N-30D 1 a2061912zn-30d.txt N-30D [GRAPHIC] ANNUAL REPORT AUGUST 31, 2001 VISTA CAPITAL ADVANTAGE(SM) MUTUAL FUND VARIABLE ANNUITY TRUST J.P. MORGAN FUND DISTRIBUTORS, INC., DISTRIBUTOR THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR VISTA CAPITAL ADVANTAGE The Vista Capital Advantage (VCA) is distributed by J.P. Morgan Fund Distributors, Inc., which is unaffiliated with The Chase Manhattan Bank, Anchor National Life Insurance Company or First SunAmerica Life Insurance Company. Chase Manhattan is the portfolio administrator and custodian of the underlying investment options of the variable annuity. VCA is issued by Anchor National Life Insurance Company and in New York by First SunAmerica Life Insurance Company. INVESTMENTS IN VISTA CAPITAL ADVANTAGE ARE NOT DEPOSITS, OR GUARANTEED OR ENDORSED BY, CHASE, AND ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. INVESTMENTS IN VISTA CAPITAL ADVANTAGE, INCLUDING THE UNDERLYING VARIABLE INVESTMENT OPTIONS, INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. The views expressed on this page are exclusively those of JPMorgan Fleming. The financial information presented on this page has been taken from the books and records of the portfolios without examination by independent accountants, who express no opinion thereto. [GRAPHIC] October 9, 2001 Dear Vista Capital Advantage Contract Owner: Enclosed is the August 31, 2001 Annual Report of the Mutual Fund Variable Annuity Trust, whose portfolios serve as the underlying investments for the Vista Capital Advantage variable annuity. The tables below show the one year, five years and since inception results, after the deduction of all insurance and withdrawal fees, of the accounts in the Vista Capital Advantage at August 31, 2001. The insurance fees include mortality and expense risk charges, surrender charges and the annual contract administration charge. The surrender charges reflect the sales charges that would have been assessed against the contract value had the contract been surrendered.(1) The first chart applies to all Vista Capital Advantage investors outside of New York state, whose policy is issued by Anchor National Life Insurance Company. The second chart applies to Vista Capital Advantage investors within New York state, whose policy is issued by First SunAmerica Life Insurance Company. ANCHOR NATIONAL LIFE INSURANCE COMPANY POLICY HOLDERS AVERAGE ANNUAL TOTAL RETURN AS OF 8/31/01(2)
1 5 SINCE PORTFOLIO (CONTRACT INCEPTION DATE) YEAR YEAR INCEPTION ----------------------------------------------------------------------------------------------------------- Growth and Income (3/13/95) -24.54% 5.11% 8.64% Capital Growth (3/13/95) -18.02% 7.59% 11.66% International Equity (3/13/95) -31.92% 1.49% 3.00% Asset Allocation (3/13/95) -22.49% 2.71% 5.26% U.S. Government Income (7/13/95) 2.99% 5.03% 4.39% Money Market (6/2/95) -2.63% 2.84% 3.25% 7-DAY YIELD AS OF 8/31/01: 1.62%
FIRST SUNAMERICA LIFE INSURANCE COMPANY POLICY HOLDERS (NEW YORK) AVERAGE ANNUAL TOTAL RETURN AS OF 8/31/01(2)
1 5 SINCE PORTFOLIO (CONTRACT INCEPTION DATE) YEAR YEAR INCEPTION ----------------------------------------------------------------------------------------------------------- Growth and Income (12/6/95) -24.56% 5.10% 6.22% Capital Growth (12/6/95) -18.05% 7.56% 9.22% International Equity (12/22/95) -31.95% 1.44% 1.53% Asset Allocation (12/22/95) -22.51% 2.70% 3.52% U.S. Government Income (12/22/95) 2.99% 5.05% 4.14% Money Market (12/22/95) -2.53% 2.87% 3.25% 7-DAY YIELD AS OF 8/31/01; 1.71%
Your Vista Capital Advantage variable annuity represents a unique combination of professional money management and tax advantages. It is designed to help contribute to your plans for a financially secure future. If you have any questions, please call your investment representative or 1-800-908-4782. Sincerely, /s/ GEORGE GATCH George Gatch President, JPMorgan Funds ----------------------- (1) The Surrender Charge schedule for each year in states other than NY is as follows: 6%, 6%, 5%, 4%, 3%, 2%, 0%. In NY the Surrender Charge schedule for each year is: 6%, 6%, 5%, 4%, 3%, 2%, 1%, 0%. A 10% Federal tax penalty may apply to withdrawals before age 59 1/2. (2) Past performance is no guarantee of future results. An investor's return and principal value will fluctuate. An investor's units, when redeemed, may be worth more or less than their original investment. This material is authorized for public distribution only when accompanied or preceded by a prospectus for Vista Capital Advantage. Fund shares are not insured or guaranteed by the FDIC or any other government agency. There can be no guarantee that the Fund will maintain a stable net asset value of $1.00. TABLE OF CONTENTS 3 LETTER TO THE SHAREHOLDERS PERFORMANCE & COMMENTARY 5 GROWTH AND INCOME 6 CAPITAL GROWTH 7 INTERNATIONAL EQUITY 9 ASSET ALLOCATION 11 U.S. GOVERNMENT INCOME 12 MONEY MARKET PORTFOLIO OF INVESTMENTS 13 GROWTH AND INCOME 15 CAPITAL GROWTH 17 INTERNATIONAL EQUITY 19 ASSET ALLOCATION 22 U.S. GOVERNMENT INCOME 23 MONEY MARKET MUTUAL FUND VARIABLE ANNUITY TRUST 24 STATEMENT OF ASSETS & LIABILITIES 25 STATEMENT OF OPERATIONS 26 STATEMENT OF CHANGES IN NET ASSETS 27 FINANCIAL HIGHLIGHTS 29 NOTES TO FINANCIAL STATEMENTS HIGHLIGHTS - Stock prices fell in major equity markets during the reporting period, with the S&P 500 showing a total return of -17.83% and the MSCI EAFE showing a total return of -14.20%. - The U.S. Federal Reserve Board changed course, dramatically easing monetary policy by 1.50% in the first three months of 2001. - Fixed income markets performed well as interest rates fell. 3 [GRAPHIC] LETTER TO THE SHAREHOLDERS October 9, 2001 DEAR SHAREHOLDER: We are pleased to present this annual report for the Vista Capital Advantage Variable Annuity and its six individual Portfolios, one or more of which underlies your investment. Inside, you'll find in-depth information on each of these Portfolios, including holdings and an update from the portfolio management team. You'll note that the year covered by this report ended August 31, 2001. Like people everywhere, we here at JPMorgan Fleming were horrified and saddened by the terrorist attacks on New York City and Washington, D.C. in September. We received the terrible news while we were in the midst of preparing this report. At this time, it is uncertain how the attacks will affect the fixed income and equity markets but we expect to see some volatility, at least for the short term. Clearly, the events of September 11, 2001 have had a dramatic impact on the global economy and financial markets, creating significant uncertainty among investors everywhere. In the individual Portfolio commentaries that follow, the management team will address where each of the Portfolios may be headed in light of these tragic events. EQUITY MARKET SLUMPS AS U.S. ECONOMY SLOWS As the reporting period began in September 2000, the formerly red-hot U.S. economy was showing signs of slowing following a series of interest rate increases by the Federal Reserve Board that began in June 1999. The slowdown continued throughout the reporting period and was particularly pronounced in those sectors of the economy that had grown at such an impressive pace in the late 1990s, specifically technology and telecommunications. At their zenith in early 2000, the prices of many of the stocks in these sectors reflected high expectations of continuing and uninterrupted growth in revenue and earnings. As short- and medium-term prospects have progressively dimmed since then, there has been a painful ratcheting down of earnings expectations and valuations. For the reporting year, the NASDAQ Composite Index, home to many of these companies, was down 57.08%. A broader gauge of the U.S. equity market, the S&P 500 Index, was off 24.38% for the reporting year. Within the S&P 500, value stocks held up fairly well, down 8.19%, compared to a loss of 37.80% for growth stocks. This represented a significant shift in investor preference back towards companies with less volatile flows of revenue and earnings such as those in the pharmaceutical, retail and energy sectors. The latter went through a period of very strong performance in the winter and spring as energy prices reached multi-year highs and rolling energy blackouts hit California. Small- and mid-cap stocks performed relatively well, with the S&P SmallCap 600 Index showing a gain of 0.54% for the reporting year and the S&P MidCap 400 Index recording a loss of 8.13%. FIXED INCOME INVESTMENTS GAIN AS FED AGGRESSIVELY CUTS RATES While the U.S. stock market struggled, bonds showed a positive return and highlighted the importance of diversification for long-term investors. The Lehman Aggregate Index, which includes a variety of long-term Treasury, corporate and government agency bonds, gained 11.48% during the reporting year as the Federal Reserve reversed course on January 3, 2001 and began a policy of aggressive short-term interest rate cuts to spark economic growth. In response, the yield curve steepened, with rates on shorter-term maturities coming down faster than those on longer-term issues as investors attempted to price in the timing of an eventual economic recovery, the potential for inflation down the road and the impact of the Bush tax package. OVERSEAS STOCKS PERFORM IN LINE WITH U.S. Overseas stock markets also recorded significant losses during the reporting year as the global economy dealt with the same broad trends as the U.S., namely lower expectations for economic growth and lower earnings for companies in the technology and telecommunications sectors. A broad gauge of foreign stocks, the MSCI EAFE Index, performed in line with the S&P 500, with a loss of 24.08%. 4 [GRAPHIC] Despite high hopes for reform and a market rally following the surprise election of Prime Minister Koizumi in the spring, Japan was the worst performing major market in dollar terms over the reporting year as the MSCI Japan Index fell 34.94%. European stocks as a group did better, down 21.94%, with the U.K. market outperforming Continental Europe. THE IMPORTANCE OF A LONG-TERM PERSPECTIVE As we write today, it is likely that the U.S. economy has entered a recession. However, we note that the Fed and leaders in Washington, as well as central bankers and leaders in Europe and Japan, have shown a willingness to take steps to get economies back on track. While we face uncertainty ahead, the U.S. government's fiscal position is better than it has been in many years, and the economy has yet to feel the full impact of more stimulative monetary and fiscal policies. We have all felt the loss from the tragic effects of the terrorist attacks. In addition to coping with how these events have affected each of us, we and our many colleagues in the broader financial community have been working to resume the effective functioning of our capital markets. We are confident that the economy and markets will prove strong and durable, and we continue to work to deliver solid risk-adjusted returns to long-term investors in Vista Capital Advantage. On behalf of everyone here, we thank you for your continued investment and we look forward to helping you reach your most important financial goals. Sincerely yours, /s/ GEORGE GATCH George Gatch President, JPMorgan Funds 5 [GRAPHIC] GROWTH AND INCOME PORTFOLIO (UNAUDITED) THE GROWTH AND INCOME PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION AND DIVIDEND INCOME PRIMARILY THROUGH DIVERSIFIED HOLDINGS OF COMMON STOCKS. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the Growth & Income Portfolio had a total return of -17.29%. This compares to a total return of -24.38% for the S&P 500 Index and -8.19% for the S&P 500/BARRA Value Index. HOW THE PORTFOLIO WAS MANAGED In the final four months of 2000, the Portfolio benefited from its value orientation as the prospect of slowing economic growth hurt high growth companies trading at expensive multiples while rewarding businesses with steady earnings and relatively inexpensive stock prices. Moving into 2001, significant price moves in the financial and technology sectors in January caught the Portfolio off balance. These shifts occurred just as the Portfolio was in the process of regaining its sector-neutral position following a rebalancing of its benchmark Index. The Portfolio's bias towards Wall Street stocks (Morgan Stanley, Merrill Lynch, American Express) over Main Street stocks (regional banks) was detrimental to performance throughout 2001. However, in the final two months of the reporting year, a decision to underweight consumer discretionary stocks in light of falling consumer confidence proved beneficial to performance, as was an overweighting in consumer staples. The Portfolio was underweight information technology throughout 2001, and this was very positive as the bear market in tech stocks continued. In the final two months of the reporting year, the Portfolio's holdings in the energy sector hurt performance while a slight overweight in healthcare ended up having little impact on relative performance. LOOKING AHEAD For most of 2001, the U.S. stock market has been caught in a tug-of-war between the Fed's aggressive easing of monetary policy and a continued downgrading of earnings expectations as the economy slowed. It is possible that the economy had already moved into recession prior to the terrorist attack on September 11, and consumer sentiment and economic activity have fallen sharply since then. The management team is focused on investing in quality companies with strong balance sheets that are poised to come through the current environment in strong--perhaps even stronger--competitive positions. Sticking to the disciplined process that has proven successful over several market cycles, the management team intends to be opportunistic, taking advantage of any bounce in the market to sell certain traditional "value" companies that may not meet current requirements and use the proceeds to move into names with steadier earnings and better long-term prospects. LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the Growth and Income Portfolio at NAV (Net Asset Value) would have grown to $18,934 from inception on 3/1/95 through 8/31/01.* INVESTMENT RESULTS Average Annual Returns as of 8/31/01 1 year -17.29% 5 year 7.25% Since Inception (3/1/95) 10.32%
