,000 12,294
Sakata Inx Corp. .................................... 3,000 17,294
Sanyo Shokai, Ltd. .................................. 5,000 27,749
Sanyo Special Steel Co., Ltd. ....................... 7,000 18,943
#Sasebo Heavy Industries Co., Ltd., Tokyo ........... 7,000 15,455
Seiko Corp. ......................................... 3,000 21,572
Seiyo Food Systems, Inc. ............................ 3,000 23,119
Shikoku Chemicals Corp. ............................. 3,000 12,113
Shimizu Bank, Ltd. .................................. 400 24,399
#Shinagawa Fuel Co., Ltd. ........................... 3,000 20,155
Shindengen Electric Manufacturing Co., Ltd. ......... 3,000 29,381
*#Showa Line, Ltd. .................................. 10,000 11,082
#Sumitomo Construction Co., Ltd. .................... 6,000 12,887
*Sumitomo Light Metal Industries, Ltd. .............. 11,000 25,137
#Sumitomo Precision Products Co., Ltd., Amagasaki
City .............................................. 2,000 12,423
#TOC Co., Ltd. ...................................... 2,000 22,509
Taisei Rotec Corp. .................................. 3,000 10,619
Takaoka Electric Manufacturing Co., Ltd., Tokyo ..... 4,000 12,887
Takasago International Corp. ........................ 3,000 18,041
#Takashima & Co., Ltd. .............................. 4,000 14,674
Takiron Co., Ltd. ................................... 3,000 13,918
#Tasaki Shinju Co., Ltd. ............................ 2,000 13,918
Toa Doro Kogyo Co., Ltd. ............................ 3,000 8,763
*Toa Wool Spinning & Weaving Co., Ltd. .............. 6,000 16,495
Tochigi Bank, Ltd. .................................. 3,000 24,227
Toenec Corp. ........................................ 3,000 16,237
*#Tokai Kogyo Co., Ltd. ............................. 7,000 24,656
#Tokai Rika Co., Ltd. ............................... 3,000 22,500
Tokico, Ltd. ........................................ 4,000 12,749
#Tokyo Kikai Seisak ................................. 3,300 20,866
Tokyo Rope Manufacturing Co., Ltd. .................. 4,000 13,299
*Tokyo Securities Co., Ltd. ......................... 4,000 8,419
*#Tokyo Tekko Co., Ltd. ............................. 3,000 8,479
Tokyo Theatres Co., Inc., Tokyo ..................... 6,000 12,371
Tonami Transportation Co., Ltd. ..................... 3,000 13,737
*Toshiba Machine Co., Ltd. .......................... 6,000 21,186
Totoku Electric Co., Ltd., Tokyo .................... 3,000 15,129
#Toyo Chemical Co., Ltd. ............................ 3,000 15,515
*Toyo Electric Co., Ltd. ............................ 5,000 17,440
Toyo Kohan Co., Ltd. ................................ 3,000 22,552
Toyo Umpanki Co., Ltd. .............................. 5,000 20,833
*Unisia Jecs Corp. .................................. 3,000 13,969
#Wakachiku Construction Co., Ltd. ................... 4,000 15,464
#Yomiuri Land Co., Ltd. ............................. 3,000 17,783
Yondenko Corp. ...................................... 2,000 14,519
*Yuasa Corp. ........................................ 7,000 25,979
#Zenchiku Co., Ltd. ................................. 4,000 11,134
------ ----------
TOTAL COMMON STOCKS
(Cost $3,065,059) ..................................... 2,681,549
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Japanese Yen
(Cost $393) ....................................... 401
----------
TOTAL -- JAPAN
(Cost $3,065,452) ..................................... 2,681,950
----------
UNITED KINGDOM -- (14.9%)
COMMON STOCKS -- (13.4%)
APV P.L.C. .......................................... 15,000 25,826
Ash & Lacy P.L.C. ................................... 7,000 19,135
*BSG International P.L.C. ........................... 13,300 22,031
Bellway P.L.C. ...................................... 4,000 21,934
Bluebird Toys P.L.C. ................................ 5,000 8,731
Bodycote International P.L.C. ....................... 3,000 36,475
Bradstock Group P.L.C. .............................. 21,000 26,390
Brammer (H.) P.L.C. ................................. 1,880 20,833
British Polythene Industries P.L.C. ................. 2,000 20,074
Bulmer (H.P.) Holdings P.L.C. ....................... 2,002 17,072
CRT Group P.L.C. .................................... 5,750 22,756
Canadian Pizza P.L.C. ............................... 12,000 19,584
Carpetright P.L.C. .................................. 4,000 29,605
Cattles P.L.C. ...................................... 5,400 26,659
Courts P.L.C. ....................................... 2,320 21,203
Davis Service Group P.L.C. .......................... 6,666 28,775
Dawson Group P.L.C. ................................. 4,000 13,121
Dawson International P.L.C. ......................... 10,000 11,342
Dewhirst Group P.L.C. ............................... 6,000 20,025
Diploma P.L.C. ...................................... 3,000 15,692
Etam P.L.C. ......................................... 7,000 14,794
*Euromoney Publications P.L.C. ...................... 990 24,639
*Forth Ports P.L.C. ................................. 2,000 19,421
Greene King P.L.C. .................................. 2,000 21,102
*HTV Group P.L.C. ................................... 4,000 20,008
Henderson P.L.C. .................................... 1,000 22,562
Heywood Williams Group P.L.C. ....................... 5,000 17,911
House of Fraser P.L.C. .............................. 8,000 22,587
How Group P.L.C. .................................... 29,000 28,160
Ibstock P.L.C. ...................................... 19,000 21,706
Johnston Press P.L.C. ............................... 7,010 20,307
MacFarlane Group Clansman P.L.C. .................... 6,000 16,059
Mersey Docks & Harbour Co. P.L.C. ................... 3,580 23,662
Molins P.L.C. ....................................... 1,360 12,096
*More Group P.L.C. .................................. 1,870 18,876
*Oxford Molecular Group P.L.C. ...................... 6,530 39,271
Photo-Me International P.L.C. ....................... 6,000 12,240
Polypipe P.L.C. ..................................... 8,000 30,159
Quick Group P.L.C. .................................. 8,000 18,997
Redrow Group P.L.C. ................................. 11,000 29,172
Renishaw P.L.C. ..................................... 2,904 16,303
SIG P.L.C. .......................................... 4,300 21,965
Senior Engineering Group P.L.C. ..................... 12,000 25,165
Serco Group P.L.C. .................................. 2,400 27,711
St. Modwen Properties P.L.C. ........................ 23,000 26,744
Stanley Leisure Organisation P.L.C. ................. 4,000 20,008
Staveley Industries P.L.C. .......................... 6,000 17,087
Swan Hill Group P.L.C. .............................. 13,000 17,291
T & S Stores P.L.C. ................................. 7,690 22,088
Triplex Lloyd P.L.C. ................................ 7,404 19,817
Vardon P.L.C. ....................................... 9,000 16,671
Vitec Group P.L.C. .................................. 2,000 19,094
</TABLE>
20
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------ ----------
<S> <C> <C>
*Vosper Thornycroft Holdings P.L.C.................. 1,460 $ 19,038
Waddington (John) P.L.C............................. 3,980 18,057
------ ----------
TOTAL COMMON STOCKS
(Cost $1,089,360)................................... 1,148,031
----------
INVESTMENT IN CURRENCY -- (1.5%)
*British Pound Sterling
(Cost $132,113)................................... 131,450
----------
TOTAL -- UNITED KINGDOM
(Cost $1,221,473)................................... 1,279,481
----------
FRANCE -- (9.9%)
COMMON STOCKS -- (8.9%)
Bertrand Faure SA................................... 714 33,152
Bollore Technologies SA............................. 200 25,295
But SA.............................................. 400 21,691
Canal Plus SA....................................... 50 8,446
Carbone Lorraine.................................... 80 18,572
*Cardif SA.......................................... 200 23,250
DMC (Dollfus Mieg et Cie)........................... 300 6,185
*Damart SA.......................................... 30 23,067
Degremont........................................... 300 22,089
Filipacchi Medias SA................................ 100 21,587
Fimalac SA.......................................... 330 30,587
Fonciere Lyonnaise SA............................... 200 25,260
GTM Entrepose....................................... 500 25,979
Gaumont............................................. 401 29,735
*Groupe Andre SA.................................... 304 25,913
Groupe du Louvre SA................................. 700 24,255
Groupement pour le Financement de la Construction
SA................................................ 300 28,170
Guyenne et Gascogne SA.............................. 60 18,399
Havas Advertising SA................................ 203 21,524
Legris Industries SA................................ 400 17,325
*#Metaleurop SA..................................... 1,500 16,944
*Moulinex SA........................................ 1,440 33,655
Reassurances SA (Francaise de)...................... 130 33,108
Rue Imperiale de Lyon............................... 20 20,270
*SAGA (Societe Anonyme de Gerance et d'Armement).... 300 4,418
SAT SA (SA des Telecommunications).................. 57 15,307
SFIM (Societe de Fabrication d'Instruments de
Mesure)........................................... 102 16,434
*SGE (Societe Generale d'Enterprise SA)............. 1,000 21,050
Silic (Societe Immobiliere de Location pour
l'Industrie et le Commerce)....................... 160 23,756
Skis Rossignol SA................................... 648 14,258
Sommer-Allibert SA.................................. 900 28,690
Strafor Facom SA.................................... 283 19,514
Sylea SA............................................ 200 17,498
Union Immob......................................... 300 22,817
*Union Industrielle de Credit SA, Paris............. 1,364 5,908
Vallourec (Usines a Tubes de Lorraine Escaut et
Vallourec Reunies)................................ 400 22,869
----------
TOTAL COMMON STOCKS
(Cost $736,938)..................................... 766,977
----------
INVESTMENT IN CURRENCY -- (1.0%)
*French Francs
(Cost $83,327).................................... 82,749
----------
RIGHTS/WARRANTS -- (0.0%)
*BCR Participations Warrants 05/15/99............... 300 103
*SAGA (Societe Anonyme de Gerance et d'Armement)
Rights 06/02/97................................... 300 338
----------
TOTAL RIGHTS/WARRANTS
(Cost $497)......................................... 441
----------
TOTAL -- FRANCE
(Cost $820,762)..................................... 850,167
----------
GERMANY -- (7.3%)
COMMON STOCKS -- (7.3%)
*AGIV AG fuer Industrie & Verkehrswesen............. 1,700 31,235
Aachener und Muenchener Versicherungs AG............ 100 35,693
*Concordia Bau und Boden AG......................... 496 5,659
*DLW AG............................................. 100 10,246
DSL Holding AG...................................... 150 19,748
Didier-Werke AG..................................... 200 15,565
Dyckerhoff & Widmann AG............................. 100 13,458
Fag Kugelfischer Georg Schaeffer AG................. 1,250 23,040
Felten & Guilleaume Energietechnik AG............... 100 9,479
Gerresheimer Glas AG................................ 1,000 16,489
Goldschmidt AG...................................... 50 18,871
Harpener AG......................................... 100 18,256
Holsten-Brauerei AG, Hamburg........................ 100 21,358
Horten AG........................................... 200 27,853
Iwka AG............................................. 100 27,384
*Kali und Salz Beteiligungs AG...................... 200 18,958
*Kaufhalle AG....................................... 200 20,012
*Kloeckner-Werke AG................................. 400 29,491
*Linotype-Hell AG................................... 100 8,719
Phoenix AG, Hamburg................................. 1,000 15,828
Plettac AG.......................................... 70 14,909
Rheinboden Hypothekenbank AG........................ 100 17,145
Rhoen Klinikum AG................................... 200 24,459
#Salamander AG, Kornwesteim......................... 100 14,687
*Schmalbach-Lubeca AG............................... 140 31,785
*Strabag AG......................................... 100 8,485
Tarkett AG.......................................... 1,200 28,016
Verseidag AG........................................ 200 18,724
WCM Beteiligungs und Grundbesitz AG................. 3,000 42,305
*Walter AG.......................................... 100 39,789
----------
TOTAL COMMON STOCKS
(Cost $636,480)..................................... 627,646
----------
INVESTMENT IN CURRENCY -- (0.0%)
*German Marks
(Cost $1,434)....................................... 1,431
----------
TOTAL -- GERMANY
(Cost $637,914)..................................... 629,077
----------
</TABLE>
21
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------- --------
<S> <C> <C>
HONG KONG -- (6.0%)
COMMON STOCKS -- (5.2%)
Asia Standard International Group, Ltd............... 56,000 $ 20,243
*China Aerospace International Holdings, Ltd......... 46,800 22,053
China Motor Bus Co., Ltd............................. 1,600 16,112
Dynamic Holdings, Ltd................................ 92,000 27,911
FPB Bank Holding Co., Ltd............................ 50,000 26,465
Four Seas Mercantile Holdings, Ltd................... 60,000 34,469
*Goldlion Holdings, Ltd.............................. 37,000 20,181
Grande Holdings, Ltd................................. 28,000 13,194
Great Wall Electronic International, Ltd............. 101,886 12,627
JCG Holdings, Ltd.................................... 28,000 22,412
Ka Wah Bank, Ltd..................................... 56,227 42,827
Li & Fung, Ltd....................................... 24,000 23,857
#Liu Chong Hing Bank, Ltd............................ 16,000 34,495
#Oriental Press Group, Ltd........................... 68,000 23,264
#Semi-Tech (Global) Co., Ltd......................... 14,307 23,642
Shell Electric Manufacturing (Holdings) Co., Ltd..... 38,000 19,868
Sime Darby Hong Kong, Ltd............................ 20,000 23,496
Tai Cheung Holdings, Ltd............................. 25,000 21,947
Varitronix International, Ltd........................ 10,000 18,268
--------
TOTAL COMMON STOCKS
(Cost $375,252)...................................... 447,331
--------
INVESTMENT IN CURRENCY -- (0.8%)
*Hong Kong Dollars
(Cost $65,961)..................................... 65,967
--------
RIGHTS/WARRANTS -- (0.0%)
*Four Seas Mercantile Holdings, Ltd. Warrants
09/30/98
(Cost $0).......................................... 12,000 1,549
--------
TOTAL -- HONG KONG
(Cost $441,213)...................................... 514,847
--------
MALAYSIA -- (5.5%)
COMMON STOCKS -- (5.3%)
Ban Hin Lee Bank Berhad.............................. 6,000 26,056
Bandar Raya Developments Berhad...................... 11,000 14,900
Batu Kawan Berhad.................................... 10,500 23,008
Chemical Co. of Malaysia Berhad...................... 7,000 22,311
Federal Flour Mills Berhad........................... 8,000 19,283
*Gadek Capital Berhad................................ 2,000 4,781
Guinness Anchor Berhad............................... 11,000 24,103
Hap Seng Consolidated Berhad......................... 11,000 27,171
Ho Hup Construction Co. Berhad....................... 5,000 13,347
IGB Corp. Berhad..................................... 18,000 17,354
Kamunting Corp. Berhad............................... 29,000 20,797
Kelang Container Terminal Berhad..................... 7,000 15,199
Kemayan Corp. Berhad................................. 11,000 12,490
*Kuala Lumpur Industries Holdings Berhad............. 12,000 14,151
Landmarks Berhad..................................... 15,000 19,482
Lion Land Berhad..................................... 23,000 22,267
*MBF Land Berhad..................................... 30,000 19,960
MCB Holdings Berhad.................................. 25,000 25,598
Malaysian Plantations Berhad......................... 15,000 20,319
*Olympia Industries Berhad........................... 19,000 15,291
SHARES VALUE+
------- --------
Phileo Allied Berhad................................. 12,000 $ 23,713
*Promet Berhad....................................... 23,000 19,518
Shangri-la Hotels (Malaysia) Berhad.................. 16,000 16,765
Westmont Land (Asia) Berhad.......................... 12,600 18,072
--------
TOTAL COMMON STOCKS
(Cost $453,761)...................................... 455,936
--------
INVESTMENT IN CURRENCY -- (0.2%)
*Malaysian Ringetts
(Cost $20,791)..................................... 20,799
--------
TOTAL -- MALAYSIA
(Cost $474,552)...................................... 476,735
--------
AUSTRALIA -- (5.1%)
COMMON STOCKS -- (4.4%)
*Aurora Gold, Ltd.................................... 15,600 24,626
Bank of Queensland, Ltd.............................. 5,883 30,552
#Caltex Australia, Ltd............................... 5,760 19,767
Capral Aluminium, Ltd................................ 7,591 27,497
*Davids Limited...................................... 15,156 14,332
*Foodland Associated, Ltd............................. 3,941 24,795
Great Central Mines, Ltd.............................. 10,161 19,759
*Hudson Conway, Ltd................................... 2,235 22,072
Iama, Ltd............................................. 13,058 28,380
*Incitec, Ltd......................................... 4,361 22,349
Jupiters, Ltd......................................... 9,412 21,533
Metal Manufactures, Ltd............................... 7,600 16,460
PMP Communications, Ltd............................... 8,900 24,434
Resolute, Ltd......................................... 10,029 20,344
*Savage Resources, Ltd................................ 20,242 19,759
*Simsmetal, Ltd....................................... 3,126 21,477
Sons of Gwalia, Ltd................................... 4,089 17,122
--------
TOTAL COMMON STOCKS
(Cost $348,972)....................................... 375,258
--------
INVESTMENT IN CURRENCY -- (0.7%)
*Australian Dollar
(Cost $63,134)....................................... 62,821
--------
TOTAL -- AUSTRALIA
(Cost $412,106)....................................... 438,079
--------
NETHERLANDS -- (3.8%)
COMMON STOCKS -- (3.8%)
ACF Holding NV (Certificate).......................... 800 12,305
Ahrend NV............................................. 618 39,149
Cap Gemini NV......................................... 2,100 73,905
Grolsche NV........................................... 800 24,984
Internatio-Mueller NV................................. 1,200 38,665
Koninklijke Frans Maas Groep NV....................... 715 23,858
Otra NV............................................... 1,000 16,632
Schuttersveld Holding................................. 617 28,148
Twentsche Kabel Holding NV............................ 606 32,069
Wegener NV............................................ 305 34,491
--------
TOTAL COMMON STOCKS
(Cost $225,209)....................................... 324,206
--------
RIGHTS/WARRANTS -- (0.0%)
*Ahrend NV Rights 06/19/97............................ 618 609
*Internatio-Mueller NV Rights......................... 1,200 0
*Koninklijke Frans Maas Groep NV Rights 06/19/97...... 715 708
</TABLE>
22
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
------- --------
<S> <C> <C>
*Twentsche Kabel Holding Rights.............................. 606 $ 0
*Wegener NV Rights........................................... 305 0
--------
TOTAL RIGHTS/WARRANTS
(Cost $0).................................................... 1,317
--------
INVESTMENT IN CURRENCY -- (0.0%)
*Netherlands Guilder
(Cost $903)................................................ 904
--------
TOTAL -- NETHERLANDS
(Cost $226,112)............................................. 326,427
--------
SWITZERLAND -- (3.8%)
COMMON STOCKS -- (3.8%)
*Attisholz Holding AG, Attisholz............................. 24 10,214
Danzas Holding AG, Basel..................................... 20 19,837
EGL (Elektrizitaets-Gesellschaft Laufenberg) AG,
Laufenberg.................................................. 100 23,047
Fischer (Georg) AG, Schaffhausen............................. 20 28,561
Forbo Holding AG, Eglisau.................................... 51 21,273
*Helvetia Patria Holding, St. Gallen......................... 50 23,860
Kraftwerk Laufenburg, Laufenburg............................. 100 18,522
Phoenix Mecano AG, Stein am Rhein............................ 50 26,688
Porst Holding AG, Jegenstorf................................. 94 13,956
Rieter Holding AG, Winterthur................................ 80 26,016
*Saurer AG, Arbon............................................ 56 32,860
Schweizerische National Versicherungs Gesellschaft,
Basel....................................................... 10 21,633
Sika Finanz AG, Baar......................................... 90 26,087
*Von Roll Holding AG, Gerlafingen............................ 759 15,132
Zuercher Ziegeleien Holding, Zuerich......................... 27 14,125
--------
TOTAL COMMON STOCKS
(Cost $312,462)............................................. 321,811
--------
INVESTMENT IN CURRENCY -- (0.0%)
*Swiss Francs
(Cost $1,867).............................................. 1,921
--------
TOTAL -- SWITZERLAND
(Cost $314,329)............................................. 323,732
--------
SPAIN -- (3.1%)
COMMON STOCKS -- (3.1%)
*AGF Union y Fenix Seguros y Reaseguros SA................... 2,100 22,220
Banco de Andalucia........................................... 200 32,227
Banco Zaragozano SA.......................................... 1,200 29,461
Cementos Portland SA......................................... 500 20,367
Ebro Agricolas Compania de Alimentacion SA................... 1,700 32,566
Europistas Concesionaria Espanola SA......................... 2,300 18,530
Fabricacion de Automoviles Renault de Espana SA.............. 800 16,597
#GESA (Gas y Electricidad SA)................................ 400 22,268
*Huarte SA................................................... 2,000 2,766
Prosegur Cia de Seguridad SA................................. 2,200 28,679
Uralita SA................................................... 1,900 18,396
Viscofan Industria Navarra de Envolturas Celulosicas
SA......................................................... 1,300 26,297
--------
TOTAL COMMON STOCKS
(Cost $245,670)............................................. 270,374
--------
SHARES VALUE+
------- --------
INVESTMENT IN CURRENCY -- (0.0%)
*Spanish Peseta
(Cost $911)................................................ $ 934
--------
TOTAL -- SPAIN
(Cost $246,581)............................................. 271,308
--------
ITALY -- (3.0%)
COMMON STOCKS -- (3.0%)
*Ansaldo Trasporti SpA....................................... 7,000 6,529
*Banca Toscana............................................... 11,000 19,644
#Cartiere Burgo SpA.......................................... 4,000 23,331
*Cia Assicuratrice Unipol SpA................................ 6,000 15,904
*Dalmine SpA................................................. 82,000 17,669
Falck (Acciaierie & Ferriere Lombarde)....................... 5,000 19,260
Gewiss SpA................................................... 2,000 32,293
*Impregilo SpA............................................... 19,000 13,842
Magneti Marelli SpA.......................................... 15,000 23,909
*Milano Assicurazioni SpA.................................... 5,000 10,951
*Premafin Finanziaria SpA.................. 37,000 10,703
Previdente Cia Italiana Assicurazione SpA.. 3,000 13,726
Sorin Biomedica SpA........................ 7,500 23,909
#Tecnost SpA............................... 8,000 15,444
#Vianini Lavori SpA........................ 10,000 15,054
------ --------
TOTAL COMMON STOCKS
(Cost $296,422)............................ 262,168
--------
INVESTMENT IN CURRENCY -- (0.0%)
*Italian Lira
(Cost $11)............................... 11
--------
TOTAL -- ITALY
(Cost $296,433)............................ 262,179
--------
SINGAPORE -- (3.0%)
COMMON STOCKS -- (2.7%)
Amtek Engineering, Ltd..................... 15,000 25,936
Bukit Sembawang Estates, Ltd............... 1,000 19,601
Hitachi Zosen (Singapore), Ltd............. 22,000 10,627
Hotel Plaza, Ltd........................... 25,000 14,963
Kim Eng Holdings, Ltd...................... 22,000 18,481
Orchard Parade Holdings, Ltd............... 8,000 18,033
*Overseas Union Enterprise, Ltd............ 6,000 28,771
Rothmans Industries, Ltd. Issue 95......... 5,000 26,776
*Scotts Holdings, Ltd...................... 25,000 20,126
Shangri-la Hotel, Ltd...................... 7,000 21,071
Tuan Sing Holdings, Ltd.................... 44,000 16,325
Van der Horst, Ltd......................... 4,000 11,201
--------
TOTAL COMMON STOCKS
(Cost $247,773)............................ 231,911
--------
INVESTMENT IN CURRENCY -- (0.3%)
*Singapore Dollars
(Cost $29,039)........................... 29,082
--------
TOTAL -- SINGAPORE
(Cost $276,812)............................ 260,993
--------
SWEDEN -- (2.6%)
COMMON STOCKS -- (2.6%)
*Allgon AB Series B........................ 1,400 20,794
Catena AB Series A......................... 1,700 22,067
#Celsius Industrier AB Series B............ 1,400 27,123
*Enator AB................................. 1,400 27,304
</TABLE>
23
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE+
-------- ----------
<S> <C> <C>
Foereningsbanken AB Series A......................... 10,400 $ 55,744
#Garphyttan Industrier AB............................ 1,400 17,087
Marieberg Tidnings AB Series A....................... 1,400 35,260
Rottneros Bruk AB.................................... 11,700 13,147
----------
TOTAL COMMON STOCKS
(Cost $160,745)...................................... 218,526
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Swedish Krona
(Cost $2,102)...................................... 2,090
----------
TOTAL -- SWEDEN
(Cost $162,847)...................................... 220,616
----------
SOUTH KOREA -- (1.4%)
COMMON STOCKS -- (1.4%)
Daelim Industrial Co., Ltd........................... 1,071 10,957
Hankuk Paper Manufacturing Co., Ltd.................. 500 12,648
Hanmi Pharmaceutical Co., Ltd........................ 714 34,596
Kumho Electric Co., Ltd.............................. 330 10,388
Pang Rim Spinning.................................... 300 13,997
Se Poong Corp........................................ 1,224 14,173
*Ssangyong Investment Securities Co., Ltd............ 1,020 9,575
Union Steel Manufacturing Co., Ltd................... 200 15,514
----------
TOTAL COMMON STOCKS
(Cost $160,379)...................................... 121,848
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Korean Won
(Cost $58)......................................... 58
----------
TOTAL -- SOUTH KOREA
(Cost $160,437)....................................... 121,906
----------
BELGIUM -- (1.0%)
COMMON STOCKS -- (1.0%)
Ackermans & Van Haaren SA............................ 120 24,606
CMB (Cie Martime Belge).............................. 300 20,590
Cofinimmo SA......................................... 200 21,384
*Immobel (Cie Immobiliere de Belgique SA)............ 200 14,974
----------
TOTAL COMMON STOCKS
(Cost $81,709)....................................... 81,554
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Belgian Francs
(Cost $1,814)...................................... 1,795
----------
TOTAL -- BELGIUM
(Cost $83,523)....................................... 83,349
----------
SHARES VALUE+
------ ----------
NEW ZEALAND -- (0.6%)
COMMON STOCKS -- (0.6%)
Fernz Corp., Ltd..................................... 6,407 $ 22,707
Ports of Auckland.................................... 5,962 26,720
----------
TOTAL COMMON STOCKS
(Cost $47,576)....................................... 49,427
----------
INVESTMENT IN CURRENCY -- (0.0%)
*New Zealand Dollar
(Cost $371)........................................ 370
----------
TOTAL -- NEW ZEALAND
(Cost $47,947)....................................... 49,797
----------
FACE
AMOUNT
--------
(000)
TEMPORARY CASH INVESTMENTS -- (2.2%)
Repurchase Agreement, PNC Capital Markets Inc. 5.25%,
06/02/97 (Collateralized by U.S. Treasury Notes
6.00%, 08/15/99)
(Cost $190,000).................................... $ 190 190,000
----------
TOTAL INVESTMENTS -- (104.3%)
(Cost $9,078,493)++.................................. 8,980,643
----------
OTHER ASSETS AND LIABILITIES -- (-4.3%)
Other Assets....................................... 359,953
Payable for Investment Securities Purchased........ (721,023)
Other Liabilities.................................. (6,572)
----------
(367,642)
----------
NET ASSETS -- (100.0%) Applicable to 868,834
Outstanding $.01 Par Value Shares (100,000,000 Shares
Authorized).......................................... $8,613,001
==========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE................................................ $ 9.91
==========
</TABLE>
- ----------------------
+See Note B to Financial Statements.
*Non-Income Producing Securities
#Securities on Loan
++Approximates cost for federal income tax purposes.
See accompanying Notes to Financial Statements.
24
<PAGE>
VA SHORT-TERM FIXED PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT VALUE+
------ ----------
(000)
<S> <C> <C>
BONDS -- (40.1%)
Albertson's, Inc. Medium Term Notes
5.650%, 03/26/98 .................................... $170 $ 169,810
Associates Corp. of North America Corporate Bonds
8.350%, 12/23/98 .................................... 300 309,570
Bayerische Landesbank U.S. Finance, Inc. Medium Term
Notes
6.400%, 05/05/99 .................................... 300 300,000
Canada (Government of) Bonds
6.400%, 09/10/98 .................................... 160 160,800
Chevron Canada Financial, Ltd. Medium Term Notes
5.600%, 04/01/98 .................................... 150 149,438
Colgate-Palmolive Co. Medium Term Notes
6.630%, 02/16/98 .................................... 160 160,880
FCC National Bank Medium Term Notes
6.000%, 04/02/98 .................................... 150 150,104
Ford Motor Credit Co. Corporate Bonds
7.250%, 05/15/99 .................................... 200 203,000
General Electric Capital Corp. Medium Term Notes
7.950%, 02/02/98 .................................... 150 152,151
IBM Credit Corp. Medium Term Notes
6.570%, 04/07/99 .................................... 300 301,125
Illinois Tool Works, Inc. Corporate Bonds
7.500%, 12/01/98 .................................... 250 254,950
KFW International Finance, Inc. Medium Term Notes
8.250%, 03/18/98 .................................... 150 152,813
Michigan Bell Telephone Medium Term Notes
9.250%, 11/15/98 .................................... 240 250,200
Morgan Guaranty Trust Corporate Bonds
6.000%, 10/01/98 .................................... 150 149,851
National Rural Utilities Cooperative Finance Corp.
Medium Term Notes
8.500%, 02/15/98 .................................... 150 152,625
NationsBank N.C. Corporate Bonds
6.100%, 01/19/99 .................................... 250 248,750
Norwest Financial, Inc. Medium Term Notes
6.230%, 09/01/98 .................................... 250 250,947
Ontario Hydro Medium Term Notes
5.800%, 03/31/98 .................................... 150 150,000
Paccar Financial Corp. Medium Term Notes
7.350%, 02/02/98 .................................... 180 181,984
Pitney Bowes Credit Corp. Medium Term Notes
6.305%, 09/23/98 .................................... 170 170,663
Rockwell International Corp. Corporate Bonds
7.625%, 02/17/98 .................................... 150 151,693
Sara Lee Corp. Medium Term Notes
5.500%, 12/01/98 .................................... 250 247,435
Wachovia Bank Medium Term Notes
5.375%, 04/15/98 .................................... 150 149,209
---- ----------
TOTAL BONDS
(Cost $4,563,296) ..................................... 4,567,998
----------
COMMERCIAL PAPER -- (31.4%)
AI Credit Corp. C.P.
5.570%, 07/21/97 .................................... 300 297,582
Barton Capital Corp. C.P.
5.630%, 08/01/97 .................................... 300 297,065
BellSouth Capital Funding C.P.
5.540%, 06/06/97 .................................... 300 299,676
Caisse des Depots et Consignments C.P.
5.630%, 07/14/97 .................................... 300 297,911
Delaware Funding Corp. C.P.
5.570%, 06/16/97 .................................... 300 299,213
Enterprise Funding Corp. C.P.
5.600%, 06/16/97 .................................... 300 299,220
Glaxo Wellcome PLC C.P.
5.580%, 07/07/97 .................................... 300 298,227
McKenna Triangle National Corp. C.P.
5.600%, 07/07/97 .................................... 300 298,236
Sheffield Receivables Corp. C.P.
5.600%, 07/15/97 .................................... 300 297,861
Sigma Finance Corp. C.P.
5.650%, 07/14/97 .................................... 300 297,911
St. Michael Finance Ltd. C.P.
5.570%, 06/16/97 .................................... 300 299,212
Union Bank of Switzerland C.P.
5.600%, 06/02/97 .................................... 300 299,859
---- ----------
TOTAL COMMERCIAL PAPER
(Cost $3,582,998) ..................................... 3,581,973
----------
U.S. TREASURY OBLIGATIONS -- (17.5%)
U.S. Treasury Notes
6.125%, 03/31/98 .................................... 150 150,411
5.875%, 10/31/98 .................................... 200 199,520
5.500%, 11/15/98 .................................... 200 198,430
5.625%, 11/30/98 .................................... 200 198,772
5.750%, 12/31/98 .................................... 500 497,590
5.875%, 01/31/99 .................................... 250 249,057
6.375%, 04/30/99 .................................... 300 300,909
6.250%, 05/31/99 .................................... 200 200,110
---- ----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,998,718) ..................................... 1,994,799
----------
AGENCY OBLIGATIONS -- (7.9%)
Federal Agriculture Mortgage Corp.
7.200%, 10/15/98 .................................... 150 152,121
</TABLE>
25
<PAGE>
VA SHORT-TERM FIXED PORTFOLIO
CONTINUED
FACE
AMOUNT VALUE+
-------- ------------
(000)
Federal Home Loan Bank
5.715%, 03/20/98................................ $ 150 $ 149,736
5.100%, 01/26/99................................ 300 295,056
Student Loan Marketing Association
7.000%, 03/03/98................................ 150 151,200
6.250%, 06/30/98................................ 150 150,376
----- -----------
TOTAL AGENCY OBLIGATIONS
(Cost $898,188)................................... 898,489
-----------
SUPRANATIONAL OBLIGATIONS -- (1.4%)
Inter-American Development Bank (Cost $156,258)
9.450%, 09/15/98................................ 150 156,000
----- -----------
TOTAL INVESTMENTS -- (98.3%)
(Cost $11,199,458)++.............................. 11,199,259
-----------
OTHER ASSETS AND LIABILITIES -- (1.7%)
Other Assets....................................... 401,228
Payable for Investment Securities Purchased........ (199,766)
Other Liabilities.................................. (6,610)
-----------
194,852
-----------
NET ASSETS -- (100.0%) Applicable to 1,132,395
Outstanding $.01 Par Value Shares
(100,000,000 Shares Authorized).................... $11,394,111
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE............................................... $ 10.06
-----------
-----------
- - --------------------
+See Note B to Financial Statements.
++Approximates cost for federal income tax purposes
See accompanying Notes to Financial Statements.
26
<PAGE>
VA GLOBAL BOND PORTFOLIO
STATEMENT OF NET ASSETS
MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FACE
AMOUNT@ VALUE+
-------- ----------
<S> <C> <C>
(000)
CANADA -- (20.6%)
BONDS -- (20.6%)
British Columbia (Province of)
7.750%, 06/16/03.................. 250 $ 194,728
Canada (Government of)
7.250%, 06/01/03.................. 400 306,380
General Electric Capital Canada,
Inc.
6.875%, 12/31/01.................. 250 186,835
Kansai International Airport Co.,
Ltd.
8.000%, 07/02/03.................. 200 155,956
SNCF (Societe Nationale des Chemins
de Fer Francaise)
9.250%, 12/20/01.................. 200 161,923
Toyota Credit Canada Inc.
7.375%, 12/31/01.................. 100 76,110
Toyota Credit Canada, Inc.
8.000%, 12/29/00.................. 200 155,189
----------
TOTAL BONDS
(Cost $1,265,051).................. 1,237,121
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Canadian Dollars
(Cost $65)........................ 65
----------
TOTAL -- CANADA
(Cost $1,265,116).................. 1,237,186
----------
FRANCE -- (17.7%)
BONDS -- (17.7%)
Caisse d'Amortissement et de Dette
Sociale
5.500%, 04/25/02.................. 800 142,121
European Investment Bank
8.500%, 02/20/02.................. 1,500 299,246
France (Government of)
8.500%, 04/25/03.................. 600 121,590
6.750%, 10/25/03.................. 500 93,339
France (Government of) BTAN
4.750%, 03/12/02.................. 1,000 172,800
Regie Autonome des Transports
Parisiens SA
6.000%, 09/24/03.................. 800 143,243
Suedwestdeutsche Landesbank Giro &
Suedwestlb Capital Markets P.L.C.
6.000%, 03/08/02.................. 500 90,523
----------
TOTAL -- FRANCE
(Cost $1,095,624).................. 1,062,862
----------
JAPAN -- (17.5%)
BONDS -- (17.5%)
Asian Development Bank
5.000%, 02/05/03.................. 14,000 138,076
Austria (Republic of)
6.250%, 10/16/03.................. 13,000 136,969
Credit Local de France SA
6.000%, 10/31/01.................. 9,000 90,271
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT@ VALUE+
------- ----------
(000)
<S> <C> <C>
Deutsche Siedlungs Landesrentenbank
2.600%, 07/10/02.................. 32,000 $ 282,199
Inter-American Development Bank
6.000%, 10/30/01.................. 25,000 251,718
Japan Development Bank
6.500%, 09/20/01.................. 15,000 153,350
----------
TOTAL -- JAPAN
(Cost $1,055,220).................. 1,052,583
----------
GERMANY -- (15.1%)
BONDS -- (15.1%)
Germany (Republic of)
8.000%, 01/21/02.................. 550 363,599
LB Rheinland-Pfalz Finance BV
5.375%, 02/12/02.................. 300 179,315
Minnesota Mining and Manufacturing
Co.
5.000%, 10/15/01.................. 300 177,542
World Bank (International Bank for
Reconstruction and Development)
6.125%, 09/27/02.................. 300 184,318
----------
TOTAL BONDS
(Cost $983,109).................... 904,774
----------
INVESTMENT IN CURRENCY -- (0.0%)
*German Marks
(Cost $2)......................... 2
----------
TOTAL -- GERMANY
(Cost $983,111).................... 904,776
----------
AUSTRALIA -- (7.6%)
BONDS -- (7.6%)
ABN-Amro Australia, Ltd.
8.250%, 11/03/00.................. 200 158,926
Queensland Treasury Corp.
8.000%, 05/14/03.................. 150 118,852
State Bank of New South Wales
11.750%, 08/16/01................. 200 177,549
----------
TOTAL -- AUSTRALIA
(Cost $457,886).................... 455,327
----------
NETHERLANDS -- (4.7%)
BONDS -- (4.7%)
Bank Nederlandse Gemeenten
7.625%, 12/16/02.................. 250 145,269
Netherlands (Kingdom of)
5.750%, 09/15/02.................. 250 134,906
----------
TOTAL BONDS
(Cost $291,910).................... 280,175
----------
INVESTMENT IN CURRENCY -- (0.0%)
*Netherlands Guilder
(Cost $81)........................ 82
----------
TOTAL -- NETHERLANDS
(Cost $291,991).................... 280,257
----------
</TABLE>
27
<PAGE>
VA GLOBAL BOND PORTFOLIO
CONTINUED
<TABLE>
<CAPTION>
FACE
AMOUNT@ VALUE+
--------- ------------
(000)
<S> <C> <C>
UNITED KINGDOM -- (4.5%)
BONDS -- (4.5%)
Nippon Telegraph & Telephone Corp.
10.875%, 05/10/01...................... 75 $ 136,354
Oesterreichische Kontrollbank AG
9.250%, 07/15/02....................... 75 131,580
------------
TOTAL -- UNITED KINGDOM
(Cost $249,677)......................... 267,934
------------
UNITED STATES -- (3.0%)
U.S. TREASURY OBLIGATIONS -- (3.0%)
U.S. Treasury Notes
6.875%, 03/31/00....................... 180 182,362
TEMPORARY CASH INVESTMENTS --
(5.6%)
Repurchase Agreement, PNC Capital
Markets Inc. 5.25%, 06/02/97
(Collateralized by U.S. Treasury
Notes 6.00%, 08/15/99).......... 334 334,000
------------
TOTAL INVESTMENTS -- (96.3%)
(Cost $5,915,561)++.............. 5,777,287
------------
OTHER ASSETS AND LIABILITIES --
(3.7%)
Other Assets...................... 276,105
Unrealized Gain on Forward
Currency Contracts.............. 31,036
Liabilities....................... (84,878)
------------
222,263
------------
NET ASSETS -- (100.0%) Applicable
to 576,274 Outstanding $.01 Par
Value Shares (100,000,000 Shares
Authorized)..................... $ 5,999,550
============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE....... $ 10.41
============
- ---------------------
+See Note B to Financial Statements.
*Non-Income Producing Securities
@Denominated in local currency.
++Approximates cost for federal income tax purposes.
</TABLE>
See accompanying Notes to Financial Statements
28
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VA SMALL VA LARGE VA INTERNATIONAL
VALUE VALUE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes withheld of $0, $0 and $15,
respectively)................................................................. $ 58 $ 176 $150
Interest....................................................................... 10 13 15
Income from Securities Lending................................................. -- -- 7
------ ------ ----
Total Investment Income...................................................... 68 189 172
------ ------ ----
EXPENSES
Investment Advisory Services................................................... 25 20 25
Accounting & Transfer Agent Fees............................................... 7 10 9
Custodians' Fees............................................................... 1 1 8
Legal Fees..................................................................... 1 1 1
Audit Fees..................................................................... -- 1 1
Filing Fees.................................................................... -- 1 1
Shareholders' Reports.......................................................... 1 3 3
Directors' Fees and Expenses................................................... -- 1 --
Organization Costs............................................................. 1 3 2
Other.......................................................................... 1 1 1
------ ------ ----
Total Expenses............................................................... 37 42 51
------ ------ ----
NET INVESTMENT INCOME.......................................................... 31 147 121
------ ------ ----
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net Realized Gain on Investment Securities..................................... 281 427 80
Net Realized Loss on Foreign Currency Transactions............................. -- -- (12)
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities and Foreign Currency................................... 902 1,268 457
Translation of Foreign Currency Denominated Amounts.......................... -- -- (1)
------ ------ ----
NET GAIN ON INVESTMENT SECURITIES AND FOREIGN CURRENCY......................... 1,183 1,695 524
------ ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $1,214 $1,842 $645
====== ====== ====
</TABLE>
See accompanying Notes to Financial Statements
29
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VA
INTERNATIONAL VA SHORT-TERM VA GLOBAL
SMALL FIXED BOND
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes withheld of $8, $0 and $0,
respectively)................................................................. $ 67 -- --
Interest....................................................................... 9 $285 $ 118
Income from Securities Lending................................................. 5 -- --
----- ---- -----
Total Investment Income...................................................... 81 285 118
----- ---- -----
EXPENSES
Investment Advisory Services................................................... 18 12 6
Accounting & Transfer Agent Fees............................................... 6 4 5
Custodians' Fees............................................................... 7 1 1
Legal Fees..................................................................... 1 1 1
Audit Fees..................................................................... -- -- 1
Filing Fees.................................................................... -- 1 --
Shareholders' Reports.......................................................... 2 1 1
Directors' Fees and Expenses................................................... -- -- --
Organization Costs............................................................. 1 1 3
Other.......................................................................... 1 1 --
----- ---- -----
Total Expenses............................................................... 36 22 18
----- ---- -----
NET INVESTMENT INCOME.......................................................... 45 263 100
----- ---- -----
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY
Net Realized Gain on Investment Securities..................................... 38 1 17
Net Realized Gain (Loss) on Foreign Currency Transactions...................... (3) -- 191
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities and Foreign Currency................................... (158) (23) (191)
Translation of Foreign Currency Denominated Amounts.......................... (1) -- 13
----- ---- -----
NET GAIN (LOSS) ON INVESTMENT SECURITIES AND FOREIGN CURRENCY.................. (124) (22) 30
----- ---- -----
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.................. $ (79) $241 $ 130
----- ---- -----
</TABLE>
See accompanying Notes to Financial Statements
30
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in Thousands)
<TABLE>
<CAPTION>
VA SMALL VA LARGE
VALUE PORTFOLIO VALUE PORTFOLIO
----------------------- --------------------------
YEAR YEAR
SIX MONTHS ENDED SIX MONTHS ENDED
ENDED MAY NOV. 30, ENDED MAY NOV. 30,
31, 1997 1996 31, 1997 1996
----------- ----------- ----------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income...................... $ 31 $ 19 $ 147 $ 137
Net Realized Gain on Investment
Securities............................... 281 76 427 479
Net Realized Loss on Foreign
Currency Transactions.................... -- -- -- (1)
Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities and Foreign
Currency............................... 902 1,079 1,268 1,191
--------- ------ --------- -------
Net Increase in Net Assets
Resulting from Operations.............. 1,214 1,174 1,842 1,806
--------- ------ --------- -------
Distributions From:
Net Investment Income...................... (22) (9) (118) (86)
Net Realized Gains......................... (76) -- (480) (2)
--------- ------ --------- --------
Total Distributions.................... (98) (9) (598) (88)
--------- ------ --------- --------
Capital Share Transactions (1):
Shares Issued.............................. 4,370 2,156 5,824 5,754
Shares Issued in Lieu of Cash
Distributions............................ 98 9 598 88
Shares Redeemed............................ (892) (120) (1,322) (552)
--------- ------ --------- --------
Net Increase From Capital Share
Transactions........................... 3,576 2,045 5,100 5,290
--------- ------ --------- --------
Total Increase......................... 4,692 3,210 6,344 7,008
NET ASSETS
Beginning of Period........................ 8,058 4,848 13,570 6,562
--------- ------ --------- --------
End of Period.............................. $ 12,750 $8,058 $ 19,914 $13,570
========= ====== ========= ========
(1) SHARES ISSUED AND REDEEMED:
Shares Issued............................. 361 195 435 465
Shares Issued in Lieu of Cash
Distributions........................... 8 1 46 7
Shares Redeemed........................... (72) (11) (98) (45)
--------- ------ --------- --------
297 185 383 427
========= ====== ========= ========
</TABLE>
See accompanying Notes to Financial Statements
31
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
STATEMENTS OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VA INTERNATIONAL VA INTERNATIONAL
VALUE PORTFOLIO SMALL PORTFOLIO
----------------------- --------------------------
YEAR YEAR
SIX MONTHS ENDED SIX MONTHS ENDED
ENDED MAY NOV. 30, ENDED MAY NOV. 30,
31, 1997 1996 31, 1997 1996
----------- -------- ----------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income...................... $ 121 $ 90 $ 45 $ 34
Net Realized Gain on Investment
Securities............................... 80 58 38 136
Net Realized Gain (Loss) on Foreign
Currency Transactions.................... (12) 2 (3) 1
Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities and Foreign
Currency............................... 457 694 (158) 204
Translation of Foreign Currency
Denominated Amounts.................... (1) 3 (1) 2
--------- ------- ---------- -------
Net Increase (Decrease) in Net
Assets Resulting from
Operations............................. 645 847 (79) 377
--------- ------- ---------- -------
Distributions From:
Net Investment Income...................... (100) -- (37) --
Net Realized Gains......................... (44) (8) (136) --
--------- ------- ---------- -------
Total Distributions.................... (144) (8) (173) --
--------- ------- ---------- -------
Capital Share Transactions (1):
Shares Issued.............................. 5,326 5,279 3,066 802
Shares Issued in Lieu of Cash
Distributions............................ 144 8 173 --
Shares Redeemed............................ (734) (623) (381) (28)
--------- ------- ---------- -------
Net Increase From Capital Share
Transactions........................... 4,736 4,664 2,858 774
--------- ------- ---------- -------
Total Increase......................... 5,237 5,503 2,606 1,151
NET ASSETS
Beginning of Period........................ 10,517 5,014 6,007 4,856
--------- ------- ---------- -------
End of Period.............................. $ 15,754 $10,517 $ 8,613 $6,007
========== ======= ========== =======
(1) SHARES ISSUED AND REDEEMED:
Shares Issued............................. 489 477 317 75
Shares Issued in Lieu of Cash
Distributions........................... 13 1 18 --
Shares Redeemed........................... (66) (57) (39) (3)
---------- -------- ----------- -------
436 421 296 72
========== ======== =========== =======
</TABLE>
See accompanying Notes to Financial Statements
32
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
STATEMENTS OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VA SHORT-TERM VA GLOBAL
FIXED PORTFOLIO BOND PORTFOLIO
------------------------ -------------------------
YEAR YEAR
SIX MONTHS ENDED SIX MONTHS ENDED
ENDED MAY NOV. 30, ENDED MAY NOV. 30,
31, 1997 1996 31, 1997 1996
----------- -------- ----------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net Investment Income................ $ 263 $ 271 $ 100 $ 119
Net Realized Gain (Loss) on
Investment Securities.............. 1 (1) 17 93
Net Realized Gain on Foreign
Currency Transactions.............. -- -- 191 206
Change in Unrealized Appreciation
(Depreciation) of:
Investment Securities and Foreign
Currency......................... (23) 24 (191) (86)
Translation of Foreign Currency
Denominated Amounts.............. -- -- 13 (22)
--------- ------ --------- ------
Net Increase in Net Assets
Resulting from Operations........ 241 294 130 310
--------- ------ --------- ------
Distributions From:
Net Investment Income................ (242) (262) (261) (132)
Net Realized Gains -- -- (93) --
--------- ------ --------- ------
Total Distributions.............. (242) (262) (354) (132)
--------- ------ --------- ------
Capital Share Transactions (1):
Shares Issued........................ 4,685 3,072 2,730 --
Shares Issued in Lieu of Cash
Distributions...................... 242 262 354 132
Shares Redeemed...................... (1,321) (618) (563) --
--------- ------ --------- ------
Net Increase From Capital Share
Transactions..................... 3,606 2,716 2,521 132
--------- ------ --------- ------
Total Increase................... 3,605 2,748 2,297 310
NET ASSETS
Beginning of Period.................. 7,789 5,041 3,703 3,393
--------- ------ --------- ------
End of Period........................ $ 11,394 $7,789 $ 6,000 $3,703
========= ====== ========= ======
(1) SHARES ISSUED AND REDEEMED:
Shares Issued....................... 467 306 263 --
Shares Issued in Lieu of Cash
Distributions..................... 24 26 35 12
Shares Redeemed..................... (132) (61) (54) --
--------- ------ --------- ------
359 271 244 12
========= ====== ========= ======
</TABLE>
See accompanying Notes to Financial Statements
33
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
VA SMALL VA LARGE
VALUE PORTFOLIO VALUE PORTFOLIO
--------------------------------- ---------------------------------
YEAR YEAR
SIX MONTHS ENDED OCT. 3, SIX MONTHS ENDED JAN. 13,
ENDED MAY NOV. 30, TO NOV. ENDED MAY NOV. 30, TO NOV.
31, 1997 1996 30, 1995 31, 1997 1996 30, 1995
---------- --------- -------- ---------- --------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 11.75 $ 9.69 $10.00 $ 13.46 $ 11.29 $10.00
------- ------- ------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income......................... 0.03 0.03 0.01 0.11 0.17 0.19
Net Gains (Losses) on Securities
(Realized and Unrealized).................... 1.33 2.05 (0.31) 1.31 2.12 1.85
------- ------- ------ ------- ------- ------
Total from Investment Operations............. 1.36 2.08 (0.30) 1.42 2.29 2.04
------- ------- ------ ------- ------- ------
LESS DISTRIBUTIONS
Net Investment Income......................... (0.03) (0.02) (0.01) (0.11) (0.12) (0.16)
Net Realized Gains............................ (0.11) -- -- (0.46) -- (0.59)
------- ------- ------ ------- ------- ------
Total Distributions.......................... (0.14) (0.02) (0.01) (0.57) (0.12) (0.75)
------- ------- ------ ------- ------- ------
Net Asset Value, End of Period................. $ 12.97 $ 11.75 $ 9.69 $ 14.31 $ 13.46 $11.29
======= ======= ====== ======= ======= ======
Total Return................................... 11.67%# 21.47% (3.04)%# 11.00%# 20.45% 20.41%#
Net Assets, End of Period (thousands).......... $12,750 $ 8,058 $4,848 $19,914 $13,570 $6,562
Ratio of Expenses to Average Net
Assets........................................ 0.75%* 1.05% 0.99%* 0.53%* 1.03% 1.20%*
Ratio of Net Investment Income to
Average Net Assets............................ 0.60%* 0.34% 0.91%* 1.83%* 1.59% 2.03%*
Portfolio Turnover Rate........................ 12.99%* 5.19% 0.00%* 14.26%* 18.54% 65.38%*
Average Commission Rate (1).................... $0.0631 $0.0678 N/A $0.0484 $0.0484 N/A
</TABLE>
- ----------------
* Annualized
# Non-Annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
See accompanying Notes to Financial Statements
34
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VA INTERNATIONAL VA INTERNATIONAL
VALUE PORTFOLIO SMALL PORTFOLIO
-------------------------------- --------------------------------
YEAR YEAR
SIX MONTHS ENDED OCT. 3, SIX MONTHS ENDED OCT. 3,
ENDED MAY NOV. 30, TO NOV. ENDED MAY NOV. 30, TO NOV.
31, 1997 1996 30, 1995 31, 1997 1996 30, 1995
---------- ------- --------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 11.41 $ 10.03 $10.00 $ 10.48 $ 9.71 $10.00
------- ------- ------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss).................. 0.09 0.11 -- 0.05 0.06 (0.01)
Net Gains (Losses) on Securities
(Realized and Unrealized).................... 0.26 1.29 0.03 (0.34) 0.71 (0.28)
------- ------- ------ ------- ------- ------
Total from Investment Operations............. 0.35 1.40 0.03 (0.29) 0.77 (0.29)
------- ------- ------ ------- ------- ------
LESS DISTRIBUTIONS
Investment Income............................. (0.10) -- -- (0.06) -- --
Net Realized Gains............................ (0.05) (0.02) -- (0.22) -- --
------- ------- ------ ------- ------- ------
Total Distributions.......................... (0.15) (0.02) -- (0.28) -- --
------- ------- ------ ------- ------- ------
Net Asset Value, End of Period................. $ 11.61 $ 11.41 $10.03 $ 9.91 $ 10.48 $ 9.71
------- ------- ------ ------- ------- ------
Total Return................................... 3.12%# 13.92% 0.30%# (2.69)%# 7.93% (2.90)%#
Net Assets, End of Period (thousands).......... $15,754 $10,517 $5,014 $ 8,613 $ 6,007 $4,856
Ratio of Expenses to Average Net
Assets........................................ 0.80%* 1.17% 1.32%* 1.00%* 1.27% 2.52%*
Ratio of Net Investment Income to
Average Net Assets............................ 1.92%* 1.29% (0.20)%* 1.27%* 0.63% (0.39)%*
Portfolio Turnover Rate........................ 6.09%* 4.14% 0.00%* 5.85%* 6.40% 0.00%*
Average Commission Rate (1).................... $0.0090 $0.0080 N/A $0.0158 $0.0200 N/A
</TABLE>
- ----------------
* Annualized
# Non-Annualized
(1) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the period
for which commissions were charged, as required by the SEC for fiscal years
beginning after September 1, 1995.
See accompanying Notes to Financial Statements
35
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
VA SHORT-TERM VA GLOBAL
FIXED PORTFOLIO BOND PORTFOLIO
---------------------------------- ----------------------------------
YEAR YEAR
SIX MONTHS ENDED OCT. 3, SIX MONTHS ENDED OCT. 3,
ENDED MAY NOV. 30, TO NOV. ENDED MAY NOV. 30, TO NOV.
31, 1997 1996 30, 1995 31, 1997 1996 30, 1995
---------- -------- -------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $10.08 $10.04 $10.00 $11.14 $10.61 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................. 0.27 0.48 0.08 0.21 0.37 0.48
Net Gains (Losses) on Securities
(Realized and Unrealized)............ (0.03) 0.04 -- 0.07 0.57 0.81
------ ------ ------ ------ ------ ------
Total from Investment Operations..... 0.24 0.52 0.08 0.28 0.94 1.29
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Net Investment Income................. (0.26) (0.48) (0.04) (0.74) (0.41) (0.57)
Net Realized Gains.................... -- -- -- (0.27) -- (0.11)
------ ------ ------ ------ ------ ------
Total Distributions.................. (0.26) (0.48) (0.04) (1.01) (0.41) (0.68)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......... $10.06 $10.08 $10.04 $10.41 $11.14 $10.61
------ ------ ------ ------ ------ ------
Total Return........................... 2.42%# 5.34% 0.81%# 2.78%# 9.16% 13.09%#
Net Assets, End of Period (thousands).. $11,394 $7,789 $5,041 $6,000 $3,703 $3,393
Ratio of Expenses to Average Net
Assets................................ 0.44%* 0.70% 0.63%* 0.78%* 1.73% 1.31%*
Ratio of Net Investment Income to
Average Net Assets.................... 5.34%* 4.93% 5.11%* 4.25%* 3.43% 5.08%*
Portfolio Turnover Rate................ 6.63%* 29.27% 0.00%* 57.63%* 88.93% 60.09%*
</TABLE>
- ----------------
(Restated to reflect a 900% stock dividend as of January 2, 1996.)
* Annualized
# Non-Annualized
See accompanying Notes to Financial Statements
36
<PAGE>
DFA INVESTMENT DIMENSIONS GROUP INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A. ORGANIZATION:
DFA Investment Dimensions Group Inc. (the "Fund") is an open-end management
investment company. The Fund offers thirty portfolios, six of which (the "VA
Portfolios") are included in this report. Of the remaining twenty-four
portfolios, twenty-one are presented in a separate report and the remaining
three portfolios have not yet commenced operations. The VA Portfolios are only
available through a select group of insurance products.
On December 20, 1995, the Board of Directors of DFA Investment Group Inc.
approved a 900% stock dividend under Maryland Corporate Law which is treated as
a 10 for 1 stock split for financial reporting purposes for VA Short-Term Fixed
Portfolio and VA Global Bond Portfolio. The record date of the stock dividend
was January 1, 1996, and the ex-date and payable dates were January 2, 1996.
This was a tax-free event to the shareholders of these portfolios. All share and
per share data as of and for the period ended November 30, 1995, have been
restated to reflect the stock dividend.
B. SIGNIFICANT ACCOUNTING POLICIES:
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in preparation of its financial
statements. The preparation of financial statements in accordance with generally
accepted accounting principles may require management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
1. SECURITY VALUATION: Securities held by VA Small Value Portfolio and VA
Large Value Portfolio (the "Domestic Equity Portfolios") which are listed on a
securities exchange and for which market quotations are readily available are
valued at the last quoted sale price of the day, or if there is no such reported
sale, at the mean between the most recent bid and asked prices. Securities held
by VA International Value Portfolio and VA International Small Portfolio (the
"International Equity Portfolios") which are listed on a securities exchange are
valued at the last quoted sale price. Price information on listed securities is
taken from the exchange where the security is primarily traded.
Unlisted securities for which market quotations are readily available are
valued at the mean between the most recent bid and asked prices. Securities for
which quotations are not readily available are valued in good faith at fair
value using methods determined by the Board of Directors.
Securities held by VA Short-Term Fixed Portfolio and VA Global Bond Portfolio
are valued on the basis of prices provided by a pricing service when such prices
are believed to reflect the fair market value of such securities. Securities for
which quotations are not readily available are valued in good faith at fair
value using methods determined by the Board of Directors.
2. FOREIGN CURRENCY: Securities, other assets and liabilities of the
International Equity Portfolios and VA Global Bond Portfolio whose values are
initially expressed in foreign currencies are translated to U.S. dollars at the
bid price of such currency against U.S. dollars last quoted by a major bank.
Dividend and interest income and certain expenses are translated to U.S. dollars
at the rate of exchange on their respective accrual dates. Receivables and
payables denominated in foreign currencies are marked to market daily based on
daily exchange rates and exchange gains or losses are realized upon ultimate
receipt or disbursement. VA Global Bond Portfolio also enters into forward
foreign currency contracts solely for the purpose of hedging against
fluctuations in currency exchange rates. These contracts are also marked to
market daily based on daily exchange rates.
The International Equity Portfolios do not generally isolate the effect of
fluctuations in foreign exchange rates from the effect of fluctuations in the
market prices of securities whether realized or unrealized. However, VA Global
Bond Portfolio does isolate the effect of fluctuations in foreign currency rates
when determining the gain or loss upon
37
<PAGE>
the sale or maturity of foreign currency denominated debt obligations pursuant
to U.S. Federal income tax regulations; such amounts are categorized as foreign
exchange gain or loss for both financial reporting and income tax reporting
purposes.
Realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from the disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between amount of interest,
dividends and foreign withholding taxes recorded on the books of the
International Equity Portfolios and VA Global Bond Portfolio and the U.S. dollar
equivalent amounts actually received or paid.
3. FEDERAL INCOME TAXES: It is the VA Portfolios' intention to continue to
qualify as a regulated investment company and distribute all of their taxable
income. Accordingly, no provision for Federal taxes is required in the financial
statements.
4. OTHER: Security transactions are accounted for on the date the
securities are purchased or sold. Costs used in determining realized gains and
losses on the sale of investment securities are those of specific securities
sold. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis. Discount and
premium on debt securities purchased are amortized over the lives of the
respective securities. Expenses directly attributable to a VA Portfolio are
directly charged. Common expenses are allocated using methods determined by the
Board of Directors.
C. INVESTMENT ADVISOR:
Dimensional Fund Advisors Inc. ("the Advisor") provides investment advisory
services to the VA Portfolios. For the six months ended May 31, 1997, the VA
Portfolios' advisory fees were computed daily and paid monthly to the Advisor
based on the following effective annual rates of:
<TABLE>
<CAPTION>
<S> <C>
VA Small Value Portfolio.................................. .50 of 1%
VA Large Value Portfolio.................................. .25 of 1%
VA International Value Portfolio.......................... .40 of 1%
VA International Small Portfolio.......................... .50 of 1%
VA Short-Term Fixed Portfolio............................. .25 of 1%
VA Global Bond Portfolio.................................. .25 of 1%
</TABLE>
Certain officers of the VA Portfolios are also officers, directors and
shareholders of the Advisor.
D. PURCHASES AND SALES OF SECURITIES:
For the six months ended May 31, 1997, the VA Portfolios made the following
purchases and sales of investment securities (amounts in thousands):
<TABLE>
<CAPTION>
OTHER
U.S. GOVERNMENT INVESTMENT
SECURITIES SECURITIES
-------------------- ------------------
PURCHASES SALES PURCHASES SALES
--------- ----- --------- -----
<S> <C> <C> <C> <C>
VA Small Value Portfolio................................ -- -- $3,690 $ 641
VA Large Value Portfolio................................ -- -- 5,400 1,119
VA International Value Portfolio........................ -- -- 5,156 375
VA International Small Portfolio........................ -- -- 2,830 202
VA Short-Term Fixed Portfolio........................... $1,747 $301 2,820 1,127
VA Global Bond Portfolio................................ -- -- 3,443 1,241
</TABLE>
38
<PAGE>
E. INVESTMENT TRANSACTIONS:
At May 31, 1997, gross unrealized appreciation and depreciation for
financial reporting and federal income tax purposes of investment securities and
foreign currencies was as follows (amounts in thousands):
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
APPRECIATION DEPRECIATION NET
---------------- ---------------- ---------
<S> <C> <C> <C>
VA Small Value Portfolio............................ $ 2,520 $ (698) $ 1,822
VA Large Value Portfolio............................ 3,256 (181) 3,075
VA International Value Portfolio.................... 2,066 (890) 1,176
VA International Small Portfolio.................... 901 (999)
(98)
VA Short-Term Fixed Portfolio....................... 10 (10) --
VA Global Bond Portfolio............................ 67 (205)
(138)
</TABLE>
At November 30, 1996, VA Short-Term Fixed Portfolio had a capital loss
carryover for federal income tax purposes of approximately $1,500 which expires
on November 30, 2004.
F. FINANCIAL INSTRUMENTS:
In accordance with the VA Portfolios' Investment Objectives and Policies,
the VA Portfolios may invest in certain financial instruments which have off-
balance sheet risk and concentrations of credit risk. These instruments and
their significant corresponding risks are described below:
1. REPURCHASE AGREEMENTS. The VA Portfolios may purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to maintain
the value of the collateral subject to the agreement at not less than the
repurchase price (including accrued interest). The agreements are conditioned
upon the collateral being deposited under the Federal Reserve book-entry system
or with the Fund's custodian or a third party sub-custodian. All open repurchase
agreements were entered into on May 30, 1997.
2. FORWARD CURRENCY CONTRACTS: VA Global Bond Portfolio may enter into
forward foreign currency contracts to hedge against adverse changes in the
relationship of the U.S. dollar to foreign currencies. At May 31, 1997, VA
Global Bond Portfolio had entered into the following contracts and the related
net unrealized foreign exchange gain is reflected in the accompanying financial
statements:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN
EXPIRATION CONTRACT VALUE AT MAY EXCHANGE
DATE CURRENCY SOLD AMOUNT 31, 1997 GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
06/12/97 477,539 French Francs $ 82,449 $ 82,734 $ (285)
06/12/97 620,034 Australian Dollar 483,393 472,839 10,554
06/12/97 5,822,105 French Francs 1,012,448 1,008,681 3,767
06/30/97 558,298 Netherlands Guilder 292,833 291,083 1,750
06/30/97 1,597,892 German Marks 943,708 934,987 8,721
06/30/97 171,645 British Pound Sterling 280,960 280,125 835
06/30/97 1,749,654 Canadian Dollar 1,267,204 1,267,039 165
07/02/97 125,511,493 Japanese Yen 1,083,806 1,078,277 5,529
------------- ------------- ----------
$ 5,446,801 $ 5,415,765 $ 31,036
============= ============= ==========
</TABLE>
Risks may arise upon entering into these contracts from the potential
inability of counter parties to meet the terms of their contracts and from
unanticipated movements in the value of foreign currency relative to the U.S.
dollar. VA Global Bond Portfolio will enter into forward contracts only for
hedging purposes.
3. FOREIGN MARKETS RISKS: Investments in foreign markets may involve
certain considerations and risks not typically associated with investments in
the United States, including the possibility of future political and economic
developments and the level of foreign governmental supervision and regulation of
foreign securities markets. These markets are generally smaller, less liquid and
more volatile than the major securities markets in the United States.
Consequently, acquisition and disposition of securities by the Fund may be
inhibited.
39
<PAGE>
G. LINE OF CREDIT
In July, 1996, the VA Portfolios, together with other DFA-advised
portfolios, entered into a $50 million unsecured line of credit with its
domestic custodian bank. Each portfolio is permitted to borrow, subject to its
investment limitations, up to a maximum of $50 million. Borrowings under the
line are charged interest at the current overnight federal funds rate plus a
variable rate determined at the date of borrowing. Each portfolio is
individually, and not jointly liable for its particular advances under the line.
There is no commitment fee on the unused portion of the line of credit. There
were no borrowings under the line of credit during the six months ended May 31,
1997.