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GROWTH & INCOME S&P 500/BARRA PORTFOLIO S&P 500 INDEX VALUE INDEX 3/1/1995 $10,000 $10,000 $10,000 3/31/1995 $10,270 $10,295 $10,276 4/30/1995 $10,410 $10,598 $10,614 5/31/1995 $10,730 $11,021 $11,086 6/30/1995 $11,000 $11,276 $11,171 7/31/1995 $11,460 $11,649 $11,556 8/31/1995 $11,480 $11,679 $11,654 9/30/1995 $11,710 $12,171 $12,060 10/31/1995 $11,480 $12,128 $11,872 11/30/1995 $11,960 $12,659 $12,494 12/31/1995 $12,150 $12,903 $12,840 1/31/1996 $12,558 $13,342 $13,224 2/29/1996 $12,768 $13,466 $13,348 3/31/1996 $13,019 $13,595 $13,660 4/30/1996 $13,229 $13,795 $13,800 5/31/1996 $13,375 $14,150 $14,008 6/30/1996 $13,344 $14,203 $13,941 7/31/1996 $12,894 $13,576 $13,353 8/31/1996 $13,344 $13,862 $13,721 9/30/1996 $13,941 $14,641 $14,308 10/31/1996 $14,161 $15,045 $14,793 11/30/1996 $15,051 $16,181 $15,925 12/31/1996 $14,769 $15,861 $15,664 1/31/1997 $15,604 $16,850 $16,386 2/28/1997 $15,544 $16,983 $16,506 3/31/1997 $14,900 $16,287 $15,941 4/30/1997 $15,580 $17,258 $16,539 5/31/1997 $16,570 $18,312 $17,576 6/30/1997 $17,214 $19,127 $18,247 7/31/1997 $18,610 $20,648 $19,707 8/31/1997 $18,085 $19,491 $18,816 9/30/1997 $18,932 $20,558 $19,919 10/31/1997 $18,562 $19,871 $19,186 11/30/1997 $19,170 $20,791 $19,917 12/31/1997 $19,437 $21,149 $20,359 1/31/1998 $19,118 $21,381 $20,109 2/28/1998 $20,488 $22,923 $21,617 3/31/1998 $21,429 $24,097 $22,713 4/30/1998 $21,180 $24,342 $22,981 5/31/1998 $20,723 $23,924 $22,657 6/30/1998 $21,097 $24,895 $22,829 7/31/1998 $20,419 $24,631 $22,334 8/31/1998 $17,099 $21,072 $18,742 9/30/1998 $17,984 $22,423 $19,882 10/31/1998 $19,450 $24,243 $21,439 11/30/1998 $20,294 $25,712 $22,556 12/31/1998 $21,483 $27,193 $23,347 1/31/1999 $21,598 $28,330 $23,819 2/28/1999 $20,302 $27,449 $23,307 3/31/1999 $20,761 $28,547 $24,013 4/30/1999 $22,156 $29,652 $26,083 5/31/1999 $21,647 $28,952 $25,621 6/30/1999 $22,550 $30,559 $26,605 7/31/1999 $21,467 $29,605 $25,786 8/31/1999 $20,728 $29,457 $25,133 9/30/1999 $20,055 $28,650 $24,151 10/31/1999 $20,628 $30,464 $25,513 11/30/1999 $20,760 $31,082 $25,362 12/31/1999 $21,493 $32,910 $26,316 1/31/2000 $21,065 $31,258 $25,479 2/29/2000 $20,061 $30,667 $23,887 3/31/2000 $21,936 $33,666 $26,378 4/30/2000 $21,805 $32,653 $26,201 5/31/2000 $21,493 $31,984 $26,282 6/30/2000 $21,295 $32,770 $25,244 7/31/2000 $21,591 $32,259 $25,749 8/31/2000 $22,892 $34,262 $27,477 9/30/2000 $22,185 $32,453 $27,471 10/31/2000 $22,267 $32,317 $27,985 11/30/2000 $21,083 $29,770 $26,552 12/31/2000 $21,740 $29,916 $27,920 1/31/2001 $21,690 $30,978 $29,098 2/28/2001 $20,511 $28,156 $27,169 3/31/2001 $19,531 $26,374 $26,096 4/30/2001 $20,959 $28,421 $27,865 5/31/2001 $21,175 $28,611 $28,158 6/30/2001 $20,345 $27,916 $27,245 7/31/2001 $20,212 $27,642 $26,774 8/31/2001 $18,934 $25,915 $25,226
Source for Index returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Standard & Poor's 500 Index is an unmanaged broad-based index that replicates the U.S. stock market. It includes 500 widely held common stocks and assumes reinvestment of dividends. An individual cannot invest in an index. The S&P 500/BARRA Value Index contains large U.S. Companies with low price-to-book ratios relative to the S&P 500 Index. Withdrawals prior to age 59 1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. 6 [GRAPHIC] CAPITAL GROWTH PORTFOLIO (UNAUDITED) THE CAPITAL GROWTH PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH DIVERSIFIED HOLDINGS OF COMMON STOCKS. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the Capital Growth Portfolio had a total return of -10.77%. This compares to a total return of -8.13% for the S&P MidCap 400 Index and -12.97% for the Russell 2000 Index. HOW THE PORTFOLIO WAS MANAGED In the last four months of 2001, the Portfolio benefited as concerns about the economy helped mid-cap stocks, which were seen as having generally stronger earnings growth characteristics. Moving into 2001, the management team began to adopt a rather defensive bias, and this has helped overall Portfolio performance. As companies cut earning estimates throughout the year, the resulting positioning in companies with stable earnings has proved beneficial, as has a preference for regional banks within the financial services sector. After having been hurt by technology holdings in the final part of 2000, the Portfolio has been underweight year-to-date in 2001, and this has obviously supported performance given the sharp downward movement in tech stock prices. Two sectors in which the Portfolio was particularly well positioned were health care and energy. The Portfolio owned two energy companies that were taken over at relatively good premiums, Triton and Tosco. In the final two months of the period, the Portfolio held up quite well, continuing to outperform its benchmark. However, it was hurt by holdings in consumer discretionary stocks which, despite traditionally doing well when the Fed eases, were hit quite hard as consumer confidence fell following the events of September 11, 2001. LOOKING AHEAD For most of 2001, the U.S. stock market has been caught in a tug-of-war between the Fed's aggressive easing of monetary policy and a continued downgrading of earnings expectations as the economy slowed. It is possible that the economy had already moved into recession prior to the terrorist attack on September 11, and clearly consumer sentiment and economic activity have fallen sharply since then. The defensive bias the management team adopted early in 2001 continues. The management team is focused on investing in quality companies with strong balance sheets that are poised to come through the current environment in strong--perhaps even stronger--competitive positions. Sticking to the disciplined process that has proven successful over several market cycles, the management team intends to be opportunistic, taking advantage of any bounce in the market to sell certain traditional "value" companies that may not meet current requirements and use the proceeds to move into names with steadier earnings and better long-term prospects. LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the Capital Growth Portfolio at NAV (Net Asset Value) would have grown to $22,590 from inception on 3/1/95 through 8/31/01.* INVESTMENT RESULTS Average Annual Returns as of 8/31/01 1 year -10.77% 5 year 9.67% Since Inception (3/1/95) 13.35%
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CAPITAL RUSSELL S&P MIDCAP GROWTH PORTFOLIO 2000 INDEX 400 INDEX 3/1/1995 $10,000 $10,000 $10,000 3/31/1995 $10,350 $10,172 $10,164 4/30/1995 $10,470 $10,398 $10,377 5/31/1995 $10,870 $10,577 $10,628 6/30/1995 $11,140 $11,126 $11,060 7/31/1995 $11,830 $11,766 $11,635 8/31/1995 $11,900 $12,010 $11,853 9/30/1995 $12,090 $12,225 $12,140 10/31/1995 $11,660 $11,679 $11,828 11/30/1995 $12,220 $12,169 $12,345 12/31/1995 $12,707 $12,490 $12,314 1/31/1996 $12,872 $12,477 $12,492 2/29/1996 $13,077 $12,866 $12,917 3/31/1996 $13,674 $13,132 $13,072 4/30/1996 $14,364 $13,835 $13,471 5/31/1996 $14,785 $14,380 $13,652 6/30/1996 $14,405 $13,789 $13,448 7/31/1996 $13,571 $12,585 $12,537 8/31/1996 $14,240 $13,316 $13,261 9/30/1996 $14,960 $13,837 $13,839 10/31/1996 $14,765 $13,624 $13,879 11/30/1996 $15,526 $14,185 $14,660 12/31/1996 $15,670 $14,557 $14,676 1/31/1997 $16,284 $14,848 $15,227 2/28/1997 $16,041 $14,489 $15,102 3/31/1997 $15,276 $13,805 $14,459 4/30/1997 $15,404 $13,843 $14,833 5/31/1997 $16,493 $15,383 $16,130 6/30/1997 $17,141 $16,043 $16,583 7/31/1997 $18,322 $16,789 $18,224 8/31/1997 $18,123 $17,173 $18,203 9/30/1997 $19,069 $18,430 $19,249 10/31/1997 $18,485 $17,621 $18,412 11/30/1997 $18,707 $17,507 $18,684 12/31/1997 $18,904 $17,813 $19,409 1/31/1998 $18,904 $17,531 $19,041 2/28/1998 $20,287 $18,829 $20,617 3/31/1998 $20,998 $19,605 $21,547 4/30/1998 $20,921 $19,712 $21,941 5/31/1998 $20,003 $18,650 $20,954 6/30/1998 $20,184 $18,689 $21,086 7/31/1998 $18,865 $17,175 $20,268 8/31/1998 $15,154 $13,840 $16,496 9/30/1998 $15,904 $14,923 $18,035 10/31/1998 $17,236 $15,532 $19,647 11/30/1998 $17,779 $16,346 $20,628 12/31/1998 $18,667 $17,358 $23,120 1/31/1999 $18,365 $17,589 $22,220 2/28/1999 $17,645 $16,164 $21,056 3/31/1999 $18,509 $16,416 $21,645 4/30/1999 $18,811 $17,887 $23,351 5/31/1999 $19,185 $18,148 $23,454 6/30/1999 $20,337 $18,969 $24,706 7/31/1999 $20,121 $18,449 $24,183 8/31/1999 $19,790 $17,766 $23,356 9/30/1999 $19,315 $17,770 $22,634 10/31/1999 $19,790 $17,841 $23,788 11/30/1999 $20,322 $18,505 $25,037 12/31/1999 $21,450 $20,599 $26,524 1/31/2000 $20,519 $20,268 $25,776 2/29/2000 $21,869 $23,614 $27,581 3/31/2000 $23,483 $22,058 $29,889 4/30/2000 $23,312 $20,730 $28,846 5/31/2000 $22,272 $19,615 $28,485 6/30/2000 $22,862 $21,325 $28,904 7/31/2000 $22,801 $20,638 $29,361 8/31/2000 $25,316 $22,213 $32,640 9/30/2000 $24,789 $21,560 $32,418 10/31/2000 $24,571 $20,598 $31,319 11/30/2000 $22,600 $18,483 $28,955 12/31/2000 $24,551 $20,071 $31,170 1/31/2001 $24,718 $21,116 $31,865 2/28/2001 $23,453 $19,731 $30,046 3/31/2001 $21,727 $18,766 $27,813 4/30/2001 $23,487 $20,234 $30,881 5/31/2001 $23,936 $20,732 $31,600 6/30/2001 $23,737 $21,465 $31,474 7/31/2001 $23,338 $20,304 $31,005 8/31/2001 $22,590 $19,648 $29,991
Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Russell 2000 Index is unmanaged and tracks the shares of 2000 small-capitalization companies. Figures include the reinvestment of dividends. An individual cannot invest in an index. The S&P MidCap 400 Index consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. Withdrawals prior to age 59 1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. 7 [GRAPHIC] INTERNATIONAL EQUITY PORTFOLIO (UNAUDITED) THE INTERNATIONAL EQUITY PORTFOLIO SEEKS TO PROVIDE A TOTAL RETURN ON ASSETS FROM LONG-TERM GROWTH OF CAPITAL AND FROM INCOME PRINCIPALLY THROUGH DIVERSIFIED HOLDINGS OF THE STOCKS OF ESTABLISHED FOREIGN COMPANIES OUTSIDE THE UNITED STATES. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the International Equity Portfolio had a total return of -24.76%. This compares to a total return of -24.08% for the Morgan Stanley Capital International Europe, Australia and Far East (MSCI EAFE) Index. HOW THE PORTFOLIO WAS MANAGED Throughout the reporting period, the Portfolio's strategy remained focused on stock selection, utilizing three levels of decision-making. The first consists of regional specialists, who rank individual stocks within their geographic region. The second is made up of global sector specialists, who make judgments on stocks recommended by regional specialists on a global level, for instance comparing BMW in Germany and Toyota in Japan to help identify the best company in the global automotive industry. Finally, a London-based team of our most experienced analysts makes final portfolio construction decisions to ensure that total portfolio risk is understood and controlled. As a result of this process, greater than 70% of the Portfolio's "risk budget" will be deployed in the selection of individual stocks, while sector and regional risk are residual factors. This ensures that the manager's key strength in stock selection is what continues to drive returns. Throughout the reporting year, the result of individual stock decisions led to an overweight position in Europe relative to Japan. Within Europe, the Portfolio was generally more concentrated than the Index in the United Kingdom and was underweight continental European issues, particularly the incumbent telecommunications companies which are so heavily weighted in the Index. While many holdings experienced drops in stock prices as a result of lower earnings expectations, the management team attempted to look beyond the short-term downgrades and focus instead on those companies that were building market share through product innovation and volume growth despite the difficult economic environment. Nokia, for instance, is a holding that has suffered along with the entire telecommunications equipment sector over the past year, but has done well relative to its peers. The company has been able to build market share and, as such, a stronger base for the future. With regard to Japan, the management team was very wary of banks and "sunset" businesses such as construction companies and steel producers, while favoring technology companies whose future prospects appear much more favorable. In the summer, the management team had adjusted to a more defensive posture given the expectation of a reduction in economic activity. As such, the portfolio ended the period with a lower weighting to stocks dependent on the consumer and towards areas with more stable earnings, including those in the financial services, healthcare and basic materials sectors. LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the International Equity Portfolio at NAV (Net Asset Value) would have grown to $13,361 from inception on 3/1/95 through 8/31/01.* INVESTMENT RESULTS Average Annual Returns as of 8/31/01 1 year -24.76% 5 year 3.68% Since Inception (3/1/95) 4.56%
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INTERNATIONAL MSCI EQUITY PORTFOLIO EAFE INDEX 3/1/1995 $10,000 $10,000 3/31/1995 $10,180 $10,627 4/30/1995 $10,350 $11,030 5/31/1995 $10,480 $10,901 6/30/1995 $10,470 $10,712 7/31/1995 $11,010 $11,382 8/31/1995 $10,890 $10,950 9/30/1995 $11,070 $11,167 10/31/1995 $10,910 $10,870 11/30/1995 $10,870 $11,176 12/31/1995 $10,890 $11,628 1/31/1996 $11,059 $11,678 2/29/1996 $11,132 $11,720 3/31/1996 $11,427 $11,972 4/30/1996 $11,754 $12,323 5/31/1996 $11,617 $12,099 6/30/1996 $11,680 $12,170 7/31/1996 $11,122 $11,817 8/31/1996 $11,153 $11,845 9/30/1996 $11,448 $12,163 10/31/1996 $11,301 $12,041 11/30/1996 $11,690 $12,523 12/31/1996 $11,648 $12,365 1/31/1997 $11,533 $11,935 2/28/1997 $11,799 $12,133 3/31/1997 $11,752 $12,180 4/30/1997 $11,729 $12,247 5/31/1997 $12,215 $13,047 6/30/1997 $12,688 $13,770 7/31/1997 $13,289 $13,996 8/31/1997 $12,076 $12,953 9/30/1997 $12,735 $13,681 10/31/1997 $11,729 $12,633 11/30/1997 $11,660 $12,507 12/31/1997 $11,816 $12,619 1/31/1998 $12,097 $13,200 2/28/1998 $12,868 $14,050 3/31/1998 $13,443 $14,485 4/30/1998 $13,748 $14,603 5/31/1998 $13,797 $14,535 6/30/1998 $13,626 $14,649 7/31/1998 $14,018 $14,801 8/31/1998 $11,779 $12,970 9/30/1998 $11,155 $12,576 10/31/1998 $11,877 $13,890 11/30/1998 $12,428 $14,605 12/31/1998 $12,887 $15,185 1/31/1999 $13,678 $15,144 2/28/1999 $13,133 $14,787 3/31/1999 $13,418 $15,408 4/30/1999 $14,041 $16,035 5/31/1999 $13,237 $15,212 6/30/1999 $13,755 $15,809 7/31/1999 $14,442 $16,283 8/31/1999 $14,728 $16,347 9/30/1999 $14,819 $16,515 10/31/1999 $15,351 $17,138 11/30/1999 $17,218 $17,737 12/31/1999 $19,549 $19,332 1/31/2000 $18,921 $18,106 2/29/2000 $20,416 $18,597 3/31/2000 $20,402 $19,322 4/30/2000 $18,947 $18,310 5/31/2000 $18,080 $17,867 6/30/2000 $18,506 $18,569 7/31/2000 $17,651 $17,795 8/31/2000 $17,758 $17,953 9/30/2000 $16,663 $17,082 10/31/2000 $16,196 $16,682 11/30/2000 $15,768 $16,060 12/31/2000 $16,281 $16,635 1/31/2001 $16,265 $16,645 2/28/2001 $14,989 $15,405 3/31/2001 $14,066 $14,362 4/30/2001 $15,039 $15,352 5/31/2001 $14,603 $14,787 6/30/2001 $14,016 $14,182 7/31/2001 $13,680 $13,939 8/31/2001 $13,361 $13,590
Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. The MSCI EAFE Index is unmanaged, is a replica (or model) of the performance of the European, Australian and Far Eastern equity markets, and assumes the reinvestment of dividends. An individual cannot invest in an index. Withdrawals prior to age 59 1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. 8 [GRAPHIC] LOOKING AHEAD Prior to the tragedy on September 11, a great deal of market volatility was caused by the cross-currents of easier monetary policy and the downgrading of corporate earnings expectations. Even as central bankers added liquidity into the system, the management team felt that earnings forecasts for 2002 were still too high and, therefore, focused on quality of earnings and the ability to sustain them at this point in the economic cycle. The difficult environment that caused this defensive positioning was exacerbated by the event of the terrorist attack. Negative earnings announcements and poor consumer sentiment will continue to cast a shadow over markets in the near term. Therefore, the management team intends to remain focused on quality of earnings and to look forward to the period when markets stabilize and recover. It is anticipated that the bias towards Europe over Japan will continue until economy-wide restructuring becomes more evident in Japan. Within Europe, while the defensive qualities of the U.K. market continue to stand out, the management team intends in due course to shift the focus to the continent as individual company prospects improve. On an opportunistic basis, the management team will continue to invest in stocks in the Pacific ex-Japan and in specific emerging markets companies which compete effectively on the global stage. 9 [GRAPHIC] ASSET ALLOCATION PORTFOLIO (UNAUDITED) THE ASSET ALLOCATION PORTFOLIO SEEKS TO PROVIDE MAXIMUM RETURN THROUGH A COMBINATION OF LONG-TERM CAPITAL GROWTH AND CURRENT INCOME BY INVESTING IN COMMON STOCKS, CONVERTIBLE SECURITIES AND GOVERNMENT AND CORPORATE FIXED-INCOME OBLIGATIONS. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the Asset Allocation Portfolio had a total return of -15.20%. This compares to a one-year return of -11.03% for a blended benchmark consisting of the S&P 500 (60%) and the Lehman Government Bond Index (40%). HOW THE PORTFOLIO WAS MANAGED The Portfolio was hurt in the latter part of 2000 from its exposure to the technology sector, with warnings from many companies on the state of their orders as well as analysts' downgrades, which caused almost indiscriminate selling. Moving into 2001, significant price moves in the financial and technology sectors in January caught the Portfolio off balance. These shifts occurred just as the Portfolio was in the process of regaining its sector-neutral position following a rebalancing of its benchmark Index. The Portfolio's bias towards Wall Street stocks (Morgan Stanley, Merrill Lynch, American Express) over Main Street stocks (regional banks) was detrimental to performance throughout 2001. However, in the final two months of the reporting year, a decision to underweight consumer discretionary stocks in light of falling consumer confidence proved beneficial to performance, as did an overweighting in consumer staples. The Portfolio was underweight information technology throughout 2001, and this was very positive as the bear market in tech stocks continued. In the final two months of the reporting year, the Portfolio's holdings in the energy sector caused performance to suffer while a slight overweight in healthcare ended up having little impact on relative performance. Throughout the reporting year, the negative impact of the performance of the U.S. equity markets was somewhat offset by the positive returns of the Portfolio's fixed income holdings. Excellent yield curve strategy was the key to the fixed income portion of the Portfolio's strong performance in the latter part of 2000. When it became clear to the management team that the Fed would have to step in and cut short-term rates to prop up the sagging economy, the Portfolio was adjusted to benefit from a steepening yield curve, focusing on two- and five-year securities. The Portfolio began extending duration in late 2000 and extended further in early 2001 to gain and maintain a significantly longer than benchmark duration in anticipation of further Fed moves to lower interest rates. As threats to the economy appeared to moderate in the spring of 2001, duration was scaled back to neutral in the second quarter. With falling interest rates leading to concerns about refinancing and new issue supply, the Portfolio maintained relatively low exposure to the residential mortgage sector through the end of the current reporting period. Throughout the year, the Portfolio's yield was higher than that of its Index as the mix of investments had lower-than-index exposure to Treasuries and was more highly concentrated in government agency securities, and some mortgages. LOOKING AHEAD The management team is focused on investing in quality companies with strong balance sheets that are poised to come through the current environment in strong--perhaps even stronger--competitive positions. Sticking to the disciplined process that has proven successful over several market cycles, the management team intends to be opportunistic, taking advantage of any bounce in the market to sell certain traditional "value" companies that may not meet current requirements and use the proceeds to move into names with steadier earnings and better long-term prospects. On the fixed income side, it is likely that the Fed will lower the Fed Funds rate to the 2% to 2.5% range by the first quarter of 2002, and the government will provide substantial fiscal stimulus in the form of funding for rebuilding and increased military spending. The yield curve will likely continue to steepen with short- and intermediate-term rates declining further. The Portfolio entered September with modestly long duration positions concentrated in shorter maturities and extended these positions as events unfolded during the month. In an uncertain market, future Portfolio shifts will be determined by our active strategies in pursuit of performance through a mix of current income and capital appreciation. 10 [GRAPHIC] LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the Asset Allocation Portfolio at NAV (Net Asset Value) would have grown to $15,560 from inception on 3/1/95 through 8/31/01.* INVESTMENT RESULTS Average Annual Returns as of 8/31/01 1 year -15.20% 5 year 4.91% Since Inception (3/1/95) 7.04%
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60% S&P 500/ ASSET ALLOCATION 40% LEHMAN S&P 500 LEHMAN AGGREGATE LEHMAN GOV'T/ PORTFOLIO GOV'T BOND INDEX INDEX BOND INDEX CREDIT INDEX 3/1/1995 $10,000 $10,000 $10,000 $10,000 $10,000 3/31/1995 $10,160 $10,202 $10,295 $10,061 $10,067 4/30/1995 $10,270 $10,436 $10,598 $10,202 $10,208 5/31/1995 $10,570 $10,854 $11,021 $10,597 $10,636 6/30/1995 $10,730 $11,038 $11,276 $10,674 $10,721 7/31/1995 $10,980 $11,241 $11,649 $10,651 $10,679 8/31/1995 $11,040 $11,311 $11,679 $10,779 $10,816 9/30/1995 $11,200 $11,641 $12,171 $10,884 $10,926 10/31/1995 $11,120 $11,686 $12,128 $11,025 $11,087 11/30/1995 $11,440 $12,067 $12,659 $11,191 $11,269 12/31/1995 $11,595 $12,275 $12,903 $11,348 $11,435 1/31/1996 $11,880 $12,555 $13,342 $11,422 $11,506 2/29/1996 $11,935 $12,523 $13,466 $11,224 $11,262 3/31/1996 $12,045 $12,553 $13,595 $11,145 $11,168 4/30/1996 $12,133 $12,631 $13,795 $11,083 $11,090 5/31/1996 $12,199 $12,818 $14,150 $11,061 $11,072 6/30/1996 $12,232 $12,913 $14,203 $11,209 $11,219 7/31/1996 $12,001 $12,583 $13,576 $11,239 $11,245 8/31/1996 $12,243 $12,732 $13,862 $11,220 $11,217 9/30/1996 $12,627 $13,245 $14,641 $11,415 $11,416 10/31/1996 $12,836 $13,581 $15,045 $11,669 $11,682 11/30/1996 $13,363 $14,291 $16,181 $11,868 $11,897 12/31/1996 $13,220 $14,063 $15,861 $11,758 $11,765 1/31/1997 $13,596 $14,596 $16,850 $11,794 $11,779 2/28/1997 $13,557 $14,673 $16,983 $11,824 $11,804 3/31/1997 $13,194 $14,250 $16,287 $11,692 $11,663 4/30/1997 $13,596 $14,842 $17,258 $11,868 $11,834 5/31/1997 $14,102 $15,437 $18,312 $11,981 $11,944 6/30/1997 $14,466 $15,918 $19,127 $12,123 $12,087 7/31/1997 $15,322 $16,858 $20,648 $12,450 $12,457 8/31/1997 $15,010 $16,225 $19,491 $12,345 $12,317 9/30/1997 $15,464 $16,855 $20,558 $12,526 $12,511 10/31/1997 $15,361 $16,634 $19,871 $12,708 $12,711 11/30/1997 $15,646 $17,130 $20,791 $12,766 $12,778 12/31/1997 $15,822 $17,378 $21,149 $12,895 $12,913 1/31/1998 $15,723 $17,597 $21,381 $13,060 $13,095 2/28/1998 $16,358 $18,340 $22,923 $13,050 $13,068 3/31/1998 $16,809 $18,924 $24,097 $13,094 $13,109 4/30/1998 $16,767 $19,073 $24,342 $13,162 $13,175 5/31/1998 $16,640 $18,955 $23,924 $13,287 $13,315 6/30/1998 $16,880 $19,503 $24,895 $13,400 $13,451 7/31/1998 $16,513 $19,391 $24,631 $13,428 $13,462 8/31/1998 $15,004 $17,912 $21,072 $13,647 $13,725 9/30/1998 $15,568 $18,794 $22,423 $13,966 $14,117 10/31/1998 $16,259 $19,684 $24,243 $13,892 $14,017 11/30/1998 $16,682 $20,402 $25,712 $13,972 $14,101 12/31/1998 $17,288 $21,125 $27,193 $14,014 $14,136 1/31/1999 $17,366 $21,704 $28,330 $14,113 $14,237 2/28/1999 $16,646 $21,092 $27,449 $13,866 $13,898 3/31/1999 $16,912 $21,631 $28,547 $13,942 $13,967 4/30/1999 $17,554 $22,154 $29,652 $13,987 $14,002 5/31/1999 $17,257 $21,762 $28,952 $13,864 $13,858 6/30/1999 $17,601 $22,469 $30,559 $13,819 $13,815 7/31/1999 $17,116 $22,035 $29,605 $13,760 $13,776 8/31/1999 $16,787 $21,969 $29,457 $13,753 $13,765 9/30/1999 $16,584 $21,679 $28,650 $13,913 $13,889 10/31/1999 $16,834 $22,641 $30,464 $13,964 $13,925 11/30/1999 $16,755 $22,904 $31,082 $13,963 $13,917 12/31/1999 $17,375 $23,653 $32,910 $13,896 $13,832 1/31/2000 $16,937 $22,953 $31,258 $13,850 $13,828 2/29/2000 $16,937 $22,824 $30,667 $14,018 $14,001 3/31/2000 $17,992 $24,324 $33,666 $14,203 $14,204 4/30/2000 $17,604 $23,857 $32,653 $14,161 $14,134 5/31/2000 $17,084 $23,569 $31,984 $14,154 $14,121 6/30/2000 $17,701 $24,085 $32,770 $14,449 $14,410 7/31/2000 $17,717 $23,953 $32,259 $14,580 $14,562 8/31/2000 $18,349 $24,987 $34,262 $14,792 $14,768 9/30/2000 $17,652 $24,225 $32,453 $14,885 $14,824 10/31/2000 $17,539 $24,257 $32,317 $14,983 $14,917 11/30/2000 $16,711 $23,301 $29,770 $15,229 $15,172 12/31/2000 $16,759 $23,555 $29,916 $15,512 $15,471 1/31/2001 $17,110 $24,152 $30,978 $15,766 $15,731 2/28/2001 $16,209 $22,942 $28,156 $15,904 $15,893 3/31/2001 $15,593 $22,103 $26,374 $15,983 $15,966 4/30/2001 $16,276 $23,041 $28,421 $15,916 $15,846 5/31/2001 $16,276 $23,165 $28,611 $16,011 $15,938 6/30/2001 $16,026 $22,869 $27,916 $16,072 $16,015 7/31/2001 $16,109 $22,954 $27,642 $16,432 $16,414 8/31/2001 $15,560 $22,208 $25,915 $16,621 $16,624
Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Standard & Poor's 500 Index is an unmanaged broad-based index that replicates the U.S. stock market. It includes 500 widely held common stocks and assumes reinvestment of all dividends. The unmanaged Lehman Government Bond Index includes the Treasury Bond Index and the Agency Bond Index. Maturities range from 1 to 20 years. An individual cannot invest in an index. The Lehman Aggregate Bond Index is composed of the Lehman Government/Credit Index and the Mortgage-Backed Securities Index and includes U.S. treasury issues, agency issues, corporate bond issues and mortgage-backed securities. The index is unmanaged and reflects reinvestment of dividends. An individual cannot invest in the index. The Lehman Gov't./Credit Index includes the government and corporate bond indices, including U.S. government and treasury agency securities, corporate and Yankee bonds. Investors cannot invest directly in an index. Withdrawals prior to age 59 1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. 11 [GRAPHIC] U.S. GOVERNMENT INCOME PORTFOLIO (UNAUDITED) THE U.S. GOVERNMENT INCOME PORTFOLIO SEEKS TO PROVIDE MONTHLY DIVIDENDS AS WELL AS TO PRESERVE PRINCIPAL. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the U.S. Government Income Portfolio had a total return of 10.64%. This compares to a total return of 11.48% for the Lehman Intermediate Government Bond Index. HOW THE PORTFOLIO WAS MANAGED Excellent yield curve strategy was the key to the Portfolio's strong performance in the latter part of 2000. When it became clear to the management team that the Fed would have to step in and cut short-term rates to prop up the sagging economy, the Portfolio was adjusted to benefit from a steepening yield curve, focusing on two- and five-year securities. The Portfolio began extending duration in late 2000 and extended further in early 2001 to gain and maintain a significantly longer-than-benchmark duration in anticipation of further Fed moves to lower interest rates. As threats to the economy appeared to moderate in the spring of 2001, duration was scaled back to neutral in the second quarter. With falling interest rates leading to concerns about refinancing and new issue supply, the Portfolio maintained relatively low exposure to the residential mortgage sector through the end of the current reporting period. Throughout 2001, the Portfolio's yield was higher than that of its benchmark as the mix of investments had lower-than-index exposure to Treasuries and was more highly concentrated in government agency securities, and some mortgages. LOOKING AHEAD With most components of the U.S. economy already being very weak, the incremental impact of the events of September 11 will likely be significant. Growing labor and equity market weakness had already begun to affect the vulnerable consumer sector, and it is likely that the economy has moved into recession. Both the Fed and our leaders in Washington have clearly stated that they will do whatever is necessary to stabilize the economy, rebuild and effectively address the terrorist threat. It is likely that the Fed will lower the Fed Funds rate to the 2% to 2.5% range by the first quarter of 2002, and the government will provide substantial fiscal stimulus in the form of funding for rebuilding and increased military spending. The yield curve will likely continue to steepen with short- and intermediate-term rates declining further. The Portfolio entered September with modestly long duration positions concentrated in shorter maturities and extended these positions as events unfolded during the month. In an uncertain market, future Portfolio shifts will be determined by our active strategies in pursuit of performance through a mix of current income and capital appreciation. LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the U.S. Government Income Portfolio at NAV (Net Asset Value) would have grown to $15,537 from inception on 3/1/95 through 8/31/01.* INVESTMENT RESULTS Average Annual Returns as of 8/31/01 1 year 10.64% 5 year 7.21% Since Inception (3/1/95) 7.01%
[CHART]