H. COMPONENTS OF NET ASSETS:
<TABLE>
<CAPTION>
AT MAY 31, 1997 NET ASSETS CONSIST OF:
(AMOUNTS IN THOUSANDS)
VA SMALL VA LARGE VA INTERNATIONAL
VALUE VALUE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ----------------
<S> <C> <C> <C>
Paid-In Capital................................................................. $10,624 $16,331 $14,388
Undistributed Net Investment Income............................................. 23 82 113
Undistributed Net Realized Gain................................................. 281 426 86
Accumulated Net Realized Foreign Exchange Loss.................................. -- -- (12)
Unrealized Appreciation of Investment Securities and Foreign Currency........... 1,822 3,075 1,176
Unrealized Net Foreign Exchange Gain............................................ -- -- 3
------- --------- -------
$12,750 $19,914 $15,754
======= ========= =======
<CAPTION>
VA INTERNATIONAL VA SHORT-TERM VA GLOBAL
SMALL FIXED BOND
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ------------- ----------
<S> <C> <C> <C>
Paid-In Capital................................................................. $ 8,631 $11,342 $ 5,862
Undistributed Net Investment Income............................................. 43 52 36
Undistributed Net Realized Gain................................................. 38 -- 17
Undistributed Net Realized Foreign Exchange Gain (Loss)......................... (3) -- 191
Unrealized Depreciation of Investment Securities and Foreign Currency........... (98) -- (138)
Unrealized Net Foreign Exchange Gain............................................ 2 -- 32
------- --------- -------
$ 8,613 $11,394 $ 6,000
======= ======== =======
</TABLE>
I. SECURITIES LENDING
Loans of international securities are required at all times to be secured by
collateral at least equal to 105% of the market value of the securities on loan.
However, in the event of default or bankruptcy by the other party to the
agreement, realization and/or retention of the collateral may be subject to
legal proceedings. In the event that the borrower fails to return loaned
securities, and cash collateral being maintained by the borrower is insufficient
to cover the value of loaned securities, and provided such collateral
insufficiency is not the result of investment losses, the lending agent has
agreed to pay the amount of the shortfall to the VA Portfolios or, at the option
of the lending agent, replace the loaned securities. The market value of
securities on loan to brokers and the related collateral cash received at May
31, 1997, is as follows:
<TABLE>
<CAPTION>
VALUE OF SECURITIES VALUE OF COLLATERAL
ON LOAN AND INDEMNIFICATION
-------------------- -------------------
<S> <C> <C>
VA International Value Portfolio............................................... $2,988,591 $3,191,270
VA International Small Portfolio............................................... 881,358 942,862
</TABLE>
40
<PAGE>
Montgomery Variable Series:
Growth Fund
Semi-Annual Report
June 30, 1997
[PICTURE APPEARS HERE]
Invest wisely./sm/
The Montgomery Funds
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Highlights
June 30, 1997 (unaudited)
- -------------------------------------------------------------------------------
Investment Review
Q: How did the Fund perform from July 1, 1996, through
June 30, 1997?
A: The Fund gained 28.66 % over that time frame. And though that is solid
performance in absolute terms, it did lag the S&P 500. This reflects a
significant trend over the past year: The largest companies in the stock
market generated the highest returns for investors. In fact, the 35 largest
stocks in the S&P 500 accounted for approximately 50% of its total return
over that time period. Our focus on buying the best combination of growth
stocks that are available at the most attractive prices has led us to
somewhat smaller companies, so we were a bit disadvantaged over the most
recent year compared with the S&P 500.
Q: The Fund turned in a double-digit gain during the second quarter of 1997.
What were some of the factors behind that performance?
A: Many individual stock positions contributed to the Fund's performance over
this period. This was a time when market leadership broadened out. New
areas of the market in which we have identified attractive opportunities,
including some cycle-sensitive and smaller names, participated in the
advance. This was positive for the Fund's performance. We should reiterate,
however, that we do not make portfolio decisions based on broad trends or
themes. Our investment approach is bottom-up, and our weightings are a by-
product of that process.
Q: What's your perspective on the U.S. economy right now?
A: Economic growth has moderated somewhat, after an unsustainably strong first
quarter. Demand continues to ease, inflation remains dormant and interest
rates have declined. The Federal Reserve did not tighten monetary policy at
either its May 20 or July 2 meeting. The stock market reacted very
favorably to this positive environment, although investors and economists
continue to debate whether demand has moderated sufficiently to defuse
pressure on already tight labor markets. So far, wage-based inflation
remains under control, as consolidations, layoffs, restructuring and
productivity gains have helped keep a lid on costs.
Q: And your view of the stock market?
A: If you take the S&P 500 as a proxy for the market, it appears to be fully
valued from a historical perspective. Over the past 100 years, the S&P
500's price/earnings (P/E) multiple has ranged from around 11 times on the
low end to about 18 times on the high side. Right now, the S&P 500 is
trading at a P/E of nearly 20 times its expected 1997 earnings. As a
result, we doubt that further P/E expansion is likely. Stocks should be
able to continue appreciating along with earnings growth, so long as the
backdrop remains benign. At the moment, consensus expectations for the S&P
500's 1997 earnings-growth rate is in the 8 to 10% range. It is therefore
unlikely that the backdrop for a dramatic rally is in place unless interest
rates continue to decline.
Portfolio Management
- -------------------------------------------------------
Roger W. Honour....Senior Portfolio Manager
Andrew Pratt..............Portfolio Manager
Kathryn M. Peters.........Portfolio Manager
- -------------------------------------------------------
Fund Performance
- -------------------------------------------------------
Average annual total returns for the
periods ended 6/30/97
- -------------------------------------------------------
Montgomery Variable Series:
Growth Fund
Since inception (2/9/96).............32.61%
One Year.............................28.66%
S&P 500 Index
Since (1/31/96)......................28.97%
One Year.............................34.68%
- ------------------------------------------------------
Past performance is no guarantee of future
results. Net asset value, investment return
and principal value will fluctuate so that
shares, when redeemed, may be worth more or
less than their original cost.
Growth of a $10,000 Investment
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MONTGOMERY VARIABLE SERIES: GROWTH FUND
S&P 500 INDEX AND S&P FINANCIAL INDEX
Measurement Period Montgomery Variable S&P
<TABLE>
<CAPTION>
(Fiscal Year Covered) Series: Growth Fund 500 INDEX
- -------------------------------------------------------
<S> <C> <C>
FYE 01/1996 $ $100.00
Measurement Pt-
02/09/1996 $100.00 $
FYE 02/1996 $100.40 $100.93
FYE 03/1996 $104.37 $101.90
FYE 04/1996 $110.81 $103.40
FYE 05/1996 $117.66 $106.07
FYE 06/1996 $115.08 $106.47
FYE 07/1996 $110.02 $101.77
FYE 08/1996 $114.48 $103.92
FYE 09/1996 $119.54 $109.76
FYE 10/1996 $122.72 $112.79
FYE 11/1996 $128.17 $121.31
FYE 12/1996 $127.22 $118.90
FYE 01/1997 $131.66 $126.33
FYE 02/1997 $131.25 $127.32
FYE 03/1997 $126.71 $122.10
FYE 04/1997 $131.45 $129.38
FYE 05/1997 $142.29 $137.29
FYE 06/1997 $148.07 $143.39
</TABLE>
- ---------------------------------------------------------
* The Standard & Poor's 500 Index is
composed of 500 widely held common stocks
listed on the NYSE, AMEX, and OTC market.
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Highlights
June 30, 1997 (unaudited)
Q: How will these views affect your portfolio strategy, if at all?
A: We think that the most attractive opportunities in the U.S. market right
now lie in somewhat smaller-cap stocks and selected cycle-sensitive issues.
Investors have ignored some of these areas for quite a while, creating a
valuation disparity. A great many medium-sized and smaller companies also
offer higher growth rates than those in the S&P 500. We expect that the
broadening of interest to these types of companies will continue, as more
investors recognize the potential in these segments of the market.
Q: Can you discuss a portfolio company that is an example of this?
A: Nordstrom, Inc., a company that we have invested in for quite a while, is
the largest independently owned fashion retailer in the United States,
offering a wide variety of high-quality apparel, shoes and accessories for
women, men and children through 62 full-line stores. Nordstrom prides
itself on quality, value, selection and service. It has been in business
for 97 years, and the Nordstrom family still owns 23% of its outstanding
shares, thereby aligning management's interests with those of other
shareholders. The company is extremely well financed, which should allow it
to continue expanding as opportunities are presented. Unlike many
retailers, Nordstrom is consistently profitable, not just in the Christmas
quarter. The company recently reported better-than-expected earnings and
had upbeat comments about its future prospects and expansion possibilities.
Even when Nordstrom was underperforming, it remained one of the most
profitable retailers in the business.
Despite all this, Nordstrom's stock price is about the same as it was six
years ago. In fact, at the end of the second quarter its shares were
trading at a discount to the market for the first time in more than a
decade. Herein lies the opportunity, we believe, for investors to recognize
Nordstrom's improving fundamentals and reward its shares with a higher
valuation.
Q: Why should an investor consider the Montgomery Variable Series: Growth Fund
right now?
A: Although we have a generally positive view of the market, we believe that
its historically high valuations make it more crucial than ever for
investors to maintain a dual focus on growth and value. Our investment
philosophy strikes a balance between the two. We use proprietary,
quantitative screening techniques to pinpoint long-term, positive,
fundamental change in a company's business and its expected earnings. We
then conduct fundamental analysis to determine whether this improvement is
sustainable and to project what we believe the appropriate valuation of the
stock should be. Our goal is to identify long-term, fundamental improvement
before that potential is widely recognized by the market, and to avoid
overpaying for the future prospects of the company. Over the long term, we
think that this strategy will best serve the interests of our shareholders.
This Fund remains well diversified, with more than 50 companies across 35
different industries. The portfolio's weighted average market cap is
approximately $9 billion. The average 1997 earnings growth of our holdings
(based on consensus expectations) is 28%. Again, that contrasts with
expected earnings growth of about 10% for the S&P 500. The P/E ratio of our
portfolio is about 18. In other words, we expect our portfolio to deliver
nearly triple the earnings growth of the S&P 500 at a slightly lower P/E.
2
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Highlights
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Top Five Industries
(as a percentage of net assets)
----------------------------------------------------
<S> <C>
Retail Trade..............................9.1%
Pulp and Paper............................8.7
Machinery and Tools.......................8.7
Software Systems..........................7.4
Telecommunications Equipment..............5.5
----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Top Ten Holdings
(as a percentage of net assets)
----------------------------------------------------
<S> <C>
Avid Technology Inc.......................4.5%
JLK Direct Distribution Inc., Class A.....4.0
Nordstrom, Inc............................4.0
International Paper Company...............3.8
Masco Corporation.........................3.3
Octel Communications Corporation..........3.3
Interstate Hotels Company.................3.2
Canadian National Railway Company.........3.2
Golden West Financial Corporation.........3.1
Dayton Hudson Corporation.................3.1
----------------------------------------------------
</TABLE>
3
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Common Stocks-86.9% Value
Shares (Note 1)
<S> <C>
Aerospace/Defense-0.5%
1,100 Gulfstream Aerospace Corporation+ $ 32,450
--------
Airlines-2.2%
2,450 Federal Express Corporation+ 141,487
--------
Apparel and Textiles-0.7%
525 VF Corporation. 44,494
--------
Auto/Auto Parts-2.1%
1,900 General Motors Corporation 105,806
600 PACCAR, Inc. 27,863
--------
133,669
--------
Banks/Savings and Loan-4.4%
800 BankAmerica Corporation 51,650
275 Citicorp 33,155
2,800 Golden West Financial Corporation 196,000
--------
280,805
--------
Building Materials-3.3%
5,125 Masco Corporation 213,969
--------
Business Services-2.1%
2,700 AccuStaff Inc.+ 63,956
950 Computer Sciences Corporation+ 68,519
--------
132,475
--------
Chemicals-1.0%
750 Dow Chemical Company 65,344
--------
Conglomerates-1.2%
1,150 Tyco International Ltd. 79,997
--------
Cosmetics and Personal Care-1.0%
300 Unilever N.V., ADR 65,400
--------
Diversified Financial Services-0.6%
700 Norwest Corporation 39,375
--------
Electronics-1.0%
875 Raychem Corporation 65,078
--------
Food and Beverage-1.9%
6,850 Fleming Companies, Inc. 123,300
--------
Health Care-0.6%
500 Healthcare COMPARE Corporation+ 26,219
200 Oxford Health Plans, Inc.+ 14,356
--------
40,575
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Common Stocks-(continued) Value
Shares (Note 1)
<C> <S> <C>
Insurance -0.8%
1,100 Life Re Corporation. $ 51,288
--------
Lodging-4.6%
1,500 HFS Inc.+ 87,000
7,000 Interstate Hotels Company+ 206,062
--------
293,062
--------
Machinery and Tools-8.7%
10,000 JLK Direct Distribution Inc., Class A+ 256,250
1,900 Manitowoc Company, Inc. 88,825
9,000 Octel Communications Corporation+ 210,656
--------
555,731
--------
Metals and Mining-2.3%
1,000 Aluminum Company of America (Alcoa) 75,375
2,250 Freeport-McMoRan Copper and Gold, Inc. Series B 70,031
--------
145,406
--------
Newspapers/Publishing-3.1%
1,600 Dow Jones & Company, Inc. 64,300
1,400 Time Warner, Inc. 67,550
2,850 World Color Press, Inc.+ 67,688
--------
199,538
--------
Oil-5.0%
2,600 Amerada Hess Corporation 144,462
1,725 Belco Oil & Gas Corporation+ 36,872
5,650 Union Pacific Resources Group, Inc. 140,544
--------
321,878
--------
Oilfield Equipment-2.6%
900 Schlumberger Ltd. 112,500
1,200 Tidewater Inc. 52,800
--------
165,300
--------
Pipelines-0.7%
1,100 Enron Corporation 44,894
--------
Pulp and Paper-8.7%
4,400 Boise Cascade Corporation 155,375
1,100 Champion International Corporation 60,775
600 Chesapeake Corporation 20,250
5,000 International Paper Company 242,812
1,100 Willamette Industries, Inc. 77,000
--------
556,212
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Common Stocks-(continued) Value
Shares (Note 1)
<S> <C> <C>
Railroad - 3.2%
4,700 Canadian National Railway Company $ 205,625
----------
Retail Trade-9.1%
3,675 Dayton Hudson Corporation 195,464
5,200 Nordstrom, Inc. 255,125
2,900 Polo Ralph Lauren Corporation+ 79,388
2,000 TJX Companies, Inc. 52,750
----------
582,727
----------
Semiconductors-1.4%
966 Analog Devices Inc.+ 25,659
750 Texas Instruments, Inc. 63,047
----------
88,706
----------
Software Systems-7.4%
10,900 Avid Technology Inc.+ 288,169
200 Structural Dynamics Research Corporation+ 5,256
12,100 Sybase, Inc.+ 179,231
----------
472,656
----------
Telecommunications-1.2%
1,750 Newbridge Networks Corporation+ 76,125
----------
Telecommunications Equipment-5.5%
1,450 Ascend Communications, Inc.+ 56,958
4,750 Aspect Telecommunications Corporation 105,094
3,500 Ericsson (L.M.) Telephone Company, Class B, ADR 137,922
300 Northern Telecom Ltd. 27,300
2,450 PictureTel Corporation+ 23,312
----------
350,586
----------
Total Common Stocks (Cost $4,863,859) 5,568,152
----------
</TABLE>
<TABLE>
<CAPTION>
Repurchase Agreements-20.3%
Principal Amount
<S> <C>
$651,000 Agreement with Bear Stearns, Tri-Party, 6.200%
dated 06/30/97, to be repurchased at $651,112,
on 07/01/97, collateralized by $664,020 market
value of U.S. Government securities, having
various maturities and various interest rates 651,000
----------
651,000 Agreement with Nikko Securities Company
International Inc., Tri-Party, 6.200% dated
06/30/97, to be repurchased at $651,112, on
07/01/97, collateralized by $667,018 market
value of U.S. Government securities, having
various maturities and various interest rates 651,000
----------
Total Repurchase Agreements (Cost $1,302,000) 1,302,000
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Montgomery Variable Series: Growth Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Value
(Note 1)
<S> <C> <C>
Total Investments (Cost $6,165,859*) 107.2% $6,870,152
Other Assets and Liabilities (Net) (7.2) (463,244)
===== ==========
Net Assets 100.0% $6,406,908
===== ==========
</TABLE>
- ----------------------------------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
Abbreviation:
ADR American Depositary Receipt
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Montgomery Variable Series: Growth Fund
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments in securities, at value (Identified cost $6,165,859) (Note 1)
Securities.................................................................. $5,568,152
Repurchase agreements....................................................... 1,302,000
----------
Total investments........................................................... 6,870,152
Cash............................................................................. 892
Receivables:
Shares of beneficial interest sold.......................................... 32,146
Investment securities sold.................................................. 13,869
Expenses absorbed by Manager (Note 2)....................................... 4,065
Dividends................................................................... 2,058
Interest.................................................................... 224
Other Assets:
Organization costs (Note 1)................................................. 44,713
----------
Total Assets..................................................................... 6,968,119
Liabilities:
Payables:
Investment securities purchased............................................. $492,599
Organization cost........................................................... 60,233
Shares of beneficial interest redeemed...................................... 2,311
Trustees' fees and expenses................................................. 2,059
Other accrued liabilities and expenses...................................... 4,009
--------
Total Liabilities................................................................ 561,211
----------
Net Assets....................................................................... $6,406,908
==========
Net Assets consist of:
Undistributed net investment income.............................................. $ 45,999
Accumulated net realized gain on securities sold................................. 111,104
Net unrealized appreciation of investments....................................... 704,293
Shares of beneficial interest.................................................... 4,465
Additional paid-in capital....................................................... 5,541,047
----------
Net Assets....................................................................... $6,406,908
==========
Net Asset Value, offering and redemption price per share
($6,406,908 / 446,544 shares of beneficial interest outstanding)................. $ 14.35
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Montgomery Variable Series: Growth Fund
Statement of Operations
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Net Investment Income:
Interest............................................................................ $ 29,921
Dividends (Net of foreign withholding taxes of $364)................................ 16,132
--------
Total Investment Income............................................................. 46,053
Expenses:
Management fee (Note 2)............................................................. $ 20,158
Legal and audit fees................................................................ 8,926
Amortization of organization expenses (Note 1)...................................... 6,156
Trustees' fees and expenses (Note 2)................................................ 3,818
Printing fees....................................................................... 2,654
Custodian fees...................................................................... 504
Other............................................................................... 2,533
-------
Total Expenses...................................................................... 44,749
Fees deferred and expenses absorbed by Manager (Note 2)............................. (44,695)
--------
Net Expenses........................................................................ 54
--------
Net Investment Income............................................................... 45,999
--------
Net Realized and Unrealized Gain on Investments (Notes 1 and 3):
Net realized gain on investments during the period.................................. 97,339
Net unrealized appreciation of investments during the period........................ 565,143
Net Realized and Unrealized Gain on Investments..................................... 662,482
--------
Net Increase in Net Assets Resulting from Operations................................ $708,481
========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Six Months
Ended 06/30/97 For the Period
Net Increase in Net Assets Resulting from Operations: (unaudited) Ended 12/31/96*
------------------ --------------
<S> <C> <C>
Net investment income............................................................... $ 45,999 $ 26,607
Net realized gain on investments during the period.................................. 97,339 74,537
Net unrealized appreciation of investments during the period........................ 565,143 139,150
Net increase in net assets resulting from operations................................ 708,481 240,294
---------- ----------
Distributions to Shareholders:
Distributions from net investment income............................................ - (26,562)
Distributions from net realized gains on investments................................ - (60,772)
Beneficial Interest Transactions:
Net increase from beneficial interest transactions (Note 4)......................... 3,571,732 1,854,346
---------- ----------
Net increase in net assets.......................................................... 4,280,213 2,007,306
Net Assets:
Beginning of period................................................................. 2,126,695 119,389
---------- ----------
End of period....................................................................... $6,406,908 $2,126,695
========== ==========
Undistributed net investment income................................................. $ 45,999 -
========== ==========
- --------------------
</TABLE>
* Montgomery Variable Series: Growth Fund commenced operations on
February 9, 1996.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Montgomery Variable Series: Growth Fund
Financial Highlights
Selected Per Share Data for the Period Ended:
<TABLE>
<CAPTION>
06/30/97
(unaudited)++ 12/31/96*
<S> <C> <C>
Net asset value - beginning of period................................ $ 12.33 $ 10.08
--------- ---------
Net investment income................................................ 0.15 0.15
Net realized and unrealized gain on investments...................... 1.87 2.59
--------- ---------
Net increase in net assets resulting from investment operations...... 2.02 2.74
Distributions to Shareholders:
Distributions from net investment income........................ - (0.15)
Distributions from net realized gains on investments............ - (0.34)
--------- ---------
Total Distributions............................................. (0.49)
--------- ---------
Net asset value-end of period........................................ $ 14.35 $ 12.33
========= =========
Total return**....................................................... 16.38% 27.22%
========= =========
Ratios to Average Net Assets/Supplemental Data:
Net assets, end of period (in 000's)................................. $ 6.407 $ 2.127
Ratio of net investment income to average net assets................. 2.28%+ 2.55%+
Ratio of operating expenses to average net assets.................... 0.00%+(b) 0.01%+
Portfolio turnover rate.............................................. 31% 78%
Average commission rate paid (a)..................................... $ 0.0578 $ 0.0520
Net investment income/(loss) before deferral of fees and
absorption of expenses by Manager............................... $ 0.00(c) (0.27)
Operating expense ratio before deferral of fees and absorption
of expenses by Manager.......................................... 2.22%+ 6.98%+
- ----------------------------
</TABLE>
* Montgomery Variable Series: Growth Fund commenced operations on
February 9, 1996.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
++ Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period since
use of the undistributed net investment income method did not accord with
the results of operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
(b) Amount represents less than 0.01%.
(c) Amount represents less than $0.01.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies:
The Montgomery Funds III (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-
end management investment company. As of June 30, 1997, the Trust had four
series, the Montgomery Variable Series: Growth Fund, the Montgomery
Variable Series: Emerging Markets Fund, the Montgomery Variable Series:
International Small Cap Fund and the Montgomery Variable Series: Small Cap
Opportunities Fund. The Montgomery Variable Series: Small Cap Opportunities
Fund had not commenced operations as of June 30, 1997.
The Trust was organized as a Delaware business trust on August 24, 1994.
Prior to the public offerings of shares of the Funds, a limited number of
shares were sold to Montgomery Asset Management, L.P. and/or affiliated
persons of Montgomery Asset Management in private placement offerings.
Otherwise, the Funds had no significant operations prior to February 2,
1996, the date on which the Montgomery Variable Series: Emerging Markets
Fund commenced operations (i.e., commenced selling shares to the public).
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Information presented in these financial statements pertains to the
Montgomery Variable Series: Growth Fund (the "Fund"). The Montgomery
Variable Series: Emerging Markets Fund and the Montgomery Variable Series:
International Small Cap Fund are presented under separate covers.
The following is a summary of significant accounting policies.
a. Portfolio Valuation
The Fund's securities are valued using current market valuations:
either the last reported sales price or, lacking any reported sales,
and in the case of fixed income securities, the mean between the
closing bid and asked prices. Securities for which market quotations
are not readily available (including restricted securities which are
subject to limitations as to their sale) are valued at fair value as
determined in good faith by or under the supervision of the Trust in
accordance with methods which are authorized by the Trust's Board of
Trustees.
Short term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-
term securities with maturities of 60 days or less are carried at
amortized cost, which approximates market value.
b. Dividends and Distributions
Dividends, if any, from net investment income of the Fund are declared
and paid at least annually.
Distributions of any short-term capital gains earned by the Fund are
distributed no less frequently than annually. Additional distributions
of net investment income and capital gains for the Fund may be made in
order to avoid the application of a 4% non-deductible excise tax on
certain undistributed amounts of ordinary income and capital gains.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment
securities held by the Fund, timing differences and differing
characterizations of distributions made by the Fund.
c. Repurchase Agreements
The Fund may engage in repurchase agreement transactions individually
or jointly through a joint repurchase account with other series of the
Trust and affiliated registered investment companies pursuant to a
joint repurchase agreement. Under the terms of a typical repurchase
agreement, the Fund writes a financial contract with a counterparty
and takes possession of a government debt obligation as collateral.
The Fund also agrees with the counterparty to allow the counterparty
to repurchase the financial contract at a specified date and price,
thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. The value of the
collateral is at least equal at all times to the total amount of the
repurchase obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to
offset losses incurred. There could be potential loss to the Fund in
the event the Fund is delayed or prevented from exercising its rights
to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights. The Fund's
investment manager, acting under the supervision of the Board of
Trustees, reviews the value of the collateral and the creditworthiness
of those banks and dealers with which the Fund enters into repurchase
agreements to evaluate potential risks. The Fund may also participate
on an individual or joint basis in tri-party repurchase agreements
which involve a counterparty and a custodian bank.
11
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
(continued)
d. Securities Transactions and Investment Income
Securities transactions are recorded on a trade-date basis. Realized
gain and loss from securities transactions are recorded on the
specific identified cost basis. Dividend income is recognized on the
ex-dividend date and interest income, including, where applicable,
amortization of discount on short-term investments, is recognized on
an accrual basis.
e. Federal Income Taxes
The Fund has elected and qualified, and it is the intention of the
Fund to continue to qualify, as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Code,
and to make distributions of taxable income to shareholders sufficient
to relieve the Fund from all or substantially all federal income
taxes.
f. Organization Costs
Expenses incurred in connection with the organization of the Fund are
amortized on a straight-line basis over a period of five years from
commencement of operations.
2. Management Fees and Other Transactions with Affiliates:
a. Montgomery Asset Management, L.P. is the Fund's Manager (the
"Manager"). The Manager, a California limited partnership, is an
investment adviser registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). The general partner of the Manager is Montgomery
Asset Management, Inc., and its sole limited partner is an affiliate
of Montgomery Securities. Under the Advisers Act, both Montgomery
Asset Management, Inc. and Montgomery Securities may be deemed
controlling persons of the Manager. Although the operations and
management of the Manager are independent from those of Montgomery
Securities, it is expected that the Manager may draw upon the research
and administrative resources of Montgomery Securities at its
discretion in a manner consistent with applicable regulations.
Pursuant to the investment management agreement ("Investment
Management Agreement"), the Manager provides the Fund with advice on
buying and selling securities, manages the investments of the Fund
including the placement of orders for portfolio transactions,
furnishes the Fund with office space and certain administrative
services, and provides the personnel needed by the Trust with respect
to the Manager's responsibilities under such Agreement. As
compensation, the Fund pays the Manager a monthly management fee
(accrued daily) at the following annual rates based upon the average
daily net assets of the Fund:
First $500 Million Next $500 Million Over $1 Billion
------------------ ----------------- ---------------
1.00% 0.90% 0.80%
The Manager has agreed to reduce some or all of its management fee or
absorb the Fund expenses if necessary to keep the Fund's annual
operating expenses, exclusive of interest or taxes, at or below 1.25%
of the average daily net assets of the Fund.
Any reductions or absorptions made for the Fund by the Manager of its
fees are subject to recovery within the following three years provided
the Fund is able to affect such reimbursement and remain in compliance
with applicable expense limitations. Any of the Manager's voluntary
absorptions are also subject to recovery.
For the six months ended June 30, 1997, the Manager has deferred fees
of $20,158 and absorbed expenses of $24,537.
As of June 30, 1997, the deferred management fees and absorbed
expenses subject to recoupment are $117,522.
b. Certain officers and Trustees of the Trust are, with respect to the
Trust's Manager and/or Montgomery Securities, "affiliated persons" as
defined in the 1940 Act. Each Trustee who is not an "affiliated
person" receives an annual retainer and quarterly meeting fees
totalling $35,000 per annum, as well as reimbursement for expenses,
for services as a Trustee of all three Trusts advised by the Manager
($5,000 of which will be allocated to the Montgomery Funds III).
c. The Fund has no sales load and does not pay distribution (Rule 12b-1)
fees.
d. For the six months ended June 30, 1997, the Fund incurred total
brokerage commissions of $5,471 of which $39 was paid to its
affiliates.
12
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
(continued)
3. Securities Transactions:
a. The aggregate amount of purchases and sales of investment securities,
other than short-term securities, for the six months ended June 30,
1997, were $4,109,904 and $972,998, respectively.
b. At June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value for federal income tax
purposes were $767,075 and $62,782, respectively.
c. Under an unsecured Revolving Credit Agreement with DeutscheBank (New
York), the Montgomery Variable Series: Growth Fund, along with other
funds of the Montgomery Funds I, Montgomery Funds II and Montgomery
Funds III, may for one year starting August 6, 1996, borrow
(consistent with applicable law and its investment policies) up to 10%
of its net asset value, provided that the aggregate principal amount
of outstanding loans under the agreement to all Funds does not exceed
$300,000,000. For the six months ended June 30, 1997, there were no
borrowings under this agreement.
4. Transaction in Shares of Beneficial Interest:
The Trust has authorized an unlimited number of shares of beneficial
interest which have a par value of $0.01. Transactions in shares of
beneficial interest for the periods indicated below were:
<TABLE>
<CAPTION>
Six Months Ended Period Ended
June 30, 1997 December 31, 1996*
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares Sold 590,636 $ 7,604,090 333,351 $ 3,946,116
Issued as Reinvestment of Dividends - - 7,141 87,335
Shares Redeemed (316,551) (4,032,358) (179,876) (2,179,105)
-------- ----------- -------- -----------
Net Increase 274,085 $ 3,571,732 160,616 $ 1,854,346
======== =========== ======== ===========
- ----------------------
</TABLE>
* Montgomery Variable Series: Growth Fund commenced operations on
February 9, 1996.
5. Subsequent Event:
On March 25, 1997, Montgomery Securities, the Manager and CAM Acquisition
LLC ("CAM"), a newly organized subsidiary of Commerzbank
Aktiengesellschaft, entered into an agreement providing for the transfer of
substantially all the assets composing the Manager's business to CAM. On
June 23, 1997, the shareholders of the Fund approved a new Investment
Management Agreement with CAM (renamed Montgomery Asset Management, LLC)
that became effective upon the closing of the Manager's transaction with
CAM. Such transaction closed on July 31, 1997.
13
<PAGE>
Montgomery Variable Series:
Emerging Markets Fund
Semi-Annual Report
June 30, 1997
[LOGO OF THE MONTGOMERY FUNDS]
Invest wisely.(TM)
The Montgomery Funds
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Highlights
June 30, 1997 (unaudited)
Investment Review
- - ------------------------------------------------------------------------------
Q: How did the Fund perform from July 1, 1996, through June 30, 1997?
A: The Fund gained 22.31% over that period, outpacing its benchmark, the IFC
Global Index, by a considerable margin. It also continues to outperform the
index since inception.
Q: What were some of the most positive factors behind that performance?
A: We made some very profitable decisions in terms of both country and stock
selection over the past year.
Our decision in early 1996 to increase the Fund's weighting in Brazil paid
off handsomely throughout the second half of that year and the first half
of this one. Excitement has been growing in the Brazilian stock market over
that country's progress on privatization. The Fund also benefited from
several of our stock choices there. For example, Telebras (the country's
monopoly telephone operator) has had a tremendous performance. There is
huge pent-up demand for telecommunications in Brazil, and we believe
Telebras will benefit from it. The Brazilian market became more volatile in
July 1997, due to concerns about the stability of its currency. We think
the downturn will be short-lived, however, because the strong economic
fundamentals that have been driving Brazil over the past two years are
still in place.
The Fund also profited from its overweighting in Russia relative to its
benchmark index (and to many of our competitors). This market has grown by
leaps and bounds, especially as international investors have begun to
discover it. Both the political and economic situation there appear to be
stabilizing, though of course considerable risk remains. The Russian market
also offers what we believe are phenomenal asset values.
Q: Were there any disappointments?
A: Although we have gradually reduced the Fund's exposure to the Southeast
Asian markets over the past year, its weighting there, though light,
continued to work against us. One of the main factors weighing on these
markets has been the high level of real interest rates in a number of these
countries, such as Malaysia. They've also experienced some growing pains.
Construction companies in Thailand, for example, were a little overzealous
in 1996, and the country is now facing the consequences of the resulting
property glut. That has depressed the Thai stock market, but we strongly
believe that the problem will work itself out in the coming year.
Q: What's your outlook for the emerging markets over the coming year?
A: In Latin America we think Brazil (the region's largest economy) will
continue to drive performance. Mexico, the other major Latin American
economy, appears to be in good shape, too. We are encouraged by the results
of the recent election there, which signal a move toward a democratic
political system.
We have a mixed outlook for Asian markets, but believe that China/Hong Kong
is poised to grow rapidly, with inflation under control. Investors will
undoubtedly watch it carefully in the coming year to see whether China
lives up to its promise of maintaining "one country, two systems" with
respect to Hong Kong.
Emerging Europe should benefit from economic recovery in Germany, a major
trading partner of many countries in the region. As always, politics will
continue to dictate the mood of Middle Eastern stock markets. We see some
dynamic opportunities in North Africa (such as the cement industry in
Egypt), but remain cautious on South Africa, where the economy suffers from
a dangerously low level of foreign reserves, and corporate profits are
being hurt by lower gold prices.
On that note, it's important for investors in the emerging markets to be
prepared at all times for short-term shocks and downturns. These markets
are prone to greater economic and political risks than the United States
and other developed markets, though we believe that they are gradually
becoming more stable on both fronts. And their potential for higher risk
goes hand-in-hand with the potential for greater returns over time.
Q: Why should an investor consider the Montgomery Variable Series: Emerging
Markets Fund right now?
A: We're continually impressed with the strides that developing economies are
making and we expect to see more progress in the future. These countries
are restructuring their economies and laying the foundations for future
growth. What's especially remarkable is that most investors still don't
seem to have discovered them. That creates opportunities for investors who
already recognize both the risks and exceptional long-term potential they
present.
Portfolio Management
Josephine S. Jimenez, CFA
Senior Portfolio Manager
<PAGE>
Bryan L. Sudweeks, Ph.D., CFA
Senior Portfolio Manager
Angeline Ee Portfolio Manager
Frank Chiang Portfolio Manager
Fund Performance
Average annual total returns for the periods
ended 6/30/97
Montgomery Variable Series: Emerging Markets Fund
Since inception (2/2/96) 19.88%
One year 22.31%
IFC Global Composite Index
Since (1/31/96) 20.15%
One year 13.83%
Past performance is no guarantee of future results. Net asset value, investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
GROWTH OF A $10,000 INVESTMENT
AMONG MONTGOMERY VARIABLE SERIES: EMERGING MARKET FUND
AND IFC GLOBAL COMPOSITE INDEX
S&P 500 INDEX AND S&P FINANCIAL INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
MONTGOMERY
VARIABLE
SERIES: IFC GLOBAL
Measurement Period EMERGING COMPOSITE
(Fiscal Year Covered) MARKETS FUND INDEX
- ------------------------- ------------ ----------
<S> <C> <C>
Measurement Pt-01/01/1996 $100.00 $100.00
FYE 02/01/1996 $ 97.20 $ 99.37
FYE 03/01/1996 $101.00 $100.95
FYE 04/01/1996 $103.30 $108.46
FYE 05/01/1996 $105.80 $106.38
FYE 06/01/1996 $105.60 $107.93
FYE 07/01/1996 $100.50 $101.20
FYE 08/01/1996 $105.00 $103.45
FYE 09/01/1996 $105.10 $104.37
FYE 10/01/1996 $103.10 $102.05
FYE 11/01/1996 $104.70 $103.51
FYE 12/01/1996 $106.79 $102.60
FYE 01/01/1997 $115.32 $109.50
FYE 02/01/1997 $117.82 $114.48
FYE 03/01/1997 $115.92 $112.45
FYE 04/01/1997 $115.42 $112.46
FYE 05/01/1997 $120.23 $113.33
FYE 06/01/1997 $129.15 $120.15
</TABLE>
* The IFC Global Composite Index is comprised of more than 1,200 individual
stocks from 25 developing countries in Asia, Latin America, Middle East,
Africa and Europe.
2
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Highlights (continued)
June 30, 1997 (unaudited)
- ------------------------------------------------------------------------------
Top Five Countries
(as a percentage of total net assets)
<TABLE>
<CAPTION>
<S> <C>
Brazil.........................................16.7%
Taiwan......................................... 7.6
Russia......................................... 7.2
Korea.......................................... 7.1
Malaysia....................................... 6.9
Top Ten Holdings
(as a percentage of total net assets)
<S> <C>
Tatneft, Sponsored ADS......................... 2.7%
Electrobras, "B"............................... 2.4
Telebras, ADR.................................. 2.2
Bharat Petroleum Corporation Ltd............... 2.2
Alfa S.A. de C.V............................... 2.1
Hyundai Engineering and Construction Company... 1.9
Banco Bradesco................................. 1.8
Telefonos de Mexico S.A., ADR.................. 1.7
Sonae InvestImentos............................ 1.7
Tan Chong Motor Holdings Berhad................ 1.7
</TABLE>
3
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-77.1% VALUE
SHARES (NOTE 1)
<C> <S> <C>
ARGENTINA-2.0%
17,724 Banco Frances del Rio de La Plata, ADR (Banks) $ 576,030
48,000 Cresud S.A.+ (Real Estate) 106,577
72,600 Inversiones y Representaciones (Real Estate) 315,859
114,000 Siderar S.A. (Steel) 468,613
18,500 Telefonica de Argentina, Sponsored ADR (Telephone/Networks) 640,562
----------
2,107,641
----------
BRAZIL-5.4%
11,900 Cemig, ADS (Electric Utilities) 609,131
945,000 Cia Saneamento Basico Estado (Water Utilities) 287,920
1,091,000 Electrobas (Electric Utilities) 610,080
29,000 Electrobas, ADR (Electric Utilities) 899,072
580 Electrobas, GDS*** + (Electric Utilities) 81,454
22,000 Souza Cruz S.A. (Tobacco) 231,945
15,600 Telebras, ADR (Telephone/Networks) 2,367,300
3,670,000 Telec Brasileiras-Telebras ON (Telephone/Networks) 497,720
12,000 Usiminas, ADR*** (Steel) 132,750
----------
5,717,372
----------
CHILE-1.2%
8,230 Compania de Telefonos de Chile, ADR (Telecommunications/Wireless) 271,590
22,200 Empresa Nacional Electricidad S.A. (Electric Utilities) 500,888
2,800 Sociedad Quimica y Minera de Chile (Chemicals) 185,150
15,100 Supermercados Unimarc S.A.+ (Retail Trade) 283,125
----------
1,240,753
----------
CHINA/HONG KONG-5.6%
126,000 Beijing Enterprises Holdings Ltd.+ (Holding) 793,670
1,290,000 Beijing Yanhua Petrochemical Company Ltd.+ (Chemicals) 279,736
30,000 Cheung Kong Holdings (Real Estate) 296,232
67,000 China Light and Power Company (Electric Utilities) 379,655
102,000 China Resources Enterprises Ltd. (Holding) 500,303
58,000 Citic Pacific Ltd. (Holding) 362,346
700,000 Guangzhou Investment Company Ltd. (Real Estate) 386,264
550,000 Heilongjiang Electric Power Company Ltd., Class B (Electric Utilities) 440,000
11,400 HSBC Holdings (Banks) 342,855
35,000 Hutchison Whampoa Ltd. (Conglomerates) 302,686
71,000 New World Development Company Ltd. (Holding) 423,399
160,000 New World Infrastructure Ltd+ (Heavy Construction) 452,287
75,000 Shanghai Industrial Holdings Ltd. (Conglomerates) 466,614
20,000 Sun Hung Kai Properties Ltd. (Real Estate) 240,729
45,000 Union Bank of Hong Kong Ltd. (Banks) 130,110
480,000 Zhejiang Expressway Company Ltd.+ (Heavy Construction) 116,479
----------
5,913,365
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-(CONTINUED) VALUE
SHARES (NOTE 1)
<C> <S> <C>
COLOMBIA-0.4%
38,900 Almacenes Exito S.A. (Retail Trade) $ 132,103
42,000 Bavaria (Food and Beverage) 301,430
----------
433,533
----------
CZECH REPUBLIC-1.7%
8,100 AGB Obevreny Podilovy Fund+ (Mutual Funds) 177,385
11,000 Alpha-Effect+ (Mutual Funds) 239,875
1,800 Komercni Banka, GDR+ (Banks) 37,485
13,000 Komercni Banka, GDR***+ (Banks) 270,725
27,800 Komercni Banka I.F.+ (Mutual Funds) 413,300
33,800 The Czech Value Fund+ (Mutual Funds) 215,644
83,000 Vynosovy I.F.+ (Mutual Funds) 419,851
----------
1,774,265
----------
EGYPT-0.8%
30,800 Al-Ahram Beverages Company, GDR***+ (Food and Beverage) 630,630
4,000 Amreya Cement (Cement) 97,447
4,000 Tora Cement (Cement) 101,214
----------
829,291
----------
HUNGARY-0.1%
16,900 Zalakeramia Rt., GDR*** (Building Materials) 132,243
----------
INDIA-5.9%
13,300 Bajaj Auto, Ltd., GDR*** (Auto/Auto Parts) 464,503
21,600 Bajaj Auto, Ltd., GDS (Auto/Auto Parts) 754,380
187,000 Bharat Petroleum Corporation Ltd. (Oil) 2,350,558
19,900 Indian Hotels, GDS (Euro) (Lodging) 472,625
25,000 Indian Hotels, GDS*** (Lodging) 593,750
110,000 Mahangar Telephone Nigam, Ltd. (Telephone/Regional - Local) 933,310
16,700 Tata Engineering & Locomotive Company, Ltd. (Auto/Auto Parts) 256,762
17,600 Videsh Sanchar Nigam Ltd., GDR***+ (Telephone/Long Distance) 366,520
----------
6,192,408
----------
INDONESIA-2.7%
237,000 Bimantara (F) (Conglomerates) 414,165
90,000 Hanjaya Mandala Sampoerna (F) (Tobacco) 343,236
268,000 Lippo Bank (F) (Banks) 275,493
350,000 Lippo Securities** (Diversified Financial Services) 248,252
68,000 London Sumatra Indonesia (Agricultural Commodities) 215,296
280,000 Matahari Putra Prima (F) (Retail Trade) 564,145
510,000 Mulia Industrindo (F) (Glass) 267,373
90,000 Semen Gresik (F) (Building Materials) 201,686
9,100 Telekomunikas Indonesia, ADR (Telephone/Regional - Local) 295,750
----------
2,825,396
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-(CONTINUED) VALUE
SHARES (NOTE 1)
<C> <S> <C>
ISRAEL-0.8%
12,850 Teva Pharmaceuticals, ADR (Pharmacy/Drugs) $ 832,841
----------
KOREA-7.1%
44,000 Daewoo Corporation (Conglomerates) 357,748
50,000 Dongwon Securities (Securities Brokerage) 658,784
80,000 Hyundai Engineering and Construction Company (Heavy Construction) 2,054,054
28,000 Hyundai Merchant Marine+ (Shipping) 526,577
269 Kookmin Bank (Banks) 5,030
18,700 Korea Electric Power Corporation, ADR (Electric Utilities) 349,456
53,201 Korea Special Opportunities Fund (Mutual Funds) 784,715
9,000 LG Semiconductor Company+ (Semiconductor) 350,676
2,580 Pohang Iron & Steel Company, Ltd. (Steel) 267,789
14,000 Pohang Iron & Steel Company, Ltd., ADR (Steel) 448,000
3,640 Samsung Electronics Ltd.(F) (Electronics) 408,425
2,134 Samsung Electronics Ltd. GDS*** (Electronics) 57,479
26 Samsung Electronics Ltd., New, GDS***+ (Electronics) 1,511
1,600 Samsung Electronics Ltd., GDS*** Non-voting (Electronics) 43,096
200,000 SeoulBank+ (Banks) 826,577
16,000 Yukong, Ltd. (Oil) 387,387
---------
7,527,304
---------
MALAYSIA-6.9%
172,000 Arab Malaysian Corporation (Diversified Financial Services) 640,570
67,000 Guinness Anchor Berhad (Food and Beverage) 148,653
44,000 Hong Leong Bank Berhad (Banks) 110,697
128,000 IJM Corporation Berhad (Heavy Construction) 268,780
791,000 IOI Corporation Oxygen, Inc. (Agricultural Commodities) 902,567
173,000 Leader Universal Holdings Berhad (Telecommunications Equipment) 311,181
53,000 Malakoff Berhad (Electric Utilities) 230,983
95,000 New Straits Times (Newspapers/Publishing) 557,052
36,000 Oriental Holdings Berhad (Auto/Auto Parts) 270,998
560,000 Public Bank Berhad(F) (Banks) 874,168
936,000 Tan Chong Motor Holdings Berhad (Auto/Auto Parts) 1,765,198
28,000 Tanjong PLC (Leisure Time) 96,513
48,000 Telekom Malaysia Berhad (Telecommunications/Other) 224,406
128,000 United Engineers Berhad (Heavy Construction) 922,979
---------
7,324,745
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-(CONTINUED) VALUE
SHARES (NOTE 1)
<C> <S> <C>
MEXICO-6.0%
278,000 Accel, S.A., Series B (Conglomerates) $ 74,856
60,000 Acer Computer Latino America S.A. de C.V.+ (Computers and Office Equipment) 208,367
321,000 Alfa S.A. de C.V. (Conglomerates) 2,185,102
14,400 Bufete Industrial S.A.+ (Heavy Construction) 307,800
185,000 Cifra S.A. de C.V., ADR (Retail Trade) 333,925
6,000 Grupo Modelo S.A. de C.V., Series C (Food and Beverage) 41,522
53,000 Hylsamex S.A., Series B (Steel Products) 272,752
49,000 Industrias Penoles CPO (Metals and Mining) 233,671
66,000 San Luis Corporacion S.A. de C.V. (Metals and Mining) 488,305
38,000 Telefonos de Mexico S.A., ADR (Telephone/Long Distance) 1,814,500
31,500 Vitro S.A., ADR+ (Glass) 354,375
----------
6,315,175
----------
MOROCCO-0.2%
3,836 Banque Marocaine du Commerce Exterieur (Banks) 241,201
2 Banque Marocaine du Commerce Exterieur, GDR*** (Banks) 39
----------
241,240
----------
PERU-0.9%
7,910 Credicorp, Ltd. (Banks) 174,020
10,500 Ferreyros Enrique S.A., ADS*** (Metals and Mining) 253,313
21,000 Telefonica del Peru S.A., Series B, ADR (Telephone/Networks) 549,938
----------
977,271
----------
PHILIPPINES-2.7%
1,796,000 Belle Corporation+ (Real Estate) 524,310
1,288,000 DMCI Holdings+ (Heavy Construction) 424,841
636,000 International Container Terminal Services, Inc.+ (Shipping) 325,523
50,000 La Tondena Distillers, Inc. (Food and Beverage) 120,375
706,000 Metro Pacific Inc., Class B (Conglomerates) 152,571
381,000 Music Semiconductors Corporation+ (Semiconductor) 198,618
851,000 PCI Leasing and Finance, Inc.+ (Diversified Financial Services) 161,321
1,957,200 Petron Corporation (Oil) 497,166
1,700 Philippine Long Distance Telephone, ADR (Telephone/Long Distance) 109,225
2,120 Philippine Long Distance Telephone, GDR (Telephone/Long Distance) 122,960
642,500 Republic Glass (Glass) 58,462
925,000 Uniwide Holdings, Inc.+ (Retail Trade) 182,363
----------
2,877,735
----------
PORTUGAL-2.8%
2,700 Capital Portugal Fund+ (Mutual Funds) 409,319
25,500 Cimpor - Cimentos de Portugal (Building Materials) 594,357
9,000 Electricidad de Portugal+ (Electric Utilities) 165,180
42,300 Sonae Investimentos (Retail Trade) 1,768,769
----------
2,937,625
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments (continued)
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-(CONTINUED) VALUE
SHARES (NOTE 1)
<C> <S> <C>
RUSSIA-6.8%
22,000 Irkutskenegro, ADR (Electric Utilities) $ 379,500
9 Irkutskenegro, RDC***+ (Electric Utilities) 611,100
14,600 LukOil Company, ADR (Oil) 1,136,062
93 Russian Telecom Basket GEC 144A*** (Telephone/Regional - Local) 1,237,131
15,700 Surgutneftegaz, ADR (Oil) 840,931
1,200 Tatneft, ADR+ (Oil) 128,700
26,350 Tatneft, Sponsored ADS***+ (Oil) 2,826,038
----------
7,159,462
----------
SINGAPORE-0.6%
57,000 Keppel Corporation, ORD (Heavy Construction) 192,964
130,000 Sunright Ltd.+ (Electronics) 236,413
210,000 Thakral Corporation Ltd. (Home Appliance) 214,200
----------
643,577
----------
SOUTH AFRICA-4.2%
18,000 Anglovaal, Ltd. (Conglomerates) 480,053
71,300 Barlow, Ltd. (Building Materials) 775,547
60,000 JCI Ltd. (Diversified Financial Services) 461,538
604,882 Lonrho (Conglomerates) 1,295,890
106,600 Sasol, Ltd. (Oil) 1,397,994
----------
4,411,022
----------
TAIWAN-7.6%
88,320 ASE+ (Semiconductor) 335,171
105,000 Bank Sinopac (Banks) 100,279
306,000 China Development Corporation+ (Diversified Financial Services) 1,579,532
324,825 China Steel Corporation (Steel) 343,520
260,000 Compal Electronics+ (Computers and Office Equipment) 1,028,777
127,000 Delta Electronic Industrial (Electrical Equipment) 785,755
235,000 Formosa Chemicals and Fiber Corporation (Apparel and Textiles) 341,511
213,600 Hung Sheng Construction Ltd. (Real Estate) 364,964
471,000 Pacific Construction+ (Heavy Construction) 503,191
150,000 Primax Electronics Ltd. (Computers and Office Equipment) 445,144
171,000 Taiwan Semiconductor Company+ (Semiconductor) 759,658
120,000 United World Chinese Commercial Bank (Banks) 287,050
131,000 Yageo Corporation+ (Electronics) 551,331
6,200 Yageo Corporation, GDR+ (Electronics) 108,500
6,000 Yageo Corporation, GDR***+ (Electronics) 105,000
70,000 Yuanta Securities Corporation (Securities Brokerage) 265,018
76,000 Yue Loong Motor Company (Auto/Auto Parts) 136,691
----------
8,041,092
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS-(CONTINUED) VALUE
SHARES (NOTE 1)
<C> <S> <C>
THAILAND-2.0%
239,800 Electricity Generation Power Company (F) (Electric Utilities) $ 611,538
31,600 Industrial Finance Corporation of Thailand (F) (Securities Brokerage) 41,880
58,400 Pizza Public Company Ltd. (Food and Beverage) 311,936
40,900 PTT Exploration and Production Public Company, Ltd. (F) (Oil) 617,606
7,600 Siam Cement Public Company, Ltd. (F) (Building Materials) 136,739
10,500 Siam Cement Public Company, Ltd. Local, Series 2 (Building Materials) 162,750
138,000 Thai Airways International Public Company, Ltd. (F) (Airlines) 210,602
-----------
2,093,051
-----------
TURKEY-1.6%
3,000,000 Akcansa Cimento A.S. (Cement) 414,072
450,000 Aygaz A.S. (Chemicals) 92,409
2,038,333 Koc Holdings (Holding) 480,334
5,816,000 Turk Sise ve Cam+ (Glass) 368,089
7,300,000 Yapi ve Kredi Bankasi A.S. (Banks) 167,110
9,709,000 Yapi ve Kredi Bankasi A.S. Non-Tradeable Certificates (Banks) 222,256
-----------
1,744,270
-----------
VENEZUELA-1.1%
18,100 Compania Anonima Nacional Telefonos de Venezuela, ADR (Telephone/Networks) 780,563
271,440 Electricidad de Caracas (Electric Utilities) 434,896
-----------
1,215,459
-----------
TOTAL COMMON STOCKS (COST $72,075,481) 81,508,136
-----------
PREFERRED STOCKS-11.7%
BRAZIL-11.3%
185,308,000 Banco Bradesco (Banks) 1,867,625
90,000,000 Banco de Credito Nacional S.A. (Banks) 1,003,205
5,200,000 CESP-Cia Ener Sao Paulo (Electric Utilities) 347,778
25,000,000 Cia Energetica de Minas Gerais (Electric Utilities) 1,288,839
40,583,000 Cia Paranaense de Energi (Electric Utilities) 753,945
400,000 Copene - Petroquimica do Nordests S.A. (Chemicals) 148,251
4,186,000 Electrobas, "B" (Electric Utilities) 2,496,319
396,000 Electropaulo, "B" (Electric Utilities) 115,866
550,000 Itausa Investimentos Itau (Holding) 505,782
15,500,000 Lojas Americanas+ (Retail Trade) 210,209
65,880,000 Odebrecht S.A. (Heavy Construction) 559,939
800,000 Petroleo Brasileiro(Oil) 222,199
44,020,000 Uniao de Bancos Brasileiros (Banks) 1,614,741
39,460 Usiminas (Steel) 439,483
15,700 Vale do Rio Doce (Metals and Mining) 347,236
20,000 Vale do Rio Doce, "B" (Metals and Mining) 0
-----------
11,921,417
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PREFERRED STOCKS-(CONTINUED) SHARES
VALUE (NOTE 1)
<C> <S> <C>
KOREA-0.0%#
60 Samsung Electronics Ltd.(F) (Electronics) $ 6,530
-----------
RUSSIA-0.4%
18,900 LukOil Company, ADR (Oil) 482,895
-----------
TOTAL PREFERRED STOCKS (Cost $9,942,879) 12,410,842
-----------
Convertible Bonds-0.7%
Principal Amount
MEXICO-0.4%
$300,000 Alfa S.A. de C.V.,
8.000% due 09/15/00*** (Conglomerates) 428,250
-----------
SOUTH AFRICA-0.1%
100,000 Barlow Ltd.
7.000% due 09/20/04*** (Building Materials) 127,000
-----------
THAILAND-0.2%
150,000 Central Pattana Public Company, Ltd.
2.750% due 04/10/01*** (Real Estate) 137,625
-----------
TOTAL CONVERTIBLE BONDS (COST $597,676) 692,875
-----------
Rights-0.0%#
(Cost $1,223)
Shares
MALAYSIA-0.0%#
5,500 Hong Leong Bank Berhad, Expires 07/21/97+ (Banks) 872
-----------
TOTAL SECURITIES (COST $82,617,259) 94,612,725
-----------
Repurchase Agreements-15.0%
Principal Amount
$7,933,500 Agreement with Bear Stearns, Tri-Party, 6.200%
dated 06/30/97, to be repurchased at $7,934,866,
on 07/01/97, collateralized by $8,092,170 market
value of U.S. Government securities, having
various maturities and various interest rates 7,933,500
7,933,500 Agreement with HSBC Securities Inc., Tri-Party,
6.200% dated 06/30/97, to be repurchased at
$7,934,866, on 07/01/97, collateralized by
$8,092,183 market value of U.S. Government
securities, having various maturities and
various interest rates. 7,933,500
-----------
TOTAL REPURCHASE AGREEMENTS (COST $15,867,000) 15,867,000
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Portfolio Investments
June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
VALUE
(NOTE 1)
<S> <C> <C>
TOTAL INVESTMENTS (COST $98,484,259*) 104.5% $110,479,725
OTHER ASSETS AND LIABILITIES (NET) (4.5) (4,776,696)
----- ------------
NET ASSETS 100.0% $105,703,029
===== ============
</TABLE>
- ---------------------------------
* Aggregate cost for Federal tax purposes.
** Illiquid Security or Special Situation Security (See Note 6 to Financial
Statements).
*** Security exempt from registration under Rule 144A of the Securities Act of
1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
# Amount represents less than 0.1%.
+ Non-income producing security.
ABBREVIATIONS:
ADR American Depositary Receipt
ADS American Depositary Share
(F) Foreign or alien share.
GDR Global Depositary Receipt
GDS Global Depositary Share
ORD Ordinary
RDC Russian Depository Certificate
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Statement of Assets and Liabilities
June 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (Identified cost $98,484,259) (Note 1)
Securities............................................................. $ 94,612,725
Repurchase agreements.................................................. 15,867,000
------------
Total investments.......................................................... 110,479,725
Foreign currency (Cost $521,621)........................................... 521,092
Forward foreign currency exchange contracts:
Forward foreign currency exchange contracts to buy, at value
(Contract cost $1,174,145) (Note 3).................................. 1,169,329
Forward foreign currency exchange contracts to sell (Note 3)........... 260,611
Receivables:
Investment securities sold............................................. 608,537
Shares of beneficial interest sold..................................... 325,232
Dividends.............................................................. 291,648
Interest............................................................... 16,190
Other Assets:
Organization costs (Note 1)............................................ 44,613
------------
Total Assets........................................................... 113,716,977
LIABILITIES:
Forward foreign currency exchange contracts:
Payable for forward foreign currency exchange
contracts to buy (Note 3)............................................ $1,174,145
Payable for forward foreign currency exchange contracts to sell,
at value (Contract cost $260,611) (Note 3)........................... 260,780
Payables:
Investment securities purchased........................................ 5,794,234
Due to custodian....................................................... 530,882
Management fee......................................................... 108,603
Shares of beneficial interest redeemed................................. 72,475
Organization costs..................................................... 61,485
Trustees' fees and expenses............................................ 1,503
Other accrued liabilities and expenses................................. 9,841
----------
Total Liabilities.......................................................... 8,013,948
------------
NET ASSETS................................................................. $105,703,029
============
NET ASSETS consist of:
Accumulated net investment income.......................................... $ 320,926
Accumulated net realized gain on securities sold, forward foreign
currency exchange contracts and foreign currency transactions......... 337,325
Net unrealized appreciation of investments, forward foreign currency
exchange contracts, foreign currency transactions and other
net assets............................................................ 11,987,625
Shares of beneficial interest.............................................. 82,072
Additional paid-in capital................................................. 92,975,081
------------
NET ASSETS................................................................. $105,703,029
============
Net Asset Value, offering and redemption price per share
($105,703,029 divide by 8,207,205 shares of beneficial interest
outstanding).......................................................... $ 12.88
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Statement of Operations
For the Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
NET INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $37,535).............. $ 617,085
Interest............................................................. 286,655
-----------
Total Investment Income.............................................. 903,740
EXPENSES:
Management fee (Note 2).............................................. $491,113
Custodian fees....................................................... 80,970
Legal and audit fees................................................. 11,405
Amortization of organization expenses (Note 1)....................... 6,165
Trustees' fees and expenses (Note 2)................................. 3,818
Other................................................................ 32,888
--------
Total Expenses....................................................... 626,359
Fees deferred by Manager (Note 2).................................... (58,766)
-----------
NET EXPENSES......................................................... 567,593
-----------
NET INVESTMENT INCOME................................................ 336,147
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 and 3)
Net realized gain/(loss) on:
Security transactions........................................... 553,214
Forward foreign currency exchange contracts..................... (134,564)
Foreign currencies transactions (Net of foreign capital
gains tax of $16,764)......................................... 20,076
-----------
Net realized gain on investments during the period................... 438,726
-----------
Change in unrealized appreciation/(depreciation) of:
Securities...................................................... 11,368,630
Forward foreign currency exchange contracts..................... (6,755)
Foreign currency transactions and net other assets.............. (447)
Net unrealized appreciation of investments during the period......... 11,361,428
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS...................... 11,800,154
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $12,136,301
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
Montgomery Variable Series: Emerging Markets Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six Months
Ended 06/30/97 For the Period
(unaudited) Ended 12/31/96*
<S> <C> <C>
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income...................................................... $ 336,147 $ 68,556
Net realized gain/(loss) on securities, forward foreign currency exchange
contracts and foreign currency transactions during the period.......... 438,726 (119,260)
Net unrealized appreciation of securities, forward foreign currency
exchange contracts, foreign currency transactions and net other
assets during the period............................................... 11,361,428 626,197
------------ -----------
Net increase in net assets resulting from operations....................... 12,136,301 575,493
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income................................... - (65,918)
BENEFICIAL INTEREST TRANSACTIONS:
Net increase from beneficial interest transactions (Note 4)................ 66,600,985 25,956,168
------------ -----------
Net increase in net assets................................................. 78,737,286 26,465,743
NET ASSETS:
Beginning of period........................................................ 26,965,743 500,000
------------ -----------
End of period.............................................................. $105,703,029 $26,965,743
============ ===========
Accumulated net investment income/(Accumulated net investment loss)........ $ 320,926 $ (15,221)
============ ===========
</TABLE>
- --------------------------
* Montgomery Variable Series: Emerging Markets Fund commenced operations on
February 2, 1996.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
Financial Highlights
Selected Per Share Data for the Period Ended:
<TABLE>
<CAPTION>
06/30/97 12/31/96*
(unaudited)
<S> <C> <C>
Net asset value - beginning of period................................ $ 10.65 $ 10.00
--------- ---------
Net investment income................................................ 0.05 0.03
Net realized and unrealized gain on investments...................... 2.18 0.65
--------- ---------
Net increase in net assets resulting from investment operations...... 2.23 0.68
Distributions to shareholders:
Distributions from net investment income........................ - (0.03)
--------- ---------
Net asset value - end of period...................................... $ 12.88 $ 10.65
========= =========
Total return**....................................................... 20.94% 6.79%
========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)................................. $ 105,703 $ 26,966
Ratio of net investment income to average net assets................. 1.04%+ 0.81%+
Ratio of operating expenses to average net assets.................... 1.75%+ 1.45%+
Portfolio turnover rate.............................................. 28% 43%
Average commission rate paid (a)..................................... $ 0.0008 $ 0.0002
Net investment income/(loss) before deferral of fees and absorption
of expenses by Manager.......................................... $ 0.04 $ (0.01)
Operating expense ratio before deferral of fees and absorption of
expenses by Manager............................................. 1.93%+ 2.47%+
</TABLE>
- ------------------------
* Montgomery Variable Series: Emerging Markets Fund commenced operations on
February 2, 1996.
** Total return represents aggregate total return for the periods indicated.
+ Annualized.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Montgomery Funds III (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-
end management investment company. As of June 30, 1997, the Trust had four
series, the Montgomery Variable Series: Growth Fund, the Montgomery
Variable Series: Emerging Markets Fund, the Montgomery Variable Series:
International Small Cap Fund and the Montgomery Variable Series: Small Cap
Opportunities Fund. The Montgomery Variable Series: Small Cap Opportunities
Fund had not commenced operations as of June 30, 1997.
The Trust was organized as a Delaware business trust on August 24, 1994.
Prior to the public offerings of shares of the Funds, a limited number of
shares were sold to Montgomery Asset Management, L.P. and/or affiliated
persons of Montgomery Asset Management in private placement offerings.
Otherwise, the Funds had no significant operations prior to February 2,
1996, the date on which the Montgomery Variable Series: Emerging Markets
Fund commenced operations (i.e., commenced selling shares to the public).
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
Information presented in these financial statements pertains to the
Montgomery Variable Series: Emerging Markets Fund (the "Fund"). The
Montgomery Variable Series: Growth Fund and the Montgomery Variable Series:
International Small Cap Fund are presented under separate covers.
The following is a summary of significant accounting policies.
a. PORTFOLIO VALUATION
The Fund's securities are valued using current market valuations:
either the last reported sales price or, lacking any reported sales,
and in the case of fixed income securities, the mean between the
closing bid and asked prices. The value of securities denominated in
foreign currencies and traded on foreign exchanges or in foreign
markets will be translated into U.S. dollars at the last price of their
respective currency denomination against U.S. dollars quoted by a major
bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the
Board of Trustees. Securities for which market quotations are not
readily available (including restricted securities which are subject to
limitations as to their sale) are valued at fair value as determined in
good faith by or under the supervision of the Trust in accordance with
methods which are authorized by the Trust's Board of Trustees.
Short term debt obligations with remaining maturities in excess of 60
days are valued at current market prices, as discussed above. Short-
term securities with maturities of 60 days or less are carried at
amortized cost, which approximates market value.
b. DIVIDENDS AND DISTRIBUTIONS
Dividends, if any, from net investment income of the Fund are declared
and paid at least annually.
Distributions of any short-term capital gains earned by the Fund are
distributed no less frequently than annually. Additional distributions
of net investment income and capital gains for the Fund may be made in
order to avoid the application of a 4% non-deductible excise tax on
certain undistributed amounts of ordinary income and capital gains.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments of income and gains on various investment
securities held by the Fund, timing differences and differing
characterizations of distributions made by the Fund.
c. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may engage in forward foreign currency exchange contracts with
off balance sheet risk in the normal course of investing activities in
order to manage exposure to market risks. Forward foreign currency
exchange contracts are valued at the forward rate and are marked-to-
market daily. The change in market value is recorded by the Fund as an
unrealized gain or loss.
When the contract is closed, the Fund records a realized 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. Forward foreign
currency exchange contracts have been used solely to establish a rate
of exchange for settlement of transactions. Although forward foreign
currency exchange contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain
that might result should the value of the currency increase. In
addition, the Fund could be exposed to risks if the counterparties to
the contracts are unable to meet the terms of their contracts.
16
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
(continued)
d. FOREIGN CURRENCY
Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the
end of the period, and purchases and sales of investment securities and
income and expenses are translated on the respective dates of such
transactions. Unrealized gains and losses which result from changes in
foreign currency exchange rates on investments have been included in
the unrealized appreciation/(depreciation) of securities. Net realized
foreign currency gains and losses resulting from movement in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities, transactions, foreign
currency transactions and the difference between the amounts of
interest and dividends recorded on the books of the Fund and the amount
actually received and the portion of foreign currency gains and losses
related to fluctuations in exchange rates between the initial purchase
trade date and subsequent sale trade date.
e. REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions individually
or jointly through a joint repurchase account with other series of the
Trust and affiliated registered investment companies pursuant to a
joint repurchase agreement. Under the terms of a typical repurchase
agreement, the Fund writes a financial contract with a counterparty and
takes possession of a government debt obligation as collateral. The
Fund also agrees with the counterparty to allow the counterparty to
repurchase the financial contract at a specified date and price,
thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to
market fluctuations during the Fund's holding period. The value of the
collateral is at least equal at all times to the total amount of the
repurchase obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to
offset losses incurred. There could be potential loss to the Fund in
the event the Fund is delayed or prevented from exercising its rights
to dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights. The Fund's investment
manager, acting under the supervision of the Board of Trustees, reviews
the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to
evaluate potential risks. The Fund may also participate on an
individual or joint basis in tri-party repurchase agreements which
involve a counterparty and a custodian bank.
f. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on a trade-date basis. Realized
gain and loss from securities transactions are recorded on the specific
identified cost basis. Dividend income is recognized on the ex-dividend
date and interest income, including, where applicable, amortization of
discount on short-term investments, is recognized on an accrual basis.
Dividend income on foreign securities is recognized as soon as the Fund
is informed of the ex-dividend date.
g. FEDERAL INCOME TAXES
The Fund has elected and qualified, and it is the intention of the Fund
to continue to qualify, as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Code,
and to make distributions of taxable income to shareholders sufficient
to relieve the Fund from all or substantially all Federal income taxes.
h. ORGANIZATION COSTS
Expenses incurred in connection with the organization of the Fund are
amortized on a straight-line basis over a period of five years from
commencement of operations.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
a. Montgomery Asset Management, L.P. is the Fund's Manager (the
"Manager"). The Manager, a California limited partnership, is an
investment adviser registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). The general partner of the Manager is Montgomery Asset
Management, Inc., and its sole limited partner is an affiliate of
Montgomery Securities. Under the Advisers Act, both Montgomery Asset
Management, Inc. and Montgomery Securities may be deemed controlling
persons of the Manager. Although the operations and management of the
Manager are independent from those of Montgomery Securities, it is
expected that the Manager may draw upon the research and administrative
resources of Montgomery Securities at its discretion in a manner
consistent with applicable regulations.
17
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
(continued)
Pursuant to the investment management agreement ("Investment Management
Agreement"), the Manager provides the Fund with advice on buying and
selling securities, manages the investments of the Fund including the
placement of orders for portfolio transactions, furnishes the Fund with
office space and certain administrative services, and provides the
personnel needed by the Trust with respect to the Manager's
responsibilities under such Agreement. As compensation, the Fund pays
the Manager a monthly management fee (accrued daily) at the following
annual rates based upon the average daily net assets of the Fund:
First $250 Million Over $250 Million
------------------ -----------------
1.25% 1.00%
The Manager has agreed to reduce some or all of its management fee or
absorb the Fund expenses if necessary to keep the Fund's annual
operating expenses, exclusive of interest or taxes, at or below 1.75%
of the average daily net assets of the Fund.
Any reductions or absorptions made for the Fund by the Manager of its
fees are subject to recovery within the following three years provided
the Fund is able to affect such reimbursement and remain in compliance
with applicable expense limitations. Any of the Manager's voluntary
absorptions are also subject to recovery. For the six months ended June
30, 1997, the Manager recouped fees of $86,264.
For the six months ended June 30, 1997, the Manager has deferred fees
of $58,766.
As of June 30, 1997, the deferred management fees subject to recoupment
are $58,766.
b. Certain officers and Trustees of the Trust are, with respect to the
Trust's Manager and/or Montgomery Securities, "affiliated persons" as
defined in the 1940 Act. Each Trustee who is not an "affiliated person"
receives an annual retainer and quarterly meeting fees totalling
$35,000 per annum, as well as reimbursement for expenses, for services
as Trustee of all three Trusts advised by the Manager ($5,000 of which
will be allocated to the Montgomery Funds III).
c. The Fund has no sales load and does not pay distribution (Rule 12b-1)
fees.
3. SECURITIES TRANSACTIONS:
a. The aggregate amount of purchases and sales of investment securities,
other than short-term securities, for the six months ended June 30,
1997, were $74,369,340 and $15,810,946, respectively.
b. At June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost and
aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value for federal income tax
purposes were $15,574,948 and $3,579,482, respectively.
The schedule of forward foreign currency exchange contracts at June 30,
1997 was as follows:
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO BUY: CONTRACT VALUE DATE VALUE (NOTE 1)
<S> <C> <C>
2,237,752 Mexican Pesos 07/01/97 $ 281,567
1,876,392 South African Commercial Rand 07/01/97 413,576
10,600,216 Philippine Pesos 07/02/97 401,879
1,907,313 Philippine Pesos 07/03/97 72,307
----------
TOTAL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO BUY
(CONTRACT COST $1,174,145) $1,169,329
----------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO SELL:
102,079 Brazilian Real 07/01/97 $ 94,821
204,023 Malaysian Ringgit 07/01/97 80,833
659,518 Hong Kong Dollar 07/07/97 85,126
----------
TOTAL FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS TO SELL
(CONTRACT COST $260,611) $ 260,780
----------
</TABLE>
c. Under an unsecured Revolving Credit Agreement with DeutscheBank (New
York), the Montgomery Variable Series: Emerging Markets Fund, along
with other funds of Montgomery Funds I, Montgomery Funds II and
Montgomery Funds III, may for one year starting August 6, 1996, borrow
(consistent with applicable law and its investment policies) up to 10%
of its net asset value, provided that the aggregate principal amount of
outstanding loans under the agreement to all Funds does not exceed
$300,000,000. For the six months ended June 30, 1997, there were no
borrowings under this agreement.
18
<PAGE>
The Montgomery Funds III
Notes to Financial Statements (unaudited)
(continued)
4. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST:
The Trust has authorized an unlimited number of shares of beneficial
interest which have a par value of $0.01. Transactions in shares of
beneficial interest for the periods indicated below were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1997 DECEMBER 31, 1996*
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares Sold 7,387,214 $ 86,655,259 2,724,011 $28,483,626
Issued as Reinvestment of Dividends - - 6,363 65,918
Shares Redeemed (1,712,001) (20,054,274) (248,382) (2,593,376)
---------- ------------ --------- -----------
Net Increase 5,675,213 $ 66,600,985 2,481,992 $25,956,168
========== ============ ========= ===========
</TABLE>
- - ---------------
* Montgomery Variable Series: Emerging Markets Fund commenced operations on
February 2, 1996.
5. FOREIGN SECURITIES
The Fund purchases securities in emerging market countries. Securities of
foreign companies and foreign governments involve special risks and
considerations not typically associated with investing in U.S. companies
and the U.S. government. These risks include re-evaluation of currencies,
less reliable information about issuers, differences in the clearance and
settlement of securities transactions practices, and future adverse
political and economic developments. These risks are heightened for
investments in emerging market countries. Moreover, securities of many
foreign companies and foreign governments and their markets may be less
liquid and their prices more volatile than those securities of comparable
U.S. companies and the U.S. government.
6. SPECIAL SITUATION SECURITIES
The following security held by the Fund on June 30, 1997, is generally an
unrestricted security for which a reliable market price can be established.
The security is valued at its market price. However, because the process of
re-registering foreign securities in the Fund's name can take more than
seven days, the following shares of this security was deemed temporarily
restricted or illiquid in the hands of the Fund at June 30, 1997. The Fund
bears the cost of re-registering this security:
<TABLE>
<CAPTION>
ACQUISITION 6/30/97 VALUE % OF TOTAL
SECURITY DATE SHARES MARKET VALUE PER SHARE COST NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
Lippo Securities 06/25/96 140,000 $99,302 $0.71 $102,608 0.09%
</TABLE>
7. CAPITAL LOSS CARRYFORWARD
At December 31, 1996, the Fund had available for Federal income tax
purposes unused capital losses of $84,636 expiring in 2004.
Under current tax law, net short-term capital losses realized after October
31 may be deferred and treated as occurring on the first day of the
following fiscal year. For the fiscal year ended December 31, 1996, the
Fund elected to defer net short-term capital losses of $14,382 occurring
between November 1, 1995 and December 31, 1996.
Such deferred losses will be treated as arising on the first day of the
fiscal year ended December 31, 1997.
8. SUBSEQUENT EVENT
On March 25, 1997, Montgomery Securities, the Manager and CAM Acquisition
LLC ("CAM"), a newly organized subsidiary of Commerzbank
Aktiengesellschaft, entered into an agreement providing for the transfer of
substantially all the assets composing the Manager's business to CAM. On
June 23, 1997, the shareholders of the Fund approved a new Investment
Management Agreement with CAM (renamed Montgomery Asset Management, LLC)
that became effective upon the closing of the Manager's transaction with
CAM. Such transaction closed on July 31, 1997.
19
<PAGE>
STEINROE VARIABLE INVESTMENT TRUST
Capital Appreciation Fund
Managed Growth Stock Fund
Managed Assets Fund
Mortgage Securities Income Fund
Cash Income Fund
Semiannual Report
June 30, 1997
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION:
Capital Appreciation Fund ..........................................1
Managed Growth Stock Fund ..........................................3
Managed Assets Fund ................................................4
Mortgage Securities Income Fund ....................................5
Cash Income Fund ...................................................6
FINANCIAL STATEMENTS:
Capital Appreciation Fund ..........................................7
Managed Growth Stock Fund .........................................12
Managed Assets Fund ...............................................17
Mortgage Securities Income Fund ...................................23
Cash Income Fund ..................................................28
NOTES TO FINANCIAL STATEMENTS ......................................32
<PAGE>
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
SteinRoe Variable Investment Trust Capital Appreciation Fund
- ------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
Following a relatively weak first quarter, the Fund's performance rebounded in
the second quarter ended June 30, 1997, with the Fund gaining 15.6 percent, only
slightly behind the Russell 2000 return of 16.2 percent. This led to a total
return for the six months ended June 30, 1997, of 7.2 percent for the Fund
versus a 10.2 percent return for the Russell 2000. The Fund's performance
continued to strengthen in the latter part of the second quarter, gaining 6.6
percent for the month of June versus 4.3 percent for the Russell 2000.
We maintain between 30 percent and 40 percent of our total equity assets in
the Fund's 10 largest equity positions. Such concentration has enhanced the
Fund's overall return in the past. Past experience suggests that the stocks that
perform best for us are those we know most thoroughly. During the reporting
period, we added to our 10 largest holdings, increasing the concentration of the
Fund's equity assets in its top holdings to 37 percent. We believe this strategy
helped the Fund's overall performance, as our top 10 equity holdings accounted
for approximately 74 percent of the Fund's total return in the first six months.
For example, four of the Fund's top 10 holdings -- Alternative Resources (3.2
percent of total net assets), AVX Corporation (3.6 percent of total net assets),
CB Commercial Real Estate (3.8 percent of total net assets), and 20th Century
Industries (3.9 percent of total net assets) -- appreciated 17.3 percent, 25.6
percent, 53.4 percent and 24.4 percent, respectively, during the first six
months of the year.
In terms of sector performance, the Capital Appreciation Fund's best
performers in the first half of the year were in the financial, technology and
industrial sectors. Financial stocks that contributed meaningfully to the strong
performance included our specialty insurance holdings -- 20th Century
Industries, Mutual Risk Management and Meadowbrook Insurance (3.9 percent, 2.9
percent, and 3.4 percent of total net assets) -- as well as the real estate
manager and broker CB Commercial Real Estate (3.8 percent of total net assets).
Among the strongest performers in the technology sector were FiServ (3.6 percent
of total net assets), which provides data processing services to financial
companies, and Alternative Resources (3.2 percent of total net assets), which
provides human resource solutions for technology assignments. AVX Corporation
(3.6 percent of total net assets), a leading manufacturer of passive electronic
components also fared well, as demand for its products has begun to increase
following a cyclical slowdown in business volume. Strong industrial stocks
include Kent Electronics (2.8 percent of total net assets), an electronics
distributor and contract manufacturer, and Ballantyne of Omaha (1.9 percent of
total net assets), the leading producer of motion picture projectors. Finally,
Grupo Radio Centro (1.8 percent of total net assets) also did well; this owner
and operator of radio stations in Mexico benefited from improving economic
conditions.
Offsetting a portion of these gains, the Fund's energy holdings continued
to underperform in the second quarter reflecting declining oil and gas prices.
Barrett Resources (2.3 percent of total net assets) was particularly weak based
on disappointing recent exploration results. While the Fund's three domestic
exploration and production companies have been disappointing investments in the
short term, they have been very successful long-term investments because their
management teams have succeeded in growing oil and gas reserves rapidly at a low
cost per barrel. Central European Television (3.2 percent of total net assets),
an owner and operator of television stations based in Europe, was negatively
affected by regulatory uncertainty -- subsequently resolved in way that is
favorable to the company -- and currency depreciation in the Czech Republic.
Recent new holdings include CoreStaff, a provider of information technology
staffing solutions; SPSS, a leader in statistical software; and Henry Schein, a
distributor of dental and medical products (2.3 percent, 1.8 percent, and 1.2
percent of total net assets). We also purchased shares in Helen of Troy (1.6
percent of total net assets), a designer and marketer of hair care and personal
appliances. The Fund sold CFC International, National Processing and Storm
Technology after disappointing operating results, and we eliminated Dr.
Solomon's Group after signs of more vigorous competition in the anti-virus
software market.
The Capital Appreciation Fund attempts to create wealth for its
shareholders by investing in well-selected small-cap growth companies that are
entrepreneurially managed and which trade at reasonable valuation levels. During
the reporting period we maintained an equity ratio of roughly 90 percent of
total net assets -- this is approximately the midpoint of our normal equity
ratio range of 85 percent to 95 percent. We believe the growth prospects for the
companies in the portfolio are considerably higher than for the typical company
in today's market. At the same time, the portfolio's price-earnings ratio is
only a modest premium to that of the market. In our opinion today's small-cap
investor should benefit from higher growth, without having to overpay for it.
John McLandsborough and Dick Peterson,
Portfolio Managers
SteinRoe Variable Investment Trust
Capital Appreciation Fund, S&P 500 and Russell 2000
Performance of a hypothetical $10,000 investment January 1, 1989, to
<PAGE>
June 30, 1997
Average Annual Total Return
at June 30, 1997
1-Year 5-Year Inception
16.7% 20.4% 17.4%
Line Chart:
Capital Appreciation Fund S&P 500 Index Russell 2000 Index
1/89 10000 10000 10000
12/89 13084 13163 11626
12/90 11918 12754 9361
12/91 16357 16631 13672
12/92 18725 17896 16189
12/93 25406 19697 19245
12/94 25708 19955 18894
12/95 28729 27444 24270
12/96 36469 33756 28274
6/97 39077 40335 31158
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. Life of Fund is from Fund inception on Jan. 1,
1989, benchmark performance is from Dec. 31, 1988, to June 30, 1997. The Russell
2000 is an unmanaged group of stocks that differs from the Fund's composition;
it is not available for direct investment. According to Lipper Analytical
Services, Inc., an independent monitor of mutual fund performance, the median
total returns for the Fund's small-cap fund peer group for the one-year, five-
year and Life of Fund periods ended June 30, 1997, were 16.68 percent, 16.55
percent and 16.42 percent, respectively.
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
SteinRoe Variable Investment Trust Managed Growth Stock Fund
- -------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
For the six months ended June 30, 1997, Managed Growth Stock Fund's return of
19.57 percent outpaced the 14.35 percent median return of its Lipper VA growth
fund peer group as well as the S&P 500 return of 19.49.
During the first half of the reporting period, growing concern about a
possible earnings slowdown prompted many investors to flee small- and mid-cap
stocks in search of the liquidity and predictability of large-cap, high-quality
growth stocks. The Fund clearly benefited from this trend, which continued into
the second half of the reporting period. Large-cap, high-quality growth stocks
have experienced a powerful market rally as their multinational focus continues
to attract investors' dollars. That's because investors have increasingly
emphasized earnings, and large-cap, high-quality stocks with a multinational
focus have, in general, reported much better earnings than their small- and mid-
cap brethren.
The pharmaceutical sector was one of our top performers, due in large part
to a string of successful new product introductions and the continued
enthusiastic support of investors who favor the noncyclical -- and relatively
stable -- nature of drug company earnings. The portfolio's telecommunications
equipment providers also boosted performance, particularly companies like
Motorola, Tellabs and LMEriccson (3.5 percent, 2.6 percent and 3.0 percent of
total net assets, respectively) that continue to provide innovative products to
help solve the need among telephone companies to upgrade systems and handle
greater voice and data capacity. Finally, global consumer franchises like Coca-
Cola, Gillette and Procter & Gamble (3.4 percent, 3.6 percent and 3.2 percent of
total net assets, respectively) continue to do well as their earnings
consistently meet or exceed expectations.
Purchases during the last six months have ranged from Motorola, a
telecommunications equipment company, and Nokia Corp., a leading international
telecommunications group; to Paychex, Inc., a provider of payroll processing
services, and Wells Fargo & Co., one of the largest bank holding companies (3.5
percent, 1.9 percent, 0.7 percent and 1.3 percent of total net assets,
respectively). We believe these companies should experience strong earnings
growth over the next few years.
We remain positive about the Fund's long-term prospects, especially since
we think that increased global competition has created a new breed of large-cap
company -- one that boasts worldwide dominance, super efficient production and
an outspoken commitment to shareholder value. In our opinion, these kinds of
companies should do well regardless of how the U.S. economy is performing.
Erik Gustafson, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. Life of Fund is from Fund inception on Jan. 1,
1989; benchmark performance is from Dec. 31, 1988, to June 30, 1997. The S&P 500
is an unmanaged group of stocks that differs from the Fund's composition; it is
not available for direct investment. According to Lipper Analytical Services,
Inc., an independent monitor of mutual fund performance, the median total
returns for the Fund's VA growth fund peer group for the one-year, five-year and
Life of Fund periods ended June 30, 1997, were 16.68 percent, 16.55 percent and
16.42 percent, respectively.
SteinRoe Variable Investment Trust
Managed Growth Stock Fund and S&P 500
Performance of a hypothetical $10,000 investment January 1, 1989,
to June 30, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
at June 30, 1997
1-Year 5-Year Inception
<S> <C> <C>
29.7% 17.6% 17.7%
</TABLE>
Line Chart
Managed Growth Stock Fund S&P 500 Index
1/89 10000 10000
12/89 13130 13163
12/90 12913 12754
12/91 19115 16631
12/92 20382 17896
12/93 21395 19697
12/94 20036 19955
12/95 27596 27444
12/96 33468 33756
6/97 40018 40335
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
SteinRoe Variable Investment Trust Managed Assets Fund
- -------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
For the six months ended June 30, 1997, Managed Assets Fund's return of 9.17
percent lagged the 10.14 percent median return of its Lipper VA flexible
portfolio peer group, and the 19.49 percent return of the S&P 500.
Solid performances by our financial services, health care, electrical
equipment and retail holdings fueled performance. Many of our international
holdings also contributed. Our equity gains, however, were offset somewhat by
the flatter returns of our REIT and energy holdings. Our fixed income holdings
- --dampened in the first quarter of 1997 when the rate increase caused the long
bond to more than retrace earlier gains -- rallied later in the reporting period
on the news of a possible budget deal and strong foreign demand.
To help enhance diversification, we added several new holdings, including
United HealthCare, a health care management firm; Fujitsu, a Japanese
telecommunications equipment firm; Siemens, a German electronics firm; and Santa
Fe International, an oil services firm (0.7 percent, 0.5 percent, 0.5 percent
and 0.5 percent of total net assets, respectively). We shifted out of GM and
into Honda (0.7 percent of total net assets) during the last six months, as we
think a stronger dollar could hamper U.S. automakers' ability to compete against
Japanese and German competitors.
Going forward, we believe inflation will remain moderate and economic
growth will eventually slow, which could lead to further positive returns for
our bond investments. While we think attractive equity opportunities exist
overseas, we're less positive about the domestic stock market, as we think
either slowing corporate revenues or increasing wage pressures could lead to
some erosion in profit margins. Nonetheless, we think a good bond market and
strong economic conditions should ward off any major dislocations.
Harvey Hirschhorn, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. Life of Fund is from Fund inception of Jan. 1,
1989; benchmark performance is from Dec. 31, 1988, to June 30, 1997. The S&P 500
is an unmanaged group of stocks that differs from the Fund's composition; it is
not available for direct investment. According to Lipper Analytical Services,
Inc., an independent monitor of mutual fund performance, the median total
returns for the Fund's VA flexible portfolio fund peer group for the one-year,
five-year and Life of Fund periods ended June 30, 1997, were 19.49 percent,
13.11 percent and 13.10 per cent, respectively.
SteinRoe Variable Investment Trust
Managed Assets Fund and S&P 500
Performance of a hypothetical $10,000 investment January 1, 1989,
to June 30, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
at June 30, 1997
1-Year 5-Year Inception
<S> <C> <C>
18.5% 12.4% 12.9%
</TABLE>
Line Chart
Managed Assets Fund S&P 500 Index
1/89 10000 10000
12/89 12238 13163
12/90 12154 12754
12/91 15549 16631
12/92 16720 17896
12/93 18273 19697
12/94 17690 19955
12/95 22189 27444
12/96 25657 33756
6/97 28010 40335
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
SteinRoe Variable Investment Trust Mortgage Securities Income Fund
- -------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
For the six months ended June 30, 1997, Mortgage Securities Income Fund's
return of 3.35 percent outpaced the 3.24 percent median return of its Lipper
U.S. government fund peer group, but trailed the 3.92 percent return of the
Lehman Mortgage-Backed Securities Index.
We gradually have reduced the Fund's mortgage-backed holdings throughout
the reporting period as they have become less attractive. We are now near the
lower end of our historical allocation range for mortgages. That's because we
believe mortgages are generally overvalued as a result of both strong investor
demand for these securities and low volatility in the bond market. We sold
current coupon and premium coupon mortgages because we think these are the most
likely to underperform if interest rates decline and prepayment risk increases.
We have, however, held onto lower- and higher-coupon mortgage securities that
we think are the most attractive in the current environment.
We view asset-backed securities collateralized by home equity loans and
manufactured housing loans as very attractive. These securities have less
prepayment risk than most mortgage-backed securities and, on a risk-adjusted
basis, have attractive yields relative to mortgage-backed securities. We
currently have 9.6 percent of the Fund invested in asset-backed securities.
Going forward, we believe Treasury securities will outperform mortgages
over the next three to six months. Currently, mortgages do not offer enough
yield to compensate for the prepayment risk inherent in these securities. Within
the mortgage market, we think discount and premium coupons are attractive
relative to current coupons. Given our favorable outlook for the economy, we
believe corporate bonds may outperform both Treasuries and mortgages.
Michael Kennedy, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES.
Portfolio holdings as of June 30, 1997; portfolio data subject to change. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. The Fund is neither insured nor guaranteed by
the U.S. government. Life of Fund is from Fund inception on Jan. 1, 1989;
benchmark performance is from Dec. 31, 1988, to June 30, 1997. The Lehman
Mortgage-Backed Securities Index represents an unmanaged group of
mortgage-backed securities that differs from the composition of the Fund; it is
not available for direct investment. According to Lipper Analytical Services,
Inc., an independent monitor of mutual fund performance, the median returns for
the Fund's U.S. government fund peer group for the one-year, five-year and Life
of Fund periods ended June 30, 1997, were 7.49 percent, 6.23 percent and 8.75
percent, respectively.
SteinRoe Variable Investment Trust
Mortgage Securities Income Fund and Lehman Mortgage-Backed Securities Index
Performance of a hypothetical $10,000 investment January 1, 1989,
to June 30, 1997
<TABLE>
<CAPTION>
Average Annual Total Return
at June 30, 1997
1-Year 5-Year Inception
<S> <C> <C>
8.3% 6.2% 8.2%
</TABLE>
Line Chart
Mortgage Securities Lehman Mortgage-Backed
Income Fund Securities Index
1/98 10000 10000
12/89 11284 11535
12/90 12311 12772
12/91 14094 14779
12/92 14933 15809
12/93 15868 16890
12/94 15619 16618
12/95 18077 19411
12/96 18924 20449
6/97 19561 21251
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION
SteinRoe Variable Investment Trust Cash Income Fund
- -------------------------------------------------------------------------------
DEAR CONTRACT OWNER:
Cash Income Fund finished the six-month reporting period with a 2.49 percent
total return, just ahead of the 2.48 percent median return for its money market
fund peer group.
The Fund's yield reflects the see-saw environment of interest rates that
has been in effect throughout much of the last year. One year ago, the Federal
Reserve had just shifted from an easing to a neutral mode, as its series of rate
cuts designed to bring the economy to a soft landing appeared successful.
Throughout this year, the economy's mixed signals sent money market rates up and
down, but in a fairly tight range. In late March 1997, economic signposts
pointed to an economy that was growing too quickly, and the Federal Reserve
tightened rates by a quarter of a percentage point. Since then, however,
economic growth appears to have slowed to a more sustainable rate and the
Federal Reserve has stood firm on interest rates.
During times of economic uncertainty, we look for pockets of opportunity to
potentially enhance the Fund's yield. While the Federal Reserve was in its
easing-to-neutral mode, we added to our holdings of Federal agency securities to
lock in higher yields on longer-term securities. The middle two quarters of the
fiscal year brought mixed economic signals. As a result, we increased our
allocation of shorter-term commercial paper. This benefited the Fund because
many investors expected a tightening move.
As we approached fiscal year end, investors began to anticipate further
rate hikes and we looked to add corporate "floaters" to the Fund at attractive
spreads. We like these variable-rate corporate notes because they have one-year
maturities and their coupons adjust or "float" quarterly with market rates. Not
only do they offer high current yield potential, they also offer additional
yield potential because their coupons will float up to at least market rate
yields should the Federal Reserve raise interest rates. We are very selective in
the floaters we purchase. Of course we consider them for their defensive
characteristics in a rising-rate environment, but we also look for an attractive
current coupon. In this way, even if the Federal Reserve goes into a neutral
mode we can continue to capture additional yield potential.
Going forward, we plan to keep the Fund's average maturity shorter because
there is still a slim chance that the Federal Reserve may raise interest rates
at one of its next meetings. By maintaining a neutral maturity range, The Fund
is positioned to respond accordingly to the outcome of those meetings or other
significant economic events. As always, we'll look for opportunities to add
longer-maturity securities at attractive rates.
Jane Naeseth, Portfolio Manager
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. SHARE PRICE AND INVESTMENT
RETURN WILL VARY, SO YOU MAY HAVE A GAIN OR A LOSS WHEN YOU SELL SHARES. Total
return performance includes changes in share price and reinvestment of income
and capital gains distributions. An investment in the Fund is neither insured
nor guaranteed by the U.S. government, and there is no assurance that the Fund
will be able to maintain its stable net asset value of $1 per share. Life of
Fund is from fund inception on January 1, 1989. According to Lipper Analytical
Services, Inc., an independent monitor of mutual fund performance, the median
total returns for the Fund's money market fund peer group for the one-year,
five-year and Life of Fund periods ended June 30, 1997, were 5.04 percent, 4.21
percent and 5.30 percent, respectively.
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SteinRoe Variable Investment Trust Capital Appreciation Fund /
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS--(92.2%)
AUTO ACCESSORIES--(2.2%)
Superior Industries International, Inc. 168,000 $ 4,452,000
-----------
BANKS/SAVINGS AND LOANS--(2.0%)
Grupo Financiero Inbursa 670,000 2,804,827
Rancho Santa Fe National Bank (a) 111,900 1,188,938
-----------
3,993,765
-----------
BROADCASTING/MEDIA--(9.8%)
Central European Media Enterprises
Ltd. (a) 243,900 6,341,400
Grupo Radio Centro ADSs (a) 311,000 3,654,250
Hollinger International, Inc. 350,000 3,915,625
Metro Networks, Inc. (a) 237,900 5,769,075
-----------
19,680,350
-----------
BUSINESS SERVICES--(17.2%)
Alternative Resources Corporation (a) 310,600 6,328,475
CORESTAFF, Inc. (a) 168,000 4,536,000
Covance, Inc. (a) 252,400 4,874,475
Danka Business Systems Plc ADRs 89,000 3,637,875
G & K Services Cl. A 211,000 7,859,750
Interim Services Inc. (a) 140,400 6,247,800
Investors Financial Services Corporation 25,000 1,187,500
-----------
34,671,875
-----------
COMPUTER HARDWARE AND SOFTWARE--(4.9%)
Microware Systems Corporation (a) 125,600 1,114,700
SPSS, Inc. (a) 125,000 3,625,000
Zebra Technologies Corporation (a) 180,100 5,020,287
-----------
9,759,987
-----------
COMPUTER SERVICES--(3.6%)
Fiserv Inc. (a) 161,600 7,211,400
-----------
CONSUMER ELECTRONICS/APPLIANCES--(1.6%)
Helen of Troy Ltd. (a) 124,500 3,190,312
-----------
DIVERSIFIED OPERATIONS--(0.1%)
Fischer Companies, Inc. 800 104,000
-----------
DRUGS--(0.9%)
Ligand Pharmaceuticals, Inc. (a) 140,000 1,802,500
-----------
EDUCATIONAL SERVICES--(1.7%)
Firearms Training Systems, Inc. (a) 255,800 3,517,250
-----------
ELECTRICAL POWER GENERATION--(1.0%)
AES Corporation (a) 27,000 1,910,250
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- ------------
<S> <C> <C>
ELECTRICAL EQUIPMENT--(8.3%)
AVX Corp. 265,300 $ 7,163,100
Ballantyne of Omaha, Inc. (a) 215,000 3,870,000
Kent Electronics Corporation (a) 155,000 5,686,563
------------
16,719,663
------------
ELECTRONIC COMPONENTS--(0.1%)
Zytec Corporation (a) 7,600 142,500
------------
EQUIPMENT RENTAL & LEASING--(2.1%)
U.S. Rentals, Inc. (a) 168,100 4,255,031
------------
FOOD DISTRIBUTOR--(2.2%)
Richfood Holdings, Inc. 169,000 4,394,000
------------
INSURANCE--(10.2%)
Meadowbrook Insurance Group, Inc. 271,400 6,768,037
Mutual Risk Management Ltd. 126,666 5,810,803
20th Century Industries, Inc. 373,100 7,835,100
------------
20,413,940
------------
MEDICAL EQUIPMENT--(4.6%)
National Dentex Corporation (a) 15,800 300,200
Urologix, Inc. (a) 171,900 2,922,300
Uroquest Medical Corporation (a) 255,000 1,657,500
Xomed Surgical Products, Inc. (a) 215,400 4,308,000
------------
9,188,000
------------
OIL/GAS--(6.2%)
Barrett Resources Corp. (a) 153,800 4,604,387
Cross Timbers Oil Company 133,500 2,569,875
Devon Energy Corporation 144,300 5,303,025
------------
12,477,287
------------
REAL ESTATE DEVELOPMENT/MANAGEMENT--(3.8%)
Beacon Properties Corporation 4,600 153,525
CB Commercial Real Estate Services
Group, Inc. (a) 248,100 7,536,038
------------
7,689,563
------------
RETAIL--(3.0%)
Garden Botanika, Inc. (a) 135,000 810,000
Video Update, Inc. (a) 557,000 2,471,687
Whole Foods Market, Inc. (a) 82,500 2,732,813
------------
6,014,500
------------
SPECIALTY CHEMICALS--(2.7%)
ChemFirst, Inc. 197,900 5,368,038
------------
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
------- ------------
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS--(2.1%)
Western Wireless Corporation (a) 270,200 $ 4,289,425
------------
WHOLESALE DISTRIBUTION--(1.9%)
AmeriSource Distribution
Corporation (a) 30,000 1,496,250
Henry Schein, Inc. (a) 75,500 2,359,375
------------
3,855,625
------------
TOTAL COMMON STOCKS (Cost $158,432,119) 185,101,261
------------
MARKET
PAR VALUE
---------- ------------
SHORT-TERM INVESTMENTS--(7.7%)
Associates Corp. of North America
6.200% 7/01/97 $8,350,000 $ 8,350,000
Louisiana Land & Exploration
5.820% 7/01/97 7,000,000 7,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $15,350,000) 15,350,000
------------
TOTAL INVESTMENTS--(99.9%)
(Cost $173,782,119) (b) 200,451,261
OTHER ASSETS, LESS LIABILITIES--(0.1%) 166,536
------------
NET ASSETS (100%) $200,617,797
============
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation on investments at June 30, 1997 is
as follows:
Gross unrealized appreciation: $30,891,072
Gross unrealized depreciation: (4,221,930)
-----------
$26,669,142
===========
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SteinRoe Variable Investment Trust Capital Appreciation Fund /
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $173,782,119).................................. $200,451,261
Cash (including foreign currencies).......................................................... 51,868
Receivable for investments sold.............................................................. 1,000,892
Receivable for fund shares sold.............................................................. 291,460
Dividends and interest receivable............................................................ 55,792
Other assets................................................................................. 14,988
------------
TOTAL ASSETS............................................................................. 201,866,261
------------
LIABILITIES:
Payable for investments purchased............................................................ 823,875
Payable for fund shares repurchased.......................................................... 282,967
Payable to adviser........................................................................... 101,086
Accrued expenses payable..................................................................... 40,536
------------
TOTAL LIABILITIES........................................................................ 1,248,464
------------
NET ASSETS................................................................................... $200,617,797
============
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................................ $171,307,315
Accumulated undistributed net investment income............................................ 173,347
Accumulated net realized gains on investments and foreign currency transactions............ 2,471,047
Net unrealized appreciation on investments and foreign currencies.......................... 26,666,088
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST..................... $200,617,797
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING.................................................... 11,216,330
============
NET ASSET VALUE PER SHARE.................................................................... $17.89
======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld)..................................................... $ 502,255
Interest income............................................................................... 381,169
------------
Total investment income................................................................... 883,424
------------
EXPENSES:
Management fee................................................................................ 468,624
Administrative fee............................................................................ 140,587
Custodian fee................................................................................. 25,340
Accounting fee................................................................................ 14,234
Printing expense.............................................................................. 16,860
Audit and legal fees.......................................................................... 9,050
Trustees' fees................................................................................ 7,512
Transfer agent fee............................................................................ 3,620
Miscellaneous expense......................................................................... 3,024
------------
Total expenses............................................................................ 688,851
------------
Net investment income........................................................................... 194,573
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments............................................................. 2,492,277
Net realized gains on foreign currency transactions........................................... 2,606
Change in unrealized appreciation or depreciation of investments.............................. 10,384,294
------------
Net increase in net assets resulting from operations............................................ $ 13,073,750
============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Variable Investment Trust Capital Appreciation Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................................... $ 194,573 $ 340,782
Net realized gains on investments .......................................... 2,492,277 37,125,858
Net realized gains (losses) on foreign currency transactions ............... 2,606 (19,291)
Change in unrealized appreciation or depreciation of investments ........... 10,384,294 1,982,076
------------ ------------
Net increase in net assets resulting from operations ........................... 13,073,750 39,429,425
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income ...................................................... (265,000) --
Net realized gains on investments .......................................... (36,940,000) --
------------ ------------
Total distributions ........................................................ (37,205,000) --
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold ............................................. 27,403,142 59,130,137
Cost of fund shares repurchased ............................................ (36,078,115) (45,588,671)
Distributions reinvested ................................................... 37,205,000 --
------------ ------------
Net increase in net assets resulting from fund share transactions .............. 28,530,027 13,541,466
------------ ------------
Total increase in net assets ................................................... 4,398,777 52,970,891
NET ASSETS:
Beginning of period ........................................................ 196,219,020 143,248,129
------------ ------------
End of period .............................................................. $200,617,797 $196,219,020
============ ============
Accumulated undistributed net investment income included in ending net assets .. $ 173,347 $ 243,774
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold ................................................................ 1,561,687 3,135,974
Shares repurchased ......................................................... (2,065,204) (2,445,679)
Distributions reinvested ................................................... 2,256,218 --
------------ ------------
Net increase ................................................................... 1,752,701 690,295
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Variable Investment Trust Capital Appreciation Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 -----------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year .............. $ 20.73 $ 16.33 $ 14.74 $ 16.53 $ 15.34 $ 15.32
-------- -------- -------- -------- ------- -------
Net investment income ........................... 0.02 0.04 0.04 0.06 0.03 --
Net realized and unrealized gains on investments
and foreign currency transactions ............. 1.13 4.36 1.69 0.09 5.22 2.17
-------- -------- -------- -------- ------- -------
Total from investment operations ................ 1.15 4.40 1.73 0.15 5.25 2.17
-------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income ........ (0.03) -- (0.04) (0.07) (0.02) --
Distributions from net realized gains on
investments ............................... (3.96) -- (0.10) (1.87) (4.04) (2.15)
-------- -------- -------- -------- ------- -------
Total distributions ............................. (3.99) -- (0.14) (1.94) (4.06) (2.15)
-------- -------- -------- -------- ------- -------
Net asset value, end of year .................... $ 17.89 $ 20.73 $ 16.33 $ 14.74 $ 16.53 $ 15.34
======== ======== ======== ======== ======= =======
TOTAL RETURN:
Total investment return ......................... 7.15% 26.94% 11.75% 1.19%(b) 35.68%(b) 14.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ............... $200,618 $196,219 $143,248 $134,078 $96,544 $52,135
Ratio of expenses to average net assets ......... 0.74%(c) 0.75% 0.76% 0.80%(a) 0.84%(a) 1.01%
Ratio of net investment income to average net
assets ........................................ 0.21%(c) 0.20% 0.26% 0.44%(b) 0.13%(b) (0.01)%
Portfolio turnover ratio ........................ 38% 100% 132% 144% 112% 85%
Average commissions (per share) ................. $ 0.0353 $ 0.0251 -- -- -- --
</TABLE>
[FN]
(a) These ratios were not materially affected by the reimbursement of certain
expenses by the Adviser and Administrator.
(b) Computed giving effect to the Investment Adviser's and the Administrator's
expense limitation undertaking.
(c) Annualized.
</FN>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SteinRoe Variable Investment Trust Managed Growth Stock Fund /
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCKS--(96.1%)
BANKS--(6.1%)
Citicorp 40,000 $ 4,822,500
MBNA Corp. 123,750 4,532,344
Wells Fargo & Company 10,000 2,695,000
-----------
12,049,844
-----------
BUSINESS SERVICES--(2.9%)
First Data Corporation 100,000 4,393,750
Paychex, Inc. 35,000 1,330,000
-----------
5,723,750
-----------
COMPUTERS AND COMPUTER SOFTWARE--(8.0%)
Cisco Systems, Inc. (a) 65,000 4,363,125
Intel Corporation 35,000 4,963,437
Microsoft Corp. (a) 50,000 6,318,750
-----------
15,645,312
-----------
CONSUMER RELATED--(9.0%)
CUC International, Inc. (a) 165,000 4,259,063
The Gillette Company 75,000 7,106,250
The Proctor & Gamble Co. 45,000 6,356,250
-----------
17,721,563
-----------
DRUGS--(7.5%)
Eli Lilly & Co. 50,000 5,465,625
Merck & Co. 55,000 5,692,500
SmithKline Beecham Plc ADRs 40,000 3,665,000
-----------
14,823,125
-----------
ELECTRICAL EQUIPMENT--(3.3%)
General Electric Company 100,000 6,537,500
-----------
ENERGY--(4.0%)
Schlumberger Ltd. 40,000 5,000,000
Renaissance Energy Ltd. (a) 100,000 2,783,617
-----------
7,783,617
-----------
FINANCIAL SERVICES--(3.1%)
Federal National Mortgage
Association 140,000 6,107,500
-----------
FOOD/BEVERAGE/TOBACCO--(5.8%)
The Coca Cola Company 100,000 6,750,000
Phillip Morris Companies, Inc. 105,000 4,659,375
-----------
11,409,375
-----------
HEALTH CARE--(4.5%)
Johnson & Johnson 80,000 5,150,000
United Healthcare Corp. 70,000 3,640,000
-----------
8,790,000
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- ------------
<S> <C> <C>
HOTEL--(3.6%)
HFS, Inc. 70,000 $ 4,060,000
Sun International Hotels Ltd. (a) 80,000 2,955,000
------------
7,015,000
------------
INSURANCE--(6.6%)
American International Group, Inc. 37,500 5,601,562
The Travelers, Inc. 115,000 7,252,188
------------
12,853,750
------------
LEISURE & ENTERTAINMENT--(2.0%)
Disney (Walt) Co. 50,000 4,012,500
------------
MEDICAL SUPPLIES--(4.2%)
Baxter International Inc. 65,000 3,396,250
Medtronic, Inc. 60,000 4,860,000
------------
8,256,250
------------
RETAIL--(4.6%)
The Home Depot, Inc. 70,000 4,825,625
Kohl's Corp. (a) 80,000 4,235,000
------------
9,060,625
------------
RESTAURANTS--(1.7%)
McDonald's Corporation 70,000 3,381,875
------------
RUBBER, PLASTIC & RELATED--(2.6%)
Illinois Tool Works Inc. 100,000 4,993,750
------------
TECHNOLOGY SERVICES--(4.4%)
Tellabs Inc. (a) 90,000 5,028,750
Thermo Electron Corp. (a) 105,000 3,570,000
------------
8,598,750
------------
TELECOMMUNICATIONS--(12.2%)
LM Ericcson Telecommunications
ADRs Class B 150,000 5,906,250
Lucent Technologies Inc. 55,000 3,963,438
Motorola, Inc. 90,000 6,840,000
Nokia Corporation ADRs Class A 50,000 3,687,500
WorldCom Inc. (a) 110,000 3,520,000
------------
23,917,188
------------
TOTAL COMMON STOCKS
(Cost $100,201,164) 188,681,274
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
---------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS--(5.9%)
Associates Corp. of North America
6.200% 7/01/97 $8,570,000 $ 8,570,000
Louisiana Land & Exploration
5.820% 7/01/97 3,000,000 3,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $11,570,000) 11,570,000
------------
TOTAL INVESTMENTS--(102%)
(Cost $111,771,164) (b) 200,251,274
OTHER ASSETS, LESS LIABILITIES--(-2%) (4,083,789)
------------
NET ASSETS (100%) $196,167,485
============
</TABLE>
(a) Non-income producing security.
(b) The cost of investments for federal income tax purposes is
$111,772,404. Gross unrealized appreciation and depreciation at June 30, 1997,
is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation: $89,125,263
Gross unrealized depreciation: (646,393)
-----------
Net unrealized appreciation: $88,478,870
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SteinRoe Variable Investment Trust Managed Growth Stock Fund /
June 30, 1997 (Unaudited)
- - ------------------------------------------------------------------------------
ASSETS:
<S> <C>
Investments, at market value (identified cost
$111,771,164).......................................... $200,251,274
Cash................................................... 53,657
Receivable for investments sold........................ 814,728
Receivable for fund shares sold........................ 111,044
Dividends receivable................................... 166,700
Other assets........................................... 14,752
------------
TOTAL ASSETS......................................... 201,412,155
------------
LIABILITIES:
Payable for investments purchased...................... 4,821,035
Payable for fund shares repurchased.................... 299,647
Management fee payable................................. 64,641
Administrative fee payable............................. 19,409
Accrued expenses payable............................... 38,720
Other liabilities...................................... 1,218
------------
TOTAL LIABILITIES.................................... 5,244,670
------------
NET ASSETS............................................. $196,167,485
============
NET ASSETS REPRESENTED BY:
Paid-in capital...................................... $105,092,952
Accumulated undistributed net investment income...... 339,549
Accumulated net realized gains on investments........ 2,254,613
Net unrealized appreciation on investments and
foreign currencies................................... 88,480,371
------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF
BENEFICIAL INTEREST.................................... $196,167,485
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING.............. 6,005,671
============
NET ASSET VALUE PER SHARE.............................. $32.66
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
<S> <C>
Dividends (net of foreign taxes withheld)........................ $749,994
Interest income.................................................. 239,100
-----------
Total investment income.......................................... 989,094
-----------
EXPENSES:
Management fee................................................... 441,492
Administrative fee............................................... 132,448
Accounting fee................................................... 14,380
Custodian fee.................................................... 9,955
Audit and legal fees............................................. 8,145
Trustees' fees................................................... 6,774
Printing expense................................................. 5,430
Transfer agent fee............................................... 3,620
SEC & State registration fees.................................... 1,810
Miscellaneous expense............................................ 4,185
-----------
Total expenses................................................ 628,239
-----------
Net investment income.............................................. 360,855
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments................................ 2,278,824
Change in unrealized appreciation or depreciation of investments. 29,219,646
-----------
Net increase in net assets resulting from operations............... $31,859,325
===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Variable Investment Trust Managed Growth Stock Fund
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
-------------- ------------
OPERATIONS:
<S> <C> <C>
Net investment income......................................................... $ 360,855 $ 728,925
Net realized gains on investments............................................. 2,278,824 7,580,182
Change in unrealized appreciation or depreciation of investments.............. 29,219,646 20,202,757
----------- ------------
Net increase in net assets resulting from operations.......................... 31,859,325 28,511,864
----------- ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income......................................................... (710,000) --
Net realized gains on investments............................................. (7,500,000) --
----------- ------------
Total distributions.......................................................... (8,210,000) --
----------- ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold................................................ 18,414,418 22,263,141
Cost of fund shares repurchased.............................................. (15,985,232) (25,729,831)
Distributions reinvested...................................................... 8,210,000 --
----------- ------------
Net increase (decrease) in net assets resulting from fund share transactions... 10,639,186 (3,466,690)
----------- ------------
Total increase in net assets................................................... 34,288,511 25,045,174
NET ASSETS:
Beginning of period........................................................... 161,878,974 136,833,810
------------ ------------
End of period................................................................. $196,167,485 $161,878,984
============ ============
Accumulated undistributed net investment income
included in ending net assets................................................. $ 339,549 $ 688,694
=========== ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold................................................................... 611,998 854,357
Shares repurchased............................................................ (539,013) (997,588)
Distributions reinvested...................................................... 274,215 --
----------- ------------
Net increase (decrease)........................................................ 347,200 (143,231)
=========== ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Variable Investment Trust Managed Growth Stock Fund
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1997 YEAR ENDED DECEMBER 31,
---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
-------- -------- ------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 28.61 $ 23.59 $ 18.11 $ 20.65 $ 20.10 $ 19.47
-------- -------- -------- ------- -------- -------
Net investment income................................ 0.06 0.13 0.15 0.15 0.13 0.11
Net realized and unrealized gains (losses)
on investments...................................... 5.41 4.89 6.68 (1.46) 0.86 1.18
-------- -------- -------- ------- -------- -------
Total from investment operations..................... 5.47 5.02 6.83 (1.31) 0.99 1.29
-------- -------- -------- ------- -------- -------
Less distributions:
Dividends from and in excess of net
investment income.................................. (0.12) -- (0.15) (0.17) (0.12) (0.10)
Distributions from and in excess of net
realized gains on investments...................... (1.30) -- (1.20) (1.06) (0.32) (0.56)
-------- -------- -------- ------- -------- -------
Total distributions.................................. (1.42) -- (1.35) (1.23) (0.44) (0.66)
-------- -------- -------- ------- -------- -------
Net asset value, end of period....................... $ 32.66 $ 28.61 $ 23.59 $ 18.11 $ 20.65 $ 20.10
======== ======== ======== ======= ======== =======
TOTAL RETURN:
Total investment return.............................. 19.57% 21.28% 37.73% (6.35)% 4.97% 6.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).................... $196,167 $161,879 $136,834 $98,733 $111,561 $64,402
Ratio of expenses to average net assets.............. 0.70%(a) 0.73% 0.74% 0.77% 0.83% 0.97%
Ratio of net investment income to average
net assets.......................................... 0.41%(a) 0.49% 0.72% 0.75% 0.77% 0.63%
Portfolio turnover ratio............................. 11% 35% 41% 72% 77% 20%
Average commissions (per share)...................... $ 0.0590 $ 0.0534 -- -- -- --
</TABLE>
(a) Annualized.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SteinRoe Variable Investment Trust Managed Asset Fund /
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCKS--(56.7%)
AUTOMOTIVE--(0.7%)
Honda Motor Company, Ltd. ADRs 35,000 $2,106,562
----------
BANKS--(5.2%)
BankAmerica Corporation 56,000 3,615,500
Bank One Corporation 58,295 2,823,664
Citicorp 26,000 3,134,625
Royal Bank of Scotland Group Plc 297,263 2,780,656
Wells Fargo & Company 6,000 1,617,000
Westpac Banking Corporation Ltd. 415,000 2,477,937
----------
16,449,382
----------
BUILDING AND CONSTRUCTION--(0.5%)
Fluor Corporation 30,000 1,655,625
----------
CHEMICALS--(1.0%)
Praxair, Inc. 55,000 3,080,000
----------
COMPUTERS--(0.7%)
International Business Machines 26,000 2,344,875
----------
COMPUTER SOFTWARE AND SERVICES--(1.0%)
Electronic Data Systems Corporation 40,000 1,640,000
Fujitsu Ltd. 110,000 1,528,445
----------
3,168,445
----------
DATA PRODUCTS & REPRODUCTION--(1.0%)
Canon, Inc. 120,000 3,271,869
----------
DRUGS/HEALTH CARE--(6.3%)
American Home Products Corp. 38,000 2,907,000
Elan Corporation Plc ADRs (a) 70,000 3,167,500
Eli Lilly & Company 35,000 3,825,938
Novartis ADRs 50,000 4,002,465
SmithKline Beecham Plc ADRs 41,000 3,756,625
United Healthcare Corporation 42,000 2,184,000
----------
19,843,528
----------
ELECTRICAL EQUIPMENT--(3.7%)
Emerson Electric Co. 62,000 3,413,875
General Electric Company 50,000 3,268,750
Hubbell Inc., Class B 80,000 3,520,000
Siemens AG 25,000 1,498,565
----------
11,701,190
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------- -----------
<S> <C> <C>
ELECTRONICS--(4.6%)
Analog Devices, Inc. 75,000 $ 1,992,187
Harris Corp. 35,000 2,940,000
Intel Corporation 21,000 2,978,062
Motorola, Inc. 53,000 4,028,000
Sony Corporation Sponsored ADRs 29,000 2,552,000
-----------
14,490,249
-----------
ENVIRONMENTAL SERVICES--(0.5%)
WMX Technologies Inc. 50,000 1,606,250
-----------
FABRICATED METAL PRODUCTS--(1.0%)
Crown Cork & Seal, Inc. 59,000 3,152,813
-----------
FERTILIZERS--(0.8%)
Potash Corp. of Saskatchewan Inc. 36,000 2,702,250
-----------
FINANCIAL SERVICES--(0.9%)
Federal National Mortgage Association 67,000 2,922,875
-----------
FOOD/BEVERAGE/TOBACCO--(2.7%)
PepsiCo, Inc. 70,000 2,629,375
Philip Morris Companies, Inc. 75,000 3,328,125
Sara Lee Corporation 60,000 2,497,500
-----------
8,455,000
-----------
HOLDING--(0.8%)
Swire Pacific Ltd. Class A (a) 300,000 2,700,976
-----------
HOTELS--(0.7%)
HFS Inc. (a) 41,000 2,378,000
-----------
HOUSEWARES--(1.1%)
Newell Co. 85,000 3,368,125
-----------
INSURANCE--(1.2%)
American States Financial Corporation 85,000 3,910,000
-----------
MEDICAL SUPPLIES--(1.1%)
Baxter International Inc. 68,000 3,553,000
-----------
MULTI-INDUSTRY--(0.8%)
Honeywell, Inc. 32,000 2,428,000
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) SHARES VALUE
------- -----------
<S> <C> <C>
OIL/GAS--(6.7%)
Baker Hughes Inc. 75,000 $ 2,901,563
ELF Aquitaine Sponsored ADRs 40,000 2,177,500
El Paso Natural Gas Company 45,800 2,519,000
Enron Corp. 50,000 2,040,625
Mobil Corporation 44,000 3,074,500
Santa Fe International Corporation (a) 45,400 1,543,600
Schlumberger Ltd. 14,000 1,750,000
Tosco Corporation 90,000 2,694,375
United Meridian Corporation (a) 78,000 2,340,000
------------
21,041,163
------------
PAPER & FOREST PRODUCTS--(1.0%)
Plum Creek Timber Company 94,000 3,019,750
------------
PUBLISHING & BROADCASTING--(0.7%)
World Color Press, Inc. (a) 90,000 2,137,500
------------
REAL ESTATE--(2.8%)
Avalon Properties, Inc. 76,000 2,175,500
Reckson Associates Realty
Corporation 103,800 2,387,400
The Rouse Company 70,587 2,082,317
Security Capital Industrial Trust 100,000 2,150,000
------------
8,795,217
------------
RETAIL--(3.0%)
Home Depot, Inc. 50,000 3,446,875
Jusco Co. 80,000 2,705,584
Wal-Mart Stores, Inc. 100,000 3,381,250
------------
9,533,709
------------
TELECOMMUNICATIONS--(3.7%)
Airtouch Communications, Inc. (a) 90,000 2,463,750
GTE Corporation 62,000 2,720,250
LM Ericsson Telecommunications Co.
ADRs Class B 90,000 3,543,750
Telefonica de Argentina S.A. ADRs 85,000 2,943,125
------------
11,670,875
------------
TRANSPORTATION--(1.0%)
Canadian National Railway 70,000 3,062,500
------------
UTILITIES--(0.8%)
Empresa Nacional De Electricidad
ADRs 30,000 2,551,875
------------
WATER TREATMENT SYSTEMS--(0.7%)
U.S. Filter Corporation (a) 75,000 2,043,750
------------
</TABLE>
TOTAL COMMON STOCKS
(Cost $129,105,675) 179,145,353
------------
<PAGE>
<TABLE>
<CAPTION>
MARKET
PAR VALUE
---------- ----------
<S> <C> <C>
LONG-TERM OBLIGATIONS--(40.1%)
AIR TRANSPORTATION--(0.8%)
Federal Express Corporation 1994
Pass-Through Certificates Series
A310-A1 7.530% 9/23/06 $1,906,583 $1,920,272
United Airlines Corporation Series
1991-A-1 9.200% 3/22/08 669,937 736,079
----------
2,656,351
----------
ASSET-BACKED SECURITIES--(1.5%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 1,989,855 2,024,657
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 2,130,207 1,998,241
Greentree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 866,513 865,880
----------
4,888,778
----------
BANKS--(2.1%)
Den Danske Bank 6.550% 9/15/03 2,250,000 2,190,893
Deutsche Ausbank 7.000% 9/24/01 2,250,000 2,287,463
First Chicago NBD 6.125% 2/15/06 2,250,000 2,100,015
----------
6,578,371
----------
CONSTRUCTION & HOUSING (0.8%)
Hanson Overseas 6.750% 9/15/05 2,500,000 2,436,800
----------
DRUGS/HEALTHCARE--(1.8%)
Glaxo Wellcome Plc 6.125% 1/25/06 2,500,000 2,368,800
Nationwide Health Property Inc.
Conv. Deb. 6.250% 1/01/99 3,400,000 3,463,750
----------
5,832,550
----------
EXTRACTIVE-ENERGY--(0.9%)
BOC Group Plc 5.875% 1/29/01 2,750,000 2,678,390
----------
FOREIGN GOVERNMENT REGIONAL BOND--(0.9%)
Corporacion Andina de Fomento
6.625% 10/14/98 (c) 2,900,000 2,913,224
----------
FINANCIAL--(1.3%)
Associates Corporation of North America
7.500% 4/15/02 4,000,000 4,110,400
----------
INSURANCE (0.8%)
Prudential Insurance Co.
7.650% 7/1/07 (c) 2,500,000 2,537,500
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
---------- -----------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES--(0.1%)
Lennar Central Partners Limited
Partnership Series 1994-1 Class C
8.120% 9/15/02 (c) $ 155 $ 155
MDC Mortgage Funding Corporation
Series Q Class 5 8.850% 3/20/18 207,846 211,442
-----------
211,597
-----------
OIL/GAS--(0.5%)
SFP Pipeline Holdings, Inc. Conv. Deb.
11.160% 8/15/10 1,400,000 1,722,000
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--(28.6%)
Federal Home Loan Mortgage
Corporation
6.500% 12/01/10 Gold 951,646 935,858
6.500% 5/01/11 Gold 867,247 852,859
6.500% 6/01/11 Gold 5,651,717 5,557,955
12.000% 7/01/20 Gold 1,383,790 1,577,950
6.500% 3/01/26 Gold 3,847,896 3,695,981
6.500% 6/01/26 Gold 2,442,088 2,345,674
6.500% 2/01/27 Gold 989,262 948,148
6.500% 3/01/27 Gold 2,968,497 2,845,126
6.500% 4/01/27 Gold 989,265 948,151
Federal National Mortgage Association
8.000% 4/13/05 1,500,000 1,518,150
Government National Mortgage
Association
7.125% 7/20/25 ARM 1,153,413 1,183,425
8.000% 3/15/26 4,760,651 4,876,716
U.S. Treasury Bonds
7.875% 8/15/01 1,500,000 1,581,195
7.250% 5/15/16 7,000,000 7,301,140
7.875% 2/15/21 4,500,000 5,017,860
7.125% 2/15/23 4,500,000 4,635,270
U.S. Treasury Notes
6.375% 1/15/99 7,500,000 7,544,850
6.875% 8/31/99 5,500,000 5,582,720
6.750% 4/30/00 3,500,000 3,546,900
6.250% 2/15/03 6,500,000 6,447,805
5.750% 8/15/03 6,000,000 5,792,820
7.500% 2/15/05 3,500,000 3,703,175
6.500% 5/15/05 3,500,000 3,494,085
6.500% 8/15/05 6,750,000 6,732,406
6.875% 5/15/06 1,500,000 1,531,155
-----------
90,197,374
-----------
TOTAL LONG-TERM OBLIGATIONS
(Cost $126,261,515) 126,763,335
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
PAR VALUE
------------ -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS--(2.6%)
Associates Corp of N.A. 6.200% 7/01/97
(Cost $8,255,000) $ 8,255,000 $ 8,255,000
------------
TOTAL INVESTMENTS (99.4%)
(Cost $263,622,190) (b) 138,738,711 314,163,688
OTHER ASSETS, LESS LIABILITIES--(0.6%) 1,752,986
------------
NET ASSETS (100%) $315,916,583
============
(a) Non-income producing security.
(b)The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation at June 30, 1997 is as follows:
Gross unrealized appreciation: $ 53,523,558
Gross unrealized depreciation: (2,982,059)
------------
Net unrealized appreciation: $ 50,541,498
============
</TABLE>
(c)Restricted securities. These securities generally are issued to
institutional investors, such as the Fund, who agree that they are purchasing
the securities for investment and not with a view to public distribution. Any
resale by the Fund must be in an exempt transaction, normally to other
institutional investors. At June 30, 1997, the aggregate value of the Fund's
restricted securities was $5,403,811, which represented 1.7% of net assets. None
of these are deemed to be illiquid securities.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SteinRoe Variable Investment Trust Managed Assets Fund /
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at market value (identified cost $263,622,190)................................. $314,163,688
Cash........................................................................................ 53,492
Receivable for fund shares sold............................................................. 175,832
Dividends and interest receivable........................................................... 2,716,512
Other assets................................................................................ 29,910
------------
TOTAL ASSETS.............................................................................. 317,139,434
------------
LIABILITIES:
Payable for investments purchased........................................................... 532,423
Payable for fund shares repurchased......................................................... 508,805
Management fee payable...................................................................... 109,634
Administrative fee payable.................................................................. 36,582
Accrued expenses payable.................................................................... 34,525
Other liabilities........................................................................... 882
------------
TOTAL LIABILITIES......................................................................... 1,222,851
------------
NET ASSETS.................................................................................. $315,916,583
============
NET ASSETS REPRESENTED BY:
Paid-in capital........................................................................... $248,754,862
Accumulated undistributed net investment income........................................... 5,159,288
Accumulated net realized gains on investments............................................. 11,460,844
Net unrealized appreciation on investments and foreign currencies......................... 50,541,589
-------------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST.................... $315,916,583
=============
SHARES OF BENEFICIAL INTEREST OUTSTANDING................................................... 20,114,040
=============
NET ASSET VALUE PER SHARE................................................................... $15.71
======
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest income.............................................................................. $ 4,521,783
Dividends (net of foreign taxes withheld).................................................... 1,536,074
-----------
Total investment income................................................................... 6,057,857
-----------
EXPENSES:
Management fee............................................................................... 678,475
Administrative fee........................................................................... 226,158
Custodian fee................................................................................ 21,385
Accounting fee............................................................................... 15,660
Audit and legal fees......................................................................... 14,480
Trustees' fees............................................................................... 10,664
Printing expense............................................................................. 9,955
Transfer agent fee........................................................................... 3,620
Miscellaneous expense........................................................................ 14,736
-----------
Total expenses............................................................................... 995,133
-----------
Net investment income.......................................................................... 5,062,724
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investments and foreign currency....................................... 11,720,095
Change in unrealized appreciation or depreciation of investments............................. 10,097,435
-----------
Net increase in net assets resulting from operations........................................... $26,880,254
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Variable Investment Trust Managed Assets Fund
- ------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $ 5,062,724 $ 10,512,405
Net realized gains on investments and foreign currency....................... 11,720,095 25,179,094
Change in unrealized appreciation or depreciation of investments............. 10,097,435 5,972,813
------------ ------------
Net increase in net assets resulting from operations......................... 26,880,254 41,664,312
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income........................................................ (10,262,000) --
Net realized gains on investments............................................ (25,340,000) --
------------ ------------
Total distributions.......................................................... (35,602,000) --
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold............................................... 15,002,875 23,322,625
Cost of fund shares repurchased.............................................. (25,150,766) (42,816,350)
Distributions reinvested..................................................... 35,602,000 --
------------ ------------
Net increase (decrease) in net assets resulting from fund share transactions.. 25,454,109 (19,493,725)
------------ ------------
Total increase in net assets.................................................. 16,732,363 22,170,587
NET ASSETS:
Beginning of period.......................................................... 299,184,220 277,013,633
------------ ------------
End of period................................................................ $315,916,583 $299,184,220
============ ============
Accumulated undistributed net investment income
included in ending net assets................................................ $ 5,159,288 $ 10,358,564
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold.................................................................. 976,510 1,550,496
Shares repurchased........................................................... (1,629,641) (2,845,909)
Distributions reinvested..................................................... 2,387,735 --
------------ ------------
Net increase (decrease)....................................................... 1,734,604 (1,295,413)
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Variable Investment Trust Managed Assets Fund
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ---------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................ $ 16.28 $ 14.08 $ 12.18 $ 13.11 $ 12.54 $ 12.54
-------- -------- -------- -------- -------- --------
Net investment income........................................... 0.27 0.57 0.48 0.51 0.38 0.45
Net realized and unrealized gains (losses)
on investments................................................. 1.12 1.63 2.61 (0.93) 0.78 0.49
-------- -------- -------- -------- -------- --------
Total from investment operations................................ 1.39 2.20 3.09 (0.42) 1.16 0.94
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from and in excess of
net investment income......................................... (0.56) -- (0.48) (0.51) (0.36) (0.46)
Distributions from and in excess of net
realized gains on investments................................. (1.40) -- (0.71) -- (0.23) (0.48)
-------- -------- -------- -------- -------- --------
Total distributions............................................. (1.96) -- (1.19) (0.51) (0.59) (0.94)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.................................. $ 15.71 $ 16.28 $ 14.08 $ 12.18 $ 13.11 $ 12.54
======== ======== ======== ======== ======== ========
TOTAL RETURN:
Total investment return......................................... 9.17% 15.63% 25.43% (3.19)% 9.29% 7.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)............................... $315,917 $299,184 $277,014 $196,278 $197,132 $113,572
Ratio of expenses to average net assets......................... 0.66%(a) 0.67% 0.66% 0.68% 0.69% 0.66%
Ratio of net investment income to
average net assets............................................. 3.37%(a) 3.68% 3.12% 4.01% 3.55% 3.98%
Portfolio turnover ratio (b).................................... 19% 76% 66% 71% 47% 70%
Average Commissions (per share)................................. $ 0.0567 $ 0.0547 -- -- -- --
</TABLE>
(a) Annualized.
(b) The portfolio turnover ratio includes dollar roll transactions.
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SteinRoe Variable Investment Trust Mortgage Securities Income Fund /
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
PAR VALUE
---------- ----------
<S> <C> <C>
ASSET-BACKED SECURITIES--(9.6%)
ALPS Pass-Through Trust Series 1994-1
Class C2 9.350% 9/15/04 $ 994,927 $1,012,329
ContiMortgage Home Equity Loan
Trust Series 1997-1 Class M1
7.420% 2/15/15 1,250,000 1,257,763
First Boston Home Equity Loan Pass-
Through Certificates Series 1993-H1,
Class A-IO (effective yield 12.820%)
9/28/13 5,675,304 220,032
Greentree Home Improvement Loan
Trust Series 1994-A Class A
7.050% 3/15/14 649,884 649,410
Green Tree Financial Corporation
Series 1996-9 Class B1
7.650% 1/15/28 1,350,000 1,372,802
IMC Home Equity Loan Trust Series
1997-3 Class M2 7.550% 5/20/10 1,000,000 999,220
Mego Mortgage Title I Loan Trust
Series 1997-3 Class M1
7.500% 8/25/23 1,500,000 1,491,000
----------
TOTAL ASSET-BACKED SECURITIES
(Cost $6,955,436) 7,002,556
----------
MORTGAGE-BACKED SECURITIES--(11.3%)
American Mortgage Trust Series 1993-3
Class 3B 8.190% 9/27/22 804,745 754,891
Citicorp Mortgage Securities, Inc.
Series 1987-10 10.000% 7/01/17 158,603 172,779
Comfed Savings Bank Adjustable Rate
Mortgage Series 1987-1A
7.598% 1/01/18 155,738 132,378
Glendale Federal Savings & Loan
Series 1978-A 9.125% 1/25/08 28,530 29,614
Imperial Savings & Loan Adjustable
Rate Mortgage Series 1987-4A
8.826% 7/25/17 27,873 29,802
Kidder Peabody Acceptance Corp
Series 1987-1 Class A
8.750% 7/25/17 39,778 41,581
Merrill Lynch Mortgage Investments Inc.
8.000% 12/20/18 Series 20-D 1,417,325 1,427,884
7.088% 12/26/25 Series 1995-C3
Class A3 ARM 2,000,000 1,999,520
5.890% 11/15/26 Series 1987-A ARM 95,963 94,849
Nomura Asset Securities Corporation
MBS Series 1996-MD5 Class A1B
7.120% 4/13/36 1,000,000 1,006,340
PS CMO Trust Series 1994-C1-A2
7.920% 8/15/02 722,486 737,340
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
PAR VALUE
----------- ----------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
Republic Federal Savings & Loan
Association Series 1987-1
7.500% 2/28/17 $ 7,591 $ 7,451
Sears Mortgage Securities Corp.