U.S. GOVERNMENT LEHMAN INTERMEDIATE LEHMAN U.S. GOV'T LIPPER GENERAL INCOME PORTFOLIO U.S. GOV'T BOND INDEX BOND INDEX U.S. GOV'T FUNDS INDEX 3/1/1995 $10,000 $10,000 $10,000 $10,000 3/31/1995 $10,050 $10,055 $10,063 $10,046 4/30/1995 $10,170 $10,172 $10,195 $10,170 5/31/1995 $10,550 $10,458 $10,606 $10,539 6/30/1995 $10,620 $10,525 $10,687 $10,602 7/31/1995 $10,570 $10,531 $10,648 $10,565 8/31/1995 $10,690 $10,618 $10,773 $10,688 9/30/1995 $10,800 $10,689 $10,877 $10,789 10/31/1995 $10,950 $10,807 $11,042 $10,931 11/30/1995 $11,100 $10,939 $11,214 $11,085 12/31/1995 $11,235 $11,047 $11,374 $11,240 1/31/1996 $11,292 $11,140 $11,443 $11,297 2/29/1996 $11,028 $11,022 $11,210 $11,065 3/31/1996 $10,924 $10,971 $11,115 $10,972 4/30/1996 $10,855 $10,939 $11,044 $10,897 5/31/1996 $10,820 $10,934 $11,026 $10,856 6/30/1996 $10,970 $11,045 $11,168 $10,982 7/31/1996 $10,993 $11,079 $11,196 $11,003 8/31/1996 $10,970 $11,092 $11,171 $10,975 9/30/1996 $11,131 $11,235 $11,357 $11,159 10/31/1996 $11,350 $11,419 $11,606 $11,401 11/30/1996 $11,522 $11,557 $11,808 $11,602 12/31/1996 $11,430 $11,495 $11,688 $11,482 1/31/1997 $11,456 $11,538 $11,701 $11,506 2/28/1997 $11,430 $11,557 $11,717 $11,530 3/31/1997 $11,304 $11,491 $11,593 $11,394 4/30/1997 $11,468 $11,621 $11,760 $11,563 5/31/1997 $11,557 $11,711 $11,861 $11,659 6/30/1997 $11,683 $11,812 $11,994 $11,797 7/31/1997 $11,998 $12,030 $12,334 $12,122 8/31/1997 $11,859 $11,984 $12,212 $11,996 9/30/1997 $12,049 $12,114 $12,396 $12,180 10/31/1997 $12,238 $12,256 $12,610 $12,359 11/30/1997 $12,288 $12,283 $12,674 $12,403 12/31/1997 $12,397 $12,383 $12,807 $12,528 1/31/1998 $12,527 $12,544 $12,999 $12,688 2/28/1998 $12,527 $12,530 $12,964 $12,663 3/31/1998 $12,566 $12,569 $13,001 $12,695 4/30/1998 $12,618 $12,629 $13,059 $12,745 5/31/1998 $12,735 $12,716 $13,194 $12,863 6/30/1998 $12,879 $12,801 $13,344 $12,972 7/31/1998 $12,892 $12,850 $13,364 $12,992 8/31/1998 $13,178 $13,093 $13,712 $13,247 9/30/1998 $13,478 $13,398 $14,082 $13,546 10/31/1998 $13,399 $13,421 $14,034 $13,446 11/30/1998 $13,439 $13,379 $14,038 $13,475 12/31/1998 $13,465 $13,431 $14,069 $13,512 1/31/1999 $13,519 $13,492 $14,151 $13,589 2/28/1999 $13,191 $13,307 $13,814 $13,295 3/31/1999 $13,245 $13,395 $13,868 $13,363 4/30/1999 $13,273 $13,431 $13,900 $13,398 5/31/1999 $13,122 $13,349 $13,777 $13,250 6/30/1999 $13,067 $13,368 $13,750 $13,181 7/31/1999 $13,040 $13,369 $13,729 $13,106 8/31/1999 $13,026 $13,388 $13,729 $13,071 9/30/1999 $13,136 $13,503 $13,840 $13,232 10/31/1999 $13,176 $13,530 $14,062 $13,253 11/30/1999 $13,136 $13,539 $14,042 $13,241 12/31/1999 $13,091 $13,497 $13,951 $13,151 1/31/2000 $13,105 $13,451 $13,970 $13,110 2/29/2000 $13,284 $13,563 $14,169 $13,277 3/31/2000 $13,521 $13,718 $14,418 $13,476 4/30/2000 $13,492 $13,712 $14,378 $13,426 5/31/2000 $13,506 $13,749 $14,386 $13,411 6/30/2000 $13,729 $13,968 $14,642 $13,681 7/31/2000 $13,849 $14,060 $14,784 $13,786 8/31/2000 $14,043 $14,217 $15,003 $13,998 9/30/2000 $14,073 $14,341 $15,047 $14,050 10/31/2000 $14,192 $14,440 $15,191 $14,163 11/30/2000 $14,490 $14,652 $15,490 $14,436 12/31/2000 $14,758 $14,910 $15,799 $14,712 1/31/2001 $14,915 $15,109 $15,958 $14,875 2/28/2001 $15,069 $15,248 $16,140 $15,021 3/31/2001 $15,084 $15,357 $16,197 $15,058 4/30/2001 $14,897 $15,308 $16,031 $14,930 5/31/2001 $14,943 $15,371 $16,084 $15,000 6/30/2001 $15,006 $15,420 $16,158 $15,050 7/31/2001 $15,365 $15,709 $16,546 $15,401 8/31/2001 $15,537 $15,848 $16,751 $15,573
Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95 and shows changes in Net Asset Value, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The unmanaged Lehman Intermediate U.S. Government Bond Index includes bonds with 1 to 10 year maturities and assumes the reinvestment of dividends. An individual cannot invest in an index. The Lehman U.S. Government Bond Index is composed of the U.S. Treasury Bond Index and the Agency Bond Index and includes U.S. Treasury and Agency bond issues. The index is unmanaged and reflects the reinvestment of dividends. An individual cannot invest directly in an index. The Lipper General U.S. Government Funds Index represents the performance of the 30 largest funds that invest in U.S. Government Securities. Lipper is an independent mutual fund performance monitor whose results are based on total return and do not reflect a sales charge. Withdrawals prior to age 59 1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. 12 [GRAPHIC] MONEY MARKET PORTFOLIO (UNAUDITED) THE MONEY MARKET PORTFOLIO SEEKS TO PROVIDE MAXIMUM CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF LIQUIDITY. HOW THE PORTFOLIO PERFORMED For the year ended August 31, 2001, the Money Market Portfolio had a total return of 5.05% and, at the end of the year, had a 7-day SEC Yield (including waivers) of 3.20%. HOW THE PORTFOLIO WAS MANAGED Short-term fixed income securities generally gained ground in late 2000 in light of the uncertain prospects for the U.S. economy. Economic data pointing to a cooling economy led the management team to maintain its weighted average maturity, and this contributed to performance. When the Fed began its series of aggressive short-term interest rate cuts on January 3, 2001, the management team continued the policy it had begun in late 2000 of adding to weighted average maturity in the belief that the Fed was in the midst of a multi-step easing process. As such, for the remainder of the reporting period, the Portfolio was generally positioned for lower short-term rates with a longer-than-benchmark duration and a bias towards yield curve steepening. LOOKING AHEAD With most components of the U.S. economy already being very weak, the incremental impact of the events of September 11 will likely be significant. Growing labor and equity market weakness had already begun to affect the vulnerable consumer sector, and it is likely that the economy had moved into recession. Both the Fed and our leaders in Washington have clearly stated that they will do whatever is necessary to stabilize the economy, rebuild and effectively address the terrorist threat. It is likely that the Fed will lower the Fed Funds rate to the 2% to 2.5% range by the first quarter of 2002, and the government will provide substantial fiscal stimulus in the form of funding for rebuilding and increased military spending. The yield curve will likely continue to steepen with short- and intermediate-term rates declining further. The Portfolio will continue to be managed with an eye on economic growth and potential Fed moves. AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH PORTFOLIO SHARES STRIVE TO PRESERVE THE VALUE OF THE INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THIS PORTFOLIO. WITHDRAWALS PRIOR TO AGE 59 1/2 FROM THE VISTA CAPITAL ADVANTAGE VARIABLE ANNUITY MAY BE SUBJECT TO A 10% IRS TAX PENALTY, AND ARE TAXED AS ORDINARY INCOME. 13 [GRAPHIC] GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--99.4% COMMON STOCK--99.4% AEROSPACE--1.2% 2,675 BOEING CO. $ 136,960 ----------- AUTOMOTIVE--2.8% 11,112 FORD MOTOR CO. 220,796 1,975 GENERAL MOTORS CORP. 108,131 ----------- 328,927 ----------- BANKING--5.1% 2,000 BANK OF AMERICA CORP. 123,000 4,124 BANK OF NEW YORK CO., INC. 163,723 6,625 WELLS FARGO & CO. 304,816 ----------- 591,539 ----------- CHEMICALS--3.2% 3,550 DOW CHEMICAL CO. 124,463 5,925 E.I. DUPONT DE NEMOURS CO. 242,747 ----------- 367,210 ----------- COMPUTER SOFTWARE--1.1% 3,950 COMPUTER ASSOCIATES INTERNATIONAL, INC. 122,648 ----------- COMPUTERS/COMPUTER HARDWARE--1.1% 1,975 HEWLETT-PACKARD CO. 45,840 800 INTERNATIONAL BUSINESS MACHINES CORP. 80,000 ----------- 125,840 ----------- CONSUMER PRODUCTS--3.4% 6,725 PHILIP MORRIS COMPANIES, INC. 318,765 1,000 PROCTER & GAMBLE CO. 74,150 ----------- 392,915 ----------- DIVERSIFIED--3.7% 5,525 GENERAL ELECTRIC CO. 226,414 3,950 TYCO INTERNATIONAL LTD (BERMUDA) 205,203 ----------- 431,617 ----------- ELECTRONICS/ELECTRICAL EQUIPMENT--0.5% 1,000 EMERSON ELECTRIC CO. 53,600 ----------- FINANCIAL SERVICES--14.0% 4,350 AMERICAN EXPRESS CO. 158,427 16,191 CITIGROUP, INC. 740,737 2,175 FANNIE MAE 165,757 4,850 MERRILL LYNCH & CO., INC. 250,260 4,650 MORGAN STANLEY DEAN WITTER & CO. 248,078 1,375 STATE STREET CORP. 66,770 ----------- 1,630,029 ----------- FOOD/BEVERAGE PRODUCTS--4.5% 3,175 ANHEUSER-BUSCH COMPANIES, INC. 136,652 3,650 PEPSICO, INC. 171,550 4,550 SYSCO CORP. 127,491 1,375 UNILEVER NV, N.Y. REGISTERED SHARES (NETHERLANDS) 83,999 ----------- 519,692 ----------- INSURANCE--3.6% 3,275 AMERICAN INTERNATIONAL GROUP, INC. $ 256,105 1,775 MARSH & MCLENNAN COMPANIES, INC. 164,898 ----------- 421,003 ----------- MACHINERY & ENGINEERING EQUIPMENT--2.5% 4,150 CATERPILLAR, INC. 207,500 2,475 DOVER CORP. 88,902 ----------- 296,402 ----------- MANUFACTURING--0.8% 2,475 HONEYWELL INTERNATIONAL, INC. 92,219 ----------- METALS/MINING--1.0% 3,175 ALCOA, INC. 121,031 ----------- MULTI-MEDIA--4.2% 2,475 AOL TIME WARNER, INC.* 92,441 7,025 THE WALT DISNEY CO. 178,646 5,134 VIACOM, INC., CLASS B* 217,682 ----------- 488,769 ----------- OIL & GAS--15.3% 4,150 CHEVRON CORP. 376,613 17,616 EXXON MOBIL CORP. 707,281 3,450 HALLIBURTON CO. 96,117 1,375 NOBLE DRILLING CORP.* 37,400 7,325 ROYAL DUTCH PETROLEUM CO., N.Y. REGISTERED SHARES (NETHERLANDS) 414,814 1,775 SANTA FE INTERNATIONAL CORP. 44,908 2,175 SCHLUMBERGER LTD 106,575 ----------- 1,783,708 ----------- PAPER/FOREST PRODUCTS--3.1% 3,252 INTERNATIONAL PAPER CO. 130,470 2,175 WEYERHAEUSER CO. 123,431 2,300 WILLAMETTE INDUSTRIES, INC. 111,550 ----------- 365,451 ----------- PHARMACEUTICALS--7.1% 5,925 ABBOTT LABORATORIES 294,473 3,950 AMERICAN HOME PRODUCTS CORP. 221,200 2,375 PFIZER, INC. 90,986 5,509 PHARMACIA CORP. 218,156 ----------- 824,815 ----------- RESTAURANTS/FOOD SERVICES--0.6% 2,375 MCDONALD'S CORP. 71,321 ----------- RETAILING--3.0% 4,350 LIMITED, INC. 61,335 2,575 MAY DEPARTMENT STORES CO. 86,649 5,925 TARGET CORP. 205,301 ----------- 353,285 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 14 [GRAPHIC]
SHARES ISSUER VALUE ------ ------ ----- SEMI-CONDUCTORS--3.4% 2,175 ALTERA CORP.* $ 61,770 2,975 APPLIED MATERIALS, INC.* 128,193 2,575 INTEL CORP. 71,997 4,050 TEXAS INSTRUMENTS, INC. 134,055 ----------- 396,015 ----------- TELECOMMUNICATIONS--9.2% 4,927 AT&T CORP. 93,810 1,576 AT&T WIRELESS SERVICES, INC.* 24,428 7,625 BELLSOUTH CORP. 284,413 5,525 SBC COMMUNICATIONS, INC. 226,028 8,800 VERIZON COMMUNICATIONS, INC. 439,999 ----------- 1,068,678 ----------- TELECOMMUNICATIONS EQUIPMENT--1.2% 6,945 MOTOROLA, INC. 120,843 2,075 NORTEL NETWORKS CORP. (CANADA) 12,990 ----------- 133,833 ----------- UTILITIES--3.8% 1,475 DOMINION RESOURCES, INC. 92,851 3,750 DUKE ENERGY CORP. 147,412 3,450 ENRON CORP. 120,716 1,775 TXU CORP. 84,277 ----------- 445,256 ----------- TOTAL LONG-TERM INVESTMENTS (COST $11,957,117) 11,562,763 ----------- SHORT-TERM INVESTMENT--0.6% MONEY MARKET FUND--0.6% 70,297 J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND+ (COST $70,297) 70,297 ----------- TOTAL INVESTMENTS--100.0% (COST $12,027,414) $11,633,060 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 15 [GRAPHIC] CAPITAL GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--96.0% COMMON STOCK--96.0% AEROSPACE--0.8% 2,500 GOODRICH CORP. $ 80,125 ----------- APPAREL--1.6% 5,300 JONES APPAREL GROUP, INC.* 169,070 ----------- AUTOMOTIVE--0.7% 1,500 BORGWARNER, INC. 76,650 ----------- BANKING--8.5% 2,500 ASSOCIATED BANC-CORP. 84,775 2,200 COMMERCE BANCSHARES, INC. 88,858 4,000 COMPASS BANCSHARES, INC. 106,600 4,300 CULLEN/FROST BANKERS, INC. 153,725 3,500 FIRSTMERIT CORP. 84,630 2,400 MERCANTILE BANKSHARES CORP. 97,800 3,200 TCF FINANCIAL CORP. 145,280 2,300 ZIONS BANCORP. 131,698 ----------- 893,366 ----------- BIOTECHNOLOGY--1.9% 2,800 GENZYME CORP.-GENERAL DIVISION* 158,592 700 PROTEIN DESIGN LABS, INC.* 41,153 ----------- 199,745 ----------- BUSINESS SERVICES--8.8% 3,400 AFFILIATED COMPUTER SERVICES, INC., CLASS A* 278,018 5,900 CONCORD EFS, INC.* 309,573 3,900 MANPOWER, INC. 120,198 3,500 QUANTA SERVICES, INC.* 62,965 6,200 SUNGARD DATA SYSTEMS, INC.* 146,630 ----------- 917,384 ----------- CHEMICALS--2.6% 4,200 CYTEC INDUSTRIES, INC.* 138,684 2,100 FMC CORP.* 131,229 ----------- 269,913 ----------- COMPUTER SOFTWARE--0.7% 5,200 RATIONAL SOFTWARE CORP.* 74,672 ----------- CONSTRUCTION--1.3% 3,000 LENNAR CORP. 133,650 ----------- CONSTRUCTION MATERIALS--2.9% 3,000 AMERICAN STANDARD COMPANIES, INC.* 209,550 2,300 MARTIN MARIETTA MATERIALS, INC. 90,850 ----------- 300,400 ----------- ELECTRONICS/ELECTRICAL EQUIPMENT--5.9% 2,500 AMPHENOL CORP., CLASS A* 101,075 4,600 PERKINELMER, INC. 147,568 3,500 SANMINA CORP.* 63,035 7,000 VISHAY INTERTECHNOLOGY, INC.* 163,310 3,100 ZEBRA TECHNOLOGIES CORP., CLASS A* 145,142 ----------- 620,130 ----------- ENTERTAINMENT/LEISURE--2.7% 5,400 HARRAH'S ENTERTAINMENT, INC.* $ 154,332 12,300 PARK PLACE ENTERTAINMENT CORP.* 130,749 ----------- 285,081 ----------- FINANCIAL SERVICES--2.1% 3,500 A.G. EDWARDS, INC. 142,800 1,400 GOLDEN WEST FINANCIAL CORP. 81,018 ----------- 223,818 ----------- FOOD/BEVERAGE PRODUCTS--1.8% 4,300 PEPSI BOTTLING GROUP, INC. 189,845 ----------- HEALTH CARE/HEALTH CARE SERVICES--11.0% 7,000 CYTYC CORP.* 169,610 4,900 DENTSPLY INTERNATIONAL, INC. 218,638 11,000 HEALTH MANAGEMENT ASSOCIATES, INC., CLASS A* 219,449 11,000 HEALTHSOUTH CORP.* 198,880 6,000 OXFORD HEALTH PLANS, INC.* 179,880 2,800 STRYKER CORP. 153,524 ----------- 1,139,981 ----------- HOTELS/OTHER LODGING--1.3% 10,500 HILTON HOTELS CORP. 133,455 ----------- INSURANCE--5.6% 6,900 ACE LTD (BERMUDA) 228,873 5,400 RADIAN GROUP, INC. 216,594 3,300 TORCHMARK CORP. 139,392 ----------- 584,859 ----------- INTERNET SERVICES/SOFTWARE--1.1% 3,500 RIVERSTONE NETWORKS, INC.* 33,180 1,900 TMP WORLDWIDE, INC.* 85,215 ----------- 118,395 ----------- MACHINERY & ENGINEERING EQUIPMENT--1.1% 3,300 DOVER CORP. 118,536 ----------- OIL & GAS--7.0% 2,000 BJ SERVICES CO.* 44,860 3,700 COOPER CAMERON CORP.* 160,025 8,100 GLOBAL MARINE, INC.* 116,640 2,000 NICOR, INC. 77,520 2,100 NOBLE DRILLING CORP.* 57,120 4,300 TALISMAN ENERGY, INC. (CANADA) 164,819 2,400 TOSCO CORP. 111,360 ----------- 732,344 ----------- PAPER/FOREST PRODUCTS--0.7% 1,600 BOWATER, INC. 75,904 ----------- PHARMACEUTICALS--5.0% 3,100 AMERISOURCEBERGEN CORP.* 199,764 2,600 BIOVAIL CORP. (CANADA)* 119,860 1,000 IDEC PHARMACEUTICALS CORP.* 59,270 98 JOHNSON & JOHNSON 5,166 2,500 WATSON PHARMACEUTICALS, INC.* 140,250 ----------- 524,310 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 16 [GRAPHIC]
SHARES ISSUER VALUE ------ ------ ----- PIPELINES--1.0% 2,000 EL PASO CORP. $ 97,180 200 NATIONAL FUEL GAS CO. 9,562 ----------- 106,742 ----------- PRINTING & PUBLISHING--1.1% 6,200 A.H. BELO CORP., CLASS A 113,088 ----------- REAL ESTATE INVESTMENT TRUST--1.1% 2,000 EQUITY RESIDENTIAL PROPERTIES TRUST 117,820 ----------- RESTAURANTS/FOOD SERVICES--1.3% 5,000 BRINKER INTERNATIONAL, INC.* 133,000 ----------- RETAILING--3.5% 2,100 BJ'S WHOLESALE CLUB, INC.* 102,900 2,700 FEDERATED DEPARTMENT STORES, INC.* 98,037 6,200 LINENS `N THINGS, INC.* 161,200 ----------- 362,137 ----------- SEMI-CONDUCTORS--4.6% 4,000 ALTERA CORP.* 113,600 3,500 INTERSIL CORP., CLASS A* 131,355 5,200 MICROCHIP TECHNOLOGY, INC.* 185,588 5,800 TRANSWITCH CORP.* 47,560 ----------- 478,103 ----------- SHIPPING/TRANSPORTATION--2.2% 4,600 C.H. ROBINSON WORLDWIDE, INC. 143,014 2,400 CANADIAN PACIFIC LTD (CANADA) 87,120 ----------- 230,134 ----------- TELECOMMUNICATIONS--1.9% 2,200 U.S. CELLULAR CORP.* 113,850 2,600 WESTERN WIRELESS CORP., CLASS A* 80,418 ----------- 194,268 ----------- TELECOMMUNICATIONS EQUIPMENT--1.0% 4,300 COMVERSE TECHNOLOGY, INC.* 108,102 ----------- UTILITIES--3.2% 2,700 ALLIANT ENERGY CORP. $ 82,026 2,500 AMERICAN WATER WORKS, INC. 86,000 3,318 NISOURCE, INC. 83,647 3,100 SCANA CORP. 83,917 ----------- 335,590 ----------- TOTAL LONG-TERM INVESTMENTS (COST $8,778,969) 10,040,617 ----------- SHORT-TERM INVESTMENT--4.0% MONEY MARKET FUND--4.0% 418,052 J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND+ (COST $418,052) 418,052 ----------- TOTAL INVESTMENTS--100.0% (COST $9,197,021) $10,458,669 ===========