Series 1987-A 6.500% 3/25/17 19,313 18,717
Structured Asset Securities Corporation
Series 1996-CFL Class X1-IO
(effective yield 12.960%) 2/25/28 11,721,217 605,752
Series 1996-CFL Class C
6.525% 2/25/28 1,242,500 1,219,688
----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $8,290,396) 8,278,586
----------
UTILITY SECURITIES--(2.0%)
National Power Co. Plc 7.125% 7/11/01
(Cost $1,497,945) 1,500,000 1,509,990
----------
INSURANCE COMPANIES--(2.0%)
Zurich Capital Trust I 8.376% 6/01/37
(Cost $1,450,000) 1,450,000 1,497,792
----------
FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES--(18.4%)
8.500% 5/01/06 Gold 137,617 142,348
6.500% 6/01/08 26,771 26,269
6.500% various due dates to
6/01/09 Gold 1,834,446 1,800,050
10.750% 11/01/09 238,770 258,617
12.000% 7/01/13 79,116 89,896
11.250% various due dates to 11/01/15 73,143 81,600
10.500% various due dates to 2/01/19 420,143 459,401
12.000% 7/01/20 Gold 996,329 1,136,124
7.500% various due dates to
5/01/24 Gold 7,326,915 7,394,846
7.000% 1/01/26 2,140,534 2,102,797
----------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION CERTIFICATES
(Cost $13,316,042) 13,491,948
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES--(31.5%)
10.500% 2/01/01 103,891 109,669
12.250% 9/01/12 FHA/VA
Guaranteed 84,258 96,476
10.250% 2/01/16 159,811 175,419
10.000% various due dates to 3/01/16 353,045 382,053
8.500% 3/01/17 178,462 186,828
9.000% various due dates to 5/01/20 258,566 274,802
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MARKET
(CONTINUED) PAR VALUE
----------- -----------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES (CONTINUED)
6.000% various due dates to 2/01/25 $12,941,138 $12,402,016
7.000% various due dates to 8/01/25 5,469,527 5,446,263
6.500% various due dates to 1/01/26 4,193,937 4,013,044
-----------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
(Cost $23,034,432) 23,086,570
-----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES--(16.0%)
8.000% various due dates to 7/15/08 1,834,190 1,897,818
11.500% various due dates to 5/15/13 506,396 574,284
8.500% 2/15/17 210,658 222,640
10.000% various due dates to 11/15/19 696,886 764,177
9.000% various due dates to 1/15/20 1,993,840 2,139,447
9.500% various due dates to 8/15/22 2,201,297 2,385,807
7.000% 4/15/23 523,563 517,019
6.500% various due dates to 7/15/24 881,438 848,657
7.125% 7/20/25 ARM 2,306,826 2,366,850
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION CERTIFICATES
(Cost $11,607,515) 11,716,699
-----------
REAL ESTATE MORTGAGE INVESTMENT
CONDUITS--(1.9%)
Federal Home Loan Mortgage
Corporation Series 11-C
9.500% 4/15/19 76,253 78,831
Federal National Mortgage Association
Trust Series 1988-4Z
9.250% 3/25/18 1,218,000 1,261,056
Federal National Mortgage Association
Trust Series 1991-91SA-IO
(effective yield 14.400%) 7/25/98 884,809 35,082
-----------
TOTAL REAL ESTATE MORTGAGE
INVESTMENT CONDUITS
(Cost $1,401,384) 1,374,969
-----------
MARKET
PAR VALUE
----------- -----------
U.S. GOVERNMENT SECURITIES--(3.3%)
U.S. Treasury Bonds
6.500% 8/15/05 350,000 349,083
6.750% 8/15/26 800,000 791,872
U.S. Treasury Note 7.000% 7/15/06 750,000 771,743
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $1,931,695) 1,912,698
-----------
SHORT-TERM INVESTMENTS--(5.3%)
Associate Corp. of N.A. 6.200% 7/01/97 2,865,000 2,865,000
Houston P&L 5.830% 7/01/97 1,000,000 1,000,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $3,865,000) 3,865,000
-----------
TOTAL INVESTMENTS--(101.3%)
(Cost $73,349,845) 73,736,870
OTHER ASSETS, LESS LIABILITIES--(-1.3%) (450,896)
-----------
NET ASSETS (100%) $73,285,974
===========
</TABLE>
(a) The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation at June 30, 1997 is as follows:
Gross unrealized appreciation: $879,535
Gross unrealized depreciation: (492,510)
----------
Net unrealized appreciation: $387,025
==========
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SteinRoe Variable Investment Trust Mortgage Securities Income Fund /
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at market value (identified cost $73,349,845)...................... $73,736,870
Cash ........................................................................... 585,144
Receivable for fund shares sold................................................. 24,592
Interest receivable............................................................. 634,914
Other assets.................................................................... 30,036
-----------
TOTAL ASSETS.................................................................. 75,011,556
-----------
LIABILITIES:
Payable for investments purchased............................................... 1,505,156
Payable for fund shares repurchased............................................. 128,426
Management fee payable.......................................................... 42,622
Administrative fee payable...................................................... 8,407
Accrued expenses payable........................................................ 40,971
-----------
TOTAL LIABILITIES............................................................. 1,725,582
-----------
NET ASSETS...................................................................... $73,285,974
===========
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................... $73,789,981
Accumulated undistributed net investment income............................... 2,184,352
Accumulated net realized losses on investments................................ (3,075,384)
Net unrealized appreciation on investments..................................... 387,025
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST........ $73,285,974
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING....................................... 7,203,656
===========
NET ASSET VALUE PER SHARE....................................................... $10.17
======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Period Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME.............................................................. $2,739,792
----------
EXPENSES:
Management fee............................................................. 146,530
Administrative fee......................................................... 54,949
Custodian fee.............................................................. 15,385
Audit and legal fees....................................................... 13,575
Accounting fee............................................................. 12,806
Trustees' fees............................................................. 4,175
Transfer agent fee......................................................... 3,620
Printing expense........................................................... 3,620
Miscellaneous expense...................................................... 1,768
----------
Total expenses........................................................... 256,428
----------
Net investment income........................................................ 2,483,364
REALIZED AND UNREALIZED LOSSES ON INVESTMENTS:
Net realized losses on investments......................................... (33,639)
Change in unrealized appreciation or depreciation of investments........... (3,712)
----------
Net increase in net assets resulting from operations......................... $2,446,013
==========
</TABLE>
See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Variable Investment Trust Mortgage Securities Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income................................................. $ 2,483,364 $ 5,616,747
Net realized losses on investments.................................... (33,639) (196,495)
Change in unrealized appreciation or depreciation of investments...... (3,712) (1,957,496)
----------- ------------
Net increase in net assets resulting from operations.................. 2,446,013 3,462,756
----------- ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income................................................. -- (5,616,747)
Distributions in excess of net investment income...................... -- (83,288)
----------- ------------
Total distributions................................................... -- (5,700,035)
----------- ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold........................................ 2,883,692 4,581,249
Cost of fund shares repurchased....................................... (8,052,882) (33,813,119)
Distributions reinvested.............................................. -- 5,700,035
----------- ------------
Net decrease in net assets resulting from fund share transactions........ (5,169,190) (23,531,835)
----------- ------------
Total decrease in net assets............................................. (2,723,177) (25,769,114)
NET ASSETS:
Beginning of period................................................... 76,009,151 101,778,266
----------- ------------
End of period......................................................... $73,285,974 $ 76,009,152
=========== ============
Accumulated undistributed (overdistributed) net investment income
included in ending net assets......................................... $ 2,184,352 $ (299,012)
=========== ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold........................................................... 289,247 447,078
Shares redeemed....................................................... (809,682) (3,321,354)
Distributions reinvested.............................................. -- 579,272
----------- ------------
Net decrease............................................................. (520,435) (2,295,004)
=========== ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Variable Investment Trust Mortgage Securities Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31,
JUNE 30, 1997 -------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 9.84 $ 10.16 $ 9.28 $ 10.17 $ 10.26 $ 10.42
------- ------- -------- ------- ------- -------
Net investment income........................ 0.35 0.78 0.57 0.73 0.65 0.63
Net realized and unrealized gains (losses)
on investments.............................. (0.02) (0.30) 0.89 (0.89) (0.01) (0.01)
------- ------- -------- ------- ------- -------
Total from investment operations............. 0.33 0.48 1.46 (0.16) 0.64 0.62
------- ------- -------- ------- ------- -------
Less distributions:
Dividends from and in excess of net
investment income.......................... -- (0.80) (0.58) (0.73) (0.65) (0.62)
Distributions from and in excess of net
realized gains on investments.............. -- -- -- -- (0.08) (0.16)
------- ------- -------- ------- ------- -------
Total distributions.......................... -- (0.80) (0.58) (0.73) (0.73) (0.78)
------- ------- -------- ------- ------- -------
Net asset value, end of period............... $ 10.17 $ 9.84 $ 10.16 $ 9.28 $ 10.17 $ 10.26
======= ======= ======== ======= ======= =======
TOTAL RETURN:
Total investment return...................... 3.35% 4.70% 15.74% (1.57)%(b) 6.26%(b) 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)............ $73,286 $76,009 $101,778 $72,420 $91,195 $67,353
Ratio of expenses to average net assets...... 0.70%(d) 0.70%(a) 0.69% 0.70%(a) 0.76%(a) 0.90%
Ratio of net investment income to average
net assets.................................. 6.78%(d) 6.71%(b) 6.76% 6.71%(b) 6.64%(b) 6.72%
Portfolio turnover ratio (c)................. 17% 72% 112% 241% 187% 169%
</TABLE>
(a) If the Fund had paid all of its expenses and there had been no reimbursement
from the Investment Adviser and the Administrator, as described in Note 5,
this ratio would have been 0.72%, 0.71%, and 0.76% for the years ended
December 31, 1996, 1994, and 1993, respectively.
(b) Computed giving effect to the Investment Adviser's and the Administrator's
expense limitation undertaking.
(c) The portfolio turnover ratio includes dollar roll transactions.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
SteinRoe Variable Investment Trust Cash Income Fund / June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
MARKET
PAR VALUE
--------- -----------
<S> <C> <C>
COMMERCIAL PAPER--(73.8%)
BANKING--(4.3%)
Sumitomo Bank Capital Markets Inc.
(gtd. by Sumitomo Bank Ltd.)
5.776% 7/15/97 (b) $3,000,000 $2,993,327
----------
BEVERAGES--(4.3%)
Coca-Cola Enterprises, Inc.
5.613% 7/08/97 3,025,000 3,021,706
----------
BUSINESS CREDIT INSTITUTION--(4.3%)
Finova Capital Corp. 5.642% 7/09/97 3,000,000 2,996,267
----------
CONSULTING SERVICES--(4.2%)
CSC Enterprises (gtd. by Computer
Services Corp.) 5.603% 7/16/97 3,000,000 2,993,025
----------
ELECTRONICS--(4.3%)
Casio Phonemate, Inc.
(L.O.C. BOT/Mitsubishi Bank Ltd.)
5.676% 7/09/97 (b) 3,000,000 2,996,233
----------
HEALTH CARE--(4.3%)
Columbia HCA Healthcare Corp.
5.739% 7/10/97 (b) 3,000,000 2,995,725
----------
LENDING INSTITUTIONS--(12.8%)
Oak Funding Corp.
5.627% 7/11/97 3,000,000 2,995,333
Old Line Funding Corp.
5.605% 7/08/97 (b) 3,000,000 2,996,745
Windmill Funding Corp.
5.578% 7/02/97 (b) 3,000,000 2,999,536
----------
8,991,614
----------
OTHER FINANCIAL--(31.1%)
Associates Corp. of North America
6.201% 7/01/97 1,730,000 1,730,000
Beta Finance Corp. 5.731% 8/07/97 3,000,000 2,982,579
Countrywide Home Loan (gtd. by
Countrywide Credit Industries)
5.592% 7/14/97 3,000,000 2,993,966
Falcon Asset Securitization
5.577% 7/17/97 (b) 2,225,000 2,219,512
McKenna Triangle National Corp.
5.558% 7/03/97 (b) 3,000,000 2,999,075
Thames Asset Global Securitization
5.636% 7/15/97 (b) 3,000,000 2,993,443
Tri-Lateral Capital USA
5.804% 9/11/97 (b) 3,000,000 2,965,680
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET
PAR VALUE
---------- -----------
<S> <C> <C>
OTHER FINANCIAL--(CONTINUED)
Working Capital Management
5.656% 7/01/97 (b) $3,000,000 $ 3,000,000
-----------
21,884,255
-----------
TELECOMMUNICATIONS--(4.3%)
GTE Corp. 5.600% 7/07/97 3,000,000 2,997,205
-----------
TOTAL COMMERCIAL PAPER
(Cost $51,869,357) 51,869,357
-----------
U.S. GOVERNMENT AGENCY OBLIGATION--(5.0%)
Federal Home Loan Bank Callable Note
5.750% 1/09/98
(Cost $3,500,000) 3,500,000 3,500,000
-----------
VARIABLE RATE NOTES--(8.5%)
American Honda Finance Corp.
(gtd. by Honda Motor Co. Inc.)
5.842% 4/06/98 (b) 3,000,000 2,999,558
Korea Development Bank
5.843% 6/16/98 3,000,000 3,000,000
-----------
TOTAL VARIABLE RATE NOTES
(Cost $5,999,558) 5,999,558
-----------
YANKEE CERTIFICATES OF DEPOSIT--(12.8%)
Canadian Imperial Bank
5.820% 3/03/98 3,000,000 3,000,000
Fuji Bank Chicago Ltd.
5.790% 7/18/97 3,000,000 3,000,014
Sanwa Bank Ltd. 6.008% 7/08/97 3,000,000 2,996,500
---------
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(Cost $8,996,514) 8,996,514
-----------
TOTAL INVESTMENTS--(100.1%)
(Cost $70,365,429) (a) 70,365,429
OTHER ASSETS, LESS LIABILITIES--(-0.1%) (92,934)
-----------
NET ASSETS (100%) $70,272,495
===========
</TABLE>
*The interest rate is the effective rate at the date of purchase.
(a) The cost of investments for federal income tax purposes is identical.
There is no unrealized appreciation or depreciation at June 30, 1997.
(b) Represents private placement securities exempt from registration by Section
4(2) of the Securities Act of 1933. These securities generally are issued to
investors who agree that they are purchasing the securities for investment
and not with a view to public distribution. Any resale by the Fund must be
in an exempt transaction, normally to other institutional investors. At June
30, 1997, the aggregate value of the Fund's private placement securities was
$32,158,833, which represented 45.8% of net assets. None of these are deemed
to be illiquid securities.
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SteinRoe Variable Investment Trust Cash Income Fund / June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at market value (identified cost $70,365,429)...................... $70,365,429
Cash ........................................................................... 54,775
Receivable for fund shares sold................................................. 168,774
Dividends and interest receivable............................................... 224,633
Other assets.................................................................... 18,367
-----------
TOTAL ASSETS................................................................ 70,831,978
-----------
LIABILITIES:
Payable for fund shares repurchased............................................. 493,895
Management fee payable.......................................................... 19,401
Administrative fee payable...................................................... 8,603
Accrued expenses payable........................................................ 36,729
-----------
TOTAL LIABILITIES........................................................... 559,483
-----------
NET ASSETS...................................................................... $70,272,495
===========
NET ASSETS REPRESENTED BY:
Paid-in capital............................................................... $70,272,495
-----------
TOTAL NET ASSETS APPLICABLE TO OUTSTANDING SHARES OF BENEFICIAL INTEREST........ $70,272,495
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING....................................... 70,272,495
===========
NET ASSET VALUE PER SHARE....................................................... $1.00
=====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME................................................................ $1,891,121
----------
EXPENSES:
Management fee............................................................... 117,275
Administrative fee........................................................... 50,261
Accounting fee............................................................... 12,520
Custodian fee................................................................ 10,860
Audit and legal fees......................................................... 9,050
Trustees' fees............................................................... 3,674
Transfer agent fee........................................................... 3,620
Printing expense............................................................. 2,715
Miscellaneous expense........................................................ 6,431
----------
Total expenses........................................................... 216,406
----------
Net investment income.......................................................... 1,674,715
----------
Net increase in net assets resulting from operations........................... $1,674,715
==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SteinRoe Variable Investment Trust Cash Income Fund
- -----------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
---------------- ------------
OPERATIONS:
<S> <C> <C>
Net investment income............................................... 1,674,715 $ 3,214,365
------------ ------------
Net increase in net assets resulting from operations................... 1,674,715 3,214,365
------------ ------------
DISTRIBUTIONS DECLARED FROM:
Net investment income............................................... (1,674,715) (3,214,365)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from fund shares sold...................................... 33,050,836 57,327,084
Cost of fund shares repurchased..................................... (29,914,448) (60,072,108)
Distributions reinvested............................................ 1,674,715 3,214,365
------------ ------------
Net increase in net assets resulting from fund share transactions...... 4,811,103 469,341
------------ ------------
Total increase (in net assets)......................................... 4,811,103 469,341
NET ASSETS:
Beginning of period................................................. 65,461,392 64,992,051
------------ ------------
End of period....................................................... $ 70,272,495 $ 65,461,392
============ ============
ANALYSIS OF CHANGES IN SHARES OF BENEFICIAL INTEREST:
Shares sold......................................................... 33,050,836 57,327,084
Shares repurchased.................................................. (29,914,448) (60,072,108)
Distributions reinvested............................................ 1,674,715 3,214,365
------------ ------------
Net increase........................................................... 4,811,103 469,341
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SteinRoe Variable Investment Trust Cash Income Fund
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ----------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income..................... 0.025 0.049 0.055 0.037 0.027 0.034
------- ------- ------- ------- ------- -------
Less distributions:
Distributions from net investment income. (0.025) (0.049) (0.055) (0.037) (0.027) (0.034)
------- ------- ------- ------- ------- -------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN:
Total investment return................... 2.49% 5.01% 5.62% 3.81% 2.70% 3.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $70,272 $65,461 $64,992 $78,698 $83,049 $70,821
Ratio of expenses to average net assets... 0.65%(a) 0.65% 0.63% 0.62% 0.65% 0.67%
Ratio of net investment income to
average net assets....................... 5.01%(a) 4.90% 5.48% 3.73% 2.68% 3.42%
</TABLE>
(a) Annualized.
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
SteinRoe Variable Investment Trust (the "Trust"), an open-end management
investment company, was organized as a Massachusetts business trust on June 9,
1987. At June 30, 1997, the Trust consisted of five diversified Funds with
differing investment objectives, policies and restrictions (individually
referred to as a "Fund," or collectively referred to as the "Funds"):
CAPITAL APPRECIATION FUND--seeks capital growth by investing in equity
securities.
MANAGED GROWTH STOCK FUND--seeks long-term growth of capital by investing 65
percent of total assets in growth companies.
MANAGED ASSETS FUND--seeks high total investment return by investing in equity
and debt securities.
MORTGAGE SECURITIES INCOME FUND--seeks highest possible level of current income
by investing at least 65 percent of total assets in mortgage pass-through
certificates.
CASH INCOME FUND--seeks high current income while emphasizing capital
preservation from investment in short-term money market instruments.
Shares of the Trust are available and are being marketed exclusively as a pooled
funding vehicle for variable annuity contracts ("VA contracts") and variable
life insurance policies ("VLI policies") of various affiliated insurance
companies and, in the case of Capital Appreciation Fund, also of Transamerica
Life Companies, Great-West Life & Annuity Insurance Company and Providian Life &
Health Insurance Company. Stein Roe and Farnham, Inc. (the "Adviser") provides
investment advisory services to the Funds as well as management and
administrative services. SteinRoe Services, Inc. provides transfer agent
services. Keyport Financial Services Corp., a subsidiary of Keyport Life
Insurance Company ("Keyport"), serves as the underwriter of the Trust. Keyport,
the Adviser and the Transfer Agent are direct subsidiaries of Liberty Financial
Companies, Inc. At June 30, 1997, various affiliated insurance companies of
Liberty Financial Companies Inc. owned 100 percent of the outstanding shares of
all Funds, except for Capital Appreciation Fund, of which Liberty Financial
Companies Inc. affiliates owned 93.3 percent, Transamerica Life Companies owned
2.7 percent, Great-West Life & Annuity Insurance Company owned 3.9 percent, and
Providian Life & Health Insurance Company owned 0.1 percent.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. 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.
<PAGE>
VALUATION OF INVESTMENTS--Portfolio securities listed on domestic exchanges and
over-the-counter securities quoted on the Nasdaq system are valued on the basis
of the last sale on the date as of which the valuation is made, or, lacking any
sales, at the current bid prices. Over-the-counter securities not quoted on the
Nasdaq system are valued at the latest bid quotation. Foreign security
valuations are generally based upon market quotations which, depending upon
local convention or regulation, may be last sale price, last bid or asked price,
or the mean between last bid and asked prices as of, in each case, the close of
the appropriate exchange or other designated time. Long-term debt securities are
valued on the basis of dealer-supplied quotations or valuations furnished by a
pricing service. Securities for which reliable quotations are not readily
available are valued at fair value, as determined in good faith and pursuant to
procedures established by the Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost unless the Trustees
determine this does not represent fair value. Cash Income Fund values
investments utilizing the amortized cost valuation technique permitted in
accordance with Rule 2a-7 under the Investment Company Act of 1940, which
requires the Fund to comply with certain conditions. This technique involves
valuing a portfolio security initially at its cost and, thereafter, assuming a
constant amortization to maturity of any discount or premium.
FEDERAL INCOME TAXES--The Funds now qualify and intend to continue
qualifying as "regulated investment companies" and as such (and by complying
with the applicable provisions of the Internal Revenue Code) will not be subject
to federal income tax on taxable income (including realized capital gains)
distributed to shareholders.
FOREIGN CURRENCY TRANSACTIONS--Certain of the Funds have entered into foreign
exchange contracts for the settlement of purchases and sales of securities
denominated in a foreign currency to reduce the risk to the Funds from adverse
changes in the relationship between the U.S. dollar and the foreign currency.
The face or contract amount in U.S. dollars reflects the total exposure the Fund
has in that particular currency contract. In the event that the counterparty in
the foreign exchange contract fails to meet the terms of the contract, the Fund
could be exposed to the effects of changes in the relationship between the U.S.
dollar and the foreign currency.
<PAGE>
INVESTMENT TRANSACTIONS--The Funds may purchase or sell securities on a when-
issued, delayed delivery or forward commitment basis. Payment and delivery may
take place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered and
paid for are fixed at the time the transaction is negotiated. Managed Assets
Fund and Mortgage Securities Income Fund also may enter into dollar roll
transactions. In a dollar roll transaction, the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase,
typically in 30 days to 60 days, substantially similar securities at an agreed-
upon price and date. These transactions may increase the risk if the other party
to the transaction fails to deliver and causes the Fund to subsequently invest
at less advantageous yields. The Funds identify securities as segregated in
their custodial records with a value at least equal to the amount of the
purchase commitment.
OTHER--Security transactions are accounted for on trade date. Interest income is
recorded on the accrual basis. Discounts on debt securities are amortized in
accordance with Internal Revenue Code requirements. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Net realized
and unrealized gains (losses) on foreign currency transactions include the
fluctuation in exchange rates on gains and losses between trade and settlement
dates on security transactions, gains and losses arising from the disposition of
foreign currency, and currency gains and losses between the accrual and payment
dates on dividend and interest income and foreign withholding taxes. The Funds
do not isolate that portion of the results of operations resulting from changes
in foreign exchange rates on investment from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included with
the net realized and unrealized gain or loss from investments. Unrealized
appreciation and depreciation and realized gains and losses differ between
financial statements and tax earnings due to deferred losses from wash sales.
NOTE 2. FUND SHARE TRANSACTIONS
Each Fund's capitalization consists of an unlimited number of shares of
beneficial interest without par value that represent a separate series of the
Trust. Each share of a Fund represents an equal proportionate beneficial
interest in that Fund and, when issued and outstanding, is fully paid and
nonassessable. Shareholders would be entitled to share proportionally in the net
assets of a Fund available for distribution to shareholders upon liquidation of
a Fund.
<PAGE>
NOTE 3. SECURITY TRANSACTIONS
Realized gains and losses are computed on the identified cost basis for both
financial reporting and federal income tax purposes. At December 31, 1996,
Mortgage Securities Income Fund had a capital loss carryforward of $3,041,745,
Cash Income Fund, were as follows:
<TABLE>
<CAPTION>
MORTGAGE
CAPITAL MANAGED MANAGED SECURITIES
APPRECIATION GROWTH ASSETS INCOME
FUND STOCK FUND FUND FUND
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of investments
purchased........... $67,635,846 $18,783,042 $68,324,869 $14,888,245
Proceeds from
investments sold.... 74,660,798 23,423,495 122,426,982 12,005,496
</TABLE>
NOTE 4. DISTRIBUTIONS TO SHAREHOLDERS
The Funds, with the exception of the Cash Income Fund, intend to distribute as
dividends or capital gains distributions, at least annually, substantially all
of their net investment income and net gains realized from the sale of portfolio
securities. All dividends and distributions are reinvested in additional shares
of the Funds. Cash Income Fund declares dividends daily and reinvests all
dividends declared monthly in additional shares at net asset value. Income and
capital gains distributions are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles
primarily relating to gains and losses on principal paydowns.
NOTE 5. MANAGEMENT AND ADMINISTRATIVE FEES
The Funds have advisory and administrative agreements with the Adviser. The
following investment advisory fee rates were in effect as of June 30, 1997:
ANNUAL RATE(S) AS A
PERCENT OF
FUND(S) AVERAGE DAILY NET ASSETS
------- -------------------------
Capital Appreciation Fund....................... .50 of 1%
Managed Growth Stock Fund....................... .50 of 1%
Managed Assets Fund............................. .45 of 1%
Mortgage Securities Income Fund................. .40 of 1%
Cash Income Fund................................ .35 of 1%
As of June 30, 1997, for all the Funds, the administrative fee was .15 of 1
percent of average annual net assets. Both the investment advisory fees and the
administrative fees are computed daily and paid monthly.
<PAGE>
The Adviser also provides the Funds with certain Fund accounting services. The
fee is $25,000 annually plus .0025 of 1 percent of assets in excess of $50
million. For the six months ended June 30, 1997, Capital Appreciation Fund,
Managed Growth Stock Fund, Managed Assets Fund, Mortgage Securities Income Fund
and Cash Income Fund incurred charges of $14,234, $14,380, $15,660, $12,806, and
$12,520, respectively.
The Funds pay SteinRoe Services, Inc. for transfer agent services rendered at an
annual rate of $7,500 computed on the basis of $625 per month.
The Adviser has agreed to reimburse all expenses, including management fees,
incurred by the Funds as follows:
FUND(S) EXPENSES EXCEEDING
------- -------------------------
Capital Appreciation Fund.......... .80 of 1% of average daily net assets
Managed Growth Stock Fund.......... .80 of 1% of average daily net assets
Managed Assets Fund................ .75 of 1% of average daily net assets
Mortgage Securities Income Fund.... .70 of 1% of average daily net assets
Cash Income Fund................... .65 of 1% of average daily net assets
The expense limitations expire April 30, 1998.
NOTE 6. INVESTMENT IN REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with banks, broker-dealer firms
and other recognized financial institutions, whereby such institutions sell an
instrument in which a Fund may invest to that Fund, and the seller agrees, at
the time of the sale, to repurchase that instrument at a specified time and
price. The Funds require the seller of the instrument to maintain on deposit
with the Funds' custodian bank or in the Federal Reserve Book-Entry System
securities in an amount at all times equal to or in excess of the value of the
repurchase agreement plus accrued interest. In the event the seller of the
instrument defaults on the repurchase obligation, a Fund could receive less than
the repurchase price on the sale of the securities to another party or could be
subject to delays in selling the securities.
<PAGE>
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, Illinois 60606
TRANSFER AGENT
SteinRoe Services, Inc.
One South Wacker Drive
Chicago, Illinois 60606
DISTRIBUTOR
Keyport Financial Services Corp.
125 High Street
Boston, Massachusetts 02110
CLIENT SERVICES
Keyport Life Insurance Company
125 High Street
Boston, Massachusetts 02110
800-367-3653 (Press 3)
CUSTODIAN
State Street Bank & Trust Company
P.O. Box 366
Boston, Massachusetts 02101
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
LEGAL COUNSEL
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
THE TRUSTEES
John A. Bacon Jr.
Richard R. Christensen
Salvatore Macera
Dr. Thomas E. Stitzel
This report is authorized for use as sales literature only when accompanied
by a current prospectus of the Trust and a current prospectus for a variable
insurance product offered by Keyport Life Insurance Company, Independence Life
Insurance Company, or Liberty Life Assurance Company of Boston.
12/96 NIM 30m
<PAGE>
- --------------------------------------------------------------------------------
THE STRONG
INTERNATIONAL
STOCK FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1997
[PIE CHART OF ASSET DIVERSIFICATION EMPHASIZING STOCKS]
[STRONG LOGO]
STRONG FUNDS
<PAGE>
- ------------------------------------------------------------------------------
THE STRONG
INTERNATIONAL
STOCK FUND II
SEMI-ANNUAL REPORT o JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT REVIEW
The Strong International Stock Fund II ...............................2
FINANCIAL INFORMATION
Schedule of Investments in Securities ................................4
Statement of Assets and Liabilities ..................................8
Statement of Operations ..............................................8
Statement of Changes in Net Assets ...................................9
Notes to Financial Statements .......................................10
FINANCIAL HIGHLIGHTS .....................................................12
</TABLE>
<PAGE>
THE STRONG INTERNATIONAL STOCK FUND II
Despite a rocky first quarter, the international markets finally delivered the
strong overall performance in the second quarter that we had been expecting for
quite a while.
The Strong International Stock Fund II pursues capital growth by investing
primarily in the stocks of companies based outside the United States. The Fund
provides access to growth opportunities worldwide that may offer greater return
potential than U.S. companies.
=================================
ASSET ALLOCATION
Based on net assets as of 6-30-97
[PIE CHART]
Stocks 85.5%
Short-Term Investments 14.5%
=================================
<TABLE>
<CAPTION>
================================================
FIVE LARGEST HOLDINGS BY COUNTRY
As of 6-30-97
<S> <C>
COUNTRY % OF NET ASSETS
- ------------------------------------------------
Japan 14.2%
................................................
Australia 6.7%
................................................
Singapore 4.6%
................................................
Italy 4.5%
................................................
United Kingdom 4.2%
................................................
</TABLE>
Please see the Schedule of Investments in
Securities for a complete listing of the Fund's
portfolio.
================================================
MARKETS RECOVER BROAD STRENGTH
Despite a rocky first quarter, the international markets finally delivered the
strong overall performance in the second quarter that we had been expecting for
quite a while. The scope of this turnaround is evidenced by the returns on the
Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE)
Index, which posted a negative return of 1.57% for the first quarter of the year
but gained 12.98% for the three months ended June 30, for a six-month gain of
11.21%. The International Stock Fund II posted a gain of 8.66% over the same
period.*(1)
The international rally has been patchy, however, with its strength coming
mainly from Europe, Latin America and the emerging markets in general. At the
end of the period, our Fund's largest country exposures in Europe were in the
United Kingdom, Italy, Switzerland, Germany and France, while we continued to
build up our investment in Latin America, which was the strongest general region
in the world during the second quarter of the year. In addition, the Fund had
significant investments in emerging markets around the world and most of these
emerging markets proved very rewarding, particularly Russia.
THE ASIAN MARKETS CONTINUED TO LAG
Once again, Asia--except for Japan--lagged the other international markets,
although Hong Kong and South Korea posted double-digit gains. Singapore and
Malaysia were both down for the period, but the real disappointment was once
again Thailand which continued its downward spiral. Australia and New Zealand
also performed well.
Our most important increase in country weightings during this period was in
Japan where the recovery in industrial production and the slightly stronger yen
finally brought this market back to life. We also increased our exposure in
South Korea, which we consider to be the most viable recovery candidate in Asia,
especially now that the yen--with which it is very competitive--has showed signs
of strength. We also increased the Fund's weighting in Mexico, reflecting our
positive stance toward Latin America as a region and our belief that Mexico has
some catching up to do in the region.
APPLYING OUR COMPANY-FOCUSED STRATEGY
Throughout this period we continued to apply our bottom-up, stock picking
approach. We focus primarily on the strength and potential of individual
companies when considering stocks, rather than the positive or negative
attributes of individual countries or industries. That doesn't mean that we
don't consider global economic climates in making our decisions--and in as
choppy an environment as international markets have been facing, we have been
paying somewhat more attention to them than is usually the case.
<TABLE>
<CAPTION>
================================================
FIVE LARGEST STOCK HOLDINGS
As of 6-30-97
<S> <C>
SECURITY % OF NET ASSETS
- ------------------------------------------------
Games Workshop Group PLC 1.1%
................................................
Guinness Peat Group PLC 1.1%
................................................
Hong Kong Land Holdings, Ltd. 0.8%
................................................
Porsche AG Non-Voting Preferred 0.8%
................................................
IFI Istituto Finanziario Preferred 0.8%
................................................
</TABLE>
Please see the Schedule of Investments in
Securities for a complete listing of the Fund's
portfolio.
================================================
2
<PAGE>
By and large, our individual company choices drive the Fund's overall country
allocation; we don't peg our country weightings to any index or benchmark.
Sometimes these choices do follow a strong theme, however. For example, while in
the past we trimmed our position in Japanese stocks, we have built up our
weighting there again which has paid off for the Fund.
OUTLOOK
Flows of investment dollars into foreign markets have been sporadic and
selective. We anticipate, however, that more consistent investor interest in
support of foreign markets will take hold in the future. As more investors gain
experience, they are likely to be more willing--even eager--to diversify.
Furthermore, adding international investments to a US-focused portfolio offers
the potential to increase returns and lower overall portfolio volatility. The
leveling off of the strong dollar could also draw more money abroad, as currency
risk could become less acute.
Of course, this Fund is likely to be more volatile than a fund that invests
solely in U.S. stocks. Changes in market conditions, currency values, interest
rates, local regulations, and economic and political conditions can have a
quick, sharp impact on foreign markets. Given the value currently available
internationally, however, we believe foreign equities offer long-term investors
an attractive opportunity.
Thank you for your investment in the Strong International Stock Fund II. We look
forward to earning your continued confidence.
[PHOTO OF ANTHONY L.T. CRAGG]
Sincerely,
/s/Anthony L.T. Cragg
Anthony L.T. Cragg
Portfolio Manager
================================================================================
GROWTH OF AN ASSUMED $10,000 INVESTMENT
From 10-20-95 to 6-30-97
[GRAPH]
<TABLE>
<CAPTION>
Strong MSCI Lipper
International EAFE International
Stock Fund II Index* Funds Index*
------------- ------ -------------
<S> <C> <C> <C>
9-95 10,000 10,000 10,000
12-95 10,261 10,491 10,321
3-96 10,964 10,794 10,776
6-96 11,642 10,965 11,217
9-96 11,196 10,951 11,227
12-96 11,327 11,126 11,810
3-97 11,627 10,952 12,106
6-97 12,307 12,373 13,461
</TABLE>
This graph, provided in accordance with SEC regulations, compares a $10,000
investment in the Fund, made at its inception, with similar investments in the
Morgan Stanley Capital International Europe, Australasia, and Far East Index
("MSCI EAFE(TM)") and the Lipper International Funds Index. Results include the
reinvestment of all dividends and capital gains distributions. Performance is
historical and does not represent future results. Investment returns and
principal value vary, and you may have a gain or loss when you sell shares. To
equalize time periods, the indexes' performance was prorated for the month of
October 1995.
================================================================================
AVERAGE ANNUAL
TOTAL RETURNS(1)
As of 6-30-97
1-year 5.72%
Since Inception 13.01%
(on 10-20-95)
=============================
* The MSCI EAFE(TM) is an unmanaged index generally representative of major
overseas stock markets. MSCI EAFE(TM) data is dollar-adjusted. The Lipper
International Funds Index is an equally-weighted performance index of the
largest qualifying funds in this category. Source of the MSCI index data is
Micropal. Source of the Lipper index data is Lipper Analytical Services, Inc.
1 Average annual total return and total return measure change in the value of
an investment in the Fund, assuming reinvestment of all dividends and capital
gains. Average annual total return reflects annualized change, while total
return reflects aggregate change. The Fund's returns include the effect of
deducting the Fund's expenses, but do not include charges and expenses
attributable to any particular insurance product. Including such insurance
fees and expenses from the Fund's return quotations has the effect of
decreasing the performance quoted.
3
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 82.0%
ARGENTINA 0.5%
Dragados y Construcciones Argentina 64,000 $ 280,362
Sunshine Mining and Refining Company (b) 200,000 137,500
---------
417,862
AUSTRALIA 6.4%
AAPC, Ltd. 550,000 364,887
Australian Tourism Group 175,000 100,269
Cinema Plus, Ltd. (b) 413,000 311,361
Coca-Cola Amatil, Ltd. 28,000 363,078
Colonial, Ltd. (Acquired 5/19/97;
Cost $120,218) (b) (c) 50,000 127,409
David Jones, Ltd. 200,000 278,943
FAI Insurance, Ltd. 216,382 106,035
Foster's Brewing Group, Ltd. (b) 130,000 241,097
MIM Holdings, Ltd. 283,804 419,361
Normandy Mining, Ltd. 556,508 625,131
Novus Petroleum, Ltd. 59,169 202,964
Orogen Minerals, Ltd. GDR (Acquired 10/31/96;
Cost $71,266) (c) 4,500 125,437
Polartechnics, Ltd. (b) 207,500 438,016
Publishing & Broadcasting, Ltd. 58,000 333,631
Sydney Aquarium, Ltd. 223,900 666,753
Sydney Harbour Casino Holdings, Ltd. (b) 124,000 194,446
Western Mining Corporation, Ltd. 102,650 646,188
---------
5,545,006
AUSTRIA 0.6%
Flughafen Wien AG (b) 6,800 287,343
Wolford AG 2,700 262,104
---------
549,447
BELGIUM 0.7%
Audiofina 4,000 164,440
Credit Communal Holding Dexia 4,000 429,433
---------
593,873
BRAZIL 1.7%
Centrais Electricas Brasileiras SA 357,000 199,328
Companhia de Electricidade do Estado do
Rio de Janeiro 234,000,000 169,565
Companhia de Saneamento Basico do Estado
de Sao Paulo 1,400,142 426,650
Light Servicos de Electricidade SA 300,000 145,764
Uniao de Bancos Brasileiros SA Sponsored
GDR (b) 7,000 259,875
Usinas Siderurgicas de Minas Gerais
Sponsored ADR 24,000 264,000
---------
1,465,182
CHILE 2.2%
Embotelladora Andina SA ADR A 8,800 188,650
Embotelladora Andina SA ADR B 9,300 194,138
Five Arrows Chile Investment Trust, Ltd. 92,000 315,560
Quimica y Minera Chile SA Sponsored ADR 7,000 462,875
Quinenco SA ADR (b) 23,000 425,500
Santa Isabel SA Sponsored ADR 10,450 337,013
---------
1,923,736
CHINA 0.4%
Shandong Huaneng Power Company, Ltd. ADR 8,000 86,000
Shanghai Industrial Holdings, Ltd. (Acquired
4/10/97; Cost $186,497) (c) 42,000 261,331
---------
347,331
COLOMBIA 0.3%
Banco Ganadero SA ADS (representing Class C
Preference Shares) 9,800 256,025
EGYPT 3.0%
Al-Ahram Beverages Company SAE (b) 18,300 374,235
Egypt Investment Company, Ltd. (b) 43,000 650,375
The Foreign & Colonial Emerging Middle
East Fund, Inc. (b) 30,000 519,375
Misr International Bank SAE GDR (b) 23,000 388,700
Misr Oil & Soap Company (b) 33,000 262,252
Nile for Matches (b) 23,715 175,899
Suez Cement (b) 13,262 258,331
---------
2,629,167
FINLAND 0.4%
Amer Group, Ltd. (b) 18,000 329,017
FRANCE 2.6%
Accor SA 1,300 194,588
Club Mediterranee SA (b) 6,850 485,166
Europe 1 Communication 669 137,120
Genset SA Sponsored ADR (b) 19,900 385,563
Louis Dreyfus Citrus (b) 13,000 485,363
Rhone-Poulenc Rorer, Inc. 3,000 271,470
Sabeton SA (b) 1,769 252,452
SEFIMEG (Societe Francaise d'Investissements
Immobiliers et de Gestion) 1,400 89,299
---------
2,301,021
GERMANY 1.9%
Altana AG 200 213,181
BETA Systems Software AG (b) 500 59,026
Commerzbank AG 16,000 452,951
Leica Camera AG (b) 13,300 327,736
Volkswagen AG 800 606,074
---------
1,658,968
GHANA 0.5%
Ashanti Goldfields Company, Ltd. GDR 35,047 409,612
HONG KONG 3.4%
Amoy Properties, Ltd. 195,000 215,226
CDL Hotels International, Ltd. 1,393,072 566,472
Glorius Sun Enterprises (b) 377,000 178,852
Guoco Group, Ltd. (b) 62,000 326,547
Hong Kong Land Holdings, Ltd. 262,914 699,351
Jardine Strategic Holdings, Ltd. 75,000 283,500
Peregrine Investment Holdings, Ltd. 205,500 423,123
Swire Pacific, Ltd. 'A' 30,000 270,122
---------
2,963,193
HUNGARY 0.5%
Euronet Services, Inc. (b) 27,000 298,688
Zalakeramia Reszvenytarsasag GDR (Acquired
5/06/97; Cost $122,720) (b) (c) 16,000 125,600
---------
424,288
INDIA 0.4%
IS Himilayan Fund NV (b) 15,200 229,520
The Indian Smaller Companies Fund, Ltd. (b) 17,120 137,999
---------
367,519
INDONESIA 2.0%
Bank Bali PT (Fgn Reg) 62,000 165,775
Bank Negara Indonesia PT (Fgn Reg) 435,000 277,355
Bank Tiara Asia PT (Fgn Reg) (b) 136,000 162,238
Ciputra Development PT (Fgn Reg) 190,000 189,531
Jaya Real Property PT (Fgn Reg) (b) 140,000 188,606
Lippo Life Insurance PT (Fgn Reg) 225,000 266,094
Semen Cibinong PT (Fgn Reg) 45,000 118,007
Siloam Gleneagles Health Care PT (Acquired
3/12/97; Cost $265,776) (b) (c) 216,000 306,541
Van Der Horst Indonesia PT (Fgn Reg) 160,001 82,271
---------
1,756,418
IRELAND 0.1%
Ryanair Holdings PLC ADR (b) 3,000 81,375
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------
<S> <C> <C>
ITALY 3.7%
Banca Commerciale Italiana 209,000 $ 435,627
Filatura del Brembo Spa 27,000 291,388
Finanziaria Autogrill Spa (b) 249,000 417,811
Holding di Partecipazioni Industriali Spa (b) 555,800 267,245
Industrie Natuzzi Spa Sponsored ADR 21,700 556,063
STET - Societa Finanziaria Telefonica PA 107,000 623,951
Simint Spa (b) 44,000 268,214
Zucchini Spa 53,000 323,388
-----------
3,183,687
JAPAN 14.2%
The Bank of Tokyo - Mitsubishi 12,000 240,775
Chubu Steel Plate Company, Ltd. 53,000 245,049
Daiwa House Industry Company, Ltd. Warrants,
Expire 10/30/97 (b) 360 9,360
Diamond City Company 24,000 157,027
Fidelity Japan OTC and Regional Markets
Fund, Ltd. (b) 33,000 222,750
Fontaine Company, Ltd. 8,000 226,817
Fuji Bank, Ltd. 16,000 240,077
Heiwa 14,000 274,797
Higashi Nihon House 18,000 193,143
Horipro, Inc. 25,000 191,049
Imagineer Company, Ltd. 14,400 483,643
Japan Associated Finance 7,000 549,594
Japan Cash Machine Company, Ltd. 20,900 410,233
Japan Industrial Land Development 22,100 217,857
Japan OTC Equity Fund, Inc. (b) 130 100,750
Japan Tobacco, Inc. 55 434,223
Lion Corporation Warrants, Expire 6/18/99 (b) 2,000 145,106
Marubeni Corporation 41,000 185,990
Mikasa Coca-Cola Bottling Warrants,
Expire 1/05/00 (b) 1,000 26,009
Misawa Homes Warrants, Expire 10/29/99 (b) 2,000 114,990
Mitsubishi Corporation 44,000 548,896
Mitsui Fudosan 27,000 372,154
Miyota Company, Ltd. 20,000 266,946
Morgan Stanley Group, Inc. Nikkei 225 Index
Call Warrants, Expire 8/15/97 (b) 64,000 384,000
Nippon Broadcasting System 5,000 553,956
Nippon Felt Company, Ltd. 37,000 177,850
Nippon Shinpan Company 77,000 278,095
Nippon Telegraph & Telephone Corporation 55 527,785
Nittetsu Mining 43,000 335,732
Nomura International PLC Warrants,
Expire 4/26/02 (b) 500 181,250
Ohmoto Gumi Company, Ltd. 9,700 79,543
Pioneer Electronic Corporation 22,000 533,543
Roland 11,000 270,610
SXL Corporation Warrants, Expire 2/26/99 (b) 3,100 78,508
Sanwa Bank, Ltd. 17,000 252,115
Shinseido Company, Ltd. 12,000 57,577
Shiseido Company, Ltd. 29,000 478,147
Shochiku Warrants, Expire 12/29/99 (b) 470 199,750
Takihyo Company, Ltd. 14,000 129,460
Tiemco, Ltd. 800 35,593
Toho Company 2,700 445,171
Tokio Marine & Fire Insurance Company 41,000 536,509
Tokushu Paper Manufacturing Company, Ltd.
Warrants, Expire 4/26/01 (b) 2,000 299,795
Tokyotokeiba 77,000 221,670
Tsutsumi Jewelry Company, Ltd. 9,000 227,689
Yasuda Trust & Banking, Ltd. 59,000 225,438
-----------
12,367,021
MALAYSIA 2.9%
Batu Kawan BHD 106,000 233,082
Highlands & Lowlands BHD 211,000 322,686
IOI Properties BHD 75,000 142,631
Leader Universal Holdings BHD 122,000 219,445
Malaysia International Shipping BHD (Fgn Reg) 100,000 259,509
Malaysian Plantations BHD 140,000 188,590
Malaysian Resources Corporation BHD 53,000 145,939
Renong BHD 182,000 237,956
Sime UEP Properties BHD 114,000 246,157
TA Enterprise BHD 207,000 220,614
Technology Resources Industries BHD (b) 195,000 335,301
-----------
2,551,910
MALI 0.4%
Randgold Resources, Ltd. GDR (Acquired 6/26/97;
Cost $313,500) (b) (c) 19,000 313,500
MEXICO 2.5%
Cifra SA de CV Unsponsored ADR B 149,000 267,455
Empresas ICA Sociedad Controladora SA de CV
Sponsored ADR 20,000 321,250
G Accion SA de CV Sponsored ADR
(Acquired 6/19/97; Cost $224,000) (b) (c) 14,000 204,750
Grupo Financiero Banamex Accival SA de CV (b) 154,000 404,854
Grupo Carso SA de CV 40,000 278,906
Grupo Televisa SA GDS (b) 10,000 303,750
Kimberly-Clark de Mexico SA de CV 19,000 368,125
-----------
2,149,090
NAMIBIA 0.5%
Namibia Breweries (b) 175,300 135,696
Namibian Minerals Corporation (b) 75,000 328,125
-----------
463,821
NETHERLANDS 0.6%
KLM Royal Dutch Airlines 10,500 324,188
Philips Electronics NV ADR 3,000 215,625
-----------
539,813
NEW ZEALAND 3.9%
Air New Zealand, Ltd. Class B 182,000 556,756
CDL Hotels New Zealand, Ltd. 705,000 254,007
Corporate Investments, Ltd. (b) 600,000 334,462
Evergreen Forests, Ltd. (b) 1,326,000 522,821
Guinness Peat Group PLC 1,538,256 951,593
Kiwi Income Property Trust (b) 149,200 134,897
Restaurant Brands New Zealand, Ltd. (b) 102,000 177,509
Shortland Properties, Ltd. 727,900 494,826
-----------
3,426,871
NORWAY 0.4%
Alvern Norway AS (b) 13,009 71,032
Norman Data Defense Systems (b) 12,000 73,713
Saga Petroleum AS - A Shares 12,000 227,692
-----------
372,437
PAKISTAN 0.4%
Pakistan Investment Fund, Inc. (b) 24,000 126,000
Pakistan Telecommunications Corporation
Sponsored GDR (b) 3,100 234,050
-----------
360,050
PERU 1.0%
Compania de Minas Buenaventura SA
Sponsored ADR 11,500 226,406
Telefonica del Peru SA Sponsored ADR
(representing Class B Shares) 11,000 288,062
Union de Cervecerias Perunas 327,532 341,976
-----------
856,444
</TABLE>
See notes to financial statements.
5
<PAGE>
SCHEDULE OF INVESTMENTS IN SECURITIES (continued) June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ---------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES 0.5%
Empire East Land Holdings, Inc. (b) 1,760,000 $ 267,173
Guoco Holdings (Philippines) 1,395,000 164,118
---------
431,291
POLAND 0.7%
Bank Handlowy W. Warszawie (b) 9,000 103,836
Best Series C (b) 20,000 237,443
The Fleming Poland Fund, Ltd. Redeemable
Participating Preference A Shares (b) 29,500 291,460
---------
632,739
PORTUGAL 0.3%
Electricidade de Portugal SA Sponsored ADR (b) 7,100 255,600
Portugal Fund, Inc. 2,000 35,000
---------
290,600
ROMANIA 0.6%
The Romanian Investment Fund, Ltd. (Acquired
5/08/97; Cost $400,000) (b) (c) 400 422,000
Societe Generale Romania Fund (Acquired 3/20/97;
Cost $49,500) (b) (c) 500 57,500
---------
479,500
RUSSIA 1.6%
The Central European Growth Fund PLC (b) 346,000 382,916
Morgan Stanley Russia & New Europe Fund, Inc. 20,000 607,500
Ramco Energy PLC 13,000 233,221
Red October Russian Depository Trust
Certificates (Acquired 8/14/96 - 8/27/96;
Cost $143,750)(b)(c) 2 210,000
---------
1,433,637
SINGAPORE 4.6%
Cycle & Carriage, Ltd. 39,000 403,778
DBS Land, Ltd. 32,000 101,182
FJ Benjamin Holdings, Ltd. (b) 452,000 208,688
Hong Leong Finance, Ltd. (Fgn Reg) 95,000 269,815
Hotel Properties, Ltd. 150,000 254,984
Kay Hian James Capel Holdings, Ltd. 2,300 2,236
Keppel Bank (b) 158,000 406,744
Keppel Corporation, Ltd. (b) 44,000 195,453
Kim Eng Holdings, Ltd. 367,000 308,080
Osprey Maritime, Ltd. 150,000 196,222
Robinson & Company, Ltd. 30,000 156,348
Sembawang Corporation, Ltd. 41,000 186,429
Singapore Airlines, Ltd. (Fgn Reg) 59,000 528,297
Singapore Land, Ltd. 71,000 322,840
United Overseas Land, Ltd. 208,000 282,281
Van Der Horst, Ltd. 83,000 152,704
---------
3,976,081
SOUTH AFRICA 0.9%
Baring Simba Fund Warrants, Expire 9/30/00 (b) 23,000 71,875
Energy Africa, Ltd. GDR (Acquired 7/18/96;
Cost $105,875) (b) (c) 7,000 185,500
Engen, Ltd. 64,000 319,612
Morgan Stanley Africa Investment Fund, Inc. 12,600 225,225
---------
802,212
SOUTH KOREA 3.3%
Fidelity Advisor Korea Fund (b) 25,000 218,750
Hotel Shilla Company (b) 15,000 135,609
Kookmin Bank 23,469 447,421
Korea Electric Power Corporation Sponsored ADR 21,150 395,241
Korea-Europe Fund IDR (b) 135 369,563
Korean Airline Company, Ltd. (b) 19,800 373,205
Ssangyong Investment & Securities
Company, Ltd. (b) 32,000 303,747
Yukong, Ltd. 26,000 630,926
---------
2,874,462
SPAIN 0.2%
Compania Espanola de Petroleos SA 3,000 101,743
Construcciones y Auxiliar de Ferrocarriles SA 1,700 76,911
---------
178,654
SRI LANKA 0.5%
John Keells Holdings, Ltd. (b) 52,000 271,834
Sri Lanka Growth Fund (b) 25,000 143,750
---------
415,584
SWEDEN 1.1%
Argonaut AB 'B' Shares (b) 55,000 99,793
Hemkopskedjan AB 'B' Shares (Acquired 6/18/97;
Cost $191,201) (b) (c) 19,000 195,762
Ortivus AB 'B' Shares (b) 5,000 204,769
Pricer AB 'B' Shares (b) 7,500 258,554
Prosolvia AB 'B' Shares (b) 3,600 55,521
Rottneros AB 141,000 155,327
---------
969,726
SWITZERLAND 3.1%
Liechtenstein Global Trust AG 75 45,945
Magazine Zum Globus Registered Shares (b) 600 368,788
Moevenpick Holding AG 900 271,355
Nestle SA 107 141,055
Novartis AG 200 319,507
Novartis AG Sponsored ADR 1,000 80,219
Oerlikon - Buehrle Holding AG 'R' 2,300 269,199
SGS (Societe Generale de Surveillance) Holdings SA 150 320,329
SMH (Suisse Microelectronique et d'Horlogerie) 900 513,758
Schindler Holding AG 125 156,143
Zurich Versicherungsgesellschaft 600 238,604
---------
2,724,902
TAIWAN 0.1%
The R.O.C. Taiwan Fund 5,884 68,769
THAILAND 0.8%
BEC World PCL 17,700 159,408
Matichon PCL (Fgn Reg) 82,000 154,686
Sermsuk PCL (Fgn Reg) 10,700 138,905
Siam City Cement PCL (Fgn Reg) 25,000 106,491
TelecomAsia Corporation PCL (b) 125,000 158,468
---------
717,958
UKRAINE 0.3%
Ukrainian Opportunity Fund (b) 29,700 303,178
UNITED KINGDOM 4.2%
Allied Domecq PLC 29,374 210,935
Caledonia Investments PLC 15,000 173,493
Celltech PLC (b) 36,000 159,963
De La Rue PLC 25,000 153,522
English China Clays PLC 46,586 160,096
Flextech PLC (b) 38,000 406,631
Games Workshop Group PLC 87,000 982,369
Inchcape PLC 103,902 489,346
LucasVarity PLC 121,000 418,846
Trocadero PLC (b) 371,000 154,355
Vickers PLC 101,000 345,413
---------
3,654,969
VENEZUELA 0.3%
CA La Electricidad de Caracas 114,000 181,990
Compania Anonima Nacional Telefonos
de Venezuela 2,000 86,250
---------
268,240
VIETNAM 0.1%
Vietnam Frontier Fund (b) 11,000 93,500
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SHARES OR
PRINCIPAL VALUE
AMOUNT (NOTE 2)
- ------------------------------------------------------------------------------------
<S> <C> <C>
OTHER 0.7%
Morgan Stanley Emerging Markets Fund, Inc. 34,000 $ 607,750
-----------
TOTAL COMMON STOCKS (COST $70,950,445) 71,527,436
PREFERRED STOCKS 3.5%
AUSTRALIA 0.3%
The News Corporation, Ltd. 59,302 233,374
BRAZIL 0.7%
Companhia Antartica Paulista - Industria
Brasileira de Bebidas e Conexos 3,100 302,397
Telecomunicacoes de Sao Paulo SA 534,311 174,232
Telecomunicacoes do Rio de Janeiro SA - Telerj 1,129,744 168,979
-----------
645,608
GERMANY 1.7%
BBS Kraftfahrzeugtechnik AG (b) 1,000 224,069
Friedrich Grohe AG 1,000 309,456
Porsche AG Non-Voting 510 678,051
Villeroy & Boch AG 2,000 324,355
-----------
1,535,931
ITALY 0.8%
IFI Istituto Finanziario (Acquired
1/20/97 - 3/13/97; Cost $635,037) (c) 53,000 668,376
-----------
TOTAL PREFERRED STOCKS (COST $2,729,756) 3,083,289
SHORT-TERM INVESTMENTS (A) 12.3%
COMMERCIAL PAPER 0.1%
INTEREST BEARING, DUE UPON DEMAND
United States Cayman Eurodollar
Call Deposit, 4.50% $ 95,000 95,000
TIME DEPOSITS 12.2%
UNITED STATES
Bank of Tokyo, Ltd. Time Deposit,
6.4375%, Due 7/01/97 2,000,000 2,000,000
Credite Agriculturale Time Deposit,
6.00%, Due 7/01/97 4,300,000 4,300,000
Sumitomo Bank, Ltd. Yankee Dollar
Certificate of Deposit, 6.375%, Due 7/01/97 4,300,000 4,300,000
-----------
Total Time Deposits 10,600,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $10,695,000) 10,695,000
-----------
TOTAL INVESTMENTS IN SECURITIES
(COST $84,375,201) 97.8% 85,305,725
Other Assets and Liabilities, Net 2.2% 1,956,149
-----------
NET ASSETS 100.0% $87,261,874
===========
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
- ---------------------------------------------------------------
SETTLEMENT VALUE UNREALIZED
DATE IN USD APPRECIATION
- ---------------------------------------------------------------
Sold:
1,361,360 DEM 7/25/97 $781,717 $18,283
PERCENTAGE OF
INDUSTRY DIVERSIFICATION NET ASSETS
- --------------------------------------------------------------
Conglomerate ...........................................7.7%
Closed-end Fund ........................................7.1
Bank - Money Center ....................................5.4
Leisure Service ........................................5.2
Real Estate ............................................4.9
Metals & Mining ........................................3.1
Telecommunication Service ..............................3.0
Finance - Miscellaneous ................................2.9
Engineering & Construction .............................2.7
Media - Radio/TV .......................................2.6
Automobile .............................................2.3
Oil - International Integrated .........................2.2
Airline ................................................2.1
Electronic Products - Miscellaneous ....................1.8
Retail - Specialty .....................................1.8
Consumer - Miscellaneous ...............................1.7
Beverage - Alcoholic ...................................1.6
Electric Power .........................................1.6
Healthcare - Drug/Diversified ..........................1.6
Food ...................................................1.5
Household Appliances & Furnishings .....................1.4
Paper & Forest Products ................................1.3
Shoe & Apparel Manufacturing ...........................1.3
Brokerage & Investment Management ......................1.2
Cosmetic & Personal Care ...............................1.2
Precious Metal/Gem/Stone ...............................1.2
Auto & Truck Parts .....................................1.1
Beverage - Soft Drink ..................................1.0
Insurance - Diversified ................................1.0
Agricultural Operations ................................0.9
Shipping ...............................................0.9
Computer Software ......................................0.8
Machinery - Miscellaneous ..............................0.8
Retail - Major Chain ...................................0.7
Retail - Restaurant ....................................0.7
Machinery - Transportation Equipment & Parts ...........0.6
Retail - Food Chain ....................................0.6
Steel ..................................................0.6
Chemical ...............................................0.5
Healthcare - Instrumentation ...........................0.5
Retail - Department Store ..............................0.5
Tobacco ................................................0.5
Healthcare - Patient Care ..............................0.4
Index Based ............................................0.4
Insurance - Life .......................................0.4
Leisure Product ........................................0.4
Media - Publishing .....................................0.4
Metal Products & Fabrication ...........................0.3
Transportation Service .................................0.3
Healthcare - Medical Supply ............................0.2
Housing ................................................0.2
Insurance - Property & Casualty ........................0.2
Soap & Cleaning Preparation ............................0.2
Short-Term Investments ................................12.3
Other Assets and Liabilities, Net ......................2.2
------
Total 100.0%
======
LEGEND
- ------
(a) Short-term investments include any security which has a maturity of less
than one year.
(b) Non-income producing security.
(c) Restricted security.
Percentages are stated as a percent of net assets.
CURRENCY ABBREVIATIONS
- ----------------------
DEM German Mark
USD United States Dollar
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
ASSETS:
Investments in Securities, at Value (Cost of $84,375,201) $85,305,725
Receivable from Brokers for Securities and
Forward Foreign Currency Contracts Sold 901,155
Dividends and Interest Receivable 157,206
Other Assets 3,901,264
-----------
Total Assets 90,265,350
LIABILITIES:
Payable to Brokers for Securities Purchased 2,898,401
Accrued Operating Expenses and Other Liabilities 105,075
-----------
Total Liabilities 3,003,476
-----------
NET ASSETS $87,261,874
===========
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $82,416,907
Excess of Distribution Required for Federal Income Tax Purposes
over Net Investment Income (773,318)
Undistributed Net Realized Gain 4,784,026
Net Unrealized Appreciation 834,259
-----------
Net Assets $87,261,874
===========
Capital Shares Outstanding (Unlimited Number Authorized 7,449,958
NET ASSET VALUE PER SHARE $11.71
======
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1997 (Unaudited)
INCOME:
Dividends $ 736,296
Interest 247,634
-----------
Total Income 983,930
EXPENSES:
Investment Advisory Fees 395,479
Custodian Fees 98,525
Shareholder Servicing Costs 60,272
Other 2,243
-----------
Expenses, Net 556,519
-----------
NET INVESTMENT INCOME 427,411
REALIZED AND UNREALIZED GAIN (LOSS):
Net Realized Gain (Loss) on:
Investments 3,893,330
Futures Contracts, Options and Forward Foreign
Currency Contracts 784,327
Foreign Currencies (3,873)
-----------
Net Realized Gain 4,673,784
Change in Unrealized Appreciation/Depreciation on:
Investments 1,866,030
Futures Contracts, Options and Forward Foreign
Currency Contracts (121,304)
Foreign Currencies (115,102)
-----------
Net Change in Unrealized Appreciation/Depreciation 1,629,624
-----------
NET GAIN 6,303,408
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,730,819
===========
See notes to financial statements.
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 Dec. 31, 1996
(Unaudited)
---------------- -------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 427,411 $ 188,934
Net Realized Gain 4,673,784 2,279,627
Change in Unrealized
Appreciation/Depreciation 1,629,624 (828,567)
------------ ------------
Increase in Net Assets Resulting
from Operations 6,730,819 1,639,994
DISTRIBUTIONS:
From Net Investment Income (1,303,844) (188,934)
In Excess of Net Investment Income -- (111,137)
From Net Realized Gains (1,952,335) --
------------ ------------
Total Distributions (3,256,179) (300,071)
CAPITAL SHARE TRANSACTIONS
Proceeds from Shares Sold 35,075,104 118,715,984
Proceeds from Reinvestment of
Dividends 3,256,179 300,071
Payments for Shares Redeemed (29,695,307) (47,009,732)
------------ ------------
Increase in Net Assets from Capital
Share Transactions 8,635,976 72,006,323
------------ ------------
TOTAL INCREASE IN NET ASSETS 12,110,606 73,346,246
NET ASSETS:
Beginning of Period 75,151,258 1,805,012
------------ ------------
End of Period $ 87,261,874 $ 75,151,258
============ ============
TRANSACTIONS IN SHARES OF THE FUND:
Sold 3,042,802 10,737,059
Issued in Reinvestment of
Distributions 288,891 26,736
Redeemed (2,570,915) (4,251,177)
------------ ------------
Increase in Shares of the Fund 760,778 6,512,618
============ ============
</TABLE>
See notes to financial statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
1. ORGANIZATION
The Strong International Stock Fund II commenced operations on October 20,
1995 and is a diversified series of the Strong Variable Insurance Funds,
Inc., an open-end management investment company registered under the
Investment Company Act of 1940.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
(A) Security Valuation-- Portfolio securities traded primarily on a
principal securities exchange are valued at the last reported sales
price or the mean between the latest bid and asked prices where no
last sales price is available. Securities traded over-the-counter are
valued at the mean of the latest bid and asked prices or the last
reported sales price, depending on local convention or regulation.
Debt securities not traded on a principal securities exchange are
valued through valuations obtained from a commercial pricing service,
otherwise sale or bid prices are used. Securities for which market
quotations are not readily available, when held by the Fund, are
valued at fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of
the Board of Directors. Securities which are purchased within 60 days
of their stated maturity are valued at amortized cost, which
approximates current value.
The Fund may own certain investment securities which are restricted as
to resale. These securities are valued after giving due consideration
to pertinent factors, including recent private sales, market
conditions and the issuer's financial performance. The Fund generally
bears the costs, if any, associated with the disposition of restricted
securities. Aggregate cost and fair value of these restricted
securities held at June 30, 1997 were $2,829,340 and $3,203,706,
respectively, representing 3.7% of the net assets of the Fund.
(B) Federal Income and Excise Taxes and Distributions to Shareholders --
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its
shareholders in a manner which results in no tax cost to the Fund.
Therefore, no federal income or excise tax provision is required.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in
the recognition of income and expense items for financial statement
and tax purposes. Where appropriate, reclassifications between net
asset accounts are made for such differences that are permanent in
nature.
(C) Realized Gains and Losses on Investment Transactions -- Gains or
losses realized on investment transactions are determined by comparing
the identified cost of the security lot sold with the net sales
proceeds.
(D) Futures -- Upon entering into a futures contract, the Fund pledges to
the broker cash or other investments equal to the minimum "initial
margin" requirements of the exchange. The Fund also receives from or
pays to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as
"variation margin," and are recorded as unrealized gains or losses.
When the futures contract is closed, a realized gain or loss is
recorded 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.
(E) Options -- Premiums received by the Fund upon writing put or call
options are recorded as an asset with a corresponding liability which
is subsequently adjusted to the current market value of the option.
When an option expires, is exercised, or is closed, the Fund realizes
a gain or loss, and the liability is eliminated. The Fund continues
to bear the risk of adverse movements in the price of the underlying
asset during the period of the option, although any potential loss
during the period would be reduced by the amount of the option premium
received.
(F) Foreign Currency Translation -- Investment securities and other assets
and liabilities initially expressed in foreign currencies are
converted to U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investment securities and income are
converted to U.S. dollars based upon currency exchange rates
prevailing on the respective dates of such transactions. The effect
of changes in foreign exchange rates on realized and unrealized
security gains or losses is reflected as a component of such gains or
losses.
(G) Forward Foreign Currency Exchange Contracts -- Forward foreign
currency exchange contracts are valued at the forward rate and are
marked-to-market daily. The change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the Fund
records an exchange 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.
10
<PAGE>
(H) Additional Investment Risk -- The use of futures contracts, options,
foreign denominated assets, forward foreign currency exchange
contracts and other similar instruments for purposes of hedging the
Fund's investment portfolio involves, to varying degrees, elements of
market risk in excess of the amount recognized in the statement of
assets and liabilities. The predominant risk with futures contracts
is an imperfect correlation between the value of the contracts and the
underlying securities. Foreign denominated assets and forward foreign
currency exchange contracts may involve greater risks than domestic
transactions, including currency, political and economic, regulatory
and market risks.
(I) 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.
(J) Other -- Investment security transactions are recorded as of the trade
date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and discounts.
3. RELATED PARTY TRANSACTIONS
Strong Capital Management, Inc. (the "Advisor"), with whom certain officers
and directors of the Fund are affiliated, provides investment advisory
services to the Fund. Investment advisory fees, which are established by
terms of the Advisory Agreement, are based on an annualized rate of 1.00%
of the average daily net assets of the Fund. Advisory fees are subject to
reimbursement by the Advisor if the Fund's operating expenses exceed
certain levels.
The Fund may invest cash reserves in money market funds sponsored and
managed by Strong Capital Management, Inc., subject to certain limitations.
The terms of such transactions are identical to those of non-related
entities except that, to avoid duplicate investment advisory fees, the
Advisor remits to the Fund an amount equal to all fees otherwise due to
them under their investment advisory agreement for the assets invested in
such money market funds.
The amount payable to the Advisor at June 30, 1997 and unaffiliated
directors' fees for the six months then ended were $797 and $750,
respectively.
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of long-term securities for the six
months ended June 30, 1997 were $55,144,017 and $52,788,936, respectively.
5. INCOME TAX INFORMATION
At June 30, 1997, the cost of investments in securities for federal income
tax purposes was $84,375,201. Net unrealized appreciation of securities
was $930,524, consisting of gross unrealized appreciation and depreciation
of $8,115,805 and $7,185,281, respectively.
11
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER-SHARE DATA (a)
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS LESS DISTRIBUTIONS
-------------------------------------------------- ------------------------------------------
Net Asset Net Realized Total In Excess Net Asset
Value Net and Unrealized from From Net of Net From Net Total Value
Beginning Investment Gains on Investment Investment Investment Realized Distri- End of
of Period Income Investment Operations Income Income Gains butions Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1997 (c) $11.23 $0.06 $0.89 $0.95 ($0.18) __ ($0.29) ($0.47) $11.71
Dec. 31, 1996 10.22 0.03 1.03 1.06 (0.03) ($0.02) __ (0.05) 11.23
Dec. 31, 1995 (d) 10.00 0.01 0.25 0.26 (0.01) (0.03) __ (0.04) 10.22
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Continued)
RATIOS AND SUPPLEMENTAL DATA
------------------------------------------------------------------------------
Ratio of Net
Assets, Ratio of Investment Average
End of Expenses Income Portfolio Commission
Total Period (In to Average to Average Turnover Rate
Return Thousands) Net Assets Net Assets Rate Paid(b)
<S> <C> <C> <C> <C> <C> <C>
June 30, 1997 (c) +8.7% $87,261 1.4% 1.1%* 75.1% $0.0015
Dec. 31, 1996 +10.4% 75,151 1.9% 0.4% 126.0% 0.0100
Dec. 31, 1995 (d) +2.6% 1,805 2.0%* 1.0%* 26.9%
</TABLE>
* Calculated on an annualized basis.(a) Information presented relates to a
share of capital stock of the Fund outstanding for the entire period.
(b) Disclosure required, effective for reporting periods beginning after
September 1, 1995.
(c) For the six months ended June 30, 1997 (Unaudited). Total return and
portfolio turnover rate are not annualized.
(d) Inception date is October 20, 1995. Total return and portfolio turnover
rate are not annualized.
12
<PAGE>
DIRECTORS
Richard S. Strong
John Dragisic
Willie D. Davis
Stanley Kritzik
Marvin E. Nevins
William F. Vogt
OFFICERS
Richard S. Strong, Chairman Of The Board
John Dragisic, President
Lawrence A. Totsky, Vice President
Thomas P. Lemke, Vice President
John S. Weitzer, Vice President
Stephen J. Shenkenberg, Vice President And Secretary
John A. Flanagan, Treasurer
INVESTMENT ADVISOR
Strong Capital Management, Inc.
P.O. Box 2936, Milwaukee, Wisconsin 53201
CUSTODIAN
Brown Brothers Harriman & Company
40 Water Street, Boston, Massachusetts 02109
AUDITOR
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Godfrey & Kahn, S.C.
780 North Water Street, Milwaukee, Wisconsin 53202
<PAGE>
[STRONG LOGO]
STRONG FUNDS DISTRIBUTORS, INC.
P.O. Box 2936 o Milwaukee, Wisconsin 53201 5524G97
Strong Funds are offered by prospectus only.
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
[SQUIRREL WANGER 97 LOGO]
<PAGE>
Wanger Advisors Trust
1997 Semi-Annual Report
Contents
1 Squirrel Chatter
3 Funds at a Glance
4 Performance Review
Wanger U.S. Small Cap
6 Performance Review
Wanger International
Small Cap
8 Statement of Investments
Wanger U.S. Small Cap
12 Statement of Investments
Wanger International
Small Cap
16 Portfolio Diversification
Wanger International
Small Cap
17 Statements of Assets
and Liabilities
18 Statements of Operations
19 Statements of Changes in
Net Assets
20 Financial Highlights
Wanger U.S. Small Cap
21 Financial Highlights
Wanger International
Small Cap
22 Notes to Financial Statements
Wanger Asset Management, L.P.,
("WAM") is one of the leading
global small-cap equity managers
in the U.S. with 27 years of small-cap
investment experience. WAM
manages over $6 billion in equities
and is the investment adviser to
Wanger U.S. Small Cap, Wanger
International Small Cap, Acorn Fund,
Acorn International and Acorn USA.
WAM uses a unique style of catch-
ing trends with small, attractively-
priced niche companies. For
more complete information about
our funds including the Acorn
Funds, fees and expenses, call
WAM Brokerage Services, L.L.C.,
distributor, at 1-800-5WANGER for a
prospectus. Read it carefully
before you invest or send money.
[SQUIRREL WANGER 97 LOGO]
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
[LOGO] Squirrel Chatter
Mr. Wanger identified the investment concept of "downstream technology" in 1970,
all the while wondering whether the idea had already run its course. 27 years
later, he defined the idea for investors in his book, A Zebra in Lion Country:
"Going downstream - investing in the businesses that will benefit from new
technology rather than in the technology companies themselves - is often the
smarter strategy."
We thought our readers would find this excerpt from A Zebra in Lion Country
interesting, as it shows how Mr. Wanger's 27-year-old investment philosophy
still applies today.
The Users, Not the Makers
I seldom own the companies that develop the new technologies, however - the
makers of the computers and the semiconductor chips that go into them.
Semiconductors are what really make computers, cellular phones, fax machines,
and much else possible. But Motorola and Intel have never been in our portfolio.
Intel and Motorola have done well, but other semiconductor makers, such as
Fairchild, failed at the game, and anyway, Intel's and Motorola's customers have
made more money than they have. New products are dangerous, especially in the
computer field, where obsolescence comes fast and technological breakthroughs
bring price slashing every year.
What I have always looked for instead are the downstream users of new
technologies. I've bought the stocks of companies that buy, use, and exploit the
computers and electronics to reduce costs, revitalize their businesses, and add
functionality to their products. Even new industries emerge as people figure
out ways to use these devices. (And some industries and enterprises can be made
obsolete. I believe that the New York Stock Exchange, since we no longer need a
hub to create a trading network, is an anachronism that is taking a very long
time to die.)
I may never have owned semiconductor companies, but I've made a
considerable amount of money in cellular phone companies - LIN Broadcasting,
Mobile Communications, and Telephone & Data Systems - that use the chips. I
didn't buy VCR makers, but I have owned companies like Electronic Arts and
Sierra On-line, which make those video games that keep kids away from useful
activities. Television is also dependent on semiconductors, but broadcasting
stations have made more profit than the entire semiconductor industry put
together. There is no comparing the genius it takes to run a television station.
But I'm afraid that when you compare profit margins, it just proves the point
that in this world the stupid people can make all the money. Most of the folks
running electronics companies are indeed geniuses, and they've got a building
full of even smarter geniuses out back, working like crazy to invent new stuff.
But they end up struggling; they have problems in the competitive world. There's
usually some nerd in Austin or Aoyama who's a little bit ahead of them. The
geniuses cancel each other out. Even if you invent a brand new sixteen-meg chip,
you'll still be surrounded by competitors. But if you have the only channel that
can show Home Improvement at 7 p.m., you have a monopoly. All you have to do to
run a cable company is get a license from the city and be mean to your
customers.
Since the Industrial Revolution began, going downstream - investing in
businesses that will benefit from new technology rather than investing in the
technology companies themselves - has often proved the smarter strategy. The
railroad, the product of the transforming technology of the steam locomotive,
one of the greatest inventions in history, was obviously of supreme importance
to the United States and its economy. But the makers of the locomotives, like
Baldwin and American
(continued)
1
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
[LOGO] Squirrel Chatter (continued)
"One future downstream possibility has me worried. Some day you'll be able to go
into a computer store and pay $80 for a "Portfolio Manager" program, and I'll
be out of business."
Locomotive Works, were not terribly profitable.The railroads themselves were
moderately profitable for a while, but in the end most of them fared poorly or
went broke. (Their capital came mostly from abroad, an international wealth
transfer, a sort of Marshall Plan in reverse. The savings in English and
Scottish trusts moved over here, and the net return to all those investors was
probably zero.)
Those who really made money out of the new technology were not the
transportation people but those who bought real estate in Chicago in the 1880's
and 1890's. As the railroad came in and created a city of 3 million people, land
values skyrocketed. The railroads that were most successful were those that
secured land grants from the government to build the tracks and thus owned some
enormously valuable real estate. So the manufacturer who built the steam
locomotive made $5, the tycoon who built the railroad made $50, and the land
speculator who bought land that later became downtown Wichita made $500.
Similarly, when jet planes - larger and faster than the props - came on the
scene, they changed the airline business, but it wasn't the jet-engine makers
General Electric, Pratt and Whitney, and Rolls-Royce that benefited most. In
that instance it was the airlines that reaped the profits for a while; I know,
because I did well in airline stocks back then, when the big carriers could
actually make money. Now the airline industry is barely breaking even, and
airline stocks are only speculations. But think of what the jet plane made
possible!
Also in the postwar era, air-conditioning changed the way we all live, but
you didn't make much money investing in Carrier and the other makers. But
downstream, you could have made a fortune, for air conditioners created the New
South. In 1930 the population of Houston was six men and a dog, and the dog was
dead. Houston was in a basically uninhabitable part of the world. But then came
air conditioners, which made southern California, Texas, and Arizona boom areas.
Phoenix is a thriving city, in spite of the fact that it gets to 116 degrees in
the summer. Without air-conditioning it would still be a trading post. So
Carrier made a moderate amount of money, but the big money came to the fellows
who owned the land, built the tract houses, created the stores (like Phoenix's
Goldwater's), and opened the restaurants.
Recognizing a transforming technology and then investing downstream from it
should be a key concept for any direct stock investor.
From A Zebra in Lion Country by Ralph Wanger with Everett Mattlin. Copyright (C)
1997 by Ralph Wanger. Published by Simon & Schuster, New York, $25.00. Reprinted
by permission.
[PHOTO]
Ralph Wanger
President
2
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Funds at a Glance
- --------------------------------------------------------
Wanger U.S. Small Cap
Results to June 30, 1997
2nd qtr Last Last
6 months 12 months
Wanger U.S. Small Cap 16.7% 12.3% 24.4%
Russell 2000 16.2% 10.2% 16.3%
S&P MidCap 400 14.7% 13.0% 23.3%
S&P 500 17.5% 20.6% 34.7%
Dow Jones 17.1% 20.1% 38.5%
Net Asset Value per share as of 6/30/97 $18.62
The Russell 2000 is formed by taking 3,000 companies and then eliminating the
largest 1,000 leaving a good small company index. The S&P MidCap 400 is a market
value-weighted index of 400 stocks that are in the next tier down from the S&P
500. The S&P 500 is a broad market-weighted average, still blue chip dominated.
The Dow Jones Industrial Average includes 30 large companies. All indices are
unmanaged and include reinvested dividends.
- --------------------------------------------------------
Wanger International Small Cap
Results to June 30, 1997
2nd qtr Last Last
6 months 12 months
Wanger Int'l Small Cap 6.6% 10.2% 13.9%
EAFE 13.0% 11.2% 12.8%
Lipper International
Small Co. Funds Average 7.3% 10.4% 13.5%
Lipper International
Funds Average 11.1% 12.5% 16.5%
Net Asset Value per share as of 6/30/97 $19.07
EAFE is Morgan Stanley's Europe, Australia and Far East Index, an index of
companies throughout the world in proportion to world market capitalization,
excluding the U.S. and Canada. The Lipper International Small Company Funds
Average is calculated from the performance of a group of small company
international funds. The Lipper International Funds Average is an average of all
international funds tracked by Lipper Analytical Services. All indices are
unmanaged and include reinvested dividends.
- --------------------------------------------------------
Wanger U.S. Small Cap Top 5 Industries
As a % of net assets, as of 6/30/97
Information 25.1%
Energy/Minerals 18.8%
Industrial Goods/Services 16.7%
Finance 12.7%
Health Care 11.6%
- --------------------------------------------------------
Wanger International Small Cap Top 5 Countries
As a % of net assets, as of 6/30/97
United Kingdom 17.0%
Japan 13.2%
Australia 6.0%
Singapore 5.6%
Sweden 5.5%
- --------------------------------------------------------
Wanger U.S. Small Cap Top 10 Holdings
HealthCare Compare 5.2%
PPO Network
CalEnergy 5.2%
Power Plants
C-Tec 4.1%
Cable TV/Local Telephone
Data Transmission 3.9%
Data Services for Farmers
Coast Savings 3.6%
California Savings & Loan
Wackenhut 3.2%
Prison Management
Tesoro Petroleum 3.2%
Oil Refinery/Gas Reserves
Kronos 3.2%
Time Accounting
Software & Clocks
Applied Industrial 2.8%
Distributes Industrial
Components
Host Marriott Services 2.7%
Runs Airport Restaurants
- --------------------------------------------------------
Wanger International Small Cap Top 10 Holdings
Genting International 2.9%
Cruise Line - Singapore
Tyndall Australia 2.6%
Money Management/
Insurance - Australia
Kempen 2.5%
Stock Brokerage/Investment
Management - Netherlands
TT Tieto 2.3%
Computer Services/
Consulting - Finland
Li and Fung 2.0%
Sourcing of Consumer
Goods - Hong Kong
Euro Money 1.9%
Publications
Financial Publications/
Databases - United Kingdom
Shinki 1.9%
Corporate/Consumer
Lending - Japan
Venture Manufacturing 1.9%
Contract Electronics
Manufacturer - Singapore
St James Place 1.8%
Life Insurance -
United Kingdom
Vanda Systems 1.8%
Systems Integrator -
Hong Kong
- --------------------------------------------------------
The funds' top 10 holdings and portfolio diversification vary with changes in
portfolio investments. See the Statements of Investments for complete lists of
the funds' holdings, including those described under "Performance Review."
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Performance Review
Exuberance reigned on Wall Street last quarter, and Wanger U.S. Small Cap joined
in the parade. Your fund's 16.7% return was not quite up to the large-capped S&P
500's +17.5%, but better than the small-fried Russell 2000's +16.2%. Over the
past year, your fund has gained 24.4%, better than nearly three quarters of all
other variable annuity funds tracked by Lipper Analytical Services, Inc. This is
based on the one-year total return ending 6/30/97 for all 1013 variable
insurance funds.
We nearly pitched a perfect game last quarter. Only one of our top 20 holdings
(Respironics) fell in price, and merely 1/8 of a point at that. Our top five
sluggers were Wackenhut, HealthCare Compare, Data Transmission, C-Tec and
Kronos, each up 20-60% over the past three months. What propelled such strong
returns? Not any extraordinary news events, not any outsized earnings increases,
but simply the buying pressure from investors discovering and paying up for our
companies' wonderful franchises.
These newly enlightened investors figured out that Wackenhut manages safer,
cheaper prisons than do state bureaucrats; HealthCare Compare has a one-of-a-
kind national PPO health care network impossible to clone; Data Transmission's
subscriber base is growing 20% a year; C-Tec is offering a prix fixe bundled
cable, phone and internet service before any other cable guy or baby Bell; and
Kronos's time-clock software is a crucial piece of the factory automation
puzzle.
Even after their recent run, none of these companies are household names, yet.
We don't want to own yesterday's celebrity stocks, we want tomorrow's. We're
stock market talent scouts, not autograph hounds. We will continue to build our
portfolio of new and exciting small companies for you.
[PHOTO]
Robert Mohn
Lead Portfolio Manager
Wanger U.S. Small Cap
4
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
[SQUIRREL LOGO] Wanger U.S. Small Cap Results to June 30, 1997
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in
Wanger U.S. Small Cap
Total Return for Each Period
May 3, 1995 through June 30, 1997
Wanger U.S. Small Cap
$19,093
Russell 2000
$15,159
[GRAPH]
Wanger U.S. Small Cap
Wanger U.S. Small Cap Russell 2000
--------------------- ------------
5/3/95 $10,000 $10,000
6/30/95 $10,770 $10,700
9/30/95 $12,060 $11,757
12/31/95 $11,600 $12,012
3/31/96 $13,297 $12,629
6/30/96 $15,351 $13,261
9/30/96 $15,792 $13,306
12/31/96 $17,004 $13,756
3/31/97 $16,366 $13,044
4/30/97 $16,355 $13,081
5/31/97 $17,986 $14,536
6/30/97 $19,093 $15,159
- --------------------------------------------------------------------------------
This graph compares the results of $10,000 invested in Wanger U.S. Small Cap on
May 3,1995 (the date the Fund began operations) through June 30, 1997, with the
Russell 2000 with dividends reinvested. The beginning date of the Russell 2000
is as of May 31, 1995. The performance data quoted is past performances and does
not guarantee future results. The investment return and principal value of an
investment will fluctuate so that investors' shares, when redeemed, may be worth
more or less than their original cost.
Average Annual Total Return
1 year: 24.4% Life: 34.9%
5
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Performance Review
Your fund performed well in absolute terms during the first half of 1997 with a
gain of 10.2%. However, while we would all be very happy to have our investments
rise 10% every six months, you will note that the benchmarks we publish on page
3 of this report rose even more during the period, and that the red hot US
market did even better than the international benchmarks.
The underperformance of foreign stock markets relative to the US is explained by
the fact that not all foreign markets followed the US bull, and that those which
did (mainly the European markets) experienced currency weakness, which almost
entirely offset the appreciation in local share prices.
Adding insult to injury, small company shares in the larger foreign markets
underperformed their large company brethren by a very substantial margin. For
example, the UK FTSE index of large British company shares rose a respectable
12%, but the smaller companies managed only a measly 2% in the half. In France,
the large caps beat the small caps by a score of 23% to 11% (but a 13% fall in
the French Franc meant 10% and -2% returns in US $ terms), and in Japan the
large caps rose 6% whereas the small caps actually declined 8%!
In last year's annual report we emphasized that the relatively low volatility of
the fund (which has continued in the first six months of 1997) is the result of
extensive diversification by country and industry. The first half once again
provided evidence of this diversification in that the five best and worst stocks
came from eight different countries and nine different industries.
The good news is that international small company stocks now appear to be priced
more attractively relative to larger company stocks than at any time since this
fund's inception.
[PHOTO OF MARCEL HOUTZAGER]
Marcel Houtzager
Lead Portfolio Manager
Wanger International
Small Cap
6
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
[SQUIRREL LOGO] Wanger International Small Cap Results to June 30, 1997
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in
Wanger International Small Cap
Total Return for Each Period
May 3, 1995 through June 30, 1997
Wanger International Small Cap
$19,568
EAFE
$12,558
[GRAPH]
Wanger Int'l Small Cap
Wanger Int'l Small Cap EAFE
---------------------- ----
5/3/95 $10,000 $10,000
6/30/95 $10,970 $ 9,825
9/30/95 $12,910 $10,234
12/31/95 $13,450 $10,649
3/31/96 $15,499 $10,956
6/30/96 $17,183 $11,130
9/30/96 $17,023 $11,116
12/31/96 $17,755 $11,293
3/31/97 $18,357 $11,116
4/30/97 $18,204 $11,175
5/31/97 $18,983 $11,901
6/30/97 $19,568 $12,558
- --------------------------------------------------------------------------------
This graph compares the results of $10,000 invested in Wanger International
Small Cap on May 3,1995 (the date the Fund began operations) through June
30,1997, with Morgan Stanley's Europe, Australia and Far East Index (EAFE), with
dividends reinvested. The beginning date of EAFE is as of May 31, 1995. The
performance data quoted is past performances and does not guarantee future
results. The investment return and principal value of an investment will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
Average Annual Total Return
1 year: 13.9% Life: 36.5%
7
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
<C> <S> <C>
Number Value
of Shares
Common Stocks and Other Equity-Like
Securities-93.4%
Information -25.1%
- ---------------------------------------------------------------------------------
Broadcasting/CATV-4.1%
235,200 C-Tec (b) $ 8,202,600
Cable TV/Local Telephone
- ---------------------------------------------------------------------------------
Programming for CATV/TV/Satellites-10.6%
244,600 Data Transmission (b) 7,766,050
Data Services for Farmers
195,000 Gaylord Entertainment 4,497,187
Country & Western Cable Channels
193,100 United Video Satellite (b) 4,055,100
CATV & Satellite Dish Programming
118,000 Tele-Communications,
Liberty Media Group (b) 2,802,500
CATV & Satellite Dish Programming
58,000 International Family Entertainment 1,993,750
Cable TV Programming
- ---------------------------------------------------------------------------------
Total 21,114,587
- ---------------------------------------------------------------------------------
Mobile Communications-2.3%
184,500 COMARCO (b) 3,551,625
Wireless Network Testing
63,000 Centennial Cellular (b) 1,000,125
Cellular Franchises
- ---------------------------------------------------------------------------------
Total 4,551,750
- ---------------------------------------------------------------------------------
Computer Software/Services-3.6%
306,400 Wonderware (b) 4,327,900
Industrial Control Software
69,500 CACI International, Cl. A (b) 1,059,875
Computer Software Systems
20,000 Compuware (b) 955,000
Computer Software & Services
29,200 BDM International (b) 671,600
Software Consulting
6,300 Analysts International 211,050
Contract Programming
- ---------------------------------------------------------------------------------
Total 7,225,425
- ---------------------------------------------------------------------------------
Business Information-0.5%
49,000 American Business Information (b) $ 1,065,750
Provides Data on Small Businesses
- ---------------------------------------------------------------------------------
Contract Manufacturing-0.8%
38,200 ACT Manufacturing (b) 1,594,850
Contract Manufacturing
- ---------------------------------------------------------------------------------
Computer Systems-3.2%
232,000 Kronos (b) 6,380,000
Time Accounting Software & Clocks
=================================================================================
Information-Total 50,134,962
Health Care-11.6%
- ---------------------------------------------------------------------------------
Medical Equipment -3.2%
210,000 Respironics (b) 4,436,250
Sleep Apnea Products
70,000 Kinetic Concepts 1,260,000
Hospital Beds
80,000 Cardiac Pathways (b) 720,000
Heart Surgery Devices
- ---------------------------------------------------------------------------------
Total 6,416,250
- ---------------------------------------------------------------------------------
Services-8.4%
199,000 HealthCare Compare (b) 10,422,625
PPO Network
125,000 Lincare Holdings (b) 5,375,000
Home Health Care Services
74,900 United Payors & Providers (b) 992,425
Medical Claims Repricing
- ---------------------------------------------------------------------------------
Total 16,790,050
=================================================================================
Health Care-Total 23,206,300
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Number Value
of Shares
Consumer Goods/Services -6.7%
- ---------------------------------------------------------------------------------
Retail-3.5%
<C> <S> <C>
458,400 Host Marriott Services (b) $ 5,386,200
Runs Airport Restaurants
60,000 Borders Group (b) 1,447,500
Bookstores
- ---------------------------------------------------------------------------------
Total 6,833,700
- ---------------------------------------------------------------------------------
Entertainment/Leisure-3.0%
112,500 Royal Caribbean Cruises 3,930,468
Cruises to Caribbean & Alaska
50,400 Showboat 878,850
Casinos
42,000 Rio Hotel & Casino (b) 632,625
Casino & Hotel
115,200 Monarch Casino & Resort (b) 460,800
Casino & Hotel
- ---------------------------------------------------------------------------------
Total 5,902,743
- ---------------------------------------------------------------------------------
Manufacturers-0.3%
14,000 Newell 554,750
Household Goods
=================================================================================
Consumer Goods/Services-Total 13,291,193
Finance-12.7%
- ---------------------------------------------------------------------------------
Banks/Savings & Loans-7.3%
160,000 Coast Savings (b) 7,270,000
California Savings & Loan
60,000 Texas Regional Bancshares 2,520,000
TexMex Bank
67,500 Peoples Bank Bridgeport 1,746,562
Consumer Finance
106,000 Imperial Thrift & Loan (b) 1,722,500
California Thrift
80,000 Commonwealth Bancorp 1,310,000
Pennsylvania Savings & Loan
- ---------------------------------------------------------------------------------
Total 14,569,062
- ---------------------------------------------------------------------------------
Insurance-2.9%
112,100 Acceptance Insurance (b) $ 2,550,275
Crop Insurance
64,000 Penn Treaty American (b) 1,960,000
Nursing Home Insurance
43,000 Leucadia National 1,330,312
Insurance Holding Company
- ---------------------------------------------------------------------------------
Total 5,840,587
- ---------------------------------------------------------------------------------
Money Management-2.3%
125,000 Baker Fentress 2,468,750
Closed-End Investment Company
68,000 SEI Investments 1,640,500
Mutual Fund Administration
65,000 Phoenix Duff & Phelps 479,375
Money Management
- ---------------------------------------------------------------------------------
Total 4,588,625
- ---------------------------------------------------------------------------------
Credit Cards-0.2%
10,000 National Data 433,125
Credit Card & Medical Claims Processor
=================================================================================
Finance-Total 25,431,399
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments June 30, 1997
(Unaudited)
- ---------------------------------------------------------------------
Number Value
of Shares
<C> <S> <C>
Industrial Goods/Services-16.7%
- ---------------------------------------------------------------------
Machinery-3.7%
154,800 Applied Industrial Technologies $5,572,800
Distributes Industrial Components
117,450 Farr (b) 1,835,156
Filters
- ---------------------------------------------------------------------
Total 7,407,956
- ---------------------------------------------------------------------
Steel-6.6%
115,000 Schnitzer Steel 3,421,250
Scrap Steel Processor
176,000 Atchison Casting (b) 2,926,000
Steel Foundries
87,000 Gibraltar Steel (b) 2,001,000
Steel Processing
73,600 Steel Dynamics (b) 1,840,000
Steel Mini-Mill
91,000 Worthington Industries 1,666,437
Steel Processing
105,000 Universal Stainless (b) 1,365,000
Semi-Finished Stainless Steel Producer
- ---------------------------------------------------------------------
Total 13,219,687
- ---------------------------------------------------------------------
Industrial Suppliers-1.1%
115,000 Lilly Industries, Cl. A 2,314,375
Industrial Coatings
- ---------------------------------------------------------------------
Services-5.2%
323,300 Wackenhut, Cl. B 6,445,793
Prison Management
100,000 World Color Press (b) 2,375,000
Printing
50,000 Hub Group (b) 1,506,250
Freight Forwarder
- ---------------------------------------------------------------------
Total 10,327,043
- ---------------------------------------------------------------------
Industrial Goods/Services-Total 33,269,061
- ---------------------------------------------------------------------
Energy/Minerals-18.8%
- ---------------------------------------------------------------------
Independent Power-5.9%
272,000 CalEnergy (b) $10,336,000
Power Plants
19,000 AES Corporation (b) 1,344,250
Power Plants
- ---------------------------------------------------------------------
Total 11,680,250
- ---------------------------------------------------------------------
Oil/Gas Producers-5.1%
432,300 Tesoro Petroleum (b) 6,403,443
Oil Refinery/Gas Reserves
126,900 Seagull Energy (b) 2,220,750
Oil & Gas Producer
41,300 United Meridian (b) 1,239,000
Oil & Gas Producer
100,000 Tipperary (b) 400,000
Oil & Gas Producer
- ---------------------------------------------------------------------
Total 10,263,193
- ---------------------------------------------------------------------
Distribution/Marketing/Refining-3.5%
163,000 United Cities Natural Gas 3,830,500
Natural Gas Distributor
181,100 NGC 2,795,736
Gas Processing/Marketing
18,000 Atmos Energy 432,000
Natural Gas Distributor
- ---------------------------------------------------------------------
Total 7,058,236
- ---------------------------------------------------------------------
Oil Services-4.3%
46,700 Atwood Oceanics (b) 3,128,900
Offshore Drilling
211,000 GeoScience (b) 2,769,375
Offshore Seismic Equipment
100,300 J Ray McDermott (b) 2,708,100
Offshore Construction
- ---------------------------------------------------------------------
Total 8,606,375
- ---------------------------------------------------------------------
Energy/Minerals-Total 37,608,054
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments June 30, 1997
(Unaudited)
- ----------------------------------------------------------------
Principal Amount or Value
Number
of Shares
Real Estate-1.9%
- ----------------------------------------------------------------
54,800 Forest City Enterprises Cl. A $2,616,700
Shopping Centers
80,000 Cornerstone Properties 1,230,000
Downtown Office Buildings
- ----------------------------------------------------------------
Real Estate-Total 3,846,700
Total Common Stocks and Other
Equity-Like Securities-93.4% 186,787,669
- ----------------------------------------------------------------
(Cost: $149,968,929)
Short-Term Obligation-6.5% 12,947,000
$12,947,000 State Street Bank Repurchase
Agreement 5.00% 07/01/97;
6/30/97 Agreement Collateralized by U.S. Treasury Notes
- ----------------------------------------------------------------
(Cost: $12,947,000)
Total Investments-99.9% 199,734,669
- ----------------------------------------------------------------
(Cost: $162,915,929)
Cash and Other Assets Less Liabilities-0.1% 180,800
- ----------------------------------------------------------------
Total Net Assets-100% $199,915,469
- ----------------------------------------------------------------
Notes to Statement of Investments:
(a) At June 30, 1997 for federal income tax purposes cost of
investments was $162,915,929 and net unrealized appreciation
was $36,818,740 consisting of gross unrealized appreciation
of $38,144,789 and gross unrealized depreciation of $1,326,049.
(b) Non-income producing security.
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments June 30, 1997
(Unaudited)
- --------------------------------------------------------------------------
Number Value
of Shares
<S> <C> <C>
Common Stocks and Other Equity-Like
Securities-96.2%
Europe-43.4%
- --------------------------------------------------------------------------
Germany/Austria-4.0%
10,000 Rhoen Klinikum $1,319,866
1,200 Rhoen Klinikum Pfd. 153,563
Hospital Management
9,200 Schaltbau 1,425,456
Components Supplier to the Rail Industry
12,000 KTM Motorradholding (b) 822,118
Off-Road Motorcycles (Austria)
10,000 Schoeller-Bleckmann (b) 812,087
Oilfield Services (Austria)
2,500 Cewe Color Holdings 652,762
Photographic Developing/Printing
- --------------------------------------------------------------------------
Total 5,185,852
- --------------------------------------------------------------------------
Denmark-0.5%
5,000 Kompan International 603,227
Playground Equipment
- --------------------------------------------------------------------------
Netherlands-2.5%
90,000 Kempen 3,293,523
Stock Brokerage/Investment Management
- --------------------------------------------------------------------------
Finland-3.1%
34,000 TT Tieto, Cl. B 2,945,593
Computer Services/Consulting
99,200 Talentum 1,126,795
Trade Journals
- --------------------------------------------------------------------------
Total 4,072,388
- --------------------------------------------------------------------------
Norway-0.4%
62,500 P4 Radio Helo Norge (b) 529,299
Commercial Radio Station
- --------------------------------------------------------------------------
Sweden-5.5%
106,000 Getinge Industrier 1,878,168
Sterilization & Disinfection Equipment
50,000 Esselte, Series A 1,144,593
Office Supplies & Related Equipment
78,000 MTV Production (b) 635,540
Television Production Company
78,300 Caran 587,351
Engineering Consulting
10,200 Scala International (b) 580,444
Accounting Software
50,000 Elanders (b) 565,830
Printer
20,000 Tryckindustri 475,944
Printer
75,000 Micronic Laser Systems (b) 368,598
Laser Equipment
10,500 Pricer, Cl. B (b) 361,226
Electronic Shelf Labels for Supermarkets
30,000 Mandator (b) 343,378
Computer Services/Consulting
24,000 Oresa Ventures (b) 223,490
Eastern European Venture Capital
- --------------------------------------------------------------------------
Total 7,164,562
- --------------------------------------------------------------------------
France-2.0%
12,000 Axime Ex Segin (b) 1,420,541
Computer Services/Consulting
10,000 Fininfo 1,175,268
Data Feeds for French Banks & Brokers
- --------------------------------------------------------------------------
Total 2,595,809
- --------------------------------------------------------------------------
United Kingdom/Ireland-17.0%
100,000 Euro Money Publications 2,504,772
Financial Publications & Databases
1,100,000 St James Place 2,398,257
Life Insurance
3,000,000 Premier Oil (b) 2,309,217
Oil & Gas Producer
63,000 Oresa 2,097,018
Natural Cosmetics Sold Door-to-Door
480,000 Medeva 2,049,086
Drugs for Hyperactive Children
85,000 Oriflame International 1,493,293
Natural Cosmetics Sold Door-to-Door
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap
- --------------------------------------------------------------------------------
Number Value
of Shares
- --------------------------------------------------------------------------------
<C> <S> <C>
United Kingdom/Ireland-17.0% (cont.)
200,000 Seton Healthcare Group $ 1,436,291
Pharmaceuticals
160,000 Edinburgh Fund Managers 1,255,548
Investment Management
775,000 Aberdeen Trust 1,180,197
Money Management
2,000,000 Electronics Boutique (b) 1,115,081
Videogame/Computer Software Stores
240,000 Dorling Kindersley 1,024,543
Reference Books & CD-ROMs
40,000 NTL (b) 995,000
Cable TV & Telephone System
60,000 Vosper Thornycroft 761,417
Naval Shipbuilding
58,500 Serco Group 685,425
Facilities Management
65,000 Planning Sciences (b) 373,756
Database & Business Intelligence Software
170,000 Tunstall 370,639
"I've fallen and I can't get up" monitors
- --------------------------------------------------------------------------------
Total 22,049,540
- --------------------------------------------------------------------------------
Portugal-1.0%
39,200 Investec (b) 1,337,737
Sports Newspaper
- --------------------------------------------------------------------------------
Switzerland-1.4%
3,000 Societe Generale d'Affichage 1,154,400
Billboard Advertising
1,400 Phoenix Mecano 729,817
Electrical Components Manufacturer
- --------------------------------------------------------------------------------
Total 1,884,217
- --------------------------------------------------------------------------------
Hungary-0.9%
40,000 Cofinec (b) 1,105,000
Consumer Goods Packaging
- --------------------------------------------------------------------------------
Italy/Greece-5.1%
232,500 Athens Medical Center 1,867,827
Hospitals (Greece)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Statement of Investments June 30, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Number Value
of Shares
- --------------------------------------------------------------------------------
<C> <S> <C>
Italy/Greece-5.1% (cont.)
100,000 Pininfarina $ 1,660,299
Car Design
40,000 Cellular Communications International (b) 1,340,000
Mobile Communications
75,000 Banca Pop Commercia e Industria 905,819
Regional Bank
500,000 Autogrill Finanziaria (b) 836,027
Tollway Restaurants
- --------------------------------------------------------------------------------
Total 6,609,972
================================================================================
Europe-Total 56,431,126
Asia-32.3%
- --------------------------------------------------------------------------------
Hong Kong-5.4%
2,300,000 Li and Fung 2,582,935
Sourcing of Consumer Goods
4,994,000 Vanda Systems 2,320,691
Systems Integrator
4,900,000 Golden Harvest Entertainment 1,214,405
Movie Distribution & Exhibition
3,000,000 Regent Pacific 842,263
Money Management
- --------------------------------------------------------------------------------
Total 6,960,294
- --------------------------------------------------------------------------------
Japan-13.2%
100,040 Shinki 2,482,859
Corporate & Consumer Lending
120,300 Belluna 1,576,946
Catalog Sales
39,000 Hokuto 1,380,319
Mushroom Grower
40,000 People 1,363,278
Sports Clubs
85,000 Tecmo 1,337,061
Commercial Video Games
50,000 Nihon Jumbo 1,214,716
Photo Processing Lab
25,000 Tiemco 1,114,218
Fishing Equipment
30,000 Konami 1,122,083
Entertainment Software/Hardware
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
<TABLE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments June 30, 1997
(Unaudited)
<CAPTION>
- ----------------------------------------------------------------------------
Number Value
of Shares
- ----------------------------------------------------------------------------
Japan--13.2% (cont.)
<C> <S> <C>
20,300 HIS $1,073,276
Travel Agent
50,000 Arrk 1,070,523
Industrial Modeling
35,000 NuSkin Asia Pacific (b) 927,500
Network Sales
61,920 Central Uni 811,675
Health Care/Medical Equipment
10,000 Ryohin Keikaku 790,002
Designer & Retailer of Muji Brand
Specialty Consumer Goods
12,600 Noritsu Koki 622,127
Photo Processing Lab Manufacturer
10,000 Mars Engineering 228,967
150 Mars Engineering Warrants 1/25/00 2,187
Gaming Systems & Machinery
- ----------------------------------------------------------------------------
Total 17,127,737
- ----------------------------------------------------------------------------
Malaysia--0.7%
159,500 Malaysian Assurance Alliance 928,942
Insurance
- ----------------------------------------------------------------------------
Indonesia/Philippines--3.4%
3,236,700 Int'l Container Terminal Services (b) 1,656,636
Container Handling Terminals & Port
Management (Philippines)
900,000 Komatsu Indonesia 1,406,539
Industrial Equipment Machines
3,700,000 Mondragon International (b) 1,304,55
Casinos/Resorts (Philippines)
- ----------------------------------------------------------------------------
Total 4,367,770
- ----------------------------------------------------------------------------
India--0.7%
60,000 IS Himalaya Fund (b) 906,000
Closed-End Fund
- ----------------------------------------------------------------------------
Korea--2.6%
9,135 S1 Corporation 1,831,114
Alarm Monitoring
55,000 Dongbu Fire & Marine Insurance (b) 1,597,973
Non-Life Insurance
- ----------------------------------------------------------------------------
Total 3,429,087
- ----------------------------------------------------------------------------
Singapore--5.6%
1,277,400 Genting International 3,768,331
Cruise Line
750,000 Venture Manufacturing 2,444,397
Contract Electronics Manufacturer
2,062,000 Omni Industries (b) 1,059,987
Contract Electronics Manufacturer
- ----------------------------------------------------------------------------
Total 7,272,715
- ----------------------------------------------------------------------------
Thailand--0.7%
745,600 Shinawatra Satellite 899,440
Satellite Leasing
============================================================================
Asia--Total 41,891,985
Latin America--8.0%
- ----------------------------------------------------------------------------
Mexico--2.0%
417,000 Nadro, Series L 1,417,957
Pharmaceutical Distribution
87,000 Grupo Radio Centro 1,022,250
Radio Stations & Networks
35,000 Corp Interamericana de Entretenimiento (b) 149,591
Management of Live Entertainment
- ----------------------------------------------------------------------------
Total 2,589,798
- ----------------------------------------------------------------------------
Brazil/Chile--2.9%
120,000 Elevadores Atlas 1,563,254
Elevator Services
20,000 Genesis Chile Fund 1,005,000
Closed-End Fund (Chile)
29,500 Bompreco 818,625
Supermarket Chain
550,000 Braziian Smaller Companies Warrants 409,750
Closed-End Fund
- ----------------------------------------------------------------------------
Total 3,796,629
</TABLE>
14
See accompanying notes to financial statements.
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Number Value
of Shares
<S> <C> <C>
- -------------------------------------------------------------------
Argentina-3.1%
123,300 Patagonia $ 1,812,691
Supermarkets
500,000 Siderca 1,295,129
Steel Pipe Producer
412,000 Cresud (b) 918,852
Grain & Cattle Farms
- -------------------------------------------------------------------
Total 4,026,672
===================================================================
Latin America-Total 10,413,099
Other Countries-12.5%
- -------------------------------------------------------------------
Australia-6.0%
2,000,000 Tyndall Australia 3,371,412
Money Management & Insurance
1,000,000 Australia Hospital Care 1,723,160
Hospital Management
450,000 Anaconda Nickel (b) 1,264,275
Nickel Mining
100,000 Hudson Conway (b) 1,000,183
Casino Managers
88,450 PetSec Energy (b) 400,913
Oil & Gas Producer
- -------------------------------------------------------------------
Total 7,759,943
- -------------------------------------------------------------------
Israel-1.4%
70,100 Blue Square Israel (b) 1,209,225
Supermarkets & Department Stores
56,100 ZAG Industries (b) 575,025
Plastic Hardwares
- -------------------------------------------------------------------
Total 1,784,250
- -------------------------------------------------------------------
Canada-4.3%
70,000 Shaw Industries 1,778,414
Oil Field Services
140,000 Ranger Oil 1,303,750
Oil & Gas Producer
76,000 Milltronics (b) 936,503
Industrial Measurement Instruments
<CAPTION>
- -------------------------------------------------------------------
Principal Amount or Value
Number
of Shares
<S> <C> <C>
- -------------------------------------------------------------------
Canada-4.3% (cont.)
316,500 Pan East Petroleum (b) $ 825,892
Oil & Gas Producer
85,000 Club Monaco (b) 754,747
Speciality Apparel & Accessories
- -------------------------------------------------------------------
Total 5,599,306
- -------------------------------------------------------------------
South Africa-0.8%
200,000 Energy Africa (b) 1,036,269
Oil & Gas Producer
===================================================================
Other-Total 16,179,768
Total Common Stocks and Other
Equity-Like Securities-96.2% 124,915,978
- -------------------------------------------------------------------
(Cost: $109,472,124)
Short-Term Obligation-4.7% 6,129,000
$6,129,000 State Street Bank Repurchase
Agreement 5.00% 7/01/97; 6/30/97 Agreement
Collateralized by U.S. Treasury Notes
- -------------------------------------------------------------------
(Cost: $6,129,000)
Total Investments-100.9% 131,044,978
- -------------------------------------------------------------------
(Cost: $115,601,124)
Cash and Other Assets Less Liabilities-(0.9%) (1,169,102)
- -------------------------------------------------------------------
Total Net Assets-100% $129,875,876
</TABLE>
- -------------------------------------------------------------------
Notes to Statement of Investments:
(a) At June 30, 1997 for federal income tax purposes cost of
investments was $115,789,080 and net unrealized appreciation
was $15,255,898 consisting of gross unrealized appreciation of
$23,430,383 and gross unrealized depreciation of $8,174,485.
(b) Non-income producing security.
See accompanying notes to financial statements.
15
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
================================================================================
Wanger International Small Cap Portfolio Diversification June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
At June 30, 1997, the Fund's portfolio of investments as a percentage of net
assets was diversified as follows:
Value Percent
======================================================
<S> <C> <C>
Information
Software/Services $11,103,089 8.6%
Broadcasting/CATV 4,519,826 3.5
Distribution 3,529,315 2.7
Mobile Communications 2,239,440 1.7
Consumer Electronics 2,066,878 1.6
Computer Systems 1,059,987 0.8
Equipment 368,598 0.3
- ------------------------------------------------------
Total 24,887,133 19.2
======================================================
Health Care
Biotechnology/Drug Delivery 4,903,334 3.8
Services 4,131,258 3.2
Equipment 2,689,843 2.1
Hospital/Laboratory Supplies 1,723,160 1.3
- ------------------------------------------------------
Total 13,447,595 10.4
======================================================
Consumer Goods/Services
Retail 16,354,863 12.6
Entertainment/Leisure 9,503,635 7.3
Manufacturers 7,366,586 5.7
Food 3,135,198 2.4
Recreational Vehicles 822,118 0.6
- ------------------------------------------------------
Total 37,182,400 28.6
======================================================
Finance
Money Management 14,885,440 11.5
Insurance 2,526,915 1.9
Banks 905,819 0.7
Other 4,588,825 3.5
- ------------------------------------------------------
Total 22,906,999 17.6
======================================================
Industrial Goods/Services
Services 13,650,907 10.5
Machinery 1,406,539 1.1
Steel 761,417 0.6
- ------------------------------------------------------
Total 15,818,863 12.2
======================================================
Energy/Minerals
Oil/Gas Producers 5,876,041 4.5
Oil Services 2,107,216 1.6
Mining 1,264,275 1.0
- ------------------------------------------------------
Total 9,247,532 7.1
======================================================
Transportation 1,425,456 1.1
======================================================
Total Common Stocks and
Other Equity-Like Securities 124,915,978 96.2
======================================================
Short-Term Obligations 6,129,000 4.7
======================================================
Cash and Other Assets less
Liabilities (1,169,102) (0.9)
======================================================
Net Assets $129,875,876 100.0%
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Semi-Annual Report
===============================================================================================================================
Statements of Assets and Liabilities June 30, 1997
(Unaudited)
Wanger U.S. Wanger International
Small Cap Small Cap
===============================================================================================================================
<S> <C> <C>
Assets
Investments, at value (cost: Wanger U.S. Small Cap $162,915,929; $199,734,669 $131,044,978
Wanger International Small Cap $115,601,124)
Cash 981 627,022
Organization costs 56,735 56,735
Receivable for:
Securities sold 850,358 300,400
Fund shares sold 509,961 328,129
Dividends and interest 40,725 300,227
Other assets 1,735 1,723
- -------------------------------------------------------------------------------------------------------------------------------
Total assets 201,195,164 132,659,214
Liabilities and Net Assets
Payable for:
Securities purchased 664,647 1,928,057
Fund shares redeemed 522,244 730,062
Amount owed to advisor 56,960 56,742
Other 35,844 68,477
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,279,695 2,783,338
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $199,915,469 $129,875,876
===============================================================================================================================
Fund shares outstanding 10,733,961 6,811,524
===============================================================================================================================
Pricing of Shares
Net asset value, offering price and redemption price per share $18.62 $19.07
===============================================================================================================================
Analysis of Net Assets
Paid-in capital $159,357,460 $111,243,576
Undistributed net realized gain on sales of investments and foreign currency transactions 3,894,567 3,094,271
Net unrealized appreciation of investments and foreign currencies
(net of unrealized PFIC gains of $187,956 for Wanger International Small Cap) 36,818,740 15,258,756
Net investment income (loss) (155,298) 279,273
- -------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $199,915,469 $129,875,876
===============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Semi-Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations For the Six Months Ended June 30, 1997
(Unaudited)
Wanger U.S. Wanger International
Small Cap Small Cap
=========================================================================================================================
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes of $105,009 for Wanger International Small Cap) $396,581 $1,026,335
Interest 296,431 140,936
- -------------------------------------------------------------------------------------------------------------------------
Total investment income 693,012 1,167,271
=========================================================================================================================
Expenses:
Investment advisory 771,098 697,099
Custodian 15,609 113,701
Legal and audit 33,374 33,814
Reports to shareholders 11,826 10,726
Amortization of organization costs 9,906 9,906
Transfer agent 9,593 9,593
Trustees 8,001 8,025
Insurance 3,408 3,410
Other 1,045 1,724
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 863,860 887,998
Less custodian fees paid indirectly (15,550) -
- -------------------------------------------------------------------------------------------------------------------------
Net expenses 848,310 887,998
=========================================================================================================================
Net investment income (loss) (155,298) 279,273
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 3,894,637 3,094,338
Net change in unrealized appreciation 17,357,008 7,442,343
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 21,251,645 10,536,681
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $21,096,347 $10,815,954
=========================================================================================================================
See accompanying notes to financial statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Wagner Advisors Trust 1997 Semi-Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
(Unaudited)
-----------------------------------------------------------------------------------
Wanger U.S. Small Cap Wanger International Small Cap
Six months ended Year ended Six months ended Year ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) ($155,298) ($286,925) $279,273 ($272,469)
Net realized gain on sales of investments 3,894,637 3,926,442 3,094,338 2,570,609
Net change in unrealized appreciation 17,357,008 19,022,289 7,442,343 6,894,415
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting 21,096,347 22,661,806 10,815,954 9,192,555
from operations
Distributions to shareholders from:
Net investment income - - - (6,530)
Net realized gain (3,530,225) (66,519) (2,453,255) (52,334)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (3,530,225) (66,519) (2,453,255) (58,864)
From Fund share transactions:
Reinvestment of dividends and capital
gain distributions 3,530,225 66,519 2,453,255 58,864
Proceeds from other shares sold 53,233,183 91,019,446 38,496,843 67,872,674
- ---------------------------------------------------------------------------------------------------------------------------
56,763,408 91,085,965 40,950,098 67,931,538
Payments for shares redeemed (3,371,972) (6,626,877) (4,292,003) (3,579,071)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 53,391,436 84,459,088 36,658,095 64,352,467
- ---------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 70,957,558 107,054,375 45,020,794 73,486,158
===========================================================================================================================
Net assets:
Beginning of period 128,957,911 21,903,536 84,855,082 11,368,924
- ---------------------------------------------------------------------------------------------------------------------------
End of period (a) $199,915,469 $128,957,911 $129,875,876 $84,855,082
===========================================================================================================================
</TABLE>
(a) Includes accumulated net investment income (loss) of ($155,298) and $279,273
at June 30, 1997 for Wanger U.S. Small Cap and Wanger International Small Cap,
respectively.
See accompanying notes to financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Wagner Advisors Trust 1997 Semi-Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap Financial Highlights
(Unaudited)
Six months ended Year ended May 3, 1995 through
June 30, 1997 December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, beginning of period $16.97 $11.60 $10.00
Income From Investment Operations
Net investment loss (c) (.01) (.06) (.05)
Net realized and unrealized gain on investments 2.05 5.46 1.65
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.04 5.40 1.60
Less Distributions
Dividends from net investment income - - -
Distributions from net realized gain (.39) (.03) -
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.03) -
Net Asset Value, end of period $18.62 $16.97 $11.60
- --------------------------------------------------------------------------------------------------------------------------
Total Return 12.28% 46.59% 16.00%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.09%* 1.21% 2.08%*
Ratio of net investment income (loss) to average net assets(b) (.20) (.41) (1.44)
Portfolio turnover rate 31%* 46% 59%*
Net assets at end of period $199,915,469 $128,957,911 $21,903,536
The average commissions paid per share on stock transactions
for the six months ended June 30, 1997 and the year
ended December 31, 1996 was $.0574 and $.0581, respectively.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) In accordance with a requirement of the Securities and Exchange
Commission, this ratio reflects gross custodian fees. This ratio net of
custodian fees paid indirectly would have been 1.07% for the six
months ended June 30, 1997, 1.19% for the year ended December 31, 1996
and 2.00% for the period ended December 31, 1995.
(b) The Fund was reimbursed by the Advisor for certain expenses from
May 3, 1995 through December 31, 1995. Without the reimbursement, the
ratio of expenses to average net assets and the ratio of net investment
income to average net assets for the period ended December 31, 1996
would have been 2.35% and (1.71%), respectively.
(c) Net investment loss per share for the six months ended June 30, 1997
and the year ended December 31, 1996 was based upon the average
shares outstanding during the period.
See accompanying notes to financial statements.
20
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended May 3, 1995 through
June 30, 1997 December 31, 1996 December 31, 1995
================================================================================================================================
<S> <C> <C> <C>
Net Asset Value, beginning of period $17.71 $13.45 $10.00
Income From Investment Operations
Net investment income (loss) (c) .05 (.09) (.03)
Net realized and unrealized gain on investments 1.73 4.38 3.48
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.78 4.29 3.45
Less Distributions
Dividends from net investment income - - -
Distributions from net realized gain (.42) (.03) -
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.03) -
Net Asset Value, end of period $19.07 $17.71 $13.45
=================================================================================================================================
Total Return 10.21% 32.01% 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.64% 1.79% 2.32%
Ratio of net investment income (loss) to average net assets (b) .52% (.56%) (.81%)*
Portfolio turnover rate 38%* 50% 14%*
Net assets at end of period $129,875,876 $84,855,082 $11,368,924
The average commissions paid per share on stock transactions
for the six months ended June 30, 1997 and for the year
ended December 31, 1996 was $.0096 and $.0130, respectively.
- --------------------------------------------------------------------------------------------------------------------------------
*Annualized
</TABLE>
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 1.75% for the year ended December 31, 1996
and 2.00% for the period ended December 31, 1995.
(b) The Fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets for the period ended December 31, 1995 would have been
4.20% and (2.69%), respectively.
(c) Net investment income (loss) per share for the six months ended June 30,
1997 and the year ended December 31, 1996 was based upon the average shares
outstanding during the period.
See accompanying notes to financial statements.
21
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
1. Nature of Operations
Wanger U.S. Small Cap and Wanger International Small Cap ("the Funds") are
series of Wanger Advisors Trust ("the Trust"), an open-end management investment
company organized as a Massachusetts business trust. The investment objective of
each Fund is to seek long-term growth of capital. The Funds are available only
for allocation to certain life insurance company separate accounts established
for the purpose of funding qualified and non-qualified variable annuity
contracts, and may also be offered directly to certain types of pension plans
and retirement arrangements.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not readily available and any other assets
are valued as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund's shares outstanding.
Custodian fees
Custodian fees are reduced based on each Fund's cash balances maintained with
the custodian. This presentation does not affect the determination of net
investment income.
Federal income taxes, dividends and distributions to shareholders
The Funds have complied with the special provisions of the Internal Revenue Code
available to regulated investment companies and, in the manner provided therein,
distribute all of their taxable income, as well as any net realized gain on
sales of investments and foreign currency transactions reportable for federal
income tax purposes.
Wanger International Small Cap has elected to mark-to-market its
investments in Passive Foreign Investment Companies ("PFICS") for income tax
purposes. In accordance with this election, the Fund recognizes net unrealized
appreciation on PFICS as ordinary income for federal income tax purposes.
Cumulative net unrealized appreciation at June 30, 1997 amounted to $187,956.
Dividends and distributions payable to its shareholders are recorded by
each Fund on the ex-dividend date.
22
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
[WANGER LOGO]
Notes to Financial Statements
(Unaudited)
3. Transaction with Affiliates
The Funds' investment advisor, Wanger Asset Management, L.P., ("WAM")
furnishes continuing investment supervision to the Funds and is responsible for
overall management of the Funds' business affairs. Each Fund pays WAM a monthly
advisory fee based upon average daily net assets at the following rates:
<TABLE>
<CAPTION>
Wanger U.S. Wanger International
Small Cap Small Cap
- --------------------------------------------------------------------
<S> <C> <C>
Average Daily Net Assets:
For the first $100 million 1.00% 1.30%
Next $150 million .95% 1.20%
In excess of $250 million .90% 1.10%
- --------------------------------------------------------------------
</TABLE>
The investment advisory agreement also provides that WAM will reimburse the
Funds to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 1.50% for Wanger U.S. and 1.90% for Wanger International
Small Cap, of average net assets. WAM was not required to reimburse the Funds
under these agreements for the six months ended June 30, 1997.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. Wanger U.S. Small Cap and Wanger International Small Cap incurred
trustees' fees and expenses of $7,950 each in 1997 to trustees not affiliated
with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the
distributor of each Fund's shares and receives no compensation for its services.
- --------------------------------------------------------------------------------
4. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statements of changes
in net assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
---------------------------------------- --------------------------------------
Wanger U.S.Small Cap Wanger International Small Cap
Six months ended Year ended Six months ended Year ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,123,276 6,137,385 2,117,892 4,154,432
Shares issued in reinvestment of dividend and
capital gain distributions 210,886 5,157 136,748 3,911
- ----------------------------------------------------------------------------------------------------------------------------
3,334,162 6,142,542 2,254,640 4,158,343
Less shares redeemed 198,322 432,817 234,237 212,404
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in shares outstanding 3,135,840 5,709,725 2,020,403 3,945,939
============================================================================================================================
</TABLE>
5. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the six months ended June 30, 1997 were:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Wanger U.S. Small Cap $72,035,139 $22,884,152
Wanger International Small Cap 55,007,526 19,800,575
- --------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Wanger Advisors Trust 1997 Semi-Annual Report
- --------------------------------------------------------------------------------
24
<PAGE>
Wanger Advisors Trust
Trustees
Fred D. Hasselbring
Charles P. McQuaid
P. Michael Phelps
James A. Star
Ralph Wanger
Officers
Ralph Wanger
President
Charles P. McQuaid
Senior Vice President
Terence M. Hogan
Vice President
Marcel P. Houtzager
Vice President
Robert A. Mohn
Vice President
Leah J. Zell
Vice President
Merrillyn J. Kosier
Vice President
Bruce H. Lauer
Vice President and
Treasurer
Paula L. Rogers
Vice President and
Secretary
Kenneth A. Kalina
Assistant Treasurer
Transfer Agent,
Dividend Disbursing Agent
and Custodian
State Street Bank
and Trust Company
Attention:
Wanger Advisors Trust
P.O. Box 8502
Boston, Massachusetts
02266-8502
Distributor
WAM Brokerage
Services, L.L.C.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Investment Advisor
Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
This report, including the unaudited schedules of investments and financial
statements, is submitted for the general information of the shareholders of the
Wanger Advisors Trust. This report is not authorized for distribution unless
preceded or accompanied by a prospectus.
<PAGE>
Wanger Advisors Trust
<PAGE>
SEMIANNUAL
REPORT
June 30, 1997
WARBURG PINCUS TRUST
INTERNATIONAL EQUITY PORTFOLIO
SMALL COMPANY GROWTH PORTFOLIO
POST-VENTURE CAPITAL PORTFOLIO
The Warburg Pincus Trust (the "Trust") Shares are not available directly to
individual investors but may be offered only through certain insurance products
and pension and retirement plans.
More complete information about the Trust, including charges and expenses and,
where applicable, the special considerations and risks associated with
international investing is provided in the Prospectus, which must precede or
accompany this document and which should be read carefully before investing.
You may obtain additional copies by calling (800)369-2728 or by writing to
Warburg Pincus, P.O. Box 9030, Boston, MA 02205-9030.
[Logo]
<PAGE>
From time to time, the Portfolios' investment adviser and co-administrator may
waive some fees and/or reimburse some expenses, without which performance would
be lower. Waivers and/or reimbursements are subject to change.
Returns are historical and include change in share price and reinvestment of
dividends and capital gains. Past performance cannot guarantee future results.
Returns and share price will fluctuate, and redemption value may be more or less
than original cost.
The views of the Portfolios' management are as of the date of the letters and
portfolio holdings described in this semiannual report are as of June 30, 1997;
these views and portfolio holdings may have changed subsequent to these dates.
Nothing in this semiannual report is a recommendation to purchase or sell
securities.
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
SEMIANNUAL ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: August 15, 1997
The objective of Warburg Pincus Trust -- International Equity Portfolio (the
"Portfolio") is long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in a broadly diversified portfolio of equity
securities of companies that have their principal business activities and
interests outside the U.S.
For the six months ended June 30, 1997, the Portfolio had a gain of 14.98%,
vs. gains of 11.21% for the Morgan Stanley Europe, Australasia and Far East
(EAFE) Index* and 12.53% for the Lipper International Funds Average.** The
Portfolio's respective one-year and since-inception (on June 30, 1995) average
annual total returns through June 30 were 15.02% and 16.44%.
The Portfolio's performance reflects both stock selection and regional
allocation. Strong performers for the Portfolio were its European holdings,
broadly, as virtually all Continental European markets saw impressive gains over
the six months, supported by a backdrop of low inflation, falling interest rates
and optimism regarding progress toward European Monetary Union. We increased the
Portfolio's European exposure selectively over the period, having identified a
number of what we considered to be attractive investment opportunities, and this
higher weighting proved timely. Notably strong showings came from the
Portfolio's German and Spanish stocks, as well as its Nordic holdings
collectively.
Asian-Pacific markets (excluding Japan) had mixed results for the six months,
but overall the Portfolio's weighting had a favorable impact on its returns. The
Portfolio benefited from particularly strong performances from its holdings in
Hong Kong, India and Taiwan, and also from its relatively limited exposure to
the region's laggards (e.g., Thailand, Malaysia and the Philippines, all of
which suffered double-digit losses).
Japan, the Portfolio's largest Asian-Pacific weighting through the period,
struggled early in the period but recovered strongly to post a solid gain for
the six months, fueled by renewed optimism on the country's economic prospects.
Investors also reacted favorably to the government's deregulatory efforts and
developments at the corporate level (specifically, signs of a growing emphasis
on shareholder value among Japanese companies). The Portfolio benefited from the
market's recovery and from good stock selection, which allowed us to outperform
comparable Japanese market indexes.
Another area of strength for the Portfolio was Latin America. Virtually all
Latin American stock markets performed strongly during the period, rallying on
optimism toward the region's continued progress on the economic, fiscal and
political fronts. The Portfolio saw strong performances from all of its Latin
American stocks, particularly its Brazilian and Argentine issues, which
represented its largest weightings in the region.
Richard H. King
Portfolio Manager
- -------------
* The Morgan Stanley Europe, Australasia and Far East Index is an unmanaged
index (with no defined investment objective) of international equities that
includes reinvestment of dividends, and is compiled by Morgan Stanley Capital
International.
** The Lipper International Funds Average measures the average total return of
all international funds tracked by Lipper Analytical Services Inc.
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
SEMIANNUAL ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: August 15, 1997
The objective of Warburg Pincus Trust -- Small Company Growth Portfolio (the
"Portfolio") is capital growth. The Portfolio pursues its objective by investing
in equity securities of small domestic companies.
For the six months ended June 30, 1997, the Portfolio had a gain of 2.67%,
vs. gains of 5.23% for the Russell 2000 Growth Index* and 6.04% for the Lipper
Small Cap Funds Index.** The Portfolio's respective one-year and since-inception
(on June 30, 1995) average annual total returns through June 30 were 2.38% and
20.85%.
The Portfolio's underperformance vs. its benchmarks reflects weakness in
specific stocks, most of which were concentrated in the technology area. Though
a number of our holdings here had less-than-stellar results, we remain committed
to them and to the sector as a whole, and used price weakness during the period
to add selectively to our positions.
The Portfolio also saw disappointing returns from several of its health-care
stocks. Here, too, we used price weakness to increase our stake in specific
issues, though we remained very cautious in terms of stock selection, given the
increasingly difficult pricing environment for health-care companies,
particularly smaller ones.
Stocks that performed well for the Portfolio included its energy, financial,
telecommunications and consumer-oriented issues. We maintained or increased our
weightings in each of these areas over the six months, as we were able to
identify stocks that represented what we considered to be good long-term
opportunity.
Our outlook on the prospects for small-cap stocks remains positive. Investor
sentiment toward the group, which had long been poor, has improved, reflected in
increasing cash flows into small-company and aggressive-growth mutual funds;
valuations remain compelling; and the earnings outlook for small companies is
favorable. We believe that small-cap stocks also stand to benefit considerably,
especially over the longer term, from a reduction in the capital-gains tax. Set
within this environment, we will continue to strive to identify those issues
with the best prospects for long-term growth.
<TABLE>
<S> <C>
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
- -------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. It includes reinvestment of
dividends, and is compiled by Frank Russell Company.
** The Lipper Small Cap Funds Index is an equal-weighted performance index,
adjusted for capital-gains distributions and income dividends, of the largest
qualifying funds in this investment objective, and is compiled by Lipper
Analytical Services Inc.
2
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
SEMIANNUAL ADVISER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder: August 15, 1997
The investment objective of Warburg Pincus Trust -- Post-Venture Capital
Portfolio (the "Portfolio") is long-term growth of capital. The Portfolio
pursues its objective by investing primarily in equity securities of companies
considered to be in their post-venture-capital stage of development.
For the six months ended June 30, 1997, the Portfolio had a total return of
3.38%, vs. a 5.23% return for the Russell 2000 Growth Index* and a 15.40% return
for the Lipper Growth Funds Index.** The Portfolio's non-annualized total return
since its inception (on September 30, 1996) was 0.90%.
The reporting period proved to be a difficult one for the Portfolio, and,
more broadly, for the types of stocks in which the Portfolio invests (i.e.,
smaller-cap and aggressive-growth issues). Volatility in the technology area had
a particularly dramatic impact on the Portfolio's performance. These holdings
were subject to a sharp sell-off early in the period, as investors, in reaction
to some earnings disappointments among technology's more-visible names, fled to
the perceived safety of large-cap stocks with relatively stable earnings growth.
Though the Portfolio's technology holdings staged a strong rally in the latter
part of the period (and we are encouraged by the continued strength these stocks
have shown since the end of June), their collective performance weighed on its
return for the six months. This shorter-term volatility notwithstanding, we
remain committed to technology as a long-term investment theme and expect that
specific technology stocks will figure prominently in the Portfolio going
forward.
Areas that contributed positively to the Portfolio's performance over the six
months included its financial-services holdings, which collectively benefited
from a favorable interest-rate environment and growing demand for financial
products and services. The Portfolio also saw strong showings from some of its
largest positions within the health-care sector, most notably Oxford Health
Plans, a well-managed, rapidly growing HMO that we believe is well-positioned to
continue to take advantage of increasing demand for managed care.
Our outlook for the collective performance on the stocks of post-venture
companies (which we define as those that have received venture-capital financing
either during the early stages of their existence or the early stages of the
development of a new product or service, or as part of a restructuring or
recapitalization) remains positive. We note a recent study*** that concluded
that such companies tend to be concentrated in high-growth industries (e.g.,
software, biotechnology, semiconductors & electronics, and communications), and
that they generate breakthrough technologies and products. The study also stated
that these companies enjoy rapid earnings growth relative to companies that
lacked such backing.
3
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
SEMIANNUAL ADVISER'S REPORT (CONT'D)
- --------------------------------------------------------------------------------
We believe that a carefully chosen portfolio of stocks of venture-backed
companies stands to benefit investors over time, and we will continue to devote
our efforts to identifying those with the best long-term prospects. We would
caution investors, however, that investing in these securities entails potential
risks (e.g., that of heightened volatility) as well as rewards. Because of the
nature of the Portfolio's holdings and certain strategies it may use, an
investment in the Portfolio should be considered only for the aggressive portion
of an investor's assets and may not be appropriate for all investors.
<TABLE>
<S> <C>
Elizabeth B. Dater Stephen J. Lurito
Co-Portfolio Manager Co-Portfolio Manager
</TABLE>
- --------------
* The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. It includes reinvestment of
dividends, and is compiled by Frank Russell Company.
** The Lipper Growth Funds Index is an equal-weighted performance index,
adjusted for capital-gains distributions and income dividends of the largest
qualifying funds in this investment objective, and is compiled by Lipper
Analytical Services Inc.