SEE NOTES TO FINANCIAL STATEMENTS. 17 [GRAPHIC] INTERNATIONAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--100.0% COMMON STOCK--100% AUSTRALIA--1.8% 2,400 NATIONAL AUSTRALIA BANK LTD $ 42,043 3,158 NEWS CORP., LTD 25,295 3,985 WOODSIDE PETROLEUM LTD 28,891 ----------- 96,229 ----------- BELGIUM--1.6% 5,240 DEXIA GROUP 82,652 ----------- BRAZIL--0.4% 1,065 UNIBANCO - UNIAO DE BANCOS BRASILEIROS SA, GDR 20,789 ----------- FINLAND--2.2% 7,703 NOKIA OYJ 118,912 ----------- FRANCE--11.5% 1,201 AVENTIS SA 87,844 4,436 AXA 121,118 675 BNP PARIBAS SA 61,944 538 CAP GEMINI SA 34,316 510 COMPAGNIE DE SAINT-GOBAIN 78,312 1,000 DASSAULT SYSTEMES SA 39,070 390 IMERYS 40,396 1,000 TOTAL FINAELF SA, CLASS B 147,828 ----------- 610,828 ----------- GERMANY--8.2% 2,141 BAYER AG 68,767 2,309 BAYERISCHE MOTOREN WERKE AG 74,163 1,617 DEUTSCHE BANK AG 111,512 2,466 DEUTSCHE POST AG 36,522 1,945 HEIDELBERGER ZEMENT AG 86,789 1,123 SIEMENS AG 57,202 ----------- 434,955 ----------- HONG KONG--2.4% 7,000 CHEUNG KONG HOLDINGS LTD 64,618 8,000 HENDERSON LAND DEVELOPMENT 36,514 16,500 MTR CORP. 24,751 ----------- 125,883 ----------- ITALY--4.0% 14,153 ENI-ENTE NAZIONALE IDROCARBURI SPA 187,566 3,296 TELECOM ITALIA SPA 27,258 ----------- 214,824 ----------- JAPAN--18.4% 500 ACOM CO., LTD 44,775 2,000 CANON, INC. 60,318 3,000 CHUGAI PHARMACEUTICAL CO., LTD 48,448 5 FUJI TELEVISION NETWORK, INC. 25,610 400 HIROSE ELECTRIC CO., LTD 26,486 800 HOYA CORP. 42,458 3,000 KANEKA CORP. 22,619 2,000 KAO CORP. 50,882 600 MABUCHI MOTOR CO., LTD $ 54,134 1,000 MURATA MANUFACTURING CO., LTD 59,812 11,000 NIKKO SECURITIES CO., LTD 73,021 300 NINTENDO CO., LTD 47,589 4 NIPPON TELEGRAPH & TELEPHONE CORP. 18,196 2 NIPPON UNIPAC HOLDING* 11,036 6 NTT DOCOMO, INC. 73,796 400 ROHM CO., LTD 44,177 1,600 SONY CORP. 71,303 6,000 SUMITOMO CORP. 38,617 1,000 TAKEDA CHEMICAL INDUSTRIES LTD 41,195 500 TAKEFUJI CORP. 43,048 700 TDK CORP. 36,561 1,300 TERUMO CORP. 22,013 1,000 YAMANOUCHI PHARMACEUTICAL CO., LTD 23,883 ----------- 979,977 ----------- NETHERLANDS--7.0% 3,487 ABN AMRO HOLDING NV 64,190 5,200 ELSEVIER NV 65,154 1,500 FORTIS NV 42,182 3,492 ING GROEP NV 110,288 3,395 KONINKLIJKE PHILIPS ELECTRONICS NV 91,554 ----------- 373,368 ----------- PORTUGAL--0.8% 4,509 BRISA-AUTO ESTRADAS DE PORTUGAL SA 41,788 ----------- SOUTH KOREA--1.6% 1,300 KOREA TELECOM CORP., ADR 27,027 1,500 POHANG IRON & STEEL LTD, ADR 26,115 400 SAMSUNG ELECTRONICS, GDR, # 32,000 ----------- 85,142 ----------- SPAIN--2.9% 5,360 ALTADIS SA 85,958 1,867 BANCO POPULAR ESPANOL 68,465 ----------- 154,423 ----------- SWEDEN--1.3% 11,034 NORDEA AB 67,065 ----------- SWITZERLAND--7.0% 340 NESTLE SA 71,738 2,880 NOVARTIS AG 105,045 1,100 ROCHE HOLDING AG 78,793 1,566 UBS AG 76,408 140 ZURICH FINANCIAL SERVICES AG 39,567 ----------- 371,551 ----------- TAIWAN--0.5% 3,910 UNITED MICROELECTRONICS, ADR* 29,286 ----------- UNITED KINGDOM--28.4% 2,100 ABBEY NATIONAL PLC 34,198 2,070 ANGLO AMERICAN PLC 29,979 614 AUTONOMY CORP., PLC* 2,797
SEE NOTES TO FINANCIAL STATEMENTS. 18 [GRAPHIC]
SHARES ISSUER VALUE ------ ------ ----- UNITED KINDOM (CONT'D) 19,461 BAE SYSTEMS PLC $ 93,172 3,198 BARCLAYS PLC 96,968 18,337 BG GROUP PLC 76,086 2,009 BOC GROUP PLC 29,875 7,144 BP AMOCO PLC 60,581 3,000 BRAMBLES INDUSTRIES PLC* 14,219 8,771 BRITISH LAND COMPANY PLC 63,625 6,204 CGNU PLC 91,718 6,290 COMPASS GROUP PLC 48,741 3,000 GKN PLC 13,234 4,746 GLAXOSMITHKLINE PLC 126,309 19,537 LATTICE GROUP PLC 43,367 2,964 POWERGEN PLC 31,966 2,700 RECKITT BENCKISER PLC 40,903 5,357 REUTERS GROUP PLC 60,388 2,910 RIO TINTO PLC 52,350 3,180 SCHRODERS PLC 38,754 4,185 SIX CONTINENTS PLC 44,748 26,617 TESCO PLC 100,594 8,662 UNILEVER PLC 73,893 96,104 VODAFONE GROUP PLC 191,714 7,660 WOLSELEY PLC 57,066 ---------- 1,517,245 ---------- TOTAL COMMON STOCK (COST $6,294,805) 5,324,917 ---------- PRINCIPAL AMOUNT (DEM) ----- CONVERTIBLE CORPORATE BOND--0.0% GERMANY--0.0% 1,300 DAIMLERCHYSLER AG, 5.75%, 06/14/02 (COST $769) 661 ---------- TOTAL INVESTMENTS--100.0% (COST $6,295,574) $5,325,578 ==========
SUMMARY OF INVESTMENTS BY INDUSTRY, AUGUST 31, 2001
INDUSTRY % OF INVESTMENT SECURITIES Banking 12.3% Oil & Gas 10.3% Pharmaceuticals 9.7% Insurance 6.8% Electronics/Electrical Equipment 6.5% Telecommunications 6.3% Food/Beverage Products 5.5% Consumer Products 4.7% Financial Services 4.5% Construction Materials 4.2% Real Estate 3.1% Chemicals 2.3% Telecommunications Equipment 2.2% Business Services 2.1% Transportation 1.9% Diversified 1.8% Aerospace 1.7% Automotive 1.6% Multi-Media 1.6% Metals/Mining 1.5% Health Care/Health Care Services 1.2% Printing & Publishing 1.2% Office/Business Equipment 1.1% Restaurants/Food Services 0.9% Toys & Games 0.9% Computer software 0.8% Distribution 0.7% Utilities 0.6% Broadcasting/Cable 0.5% Semi-Conductors 0.5% Steel 0.5% Consumer Services 0.3% Paper/Forest Products 0.2% ------------------------------------------------------------------ Total 100.0%
SEE NOTES TO FINANCIAL STATEMENTS. 19 [GRAPHIC] ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--87.4% COMMON STOCK--51.8% AEROSPACE--0.5% 775 BOEING CO. $ 39,680 ---------- AIRLINES--0.6% 2,675 SOUTHWEST AIRLINES CO. 47,856 ---------- BANKING--2.5% 825 BANK OF AMERICA CORP. 50,738 1,350 BANK OF NEW YORK CO., INC. 53,594 725 SUNTRUST BANKS, INC. 49,518 600 WELLS FARGO & CO. 27,606 ---------- 181,456 ---------- BIOTECHNOLOGY--0.5% 550 AMGEN, INC.* 35,365 ---------- BROADCASTING/CABLE--0.6% 1,200 COMCAST CORP., CLASS A* 43,956 ---------- BUSINESS SERVICES--0.6% 1,750 SUNGARD DATA SYSTEMS, INC.* 41,388 ---------- COMPUTER NETWORKS--0.7% 3,200 CISCO SYSTEMS, INC.* 52,256 ---------- COMPUTER SOFTWARE--3.0% 725 FIRST DATA CORP. 47,741 2,525 MICROSOFT CORP.* 144,052 2,725 ORACLE CORP.* 33,272 ---------- 225,065 ---------- COMPUTERS/COMPUTER HARDWARE--1.8% 825 DELL COMPUTER CORP.* 17,639 1,175 EMC CORP.* 18,166 975 INTERNATIONAL BUSINESS MACHINES CORP. 97,499 ---------- 133,304 ---------- CONSUMER PRODUCTS--1.6% 375 COLGATE-PALMOLIVE CO. 20,306 1,125 PHILIP MORRIS COMPANIES, INC. 53,325 600 PROCTER & GAMBLE CO. 44,490 ---------- 118,121 ---------- DIVERSIFIED--3.3% 4,175 GENERAL ELECTRIC CO. 171,091 1,350 TYCO INTERNATIONAL LTD (BERMUDA) 70,133 ---------- 241,224 ---------- FINANCIAL SERVICES--4.8% 425 CAPITAL ONE FINANCIAL CORP. 23,634 2,600 CITIGROUP, INC. 118,949 1,075 FANNIE MAE 81,926 1,325 HOUSEHOLD INTERNATIONAL, INC. 78,308 450 MERRILL LYNCH & CO., INC. 23,220 600 MORGAN STANLEY DEAN WITTER & CO. 32,010 ---------- 358,047 ---------- FOOD/BEVERAGE PRODUCTS--2.7% 875 ANHEUSER-BUSCH COMPANIES, INC. $ 37,660 725 COCA-COLA CO. 35,286 1,300 PEPSI BOTTLING GROUP, INC. 57,394 1,000 PEPSICO, INC. 47,000 775 SYSCO CORP. 21,716 ---------- 199,056 ---------- HEALTH CARE/HEALTH CARE SERVICES--1.0% 600 BECTON, DICKINSON & CO. 21,558 787 BIOMET, INC. 21,745 525 TENET HEALTHCARE CORP.* 29,095 ---------- 72,398 ---------- INSURANCE--1.6% 375 AMBAC FINANCIAL GROUP, INC. 22,200 925 AMERICAN INTERNATIONAL GROUP, INC. 72,335 450 MBIA, INC. 24,305 ---------- 118,840 ---------- INTERNET SERVICES/SOFTWARE--0.5% 825 SYMANTEC CORP.* 35,467 ---------- MANUFACTURING--0.7% 850 ILLINOIS TOOL WORKS, INC. 53,134 ---------- METALS/MINING--0.9% 1,650 ALCOA, INC. 62,898 ---------- MULTI-MEDIA--1.9% 1,975 AOL TIME WARNER, INC.* 73,766 650 GANNETT CO., INC. 40,079 650 VIACOM, INC., CLASS B* 27,560 ---------- 141,405 ---------- OIL & GAS--3.3% 1,400 BJ SERVICES CO.* 31,402 325 CHEVRON CORP. 29,494 2,790 EXXON MOBIL CORP. 112,018 1,225 ROYAL DUTCH PETROLEUM CO., N.Y. REGISTERED SHARES (NETHERLANDS) 69,372 ---------- 242,286 ---------- PHARMACEUTICALS--6.1% 1,275 ABBOTT LABORATORIES 63,367 675 AMERICAN HOME PRODUCTS CORP. 37,800 975 BRISTOL-MYERS SQUIBB CO. 54,737 575 ELI LILLY & CO. 44,637 1,200 JOHNSON & JOHNSON 63,252 1,125 MERCK & CO., INC. 73,237 3,131 PFIZER, INC. 119,948 ---------- 456,978 ---------- RESTAURANTS/FOOD SERVICES--0.6% 1,025 TRICON GLOBAL RESTAURANTS, INC.* 43,686 ---------- RETAILING--4.5% 1,875 BED BATH & BEYOND, INC.* 54,094
SEE NOTES TO FINANCIAL STATEMENTS. 20 [GRAPHIC]
SHARES ISSUER VALUE ------ ------ ----- RETAILING (CONT'D) 1,125 BEST BUY CO., INC.* $ 66,352 850 HOME DEPOT, INC. 39,058 600 KOHL'S CORP.* 33,300 1,325 TARGET CORP. 45,911 1,925 WAL-MART STORES, INC. 92,495 ---------- 331,210 ---------- SEMI-CONDUCTORS--3.2% 900 APPLIED MATERIALS, INC.* 38,781 3,425 INTEL CORP. 95,763 1,600 KLA-TENCOR CORP.* 78,624 475 NOVELLUS SYSTEMS, INC.* 21,047 ---------- 234,215 ---------- TELECOMMUNICATIONS--2.7% 830 AT&T CORP. 15,803 1,250 BELLSOUTH CORP. 46,625 1,700 SBC COMMUNICATIONS, INC. 69,547 1,423 VERIZON COMMUNICATIONS, INC. 71,150 ---------- 203,125 ---------- UTILITIES--1.6% 625 AES CORP.* 20,700 1,975 DUKE ENERGY CORP. 77,638 916 NISOURCE, INC. 23,092 ---------- 121,430 ---------- TOTAL COMMON STOCK (COST $4,161,082) 3,833,846 ---------- PRINCIPAL AMOUNT ------ U.S. TREASURY SECURITIES--5.9% U.S. TREASURY NOTES & BONDS, $70,000 4.25%, 03/31/03@ 70,743 20,000 4.63%, 05/15/06@ 20,191 20,000 5.63%, 02/15/06@ 21,041 50,000 5.63%, 05/15/08@ 52,571 115,000 5.75%, 11/15/05@ 121,073 140,000 6.25%, 08/15/23@ 153,408 ---------- TOTAL U.S. TREASURY SECURITIES (COST $431,786) 439,027 ---------- U.S. GOVERNMENT AGENCY SECURITIES--2.8% FEDERAL NATIONAL MORTGAGE ASSOCIATION, 50,000 5.13%, 02/13/04@ 51,008 100,000 5.50%, 02/15/06@ 102,312 50,000 TENNESSEE VALLEY AUTHORITY, 6.75%, 11/01/25@ 52,639 ---------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $198,896) 205,959 ---------- CORPORATE NOTES & BONDS--13.3% AUTOMOTIVE--1.1% 5,000 DAIMLERCHRYSLER AG, 8.50%, 01/18/31@ 5,571 5,000 FORD MOTOR CO., 7.45%, 07/16/31@ 4,953 $50,000 FORD MOTOR CREDIT CO., 5.80%, 01/12/09@ $ 47,560 20,000 GENERAL MOTORS ACCEPTANCE CORP., 7.25%, 03/02/11@ 20,903 ---------- 78,987 ---------- BANKING--1.5% 25,000 BANK OF AMERICA CORP., 7.40%, 01/15/11@ 26,904 15,000 BANK ONE CORP., 7.88%, 08/01/10@ 16,614 15,000 BB&T CORP., 6.50%, 08/01/11@ 15,235 20,000 FIRST UNION NATIONAL BANK, 7.80%, 08/18/10@ 22,030 15,000 U.S. BANK NA, 6.38%, 08/01/11@ 15,260 15,000 WELLS FARGO BANK, NA 6.45%, 02/01/11@ 15,308 ---------- 111,351 ---------- BROADCASTING/CABLE--0.3% 10,000 CLEAR CHANNEL COMMUNICATIONS, INC., 7.65%, 09/15/10 10,671 10,000 COX COMMUNICATIONS, INC., 6.75%, 03/15/11 10,025 ---------- 20,696 ---------- COMPUTERS/COMPUTER HARDWARE--0.4% 30,000 INTERNATIONAL BUSINESS MACHINES CORP., 6.50%, 01/15/28 29,441 ---------- FINANCIAL SERVICES--2.4% 10,000 CIT GROUP, INC., 6.50%, 02/07/06 10,441 30,000 CITIGROUP, INC., 7.25%, 10/01/10@ 32,314 20,000 HOUSEHOLD FINANCE CORP., 6.75%, 05/15/11 20,561 85,000 INTERNATIONAL LEASE FINANCE CORP., SER. G, MTN, 8.35%, 02/04/01@ 86,598 25,000 MERRILL LYNCH & CO., INC., SER. B, MTN, 5.86%, 10/30/02@ 25,416 10,000 MORGAN STANLEY DEAN WITTER & CO., 6.10%, 04/15/06@ 10,229 ---------- 185,559 ---------- FOOD/BEVERAGE PRODUCTS--0.2% 5,000 KROGER CO., 7.50%, 04/01/31 5,221 10,000 SAFEWAY, INC., 6.50%, 03/01/11 10,168 ---------- 15,389 ---------- INSURANCE--0.1% 10,000 AXA FINANCIAL, INC. (FRANCE), 7.75%, 08/01/10 10,970 ---------- MACHINERY & ENGINEERING EQUIPMENT--1.4% 100,000 CATERPILLAR FINANCIAL SERVICES CORP., SER. F, MTN, 5.89%, 06/17/02 101,664 ---------- MULTI-MEDIA--0.3% 20,000 AOL TIME WARNER, INC., 6.75%, 04/15/11 20,449 ---------- OIL & GAS--0.1% 5,000 TOSCO CORP., 8.13%, 02/15/30 5,649 ---------- PHARMACEUTICALS--0.7% 50,000 ABBOTT LABRATORIES, 5.13%, 07/01/04@ 50,903 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 21 [GRAPHIC]
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- PIPELINES--0.1% $ 5,000 WILLIAMS COMPANIES, INC., SER. A, 7.50%, 01/15/31 $ 4,912 ---------- PRINTING & PUBLISHING--0.4% 30,000 WASHINGTON POST CO., 5.50%, 02/15/09@ 29,341 ---------- RETAILING--0.1% 5,000 TARGET CORP., 7.00%, 07/15/31 5,095 ---------- SHIPPING/TRANSPORTATION--0.3% 10,000 BURLINGTON NORTHERN SANTA FE CORP., 6.75%, 07/15/11 10,288 10,000 UNION PACIFIC CORP., 6.65%, 01/15/11 10,282 ---------- 20,570 ---------- TELECOMMUNICATIONS--2.3% 75,000 AT&T CORP., 5.63%, 03/15/04@ 75,926 5,000 BELLSOUTH CAPITAL FUNDING, 7.88%, 02/15/30@ 5,621 10,000 BRITISH TELECOM PLC (UNITED KINGDOM), SUB, 8.63%, 12/15/30 11,574 15,000 DEUTSCHE TELEKOM INTERNATIONAL FINANCE BV (NETHERLANDS), 8.00%, 06/15/10 16,175 15,000 FRANCE TELECOM SA (FRANCE), #, 7.75%, 03/01/11 15,866 15,000 GTE CORP., 6.94%, 04/15/28 14,892 5,000 KONINKLIJKE KPN NV (NETHERLANDS), 8.38%, 10/01/30 4,470 10,000 QWEST CAPITAL FUNDING, INC., 6.88%, 07/15/28 9,074 10,000 SPRINT CAPITAL CORP., 6.88%, 11/15/28 9,065 10,000 WORLDCOM, INC., 7.50%, 05/15/11 10,186 ---------- 172,849 ---------- UTILITIES--1.6% 100,000 BALTIMORE GAS & ELECTRIC CO., SER. D, MTN, 6.90%, 02/01/05 105,683 5,000 DTE ENERGY CO., 7.05%, 06/01/11 5,251 5,000 NISOURCE FINANCE CORP., 7.88%, 11/15/10 5,507 ---------- 116,441 ---------- TOTAL CORPORATE NOTES & BONDS (COST $957,859) 980,266 ---------- RESIDENTIAL MORTGAGE BACKED SECURITIES--5.9% MORTGAGE BACKED PASS-THROUGH SECURITIES--5.9% FEDERAL NATIONAL MORTGAGE ASSOCIATION, 171,000 POOL 590837, 7.00%, 08/01/31 174,792 70,000 TBA, ~, 6.00%, 09/25/16 70,241 50,000 TBA, ~, 6.00%, 09/25/31 49,141 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, 44,160 POOL 483490, 6.50%, 10/15/28@ 44,602 98,420 POOL 781210, 6.50%, 09/15/29 99,373 ---------- TOTAL RESIDENTIAL MORTGAGE BACKED SECURITIES (COST $435,811) 438,149 ---------- COMMERCIAL MORTGAGE BACKED SECURITIES--3.3% 20,000 BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES, SER. 2001-TOP2, CLASS A2, 6.48%, 02/15/35@ 20,592 20,000 CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., SER. 2001-CF2, CLASS A4, 6.51%, 02/15/34@ 20,701 $30,000 GMAC COMMERCIAL MORTGAGE SECURITIES, INC., SER. 2001-C2, CLASS A2, 6.70%, 04/15/34@ $ 31,242 LB-UBS COMMERCIAL MORTGAGE TRUST, 45,000 SER. 2001-C2, CLASS A2, 6.65%, 11/15/27@ 47,045 50,000 SER. 2001-C3, CLASS A2, 6.37%, 12/15/28@ 51,235 70,000 MORGAN STANLEY DEAN WITTER CAPITAL I, SER. 2001-TOP3, CLASS A4, 6.39%, 07/15/33@ 71,926 ---------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (COST $236,157) 242,741 ---------- ASSET BACKED SECURITIES--4.4% 25,000 AMERICREDIT AUTOMOBILE RECEIVABLES TRUST, SER. 2001-B, CLASS A4, 5.37%, 06/12/08@ 25,367 70,000 CAPITAL ONE MASTER TRUST, SER. 2001-3A, CLASS A, 5.45%, 03/16/09@ 70,590 110,000 DAIMLERCHRYSLER AUTO TRUST, SER. 2000-E, CLASS A4, 6.16%, 01/08/06 114,613 FORD CREDIT AUTO OWNER TRUST, 30,000 SER. 2001-C, CLASS A4, 4.83%, 02/15/05@ 30,398 15,000 SER. 2001-C, CLASS A5, 5.25%, 09/15/05@ 15,305 20,000 HONDA AUTO RECEIVABLES OWNER TRUST, SER. 2001-1, CLASS A4, 5.56%, 06/19/06@ 20,554 45,000 MBNA CREDIT CARD MASTER NOTE TRUST, SER. 2001-A1, CLASS A1, 5.75%, 10/15/08@ 45,872 ---------- TOTAL ASSET BACKED SECURITIES (COST $319,171) 322,699 ---------- CONVERTIBLE CORPORATE NOTES & BONDS--0.0% UTILITIES--0.0% 0^ NISOURCE, INC., 0.00%, 09/12/01 1,161 ---------- TOTAL LONG-TERM INVESTMENTS (COST $6,740,762) 6,463,848 ---------- SHORT-TERM INVESTMENTS--12.6% SHARES MONEY MARKET FUND--6.4% ------ 474,038 J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND+ (COST $474,038) 474,038 ---------- PRINCIPAL AMOUNT ------ U.S. GOVERNMENT AGENCY SECURITY--6.2% $457,000 FEDERAL HOME LOAN BANK, DN , 3.58%, 09/04/01 (COST $456,864) 456,864 ---------- TOTAL SHORT-TERM INVESTMENTS (COST $930,902) 903,302 ---------- TOTAL INVESTMENTS--100.0% (COST $7,671,664) $7,394,750 ==========
NUMBER ORIGINAL NOTIONAL OF EXPIRATION NOTIONAL VALUE AT UNREALIZED CONTRACTS DESCRIPTION DATE VALUE 8/31/01 DEPRECIATION --------------------------------------------------------------------------------------------- Short Futures Outstanding (1) 10 Year Treasury Notes December, 2001 ($106,456) ($106,500) ($44)
SEE NOTES TO FINANCIAL STATEMENTS. 22 [GRAPHIC] U.S. GOVERNMENT INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--97.2% U.S. TREASURY SECURITIES--45.7% U.S. TREASURY NOTES & BONDS, $540,000 4.63%, 05/15/06 $ 545,146 30,000 5.00%, 02/15/11 30,159 160,000 5.75%, 08/15/10 169,574 300,000 5.88%, 09/30/02 307,923 200,000 6.00%, 08/15/04 211,032 120,000 6.13%, 08/15/29 131,324 550,000 6.75%, 08/15/26 643,412 45,000 8.00%, 11/15/21 58,845 550,000 8.50%, 02/15/20 744,905 ---------- TOTAL U.S. TREASURY SECURITIES (COST $2,799,224) 2,842,320 ---------- U.S. GOVERNMENT AGENCY SECURITIES--42.9% 175,000 FEDERAL FARM CREDIT BANK, 5.80%, 03/05/08 180,263 750,000 FEDERAL HOME LOAN BANK, 5.70%, 03/25/03 770,040 FEDERAL HOME LOAN MORTGAGE CORP., 550,000 6.88%, 09/15/10 598,983 225,000 7.00%, 02/15/03 235,195 375,000 7.00%, 07/15/05 404,239 469,000 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 5.13%, 02/13/04 478,455 ---------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $2,594,838) 2,667,175 ---------- MORTGAGE BACKED PASS-THROUGH SECURITY--8.6% 526,117 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, POOL 354779, 6.50%, 03/15/24 (COST $481,748) 533,846 ---------- TOTAL LONG-TERM INVESTMENTS (COST $5,875,810) 6,043,341 ---------- SHORT-TERM INVESTMENT--2.8% U.S. GOVERNMENT AGENCY SECURITY--2.8% 176,000 FEDERAL HOME LOAN BANK, DN, 3.58%, 09/04/01 (COST $175,947) 175,947 ---------- TOTAL INVESTMENTS--100.0% (COST $6,051,757) $6,219,288 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 23 [GRAPHIC] MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS AUGUST 31, 2001
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- U.S. TREASURY SECURITY--2.5% $97,000 U.S. TREASURY BILLS, 3.56%, 09/06/01 (COST $96,952) $ 96,952 ---------- U.S. GOVERNMENT AGENCY SECURITIES--44.5% FEDERAL HOME LOAN BANK, 100,000 DN, 3.52%, 09/19/01 99,824 100,000 DN, 3.52%, 09/26/01 99,756 190,000 DN, 3.55%, 10/24/01 189,007 100,000 DN, 3.64%, 09/24/01 99,767 100,000 DN, 4.42%, 09/07/01 99,926 200,000 FEDERAL HOME LOAN MORTGAGE CORP., DN, 3.54%, 01/18/02 197,266 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 175,000 DN, 3.47%, 01/24/02 172,554 188,000 DN, 3.58%, 09/13/01 187,776 180,000 DN, 3.62%, 10/04/01 179,403 100,000 DN, 3.63%, 10/01/01 99,698 300,000 STUDENT LOAN MARKETING ASSOCIATION, FRN, 3.93%, 10/18/01 300,000 ---------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $1,724,977) 1,724,977 ---------- COMMERCIAL PAPER--35.7% BANKING--14.0% 150,000 ABBEY NATIONAL NORTH AMERICA CORP., 4.38%, 09/24/01 149,580 195,000 DEN NORSKE BANK (DENMARK), 3.56%, 10/22/01 194,017 200,000 HALIFAX PLC (UNITED KINGDOM), 3.65%, 09/12/01 199,777 ---------- 543,374 ---------- DIVERSIFIED--5.1% 200,000 GENERAL ELECTRIC CAPITAL CORP., 3.64%, 10/02/01 199,373 ---------- FINANCIAL SERVICES--8.4% 180,000 LEHMAN BROTHERS, INC., 3.63%, 09/07/01 179,891 145,000 NATIONWIDE BUILDING SOCIETY (UNITED KINGDOM), 3.64%, 10/10/01 144,428 ---------- 324,319 ---------- INSURANCE--5.1% 200,000 METLIFE FUNDING, INC., 3.70%, 09/28/01 199,445 ---------- TELECOMMUNICATIONS--3.1% 120,000 BCI FUNDING CORP. (CANADA), 3.62%, 09/18/01 119,795 ---------- TOTAL COMMERCIAL PAPER (COST $1,386,306) 1,386,306 ---------- TIME DEPOSITS--17.3% 673,000 ABN AMRO BANK NV (NETHERLANDS), 3.70%, 09/04/01 (COST $673,000) 673,000 ---------- TOTAL INVESTMENTS--100.0% (COST $3,881,235) $3,881,235 ==========
INDEX: * = Non-income producing security. # = Security may only be sold to qualified institutional buyers. ^ = Share amounts round to less than a thousand. + = Affiliated. Money market fund registered under the Investment Company Act of 1940, as amended and advised by J.P. Morgan Investment Management, Inc. @ = All or a portion of this security is segregated for futures contracts or TBA securities. ~ = When issued or delayed delivery securities. SUB = Step-up Bond. The maturity date shown is the earlier of the call date or the maturity date; the rate shown is the rate in effect as of August 31, 2001. FRN = Floating Rate Note. The maturity date is the actual maturity date; the rate shown is the rate in effect as of August 31, 2001. DN = Discount Note. The rate shown is the effective yield at the time of purchase. ADR = American Depositary Receipt. DEM = Deutsche Marks. GDR = Global Depositary Receipt. MTN = Medium Term Note. TBA = To Be Announced. SER.= Series. SEE NOTES TO FINANCIAL STATEMENTS. 24 [GRAPHIC] STATEMENTS OF ASSETS AND LIABILITIES AUGUST 31, 2001
GROWTH AND CAPITAL INTERNATIONAL INCOME GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- ASSETS: Investment securities, at value $ 11,633,060 $ 10,458,669 $ 5,325,578 Cash -- -- 114,364 Foreign currency (Cost $5,594) -- -- 5,671 Receivables: Investment securities sold 68,029 -- 9,216 Interest and dividends 29,311 3,812 14,031 Variation margin -- -- -- Expense reimbursement from Sub-Administrator -- 1,454 14,852 ------------ ------------ ------------ TOTAL ASSETS 11,730,400 10,463,935 5,483,712 ------------ ------------ ------------ LIABILITIES: Payables: Fund shares redeemed 3,796 4,578 3,868 Investment securities purchased 49,199 424 12,274 Accrued liabilities: Custody fees 10,289 8,751 3,807 Other 34,680 23,297 20,411 ------------ ------------ ------------ TOTAL LIABILITIES 97,964 37,050 40,360 ------------ ------------ ------------ NET ASSETS: Paid in capital 12,369,220 8,702,321 6,612,928 Accumulated undistributed (overdistributed) net investment income 125,075 (1,916) (6,311) Accumulated net realized gain (loss) on investments and futures transactions (467,505) 464,832 (193,074) Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currency (394,354) 1,261,648 (970,191) ------------ ------------ ------------ NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $ 11,632,436 $ 10,426,885 $ 5,443,352 ============ ============ ============ Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized) 1,020,430 765,812 683,668 Net asset value, maximum offering price per share and redemption price per share $ 11.40 $ 13.62 $ 7.96 ============ ============ ============ Cost of investments $ 12,027,414 $ 9,197,021 $ 6,295,574 ============ ============ ============ ASSET U.S. GOVERNMENT MONEY ALLOCATION INCOME MARKET PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- ASSETS: Investment securities, at value $ 7,394,750 $ 6,219,288 $ 3,881,235 Cash 491 246 163 Foreign currency (Cost $5,594) -- -- -- Receivables: Investment securities sold 71,617 410,688 -- Interest and dividends 33,578 73,076 4,653 Variation margin 219 -- -- Expense reimbursement from Sub-Administrator 4,617 8,490 13,389 ------------ ------------ ------------ TOTAL ASSETS 7,505,272 6,711,788 3,899,440 ------------ ------------ ------------ LIABILITIES: Payables: Fund shares redeemed 3,537 108 -- Investment securities purchased 183,678 505,078 -- Accrued liabilities: Custody fees 11,844 11,735 11,227 Other 15,638 23,190 13,599 ------------ ------------ ------------ TOTAL LIABILITIES 214,697 540,111 24,826 ------------ ------------ ------------ NET ASSETS: Paid in capital 8,069,557 5,720,507 3,875,071 Accumulated undistributed (overdistributed) net investment income 178,074 304,552 (23) Accumulated net realized gain (loss) on investments and futures transactions (680,098) (20,913) (434) Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currency (276,958) 167,531 -- ------------ ------------ ------------ NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $ 7,290,575 $ 6,171,677 $ 3,874,614 ============ ============ ============ Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized) 780,917 620,096 3,875,019 Net asset value, maximum offering price per share and redemption price per share $ 9.34 $ 9.95 $ 1.00 ============ ============ ============ Cost of investments $ 7,671,664 $ 6,051,757 $ 3,881,235 ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 25 [GRAPHIC] STATEMENTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2001
GROWTH AND CAPITAL INTERNATIONAL INCOME GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- INVESTMENT INCOME: Interest $ 40,122 $ 27,152 $ 4,693 Dividends 221,370 76,782 129,001 Dividend income from affiliated investments* 157 444 -- Foreign taxes withheld (857) (127) (15,121) ----------- ----------- ----------- TOTAL INVESTMENT INCOME 260,792 104,251 118,573 ----------- ----------- ----------- EXPENSES: Investment advisory fees 82,895 69,943 52,287 Administration fees 27,632 23,314 13,072 Accounting Fees -- -- 55,091 Custodian fees 51,259 73,819 44,670 Printing and postage 257 699 4,068 Professional fees 24,395 17,727 25,014 Transfer Agent fees 19,267 16,439 23,656 Trustees' fees 3,187 1,896 1,942 Other 26 165 717 ----------- ----------- ----------- TOTAL EXPENSES 208,918 204,002 220,517 ----------- ----------- ----------- Less amounts waived 81,924 93,257 65,359 Less expense reimbursements 2,603 5,435 83,263 Less earnings credits 59 270 -- ----------- ----------- ----------- NET EXPENSES 124,332 105,040 71,895 ----------- ----------- ----------- NET INVESTMENT INCOME (LOSS) 136,460 (789) 46,678 ----------- ----------- ----------- NET REALIZED GAIN (LOSS) ON: Investment transactions 259,442 357,990 (142,608) Futures transactions -- -- -- Foreign currency transactions -- -- (8,253) CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION Investments (3,007,929) (1,736,688) (1,802,544) Futures -- -- (2,319) Foreign currency contracts and foreign currency translations -- -- 5,222 ----------- ----------- ----------- Net realized and unrealized gain (loss) (2,748,487) (1,378,698) (1,950,502) ----------- ----------- ----------- Net increase (decrease) in net assets from operations $(2,612,027) $(1,379,487) $(1,903,824) =========== =========== =========== * Includes Reimbursements of Investment Advisory and Administration Fees: $ 7 $ 19 $ -- ASSET U.S. GOVERNMENT MONEY ALLOCATION INCOME MARKET PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- INVESTMENT INCOME: Interest $ 214,740 $ 359,335 $ 216,226 Dividends 41,252 -- -- Dividend income from affiliated investments* 585 -- -- Foreign taxes withheld (161) -- -- ----------- ----------- ----------- TOTAL INVESTMENT INCOME 256,416 359,335 216,226 ----------- ----------- ----------- EXPENSES: Investment advisory fees 43,542 29,893 9,922 Administration fees 15,834 11,957 7,937 Accounting Fees -- -- Custodian fees 73,942 44,928 44,079 Printing and postage 3,407 2,229 2,143 Professional fees 22,015 20,911 22,512 Transfer Agent fees 15,834 22,936 19,223 Trustees' fees 2,164 1,616 1,231 Other 1,810 989 3,300 ----------- ----------- ----------- TOTAL EXPENSES 178,548 135,459 110,347 ----------- ----------- ----------- Less amounts waived 59,376 41,850 17,859 Less expense reimbursements 51,799 45,678 70,263 Less earnings credits 81 102 399 ----------- ----------- ----------- NET EXPENSES 67,292 47,829 21,826 ----------- ----------- ----------- NET INVESTMENT INCOME (LOSS) 189,124 311,506 194,400 ----------- ----------- ----------- NET REALIZED GAIN (LOSS) ON: Investment transactions (385,649) 88,032 29 Futures transactions (6,303) -- -- Foreign currency transactions -- -- -- CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION Investments (1,152,002) 199,698 -- Futures (44) -- -- Foreign currency contracts and foreign currency translations -- -- -- ----------- ----------- ----------- Net realized and unrealized gain (loss) (1,543,998) 287,730 29 ----------- ----------- ----------- Net increase (decrease) in net assets from operations $(1,354,874) $ 599,236 $ 194,429 =========== =========== =========== * Includes Reimbursements of Investment Advisory and Administration Fees: $ 25 $ -- $ --
SEE NOTES TO FINANCIAL STATEMENTS. 26 [GRAPHIC] STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED AUGUST 31,
GROWTH AND INCOME CAPITAL GROWTH PORTFOLIO PORTFOLIO ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 136,460 $ 122,985 $ (789) $ 25,437 Net realized gain (loss) on investments, futures and foreign currency transactions 259,442 (412,544) 357,990 2,259,981 Change in net unrealized appreciation/ depreciation on investments, futures and foreign currency translations (3,007,929) 1,901,066 (1,736,688) 766,596 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (2,612,027) 1,611,507 (1,379,487) 3,052,014 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (132,673) (47,277) -- (77,220) Net realized gain on investment transactions -- -- (759,878) (779,834) ------------ ------------ ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (132,673) (47,277) (759,878) (857,054) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued 296,228 903,541 326,667 1,036,385 Dividends reinvested 132,673 47,277 759,878 857,054 Cost of shares redeemed (2,274,370) (5,445,780) (1,697,269) (3,560,063) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS (1,845,469) (4,494,962) (610,730) (1,666,624) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (4,590,169) (2,930,732) (2,750,095) 528,336 NET ASSETS: Beginning of Period 16,222,605 19,153,337 13,176,980 12,648,644 ------------ ------------ ------------ ------------ End of Period $ 11,632,436 $ 16,222,605 $ 10,426,885 $ 13,176,980 ============ ============ ============ ============ Share Transactions: Issued 23,364 69,980 22,212 73,130 Reinvested 10,135 3,746 54,904 66,541 Redeemed (179,642) (423,222) (119,258) (251,852) ------------ ------------ ------------ ------------ Change in shares (146,143) (349,496) (42,142) (112,181) ============ ============ ============ ============ INTERNATIONAL EQUITY ASSET ALLOCATION PORTFOLIO PORTFOLIO ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 46,678 $ (12,869) $ 189,124 $ 229,864 Net realized gain (loss) on investments, futures and foreign currency transactions (150,861) 1,430,768 (391,952) (265,974) Change in net unrealized appreciation/ depreciation on investments, futures and foreign currency translations (1,799,641) (25,157) (1,152,046) 837,191 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (1,903,824) 1,392,742 (1,354,874) 801,081 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income -- -- (211,314) (250,511) Net realized gain on investment transactions (1,424,148) (242,807) -- (67,251) ------------ ------------ ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,424,148) (242,807) (211,314) (317,762) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued 75,067 837,144 122,538 315,535 Dividends reinvested 1,424,148 242,807 211,314 317,762 Cost of shares redeemed (688,191) (1,606,148) (589,198) (1,328,360) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 811,024 (526,197) (255,346) (695,063) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (2,516,948) 623,738 (1,821,534) (211,744) NET ASSETS: Beginning of Period 7,960,300 7,336,562 9,112,109 