*** Sixth Annual Economic Impact of Venture Capital Study, National Venture
Capital Association/Coopers & Lybrand L.L.P.(U.S.A.), 1996.
4
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
<S> <C> <C>
COMMON STOCKS (92.7%)
Argentina (3.1%)
Banco de Galicia & Buenos Aires SA ADR 23,566 $ 621,553
Banco Frances del Rio De La Plata SA ADR 28,750 934,375
Telefonica De Argentina SA ADR 151,900 5,259,538
YPF SA Sponsored ADR 172,700 5,310,525
-----------
12,125,991
-----------
Australia (4.5%)
AAPC, Ltd. 379,879 252,492
Boral, Ltd. 1,136,500 3,579,522
National Australia Bank, Ltd. 356,500 5,107,947
Orogen Minerals, Ltd. 502,600 1,438,736
Qantas Airways, Ltd. 1,933,614 4,527,422
Qantas Airways, Ltd. ADR 128,000 2,972,544
-----------
17,878,663
-----------
Austria (1.6%)
Boehler-Uddeholm AG 22,126 1,715,809
V.A. Technologie AG 24,785 4,535,715
-----------
6,251,524
-----------
Brazil (2.3%)
Panamerican Beverages, Inc. Class A 138,800 4,563,050
Telecomunicacoes Brasileiras SA Sponsored ADR 29,200 4,431,100
-----------
8,994,150
-----------
Chile (1.1%)
Banco De A. Edwards ADR 110,500 2,306,688
Enersis SA ADR 55,300 1,966,606
-----------
4,273,294
-----------
China (1.1%)
Cheung Kong Infrastructure Holdings, Ltd. 356,580 1,033,292
Guangshen Railway Co., Ltd. 2,733,368 1,199,573
Guangshen Railway Co., Ltd. ADR 74,847 1,637,278
Henderson China Holding, Ltd. 132,300 222,854
Jiangsu Expressway Co., Ltd. "D" 678,000 240,665
-----------
4,333,662
-----------
Denmark (1.2%)
International Service System AS Class B 136,065 4,877,102
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Finland (2.0%)
Huhtamaki OY Class I 45,500 $ 1,958,337
Metra OY Class B 49,090 1,479,469
Rauma OY 80,160 1,836,974
Upm-Kymmene OY 123,500 2,853,952
-----------
8,128,732
-----------
France (4.7%)
Compagnie Generale Des Eaux 24,000 3,075,195
Lagardere Groupe SCA 132,479 3,848,106
Marine-Wendel SA 22,600 2,307,417
Societe Generale Paris 36,700 4,096,721
Total Cie Franc Des Petroles ADR 6,118 309,724
Total Cie Franc Des Petroles Class B 50,923 5,147,151
-----------
18,784,314
-----------
Germany (2.4%)
Ava Allgemeine Handelsgesellschaft der Verbraucher AG "D" 4,000 1,158,323
Bayerische Motoren Werke AG 3,014 2,485,310
Deutsche Bank AG 88,000 5,167,269
GEA AG 1,710 676,587
-----------
9,487,489
-----------
Hong Kong (3.2%)
First Pacific Co., Ltd. 1,671,671 2,136,169
Hong Kong Land Holdings, Ltd. 1,392,812 3,704,880
Hong Kong Land Holdings, Ltd. ADR 186,600 2,481,780
HSBC Holdings PLC 11,562 347,727
Jardine Matheson Holdings, Ltd. 589,470 4,185,237
-----------
12,855,793
-----------
India (2.6%)
Hindalco Industries, Ltd. 30,000 819,553
Indo Rama Synthetics GDR 67,400 480,077
Reliance Industries, Ltd. GDS 179,685 4,132,755
Reliance Industries, Ltd. GDS 144A 22,500 517,500
State Bank of India, Ltd. 217,800 2,199,415
Tata Engineering & Locomotive Co., Ltd. 159,200 2,010,011
-----------
10,159,311
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Indonesia (1.6%)
P.T. Bank International Indonesia 117,350 $ 101,328
P.T. Indosat 482,000 1,441,838
P.T. Indosat ADR 115,000 3,442,813
P.T. Semen Cibinong 356,000 933,183
P.T. Semen Gresik 71,500 160,228
P.T. Sinar Mas Multiartha 117,700 106,472
----------
6,185,862
----------
Israel (1.4%)
Blue Square Israel Co., Ltd. ADR "D" 159,600 2,753,100
ECI Telecommunications Limited Designs 100,750 2,997,313
----------
5,750,413
----------
Italy (0.7%)
Eni SPA 489,700 2,767,347
----------
Japan (24.7%)
Advantest Corp. 33,000 2,533,810
Aiwa Co., Ltd. 60,500 1,388,317
Daibiru Corp. 145,000 1,745,921
Daimaru, Inc. 111,000 638,243
Daiwa Securities Co., Ltd. 4,000 31,550
DDI Corp. 465 3,432,423
Fuji Bank, Ltd. 180,000 2,701,335
Fujitsu, Ltd. 321,000 4,453,276
Hankyu Realty Co., Ltd. 230,000 1,850,275
Hirata Technical Co., Ltd. 110,400 925,699
I.O. Data Device, Inc. 27,000 895,210
Isuzu Motors, Ltd. 452,000 1,557,805
Japan Asia Investment Co., Ltd. 225,000 1,480,237
Jusco Co., Ltd. 101,000 3,410,435
KAO Corp. 318,000 4,411,657
Kawasaki Heavy Industries 545,000 2,534,552
Keyence Corp. 11,550 1,713,201
Matsushita Electric Works 360,000 4,083,413
Mitsubishi Estate Co., Ltd. 166,000 2,404,328
Mitsubishi Heavy Industries, Ltd. 303,000 2,323,855
Mycal Corp. 185,000 2,663,380
NEC Corp. 355,000 4,955,938
Nikko Securities Co., Ltd. 129,000 793,517
Nitta Industrial Corp. 123,000 1,513,219
NTT Data Communications Systems Co., Ltd. 31 1,198,238
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS (CONT'D)
Japan (cont'd)
Orix Corp. 86,700 $ 6,422,502
Pioneer Electronic Corp. 100,000 2,425,617
Rohm Co., Ltd. 19,000 1,956,199
Sankyo Co., Ltd. 116,000 3,896,693
Sharp Corp. 142,000 1,957,595
Shinmei Electric Co. 91,000 2,000,873
Shohkoh Fund & Co., Ltd. 6,000 1,816,595
Sony Corp. 63,000 5,491,406
Sumitomo Bank, Ltd. 235,000 3,854,812
TDK Corp. 7,000 513,655
Toray Industries, Inc. 292,000 2,081,529
Uny Co., Ltd. 74,000 1,446,296
Yamanouchi Pharmaceutical Co., Ltd. 160,000 4,299,799
Yamatake-Honeywell 125,000 2,377,628
Yokogawa Electric 171,000 1,484,556
-----------
97,665,589
-----------
Malaysia (0.4%)
Land and General BHD 623,500 716,383
YTL Power International BHD`D' 845,000 1,064,620
-----------
1,781,003
-----------
Mexico (0.3%)
Gruma SA De CV Class B`D' 260,304 1,199,588
-----------
Netherlands (3.6%)
ASM Lithography Holding NV`D' 25,200 1,457,130
ASM Lithography Holding NV ADR`D' 60,600 3,545,100
Philips Electronics NV 127,100 9,104,009
-----------
14,106,239
-----------
New Zealand (4.2%)
Brierley Investments Ltd. 5,424,900 5,306,594
Fletcher Challenge Building 1,041,350 3,133,734
Fletcher Challenge Forestry 5,582,500 8,115,291
Fletcher Challenge Forestry (New) 41,654 59,421
-----------
16,615,040
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Norway (0.4%)
Smedvig ASA ADR Class B 43,300 $ 1,104,150
Smedvig ASA Class B 21,400 522,649
----------
1,626,799
----------
Philippines (0.5%)
Millicom International Cellular SA "D" 41,650 1,988,788
----------
Portugal (1.2%)
Cimpor Cimentos De Portugal SA 42,000 978,942
Portugal Telecom SA 4,800 193,647
Portugal Telecom SA ADR 91,100 3,655,388
----------
4,827,977
----------
Singapore (2.6%)
DBS Land, Ltd. 1,081,000 3,417,584
Development Bank of Singapore, Ltd. 390,000 4,910,121
Keppel Corp., Ltd. 323,000 1,434,602
Keppel Corp., Ltd. Class A "D" 80,750 350,178
----------
10,112,485
----------
South Africa (0.5%)
De Beers Centenary Linked Units 51,000 1,882,852
----------
South Korea (3.4%)
Daewoo Electronics Co., Ltd. 255,720 1,972,615
Hanil Bank 231,800 1,305,180
Kookmin Bank 625 12,000
Korea Electric Power Corp. 162,700 4,855,349
Korea Long Term Credit Bank 6,825 108,454
Samsung Electronics Co., Ltd. 12,320 1,384,023
Samsung Electronics Co., Ltd. (New) 290 32,578
Ssangyong Investment & Securities Co., Ltd. "D" 82,500 781,334
Yukong Co., Ltd. 115,700 2,843,249
----------
13,294,782
----------
Spain (1.4%)
Banco De Santander 3,500 107,838
Banco De Santander ADR 92,400 2,858,625
Catalana Occidente SA 31,500 1,569,121
Repsol SA ADR 23,500 997,281
----------
5,532,865
----------
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ------------
COMMON STOCKS (CONT'D)
<S> <C> <C>
Sweden (3.6%)
ABB AB Series B 293,320 $ 4,095,218
Astra AB Class B 120,360 2,139,417
Biacore International AB ADR "D" 116,800 1,379,700
Electrolux AB Series B 89,845 6,480,966
------------
14,095,301
------------
Switzerland (2.0%)
Julius Baer Holding AG 3,600 5,509,072
Novartis AG Bearer 1,620 2,586,676
------------
8,095,748
------------
Taiwan (0.3%)
China Steel Corp. 1,004,397 1,062,204
------------
Thailand (0.4%)
Bangkok Bank Public Co., Ltd. 39,800 284,514
Industrial Finance Corp. of Thailand 218,300 289,313
Siam Cement Co., Ltd. 27,500 494,779
Thai Military Bank Public Co., Ltd. 273,700 318,767
------------
1,387,373
------------
United Kingdom (9.7%)
British Airport Authority PLC 363,736 3,351,505
Care First Group PLC 306,980 603,015
Cookson Group PLC 1,025,328 3,610,016
Energy Group PLC 236,980 2,528,749
Grand Metropolitan PLC 102,402 991,275
Hanson PLC 509,450 2,531,523
Imperial Chemical Industries PLC 184,600 2,567,522
Medeva PLC 965,000 4,120,507
Orange PLC 1,250,500 4,132,189
Rolls-Royce PLC 1,202,840 4,595,434
Thistle Hotels PLC 846,248 2,232,867
Vodafone Group PLC 996,300 4,851,231
Williams Holdings PLC 430,276 2,313,586
------------
38,429,419
------------
TOTAL COMMON STOCKS (Cost $322,704,447) 366,557,699
------------
PREFERRED STOCK (0.1%)
South Korea (0.1%)
Samsung Electronics Co., Ltd.
(Cost $437,413) 5,205 247,413
------------
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE
------------ ---------------
<S> <C> <C>
WARRANTS (0.0%)
France (0.0%)
Compagnie Generale Des Eaux, 05/02/01 "D" 24,000 $ 14,375
------------
Indonesia (0.0%)
P.T. Bank International Indonesia, 01/17/00 "D" 29,975 12,048
P.T. Sinar Mas Multiartha, 11/28/01 "D" 17,940 8,114
------------
20,162
------------
TOTAL WARRANTS (Cost $7,482) 34,537
------------
CALL OPTIONS (0.0%)
Singapore (0.0%)
DBS 50 Index, 01/22/98 (Strike Price $402.7127) "D" 3,537 22,600
DBS 50 Index, 01/23/98 (Strike Price $406.912) "D" 3,436 19,506
DBS 50 Index, 01/26/98 (Strike Price $407.3930652) "D" 3,384 19,407
DBS 50 Index, 02/26/98 (Strike Price $404.0032) "D" 705 5,436
------------
66,949
------------
Thailand (0.0%)
SET 50 Index, 01/22/98 (Strike Price $2.1419167) "D" 481,258 2,618
SET 50 Index, 01/23/98 (Strike Price $2.1143625) "D" 479,761 4,567
SET 50 Index, 01/26/98 (Strike Price $2.4783) "D" 478,464 603
SET 50 Index, 01/30/98 (Strike Price $2.3629359) "D" 490,196 1,706
------------
9,494
------------
TOTAL CALL OPTIONS (Cost $1,039,027) 76,443
------------
PAR
---
CONVERTIBLE BONDS (0.5%)
Thailand (0.5%)
Bangkok Bank Public Co., Ltd. 3.25%, 03/03/04 (Cost
$2,764,552) $ 2,588,000 1,992,760
------------
REPURCHASE AGREEMENT (5.3%)
Repurchase agreement with Goldman, Sachs & Co. dated
06/30/97 at 5.75% to be repurchased at $20,942,34 on
07/01/97. (Collateralized by $21,580,000 U.S. Treasury Note
5.125%, due 11/30/98. Market value of collateral is
$21,374,990.) (Cost $20,939,000) 20,939,000 20,939,000
------------
TOTAL INVESTMENTS AT VALUE (98.6%) (Cost $347,891,921*) 389,847,852
OTHER ASSETS IN EXCESS OF LIABILITIES (1.4%) 5,429,025
------------
NET ASSETS (100.0%) (applicable to 29,934,979 shares outstanding) $395,276,877
============
NET ASSET VALUE, offering and redemption price per share
($395,276,877 [div] 29,934,979) $13.20
======
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
GDR = Global Depository Receipt
GDS = Global Depository Share
- -------------------------------------------------------------------------------
"D" Non-income producing security.
* Cost for federal income tax purposes is $347,901,023.
See Accompanying Notes to Financial Statements.
11
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
COMMON STOCK (94.7%) -------- -----------
<S> <C> <C>
Aerospace & Defense (1.0%
Aviall, Inc. `D' 76,900 $ 1,076,600
Doncaster PLC Sponsored ADR `D' 160,000 3,700,000
-----------
4,776,600
-----------
Banks & Savings & Loans (2.9%)
Bank United Corp. Class A 131,000 4,978,000
First Security Corp. 152,500 4,165,156
HUBCO, Inc. 152,543 4,423,747
-----------
13,566,903
-----------
Business Services (10.7%)
BISYS Group, Inc. `D' 102,600 4,283,550
Bowne & Co., Inc. 115,000 4,010,625
CDI Corp. `D' 98,800 4,118,725
Getty Communications PLC ADR `D' 303,400 4,475,150
ICTS International NV `D' 304,400 2,359,100
Norrell Corp. 134,600 4,441,800
On Assignment, Inc. `D' 84,300 3,287,700
Outdoor Systems, Inc. `D' 136,300 5,213,475
QuickResponse Services, Inc.`D' 115,600 4,190,500
Robert Half International, Inc. `D' 98,500 4,635,656
Sterling Commerce, Inc. `D' 55,000 1,808,125
Technology Solutions Co. `D' 56,800 2,243,600
Universal Outdoor Holdings, Inc.`D' 140,000 4,882,500
-----------
49,950,506
-----------
Capital Equipment (0.5%)
Valmont Industries, Inc. 128,400 2,439,600
-----------
Communications & Media (2.7%)
Central European Media Enterprises, Ltd. Class A 184,200 4,789,200
Harte-Hanks Communications, Inc. `D' 132,050 3,895,475
Heftel Broadcasting Corp. `D' 69,500 3,839,875
-----------
$12,524,550
-----------
Computers (6.7%)
Cognex Corp. `D' 174,000 4,611,000
Harbinger Corp. `D' 163,800 4,586,400
Learning Tree International, Inc. `D' 112,200 4,978,875
National Instruments Corp. `D' 133,500 4,705,875
NetSpeak Corp.`D' 32,000 300,000
Rational Software Corp. `D' 245,200 4,122,425
System Software Associates, Inc. 340,000 2,592,500
Tecnomatix Technologies, Ltd. `D' 159,100 5,170,750
-----------
$31,067,825
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (CONT'D)
Consumer Non-Durables (1.8%)
Central Garden & Pet Co. `D' 207,100 $ 5,177,500
Footstar, Inc. `D' 132,100 3,451,113
-----------
8,628,613
-----------
Consumer Services (2.7%)
Budget Group Inc. Class A 142,200 4,905,900
DeVRY, Inc. `D' 128,000 3,456,000
ITT Educational Services, Inc. `D' 164,200 4,074,212
-----------
12,436,112
-----------
Electronics (8.4%)
Avant! Corp. `D' 178,800 5,777,475
Burr-Brown Corp. `D' 207,800 7,169,100
Etec Systems, Inc. `D' 126,400 5,419,400
KLA Tencor Instruments Corp. `D' 150,000 7,312,500
Lattice Semiconductor Corp. `D' 70,000 3,955,000
SpeedFam International, Inc. `D' 120,500 4,322,937
Structural Dynamics Research Corp. `D' 204,000 5,355,000
-----------
39,311,412
-----------
Energy (3.2%)
Chieftan International, Inc. `D' 189,400 4,154,962
KCS Energy, Inc. 151,000 3,076,625
Meridian Resource Corp. `D' 236,200 2,834,400
Southern Mineral Corp. `D' # 176,625 883,125
Stone Energy Corp. `D' 138,000 3,777,750
-----------
14,726,862
-----------
Environmental Services (2.2%)
Allied Waste Industries, Inc. `D' 367,400 6,383,575
Superior Services, Inc. `D' 155,500 3,693,125
-----------
10,076,700
-----------
Financial Services (4.7%)
Imperial Credit Industries, Inc. `D' 217,000 4,462,062
Legg Mason, Inc. 83,000 4,466,437
Penncorp Financial Group, Inc. 108,000 4,158,000
Transaction Systems Architects, Inc. Class A `D' 203,600 7,024,200
Vesta Insurance Group, Inc. 41,800 1,807,850
-----------
21,918,549
-----------
Food, Beverages & Tobacco (0.9%)
Consolidated Cigars Holdings, Inc. `D' 148,300 4,115,325
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
COMMON STOCK (CONT'D)
<S> <C> <C>
Healthcare (7.6%)
ADAC Laboratories `D' 194,100 $ 4,585,612
Ballard Medical Products 124,800 2,503,800
Conceptus, Inc. `D' 160,000 1,480,000
Core, Inc. `D' 413,000 3,717,000
Endovascular Technologies, Inc. `D' 253,300 2,343,025
Henry Schein, Inc. `D' 99,600 3,112,500
Hooper Holmes, Inc. 190,000 4,358,125
Mid Atlantic Medical Services, Inc. `D' 280,200 4,360,612
MiniMed, Inc. `D' 89,600 2,385,600
Nitinol Medical Technologies, Inc. `D' 187,800 2,840,475
NovaCare, Inc. `D' 262,100 3,636,638
-----------
35,323,387
-----------
Industrial Mfg. & Processing (0.7%)
Elbit Vision Systems, Inc. `D' 267,400 3,075,100
-----------
Leisure & Entertainment (3.2%)
Family Golf Centers, Inc. `D' 190,600 4,383,800
LodgeNet Entertainment Corp. `D' 3,000 30,000
Premier Parks, Inc. `D' 157,000 5,789,375
Vistana, Inc. `D' 289,000 4,479,500
-----------
14,682,675
-----------
Lodging & Restaurants (2.2%)
Bob Evans Farms, Inc. 98,100 1,661,569
Doubletree Corp. `D' 113,700 4,675,913
La Quinta Motor Inns, Inc. 176,000 3,850,000
-----------
10,187,482
-----------
Office Equipment & Supplies (1.6%)
Miller (Herman), Inc. 211,000 7,596,000
-----------
Oil Services (5.8%)
Global Industries, Ltd. `D' 242,500 5,664,648
Nabors Industries, Inc. `D' 271,000 6,775,000
Petroleum Geo Services ADR `D' 152,500 7,453,438
Pride International, Inc. `D' 297,400 7,137,600
-----------
27,030,686
-----------
Pharmaceuticals (3.5%)
Alkermes, Inc. `D' 174,900 2,536,050
Gilead Sciences, Inc. `D' 145,800 4,027,725
SangStat Medical Corp. `D' 145,000 3,353,125
Sepracor, Inc. `D' 120,000 3,097,500
Serologicals Corp. `D' 148,800 3,422,400
-----------
16,436,800
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- ------------
COMMON STOCK (CONT'D)
<S> <C> <C>
Publishing (1.5%)
Central Newspapers, Inc. Class A 99,900 $ 7,155,338
------------
Real Estate (3.8%)
Avalon Properties, Inc. 137,000 3,921,625
Fairfield Communities, Inc.`D' 151,000 5,077,375
NHP, Inc. `D' 208,100 4,682,250
U.S. Restaurant Properties Master L.P. 137,500 4,056,250
------------
17,737,500
------------
Retail (5.4%)
Abercrombie & Fitch Co. Class A `D' 198,300 3,668,550
Borders Group, Inc. `D' 304,400 7,343,650
Fingerhut Companies, Inc. 215,000 3,749,063
Payless ShoeSource, Inc. `D' 118,600 6,485,938
Williams-Sonoma, Inc. `D' 93,000 3,975,750
------------
25,222,951
------------
Telecommunications & Equipment (6.3%)
Allen Telecommunications, Inc. 174,000 3,610,500
Brooks Fiber Properties, Inc. `D' 126,800 4,279,500
Dynatech Corp. 103,400 3,696,550
Intermedia Communications of Florida, Inc. `D' 144,800 4,687,900
McLeodUSA, Inc. Class A `D' 115,000 3,881,250
Network Equipment Technologies, Inc. `D' 133,000 2,394,000
Paging Network, Inc. `D' 233,900 2,053,934
Teledata Communications, Ltd. `D' 144,900 4,980,938
------------
29,584,572
------------
Transportation (4.7%)
Coach USA, Inc. `D' 153,000 4,064,063
Heartland Express, Inc. `D' 187,250 4,400,375
Hub Group, Inc. Class A `D' 142,500 4,292,813
Mark VII, Inc. `D' 129,900 4,156,800
Swift Transportation Co., Inc. `D' 172,700 5,094,650
------------
22,008,701
------------
TOTAL COMMON STOCK (Cost $349,543,040) 441,580,749
------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
STATEMENT OF NET ASSETS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
----------- ------------
REPURCHASE AGREEMENT (4.1%)
<S> <C> <C>
Repurchase agreement with Goldman, Sachs & Co. dated
06/30/97 at 5.75% to be repurchased at $18,998,034 on
07/01/97. (Collateralized by $19,485,000 U.S. Treasury Note
4.75%, due 09/30/98. Market value of collateral is
$19,387,575.) (Cost $18,995,000) $18,995,000 $ 18,995,000
------------
TOTAL INVESTMENTS AT VALUE (98.8%) (Cost $368,538,040*) 460,575,749
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%) 5,416,572
------------
NET ASSETS (100.0%) (applicable to 31,882,236 shares
outstanding) $465,992,321
============
NET ASSET VALUE, offering and redemption price per share ($465,992,321 [div] 31,882,236) $14.62
</TABLE>
INVESTMENT ABBREVIATIONS
ADR = American Depository Receipt
- --------------------------------------------------------------------------------
"D" Non-income producing security.
# Restricted security.
* Cost for federal income tax purposes is $368,833,864.
See Accompanying Notes to Financial Statements.
16
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
COMMON STOCK (92.9%) -------- ----------
<S> <C> <C>
Business Services (5.0%)
Gartner Group, Inc. Class A "D" 10,000 $ 359,375
Outdoor Systems, Inc. "D" 9,950 380,587
Paraxel International Corp. "D" 4,200 133,350
QuickResponse Services, Inc. "D" 4,700 170,375
Wilmar Industries, Inc. "D" 12,600 307,125
----------
1,350,812
----------
Computers (12.3%)
BMC Software, Inc. "D" 12,100 670,037
Great Plains Software, Inc. "D" 4,500 121,500
Hyperion Software Corp. "D" 4,200 93,975
McAfee Associates, Inc. "D" 5,900 372,437
Oracle Systems Corp. "D" 9,000 453,375
PeopleSoft, Inc. "D" 13,500 712,125
Rational Software Corp. "D" 21,230 356,929
Tecnomatix Technologies, Ltd. "D" 17,200 559,000
----------
3,339,378
----------
Consumer Non-Durables (2.0%)
Central Garden & Pet Co. "D" 13,100 327,500
Polo Ralph Lauren Corp. "D" 7,900 216,262
----------
543,762
----------
Electronics (18.8%)
Altera Corp. "D" 13,000 656,500
Applied Materials, Inc. "D" 4,200 297,412
Avant! Corp. "D" 5,200 168,025
Etec Systems, Inc. "D" 9,100 390,162
KLA-Tencor Instruments Corp. "D" 7,500 365,625
Lam Research Corp. "D" 5,800 214,962
Linear Technology Corp. 8,600 445,050
Maxim Integrated Products, Inc. "D" 10,100 574,437
Microchip Technology, Inc. "D" 4,500 133,875
Structural Dynamics Research Corp. "D" 17,800 467,250
Texas Instruments, Inc. 8,200 689,313
Xilinx, Inc. "D" 14,700 721,219
----------
5,123,830
----------
Energy (4.9%)
Forcenergy Inc. "D" 12,900 391,838
KCS Energy, Inc. 23,000 468,625
Meridian Resource Corp. "D" 11,700 140,400
Stone Energy Corp. "D" 8,000 219,000
United Meridian Corp. Series A "D" 3,600 108,000
----------
1,327,863
----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS (CONT"D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- ----------
COMMON STOCK (CONT"D)
<S> <C> <C>
Environmental Services (2.5%)
American Disposal Services, Inc. "D" 5,700 $ 128,250
USA Waste Services, Inc. "D" 14,100 544,613
----------
672,863
----------
Financial Services (8.8%)
Aetna, Inc. 5,000 511,875
Amvescap PLC Sponsored ADR "D" 9,200 535,900
ARM Financial Group, Inc. Class A "D" 7,600 152,000
Franklin Resources, Inc. 6,100 442,631
PMT Services, Inc. "D" 13,500 205,875
Price (T. Rowe) Associates, Inc. 5,100 263,288
Transaction Systems Architects, Inc. Class A "D" 8,600 296,700
----------
2,408,269
----------
Healthcare (8.0%)
American Oncology Resources, Inc. "D" 13,100 221,063
Columbia/HCA Healthcare Corp. 12,100 475,681
Mid Atlantic Medical Services, Inc. "D" 9,500 147,844
Oxford Health Plans, Inc. "D" 9,000 645,750
United Dental Care, Inc. "D" 4,100 61,500
United Healthcare Corp. 12,100 629,200
----------
2,181,038
----------
Leisure & Entertainment (2.2%)
Premier Parks, Inc. "D" 16,600 612,125
----------
Lodging & Restaurants (2.8%)
La Quinta Motor Inns, Inc. 9,000 196,875
Morton"s Restaurant Group, Inc. "D" 28,300 562,463
----------
759,338
----------
Oil Services (2.8%)
Domain Energy Corp. "D" 10,500 141,750
Hanover Compressor Co. "D" 9,500 185,250
Pride International, Inc. "D" 18,000 432,000
----------
759,000
----------
Pharmaceuticals (1.6%)
SangStat Medical Corp. "D" 18,800 434,750
----------
Retail (6.2%)
Borders Group, Inc. "D" 17,400 419,775
Dollar Tree Stores, Inc. "D" 5,800 292,175
Rite Aid Corp. 13,730 684,784
Williams-Sonoma, Inc. "D" 7,000 299,250
----------
1,695,984
----------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
STATEMENT OF NET ASSETS (CONT"D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
---------- -----------
COMMON STOCK (CONT"D)
<S> <C> <C>
Telecommunications & Equipment (13.1%)
3Com Corp. "D" 8,200 $ 369,000
Bay Networks, Inc. "D" 12,300 326,719
Cascade Communications Corp. "D" 13,900 383,988
Cisco Systems, Inc. "D" 9,800 657,825
Intermedia Communications of Florida, Inc. "D" 7,000 226,625
McLeodUSA, Inc. Class A "D" 14,200 479,250
Newbridge Networks Corp. "D" 3,000 130,500
Paging Network, Inc. "D" 14,600 128,206
Tellabs, Inc. "D" 5,900 329,663
WorldCom, Inc. "D" 16,420 525,440
-----------
3,557,216
-----------
Transportation (1.9%)
Coach USA, Inc. "D" 19,500 517,969
-----------
TOTAL COMMON STOCK (Cost $22,466,586) 25,284,197
-----------
PREFERRED STOCK (1.1%)
Leisure & Entertainment (1.1%)
N2K, Inc. Series G "D"# (Cost $300,000) 100,000 300,000
-----------
PAR
----------
REPURCHASE AGREEMENT (6.0%)
Repurchase agreement with Goldman, Sachs & Co. dated 06/30/97
at 5.75% to be repurchased at $1,633,261 on 07/01/97.
(Collateralized by $1,575,000 U.S. Treasury Note 8.25%, due
07/15/98. Market value of collateral is $1,667,138.) (Cost
1,633,000) $1,633,000 $ 1,633,000
TOTAL INVESTMENTS AT VALUE (100.0%) (Cost $24,399,586*) 27,217,197
OTHER ASSETS IN EXCESS OF LIABILITIES (0.0%) 5,978
-----------
NET ASSETS (100.0%) (applicable to 2,697,405 shares outstanding) $27,223,175
===========
NET ASSET VALUE, offering and redemption price per share
($27,223,175 [div] 2,697,405) $10.09
======
</TABLE>
- -------------------------------------------------------------------------------
"D" Non-income producing security.
* Cost for federal income tax purposes is $24,399,794.
# Restricted security.
See Accompanying Notes to Financial Statements.
19
<PAGE>
WARBURG PINCUS TRUST
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL COMPANY POST-VENTURE
EQUITY GROWTH CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,022,068 $ 398,272 $ 15,228
Interest 478,116 751,460 64,411
Foreign taxes withheld (385,185) 0 0
----------- ----------- -----------
Total investment income 4,114,999 1,149,732 79,639
----------- ----------- -----------
EXPENSES:
Investment advisory 1,656,300 1,677,914 139,218
Administrative services 356,055 372,870 22,276
Audit 6,098 9,220 6,446
Custodian/Sub-custodian 206,048 40,806 17,271
Trustees 1,247 1,237 1,236
Insurance 1,581 1,412 333
Interest 77,249 0 782
Legal 20,633 19,700 8,414
Offering/organizational 6,170 6,141 3,616
Printing 3,519 2,998 4,234
Registration 84 519 198
Transfer agent 1,990 2,123 902
Miscellaneous 3,153 838 656
----------- ----------- -----------
2,340,127 2,135,778 205,582
Less fees waived and expenses reimbursed (58,818) (2,411) (49,658)
----------- ---------- -----------
Total expenses 2,281,309 2,133,367 155,924
----------- ----------- -----------
Net investment income (loss) 1,833,690 (983,635) (76,285)
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENTS AND FOREIGN CURRENCY RELATED
ITEMS:
Net realized gain (loss) from security transactions 11,273,812 (27,253,527) (1,863,655)
Net realized gain from foreign currency related
items 5,950,982 0 0
Net change in unrealized appreciation from
investments and foreign currency related items 30,109,085 45,842,606 2,639,049
----------- ----------- -----------
Net realized and unrealized gain from
investments and
foreign currency related items 47,333,879 18,589,079 775,394
----------- ----------- -----------
Net increase in net assets resulting from operations $49,167,569 $17,605,444 $ 699,109
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
WARBURG PINCUS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO
-----------------------------
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, YEAR ENDED
1997 DECEMBER 31,
(UNAUDITED) 1996
------------ -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,833,690 $ 1,409,720
Net realized gain (loss) from security transactions 11,273,812 1,520,782
Net realized gain from foreign currency related items 5,950,982 1,491,912
Net change in unrealized appreciation (depreciation) from
investments and foreign currency related items 30,109,085 10,686,258
------------ -------------
Net increase in net assets resulting from operations 49,167,569 15,108,672
------------ -------------
FROM DISTRIBUTIONS:
Dividends from net investment income 0 (1,624,713)
Distributions in excess of net investment income 0 (2,505,916)
Distributions from realized gains 0 (1,520,782)
Distributions in excess of realized capital gains 0 (317,087)
------------ -------------
Net decrease in net assets from distributions 0 (5,968,498)
------------ -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 94,747,406 333,352,387
Reinvested dividends 0 5,968,497
Net asset value of shares redeemed (46,856,381) (114,779,643)
------------ -------------
Net increase in net assets from capital share
transactions 47,891,025 224,541,241
------------ -------------
Net increase in net assets 97,058,594 233,681,415
NET ASSETS:
Beginning of period 298,218,283 64,536,868
------------ -------------
End of period $395,276,877 $ 298,218,283
============ =============
Undistributed net investment income/(distribution in excess of
net investment income) $ 6,408,299 $ (1,376,373)
============ =============
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
<TABLE>
<CAPTION>
SMALL COMPANY GROWTH POST-VENTURE CAPITAL
PORTFOLIO PORTFOLIO
----------------------------- ------------------------------------
FOR THE SIX FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE MONTHS ENDED SEPTEMBER 30, 1996
JUNE 30, YEAR ENDED JUNE 30, (COMMENCEMENT OF
1997 DECEMBER 31, 1997 OPERATIONS) THROUGH
(UNAUDITED) 1996 (UNAUDITED) DECEMBER 31, 1996
------------- ------------- -------------- --------------------
<S> <C> <C> <C>
$ (983,635) $ (1,546,927) $ (76,285) $ 4,291
(27,253,527) (17,819,175) (1,863,655) (48,100)
0 0 0 0
45,842,606 34,312,085 2,639,049 178,562
------------ ------------- ------------ -----------
17,605,444 14,945,983 699,109 134,753
------------ ------------- ------------ -----------
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
------------ ------------- ------------ -----------
0 0 0 0
------------ ------------- ------------ -----------
182,974,370 434,899,200 28,911,593 12,267,019
0 0 0 0
(73,985,050) (207,892,540) (14,787,059) (2,240)
------------ ------------- ------------ -----------
108,989,320 227,006,660 14,124,534 12,264,779
------------ ------------- ------------ -----------
126,594,764 241,952,643 14,823,643 12,399,532
339,397,557 97,444,914 12,399,532 0
------------ ------------- ------------ -----------
$465,992,321 $ 339,397,557 $ 27,223,175 $12,399,532
============ ============= ============ ===========
$ 0 $ 0 $ 0 $ 4,291
============ ============= ============ ===========
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
WARBURG PINCUS TRUST -- INTERNATIONAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JUNE 30, 1995
JUNE 30, FOR THE (COMMENCEMENT OF
1997 YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1996 DECEMBER 31, 19959
----------- ----------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.48 $ 10.65 $ 10.00
-------- -------- -------
Income from Investment Operations:
Net Investment Income 0.08 0.00 0.03
Net Gain from Securities and Foreign
Currency Related Items (both
realized and unrealized) 1.64 1.06 0.70
-------- -------- -------
Total From Investment Operations 1.72 1.06 0.73
-------- -------- -------
Less Distributions:
Dividends from Net Investment Income 0.00 (0.06) (0.01)
Distributions in Excess of Net
Investment Income 0.00 (0.10) (0.07)
Distributions from Realized Gains 0.00 (0.06) 0.00
Distributions in Excess of Realized
Gains 0.00 (0.01) 0.00
-------- -------- -------
Total Distributions 0.00 (0.23) (0.08)
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 13.20 $ 11.48 $ 10.65
======== ======== =======
Total Return 14.98%"D" 9.98% 7.30%"D"
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $395,277 $298,218 $64,537
Ratios to average daily net assets:
Operating expenses 1.36%* 1.36% 1.44%*
Net investment income 1.11%* 0.64% 0.48%*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements 0.04%* 0.04% 0.77%*
Portfolio Turnover Rate 34.33%*"D" 30.82% 8.31%"D"
Average Commission Rate # $ 0.0205 $ 0.0232 --
</TABLE>
- --------------------------------------------------------------------------------
"D" Non-annualized.
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
See Accompanying Notes to Financial Statements.
24
<PAGE>
WARBURG PINCUS TRUST -- SMALL COMPANY GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JUNE 30, 1995
JUNE 30, FOR THE (COMMENCEMENT OF
1997 YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1996 DECEMBER 31, 1995
------------ ----------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.25 $ 12.51 $ 10.00
-------- -------- ---------
Income from Investment Operations:
Net Investment Loss (0.03) (0.06) (0.01)
Net Gain on Securities (both realized
and unrealized) 0.40 1.80 2.52
-------- -------- ---------
Total From Investment Operations 0.37 1.74 2.51
-------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 14.62 $ 14.25 $ 12.51
======== ======== =========
Total Return 2.67%"D" 13.91% 25.10%"D"
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $465,992 $339,398 $ 97,445
Ratios to average daily net assets:
Operating expenses 1.14%* 1.16% 1.25%*
Net investment loss (0.53%)* (0.66%) (0.36%)*
Decrease reflected in above operating
expense ratios due to
waivers/reimbursements 0.00% 0.01% 0.25%*
Portfolio Turnover Rate 38.23%"D" 101.50% 34.25%"D"
Average Commission Rate # $ 0.0541 $ 0.0538 --
</TABLE>
- --------------------------------------------------------------------------------
"D" Non-annualized.
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
See Accompanying Notes to Financial Statements.
25
<PAGE>
WARBURG PINCUS TRUST -- POST-VENTURE CAPITAL PORTFOLIO
FINANCIAL HIGHLIGHTS
(For a Share of the Portfolio Outstanding Throughout Each Period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED SEPTEMBER 30, 1996
JUNE 30, (COMMENCEMENT OF
1997 OPERATIONS) THROUGH
(UNAUDITED) DECEMBER 31, 1996
------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 10.00
-------- -------
Income from Investment Operations:
Net Investment Loss (0.03) 0.00
Net Gain (Loss) from Securities and Foreign Currency
Related Items (both realized and unrealized) 0.36 (0.24)
-------- -------
Total From Investment Operations 0.33 (0.24)
-------- -------
NET ASSET VALUE, END OF PERIOD $ 10.09 $ 9.76
======== =======
Total Return 3.38%"D" (2.40%)"D"
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000s) $ 27,223 $12,400
Ratios to average daily net assets:
Operating expenses 1.40%* 1.40%*
Net investment income (loss) (0.68%)* 0.80%*
Decrease reflected in above operating expense ratios
due to waivers/reimbursements 0.45%* 4.16%*
Portfolio Turnover Rate 126.23%"D" 6.80%"D"
Average Commission Rate # $ 0.0523 $0.0491
</TABLE>
- --------------------------------------------------------------------------------
"D" Non-annualized.
* Annualized.
# Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a
commission charged. The Average Commission Rate is not required for fiscal
periods beginning before September 1, 1995.
See Accompanying Notes to Financial Statements.
26
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Warburg Pincus Trust (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940, as amended, and
currently offers four investment funds (the "Portfolios"): International Equity
Portfolio is a diversified investment fund that seeks long-term capital
appreciation by investing primarily in a broadly diversified portfolio of equity
securities companies that have their principal business activities and interests
outside the U.S.; Small Company Growth Portfolio is a non-diversified investment
fund that seeks capital growth by investing in equity securities of small-sized
domestic companies and Post-Venture Capital Portfolio is a diversified
investment fund that seeks long-term growth of capital by investing primarily in
equity securities of companies considered to be in their post-venture-capital
stage of development. Shares of a Portfolio are not available directly to
individual investors but may be offered only to certain (a) life insurance
companies for allocation to certain of their separate accounts established for
the purpose of funding variable annuity contracts and variable life insurance
contracts and (b) tax-qualified pension and retirement plans ('Plans'),
including participant-directed Plans which elect to make a Portfolio an
investment option for Plan participants. The Emerging Markets Portfolio had not
commenced investment operations as of June 30, 1997.
The net asset value of each Portfolio is determined daily as of the close
of regular trading on the New York Stock Exchange. Each Portfolio's investments
are valued at market value, which is generally determined using the last
reported sales price. If no sales are reported, investments are generally valued
at the last reported mean price. In the absence of market quotations,
investments are generally valued at fair value as determined by or under the
direction of the Trust's governing Board. Short-term investments that mature in
60 days or less are valued on the basis of amortized cost, which approximates
market value.
The books and records of the Portfolios are maintained in U.S. dollars.
Transactions denominated in foreign currencies are recorded at the current
prevailing exchange rates. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at the current exchange rate
at the end of the period. Translation gains or losses resulting from changes in
the exchange rate during the reporting period and realized gains and losses on
the settlement of foreign currency transactions are reported in the results of
operations for the current period. The Portfolios do not isolate that portion of
gains and losses on investments in equity securities which are due to changes in
the foreign exchange rate from that which are due to changes in market prices of
equity securities. The Portfolios isolate that portion of gains and losses on
investments in debt securities which are due to changes in the foreign exchange
rate from that which are due to changes in market prices of debt securities.
Security transactions are accounted for on a trade date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the ex-
dividend date.
27
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
The cost of investments sold is determined by use of the specific identification
method for both financial reporting and income tax purposes.
Dividends from net investment income and distributions of net realized
capital gains, if any, are declared and paid annually. However, to the extent
that a net realized capital gain can be reduced by a capital loss carryover,
such gain will not be distributed. Income and capital gain distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles.
For U.S. federal income tax purposes, realized losses incurred after
October 31, 1996, within the fiscal year, are deemed to arise on the first
business day of the following fiscal year. The International Equity Portfolio
incurred and elected to defer such losses of $89,740.
No provision is made for federal income taxes as it is the Trust's
intention to have each Portfolio continue to qualify for and elect the tax
treatment applicable to regulated investment companies under the Internal
Revenue Code and make the requisite distributions to its shareholders which will
be sufficient to relieve it from federal income and excise taxes.
Costs incurred by the Portfolios in connection with their organization have
been deferred and are being amortized over a period of five years from the date
each Portfolio commenced its operations. Costs incurred by the Portfolios in
connection with the offering of their shares have been deferred and are being
amortized over a one year period from the date each Portfolio commenced its
operations.
The Portfolios may enter into repurchase agreement transactions. Under the
terms of a typical repurchase agreement, a Portfolio acquires an underlying
security subject to an obligation of the seller to repurchase. The value of the
underlying security collateral will be maintained at an amount at least equal to
the total amount of the purchase obligation, including interest. The collateral
is in the Portfolio's possession.
The Trust, together with other Warburg-advised funds (collectively the
"Warburg Funds"), has established committed and uncommitted line of credit
facilities with certain banks for temporary or emergency purposes primarily
relating to fund share redemptions and funding payments of dividend or capital
gain distributions. Under the terms of the committed line of credit, the Warburg
Funds with access to the facility pay a commitment fee at a rate of .10% per
annum on the amount of the line of credit. In addition, under the terms of both
the committed and uncommitted facilities, the Warburg Funds will pay interest on
borrowings at the bank's base rate plus .55%. Aggregate borrowings for each fund
under these credit facilities may not exceed the lower of (a) the maximum amount
permitted by such fund's investment policies and restrictions or (b) thirty-
three and one-third percent (33 1/3%) of such fund's total assets. At June 30,
28
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
1997 there were no outstanding balances under these line of credit facilities
for any of the Portfolios.
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 at the date of the
financial statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
THE PORTFOLIOS HAVE AN ARRANGEMENT WITH THEIR TRANSFER AGENT WHEREBY INTEREST
EARNED ON UNINVESTED CASH BALANCES WAS USED TO OFFSET A PORTION OF THE TRANSFER
AGENT EXPENSE. FOR THE PERIOD ENDED JUNE 30, 1997, THE INTERNATIONAL EQUITY
PORTFOLIO, THE SMALL COMPANY GROWTH PORTFOLIO AND THE POST-VENTURE CAPITAL
PORTFOLIO RECEIVED CREDITS OR REIMBURSEMENTS OF $2,010, $2,411 AND $661,
RESPECTIVELY UNDER THIS ARRANGEMENT.
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR
Warburg, Pincus Counsellors, Inc. ("Warburg"), which is indirectly controlled
by Warburg, Pincus & Co., serves as each Portfolio's investment adviser. For its
investment advisory services, the International Equity Portfolio, the Small
Company Growth Portfolio and the Post-Venture Capital Portfolio pay Warburg a
fee calculated at an annual rate of 1.00%, .90% and 1.25%, respectively, of each
Portfolio's average daily net assets. For the period ended June 30, 1997,
investment advisory fees and waivers were as follows:
<TABLE>
<CAPTION>
GROSS NET
PORTFOLIO ADVISORY FEE WAIVER ADVISORY FEE
- -------------------- ------------ -------- ------------
<S> <C> <C> <C>
International Equity $1,656,300 $(56,808) $1,599,492
Small Company Growth 1,677,914 0 1,677,914
Post-Venture Capital 139,218 (37,859) 101,359
</TABLE>
Abbott Capital Management, L.P. ("Abbott") serves as sub-investment adviser
for the Post-Venture Capital Portfolio's assets invested in U.S. or foreign
private limited partnerships or other investment funds ("Private Fund
Investments"). From its investment advisory fee, Warburg pays Abbott a fee of
.55% per annum of the value of Private Fund Investments as of the end of each
calendar quarter. No compensation is paid by the Post-Venture Capital Portfolio
to Abbott for its sub-investment advisory services. Effective January 17, 1997,
the Sub-Advisory Agreement was amended. Under the amended Agreement, Warburg
pays Abbott a quarterly fee at the annual rate of 1.00% of the Fund's average
daily net assets. No compensation is paid by the Post-Venture Capital Fund to
Abbott for its sub-investment advisory services.
Counsellors Funds Service, Inc. ("CFSI"), a wholly owned subsidiary of
Warburg, and PFPC Inc. ("PFPC"), an indirect, wholly owned subsidiary of PNC
Bank Corp. ("PNC"), serve as each Portfolio's co-administrators. For its
administrative services, CFSI currently receives a fee calculated at an annual
rate
29
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
2. INVESTMENT ADVISER, CO-ADMINISTRATORS AND DISTRIBUTOR (CONT'D)
of .10% of each Portfolio's average daily net assets. For the period ended June
30, 1997, administrative services fees earned by CFSI were as follows:
<TABLE>
<CAPTION>
PORTFOLIO CO-ADMINISTRATION FEE
- -------------------- ---------------------
<S> <C>
International Equity $ 165,630
Small Company Growth 186,435
Post-Venture Capital 11,138
</TABLE>
For its administrative services for the Small Company Growth Portfolio and
the Post-Venture Capital Portfolio, PFPC currently receives a fee calculated at
an annual rate of .10% on each Portfolio's first $500 million in average daily
net assets, .075% on the next $1 billion in average daily net assets and .05% of
average daily net assets in excess of $1.5 billion. For the International Equity
Portfolio, PFPC receives a fee calculated at an annual rate of .12% on the
Portfolio's first $250 million in average daily net assets, .10% on the next
$250 million in average daily net assets, .08% on the next $250 million in
average daily net assets and .05% of the average daily net assets over $750
million. For the period ended June 30, 1997, adminstrative service fees earned
and waived by PFPC were as follows:
<TABLE>
<CAPTION>
NET
PORTFOLIO CO-ADMINISTRATION FEE WAIVER CO-ADMINISTRATION FEE
- -------------------- --------------------- --------- ---------------------
<S> <C> <C> <C>
International Equity $190,425 0 $190,425
Small Company Growth 186,435 0 186,435
Post-Venture Capital 11,138 $(11,138) 0
</TABLE>
Counsellors Securities Inc. ("CSI"), also a wholly owned subsidiary of
Warburg, serves as each Portfolio's distributor. No compensation is paid by the
Portfolios to CSI for its distribution services.
3. INVESTMENTS IN SECURITIES
For the period ended June 30, 1997, purchases and sales of investment
securities (excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
- -------------------- ------------- -------------
<S> <C> <C>
International Equity $144,683,138 $107,463,397
Small Company Growth 237,603,691 136,245,625
Post-Venture Capital 37,954,154 24,840,591
</TABLE>
At June 30, 1997, the net unrealized appreciation from investments for those
securities having an excess of value over cost and net unrealized depreciation
from investments for those securities having an excess of cost over value (based
on cost for federal income tax purposes) was as follows:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED NET UNREALIZED
PORTFOLIO APPRECIATION DEPRECIATION APPRECIATION
- -------------------- ------------ ------------- --------------
<S> <C> <C> <C>
International Equity $59,559,081 $(17,612,252) $41,946,829
Small Company Growth 98,749,166 (7,007,281) 91,741,885
Post-Venture Capital 3,233,436 (416,033) 2,817,403
</TABLE>
30
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- -------------------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS
The Portfolios may enter into forward currency contracts for the purchase or
sale of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Portfolios will enter into forward contracts primarily for hedging purposes. The
forward currency contracts are adjusted daily by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date.
At June 30, 1997, the International Equity Portfolio had the following open
forward currency contracts:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
FORWARD CURRENCY EXPIRATION CURRENCY CONTRACT CONTRACT FOREIGN EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN/(LOSS)
- ---------------- ---------- ------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
French Francs 09/08/97 64,830,000 $11,196,891 $11,083,377 $ 113,514
French Francs 09/08/97 14,000,000 2,455,742 2,393,449 62,293
Japanese Yen 08/26/97 747,473,300 6,535,000 6,576,397 (41,397)
Japanese Yen 08/26/97 2,688,080,005 23,465,000 23,650,185 (185,185)
----------- ----------- ---------
$43,652,633 $43,703,408 $ (50,775)
=========== =========== =========
</TABLE>
5. SWAP TRANSACTIONS
The International Equity Portfolio has entered into a total return swap
agreement (which represents approximately 1.00% of its net assets at June 30,
1997) dated March 21, 1997, where the Portfolio receives a quarterly payment
representing the total return (defined as market appreciation and dividend
income) on a basket of Korean common stocks ("Common Stocks"). In return, the
Portfolio pays quarterly the Libor rate (London Interbank Offered Rate), plus
1.97% per annum (7.732% on June 30, 1997) on the market value of the Common
Stocks ("Notional Amount") which is currently $4,000,000. The Notional Amount is
marked-to-market on each quarterly reset date. In the event that the Common
Stocks decline in value, the Portfolio will be required to pay quarterly the
amount of any depreciation in value from the Notional Amount. The swap agreement
will terminate on April 3, 2000.
During the term of the swap transaction, changes in the value of the Common
Stocks as compared to the Notional Amount are recognized as unrealized gain or
loss. Dividend income for the Common Stocks is recorded on the ex-dividend date.
Interest expense is accrued daily. At June 30, 1997, the Portfolio has recorded
unrealized gains of $213,677 and interest payable of $77,317 on the swap
transaction.
31
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
6. RESTRICTED SECURITIES
A summary of the restricted securities held at June 30, 1997 follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION MARKET PERCENTAGE
PORTFOLIO DESCRIPTION DATE COST VALUE OF NET ASSETS
- ----------------- -------------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Small Company
Growth Portfolio Southern 12/20/96 $794,813 $883,125 0.19%
Mineral Corp.
Post-Venture
Capital Growth N2K Inc. 04/25/97 300,000 300,000 1.10%
Series G Pfd.
</TABLE>
7. CAPITAL SHARE TRANSACTIONS
The International Equity Portfolio, the Small Company Growth Portfolio and
the Post-Venture Capital Portfolio are each authorized to issue an unlimited
number of full and fractional shares of beneficial interest, par value of $.001
per share.
Transactions in shares of each Portfolio were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
PORTFOLIO
-------------------------------- SMALL COMPANY GROWTH PORTFOLIO POST-VENTURE CAPITAL PORTFOLIO
FOR THE SIX ------------------------------ ---------------------------------------
MONTHS ENDED FOR THE YEAR FOR THE SIX FOR THE YEAR FOR THE SIX SEPTEMBER 30, 1996
JUNE 30, ENDED MONTHS ENDED ENDED MONTHS ENDED (COMMENCEMENT OF
1997 DECEMBER 31, JUNE 30, 1997 DECEMBER 31, JUNE 30, 1997 OPERATIONS) THROUGH
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) DECEMBER 31, 1996
-------------- ------------- -------------- ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 7,890,293 29,490,915 13,439,844 31,233,075 2,995,423 1,270,999
Shares issued
to
shareholders
on
reinvestment
of dividends 0 531,478 0 0 0 0
Shares
redeemed (3,934,879) (10,101,449) (5,379,591) (15,202,857) (1,568,789) (228)
---------- ----------- ---------- ----------- ---------- ---------
Net increase
in shares
outstanding 3,955,414 19,920,944 8,060,253 16,030,218 1,426,634 1,270,771
========== =========== ========== =========== ========== =========
</TABLE>
8. LIABILITIES
At June 30, 1997, the Portfolios had the following liabilities:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL COMPANY GROWTH POST-VENTURE CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Payable for securities purchased (at
value) $ 9,029,339 $ 3,285,134 $ 613,227
Investment advisory fee payable 290,981 329,845 21,284
</TABLE>
9. NET ASSETS
At June 30, 1997, capital contributions, undistributed net investment income
and accumulated net realized loss from security transactions have been adjusted
for current period permanent book/tax differences which arose principally from
differing book/tax treatments of foreign currency transactions. The
International Equity Portfolio reclassified $5,950,982 from accumulated net
realized gain (loss) from foreign currency related items to undistributed net
32
<PAGE>
WARBURG PINCUS TRUST
NOTES TO FINANCIAL STATEMENTS (CONT'D)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
investment income. The Small Company Growth Portfolio and the Post-Venture
Capital Portfolio reclassified $983,635 and $71,994, respectively from
accumulated net investment loss to capital contributions. Net investment income,
net realized gain (loss) on investments and net assets were not affected by this
reclassification.
Net assets at June 30, 1997, consisted of the following:
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SMALL COMPANY GROWTH POST-VENTURE CAPITAL
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Capital contributed, net $335,846,805 $419,818,550 $26,317,319
Undistributed net investment income 6,408,299 0 0
Accumulated net realized gain (loss)
from security transactions 10,890,437 (45,863,937) (1,911,755)
Net unrealized appreciation from
investments and foreign currency
related items 42,131,336 92,037,708 2,817,611
------------ ------------ -----------
Net assets $395,276,877 $465,992,321 $27,223,175
============ ============ ===========
</TABLE>
10. CAPITAL LOSS CARRYOVER
For the fiscal year ended December 31, 1997, capital loss carryovers
available to offset possible future capital gains of each Portfolio were as
follows:
<TABLE>
<CAPTION>
CAPITAL LOSS CARRYOVER
EXPIRING IN
----------------------- TOTAL CAPITAL
PORTFOLIO 2003 2004 LOSS CARRYOVER
- -------------------- --------- ---------- --------------
<S> <C> <C> <C>
Small Company Growth $659,487 $17,655,100 $18,314,587
Post-Venture Capital 0 47,891 47,891
</TABLE>
33
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[Logo]
P.O. BOX 9030, BOSTON, MA 02205-9030
800-369-2728
COUNSELLORS SECURITIES INC., DISTRIBUTOR. TREQF-3-0697
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as "D"
The division sign shall be expressed as [div]
<PAGE>
TOMORROW FUNDS
RETIREMENT TRUST
A Lifecycle Retirement Program
SEMI-ANNUAL REPORT
JUNE 30, 1997
(UNAUDITED)
TOMORROW LONG-TERM RETIREMENT FUND
TOMORROW MEDIIUM-TERM RETIREMENT FUND
TOMORROW SHORT-TERM RETIREMENT FUND
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Chairman's Letter ......................................................... 1
Ten Largest Holdings ...................................................... 2
(Schedules of Investments)
Tomorrow Long-Term Retirement Fund .................................... 3
Tomorrow Medium-Term Retirement Fund .................................. 11
Tomorrow Short-Term Retirement Fund ................................... 21
Statements of Assets and Liabilities ...................................... 28
Statements of Operations .................................................. 29
Statements of Changes in Net Assets ....................................... 30
Notes to Financial Statements ............................................. 31
Financial Highlights ...................................................... 36
</TABLE>
<PAGE>
DEAR SHAREHOLDER:
The bull market roared ahead in the second quarter on the strength of
rising corporate profits and favorable economic news. Signs of inflation were
nonexistent and the Fed kept interest rates stable following a slight tightening
in February. The combination of these extremely favorable conditions resulted in
further increases in equity valuations.
The recent trend favoring growth oriented stocks over value for the large
capitalization portion of the universe continued during the quarter. In
contrast, smaller capitalization value stocks tended to outperform their growth
oriented counterparts. The banking and pharmaceutical sectors posted the highest
returns.
The Tomorrow Long-Term and Medium-Term Funds consist of a blended mix of
domestic and international equities, and fixed income instruments, with the
largest allocation being towards domestic equities. The asset mix of the
Tomorrow Short-Term Fund also includes domestic equities and fixed income
securities but does not include any international securities. The weighting
between fixed income securities and equities in the Short-Term Fund is being
adjusted so that going forward, fixed income securities will represent the
majority of assets in the Fund. These Funds utilize a disciplined strategy that
seeks to outperform the respective benchmark of each fund while minimizing
investment risk and remaining sector neutral. The amount invested in each
capitalization class depends on the time horizon of the Fund. Variations in
performance among Funds are due to the differing proportion invested in small,
medium, and large capitalization stocks. The longer the time horizon, the
riskier the mix of assets will be. Recent performance reflects the Funds' long
term goal of reducing volatility. While this disciplined strategy tends to
perform well over full market cycles, it has underperformed in the recent
environment of a sharply rising domestic equity market whose performance has
been dominated by the largest capitalization stocks.
Weiss, Peck & Greer remains committed to helping you invest wisely prior to
and during your retirement. The Tomorrow Retirement Funds were created to
simplify investment decision making consistent with sound investment practice.
As always, our goal remains to do our best to help our clients achieve their
long-term investment goals.
Sincerely,
/s/ Roger J. Weiss
Roger J. Weiss
Chairman of the Board
July 22, 1997
Page 1
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
TEN LARGEST HOLDINGS AT JUNE 30, 1997* (UNAUDITED)
<TABLE>
<CAPTION>
MARKET PERCENT
LONG-TERM RETIREMENT VALUE OF FUND
- -------------------- ------ -------
<S> <C> <C>
US Treasury Note
5.500%, Due 11/15/98............ $ 189,865 6.2%
US Treasury Note
6.500%, Due 8/15/05............. 157,556 5.1%
BT EAFE Equity Index Fund............... 145,778 4.7%
Standard & Poor's Depositary
Receipt......................... 140,329 4.5%
US Treasury Note
7.000%, Due 7/15/06............. 128,594 4.2%
Exxon Corp.............................. 114,390 3.7%
US Treasury Bond
6.875%, Due 8/15/25............. 55,206 1.8%
3COM Corp............................... 48,825 1.6%
Pioneer Hi Bred International........... 48,880 1.6%
PG & E Corp............................. 39,940 1.3%
---------- -----
$1,069,363 34.7%
========== =====
SHORT-TERM RETIREMENT
- ----------------------
US Treasury Note
6.500%, Due 8/15/05............. $1,639,381 12.9%
US Treasury Note
5.500%, Due 11/15/98............ 1,511,965 12.0%
US Treasury Note
7.000%, Due 7/15/06............. 550,381 4.3%
US Treasury Bond
6.875%, Due 8/15/25............. 411,537 3.2%
Standard & Poor's Depositary
Receipt......................... 297,790 2.4%
US Treasury Note
6.500%, Due 5/31/01............. 170,930 1.4%
Royal Dutch Petroleum Co ADR............ 160,515 1.3%
British Aerospace Fin 144A
7.500%, Due 7/01/27............. 128,623 1.0%
GMAC 1995-A
7.150%, Due 3/15/00............. 122,843 1.0%
Morgan Stanley Group
6.875%, Due 3/01/07............. 117,820 0.9%
---------- -----
$5,111,785 40.4%
========== =====
MARKET PERCENT
MEDIUM-TERM RETIREMENT VALUE OF FUND
- --------------------- ------ -------
US Treasury Note
5.500%, Due 11/15/98............ $ 909,565 9.2%
US Treasury Note
6.500%, Due 8/15/05............. 860,575 8.8%
BT EAFE Equity Index Fund............... 510,987 5.2%
US Treasury Note
7.000%, Due 7/15/06............. 421,788 4.3%
Standard & Poor's Depositary
Receipt......................... 406,591 4.1%
US Treasury Bond
6.875%, Due 8/15/25............. 213,799 2.2%
Exxon Corp.............................. 189,789 1.9%
Royal Dutch Petroleum Co ADR............ 155,730 1.6%
US Treasury Note
6.500%, Due 5/31/01............. 115,629 1.2%
Intel Corp.............................. 113,450 1.2%
---------- -----
$3,897,903 39.7%
========== =====
</TABLE>
* The composition of the largest securities in each porfolio is subject
to change.