9,323,853 ------------ ------------ ------------ ------------ End of Period $ 5,443,352 $ 7,960,300 $ 7,290,575 $ 9,112,109 ============ ============ ============ ============ Share Transactions: Issued 7,346 59,891 12,546 29,366 Reinvested 150,383 17,788 21,005 30,292 Redeemed (72,394) (125,252) (58,251) (123,821) ------------ ------------ ------------ ------------ Change in shares 85,335 (47,573) (24,700) (64,163) ============ ============ ============ ============ U.S. GOVERNMENT INCOME MONEY MARKET PORTFOLIO PORTFOLIO ---------------------------- ---------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 311,506 $ 332,870 $ 194,400 $ 217,831 Net realized gain (loss) on investments, futures and foreign currency transactions 88,032 (108,945) 29 8 Change in net unrealized appreciation/ depreciation on investments, futures and foreign currency translations 199,698 211,485 -- -- ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 599,236 435,410 194,429 217,839 ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (281,296) (352,501) (194,365) (217,633) Net realized gain on investment transactions -- (106,053) -- -- ------------ ------------ ------------ ------------ TOTAL DISTRIBUTIONS TO SHAREHOLDERS (281,296) (458,554) (194,365) (217,633) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued 268,092 382,727 441,442 1,206,210 Dividends reinvested 281,296 458,554 194,365 217,633 Cost of shares redeemed (580,179) (1,366,829) (644,693) (1,531,722) ------------ ------------ ------------ ------------ INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS (30,791) (525,548) (8,886) (107,879) ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 287,149 (548,692) (8,822) (107,673) NET ASSETS: Beginning of Period 5,884,528 6,433,220 3,883,436 3,991,109 ------------ ------------ ------------ ------------ End of Period $ 6,171,677 $ 5,884,528 $ 3,874,614 $ 3,883,436 ============ ============ ============ ============ Share Transactions: Issued 27,643 41,193 441,473 1,206,210 Reinvested 29,736 51,363 194,313 217,633 Redeemed (60,611) (145,749) (644,693) (1,531,722) ------------ ------------ ------------ ------------ Change in shares (3,232) (53,193) (8,907) (107,879) ============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 27 [GRAPHIC] FINANCIAL HIGHLIGHTS
GROWTH AND INCOME PORTFOLIO ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 13.91 $ 12.63 $ 12.36 $ 15.16 $ 12.74 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.14 0.11 0.06 0.09 0.15 Net gains or losses on investments (both realized and unrealized) (2.53) 1.21 2.58 (0.71) 3.99 ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS (2.39) 1.32 2.64 (0.62) 4.14 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income 0.12 0.04 0.09 0.13 0.15 Distributions from capital gains -- -- 2.28 2.05 1.57 ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 0.12 0.04 2.37 2.18 1.72 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 11.40 $ 13.91 $ 12.63 $ 12.36 $ 15.16 ======= ======= ======= ======= ======= TOTAL RETURN (17.29%) 10.44% 21.23% (5.45%) 35.53% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $11,632 $16,223 $19,153 $17,370 $15,002 Ratios to Average Net Assets: Expenses 0.90% 0.90% 0.90% 0.90% 0.90% Net investment income (loss) 0.99% 0.73% 0.54% 0.78% 1.18% Expenses without waivers, reimbursements and earnings credits 1.51% 1.37% 1.33% 1.70% 1.70% Net investment income (loss) without waivers, reimbursements and earnings credits 0.38% 0.26% 0.11% (0.02%) 0.38% Portfolio Turnover Rate 14% 65% 114% 170% 89% CAPITAL GROWTH PORTFOLIO ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 16.31 $ 13.75 $ 11.72 $ 15.52 $ 13.84 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income --(c) 0.03 0.07 0.10 0.09 Net gains or losses on investments (both realized and unrealized) (1.73) 3.54 3.37 (2.37) 3.42 ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS (1.73) 3.57 3.44 (2.27) 3.51 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income -- 0.09 0.09 0.09 0.10 Distributions from capital gains 0.96 0.92 1.32 1.44 1.73 ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 0.96 1.01 1.41 1.53 1.83 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 13.62 $ 16.31 $ 13.75 $ 11.72 $ 15.52 ======= ======= ======= ======= ======= TOTAL RETURN (10.70%) 27.92% 30.59% (16.38%) 27.27% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $10,427 $13,177 $12,649 $11,096 $12,373 Ratios to Average Net Assets: Expenses 0.90% 0.90% 0.90% 0.90% 0.90% Net investment income (loss) (0.01%) 0.21% 0.59% 0.72% 0.64% Expenses without waivers, reimbursements and earnings credits 1.75% 1.69% 1.70% 1.70% 1.70% Net investment income (loss) without waivers, reimbursements and earnings credits (0.86%) (0.58%) (0.21%) (0.08%) (0.16%) Portfolio Turnover Rate 47% 128% 27% 71% 54% INTERNATIONAL EQUITY PORTFOLIO ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 13.30 $ 11.36 $ 9.63 $ 10.45 $ 10.59 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.08 (0.03) -- 0.02(b) 0.19 Net gains or losses on investments (both realized and unrealized) (2.98) 2.38 2.32 (0.28) 0.65 ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS (2.90) 2.35 2.32 (0.26) 0.84 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income -- -- 0.10 0.18 0.13 Distributions from capital gains 2.44 0.41 0.49 0.38 0.85 ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 2.44 0.41 0.59 0.56 0.98 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 7.96 $ 13.30 $ 11.36 $ 9.63 $ 10.45 ======= ======= ======= ======= ======= TOTAL RETURN (24.76%) 20.58% 25.03% (2.46%) 8.27% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 5,443 $7,960 $7,337 $6,318 $5,421 Ratios to Average Net Assets: Expenses 1.10% 1.10% 1.10% 1.10% 1.11% Net investment income (loss) 0.71% (0.15%) 0.04% 0.19% 1.96% Expenses without waivers, reimbursements and earnings credits 3.38% 2.62% 3.24% 3.05% 2.99% Net investment income (loss) without waivers, reimbursements and earnings credits (1.57%) (1.67%) (2.10%) (1.76%) 0.08% Portfolio Turnover Rate 98% 102% 170% 157% 158% ASSET ALLOCATION PORTFOLIO ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 11.31 $ 10.72 $ 10.64 $ 11.57 $ 11.15 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.25 0.29 0.24 0.28 0.33 Net gains or losses on investments (both realized and unrealized) (1.95) 0.68 1.04 (0.25) 1.94 ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS (1.70) 0.97 1.28 0.03 2.27 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income 0.27 0.30 0.18 0.30 0.30 Distributions from capital gains -- 0.08 1.02 0.66 1.55 ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 0.27 0.38 1.20 0.96 1.85 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 9.34 $ 11.31 $ 10.72 $ 10.64 $ 11.57 ======= ======= ======= ======= ======= TOTAL RETURN (15.20%) 9.31% 11.88% (0.04%) 22.61% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 7,291 $ 9,112 $ 9,324 $ 7,813 $ 6,282 Ratios to Average Net Assets: Expenses 0.85% 0.85% 0.85% 0.85% 0.85% Net investment income (loss) 2.39% 2.52% 2.48% 2.81% 3.28% Expenses without waivers, reimbursements and earnings credits 2.25% 2.16% 1.90% 1.91% 2.03% Net investment income (loss) without waivers, reimbursements and earnings credits 0.99% 1.21% 1.43% 1.75% 2.10% Portfolio Turnover Rate 100% 145% 112% 162% 122%
(b) Net investment income per share has been calculated based on average shares outstanding during the period. (c) Amount is less than $0.01. SEE NOTES TO FINANCIAL STATEMENTS. 28 [GRAPHIC]
U.S. GOVERNMENT INCOME PORTFOLIO ++ ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 9.44 $ 9.51 $ 10.12 $ 9.40 $ 9.53 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.51 0.59 0.52 0.39 0.52 Net gains or losses on investments (both realized and unrealized) 0.46 0.10 (0.62) 0.64 0.22 ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS 0.97 0.69 (0.10) 1.03 0.74 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income 0.46 0.58 0.51 0.31 0.54 Distributions from capital gains -- 0.18 -- -- 0.33 ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 0.46 0.76 0.51 0.31 0.87 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.44 $ 9.51 $ 10.12 $ 9.40 ======= ======= ======= ======= ======= TOTAL RETURN 10.53% 7.80% (1.15%) 11.12% 8.11% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 6,172 $ 5,885 $ 6,433 $ 6,581 $ 3,801 Ratios to Average Net Assets: Expenses 0.80% 0.80% 0.80% 0.80% 0.80% Net investment income 5.21% 5.70% 5.35% 5.40% 5.91% Expenses without waivers, reimbursements and earnings credits 2.26% 2.49% 1.97% 1.99% 1.50% Net investment income without waivers, reimbursements and earnings credits 3.75% 4.01% 4.18% 4.21% 5.21% Portfolio Turnover Rate 91% 37% 31% 14% 40% MONEY MARKET PORTFOLIO ----------------------------------------------------------- YEAR ENDED AUGUST 31, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.05 0.05 0.05 0.05 0.05 Net gains or losses on investments (both realized and unrealized) -- -- -- -- -- ------- ------- ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.05 0.05 ------- ------- ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income 0.05 0.05 0.05 0.05 0.05 Distributions from capital gains -- -- -- -- -- ------- ------- ------- ------- ------- TOTAL DISTRIBUTIONS 0.05 0.05 0.05 0.05 0.05 ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= TOTAL RETURN 5.05% 5.57% 4.66% 5.04% 4.93% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 3,875 $ 3,883 $ 3,991 $ 3,279 $ 4,854 Ratios to Average Net Assets: Expenses 0.55% 0.55% 0.55% 0.55% 0.55% Net investment income 4.90% 5.43% 4.54% 4.94% 4.84% Expenses without waivers, reimbursements and earnings credits 2.77% 2.51% 2.28% 2.24% 1.46% Net investment income without waivers, reimbursements and earnings credits 2.68% 3.47% 2.81% 3.25% 3.93% Portfolio Turnover Rate -- -- -- -- --
++ On 12/27/96, the Portfolio changed its name from U.S. Treasury Income Portfolio to U.S. Government Income Portfolio. SEE NOTES TO FINANCIAL STATEMENTS. 29 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--Mutual Fund Variable Annuity Trust (the "Trust") was organized on April 14, 1994 as a Massachusetts business trust, and is registered under the Investment Company Act of 1940 (the "1940 Act"), as amended, as an open-end management investment company. The Trust was established to provide a funding medium for variable annuity contracts issued by life insurance companies. Shares of the Trust are issued only to insurance company separate accounts in connection with variable annuity contracts. The Trust issues six separate series of shares (the "Portfolio(s)"), each of which represents a separately managed portfolio of securities with its own investment objectives. The Portfolios are the Growth and Income Portfolio ("GIP"), Capital Growth Portfolio ("CGP"), International Equity Portfolio ("IEP"), Asset Allocation Portfolio ("AAP"), U.S. Government Income Portfolio ("USGIP") and Money Market Portfolio ("MMP"). THE FOLLOWING IS A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWED BY THE PORTFOLIOS: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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. A. VALUATION OF INVESTMENTS--Equity securities and options are valued at the last sale price on the exchange on which they are primarily traded, including the NASDAQ National Market. Securities for which sale prices are not available and other over-the-counter securities are valued at the last quoted bid price. Except for MMP, bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-sized 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. Short-term obligations are valued at amortized cost if acquired with fewer than 61 days to maturity, or at value, based on quoted exchange or over-the-counter prices, until the 61st day prior to maturity and thereafter by amortizing the value on the 61st day to par at maturity. Money market instruments held by MMP are valued at amortized cost, which approximates market value. The Trust's use of amortized cost is subject to the Trust's compliance with certain conditions as specified under Rule 2a-7 of the 1940 Act. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are accounted for as of the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is determined on the basis of coupon interest accrued adjusted for amortization of premiums and accretion of discounts. Dividend income is recorded on the ex-dividend date. Purchases of to be announced (TBA), when-issued or delayed delivery securities may be settled a month or more after the trade date; interest income is not accrued until settlement date. Each Fund segregates assets with a current value at least equal to the amount of its TBA, when-issued and delayed delivery purchase commitments. C. REPURCHASE AGREEMENTS--It is the Portfolios' policy that all repurchase agreements are fully collateralized by U.S. Treasury and Government Agency securities. All collateral is held by the Portfolio's custodian bank, sub-custodian or a bank with which the custodian bank has entered into a sub-custodian agreement or is segregated in the Federal Reserve Book Entry System. If the seller of a repurchase agreement defaults and the value of the collateral declines, or if the seller enters into an insolvency proceeding, realization of the collateral by the Portfolio may be delayed or limited. D. FUTURES CONTRACTS--When a Portfolio enters into a futures contract, it makes an initial margin deposit in a segregated account, either in cash or liquid securities. Thereafter, the futures contract is marked to market and the Portfolio makes (or receives) additional cash payments daily to (or from) the broker. Changes in the value of the contract are recorded as unrealized appreciation/depreciation until the contract is closed or settled. The Portfolios may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures 30 [GRAPHIC] transaction; therefore, the Portfolio's credit risk is limited to failure of the exchange or board of trade. IEP may invest a portion of its liquid assets in index futures contracts to control the asset mix of the Portfolio in the most efficient manner. This allows the fund manager to more fully participate in the market, adjusting country exposures while incurring minimal transaction costs. Long index futures contracts are used to gain exposure to equities when the fund manager anticipates that this will be more efficient than buying stocks directly. The use of long futures contracts subjects the Portfolio to risk of loss up to the amount of the value of the contract. Short index futures contracts are used for hedging purposes (to reduce the exposure to equities). The use of short futures contracts subjects the Portfolio to unlimited risk of loss. AAP may invest in interest rate futures contracts as a hedge against rate risk or to change the duration of the fixed income components of the Portfolio. As of August 31, 2001, AAP had open futures contracts as shown on the Portfolio of Investments. E. FOREIGN CURRENCY TRANSLATIONS--The books and records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the official exchange rates, or at the mean of the current bid and asked prices of such currencies against the U.S. dollar last quoted by a major bank on the following basis: (1) Market value of investment securities, other assets and liabilities: at the closing rate of exchange at the balance sheet date. (2) Purchases and sales of investment securities and income and expenses: at the rates of exchange prevailing on the respective dates of such transactions. Reported realized foreign exchange gains or losses arise from disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios' books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. Unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies which are held at period end. F. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--A forward foreign currency contract is an obligation to purchase or sell a specific currency for an agreed price at a future date. Each day the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market." When the forward contract is closed, or the delivery of the currency is made or taken, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio's basis in the contract. The Portfolios are subject to off balance sheet risk to the extent of the value of the contract for purchases of currency and in an unlimited amount for sales of currency. G. FEDERAL INCOME TAX STATUS--It is each Portfolio's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Portfolios record dividends and distributions to their shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment. The reclassifications for IEP relates primarily to over distribution of capital gains. The following accounts were increased or decreased as shown below:
IEP --- Paid in capital $26,116 Accumulated undistributed (overdistributed) net investment income (9,492) Accumulated net realized gain (loss) in investments and futures transactions (16,624)
I. EXPENSES--Direct expenses of a Portfolio are charged to the respective Portfolio. General Trust expenses are allocated on the basis of relative net assets or on another reasonable basis. 31 [GRAPHIC] 2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES A. INVESTMENT ADVISORY FEES--Pursuant to an Investment Advisory Agreement, J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM" or "Adviser") (formerly Chase Fleming Asset Management (USA) Inc., formerly Chase Asset Management Inc.) acts as the investment adviser to the Portfolios. JPMFAM is a direct wholly-owned subsidiary of J.P. Morgan Chase & Co. As investment adviser, JPMFAM supervises the investments of each Portfolio and for such services is paid a fee. The fee is accrued daily and paid monthly based on each Portfolio's respective average daily net assets. The annual fee for each Portfolio is: GIP 0.60% CGP 0.60% IEP 0.80% AAP 0.55% USGIP 0.50% MMP 0.25%
The Adviser (and its predecessors) voluntarily waived fees as outlined in Note 2.D. J.P. Morgan Fleming Asset Management (London) Ltd. ("JPMFAM London") (formerly Chase Fleming Asset Management (London) Ltd., formerly Chase Asset Management (London) Ltd.), a registered investment adviser, is the sub-investment adviser to IEP pursuant to a Sub-Investment Advisory Agreement between JPFAM London and JPMFAM (and its predecessor). JPMFAM London is a wholly-owned subsidiary of J.P. Morgan Chase & Co. and is entitled to receive a fee payable by JPMFAM from its advisory fee, at an annual rate equal to 0.40% of the average daily net assets of IEP. Prior to February 22, 2001, The Chase Manhattan Bank ("Chase"), also a direct wholly-owned subsidiary of J.P. Morgan Chase & Co. acted as the investment advisor to each Portfolio, and JPMFAM acted as the sub-investment adviser to each Portfolio, except IEP. Pursuant to a Sub-Investment Advisory Agreement between Chase and JPMFAM, JPMFAM was entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.30% of the average daily net assets of GIP and CGP, 0.25% of the average daily net assets of AAP and USGIP and 0.10% of the average daily net assets of MMP. The Investment Advisory Agreement between each Fund and Chase has been assigned to JPMFAM. The Portfolios, other than MMP, may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. B. ADMINISTRATION FEE--Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Portfolios. For these services, the Administrator receives from each Portfolio a fee computed at an annual rate equal to 0.05% of the respective Portfolio's average daily net assets. The Administrator voluntarily waived fees as shown in 2.D. The Trustees have approved an increase in the Funds' administration fee. Effective September 10, 2001, the administration fee payable to Chase will be increased to 0.15% of average daily net assets for complex wide non-money market fund assets up to $25 billion and 0.075% in assets in excess of $25 billion. C. SUB-ADMINISTRATION FEES--Pursuant to a Sub-Administration Agreement, J.P. Morgan Fund Distributors, Inc. (the "Sub-Administrator") (formerly Vista Fund Distributors, Inc.), an indirect wholly-owned subsidiary of The BISYS Group Inc., provides certain sub-administration services to the Portfolios, including providing officers, clerical staff and office space for an annual fee of 0.15% of the average daily net assets of each Portfolio through September 9, 2001. The Sub-Administrator voluntarily waived fees as shown in 2.D. Effective September 10, 2001, BISYS Fund Services, L.P., ("BISYS") was named as the Fund's Sub-Administrator. For its services as Sub-Administrator, BISYS receives a portion of the fees payable to Chase as Administrator. The Sub-Administrator voluntarily reimbursed certain expenses of the Portfolios as disclosed in the Statement of Operations. D. ASSUMPTION OF EXPENSES--For the year ended August 31, 2001, the Portfolios' vendors voluntarily waived expenses as follows:
GIP CGP IEP AAP USGIP MMP --- --- --- --- ----- --- Advisory $74,452 $69,943 $52,287 $43,542 $29,893 $9,922 Administration 7,472 23,314 13,072 15,834 11,957 7,937
32 [GRAPHIC] The Sub-Administrator voluntarily reimbursed certain expenses of the portfolios: Assumed Expenses -- 4,287 81,598 49,967 44,311 69,196
E. OTHER--Chase provides portfolio custody and fund accounting services for GIP, CGP, AAP and USGIP (only custody services is provided for IEP by Chase) for which Chase receives compensation as presented in the Statement of Operations as Custodian Fees. Chase provided custody and fund accounting services for MMP prior to July 30, 2001, receiving $39,040 in compensation for such services, included in Custodian Fees as presented in the Statement of Operations. As of July 31, 2001, The Bank of New York became the MMP's Fund Accountant and Custodian. Custodian fees are subject to reduction by credits earned by each Fund, based on cash balances held by Chase as custodian. Such earnings credits are presented separately in the Statement of Operations. The Funds could have invested the cash balances utilized in connection with the earnings credit arrangements in income producing assets if they had not entered into such arrangements. The Trust had adopted an unfunded noncontributory defined benefit pension plan covering all independent trustees of the Trust who have served as an independent trustee for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Pension expenses for the period from November 1, 2000 to May 15, 2001, included in Trustees Fees in the Statement of Operations were as follows:
PENSION PORTFOLIO: EXPENSES -------- Growth and Income Portfolio $153 Capital Growth Portfolio 121 International Equity Portfolio 79 Asset Allocation Portfolio 86 U.S. Government Income Portfolio 58 Money Market Portfolio 40
On February 22, 2001, the Board of Trustees voted to terminate the Plan, effective May 15, 2001, and in furtherance of this determination agreed to pay Trustees an amount equal, in the aggregate, to $10.95 million, of which $5.3 million had been previously accrued by the Chase Vista Funds. The remaining $5.65 million was reimbursed by Chase on May 16, 2001. Certain of the trustees have elected to defer receipt of such amount pursuant to a deferred compensation plan. The amount of the Chase reimbursement and the amounts rolled into the deferred compensation plan are listed below:
DEFERRED CHASE COMPENSATION FUND NAME REIMBURSEMENT ROLLOVER --------- ------------- -------- Growth and Income Portfolio $2,603 $4,091 Capital Growth Portfolio 1,148 1,849 International Equity Portfolio 1,665 2,600 Asset Allocation Portfolio 1,832 2,861 U.S. Government Income Portfolio 1,367 2,135 Money Market Portfolio 1,067 1,661
3. INVESTMENT TRANSACTIONS--For the year ended August 31, 2001, the cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
GIP CGP IEP AAP USGIP --- --- --- --- ----- Purchases (excluding U.S. Government) $1,874,010 $5,314,105 $6,283,631 $4,436,141 $ -- Sales (excluding U.S. Government) 3,557,442 6,543,926 6,858,667 3,980,032 -- Purchases of U.S. Government -- -- -- 3,109,943 5,666,882 Sales of U.S. Government -- -- -- 4,390,335 5,052,885
4. FEDERAL INCOME TAX MATTERS--For Federal income tax purposes, the cost and unrealized appreciation/(depreciation) in value of the investment securities as of August 31, 2001, are as follows:
GIP CGP IEP AAP USGIP --- --- --- --- ----- Aggregate cost $12,027,443 $9,212,912 $ 6,302,359 $7,673,447 $6,061,152 ----------- ---------- ----------- ---------- ---------- Gross unrealized appreciation $ 1,107,095 $1,875,107 $ 317,705 $ 262,168 $ 175,035 Gross unrealized depreciation (1,501,478) (629,350) (1,294,486) (540,865) (16,899) ----------- ---------- ----------- ---------- ---------- Net unrealized appreciation/ (depreciation) $ (394,383) $1,245,757 $ (976,781) $ (278,697) $ 158,136 =========== ========== =========== ========== ==========
Capital losses incurred after October 31, within a Fund's fiscal year are deemed to arise on the first business day of the following fiscal year for tax purposes. The following Funds have incurred the following post-October realized losses.
FUND CAPITAL FX PFIC ---- ------- -- ---- IEP $188,292 $1,781 $2,527 AAP 310,693 -- --
33 [GRAPHIC] As of August 31, 2001, the following Funds have capital loss carryovers which will be available to offset capital gains. To the extent that any net capital loss carryovers are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders.
EXPIRATION FUND AMOUNT DATE ---- ---------- ------ GIP $467,476 August 31, 2008 AAP 67,791 August 31, 2008 299,875 August 31, 2009 ---------- 367,666 USGIP 11,518 August 31, 2008 MMP 405 August 31, 2008 29 August 31, 2009 ---------- 434
During the year ended August 31, 2001, the following funds utilized capital loss carryforwards of the following amounts: GIP of $259,294: USGIP of $38,140. 5. FOREIGN CASH POSITIONS--International Equity Portfolio
NET DELIVERY MARKET UNREALIZED VALUE (LOCAL VALUE GAIN (LOSS) CURRENCY CURRENCY) COST(USD) (USD) (USD) -------- --------- --------- ----- ----- Indonesian Rupiah 894,077 $ 58 $ 101 $ 43 Japanese Yen 367,270 3,033 3,094 61 Malaysian Ringgit 5,835 1,484 1,535 51 Philippine Peso 22,439 535 440 (95) Swiss Franc 835 484 501 17
6. CONCENTRATION OF SHAREHOLDERS As of August 31, 2001, all shares outstanding for each Portfolio are owned either directly or indirectly by a single insurance company. 7. CONCENTRATION OF CREDIT RISK As of August 31, 2001, MMP invested 27.5% of their net assets in securities issued by institutions in the financial services industry including banks, broker dealers and insurance companies. General economic conditions, as well as exposure to credit losses arising from possible financial difficulties of borrowers, play an important role in the operation of the financial services industry. IEP invested 18.4% and 28.4% of its total investments in Japan and the United Kingdom, respectively. The issuers' abilities to meet their obligations may be affected by economic or political developments in a specific country or region. 8. BANK BORROWINGS IEP may borrow money for temporary or emergency purposes. Any borrowings representing more than 5% of IEP's total assets must be repaid before IEP may make additional investments. IEP has entered into an agreement, enabling it to participate with other JPMorgan Funds in an unsecured line of credit with a syndicate of banks, which permits borrowings up to $350 million, collectively. Interest is charged to IEP based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. IEP also pays a commitment fee of 0.10% per annum on the average daily amount of the available commitment, which is allocated on a pro-rata basis to IEP. The commitment fee is included in Other expenses on the Statement of Operations. Borrowings are payable on demand. IEP had no borrowings outstanding as of August 31, 2001, nor at any time during the year then ended. 9. CORPORATE EVENT The merger of the J.P. Morgan & Co. Incorporated with and into The Chase Manhattan Corporation (renamed J.P. Morgan Chase and Co.), the parent of the Funds' Advisor, JPMFAM, was consummated on December 31, 2000. JPMFAM continues to serve as the Funds' Advisor. 34 [GRAPHIC] REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Mutual Fund Variable Annuity Trust In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, Asset Allocation Portfolio, U.S. Government Income Portfolio and Money Market Portfolio (separate portfolios constituting Mutual Fund Variable Annuity Trust, hereafter referred to as the "Trust") at August 31, 2001, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 October 18, 2001 35 [GRAPHIC] SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED) A Special Meeting of Shareholders was held on July 3, 2001 at 1211 Avenue of Americas, New York, New York 10036 for purposes of approving the election of eight Trustees. A majority of shareholders of the Trust approved the election of each Trustee by the following votes:
AFFIRMATIVE NEGATIVE ------------------------------------------------------------------------------------------------------------ William J. Armstrong 5,752,585 39,375 Roland R. Eppley 5,752,585 39,375 Ann Maynard Gray 5,752,585 39,375 Matthew Healey 5,750,352 41,608 Fergus Reid, III 5,752,585 39,375 James J. Schonbachler 5,752,585 39,375 Leonard M. Spalding, Jr. 5,752,585 39,375 H. Richard Vartabedian 5,752,585 39,375
36 [GRAPHIC] TAX LETTER (UNAUDITED) Certain tax information for the Mutual Fund Variable Annuity Portfolios is required to be provided to shareholders based upon the Portfolio's income and distributions for the taxable year end August 31, 2001. The information and distributions reported in this letter may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2001. The information necessary to complete your income tax returns for the calendar year ending December 31, 2001 will be received under separate cover. FOR THE FISCAL YEAR ENDED AUGUST 31, 2001: The following represents the long-term capital gains distributed by the Portfolio:
LONG-TERM CAPITAL GAINS FUND DISTRIBUTIONS ------------------------------------------------------------------------------------------------- CGP $672,809 IEP 970,552
[GRAPHIC] A-7036-CRT (C)J.P. MORGAN CHASE & CO., 2001. ALL RIGHTS RESERVED. OCTOBER, 2001 F-7036(CMB) AN-VA-1001