Page 2
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
<TABLE>
<CAPTION>
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND
<C> <S> <C>
COMMON STOCKS (66.3%)
BASIC MATERIALS (2.6%)
900 Quaker Chemical Corp.................... $15,638
2,264 +Amax Gold Inc........................... 13,867
34 Vulcan Materials Co..................... 2,669
24 Dow Chemical Co......................... 2,091
59 IMC Global Inc.......................... 2,065
37 Consolidated Papers Inc................. 1,998
32 Kimberly-Clark Corp..................... 1,592
48 Allegheny Teledyne Inc.................. 1,296
57 Barrick Gold Corp....................... 1,254
27 Bowater Inc............................. 1,249
130 Ethyl Corp.............................. 1,202
40 Georgia Gulf Corp....................... 1,162
59 Wausau Paper Mills Co................... 1,114
11 Phelps Dodge Corp....................... 937
70 Lawter International Inc................ 884
224 Armco Inc............................... 868
35 Schulman Inc............................ 862
22 Olin Corp............................... 859
11 Aluminum Company of America............. 829
54 Calgon Carbon Corp...................... 749
10 Reynolds Metals Co...................... 712
13 Crown Cork & Seal Inc................... 695
17 Florida Rock Industries................. 691
42 Placer Dome Inc ADR..................... 688
12 Ameron Inc.............................. 679
12 Nucor Corp.............................. 678
39 Wellman Inc............................. 678
30 Crompton & Knowles Corp................. 667
12 Champion International Corp............. 663
10 BetzDearborn Inc........................ 660
17 Ferro Corp.............................. 630
10 NCH Corp................................ 625
10 Petrolite Corp.......................... 619
25 Stephan Chemical Co..................... 616
14 +Tremont Corp............................ 614
19 Dexter Corp............................. 608
13 Carpenter Tech Corp..................... 595
101 Battle Mountain Gold Co................. 574
17 Chesapeake Corp......................... 574
20 Learonal Inc............................ 570
16 USX US Steel Group...................... 561
11 International Flavors & Fragrances Inc.. 555
14 Cambrex Corp............................ 555
29 RPM Inc................................. 533
23 Gencorp Inc............................. 532
25 Glatefelter (Ph) Co..................... 500
12 Newmont Mining Corp..................... 468
12 Minerals Technologies Inc............... 450
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
12 Chemed Corp............................. $ 449
12 James River Corp of Virginia............ 444
21 Engelhard Corp.......................... 440
13 Liqui-Box Corp.......................... 439
80 Hecla Mining Co......................... 430
10 Cleveland Cliffs Inc.................... 407
16 Mosinee Paper Corp...................... 392
67 +PT Tri Polyta Indonesia ADR............. 385
14 Grief Bros Corp Cl A.................... 378
12 Westvaco Corp........................... 377
24 Tuscarora Inc........................... 375
15 Cyprus Amax Minerals Co................. 368
12 Sonoco Products Co...................... 365
27 +Coeur D'Alene Mines Corp................ 349
12 Ashland Coal Inc........................ 342
11 Inco Ltd................................ 331
24 Homestake Mining Co..................... 314
15 Brush Wellman Inc....................... 314
15 Worthington Industries Inc.............. 275
10 Chemfirst Inc........................... 271
25 +Bethlehem Steel Corp.................... 261
10 Inland Steel Industries Inc............. 261
12 Oregon Steel Mills...................... 239
37 Echo Bay Mines Ltd...................... 213
229 +Sunshine Mining & Refining.............. 157
10 Sealright Co............................ 120
7 Unisource Worldwide Inc................. 112
3 Deltic Timber Corp...................... 88
3 Mississippi Chemical Corp............... 62
2 Primex Technologies..................... 43
-------
79,176
-------
CONSUMER CYCLICAL (9.8%)
647 +Fred Meyer Inc.......................... 33,442
900 Chrysler Corp........................... 29,531
537 May Department Stores Co................ 25,373
750 +Vitesse Semiconductor Corp.............. 24,516
2,674 +American Media Inc...................... 18,718
700 +Mirage Resorts Inc...................... 17,675
200 Nike Inc. Cl B.......................... 11,675
527 Russ Berrie & Co Inc.................... 11,561
300 King World Productions Inc.............. 10,500
124 Eastman Kodak Co........................ 9,517
340 TJX Companies Inc....................... 8,968
200 Callaway Golf Co........................ 7,100
94 CVS Corp................................ 4,817
668 Uno Restaurant Corp..................... 4,718
222 Walbro Corp............................. 4,496
349 Stride Rite Corp........................ 4,493
300 +Office Max Inc.......................... 4,331
100 +Williams Sonoma Inc..................... 4,275
</TABLE>
See notes to financial statements Page 3
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -------
TOMORROW LONG-TERM RETIREMENT FUND (continued)
<C> <S> <C>
200 International Game Tech ................................. $ 3,550
33 Penney (J.C.) & Co, Inc. ................................ 1,722
40 Gap Inc. ................................................ 1,555
50 +Viacom Inc. Cl B ........................................ 1,500
100 Champion Enterprises Inc. ............................... 1,487
27 Dayton Hudson Corp. ..................................... 1,436
30 Jones Apparel Group ..................................... 1,433
38 Miller (Herman) Inc. .................................... 1,368
40 Mattel Inc. ............................................. 1,355
40 +Lands' End Inc. ......................................... 1,185
56 The Limited Inc. ........................................ 1,134
36 +HSN, Inc. ............................................... 1,125
11 Gannet Inc. ............................................. 1,086
33 Service Corp International .............................. 1,085
28 +Nine West Group Inc. .................................... 1,069
21 Tiffany & Co. ........................................... 970
32 Wallace Computer Services Inc. .......................... 962
30 +Fruit of the Loom Inc. .................................. 930
20 Masco Corp. ............................................. 835
21 TCA Cable TV Inc. ....................................... 790
17 HON Industries Inc. ..................................... 752
11 Houghton Mifflin Co. .................................... 734
27 +Jacobs Engineering Group Inc. ........................... 726
60 +Burlington Industries Inc. .............................. 720
123 Ekco Group Inc. ......................................... 715
48 +Best Buy Company Inc. ................................... 714
20 Carlisle Companies Inc. ................................. 697
29 +International Dairy Queen Inc Cl A ...................... 696
16 Belo (AH) Corp. ......................................... 666
38 Fingerhut Companies Inc. ................................ 663
12 Fluor Corp. ............................................. 662
13 Rite Aid Corp. .......................................... 648
22 Meredith Corp. .......................................... 638
29 Osh Kosh B'Gosh Cl A. ................................... 631
224 +Intelligent Electronics Inc. ............................ 630
22 Banta Corp. ............................................. 597
10 McGraw-Hill Companies Inc. .............................. 588
20 McClatchy Newspapers Cl A ............................... 588
48 K Mart Stores ........................................... 588
12 McDonald's Corp. ........................................ 580
16 La Z Boy Inc. ........................................... 576
29 +AnnTaylor Stores Corp. .................................. 566
18 Fab Industries Inc. ..................................... 564
10 Tandy Corp. ............................................. 560
10 Whirlpool Corp. ......................................... 546
11 New York Times Co Cl A .................................. 544
16 John Wiley & Sons ....................................... 542
16 Genuine Parts Co. ....................................... 542
11 Chris Craft Industries Inc. ............................. 531
50 Crown Crafts Inc. ....................................... 525
13 National Presto Industries .............................. 524
12 South Down Inc. ......................................... 524
20 Longs Drug Stores ....................................... 524
26 Sturm Ruger & Co Inc. ................................... 510
18 Bassett Furniture Industries Inc. ....................... 510
14 Circuit City Stores ..................................... 498
49 Syms Corp. .............................................. 487
37 +Johnson Worldwilde Association Inc Cl A ................. 476
10 Harcourt General ........................................ 476
35 Falcon Products Inc. .................................... 470
18 Maytag Corp. ............................................ 470
12 Plenum Publishing Corp. ................................. 462
23 Luby's Cafeterias Inc. .................................. 459
14 Puerto Rican Cement Inc. ................................ 456
16 Hasbro Inc. ............................................. 454
11 Dow Jones & Co Inc. ..................................... 442
13 +Avatar Holdings Inc. .................................... 436
26 Donnelly Corp. .......................................... 436
16 Unitog Co. .............................................. 432
20 Apogee Enterprises Inc. ................................. 430
36 +Playboy Enterprises Inc Cl B ............................ 416
22 Duty Free International DFI Inc. ........................ 413
15 +Mac Frugals Bargains Closeout ........................... 409
22 AMC Entertainment Inc. .................................. 404
18 Cooper Tire & Rubber .................................... 396
11 Echlin Inc. ............................................. 396
20 Granite Construction Inc. ............................... 395
19 Guilford Mills Inc. ..................................... 395
18 Waverly Inc. ............................................ 387
12 Starrett LS Co Cl A ..................................... 383
91 Topps Co Inc. ........................................... 381
10 Black & Decker Corp. .................................... 372
10 American Greetings-Cl A ................................. 371
34 Nashua Corp. ............................................ 370
14 Lee Enterprises Inc. .................................... 369
42 +Lifetime Hoan Corp. ..................................... 368
62 +Shoney's Inc. ........................................... 368
11 +Carmike Cinemas Inc. Cl A ............................... 360
10 Dillards Inc Cl A ....................................... 346
12 Arvin Industries Inc. ................................... 327
12 Standard Products Co. ................................... 303
32 +Buffets Inc. ............................................ 270
11 +Woolworth Corp. ......................................... 264
18 Hancock Fabrics Inc. .................................... 248
11 +Gibson Greetings Inc. ................................... 247
17 Ladd Furniture Inc. ..................................... 234
75 +Service Merchandise Inc. ................................ 225
10 CPI Corp. ............................................... 210
10 Viad Corp. .............................................. 192
11 +Navistar International Corp. ............................ 190
3 +Payless Shoesource Inc. ................................. 164
</TABLE>
Page 4 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
12 A.T. Cross Co Cl A.............................. $ 153
13 Ennis Business Forms............................ 125
38 CML Group Inc................................... 69
--------
301,008
--------
CONSUMER NON CYCLICAL (5.6%)
511 Pioneer Hi Bred International................... 40,880
721 Delechamps Inc.................................. 23,072
725 Caseys General Stores Inc....................... 15,610
300 Philip Morris Companies Inc..................... 13,313
315 Universal Foods Corp............................ 12,009
720 Blair Corp...................................... 10,350
200 Ross Stores Inc................................. 6,538
150 Wolverine World Wide Inc........................ 4,556
335 WLR Foods Inc................................... 2,722
11 Unilever NV ADR................................. 2,355
27 Kellogg Co...................................... 2,312
93 IBP Inc......................................... 2,162
86 Archer Daniels Midland Co....................... 2,021
44 Anheuser- Busch Companies Inc................... 1,845
28 Conagra Inc..................................... 1,796
37 Heinz H J Co.................................... 1,707
45 Albertsons Inc.................................. 1,643
24 Colgate- Palmolive Co........................... 1,566
76 Tyson Foods Inc Cl A............................ 1,454
32 Sysco Corp...................................... 1,168
43 International Multifoods Corp................... 1,080
22 Lancaster Colony Corp........................... 1,064
63 Flowers Industries Inc.......................... 1,059
64 Ruddick Corp.................................... 1,056
23 Quaker Oats Co.................................. 1,032
11 CPC International Inc........................... 1,015
35 UST Inc......................................... 971
19 Tambrands Inc................................... 948
11 Ralston Purina Co............................... 904
33 Church & Dwight Co Inc.......................... 883
13 General Mills Inc............................... 847
42 Genovese Drugs Stores........................... 827
24 Stanhome Inc.................................... 789
11 Avon Products Inc............................... 776
18 Dean Foods Co................................... 727
27 Premark International........................... 722
27 Coors (Adolph) Cl A............................. 719
24 Kroger Co....................................... 696
19 Hannaford Brothers Co........................... 676
12 Hershey Foods Corp.............................. 664
13 Tootsie Roll Industries......................... 578
14 Dreyers Grand Ice Cream Inc..................... 553
11 American Stores Co.............................. 543
14 +Canandaigua Wine Inc Cl B...................... 502
56 Bridgeford Foods Corp........................... 497
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
45 Cash America International Inc.................. $ 472
25 Goodmark Foods Inc.............................. 469
21 Nash Finch Corp................................. 465
17 Whitman Corp.................................... 430
21 Lance Inc....................................... 402
23 Strawbridge & Clothier.......................... 374
10 Giant Food Inc Cl A............................. 326
16 Arbor Drugs Inc................................. 322
14 First Brands Corp............................... 321
13 Smart & Final Inc............................... 319
17 Savannah Foods & Industries..................... 299
14 Michael Foods Inc............................... 259
10 Rykoff-Sexton Inc............................... 233
10 Dial Corp....................................... 156
--------
174,054
--------
ENERGY (7.9%)
1,860 Exxon Corp...................................... 114,390
422 Atlantic Richfield Co........................... 29,751
420 Royal Dutch Petroleum Co ADR.................... 22,837
158 Mobil Corp...................................... 11,040
128 Chevron Corp.................................... 9,464
323 +Tuboscope Vetco International Corp............. 6,420
932 +Getty Petroleum Marketing...................... 4,660
46 Amoco Corp...................................... 3,999
141 +Global Marine Inc.............................. 3,278
50 Anadarko Petroleum Co........................... 3,000
43 +Ensco International Inc........................ 2,268
75 Tosco Corp...................................... 2,245
17 Schlumberger Ltd................................ 2,125
52 +Weather Ford Enterra Inc....................... 2,002
35 Phillips Petroleum Co........................... 1,531
58 +Nabors Industries Inc.......................... 1,450
13 Texaco Inc...................................... 1,414
23 +Smith International Inc........................ 1,397
49 Occidental Petroleum Corp....................... 1,228
36 USX-Marathon Group.............................. 1,040
148 +Harken Energy Corp............................. 1,036
18 +BJ Services Co................................. 965
20 Triton Energy Ltd............................... 916
24 Parker & Parsley Petroleum Co................... 849
23 Valero Energy Corp.............................. 834
19 Williams Companies Inc.......................... 831
53 Quaker St Corp.................................. 808
14 Helmerich & Payne Inc........................... 807
10 Halliburton Co.................................. 793
24 Mapco Inc....................................... 756
39 Berry Petroleum Cl A............................ 741
13 Coastal Corp.................................... 691
11 Amerada Hess Corp............................... 611
</TABLE>
See notes to financial statements Page 5
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- ---------- -------- -----
<C> <S> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
64 Ranger Oil Ltd.................................. $ 596
14 National Fuel Gas Co............................ 587
31 Wiser Oil Co.................................... 572
17 Ultra Diamond Shamrock Corp..................... 555
11 Murphy Oil Corp................................. 536
16 Sun Co Inc...................................... 496
11 Burlington Resources Inc........................ 485
34 +HS Resources Inc............................... 480
12 Baker Hughes Inc................................ 464
30 +Crown Central Petroleum Cl A................... 439
14 Vintage Petroleum Inc........................... 430
19 CTG Resources Inc............................... 418
16 Holly Corp...................................... 397
12 +Varco International Inc........................ 387
27 +Parker Drilling Co............................. 300
10 +Barrett Resources Corp......................... 299
15 +Pool Energy Services Co........................ 272
10 Oryx Energy Co.................................. 211
13 +Plains Resources Inc........................... 192
10 Santa-Fe Energy Resources....................... 147
11 +Hondo Oil & Gas Co............................. 78
--------
244,518
--------
FINANCE (7.4%)
722 American Federal Bank........................... 23,285
1,027 State Auto Financial Corp....................... 23,108
530 Southtrust Corp................................. 21,929
220 Progressive Corp................................ 19,140
100 Cigna Corp...................................... 17,750
300 Charter One Financial........................... 16,162
220 Comerica Inc.................................... 14,960
230 Commerce Bancshares Inc......................... 10,407
100 American National Insurance Co.................. 8,925
200 Provident Financial Group Inc................... 8,550
90 Paine Webber Group Inc.......................... 3,150
30 Summit Bankcorp................................. 1,504
21 Lincoln National Corp Ltd....................... 1,352
39 Keystone Financial Inc.......................... 1,219
30 Mercantile Bankshares Corp...................... 1,200
86 Hibernia Corp Cl A.............................. 1,199
18 U.S. Bancorp.................................... 1,154
11 Transatlantic Holdings Inc...................... 1,092
40 HCC Insurance Holdings Inc...................... 1,068
22 +Policy Management Systems Corp................. 1,034
10 Loews Corp...................................... 1,001
20 AFLAC Inc....................................... 945
14 Chubb Corp...................................... 936
20 UNUM Corp....................................... 840
18 Wilmington Trust Co............................. 823
33 City National Corp.............................. 794
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
17 Pacific Century Financial....................... $ 786
23 American Heritage Life Investors................ 759
21 New York Bancorp Inc............................ 730
15 Forest City Enterprises Inc Cl A................ 716
16 Dauphin Deposit Corp............................ 713
11 Frontier Insurance Group Inc.................... 712
27 Mid America Bancorp............................. 677
18 RLI Corp........................................ 656
13 Merchants New York Bancorp...................... 637
23 Magna Bancorp Inc............................... 630
15 American Financial Enterprise Inc............... 630
12 National City Corp.............................. 630
30 Heritage Financial Service Inc.................. 619
16 BSB Bancorp Inc................................. 612
15 +Medical Assurance Inc.......................... 609
12 Protective Life Corp............................ 603
14 United Bankshares Inc........................... 592
14 National City Bancshares Inc.................... 581
34 Hilb, Rogal & Hamilton Co....................... 578
15 Community First Bankshares...................... 576
20 Suffolk Bancorp................................. 575
11 United Carolina Bancshares...................... 572
15 First Western Bancorp Inc....................... 566
14 First Financial Bancorp......................... 564
15 Trenwick Group Inc.............................. 563
14 Acordia Inc..................................... 560
13 First United Bancshares Inc..................... 556
21 First Source Corp............................... 556
14 Wesbanco Inc.................................... 555
13 Student Loan Corp............................... 552
11 Midland Co...................................... 550
10 US Bancorp Inc.................................. 545
24 Baldwin & Lyons Inc............................. 543
33 Crawford & Co................................... 536
20 Fulton Financial Corp........................... 535
11 Banc One Corp................................... 533
11 Selective Insurance Group....................... 533
13 Liberty Corp.................................... 530
14 Gallagher (Arthur J.) & Co...................... 529
18 Hubco Inc....................................... 522
12 JSB Financial Inc............................... 519
14 Poe & Brown Inc................................. 518
11 Fort Wayne National Corp........................ 517
13 Albank Financial Corp........................... 514
13 Susquehanna Bancshares Inc...................... 510
13 Firstbank Ill Co................................ 509
12 Whitney Holding Corp............................ 507
18 F & M Bancorp Frederick Md...................... 499
10 Hancock Holding Co.............................. 490
10 Horace Mann Educator............................ 490
23 First Commonwealth Financial Corp............... 489
</TABLE>
Page 6 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
18 Zenith National Insurance............ $ 486
12 CNB Bancshares Inc................... 486
16 First Merchants Corp................. 484
22 National Commerce Bancorp............ 484
11 BT Financial Corp.................... 481
12 Associated Banc Corp................. 474
11 UMB Financial Corp................... 474
14 National Penn Bancshares Inc......... 472
14 S&T Bancorp Inc...................... 469
10 Safeco Corp.......................... 467
10 Banknorth Group Inc.................. 463
11 One Valley Bancorp Inc............... 462
19 SEI Investment Co.................... 458
11 Farmers Capital Bank Corp............ 457
15 First Michigan Bank Corp............. 454
22 NYMagic Inc.......................... 454
11 First Commercial Corp................ 452
12 First Financial Corp................. 447
36 EMC Insurance Group Inc.............. 446
13 Citizens Banking Corp Michigan....... 445
15 +UICI................................. 442
14 Deposit Guaranty Corp................ 441
16 Brenton Banks Inc.................... 440
24 Mid Am Inc........................... 438
14 Bank of Granite Corp................. 423
14 Argonaut Group Inc................... 413
18 Trustco Bank Corp.................... 385
13 Bancorp South Inc.................... 377
40 Gainsco Inc.......................... 375
17 CBT Corp............................. 372
13 Corus Bankshares Inc................. 367
10 Tompkins County Trustco Inc.......... 358
13 USF&G Corp........................... 312
11 Valley National Bancorp.............. 298
3 +SLH Corp............................. 231
10 First Commercial Bancshares.......... 229
12 ALFA Corp............................ 166
20 +Citizens Inc Cl A.................... 153
2 Conseco Inc.......................... 74
--------
228,719
--------
HEALTH (5.6%)
341 Amgen Inc............................ 19,821
172 Bristol-Myers Squibb Co.............. 13,932
500 +Genzyme Corp......................... 13,875
222 Corning Inc.......................... 12,349
100 Lilly Eli & Co....................... 10,931
142 American Home Products Corp.......... 10,863
230 +Vencor Inc........................... 9,948
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
242 Columbia Healthcare Corp............. $ 9,514
226 Pharmacia & Upjohn Inc............... 7,853
331 +Tecnol Medical Products Inc.. ....... 7,365
260 +Healthsouth Corp............. ....... 6,484
200 +NBTY Inc..................... ....... 5,600
100 Biogen Inc........................... 3,387
66 Schering-Plough Corp................. 3,160
24 Warner Lambert Co.................... 2,982
57 +Forest Laboratories Inc.............. 2,362
40 Cardinal Health Inc.................. 2,290
125 Mylan Laboratories Inc............... 1,844
53 +Centocor Inc......................... 1,646
77 +Horizon/CMS Healthcare Corp.. ....... 1,545
81 +Nellcor Inc.................. ....... 1,468
72 +Value Health Inc............. ....... 1,458
30 Beckman Instruments Inc.............. 1,447
103 +Perrigo Co............. ............. 1,288
19 +Boston Scientific Corp. ............. 1,167
41 Bergen Brunswig Corp................. 1,143
38 Tenet Healthcare Corp................ 1,123
25 +Watson Pharmaceuticals............ .. 1,056
15 +Pacificare Health Systems Cl B.... .. 958
31 +Foundation Health Systems Cl A.... .. 940
100 +Liposome Inc...................... .. 894
28 Diagnostic Products.................. 884
18 Dentsply International Inc........... 882
37 +Humana Inc........................... 856
39 Carter Wallace Inc................... 697
47 +Novacare Inc......................... 652
25 Pall Corp............................ 581
11 Bausch & Lomb Inc.................... 518
18 West Inc............................. 515
17 +ALZA Corp........................ ... 492
11 +Advanced Technology Laboratories. ... 473
12 Bard (CR) Inc........................ 436
12 Seafield Capital Corp................ 429
11 Mallinckrodt Inc..................... 418
22 Biomet Inc........................... 410
17 Acuson Corp.......................... 391
10 +St. Jude Medical Inc................. 390
12 Allergan Inc......................... 382
21 Kinetic Concepts Inc................. 378
37 +Medco Research Inc. ................. 356
16 +Datascope Corp..... ................. 314
33 Epitope Inc.......................... 260
14 +Beverly Enterprises Inc.............. 228
15 +Advanced Magnetics Inc............... 163
5 +Covance Inc.......................... 97
--------
171,895
--------
</TABLE>
See notes to financial statements Page 7
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
INDUSTRIAL (5.5%)
821 Wackenhut Corp........................... $19,704
525 Raymond Corp............................. 17,145
823 X-Rite Inc............................... 15,637
200 General Electric Co...................... 13,075
926 Dames & Moore Inc........................ 11,459
327 Tejon Ranch Co........................... 6,213
326 +Vallen Corp............................. 5,950
224 True North Communications................ 5,544
318 Commercial Intertech Corp................ 4,432
90 Equifax, Inc............................. 3,347
54 Omnicom Group Inc........................ 3,328
28 Minnesota Mining & Manufacturing Co...... 2,856
33 +HFS Inc................................. 1,914
36 +Healthcare Compare Corp................. 1,886
42 Hubbell Inc Cl B......................... 1,848
42 First Data Corp.......................... 1,845
70 Westinghouse Electric Corp............... 1,619
46 Waste Management Inc..................... 1,478
31 +Fiserv Inc.............................. 1,383
24 Emerson Electric Co...................... 1,322
34 Kelly Services Inc Cl A.................. 1,067
40 Dun & Bradstreet Corp.................... 1,050
28 Dresser Industries Inc................... 1,043
25 Molex Inc................................ 913
18 +Volt Information Sciences Inc........... 909
15 Deere & Co............................... 823
47 +Allied Waste Industries Inc............. 817
14 Tredegar Industries Inc.................. 777
19 Paychex Inc.............................. 722
34 McGrath Rent Corp........................ 697
10 Tyco International Ltd................... 696
22 Teleflex Inc............................. 688
18 Donaldson Co Inc......................... 684
17 +Christiana Companies.................... 678
11 Parker Hannifin Corp..................... 668
21 +CSS Industries Inc...................... 664
14 Gleason Corp............................. 651
26 Amcast Industrial Corp................... 650
10 Nordson Corp............................. 642
20 Trinity Industries Inc................... 635
19 IDEX Corp................................ 627
42 Rollins Truck Leasing Corp............... 625
19 Pentair Inc.............................. 625
18 Keystone International Inc............... 624
47 Graphic Industries....................... 623
21 Baldor Electric Co....................... 621
10 Dover Corp............................... 615
10 Interpublic Group of Companies Inc....... 613
SCHEDULES OF INVESTMENTS JUNE 30, 1997(UNAUDITED)
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
95 +Handleman Co............................ $ 606
14 Stone & Webster Inc...................... 598
19 Standard Register Co..................... 582
16 Applied Industrial Technologies Inc...... 576
35 ADVO Inc................................. 569
10 TRW Inc.................................. 568
20 +Littelfuse Inc.......................... 565
19 Modine Manufacturing Co.................. 565
54 Blessings Corp........................... 564
10 NACCO Industries Inc Cl A................ 564
24 Ametek Inc............................... 564
36 Kaman Corp CL A.......................... 554
19 Brady W H Co............................. 551
12 MacDermid Inc............................ 550
20 Lawson Products Inc...................... 540
23 Landauer Inc............................. 533
16 Tennant Co............................... 532
27 Penn Engineering & Manufacturing Corp.... 530
11 Fisher Scientific International.......... 522
13 Hughes Supply Inc........................ 520
26 ABM Industries Inc....................... 502
17 Durco International Inc.................. 497
10 Kaydon Corp.............................. 496
25 Sevenson Environmental Services.......... 487
18 Varlen Corp.............................. 484
16 American List Corp....................... 482
18 International Aluminum Corp.............. 477
46 +Thermo Fibertek Inc..................... 471
33 Laidlaw Inc Cl B......................... 456
14 Commercial Metals........................ 452
28 Oil-Dri Corp America..................... 450
24 Brown Group Inc.......................... 449
11 Stanley Works............................ 440
26 Sotheby's Holdings Cl A.................. 439
31 +Information Resources Inc............... 438
23 +Osmonics Inc............................ 424
10 +Ceridian Corp........................... 422
14 Graco Inc................................ 422
10 Cognizant Corp........................... 405
12 Butler Manufacturing Co.................. 397
20 Alico Inc................................ 392
18 +Lydall Inc.............................. 380
11 Robbins & Myers Inc...................... 358
56 +Insituform Technologies Cl A............ 343
10 Deluxe Corp.............................. 341
14 Harland Co............................... 319
13 Watts Industries Inc Cl A................ 312
45 UNR Industries Inc....................... 309
</TABLE>
Page 8 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
18 +Cuno Inc................................ $ 301
10 Standex International Corp............... 300
13 American Business Products............... 296
10 McDermott International Inc.............. 292
12 Albany International Corp Cl A........... 270
10 EG&G Inc................................. 225
13 Cadmus Communications Corp............... 202
10 Lilly Industries Inc Cl A................ 201
63 +Laidlaw Environmental Services.......... 189
31 +GRC International, Inc.................. 171
6 +Halter Marine Group Inc................. 144
28 +Air & Water Technology.................. 84
3 +Echelon International Corp.............. 68
3 +ACNielsen Corp.......................... 59
--------
168,231
--------
REAL ESTATE INVESTMENT TRUST (1.7%)
932 Getty Realty Corp........................ 16,427
1,106 United Dominion Realty Trust Inc......... 15,691
336 Western Investment Real Estate........... 4,662
221 Universal Health Realty Income........... 4,185
67 First Union Real Estate.................. 946
41 CRIIMI Mae Inc........................... 656
13 Equity Residential Properties Trust...... 618
22 BRE Properties Inc....................... 553
47 IRT Property Co.......................... 552
24 MGI Properties........................... 529
19 Federal Realty Investment................ 513
13 National Health Investors, Inc........... 510
28 LTC Properties Inc....................... 507
20 American Health Properties............... 502
22 Penn Real Estate Investment.............. 494
29 Kranzco Realty Trust SBI................. 493
15 Omega Healthcare Investors Inc........... 490
20 Health Care, Inc......................... 486
31 Commercial Net Lease Realty.............. 475
33 Burham Pacific Properties Inc............ 454
42 Berkshire Realty Co...................... 446
20 Nationwide Health........................ 440
18 Allied Capital Commercial Corp........... 432
12 Taubman Centers Inc...................... 159
5 +Wellsford Real Properties............... 55
233 CRI Liquidating Inc...................... 26
--------
51,301
--------
TECHNOLOGY (11.5%)
1,085 +3Com Corp............................... 48,825
200 Intel Corp............................... 28,363
200 +Microsoft Corp.......................... 25,275
460 Sprint Corp.............................. 24,207
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
400 +Lattice Semiconductor Corp.............. $ 22,600
442 +Compuware Corp.......................... 21,105
200 +Novellus Systems Inc.................... 17,300
900 +Nextel Communications Inc Cl A.......... 17,044
530 +Atmel Corp.............................. 14,840
118 +Dell Computer Corp...................... 13,858
1,300 +Chips & Technologies Inc................ 13,488
300 Southern New England Telecommunications.. 11,663
220 +Comverse Technology Inc................. 10,400
112 GTE Corp................................. 9,477
200 +SunGard Data Systems.................... 9,300
161 +Keane Inc............................... 8,372
1,141 +AST Research Inc........................ 6,026
100 BMC Software, Inc........................ 5,537
200 +American Management Systems Inc......... 5,350
130 +ADC Telecommunications Inc.............. 4,339
80 Boeing Co................................ 4,245
140 Analog Devices Inc....................... 3,719
239 +Trident Microsystems Inc................ 2,689
33 McDonnell Douglas Corp................... 2,260
44 US West Inc.............................. 1,658
39 Century Telephone Enterprises............ 1,314
24 Raytheon Co.............................. 1,224
35 Alltel Corp.............................. 1,170
42 +Structural Dynamics Research Corp....... 1,103
83 Sensormatic Electronics Corp............. 1,069
22 +Litton Industries Inc................... 1,063
20 +Stratus Computer Inc.................... 1,000
13 Thiokol Corp............................. 910
10 Eaton Corp............................... 873
14 SBC Communications....................... 866
11 Honeywell Inc............................ 835
11 CTS Corp................................. 758
21 +Esterline Technologies Corp............. 739
12 Fluke Corp............................... 711
31 Aliant Communications.................... 604
23 Cubic Corp............................... 598
84 +Borland International................... 583
10 Sequa Corp Cl A.......................... 564
17 MTS Systems Corp......................... 518
14 +Advanced Micro Devices Inc.............. 504
72 +Novell Inc.............................. 500
32 Bell Industries Inc...................... 500
11 +Storage Technology Corp................. 489
14 Analysts International Corp.............. 469
13 +Tekelec................................. 460
29 Daniel Industries........................ 448
21 Boole & Babbage Inc...................... 446
</TABLE>
See notes to financial statements Page 9
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
11 +BRC Holdings Inc...................... $ 418
14 Ikon Office Solutions Inc............. 349
17 Frontier Corp......................... 339
23 +Apple Computer Inc.................... 328
104 +Phonetel Technologies Inc............. 312
14 +Rohr Inc.............................. 307
162 +Executone Information Systems Inc..... 273
11 +Magnetek Inc.......................... 183
21 +Unisys Corp........................... 160
12 Amdahl Corp........................... 106
12 +Intergraph Corp....................... 102
235 +Radius Inc............................ 66
2 +Quest Diagnostic Inc.................. 41
--------
355,242
--------
TRANSPORTATION (0.8%)
524 International Shipholding Corp........ 8,941
326 +Yellow Corp........................... 7,294
24 Burlington Northern Santa Fe.......... 2,157
29 ASA Holdings Inc...................... 830
12 +Federal Express Corp.................. 693
26 Alexander & Baldwin................... 679
41 Hunt J B Transportation Services Inc.. 610
50 +USA Truck Inc......................... 562
12 Caliber Systems Inc................... 447
44 Frozen Foods Express Industries....... 379
21 Arnold Industries Inc................. 357
10 +Swift Transportation Co Inc........... 295
--------
23,244
--------
UTILITIES (7.9%)
1,647 PG & E Corp........................... 39,940
822 Duke Energy Corp...................... 39,405
630 New England Electric.................. 23,310
927 St Joseph Light & Power............... 15,180
727 Philadelphia Suburban Corp............ 13,904
727 Eastern Utilities..................... 13,268
352 GPU Inc............................... 12,628
525 Public Service Co..................... 10,073
329 United Water Resources Inc............ 6,374
228 Puget Sound Energy Inc................ 6,042
327 +Tuscon Electric Power Co.............. 4,742
32 El Paso Natural Gas................... 1,760
53 Florida Progress Corp................. 1,660
46 CMS Energy Corp....................... 1,621
73 Southern Co........................... 1,597
45 Central Hudson Gas & Electric Corp.... 1,550
153 Northeast Utilities................... 1,463
63 Montana Power Co...................... $ 1,461
67 Ohio Edison Co........................ 1,461
35 Enron Corp............................ 1,428
57 Scana Corp............................ 1,414
58 Potomac Electric Power................ 1,341
50 Boston Edison Co...................... 1,319
31 Nipsco Industries..................... 1,281
30 Public Service Co of Colorado......... 1,245
32 +California Energy Inc................. 1,216
61 Midamerican Energy Holdings........... 1,056
38 Edison International.................. 945
29 IPALCO Entreprises.................... 906
34 Indiana Energy Inc.................... 831
25 MCN Energy Group Inc.................. 766
59 Central Maine Power Co................ 730
40 Public Service Co of New Mexico....... 715
25 Black Hills Corp...................... 712
17 Southwestern Public Service........... 668
32 New York State Electric & Gas......... 668
30 Northwestern Public Service........... 645
30 American Water Works.................. 641
29 LG & E Energy Corp.................... 640
28 Pacificorp............................ 616
18 Energen Corp.......................... 606
21 Brooklyn Union Gas Co................. 601
27 Houston Industries.................... 579
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (continued)
13 California Water Services Co.......... 572
26 Nevada Power.......................... 552
10 SJW Corp.............................. 525
10 Sonat Inc............................. 512
20 Pennsylvania Enterprises Inc.......... 511
13 +Tejas Gas Corp........................ 510
16 Idaho Power Co........................ 502
16 New Jersey Resources Corp............. 502
13 Hawaiian Electric Industries.......... 502
15 North Carolina Natural Gas Corp....... 501
12 Cilcorp Inc........................... 494
20 Southern California Water Co.......... 490
14 CINergy Corp.......................... 487
19 SIG Corp Inc.......................... 482
20 Atmos Energy Corp..................... 480
20 MDU Resources Group Inc............... 480
16 IES Industries Inc.................... 472
23 AGL Resources Inc..................... 471
12 Wicor Inc............................. 467
15 E Town Corp........................... 463
18 Piedmont Natural Gas Inc.............. 462
11 American Electric Power Co............ 462
10 FPL Group Inc......................... 461
17 Aquarion Co........................... 459
28 Cascade Natural Gas Corp.............. 458
Page 10 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<S> <C> <C>
TOMORROW LONG-TERM RETIREMENT FUND (continued)
19 Commonwealth Energy System......... $ 455
13 Eastern Enterprises................ 452
21 Central & South West Corp.......... 446
19 United Cities Gas Co............... 446
20 South Jersey Industries............ 445
17 Northwest Natural Gas Co........... 445
19 TNP Entreprise Inc................. 441
13 Otter Tail Power Co................ 429
17 Washington Gas Light Co............ 427
16 Bay State Gas...................... 426
18 Green Mountain Power............... 426
19 UGI Corp........................... 420
13 Oneok Inc.......................... 418
24 Empire District Electric........... 415
12 Texas Utilities Co................. 413
19 Laclede Gas Co..................... 413
20 Madison Gas & Electric............. 410
12 Orange & Rockland Utilities........ 403
11 Dominion Resources Inc............. 403
12 Pacific Enterprises................ 403
15 WPS Resources Corp................. 401
18 Colonial Gas Co.................... 379
10 Union Electric Co.................. 377
12 United Illuminating................ 371
13 Entergy Corp....................... 356
17 PP & L Resources Inc............... 339
13 Yankee Energy System............... 319
40 Citizens Utilities Co Cl B......... 317
15 Western Gas Resources Inc.......... 292
11 Connecticut Energy Corp............ 267
11 Noram Energy Corp.................. 168
16 +Niagara Mohawk Power.............. 137
----------
243,544
----------
TOTAL COMMON STOCKS
(Cost $1,773,697).................. 2,040,932
----------
UNIT INVESTMENT TRUST (4.6%)
(Cost $128,505)
1,589 Standard & Poors Depositary Receipt 140,329
----------
OPEN END INVESTMENT COMPANY (4.7%)
(Cost $128,480)
12,271 BT EAFE Equity Index Fund.......... 145,778
----------
PRINCIPAL
AMOUNT
- ------
US TREASURY OBLIGATIONS (17.7%)
US TREASURY BOND (1.8%)
$ 55,000 US T-Bond 6.875% Due 8/15/25....... 55,206
----------
PRINCIPAL
AMOUNT SECURITY VALUE
- ------ -------- -----
TOMORROW LONG-TERM RETIREMENT FUND (CONTINUED)
US TREASURY NOTES (15.9%)
$191,000 US T-Note 5.50% Due 11/15/98....... $ 189,865
15,000 US T-Note 6.50% Due 5/31/01........ 15,082
158,000 US T-Note 6.50% Due 8/15/05........ 157,556
125,000 US T-Note 7.00% Due 7/15/06........ 128,594
----------
491,097
----------
TOTAL US TREASURY OBLIGATIONS
(Cost $546,980) .................. 546,303
----------
TOTAL INVESTMENTS (93.3%)
(Cost $2,577,662) ................ 2,873,342
OTHER ASSETS IN EXCESS OF
LIABILITIES (6.7%) .............. 205,150
----------
TOTAL NET ASSETS (100.0%) ........ $3,078,492
==========
<FN>
+ Non-income producing security.
</FN>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND
COMMOM STOCK (59.2%)
BASIC MATERIALS (3.5%)
876 Crown Cork & Seal Inc............ $46,811
782 Kimberly-Clark Corp.............. 38,904
306 Dow Chemical Co.................. 26,660
336 Vulcan Materials Co.............. 26,376
929 Stephan Chemical Co.............. 22,877
1,037 Barrick Gold Corp................ 22,814
444 Olin Corp........................ 17,344
400 BF Goodrich Co................... 17,325
1,035 +Coeur D'Alene Mines Corp......... 13,390
500 Quaker Chemical Corp............. 8,688
117 South Down Inc................... 5,104
382 Lawter International Inc......... 4,823
278 Placer Dome Inc ADR.............. 4,552
236 Tejon Ranch Co................... 4,484
55 Aluminum Company of America...... 4,146
105 IMC Global Inc................... 3,675
63 Consolidated Papers Inc.......... 3,402
69 Bowater Inc...................... 3,191
78 Newmont Mining Corp.............. 3,042
30 Phelps Dodge Corp................ 2,556
251 Ethyl Corp....................... 2,322
</TABLE>
See notes to financial statements Page 11
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
76 Georgia Gulf Corp................... $ 2,209
80 Allegheny Teledyne Inc.............. 2,160
38 Champion International Corp......... 2,099
23 Rohm & Haas Co...................... 2,071
100 +Gentex Corp......................... 1,975
27 Reynolds Metals Co.................. 1,924
78 Crompton & Knowles Corp............. 1,735
26 BetzDearborn Inc.................... 1,716
44 Ferro Corp.......................... 1,631
28 Nucor Corp.......................... 1,582
44 USX US Steel Group.................. 1,543
44 Chesapeake Corp..................... 1,485
40 Sigma Aldrich Corp.................. 1,403
73 Wausau Paper Mills Co............... 1,378
69 RPM Inc............................. 1,268
63 Glatefelter (PH) Co................. 1,260
41 Inco Ltd............................ 1,233
58 Engelhard Corp...................... 1,214
47 Cyprus Amax Minerals Co............. 1,151
30 Minerals Technologies Inc........... 1,125
18 Petrolite Corp...................... 1,114
34 Dexter Corp......................... 1,088
20 Temple Inland Inc................... 1,080
61 Wellman Inc......................... 1,060
76 Calgon Carbon Corp.................. 1,054
171 +Amax Gold Inc....................... 1,047
42 Schulman Inc........................ 1,034
189 +Hecla Mining Co..................... 1,016
18 Great Lakes Chemical Corp........... 943
44 Primex Technologies Inc............. 941
23 Cleveland Cliffs Inc................ 937
15 Mead Corp........................... 934
24 James River Corp.................... 888
14 NCH Corp............................ 875
65 Homestake Mining Co................. 849
15 Fuller HB Co........................ 825
31 Inland Steel Industries Inc......... 810
16 Union Camp Corp..................... 800
18 Bemis Inc........................... 781
27 Learonal Inc........................ 770
24 Westvaco Corp....................... 755
17 +Tremont Corp........................ 746
13 Ameron Inc.......................... 736
30 Mosinee Paper Corp.................. 735
18 Florida Rock Industries............. 731
12 WD-40 Co............................ 720
126 Battle Mountain Gold Co............. 717
36 Worthington Industries.............. 659
19 Liqui-Box Corp...................... 641
24 International Aluminum Corp......... 636
16 Cambrex Corp........................ 634
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
20 Sonoco Products Co.................. $ 609
21 Ashland Coal Inc.................... 598
36 Tuscarora Inc....................... 562
97 Echo Bay Mines Ltd.................. 558
12 Carpenter Technology Corp........... 549
13 Nalco Chemical Co................... 502
86 +PT Tri Polyta Indonesia ADR......... 495
15 Puerto Rican Cement Inc............. 488
23 Oregon Steel Mills.................. 459
9 +MAXXAM Inc.......................... 421
40 +Bethlehem Steel Corp................ 417
18 Brush Wellman Inc................... 377
10 Ball Corp........................... 301
13 Unisource Worldwide Inc............. 208
7 Deltic Timber Corp.................. 205
--------
347,953
--------
CONSUMER CYCLICAL (7.5%)
2,400 Chrysler Corp....................... 78,750
834 Eastman Kodak Co.................... 64,010
548 Gannet Inc.......................... 54,115
2,424 The Limited Inc..................... 49,086
835 CVS Corp............................ 42,794
836 May Department Stores Co............ 39,501
641 Penney (J.C.) & Co, Inc............. 33,452
1,016 +Viacom Inc. Cl B.................... 30,480
1,033 Russ Berrie & Co Inc................ 22,661
620 +Fruit of the Loom Inc............... 19,220
725 Wackenhut Corp Cl A................. 17,400
648 TJX Companies Inc................... 17,091
2,380 +Uno Restaurant Corp................. 16,809
363 Gap Inc............................. 14,112
243 +Fred Meyer Inc...................... 12,560
260 Miller (Herman) Inc................. 9,360
257 Mattel Inc.......................... 8,706
600 +Office Max Inc...................... 8,662
200 +Williams Sonoma..................... 8,550
200 Ross Stores Inc..................... 6,538
550 +Playboy Enterprises Inc Cl B........ 6,359
400 Champion Enterprises Inc............ 5,950
100 Nike Inc., Cl B..................... 5,837
105 Dayton Hudson Corp.................. 5,585
438 +Nashua Corp......................... 4,763
233 Sturm Ruger & Co Inc................ 4,573
150 Wolverine World Wide Inc............ 4,556
200 +CompUSA Inc......................... 4,300
220 AMC Entertainment Inc............... 4,042
10 Washington Post Co.................. 3,980
118 Service Corp International.......... 3,879
60 Omnicom Group Inc................... 3,698
74 Jones Apparel Group................. 3,533
</TABLE>
Page 12 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
79 Williams Companies Inc........................... $3,456
386 +Lifetime Hoan Corp.............................. 3,378
221 Falcon Products Inc.............................. 2,970
51 Fluor Corp....................................... 2,815
189 +Best Buy Co Inc................................. 2,811
67 Masco Corp....................................... 2,797
242 +Buffets Inc..................................... 2,042
63 +HSN Inc......................................... 1,969
44 HON Industries Inc............................... 1,947
38 New York Times Co Cl A........................... 1,881
30 Interpublic Group of Companies Inc............... 1,839
36 Rite Aid Corp.................................... 1,796
143 +K Mart Stores................................... 1,752
49 Hannaford Brothers Co............................ 1,743
45 TCA Cable TV Inc................................. 1,693
40 Belo (AH) Corp Ser A............................. 1,665
36 Tiffany & Co..................................... 1,663
24 Houghton Mifflin Co.............................. 1,602
53 +Lands' End Inc.................................. 1,570
45 Dillards Inc - Cl A.............................. 1,558
129 +Burlington Industries Inc....................... 1,548
32 McDonald's Corp.................................. 1,546
26 McGraw-Hill Companies Inc........................ 1,529
18 VF Corp.......................................... 1,526
27 Tandy Corp....................................... 1,512
213 +American Media Inc.............................. 1,491
39 +Nine West Group Inc............................. 1,489
52 Hasbro Inc....................................... 1,476
43 Genuine Parts Co................................. 1,457
48 Meredith Corp.................................... 1,392
25 Whirlpool Corp................................... 1,364
29 Clairborne (Liz) Inc............................. 1,352
28 Tribune Co....................................... 1,346
47 ASA Holdings Inc................................. 1,345
27 Harcourt General................................. 1,286
26 Reebok International Ltd......................... 1,216
93 Stride Rite Corp................................. 1,197
49 +International Dairy Queen Inc Cl A.............. 1,176
33 Circuit City Stores.............................. 1,174
67 Sotheby's Holdings Cl A.......................... 1,131
20 Polaroid Corp.................................... 1,110
62 Fingerhut Cos Inc................................ 1,081
41 Maytag Corp...................................... 1,071
17 Mercantile Stores................................ 1,070
34 Sherwin-Williams Co.............................. 1,050
26 Dow Jones & Co Inc............................... 1,045
27 Black & Decker Corp.............................. 1,004
45 Cooper Tire & Rubber............................. 990
33 Barnes Group Inc................................. 973
26 American Greetings-Cl A.......................... 965
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
24 +Christiana Cos.................................. $ 957
163 Ekco Group Inc................................... 947
36 Longs Drug Stores................................ 943
70 Graphic Industries............................... 928
12 Armstrong World Industries Inc................... 880
24 Echlin Inc....................................... 864
36 First Brands Corp................................ 826
50 ADVO Inc......................................... 812
37 Osh Kosh B'Gosh Cl A............................. 805
26 McClatchy Newspapers Cl A........................ 764
28 Banta Corp....................................... 760
22 John Wiley & Sons................................ 745
27 +Mac Frugals Bargains Closeouts.................. 736
22 Starrett LS Co Cl A.............................. 701
20 Carlisle Companies Inc........................... 697
22 FAB Industries Inc............................... 689
17 National Presto Industries....................... 685
19 +Scholastic Corp................................. 665
21 +CSS Industries Inc.............................. 664
17 Plenum Publishing Corp........................... 655
23 Bassett Furniture Industries Inc................. 651
30 Apogee Enterprises Inc........................... 645
31 Guilford Mills Inc............................... 645
18 King World Productions Inc....................... 630
26 +Woolworth Corp.................................. 624
37 Donnelly Corp.................................... 620
48 +Johnson Worldwilde Associates Inc Cl A.......... 618
62 +Syms Corp....................................... 616
25 Smart & Final Inc................................ 613
58 Crown Crafts Inc................................. 609
23 Lee Enterprises.................................. 607
24 Standard Products Co............................. 606
19 K2 Inc........................................... 602
30 Luby's Cafeterias Inc............................ 598
12 Knight- Ridder Inc............................... 589
31 Duty Free International Inc...................... 581
192 +Service Merchandise Inc......................... 576
28 Walbro Corp...................................... 567
17 +Carmike Cinemas Inc. Cl A....................... 557
132 +Topps Co Inc.................................... 553
8 Home Depot Inc................................... 551
20 Unitog Co........................................ 540
39 Hancock Fabrics Inc.............................. 536
87 +Shoney's Inc.................................... 517
26 Alico Inc........................................ 510
22 American Business Products....................... 500
12 OEA Systems Inc.................................. 474
24 Moore Corp Ltd................................... 472
22 CPI Corp......................................... 462
21 Waverly Inc...................................... 451
</TABLE>
See notes to financial statements Page 13
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
15 Russell Corp..................................... $ 444
67 +Handleman Co..................................... 427
21 Granite Construction Inc......................... 415
19 Ogden Corp....................................... 413
18 +Gibson Greetings Inc............................. 405
18 +AnnTaylor Stores Corp............................ 351
25 A.T. Cross Co Cl A............................... 319
32 Ennis Business Forms............................. 308
7 +Footstar Inc..................................... 183
95 CML Group Inc.................................... 172
49 +Intelligent Electronics Inc...................... 138
--------
732,189
--------
CONSUMER NON CYCLICAL (5.4%)
893 Conagra Inc...................................... 57,264
550 CPC International Inc............................ 50,772
562 Ralston Purina Co................................ 46,189
517 Kellogg Co....................................... 44,268
900 Philip Morris Companies Inc...................... 39,937
1,453 Archer Daniels Midland Co........................ 34,146
152 Unilever NV ADR.................................. 32,538
762 Anheuser- Busch Companies Inc.................... 31,956
1,515 Ruddick Corp..................................... 24,998
1,021 Caseys General Stores Inc........................ 21,983
734 Genovese Drugs Stores............................ 14,451
731 Goodmark Foods Inc............................... 13,706
274 Albertsons Inc................................... 10,001
300 Coca Cola Entrerprises Inc....................... 6,900
102 Colgate- Palmolive Co............................ 6,656
129 Heinz H J Co..................................... 5,950
100 Interstate Bakeries Corp......................... 5,931
100 Ethan Allen Interiors Inc........................ 5,700
100 +KLA-Tencor Corp.................................. 4,875
201 IBP Inc.......................................... 4,673
106 Sysco Corp....................................... 3,869
51 General Mills Inc................................ 3,321
69 +Safeway Inc...................................... 3,183
35 Pioneer Hi Bred International.................... 2,800
100 Richfood Holdings Inc............................ 2,600
100 +Mirage Resorts, Inc.............................. 2,525
49 Tambrands Inc.................................... 2,444
84 Kroger Co........................................ 2,436
123 Tyson Foods Inc Cl A............................. 2,352
48 Quaker Oats Co................................... 2,154
123 Flowers Industries Inc........................... 2,068
74 Premark International............................ 1,980
46 Dean Foods Co.................................... 1,857
26 Avon Products Inc................................ 1,835
32 Hershey Foods Corp............................... 1,770
12 Clorox Co........................................ 1,584
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
31 International Flavors & Fragrances Inc........... $ 1,566
31 American Stores Co............................... 1,531
11 +Culbro Corp...................................... 1,531
31 Lancaster Colony Corp............................ 1,500
59 International Multifoods Corp.................... 1,482
74 Dial Corp........................................ 1,156
34 Stanhome Inc..................................... 1,118
42 Coors (Adolph) Cl B.............................. 1,118
41 Church & Dwight Co Inc........................... 1,097
24 Universal Foods Corp............................. 915
35 Whitman Corp..................................... 886
100 +Ryan Family Steak Houses Inc..................... 856
26 Delechamps Inc................................... 832
41 Brown Group Inc.................................. 766
22 Giant Food Inc Cl A.............................. 718
36 Lance Inc........................................ 689
14 +Chris-Craft Industries Inc....................... 676
18 Winn Dixie Stores................................ 671
72 Bridgford Foods Corp............................. 639
13 Brown-Forman Corp Cl B........................... 635
36 Savannah Foods & Industries...................... 632
18 Supervalu Inc.................................... 621
28 Nash Finch Corp.................................. 620
14 Dreyers Grand Ice Cream Inc...................... 553
30 Strawbridge & Clothier........................... 488
43 WLR Foods Inc.................................... 349
19 Blair Corp....................................... 273
--------
525,590
--------
ENERGY (8.9%)
3,086 Exxon Corp....................................... 189,789
2,864 Royal Dutch Petroleum Co ADR..................... 155,730
1,188 Mobil Corp....................................... 83,012
725 Amoco Corp....................................... 63,030
660 Chevron Corp..................................... 48,799
498 Atlantic Richfield Co............................ 35,109
1,630 +Tuboscope Vetco International Corp............... 32,396
1,966 Quaker State Corp................................ 29,982
195 Schlumberger Ltd................................. 24,375
959 +Global Marine Inc................................ 22,297
717 Tosco Corp....................................... 21,465
181 Texaco Inc....................................... 19,684
1,142 +Crown Central Petroleum Cl A..................... 16,702
200 Union Planters Corp.............................. 10,375
732 +HS Resources Inc................................. 10,339
230 Phillips Petroleum Co............................ 10,063
316 Occidental Petroleum Corp........................ 7,920
300 +Noble Drilling Corp.............................. 6,769
101 Anadarko Petroleum Co............................ 6,060
</TABLE>
Page 14 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
100 Camco International Inc.......................... $ 5,475
60 Halliburton Co................................... 4,755
245 Berry Petroleum Cl A............................. 4,655
100 KN Energy Inc.................................... 4,212
100 Pogo Producing Co................................ 3,869
103 Dresser Industries Inc........................... 3,837
100 Devon Energy Corp................................ 3,675
58 +Smith International Inc......................... 3,524
79 Tidewater Inc.................................... 3,476
58 +Ensco International Inc......................... 3,059
76 +Weatherford Enterra Inc......................... 2,926
115 +Nabors Industries Inc........................... 2,875
534 +Getty Petroleum Marketing....................... 2,670
45 +BJ Services Co.................................. 2,413
62 Parker & Parsley Petroleum Co.................... 2,193
60 Valero Energy Corp............................... 2,175
43 Burlington Resources Inc......................... 1,897
60 Mapco Inc........................................ 1,890
44 Baker Hughes Inc................................. 1,702
27 Helmerich & Payne Inc............................ 1,556
164 Ranger Oil Ltd................................... 1,527
44 Ultra Diamond Shamrock Corp...................... 1,436
43 Apache Corp...................................... 1,397
27 Murphy Oil Corp.................................. 1,316
187 +Harken Energy Corp.............................. 1,309
18 Jefferson-Pilot Corp............................. 1,258
22 Amerada Hess Corp................................ 1,222
39 Sun Co........................................... 1,209
60 +Allied Waste Industries Inc..................... 1,042
29 +Varco International Inc......................... 935
16 Tredegar Industries Inc.......................... 888
31 Black Hills Corp................................. 883
11 Kerr Mcgee Corp.................................. 697
33 Oryx Energy Co................................... 697
37 Wiser Oil Co..................................... 682
57 +Parker Drilling Co.............................. 634
11 Louisana Land & Exploration Co................... 628
19 Vintage Petroleum Inc............................ 584
12 Ashland Inc...................................... 557
20 Holly Corp....................................... 496
14 +Barrett Resources Corp.......................... 419
--------
876,546
--------
FINANCE (7.6%)
600 Cigna Corp....................................... 106,500
1,449 HCC Insurance Holdings Inc....................... 38,670
500 Comerica Inc..................................... 34,000
800 Southtrust Corp.................................. 33,100
800 Paine Webber Group Inc........................... 28,000
500 Charter One Financial............................ 26,938
400 BankAmerica Corp................................. 25,825
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
600 Charles Schwab & Co.............................. $ 24,412
1,034 State Auto Financial Corp........................ 23,265
200 Chase Manhattan Corp............................. 19,413
727 F & M National Corp.............................. 18,902
400 AFLAC Inc........................................ 18,900
1,029 Mid American Inc................................. 18,779
200 Progressive Corp................................. 17,400
400 Provident Financial Group Inc.................... 17,100
375 First Financial Bankshares Inc................... 14,531
300 Collective Bancorp Inc........................... 13,463
200 Travelers Group Inc.............................. 12,613
200 Mercantile Bancorp Inc........................... 12,150
110 Republic NY Corp................................. 11,825
221 American General Corp............................ 10,553
200 Protective Life Corp............................. 10,050
200 Summit Bankcorp.................................. 10,025
149 U.S. Bancorp..................................... 9,555
200 State Street Corp................................ 9,250
200 Commerce Bancshares Inc.......................... 9,050
200 Mercantile Bankshares Corp....................... 8,000
100 Alex Brown Inc................................... 7,063
145 Pacific Century Financial........................ 6,706
200 RJR Nabisco Holdings Corp........................ 6,600
300 Roosevelt Financial Group Inc.................... 6,600
232 Magna Bancorp Inc................................ 6,351
100 American Bankers Insurance Group Inc............. 6,325
230 Mid America Bancorp.............................. 5,764
100 TCF Financial Corp............................... 4,938
100 Firstmerit Corp.................................. 4,800
73 Lincoln National Corp Ltd........................ 4,699
225 NYMAGIC Inc...................................... 4,641
69 Chubb Corp....................................... 4,614
131 New York Bancorp Inc............................. 4,552
200 Centris Group Inc................................ 4,225
128 American Federal Bank............................ 4,128
100 Equifax, Inc..................................... 3,719
36 Loews Corp....................................... 3,604
123 UST Inc.......................................... 3,413
100 Deposit Guaranty Corp............................ 3,150
100 +United Meridian Corp............................ 3,000
38 Marsh & McLennan Cos............................. 2,712
23 Transatlantic Holdings Inc....................... 2,283
46 Northern Trust Corp.............................. 2,225
52 UNUM Corp........................................ 2,184
84 City National Corp............................... 2,021
142 Hibernia Corp Cl A............................... 1,979
54 Keystone Financial Inc........................... 1,687
18 Transamerica Corp................................ 1,684
22 St Paul Companies Inc............................ 1,678
28 National City Corp............................... 1,470
</TABLE>
See notes to financial statements Page 15
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
31 Dauphin Deposit Corp.................... $ 1,381
29 Wilmington Trust Co..................... 1,327
24 Safeco Corp............................. 1,120
26 Crestar Financial Corp.................. 1,011
15 Frontier Insurance Group Inc............ 971
12 Park National Corp...................... 957
18 Midland Co.............................. 900
42 Heritage Financial Service Inc.......... 866
20 United Bankshares Inc................... 845
22 Community First Bankshares.............. 844
20 American Financial Enterprise Inc....... 840
31 Fulton Financial Corp................... 832
16 United Carolina Bancshares.............. 832
22 First Western Bancorp Inc............... 831
17 Selective Insurance Group............... 823
15 USBancorp Inc........................... 817
19 First United Bancshares Inc............. 812
33 USF&G Corp.............................. 792
16 Merchants New York Bancorp.............. 784
21 Poe & Brown Inc......................... 777
6 +Markel Corp............................ 768
19 First Financial Bancorp................. 765
20 BSB Bancorp Inc......................... 765
18 Whitney Holding Corp.................... 760
23 American Heritage Life Investors........ 759
33 Baldwin & Lyons Inc..................... 747
17 BT Financial Corp....................... 744
17 JSB Financial Inc....................... 735
45 Crawford & Co........................... 731
27 First Source Corp....................... 716
68 Cash America International Inc.......... 714
19 Trenwick Group Inc...................... 712
12 Berkley W R Corp........................ 707
18 Firstbank Co............................ 704
17 First Commercial Corp................... 699
23 First Michigan Bank Corp................ 696
25 F & M Bancorp........................... 694
17 Liberty Corp............................ 693
17 CNB Bancshares Inc...................... 689
40 Hilb, Rogal & Hamilton Co............... 680
20 National Pennsylvania Bancshares Inc.... 675
17 Albank Financial Corp................... 671
23 Hubco Inc............................... 667
15 UMB Financial Corp...................... 647
16 Acordia Inc............................. 640
19 S&T Bancorp Inc......................... 637
21 First Merchants Corp.................... 635
21 Bank of Granite Corp.................... 635
17 First Fininancial Corp.................. 633
45 Commercial Intertech Corp............... 627
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
15 Farmers Capital Bank Corp............... $ 623
21 Argonaut Group Inc...................... 619
29 First Commonwealth Financial Corp....... 616
15 +Medical Assurance Inc.................. 609
21 Bancorp South Inc....................... 609
17 Tompkins County Trustco Inc............. 608
22 Brenton Banks Inc....................... 605
25 SEI Investment Co....................... 603
22 Valley National Bancorp................. 597
22 Zenith National Insurance............... 594
45 EMC Insurance Group Inc................. 557
26 Trustco Bank Corp....................... 556
16 Citizens Banking Corp................... 548
19 Corus Bankshares Inc.................... 537
14 Gallagher (Arthur J.) & Co.............. 528
7 +Alexanders Inc......................... 493
22 CBT Corp................................ 481
51 Gainsco Inc............................. 478
6 +Echelon International Corp............. 137
3 Conseco Inc............................. 111
--------
750,900
--------
HEALTH (5.9%)
1,036 Bristol-Myers Squibb Co................. 83,916
1,691 Columbia Healthcare Corp................ 66,477
699 American Home Products Corp............. 53,473
1,232 Pharmacia & Upjohn Inc.................. 42,812
687 Amgen Inc............................... 39,932
809 Beckman Instruments Inc................. 39,034
746 Schering-Plough Corp.................... 35,715
1,200 +HEALTHSOUTH Corp....................... 29,925
194 Warner Lambert Co....................... 24,105
200 Lilly Eli & Co.......................... 21,863
470 Biogen Inc.............................. 15,921
700 +Chiron Corp............................ 14,611
200 +Vencor Inc............................. 8,650
200 Omnicare Inc............................ 6,275
109 Corning Inc............................. 6,063
105 Cardinal Health Inc..................... 6,011
89 +Boston Scientific Corp................. 5,468
300 Kinetic Concepts Inc.................... 5,400
100 +Wellpoint Health Networks.............. 4,588
100 +Lincare Holdings Inc................... 4,300
100 +Sybron International Corp.............. 3,988
96 +Forest Laboratories Inc................ 3,978
100 +Phycor Inc............................. 3,444
347 +Medco Research Inc..................... 3,340
204 Mylan Laboratories Inc.................. 3,009
98 +Tenet Healthcare Corp.................. 2,897
65 Watson Pharmaceuticals.................. 2,746
</TABLE>
Page 16 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
135 +Horizon/CMS Healthcare Corp............... $ 2,708
84 +Centocor Inc.............................. 2,609
142 +Nellcor Inc............................... 2,574
79 +Foundation Health Systems Cl A............ 2,395
100 +Humana Inc................................ 2,312
35 +Pacificare Health Systems Cl B............ 2,236
101 +Value Health Inc.......................... 2,045
73 Bergen Brunswig Corp....................... 2,035
77 Pall Corp.................................. 1,790
143 +Perrigo Co................................ 1,788
200 +Liposome Inc.............................. 1,787
200 +Noven Pharmaceutical Inc.................. 1,425
29 Dentsply International Inc................. 1,421
33 Mallinckrodt Inc........................... 1,254
100 +IDEXX Laboratories Inc.................... 1,244
34 Diagnostic Products........................ 1,073
23 Millipore Corp............................. 1,012
45 +Tecnol Medical Products Inc............... 1,001
21 Bausch & Lomb Inc.......................... 990
25 +St. Jude Medical Inc...................... 975
50 Biomet Inc................................. 931
31 +ALZA Corp................................. 897
62 +Novacare Inc.............................. 860
20 Bard (CR) Inc.............................. 726
22 Allergan Inc............................... 700
18 United States Surgical Corp................ 671
21 West Inc................................... 601
37 +Beverly Enterprises Inc................... 601
31 Carter Wallace Inc......................... 554
24 +Acuson Corp............................... 552
27 +Covance Inc............................... 521
12 +Synetic Inc............................... 444
20 +Datascope Corp............................ 392
41 Epitope Inc................................ 323
39 +GRC International, Inc.................... 214
--------
581,602
--------
INDUSTRIAL (4.5%)
1,761 Dun & Bradstreet Corp...................... 46,226
1,000 Timken Co.................................. 35,563
1,033 Raymond Corp............................... 33,734
321 Minnesota Mining & Manufacturing Co........ 32,742
1,236 Sevenson Environmental Services............ 24,102
1,030 ABM Industries Inc......................... 19,892
434 Hubbell Inc Cl B........................... 19,096
1,036 +Vallen Corp............................... 18,907
400 +York International Corp................... 18,400
500 Molex Inc.................................. 18,250
726 True North Communications.................. 17,968
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
281 First Data Corp............................ $ 12,346
391 Westinghouse Electric Corp................. 9,042
537 Oil-Dri Corp America....................... 8,626
259 Waste Management Inc....................... 8,320
200 +Corrections Corp of America............... 7,950
124 Emerson Electric Co........................ 6,828
543 Dames & Moore Inc.......................... 6,720
108 +HFS Inc................................... 6,264
200 +US Filter Corp............................ 5,450
228 Penn Engineering & Manufacturing Inc Cl A.. 4,475
100 National Data Corp......................... 4,331
135 USX-Marathon Group......................... 3,898
100 AGCO Corp.................................. 3,594
100 +Technology Data Corp...................... 3,144
52 Sundstrand Corp............................ 2,902
40 Tyco International Ltd..................... 2,783
52 +Healthcare Compare Corp................... 2,724
40 Textron Inc................................ 2,655
200 NN Ball & Roller Inc....................... 2,500
100 +Mycogen Corp.............................. 1,962
30 Parker Hannifin Corp....................... 1,821
29 Dover Corp................................. 1,783
30 TRW Inc.................................... 1,704
52 Kelly Services Inc Cl A.................... 1,631
50 Trinity Industries Inc..................... 1,588
45 Keystone International Inc................. 1,561
62 Ametek Inc................................. 1,457
19 Raychem Corp............................... 1,413
102 Laidlaw Inc Cl B........................... 1,409
47 Modine Manufacturing Co.................... 1,398
34 Cognizant Corp............................. 1,377
36 Paychex Inc................................ 1,368
27 Kaydon Corp................................ 1,340
35 Donaldson Co Inc........................... 1,330
16 Cummins Engine Inc......................... 1,129
22 +Volt Information Sciences Inc............. 1,111
32 Pentair Inc................................ 1,052
50 McGrath Rent Corp.......................... 1,025
15 Nordson Corp............................... 964
21 MacDermid Inc.............................. 963
23 Stanley Works.............................. 920
30 Standard Register Co....................... 919
11 Grainger WW Inc............................ 860
18 Gleason Corp............................... 837
24 Deluxe Corp................................ 819
28 Durco International Inc.................... 819
19 Stone & Webster, Inc....................... 811
20 Avery Dennison Corp........................ 803
24 IDEX Corp.................................. 792
18 General Signal Corp........................ 785
</TABLE>
See notes to financial statements Page 17
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
16 Ecolab Inc............................. $ 764
25 Baldor Electric Co..................... 739
25 McDermott International Inc............ 730
25 Brady W H Co........................... 725
46 Kaman Corp Cl A........................ 707
17 Harnischfeger Industries Inc........... 706
28 Amcast Industrial Corp................. 700
21 Tennant Co............................. 698
22 Graco Inc.............................. 663
11 NACCO Industries Inc Cl A.............. 621
19 Commercial Metals...................... 613
17 Applied Industrial Technologies Inc.... 612
10 Mine Safety Appliances Co.............. 605
26 Landauer Inc........................... 603
20 Standex International Corp............. 600
18 Butler Manufacturing Co................ 596
22 Varlen Corp............................ 591
57 +Thermo Fibertek Inc.................... 584
24 Watts Industries Inc Cl A.............. 576
24 Harland Co............................. 547
21 Cincinnati Milacron Inc................ 545
85 +Insituform Technologies Cl A........... 521
47 Blessings Corp......................... 491
23 +Lydall Inc............................. 486
22 CTG Resources Inc...................... 484
26 +Osmonics Inc........................... 479
21 Albany International Corp Cl `A'....... 472
9 National Services Industries Inc....... 438
60 UNR Industries Inc..................... 413
17 +Halter Marine Group Inc................ 408
129 +Laidlaw Environmental Services......... 387
14 Lawson Products Inc.................... 378
7 Briggs & Stratton Corp................. 350
6 Tecumseh Products Co Cl B.............. 338
11 +ACNielson Corp......................... 216
51 +Air & Water Technologies............... 153
--------
446,722
--------
REAL ESTATE INVESTMENT TRUST (1.1%)
1,837 Commercial Net Lease Realty............ 28,129
1,039 Kranzco Realty Trust SBI............... 17,663
927 Universal Health Realty Income......... 17,555
1,144 Western Investment Real Estate......... 15,873
534 Getty Realty Corp...................... 9,412
230 LTC Properties Inc..................... 4,169
251 United Dominion Realty Trust Inc....... 3,561
28 BRE Properties Inc..................... 703
100 +Blue Ridge Real Estate Co.............. 687
31 MGI Properties......................... 684
48 First Union Real Estate................ 678
41 CRIIMI MAE Inc......................... 656
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
45 Burham Pacific Properties Inc.......... $ 619
13 Equity Residential Properties Trust.... 618
15 National Health Investors, Inc......... 589
50 IRT Property Co........................ 588
26 Penn Real Estate Investment............ 583
17 Omega Healthcare Investors Inc......... 556
22 American Health Properties............. 553
23 Allied Capital Commercial Corp......... 552
20 Federal Realty Investment.............. 540
22 Health Care Reit, Inc.................. 535
50 Berkshire Realty Co.................... 531
24 Nationwide Health...................... 528
5 +Wellsford Real Properties.............. 54
331 CRI Liquidating Inc.................... 36
--------
106,652
--------
TECHNOLOGY (10.4%)
800 Intel Corp............................. 113,450
3,000 +Vitesse Semiconductor Corp............. 98,062
1,444 +3Com Corp.............................. 64,980
1,237 GTE Corp............................... 54,273
400 +Microsoft Corp......................... 50,550
1,435 Alltel Corp............................ 47,983
891 Raytheon Co............................ 45,441
844 Boeing Co.............................. 44,785
500 +Novellus Systems Inc................... 43,250
532 McDonnell Douglas Corp................. 36,442
800 +ADC Telecommunications Inc............. 26,700
456 Sprint Corp............................ 23,997
816 Analog Devices Inc..................... 21,675
300 +Solectron Corp......................... 21,000
400 +SunGard Data Systems................... 18,600
1,144 Daniel Industries...................... 17,661
400 +Parametric Technology.................. 17,025
300 +Keane Inc.............................. 15,600
318 +Storage Technology Corp................ 14,151
729 X-Rite Inc............................. 13,851
288 +Compuware Corp......................... 13,752
400 +Cadence Design Systems Inc............. 13,400
200 BMC Software, Inc...................... 11,075
289 US West Inc............................ 10,892
400 +American Management Systems Inc........ 10,700
500 +Tandem Computers Inc................... 10,125
500 +Nextel Communications Inc Cl A......... 9,469
200 BellSouth Corp......................... 9,275
353 +Structural Dynamics Research Corp...... 9,266
151 +Stratus Computer, Inc.................. 7,550
200 +Gateway 2000........................... 6,487
100 +SCI Systems Inc........................ 6,375
</TABLE>
Page 18 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
382 +Loral Space & Communications........... $ 5,730
100 +Lattice Semiconductor Corp............. 5,650
200 +Atmel Corp............................. 5,600
100 +Comverse Technology Inc................ 5,200
66 Honeywell Inc.......................... 5,008
884 +AST Research Inc....................... 4,669
200 Aspect Telecommunications.............. 4,450
77 NYNEX Corp............................. 4,437
200 +Cerner Corp............................ 4,200
30 +Dell Computer Corp..................... 3,523
100 +Sterling Software Inc.................. 3,125
100 +Digital Microwave Corp................. 3,000
100 +Microchip Technology Inc............... 2,975
100 +Zebra Technologies Corp - Cl A......... 2,788
56 +Litton Industries Inc.................. 2,706
37 Thiokol Corp........................... 2,590
100 +Broderdund Software Corp............... 2,469
82 Wallace Computer Services Inc.......... 2,465
72 Century Telephone Enterprises.......... 2,425
27 Eaton Corp............................. 2,357
47 +Fiserv Inc............................. 2,097
100 +Read-Rite Corp......................... 2,088
281 +Novell Inc............................. 1,949
200 +Picturetel Corp........................ 1,900
49 +Advanced Micro Devices Inc............. 1,764
100 +Komag Inc.............................. 1,637
50 Teleflex Inc........................... 1,562
119 Sensormatic Electronics Corp........... 1,532
100 +Network General........................ 1,488
31 +Policy Management Systems Corp......... 1,457
23 Precision Castparts Corp............... 1,371
12 Northrop Corp.......................... 1,054
13 General Dynamics....................... 975
14 CTS Corp............................... 965
17 +Sequa Corp Cl A........................ 958
22 +Ceridian Corp.......................... 930
11 Harris Corp............................ 924
38 Gencorp Inc............................ 879
44 Frontier Corp.......................... 877
51 +Magnetek Inc........................... 848
42 Aliant Communications.................. 819
24 Analysts International Corp............ 804
21 +Esterline Technologies Corp............ 739
27 Cubic Corp............................. 702
101 +Borland International.................. 701
27 Ikon Office Solutions Inc.............. 673
46 +Apple Computer Inc..................... 655
28 EG&G Inc............................... 630
29 Boole & Babbage Inc.................... 616
16 +BRC Holdings Inc....................... 608
18 MTS Systems Corp....................... 549
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
68 +Unisys Corp............................ $ 518
12 +Advanced Technology Laboratories....... 516
16 American List Corp..................... 482
28 Bell Industries Inc.................... 438
17 +Rohr Inc............................... 373
42 Amdahl Corp............................ 370
26 +Information Resources Inc.............. 367
213 +Executone Information Systems Inc...... 359
27 +Trident Microsystems Inc............... 304
13 +Quest Dianostic Inc.................... 267
----------
1,021,954
----------
TRANSPORTATION (1.0%)
389 Burlington Northern Santa Fe........... 34,961
725 +US Airways Group Inc................... 25,375
1,033 International Shipholding Corp......... 17,626
345 Rollins Truck Leasing Corp............. 5,132
36 +Federal Express Corp................... 2,079
41 Caliber Systems Inc.................... 1,527
52 Alexander & Baldwin.................... 1,359
67 Hunt J B Transportation Services Inc... 997
37 +Yellow Corp............................ 828
11 Union Pacific Corp..................... 776
65 +USA Truck Inc.......................... 731
19 CNF Transportation Inc................. 613
69 Frozen Foods Express Industries........ 595
34 Arnold Industries Inc.................. 578
15 Arvin Industries Inc................... 409
19 Overseas Shipholding Group............. 373
3 Florida East Coast Industries.......... 333
9 Consolidated Freightways Corp.......... 147
----------
94,439
----------
UTILITIES (3.4%)
1,535 United Water Resources Inc............. 29,741
1,100 Illinova Corp.......................... 24,200
931 Ohio Edison Co......................... 20,307
1,029 Public Service Co...................... 19,744
1,031 Eastern Utilities...................... 18,816
682 Puget Sound Energy Inc................. 18,073
1,031 +Tucson Electric Power Co............... 14,949
838 St Joseph Light & Power................ 13,722
232 El Paso Natural Gas.................... 12,760
737 Cascade Natural Gas Corp............... 12,068
233 Enron Corp............................. 9,509
376 Southern Co............................ 8,225
200 New England Electric................... 7,400
254 PG & E Corp............................ 6,160
200 Boston Edison Co....................... 5,275
</TABLE>
See notes to financial statements Page 19
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
130 GPU Inc............................................. $ 4,664
255 Public Service Co of New Mexico..................... 4,558
228 Philadelphia Suburban Corp.......................... 4,360
72 Duke Energy Corp.................................... 3,451
119 Allegheny Power System Inc.......................... 3,176
81 +California Energy Inc............................... 3,078
98 Florida Progress Corp............................... 3,069
85 CMS Energy Corp..................................... 2,996
118 Edison International................................ 2,935
119 Potomac Electric Power.............................. 2,752
108 Scana Corp.......................................... 2,680
76 Texas Utilities Co.................................. 2,617
246 Northeast Utilities................................. 2,352
42 Coastal Corp........................................ 2,234
64 MCN Energy Group Inc................................ 1,960
47 Public Service Co of Colorado....................... 1,951
39 FPL Group Inc....................................... 1,796
43 NIPSCO Industries................................... 1,776
82 New York State Electric & Gas....................... 1,712
97 MidAmerican Energy Holdings......................... 1,679
42 Southwestern Public Service......................... 1,651
44 Dominion Resources Inc.............................. 1,612
58 Entergy Corp........................................ 1,588
37 American Electric Power Co.......................... 1,554
37 National Fuel Gas Co................................ 1,552
54 Brooklyn Union Gas Co............................... 1,546
60 Pennsylvania Enterprises Inc........................ 1,534
67 Pacificorp.......................................... 1,474
47 IPALCO Entreprises.................................. 1,469
28 Sonat, Inc.......................................... 1,435
63 Houston Industries.................................. 1,351
58 Montana Power Co.................................... 1,345
38 Cinergy Corp........................................ 1,323
40 Idaho Power Co...................................... 1,255
32 Hawaiian Electric Industries........................ 1,236
58 AGL Resources Inc................................... 1,189
51 LG & E Energy Corp.................................. 1,125
41 +Jacobs Engineering Group Inc........................ 1,102
43 Washington Gas Light Co............................. 1,080
50 Central & South West Corp........................... 1,062
42 Indiana Energy Inc.................................. 1,026
19 Consolidated National Gas Co........................ 1,022
27 Union Electric Co................................... 1,018
82 Central Maine Power Co.............................. 1,015
30 Pacific Enterprises................................. 1,009
46 American Water Works................................ 983
15 Columbia Gas System Inc............................. 979
29 Oneok Inc........................................... 933
42 PP & L Resources Inc................................ 837
23 Eastern Enterprises................................. 801
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
34 Northwestern Public Service......................... $ 731
14 Northern States Power............................... 725
16 California Water Services Co........................ 704
17 CILCORP Inc......................................... 700
32 Nevada Power........................................ 680
20 North Carolina Natural Gas Corp..................... 668
26 Yankee Energy System................................ 637
24 Northwest Natural Gas Co............................ 628
26 Commonwealth Energy System.......................... 622
24 Piedmont Natural Gas Inc............................ 617
40 Noram Energy Corp................................... 610
18 Otter Tail Power Co................................. 594
15 +Tejas Gas Corp...................................... 589
25 United Cities Gas Co................................ 588
19 United Illuminating................................. 587
15 WICOR Inc........................................... 584
24 MDU Resources Group Inc............................. 576
26 Laclede Gas Co...................................... 566
23 Southern California Water Co........................ 564
25 South Jersey Industries............................. 556
17 New Jersey Resources Corp........................... 533
24 UGI Corp............................................ 531
22 Atmos Energy Corp................................... 528
22 Green Mountain Power................................ 521
19 Aquarion Co......................................... 513
29 Empire District Electric............................ 502
21 TNP Entreprises Inc................................. 487
18 Bay State Gas....................................... 479
55 +Niagara Mohawk Power................................ 471
14 Orange & Rockland Utilities......................... 471
24 Western Gas Resources Inc........................... 468
20 Enserch Corp........................................ 445
21 Colonial Gas Co..................................... 442
54 +Citizens Utilities Co Cl B.......................... 431
15 WPS Resources Corp.................................. 401
133 +Phonetel Technologies Inc........................... 399
19 Madison Gas & Electric.............................. 390
---------
334,389
---------
TOTAL COMMON STOCK
(Cost $5,187,606) ................................. 5,818,936
---------- ---------
UNIT INVESTMENT TRUST (4.1%)
(Cost $350,836)
4,604 Standard & Poors Depositary Receipts ............... 406,591
OPEN END INVESTMENT (5.2%)
(Cost $450,070)
43,012 BT EAFE Equity Index Fund .......................... 510,987
</TABLE>
Page 20 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY VALUE
- --------- -------- --------
<S> <C> <C>
TOMORROW MEDIUM-TERM RETIREMENT FUND (continued)
CORPORATE DEBENTURES (2.4%)
FINANCE (0.9%)
$20,000 Aon Capital Trust A 8.205% Due 1/1/27............ $ 20,524
65,000 Morgan Stanley Group 6.875% Due 3/1/07........... 63,819
----------
84,343
----------
INDUSTRIAL (1.5%)
110,000 British Aerospace Financial 7.500% Due 7/1/27 (A) 108,835
35,000 General Electric Corp 7.650% Due 2/23/98......... 35,362
----------
144,197
----------
TOTAL CORPORATE DEBENTURES
(Cost $228,093).................................. 228,540
U.S. GOVERNMENT OBLIGATIONS (25.7%)
US TREASURY BOND (2.2%)
US T-Bond 6.875% Due 8/15/25..................... 213,799
U.S. TREASURY NOTES (23.5%)
915,000 US T-Note 5.50% Due 11/15/98..................... 909,565
115,000 US T-Note 6.50% Due 5/31/01...................... 115,629
863,000 US T-Note 6.50% Due 8/15/05...................... 860,575
410,000 US T-Note 7.00% Due 7/15/06...................... 421,788
----------
2,307,557
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $2,526,858) .............................. 2,521,356
TOTAL INVESTMENTS (96.5%)
(Cost $8,743,463) .............................. 9,486,410
OTHER ASSETS IN EXCESS OF
LIABILITIES (3.5%) ............................. 342,015
TOTAL INVESTMENTS (100.0%) ....................... $9,828,425
==========
</TABLE>
+ Non-income producing security.
(A) SEC Rule 144A security. Such security has limited markets and is traded
among "qualified institutional buyers."
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
--------- -------- -----
<C> <S> <C>
TOMORROW SHORT-TERM RETIREMENT FUND
COMMON STOCKS (56.5%)
BASIC MATERIALS - (3.0%)
677 Dow Chemical Co.................................. $58,984
2,337 Placer Dome Inc ADR.............................. 38,268
754 Kimberly-Clark Corp.............................. 37,512
417 Vulcan Materials Co.............................. 32,735
530 Lubrizol Corp.................................... 22,227
3,700 +Hecla Mining Co.................................. 19,887
885 Barrick Gold Corp................................ 19,470
1,500 +Coeur D'Alene Mines Corp......................... 19,406
288 Du Pont E I De Nemours & Co...................... 18,108
266 Crown Cork & Seal Inc............................ 14,214
700 Quaker Chemical Corp............................. 12,163
100 Harris Corp...................................... 8,400
1,100 +Amax Gold Inc.................................... 6,737
140 Olin Corp........................................ 5,468
120 BF Goodrich Co................................... 5,198
335 Calgon Carbon Corp............................... 4,648
46 Phelps Dodge Corp................................ 3,919
68 Nucor Corp....................................... 3,842
36 Aluminum Company of America...................... 2,713
100 Stephan Chemical Co.............................. 2,463
27 Rohm & Haas Co................................... 2,432
67 IMC Global Inc................................... 2,345
31 Reynolds Metals Co............................... 2,209
40 Consolidated Papers Inc.......................... 2,160
78 Allegheny Teledyne Inc........................... 2,107
44 Bowater Inc...................................... 2,035
51 Newmont Mining Corp.............................. 1,989
60 Inco Ltd......................................... 1,804
30 Champion International Corp...................... 1,657
40 Ferro Corp....................................... 1,482
160 Ethyl Corp....................................... 1,480
57 Gencorp Inc...................................... 1,318
21 Great Lakes Chemical Corp........................ 1,100
35 Georgia Gulf Corp................................ 1,018
44 Engelhard Corp................................... 921
49 RPM Inc.......................................... 900
20 Avery Dennison Corp.............................. 802
36 Crompton & Knowles Corp.......................... 801
12 BetzDearborn Inc................................. 792
18 Bemis Inc........................................ 781
22 Chesapeake Corp.................................. 742
30 Schulman Inc..................................... 739
28 Cyprus Amax Minerals Co.......................... 686
20 Westvaco Corp.................................... 629
11 Fuller H B Co.................................... 605
29 Glatefelter (PH) Co.............................. 580
7 +FMC Corp......................................... 556
28 Wausau Paper Mills Co............................ 529
10 Sealed Air Corp.................................. 475
</TABLE>
See notes to financial statements Page 21
<PAGE>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
<TABLE>
<CAPTION>
<C> <S> <C>
37 Lawter International Inc............. $ 467
23 Oregon Steel Mills................... 458
41 +Bethlehem Steel Corp................. 428
14 Sonoco Products Co................... 426
9 +MAXXAM Inc........................... 421
9 Carpenter Tech Corp.................. 412
12 Dexter Corp.......................... 384
24 Unisource Worldwide Inc.............. 384
18 Brush Wellman Inc.................... 377
10 James River Corp..................... 370
60 Battle Mountain Gold Co.............. 341
7 Cleveland Cliffs Inc................. 285
45 Echo Bay Mines Ltd................... 259
3 Deltic Timber Corp................... 88
4 Primex Technologies Inc.............. 85
--------
377,221
--------
CONSUMER CYCLICAL (5.6%)
2,500 Chrysler Corp........................ 82,031
2,004 Gap Inc.............................. 77,905
2,121 Mattel Inc........................... 71,849
853 Eastman Kodak Co..................... 65,468
594 Penney (J.C.) & Co, Inc.............. 30,999
844 Miller (Herman) Inc.................. 30,384
924 Viacom Inc. Cl B..................... 27,720
1,500 AMC Entertainment Inc................ 27,562
1,000 TJX Companies Inc.................... 26,375
520 Harley Davidson Inc.................. 24,928
400 Nike Inc., Cl B...................... 23,350
1,000 Russ Berrie & Co Inc................. 21,938
1,700 Playboy Enterprises Inc Cl B......... 19,656
1,300 Falcon Products Inc.................. 17,469
1,300 Nashua Corp.......................... 14,138
140 Gannet Inc........................... 13,825
229 May Department Stores Co............. 10,820
183 CVS Corp............................. 9,379
300 Fruit of the Loom Inc................ 9,300
169 Dayton Hudson Corp................... 8,989
155 General Motors Corp.................. 8,632
1,100 +American Media Inc................... 7,700
230 Mirage Resorts Inc................... 5,808
127 South Down Inc....................... 5,540
350 Office Max Inc....................... 5,053
110 Masco Corp........................... 4,593
300 Champion Enterprises Inc............. 4,462
120 King World Productions Inc........... 4,200
200 Navistar International Corp.......... 3,450
60 Whirlpool Corp....................... 3,274
6 Washington Post Co................... 2,388
300 Uno Restaurant Corp.................. 2,119
168 K Mart Stores........................ 2,058
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
61 Hasbro Inc........................... $ 1,731
34 +Jones Apparel Group.................. 1,624
29 Fluor Corp........................... 1,600
32 Harcourt General..................... 1,524
30 Tribune Co........................... 1,442
29 McDonald's Corp...................... 1,401
31 HON Industries Inc................... 1,372
40 +HSN Inc.............................. 1,250
35 Dillards Inc - Cl A.................. 1,212
34 Circuit City Stores Inc.............. 1,209
38 Wallace Computer Services Inc........ 1,142
27 Black & Decker Corp.................. 1,004
83 +Burlington Industries Inc............ 996
12 Armstrong World Industries Inc....... 880
57 +Best Buy Co.......................... 848
20 Dow Jones & Co Inc................... 804
18 Belo (AH) Corp....................... 749
20 Echlin Inc........................... 720
24 Lands' End Inc....................... 711
20 Callaway Golf Co..................... 710
35 Viad Corp............................ 674
17 TCA Cable TV Inc..................... 640
10 Mercantile Stores Co................. 629
26 Cooper Tire & Rubber Co.............. 572
20 Sbarro Inc........................... 555
20 Banta Corp........................... 542
8 Houghton Mifflin Co.................. 534
20 Longs Drug Stores.................... 524
19 +Mac Frugals Bargains Closeout........ 518
14 Carlisle Companies Inc............... 488
18 +Jacobs Engineering Group Inc......... 484
10 +Chris Craft Industries Inc........... 482
22 CPI Corp............................. 462
13 Scholastic Corp...................... 455
10 Leggett & Platt Inc.................. 430
16 Lee Enterprises Inc.................. 422
6 Home Depot Inc....................... 414
22 Duty Free International Inc.......... 412
15 Arvin Industries Inc................. 409
20 International Game Technologies...... 355
18 +Ann Taylor Stores Corp............... 351
20 Reynolds & Reynolds Cl A............. 315
100 +Intelligent Electronics Inc.......... 281
44 Shoney's Inc......................... 261
30 +Buffets Inc.......................... 253
81 Service Merchandise Inc.............. 243
8 +Footstar Inc......................... 209
100 CML Group Inc........................ 181
--------
708,386
--------
</TABLE>
Page 22 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
CONSUMER NON-CYCLICAL (6.6%)
1,262 Colgate-Palmolive Co.................... $ 82,346
1,699 Heinz H J Co............................ 78,366
2,039 Albertsons Inc.......................... 74,424
341 Unilever NV ADR......................... 72,995
1,689 UST Inc................................. 46,870
473 Kellogg Co.............................. 40,501
1,830 Genovese Drugs Stores Inc............... 36,028
1,386 Archer Daniels Midland Co............... 32,571
704 Anheuser-Busch Companies Inc............ 29,524
651 Dean Foods Co........................... 26,284
542 Lancaster Colony Corp................... 26,219
1,534 Flowers Industries Inc.................. 25,790
1,300 Goodmark Foods Inc...................... 24,375
630 Supervalu Inc........................... 21,735
800 Caseys General Stores Inc............... 17,225
264 Conagra Inc............................. 16,929
177 Gillette Co............................. 16,771
160 Pioneer Hi Bred International........... 12,800
152 Ralston Purina Co....................... 12,493
129 CPC International Inc................... 11,908
541 The Limited Inc......................... 10,955
150 Coca Cola Co............................ 10,463
300 Delechamps Inc.......................... 9,600
171 Philip Morris Companies Inc............. 7,588
178 Pepsico Inc............................. 6,686
200 Ross Stores Inc......................... 6,538
120 +Fred Meyer Inc......................... 6,202
200 International Multifoods Corp........... 5,025
131 Universal Foods Corp.................... 4,994
100 New York Times Co Cl A.................. 4,950
156 Kroger Co............................... 4,524
100 Quaker Oats Co.......................... 4,487
300 Blair Corp.............................. 4,312
100 +Williams Sonoma Inc.................... 4,275
233 Ruddick Corp............................ 3,845
47 General Mills Inc....................... 3,061
83 Sysco Corp.............................. 3,030
128 IBP Inc................................. 2,976
35 Avon Products Inc....................... 2,470
88 Premark International................... 2,354
38 Hershey Foods Corp...................... 2,102
41 International Flavors & Fragrances Inc.. 2,070
32 American Stores Co...................... 1,580
32 Safeway Inc............................. 1,476
72 Tyson Foods Inc Cl A.................... 1,377
10 Clorox Co............................... 1,320
22 Tambrands Inc........................... 1,097
22 Ecolab Inc.............................. 1,050
31 Coors (Adoph) Cl B...................... 825
23 Hannaford Brothers Co................... 818
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
30 Coca Cola Entrerprises Inc.............. $ 690
13 Brown-Forman Corp Cl B.................. 634
35 Savannah Foods & Industries............. 615
35 Dial Corp............................... 547
25 Lance Inc............................... 478
10 Dreyers Grand Ice Cream Inc............. 395
14 Church & Dwight Co Inc.................. 375
16 First Brands Corp....................... 367
--------
832,305
--------
ENERGY (7.3%)
2,952 Royal Dutch Petroleum Co ADR............ 160,515
1,860 Exxon Corp.............................. 114,390
1,200 Mobil Corp.............................. 83,850
1,105 Chevron Corp............................ 81,701
1,701 Phillips Petroleum Co................... 74,419
574 Schlumberger Ltd........................ 71,750
2,628 Occidental Petroleum Corp............... 65,864
568 Texaco Inc.............................. 61,770
459 Amoco Corp.............................. 39,904
1,600 Berry Petroleum Cl A.................... 30,400
1,800 +HS Resources Inc....................... 25,425
400 Triton Energy Ltd....................... 18,325
700 +Tuboscope Vetco International Corp..... 13,913
724 Quaker State Corp....................... 11,041
266 +Global Marine Inc...................... 6,184
84 Atlantic Richfield Co................... 5,922
1,000 +Getty Petroleum Marketing.............. 5,000
139 Apache Corp............................. 4,517
74 Anadarko Petroleum Co................... 4,440
300 +Crown Central Petroleum Cl A........... 4,387
51 Halliburton Co.......................... 4,042
124 USX-Marathon Group New.................. 3,581
76 Williams Companies Inc.................. 3,325
64 Burlington Resources Inc................ 2,824
61 Baker Hughes Inc........................ 2,360
36 +Ensco International Inc................ 1,899
49 +Weatherford Enterra Inc................ 1,887
73 +Nabors Industries Inc.................. 1,825
34 Coastal Corp............................ 1,808
54 Tosco Corp.............................. 1,617
36 Tidewater Inc........................... 1,584
26 +Smith International Inc................ 1,580
22 Amerada Hess Corp....................... 1,222
21 +BJ Services Co......................... 1,126
28 Valero Energy Corp...................... 1,015
31 +Varco International Inc................ 1,000
28 Parker & Parsley Petroleum Co........... 990
28 Mapco Inc............................... 882
18 National Fuel Gas Co.................... 755
</TABLE>
See notes to financial statements Page 23
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
75 Ranger Oil Ltd........................ $ 698
20 Ultra Diamond Shamrock Corp........... 653
58 Parker Drilling Co.................... 645
13 Murphy Oil Corp....................... 634
10 Helmerich & Payne Inc................. 576
--------
922,245
--------
FINANCE (5.7%)
400 Cigna Corp............................ 71,000
1,065 Lincoln National Corp Ltd............. 68,559
900 Summit Bankcorp....................... 45,113
600 Comerica Inc.......................... 40,800
400 Chase Manhattan Corp.................. 38,825
586 Bankamerica Corp...................... 37,834
400 Progressive Corp...................... 34,800
800 Southtrust Corp....................... 33,100
1,500 Mid Am Inc............................ 27,375
1,600 Hilb, Rogal, & Hamilton Co............ 27,200
600 Commerce Bancshares Inc............... 27,150
1,000 HCC Insurance Holdings Inc............ 26,688
400 Charter One Financial................. 21,550
320 U.S. Bancorp.......................... 20,520
500 Mercantile Bankshares Corp............ 20,000
300 Travelers Group Inc................... 18,919
246 American Express Co................... 18,327
400 Paine Webber Group Inc................ 14,000
320 Charles Schwab & Co Inc............... 13,020
400 American Federal Bank................. 12,900
500 State Auto Financial Corp............. 11,250
100 Republic NY Corp...................... 10,750
220 State Street Corp..................... 10,175
200 Provident Financial Group Inc......... 8,550
300 F & M National Corp................... 7,800
100 Nationsbank Corp...................... 6,450
100 AFLAC Inc............................. 4,725
100 Collective Bancorp Inc................ 4,488
200 First Commonwealth Financial Corp..... 4,250
90 UNUM Corp............................. 3,780
300 EMC Insurance Group Inc............... 3,713
50 Marsh & McLennan Cos.................. 3,569
32 Loews Corp............................ 3,204
36 Chubb Corp............................ 2,407
100 Centris Group Inc..................... 2,112
40 National City Corp.................... 2,100
32 Northern Trust Corp................... 1,548
29 Pacific Century Financial............. 1,341
11 Transatlantic Holdings Inc............ 1,092
15 Franklin Resource Inc................. 1,088
22 American General Corp................. 1,050
22 Dauphin Deposit Corp.................. 980
21 Wilmington Trust Co................... 961
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
20 +Policy Management Systems Corp........ $ 940
38 City National Corp.................... 914
38 USF&G Corp............................ 912
10 American National Insurance Co........ 892
--------
718,721
--------
HEALTH (6.8%)
879 Warner Lambert Co..................... 109,216
1,252 Bristol-Myers Squibb Co............... 101,412
1,916 Schering-Plough Corp.................. 91,729
1,050 American Home Products Corp........... 80,325
1,287 Corning Inc........................... 71,589
1,897 Pharmacia & Upjohn Inc................ 65,921
1,658 Columbia Healthcare Corp.............. 65,180
1,060 +Boston Scientific Corp................ 65,124
740 Amgen Inc............................. 43,012
300 Lilly Eli & Co........................ 32,794
1,200 +Tecnol Medical Products Inc........... 26,700
500 +Vencor Inc............................ 21,625
600 +Healthsouth Corp...................... 14,963
101 Pfizer Inc............................ 12,070
321 +Covance Inc........................... 6,199
170 Biogen Inc............................ 5,759
165 +Tenet Healthcare Corp................. 4,878
100 Beckman Instruments Inc............... 4,825
77 Cardinal Health Inc................... 4,408
167 +Humana Inc............................ 3,862
130 +Genzyme Corp.......................... 3,607
94 Service Corp International............ 3,090
140 +Chiron Corp........................... 2,922
300 Epitope Inc........................... 2,362
131 Mylan Labs Inc........................ 1,932
57 Bergen Brunswig Corp.................. 1,589
39 Mallinckrodt Inc...................... 1,482
62 Pall Corp............................. 1,442
65 +Value Health Inc...................... 1,316
31 +Forest Labs Inc....................... 1,285
36 +Foundation Health Systems............. 1,091
21 Bausch & Lomb Inc..................... 990
31 +ALZA Corp............................. 897
62 +Perrigo Co............................ 775
20 Bard (CR) Inc......................... 726
22 Allergan Inc.......................... 700
44 +Novacare Inc.......................... 611
19 +Centocor Inc.......................... 590
24 +Acuson Corp........................... 552
22 Carter Wallace Inc.................... 393
11 Diagnostic Products................... 347
14 +Datascope Corp........................ 275
--------
860,565
--------
</TABLE>
Page 24 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<C> <S> <C>
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
INDUSTRIALS (6.7%)
2,006 First Data Corp......................... $ 88,139
3,292 Westinghouse Electric Corp.............. 76,128
702 Minnesota Mining & Manufacturing Co..... 71,604
1,288 Emerson Electric Co..................... 70,920
2,017 Waste Management Inc.................... 64,796
800 General Electric Co..................... 52,300
1,200 Equifax Inc............................. 44,625
671 +HFS Inc................................. 38,918
1,000 Raymond Corp............................ 32,656
1,500 ABM Industrials Inc..................... 28,969
428 Omnicom Group Inc....................... 26,376
1,300 Sevenson Environmental Services Co...... 25,350
1,300 Tejon Ranch Co.......................... 24,700
1,000 Wackenhut Corp.......................... 24,000
1,200 +Vallen Corp............................. 21,900
1,300 Oil-Dri Corp............................ 20,881
800 Penn Engineering & Manufacturing Corp... 15,700
800 X-Rite Inc.............................. 15,200
268 Deere & Co.............................. 14,706
319 +York International Corp................. 14,674
1,000 Dames & Moore Inc....................... 12,375
335 Dun & Bradstreet Corp................... 8,794
124 Hubbell Inc Cl B........................ 5,456
300 ADVO Inc................................ 4,875
125 Molex Inc............................... 4,563
200 Alico Inc............................... 3,925
200 Brown Group Inc......................... 3,737
47 Tyco International Ltd.................. 3,269
46 Textron Inc............................. 3,053
100 True North Communications............... 2,475
59 Dresser Industries Inc.................. 2,198
35 Interpublic Group of Companies Inc...... 2,146
33 +Healthcare Compare Corp................. 1,728
21 Raychem Corp............................ 1,562
33 +Fiserv Inc.............................. 1,473
35 Cognizant Corp.......................... 1,417
23 Dover Corp.............................. 1,414
24 Sundstrand Corp......................... 1,340
22 Kaydon Corp............................. 1,092
33 Modine Manufacturing Co................. 982
23 +Ceridian Corp........................... 972
13 Cummins Engine Inc...................... 917
20 Kennametal Inc.......................... 860
26 Kelly Services Inc Cl A................. 816
20 Harso Corp.............................. 810
20 +USA Waste Services Inc.................. 773
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
23 Trinity Industries Inc.................. $ 730
21 Keystone International Inc.............. 728
21 Deluxe Corp............................. 717
11 Nordson Corp............................ 707
28 Ametek Inc.............................. 658
21 Standard Register Co.................... 643
23 Cincinnati Milacron Inc................. 597
20 Durco International..................... 585
13 Stanley Works........................... 520
30 Sotheby's Holdings Cl A................. 506
16 Teleflex Inc............................ 500
11 Donaldson Co Inc........................ 418
10 Harnischfeger Industries Inc............ 415
17 Watts Industries Inc Cl A............... 408
15 Albany International Corp Cl A.......... 337
11 +A.C. Nielson Corp....................... 216
8 +Halter Marine Group Inc................. 192
4 +Echelon International Corp.............. 91
--------
854,532
--------
REAL ESTATE INVESTMENT TRUST (0.8%)
1,700 Kranzco Realty Trust.................... 28,900
1,600 Burham Pacific Properties Inc........... 22,000
1,000 Getty Realty Corp....................... 17,625
700 Commercial Net Lease Realty............. 10,719
541 United Dominion Realty Trust Inc........ 7,675
300 CRIIMI Mae Inc.......................... 4,800
300 First Union Real Estate Trust........... 4,237
300 IRT Property Co......................... 3,525
200 Western Investment Real Estate.......... 2,775
100 Universal Health Realty Income.......... 1,894
2,100 CRI Liquidating......................... 231
--------
104,381
--------
TECHNOLOGY (9.0%)
664 Intel Corp.............................. 94,163
700 +Microsoft Corp.......................... 88,463
1,594 Sprint Corp............................. 83,884
2,223 US West Inc............................. 83,779
1,863 GTE Corp................................ 81,739
1,800 +3Com Corp............................... 81,000
1,210 Boeing Co............................... 64,206
3,325 +Loral Space & Communications............ 49,875
505 McDonnell Douglas Corp.................. 34,593
600 Lattice Semiconductor Corp.............. 33,900
300 +Compaq Computer Corp.................... 29,775
520 +BMC Software, Inc....................... 28,795
300 +Novellus Systems Inc.................... 25,950
482 +Compuware Corp.......................... 23,015
192 +Dell Computer Corp...................... 22,548
</TABLE>
See notes to financial statements Page 25
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
--------- -------- -----
<C> <S> <C>
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
630 +Symbol Technologies Inc.................. $ 21,184
1,200 Bell Industries Inc...................... 18,750
300 +Keane Inc................................ 15,600
450 +Vitesse Semiconductor Corp............... 14,709
533 Analog Devices Inc....................... 14,158
500 +Atmel Corp............................... 14,000
320 +Parametric Technolgy..................... 13,620
260 Raytheon Co.............................. 13,260
350 +Advanced Micro Devices Inc............... 12,600
370 Alltel Corp.............................. 12,372
200 +Comverse Technology Inc.................. 10,400
900 +Chips & Technologies Inc................. 9,337
134 +Cisco Systems Inc........................ 8,995
450 +NEXTEL Communications Inc Cl A........... 8,522
169 Bellsouth Corp........................... 7,837
500 Daniel Industries Inc.................... 7,719
110 +Solectron Corp........................... 7,700
220 +Gateway 2000............................. 7,136
198 A T & T Corp............................. 6,942
91 Bell Atlantic Corp....................... 6,905
200 +ADC Telecommunications Inc............... 6,675
99 NYNEX Corp............................... 5,705
100 Hewlett Packard Co....................... 5,600
120 Southern New England Telecommunications.. 4,665
100 +SunGard Data Systems..................... 4,650
64 Lucent Technologies Inc.................. 4,612
58 Honeywell Inc............................ 4,401
120 +Cadence Design Systems Inc............... 4,020
46 Eaton Corp............................... 4,016
100 +Seagate Technology Inc................... 3,519
160 +Quest Dianostic Inc...................... 3,290
100 +Digital Microwave Corp................... 3,000
300 +Picturetel Corp.......................... 2,850
400 +Novell Inc............................... 2,775
100 +American Management Systems Inc.......... 2,675
460 AST Research Inc......................... 2,429
100 +International Rectifier Corp............. 1,863
35 +Litton Industries Inc.................... 1,691
46 Century Telephone Enterprise............. 1,550
48 Ikon Office Solutions Inc................ 1,197
23 +Stratus Computer Inc..................... 1,150
76 Sensormatic Electronics Corp............. 979
39 Frontier Corp............................ 778
20 +Thermo Electron Corp..................... 680
47 +Apple Computer Inc....................... 670
11 Precision Castparts Corp................. 656
9 Thiokol Corp............................. 630
30 Aliant Communications.................... 585
10 +Avnet Inc................................ 575
NUMBER
OF SHARES SECURITY VALUE
--------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
12 +Storage Technology Corp.................. $ 534
16 +Structural Dynamics Research............. 420
17 +Rohr Inc................................. 373
12 NCR Corp................................. 357
20 +360 Communications Co.................... 342
24 +Borland International.................... 166
----------
1,137,509
----------
TRANSPORTATION (1.3%)
1,613 Caliber Systems Inc...................... 60,084
369 Burlington Northern Santa Fe............. 33,164
1,200 +Yellow Corp.............................. 26,850
600 US Airways Group Inc..................... 21,000
1,000 International Shipholding Corp........... 17,062
34 +Federal Express Corp..................... 1,963
37 Alexander & Baldwin...................... 967
20 Illinois Central Corp.................... 699
20 CNF Transportation Inc................... 645
24 Arnold Industries Inc.................... 408
26 Hunt J B Transportation Services Inc..... 387
19 Overseas Shipholding Group............... 373
10 +Consolidated Freightways Corp............ 164
----------
163,766
----------
UTILITIES (3.7%)
3,277 Southern Co.............................. 71,684
1,688 Enron Corp............................... 68,891
1,400 Boston Edison Co......................... 36,925
1,800 Cascade Natural Gas Corp................. 29,475
800 GPU Inc.................................. 28,700
415 El Paso Natural Gas...................... 22,825
1,000 Public Service Co........................ 19,188
827 Montana Power Co......................... 19,176
1,200 Tuscon Electric Power Co................. 17,400
500 Central Hudson Gas & Electric Corp....... 17,219
800 Easterns Utilities....................... 14,600
700 United Water Resources Inc............... 13,563
600 Ohio Edison Co........................... 13,088
240 Duke Energy Corp......................... 11,505
700 St. Joseph Light & Power Co.............. 11,463
419 PG & E Corp.............................. 10,161
245 Entergy Corp............................. 6,707
327 Central Maine Power Co................... 4,047
100 New England Electric..................... 3,700
140 Edison International..................... 3,482
200 Empire District Electric................. 3,462
66 FPL Group Inc............................ 3,040
113 Puget Sound Energy Inc................... 2,995
68 American Electric Power Co............... 2,856
</TABLE>
Page 26 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
SCHEDULES OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER
OF SHARES SECURITY VALUE
- --------- -------- -----
<S> <C> <C>
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
305 +Citizens Utilities Co Cl B.................... $ 2,438
100 Illinova Corp................................. 2,200
76 Allegheny Power System Inc.................... 2,028
52 +California Energy Inc......................... 1,976
63 Florida Progress Corp......................... 1,973
57 Texas Utilities Co............................ 1,963
100 Philadelphia Suburban Corp.................... 1,913
54 CMS Energy Corp............................... 1,903
84 Pacificorp.................................... 1,848
76 Potomac Electric Power........................ 1,757
69 Scana Corp.................................... 1,712
73 Houston Industries............................ 1,565
37 Public Service Co of Colorado................. 1,536
135 Northeast Utilities........................... 1,291
35 Dominion Resources Inc........................ 1,282
32 Cinergy Corp.................................. 1,114
52 New York State Electric & Gas................. 1,085
62 Midamerican Energy Holdings................... 1,073
16 Columbia Gas System Inc....................... 1,044
19 Consolidated National Gas Co.................. 1,022
29 MCN Energy Group Inc.......................... 888
38 Central & South West Corp..................... 807
20 Southwestern Public Service................... 786
28 Pennsylvania Enterprises Inc.................. 716
24 Brooklyn Union Gas Co......................... 687
15 Hawaiian Electric Industrials................. 579
18 Idaho Power Co................................ 565
27 AGL Resources Inc............................. 553
20 Washington Gas Light Co....................... 503
25 Public Service Co of New Mexico............... 447
13 Indiana Energy Inc............................ 318
-----------
475,724
-----------
TOTAL COMMON STOCK
(Cost $6,270,294)............................ 7,155,355
UNIT INVESTMENT TRUST (2.4%)
(Cost $257,964)
3,372 Standard & Poors Depositary Receipt........... 297,790
PRINCIPAL
AMOUNT
- ---------
CORPORATION DEBENTURES (4.5%)
FINANCE (3.0%)
$ 40,000 AON Capital Trust A 8.205% Due 1/1/27......... 41,049
121,854 GMAC 1995-AA 7.15% Due 3/15/00................ 122,843
120,000 Morgan Stanley Group 6.875% Due 3/1/07........ 117,820
100,000 Petrozuata Finance Inc 8.22% Due 4/1/17 (A)... 101,809
-----------
383,521
-----------
PRINCIPAL
AMOUNT SECURITY VALUE
- --------- -------- -----
TOMORROW SHORT-TERM RETIREMENT FUND (continued)
INDUSTRIAL (1.5%)
$130,000 British Aerospace Finance 7.50% Due 7/1/27 (A) $ 128,623
65,000 General Electric Corp 7.650% Due 2/23/98...... 65,673
-----------
194,296
-----------
TOTAL CORPORATE DEBENTURES
(Cost $575,466)............................... 577,817
U.S. GOVERNMENT OBLIGATIONS (33.8%)
U.S. TREASURY BOND (3.2%)
410,000 U.S. Treasury Bond 6.875% Due 8/15/25......... 411,537
U.S. TREASURY NOTES (30.6%)
1,521,000 U.S. T-Note 5.50% Due 11/15/98................ 1,511,965
170,000 U.S. T-Note 6.50% Due 5/31/01................. 170,930
1,644,000 U.S. T-Note 6.50% Due 8/18/05................. 1,639,381
535,000 U.S. T-Note 7.00% Due 7/15/06................. 550,381
-----------
3,872,657
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $4,290,467) ........................... 4,284,195
-----------
TOTAL INVESTMENTS (97.2%)
(Cost $11,394,191)........................... 12,315,156
OTHER ASSETS IN EXCESS OF
LIABILITIES (2.8%) .......................... 349,506
-----------
TOTAL NET ASSETS (100.0%)..................... $12,664,662
===========
<FN>
+ Non-income producing security.
(A) SEC Rule 144A security. Such security has limited markets and is
traded among "qualified institutional buyers."
</FN>
</TABLE>
See notes to financial statements Page 27
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
STATEMENTS OF ASSETS AND LIABILITIES AT JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LONG- MEDIUM- SHORT-
TERM TERM TERM
RETIREMENT RETIREMENT RETIREMENT
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Investments at value (+)................................. $ 2,873,342 $ 9,486,410 $12,315,156
Cash and cash equivalents................................ 210,347 316,987 293,903
Receivable for Fund shares sold.......................... 1,528 9,166 0
Receivable for securities sold........................... 25,702 118,386 150,493
Receivable from Adviser.................................. 9,546 5,701 2,399
Dividends and interest receivable........................ 14,361 59,902 96,800
Deferred organizational costs and
prepaid expenses...................................... 34,137 34,666 34,939
----------- ----------- -----------
3,168,963 10,031,218 12,893,690
----------- ----------- -----------
LIABILITIES
Payable for investment securities purchased.............. 0 109,183 129,034
Accrued distribution fees payable (Adviser Shares) ...... 3,392 3,574 4,830
Accrued service fees payable (Institutional Shares)...... 735 922 915
Organization expenses payable............................ 47,200 47,110 47,110
Other accrued expenses................................... 39,144 42,004 47,139
----------- ----------- -----------
90,471 202,793 229,028
----------- ----------- -----------
NET ASSETS.............................................. $ 3,078,492 $ 9,828,425 $12,664,662
=========== =========== ===========
NET ASSETS REPRESENTED BY:
Shares of beneficial interest (par $0.001)............... $ 394 $ 1,122 $ 1,269
Paid-in surplus.......................................... 2,755,815 9,002,364 11,585,422
Accumulated undistributed net investment income.......... 12,595 60,909 116,038
Undistributed realized gains on investments.............. 14,008 21,083 40,968
Net unrealized appreciation on investments............... 295,680 742,947 920,965
----------- ----------- -----------
NET ASSETS............................................... $ 3,078,492 $ 9,828,425 $12,664,662
=========== =========== ===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
ADVISER SHARES:
Net Assets............................................... $ 2,461,011 $ 8,953,312 $11,761,362
Shares of beneficial interest issued and outstanding 315,584 1,019,917 1,179,327
Net asset value per share................................ $ 7.80 $ 8.78 $ 9.97
=========== =========== ===========
INSTITUTIONAL SHARES:
Net Assets............................................... $ 617,481 $ 875,113 $ 903,300
Shares of beneficial interest issued and outstanding 78,289 102,194 89,966
Net asset value per share................................ $ 7.89 $ 8.56 $ 10.04
=========== =========== ===========
(+) Investments at cost.................................. 2,577,662 8,743,463 11,394,191
UNREALIZED APPRECIATION/(DEPRECIATION): *
Gross appreciation.................................... 340,845 882,144 1,083,378
Gross depreciation.................................... (45,165) (139,197) (162,413)
----------- ----------- -----------
NET UNREALIZED APPRECIATION.............................. 295,680 742,947 920,965
=========== =========== ===========
</TABLE>
* Based on cost of securities for Federal Income tax purposes which does not
differ from book cost. See notes to financial statements
Page 28 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LONG-TERM MEDIUM-TERM SHORT-TERM
RETIREMENT RETIREMENT RETIREMENT
----------- ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................................................. $ 20,313 $ 55,329 $ 70,826
Interest................................................... 15,037 78,815 142,567
Other...................................................... 43 138 20
-------- -------- ----------
35,393 134,282 213,413
-------- -------- ----------
EXPENSES:
Investment advisory fees - Note 5.......................... 9,095 30,866 41,268
Fund accounting fees....................................... 19,414 18,298 19,414
Professional fees.......................................... 15,303 23,292 27,744
Registration fees and expenses............................. 12,206 11,967 13,719
Transfer agent fees and expenses (Advisor Shares).......... 9,891 9,999 9,891
Transfer agent fees and expenses (Institutional Shares) 9,891 9,999 9,891
Custodian fees and expenses................................ 7,852 6,116 5,567
Distribution fees (Adviser Shares) - Note 5................ 4,962 19,427 26,100
Amortization of organization costs......................... 4,708 4,701 4,701
Shareholders' reports...................................... 4,156 6,148 8,990
Trustees' fees and expenses................................ 3,013 3,013 3,513
Administration fees - Note 5............................... 1,091 3,704 4,952
Service fees (Institutional Shares) - Note 5............... 551 575 706
Other expenses............................................. 1,039 1,677 1,203
-------- -------- ----------
TOTAL EXPENSES............................................. 103,172 149,782 177,659
Less fees waived by Adviser and Administrator - Note 5 (10,186) (34,570) (46,220)
Less expenses reimbursed by adviser - Note 5............... (71,056) (41,379) (33,797)
Less expenses paid indirectly - Note 7..................... (1,259) (2,396) (2,055)
-------- -------- ----------
NET EXPENSES............................................... 20,671 71,437 95,587
-------- -------- ----------
NET INVESTMENT INCOME...................................... 14,722 62,845 117,826
-------- -------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on Net realized gain on investments . 14,132 22,545 43,014
Change in unrealized appreciation on investments........... 263,055 671,484 841,067
NET GAIN ON INVESTMENTS.................................... 277,187 694,029 884,081
-------- -------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $291,909 $756,874 $1,001,907
======== ======== ==========
</TABLE>
See notes to financial statements Page 29
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
LONG-TERM MEDIUM-TERM
RETIREMENT RETIREMENT
---------- -----------
SIX SIX
MONTHS PERIOD MONTHS PERIOD
ENDED ENDED ENDED ENDED
6/30/97+ 12/31/96* 6/30/97+ 12/31/96*
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income................................... $ 14,722 $ 5,770 $ 62,845 $ 17,615
Net realized gain
on investments....................................... 14,132 7,802 22,545 24,377
Change in unrealized
appreciation on investments.......................... 263,055 32,625 671,484 71,463
---------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................ 291,909 46,197 756,874 113,455
---------- ---------- ----------- ----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Adviser Shares....................................... 0 (7,897) 0 (11,718)
Institutional Shares................................. 0 0 0 (7,833)
---------- ---------- ----------- ----------
TOTAL DIVIDENDS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME........................... 0 (7,897 0 (19,551)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS:
Adviser Shares....................................... 0 (6,017) 0 (23,803)
Institutional Shares................................. 0 (1,909) 0 (2,036)
---------- ---------- ----------- ----------
TOTAL DISTRIBUTIONS FROM NET
REALIZED GAINS....................................... 0 (7,926) 0 (25,839)
---------- ---------- ----------- ----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Received on issuance:
Shares sold.......................................... 2,211,704 1,256,481 6,448,275 3,739,365
Shares issued in reinvestment
of dividends and distributions...................... 0 15,823 0 45,391
Shares redeemed...................................... (685,012) (42,787) (1,057,909) (171,636)
---------- ---------- ----------- ----------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS........................... 1,526,692 1,229,517 5,390,366 3,613,120
---------- ---------- ----------- ----------
TOTAL INCREASE IN NET ASSETS............................ 1,818,601 1,259,891 6,147,240 3,681,185
NET ASSETS:
Beginning of period..................................... 1,259,891 0 3,681,185 0
---------- ---------- ----------- ----------
End of period+.......................................... $3,078,492 $1,259,891 $ 9,828,425 $3,681,185
========== ========== =========== ==========
+ Includes undistributed/
(overdistributed) net
investment income..................................... $ 12,595 ($2,127) $ 60,909 ($1,936)
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM
RETIREMENT
---------------------------
SIX
MONTHS PERIOD
ENDED ENDED
6/30/97+ 12/31/96*
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income................................... $ 117,826 $ 20,990
Net realized gain
on investments....................................... 43,014 232
Change in unrealized
appreciation on investments.......................... 841,067 79,898
----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............................ 1,001,907 101,120
----------- ----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Adviser Shares....................................... 0 (22,778)
Institutional Shares................................. 0 0
----------- ----------
TOTAL DIVIDENDS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME........................... 0 (22,778)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS:
Adviser Shares....................................... 0 (2,278)
Institutional Shares................................. 0 0
----------- ----------
TOTAL DISTRIBUTIONS FROM NET
REALIZED GAINS....................................... 0 (2,278)
----------- ----------
TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST:
Received on issuance:
Shares sold.......................................... 8,907,822 4,786,563
Shares issued in reinvestment
of dividends and distributions...................... 0 25,055
Shares redeemed...................................... (2,007,737) (125,012)
----------- ----------
NET INCREASE FROM
CAPITAL SHARE TRANSACTIONS........................... 6,900,085 4,686,606
----------- ----------
TOTAL INCREASE IN NET ASSETS............................ 7,901,992 4,762,670
NET ASSETS:
Beginning of period..................................... 4,762,670 0
----------- ----------
End of period+.......................................... $12,664,662 $4,762,670
=========== ==========
+ Includes undistributed/
(overdistributed) net
investment income..................................... $ 116,038 ($1,788)
=========== ==========
</TABLE>
[FN]
+ Unaudited.
* Commencement of operations March 7, 1996.
</FN>
Page 30 See notes to financial statements
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The Tomorrow Long-Term Retirement Fund ("Long-Term Fund"), Tomorrow Medium-
Term Retirement Fund ("Medium-Term Fund"), Tomorrow Short-Term Retirement Fund
("Short-Term Fund"), Core Large-Cap Fund (Large-Cap Fund") and Core Small-Cap
Fund ("Small -Cap Fund") are separate funds of the Tomorrow Funds Retirement
Trust (the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
investment company. All of the funds are diversified. The accompanying financial
statements and notes relate to the Long-Term Fund, Medium-Term Fund and Short-
Term Fund only (collectively the "Funds").
The Trust offers two classes of shares: Adviser Class Shares and
Institutional Class Shares. Adviser Shares and Institutional Shares are
substantially the same except that Adviser Shares bear the fees payable under a
plan adopted by the Trust's Board of Trustees pursuant to Rule 12b-1 under the
Act (the "Distribution Plan") at an annual rate of up to 0.50% of the average
daily net assets attributable to the Adviser Shares; Institutional Shares bear
the fees that are payable under a Service Plan (the "Service Plan") at an annual
rate of up to 0.25% of the average daily net assets attributable to the
Institutional Shares. In addition to fees paid pursuant to the Distribution Plan
and Service Plan, each class also bears the expense associated with transfer
agent fees. Investment income, expenses (other than expenses incurred under the
Distribution Plan, the Service Plan and transfer agent fees and expenses), and
realized and unrealized gains and losses on investments of a Fund are allocated
to the separate classes of shares based upon their relative net asset value on
the date income is earned or expenses and realized and unrealized gains and
losses are incurred.
The Funds first commenced offering Adviser Shares on March 7, 1996 and
Institutional Shares on April 2, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
PORTFOLIO VALUATION
Common Stock- Securities listed or admitted to trading on a national
securities exchange, including options, are valued at the last sale price on
such exchange as of the close of regular trading on the New York Stock Exchange
("NYSE") on each day that the Funds calculate their net asset values. Unlisted
securities and listed securities for which there are no sales reported on the
valuation date are valued at the mean between the most recent bid and ask
prices.
Bonds- Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in the Funds' portfolios are valued by
a pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices, exchange or over-the-
counter prices, when such valuations are believed to reflect the market value of
such securities.
Money Market Securities- Investments in money market and other short-term
(60 days or less) securities are valued at amortized cost, which has been
determined by the Trust's Board of Trustees to represent the fair market value
of such securities.
Foreign Securities- Securities listed or admitted to trading on an
international securities exchange, including options, are valued at the last
sale price, at the close of the primary international exchange on the day that
the Fund's calculate their net asset values. Unlisted foreign securities and
listed foreign securities for which there are no sales reported on the valuation
date are valued at the mean between the most recent bid and asked prices.
Certain risks result from investing in foreign securities in addition to
the usual risk inherent in domestic investments. Such risks include future
political, economical and currency exchange developments including restrictions
and changes in foreign law.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are recorded on a trade date basis. Realized gains
and losses from security transactions are recorded utilizing the identifiecation
method. Interest income is recognized on an accrual basis and dividend income is
recognized on ex-dividend date. Discounts on fixed income securities are
accreted to interest income over the life of the security or until an applicable
call date if sooner, with a corresponding increase in cost basis.
During the six months ended June 30, 1997, none of the Funds in the Trust
entered into the following transactions: futures, options, forward currency
contracts or foreign currency transactions.
Page 31
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (continued)
FEDERAL INCOME TAXES
Each Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Accordingly, no
federal tax or excise tax provisions are required. The federal income tax basis
of investments approximates cost.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from Net investment Income- Dividends from net investment income
are declared and paid annually when available for each Fund and are recorded on
ex-dividend date.
Distributions from Capital Gains- Distributions from capital gains are
declared by December 31 of the year in which they are earned and are paid by
January 31 of the following year. However, to the extent that the net realized
gains of a Fund can be offset by capital loss carryovers of that Fund, such
gains will not be distributed.
The amounts of dividends from net investment income and distributions from
net realized gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the composition of net assets based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or net
distributions in excess of net realized gains. To the extent they exceed net
investment income and net realized gains for tax purposes, they are reported as
distributions of capital.
USE OF ESTIMATES
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
3. ORGANIZATIONAL EXPENSES
Weiss, Peck & Greer. L.L.C. ("WPG"), the Funds' investment Adviser, paid
the organizational expenses of the Funds in the amount of approximately $141,000
($47,000 each for the Long-Term, Medium-Term and Short-Term Funds). The Funds
will reimburse WPG for these expenses which have been deferred and are being
amortized by the Funds on a straight line method over a period of five years
from the commencement of operations.
4. EXPENSES
The Trust accounts separately for the assets, liabilities and operations of
each Fund. Direct expenses of a Fund are charged to that Fund while general
Trust expenses are allocated among the Trust's respective Funds.
5. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust, with respect to each Fund, has entered into an Investment
Advisory Agreement with WPG which entitles WPG to receive a fee, which is
accrued daily and paid monthly, at an annual rate of 0.75% of each Fund's
average daily net assets. WPG voluntarily agreed not to impose its advisory fee
applicable to the Funds for the six months ended June 30, 1997.
WPG has agreed to voluntarily limit each Fund's total operating expenses,
(excluding taxes, brokerage commissions, interest, dividends paid on securities
sold short and extraordinary legal fees and expenses) to 1.75% of the average
daily net assets for the Adviser Class Shares and 1.50% of the average daily net
assets for the Institutional class shares. WPG will reduce its advisory fee (but
not below $0) when the total operating expenses exceed these limits.
Page 32
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (continued)
The Trust has entered into an Administration Agreement with WPG. For its
administrative services, WPG is entitled to receive a fee, which is accrued
daily and paid monthly, at an annual rate of 0.09% of each Fund's average daily
net assets. WPG voluntarily agreed not to impose its administration services fee
applicable to the Funds for the six months ended June 30, 1997.
The Trust with respect to the Adviser Class of each Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act. Under the Distribution
Plan, each Fund pays distribution and service fees at an aggregate annual rate
of up to 0.50% of the daily average net assets attributable to the Adviser Class
Shares. Up to 0.25% of this fee is for service fees and is intended to be
compensation for personnel services and/or account maintenance services. The
remaining amount is for distribution fees and is intended to compensate WPG for
its services and expenses associated with serving as principal underwriter of
the Adviser Class. These payments are borne solely by the Adviser Class Shares.
For the six months ended June 30, 1997 payments pursuant to the Distribution
Plan from the Long-Term Fund, Medium-Term Fund and Short-Term Fund amounted to
$4,962, $19,427 and $26,100, respectively. Of these amounts, WPG earned $897,
$9,713 and $12,995, respectively.
The Trust with respect to the Institutional Class of each Fund has also
adopted a Service Plan ( the "Institutional Service Plan") pursuant to which
each Fund has agreed to pay fiduciaries of retirement plans investing in the
Funds a fee for various services and/or account maintenance services relating to
the Institutional Class Shares. The Institutional Service Plan fee is accrued
daily and paid quarterly at an annual rate of up to 0.25% of the average daily
net asset value attributable to the Institutional Class Shares of each Fund, and
is borne solely by the Institutional Class Shares. For the six months ended June
30, 1997 payments made pursuant to the Institutional Service Plan from the Long-
Term fund, Medium-Term Fund and Short-Term Fund amounted to $551, $575 and $706,
respectively.
6. SECURITIES TRANSACTIONS
Sale proceeds, cost of securities sold and purchased, (other than short
term investments and options written), total commissions and commissions
received by WPG on such transactions for the six months ended June 30, 1997 were
as follows:
<TABLE>
<CAPTION>
PROCEEDS COST OF COMMISSIONS
OF SECURITIES SECURITIES TOTAL RECEIVED
SOLD PURCHASED COMMISSIONS BY WPG
---- --------- ----------- ------
<S> <C> <C> <C> <C>
Long-Term............. $ 199,932 $1,482,627 $ 999 $ 895
Medium-Term........... 1,247,188 6,391,735 2,551 2,289
Short-Term............ 2,668,925 9,279,231 3,870 3,688
</TABLE>
7. CUSTODIAN FEES
Each Fund has entered into an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever there
are uninvested cash balances. The Funds' custodian fee and related offset for
the six months ended June 30, 1997 were as follows:
<TABLE>
<CAPTION>
CUSTODIAN FEE OFFSET CREDIT
------------- -------------
<S> <C> <C>
Long-Term $7,852 $1,259
Medium-Term 6,116 2,396
Short-Term 8.990 2,055
</TABLE>
The Funds could have invested its cash balances elsewhere if it had not
agreed to a reduction in fees under the expense offset agreement with its
custodian
Page 33
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (continued)
8. CAPITAL SHARE TRANSACTIONS
Transaction in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
LONG-TERM
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1997 (UNAUDITED) DECEMBER 31, 1996*
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
ADVISER CLASS SHARES
Sold...................................................................... 256,489 $1,820,519 143,309 $ 977,964
Reinvested from dividends
and distributions...................................................... -- -- 1,985 13,914
Redeemed.................................................................. (80,949) (573,394) (5,250) (35,184)
-------- ----------- ------- ----------
Net increase - Adviser Class.............................................. 175,540 $1,247,113 140,044 $ 956,694
-------- ----------- ------- ----------
INSTITUTIONAL CLASS SHARES
Sold...................................................................... 53,869 $ 391,185 40,904 $ 278,517
Reinvested from dividends
and distributions...................................................... -- -- 270 1,909
Redeemed.................................................................. (15,594) (111,618) (1,160) (7,603)
-------- ----------- ------- ----------
Net increase - Institutional Class 38,275 $ 279,567 40,014 $ 272,823
-------- ----------- ------- ----------
Net increase in Fund...................................................... 213,815 $1,526,692 180,058 $1,229,517
-------- ----------- ------- ----------
*Adviser Shares - For the period March 7, 1996 (initial offering date) through
December 31, 1996. Institutional Shares - For the period April 2, 1996 (initial
offering date) through December 31, 1996.
</TABLE>
<TABLE>
<CAPTION>
MEDIUM-TERM
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1997 (UNAUDITED) DECEMBER 31, 1996*
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
ADVISER CLASS SHARES
Sold...................................................................... 709,456 $5,765,121 434,251 $3,434,858
Reinvested from dividends
and distributions...................................................... -- -- 4,374 35,521
Redeemed.................................................................. (112,926) (932,741) (15,238) (118,433)
-------- ----------- ------- ----------
Net increase - Adviser Class.............................................. 596,530 $4,832,380 423,387 $3,351,946
-------- ----------- ------- ----------
INSTITUTIONAL CLASS SHARES
Sold...................................................................... 83,629 $ 683,154 39,564 $ 304,507
Reinvested from dividends
and distributions....................................................... -- -- 1,248 9,870
Redeemed.................................................................. (15,168) (125,168) (7,079) (53,203)
-------- ----------- ------- ----------
Net increase - Institutional Class 68,461 $ 557,986 33,733 $ 261,174
-------- ----------- ------- ----------
Net increase in Fund...................................................... 664,991 $5,390,366 457,120 $3,613,120
-------- ----------- ------- ----------
*Adviser Shares - For the period March 7, 1996 (initial offering date) through
December 31, 1996. Institutional Shares - For the period April 2, 1996 (initial
offering date) through December 31, 1996.
</TABLE>
Page 34
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - (continued)
<TABLE>
<CAPTION>
SHORT-TERM
SIX MONTHS ENDED PERIOD ENDED
JUNE 30, 1997 (UNAUDITED) DECEMBER 31, 1996*
------------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
ADVISER CLASS SHARES
Sold............................ 890,816 $ 8,231,540 498,279 $4,497,333
Reinvested from dividends
and distributions.............. -- -- 2,714 25,055
Redeemed........................ (198,090) (1,870,108) (14,392) (123,915)
-------- ----------- ------- ----------
Net increase - Adviser Class.... 692,726 $ 6,361,432 486,601 $4,398,473
-------- ----------- ------- ----------
INSTITUTIONAL CLASS SHARES
Sold............................ 71,685 $ 676,283 33,138 $ 289,230
Redeemed........................ (14,735) (137,630) (122) (1,097)
-------- ----------- ------- ----------
Net increase - Institutional.... 56,950 $ 538,653 33,016 $ 288,133
-------- ----------- ------- ----------
Net increase in Fund............ 749,676 $ 6,900,085 519,617 $4,686,606
-------- ----------- ------- ----------
</TABLE>
*Adviser Shares - For the period March 7, 1996 (initial offering date) through
December 31, 1996. Institutional Shares - For the period April 2, 1996 (initial
offering date) through December 31, 1996.
Page 35
<PAGE>
TOMORROW FUNDS RETIREMENT TRUST
FINANCIAL HIGHLIGHTS
$ PER SHARE
<TABLE>
<CAPTION>
Net
Net Realized Total Dividends Distr- Net
Asset and Income From butions Asset
Value at Net Unrealized From Net from Total Value at
Beginning Investment Gains Investment Investment Capital Distr- End of
of Period Income Securities Operations Income Gains butions Period
--------- ------ ---------- ---------- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 $6.50 0.04 0.55 0.59 (0.06) (0.05) (0.11) $ 6.98
For the six months ended
June 30, 1997 (Unaudited) 6.98 0.06 0.76 0.82 0.00 0.00 0.00 7.80
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 6.51 0.04 0.55 0.59 0.00 (0.05) (0.05) 7.05
For the six months ended
June 30, 1997 (Unaudited) 7.05 0.01 0.83 0.84 0.00 0.00 0.00 7.89
MEDIUM-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 7.50 0.04 0.63 0.67 (0.03) (0.07) (0.10) 8.07
For the six months ended
June 30, 1997 (Unaudited) 8.07 0.05 0.66 0.71 0.00 0.00 0.00 8.78
Institutional Shares
For the period April 2, 1996*
through December 31, 1996 7.53 0.10 0.55 0.65 (0.25) (0.07) (0.32) 7.86
For the six months ended
June 30, 1997 (Unaudited) 7.86 0.27 0.43 0.70 0.00 0.00 0.00 8.56
SHORT-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 8.50 0.06 0.72 0.78 (0.06) (0.06) (0.12) 9.16
For the six months ended
June 30, 1997 (Unaudited) 9.16 0.10 0.71 0.81 0.00 0.00 0.00 9.97
Institutional Shares
For the period March 7, 1996*
through December 31, 1996 8.51 0.00 0.70 0.70 0.00 0.00 0.00 9.21
For the six months ended
June 30, 1997 (Unaudited) 9.21 0.08 0.75 0.83 0.00 0.00 0.00 10.04
</TABLE>
<TABLE>
<CAPTION>
RATIOS
RATIO INFORMATION
ASSUMING NO FEE
WAIVERS,
REIMBURSEMENTS OR
RATIO OF CUSTODY FEE
RATIO OF NET EARNINGS CREDIT
RECEIVE
EXPENSES INCOME TO RATIO OF RATIO
OF
NET TO AVERAGE AVERAGE PORTFOLIO AVERAGE EXPENSES NET
INCOME
TOTAL ASSETS NET NET TURNOVER COMMISSIONS TO AVERAGE TO
AVERAGE
RETURN++ (000'S) ASSETS+ ASSETS+ RATE! PER SHARE NET ASSETS+ NET
ASSETS+ ------------------- ------- ------- ----- --------- ----------- ------
- ---
LONG-TERM RETIREMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 9.08% $ 978 1.75% 1.63% 25.09% 0.03 45.36% -41.98%
For the six months ended
June 30, 1997 (Unaudited) 11.75% 2,461 1.75% 1.17% 8.60% 0.03 7.95% -5.03%
INSTITUTIONAL SHARES
For the period April 2, 1996*
through December 31, 1996 9.03% 282 1.50% 1.97% 25.09% 0.03 40.49% -37.02%
For the six months ended
June 30, 1997 (Unaudited) 11.91% 617 1.50% 1.42% 8.60% 0.03 11.04% -8.12%
MEDIUM-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 8.89% 3,416 1.75% 1.73% 22.56% 0.03 15.88% -12.40%
For the six months ended
June 30, 1997 (Unaudited) 8.80% 8,953 1.75% 1.51% 16.11% 0.03 3.42% 0.16%
Institutional Shares
For the period April 2, 1996*
through December 31, 1996 8.54% 265 1.50% 1.96% 22.56% 0.03 20.86% -17.40%
For the six months ended
June 30, 1997 (Unaudited) 8.91% 875 1.50% 1.79% 16.11% 0.03 7.29% -4.00%
SHORT-TERM RETIREMENT
Adviser Shares
For the period March 7, 1996*
through December 31, 1996 8.54% 4,459 1.75% 2.08% 14.16% 0.03 15.68% -11.85%
For the six months ended
June 30, 1997 (Unaudited) 8.84% 11,761 1.75% 2.13% 25.95% 0.03 3.07% 0.81%
Institutional Shares
For the period March 7, 1996*
through December 31, 1996 8.23% 304 1.50% 2.31% 14.16% 0.03 19.10% -15.29%
For the six months ended
June 30, 1997 (Unaudited) 9.01% 903 1.50% 2.39% 25.95% 0.03 6.12% -2.23%
</TABLE>
+ Annualized.
++ Not annualized.
* Commencement of operations.
See notes to financial statements
<PAGE>
TOMORROW FUNDS
----------------
RETIREMENT TRUST
A Lifecycle Retirement Program
---------------------------------------
ONE NEW YORK PLACE, NEW YORK, NY 10004
(800) 223-3332
INDEPENDENT TRUSTEES AND MEMBERS
OF AUDIT COMMITTEE
Raymond R. Herrmann, Jr.
Lawrence J. Israel
Harvey E. Sampson
OFFICERS
ROGER J. WEISS
Chairman of the Board, President and Trustee
JAY C. NADEL
Executive Vice President and Secretary
FRANCIS H. POWERS
Executive Vice President and Treasurer
DANIEL CARDELL
Vice President
JOSEPH J. REARDON
Vice President
DANIEL S. VANDIVORT
Vice President
JOSEPH PARASCONDOLA
Assistant Vice President
INVESTMENT ADVISER
Weiss, Peck & Greer, L.L.C.
One New York Plaza
New York, NY 10004
CUSTODIAN
Boston Safe Deposit and Trust Company
One Exchange Place
Boston, MA 02109
DIVIDEND DISBURSING AND
TRANSFER AGENT
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, MA 01581-5120
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, MA 02109
This report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus. Nothing herein is to be considered an
offer of sale or solicitation of an offer to buy shares of the Tomorrow Funds
Retirement Trust. Such offering is made only by prospectus, which includes
details as to offering and other material information.
