-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LGzn3jlQDD9WgHtmv0SApAflGG35Q/AYapXlZV7RynGwk3oV4KNDLPwyiFi/Se2j vZ0EgWa3UOkIm9XSxw/pfg== 0000912057-02-016752.txt : 20020426 0000912057-02-016752.hdr.sgml : 20020426 ACCESSION NUMBER: 0000912057-02-016752 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020202 FILED AS OF DATE: 20020426 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUTUAL FUND VARIABLE ANNUITY TRUST CENTRAL INDEX KEY: 0000927053 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08630 FILM NUMBER: 02622014 BUSINESS ADDRESS: STREET 1: 1 CHASE MANHATTAN PLAZA STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10081 BUSINESS PHONE: 2124261600 MAIL ADDRESS: STREET 1: CHASE MANHATTAN BANK STREET 2: ONE CHASE SQ 7TH FLOOR CITY: ROCHESTER STATE: NY ZIP: 14643 N-30D 1 a2077524zn-30d.txt N-30D [GRAPHIC] SEMI-ANNUAL REPORT FEBRUARY 28, 2002 (UNAUDITED) 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 JPMorgan Chase Bank, Anchor National Life Insurance Company or First SunAmerica Life Insurance Company. JPMorgan Chase 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, JPMORGAN 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. April 8, 2002 Dear Vista Capital Advantage Contract Owner: Enclosed is the February 28, 2002 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 February 28, 2002. 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 RETUN AS OF 2/28/02(2)
1 3 5 SINCE PORTFOLIO (CONTRACT INCEPTION DATE) YEAR YEAR YEAR INCEPTION ---------------------------------------------------------------------------------------------- Growth and Income (3/13/95) -16.59% -6.12% 1.43% 7.52% Capital Growth (3/13/95) -9.80% 6.07% 5.20% 10.80% International Equity (3/13/95) -20.93% -3.69% -0.42% 2.05% Asset Allocation (3/13/95) -10.79% -5.28% 0.66% 4.84% U.S. Government Income (7/13/95) -1.68% 3.45% 4.64% 5.10% Money Market (6/2/95) -4.57% 1.40% 2.46% 3.10% 7-DAY YIELD AS OF 2/28/02; 0.00%
FIRST SUNAMERICA LIFE INSURANCE COMPANY POLICY HOLDERS (NEW YORK) AVERAGE ANNUAL TOTAL RETUN AS OF 2/28/02(2)
1 3 5 SINCE PORTFOLIO (CONTRACT INCEPTION DATE) YEAR YEAR YEAR INCEPTION ---------------------------------------------------------------------------------------------- Growth and Income (12/6/95) -16.60% -6.13% 1.61% 7.61% Capital Growth (12/6/95) -9.84% 6.04% 5.33% 10.86% International Equity (12/22/95) -20.96% -3.72% -0.27% 2.13% Asset Allocation (12/22/95) -10.81% -5.29% 0.84% 4.94% U.S. Government Income (12/22/95) -1.68% 3.46% 4.83% 5.22% Money Market (12/22/95) -4.49% 1.48% 2.69% 3.25% 7-DAY YIELD AS OF 2/28/02; 0.00%
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 C.W. Gatch George C.W. 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. (UNAUDITED) TABLE OF CONTENTS 3 LETTER TO THE SHAREHOLDERS PERFORMANCE & COMMENTARY 5 GROWTH AND INCOME 7 CAPITAL GROWTH 9 INTERNATIONAL EQUITY 11 ASSET ALLOCATION 13 U.S. GOVERNMENT INCOME 14 MONEY MARKET PORTFOLIO OF INVESTMENTS 15 GROWTH AND INCOME 17 CAPITAL GROWTH 19 INTERNATIONAL EQUITY 21 ASSET ALLOCATION 25 U.S. GOVERNMENT INCOME 26 MONEY MARKET MUTUAL FUND VARIABLE ANNUITY TRUST 27 STATEMENT OF ASSETS & LIABILITIES 28 STATEMENT OF OPERATIONS 29 STATEMENT OF CHANGES IN NET ASSETS 30 FINANCIAL HIGHLIGHTS 32 NOTES TO FINANCIAL STATEMENTS HIGHLIGHTS - - As the period began on September 1, 2001, there were some signs that the U.S. economy was improving in response to aggressive rate-cutting by the Federal Reserve Board as well as stimulative U.S. fiscal (tax) policy. - - In the immediate aftermath of the terrorist attacks, business conditions deteriorated rapidly, and for the first time in a decade U.S. Gross Domestic Product (GDP) contracted in the third quarter of 2001. - - Small and mid-cap stocks outperformed their larger cap counterparts and provided positive total returns for the period. 3 PRESIDENT'S LETTER April 8, 2002 DEAR SHAREHOLDER: We are pleased to present this semi-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 information on each of these Portfolios, including holdings and an update from the portfolio management team. U.S. ECONOMY, MARKETS SHOW RESILIENCE IN A TRAGIC, EVENTFUL PERIOD As the period began on September 1, 2001, there were some signs that the U.S. economy was improving in response to aggressive rate-cutting by the Federal Reserve Board as well as stimulative U.S. fiscal (tax) policy. It is uncertain whether or not the U.S. economy would have entered a recession had it not been for the tragic events of September 11th. However, in the immediate aftermath of the terrorist attacks, business conditions deteriorated rapidly, and for the first time in a decade U.S. Gross Domestic Product (GDP) contracted in the third quarter of 2001. By November, the National Bureau of Economic Reporting (NBER) reported that the U.S. had officially entered a recession in March 2001. According to the NBER, "Before the attacks, it is possible that the decline in the economy would have been too mild to qualify as a recession. The attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession." While stunned by the attacks and the loss of valued colleagues and friends in the industry, the people of JPMorgan Fleming Asset Management took the view that the economy and markets would prove durable. This stance was prompted in part by the fact that the Fed and leaders in Washington, as well as central bankers in Europe and Japan, were committed to taking the steps necessary to get economies back on track. By the end of 2001, our confidence was validated--U.S. consumer confidence had jumped, the stock market rallied sharply, manufacturing activity increased and leading economic indicators were pointing higher. The U.S. economy actually grew in the fourth quarter of 2001, and after rising from 4.2% in January 2001 to 5.8% in December, the unemployment rate actually decreased in January 2002. U.S. stocks were volatile throughout the period. After reaching a post-attack low on September 21, the market rallied sharply through December, led by growth-oriented issues (especially technology) and those that had been hardest hit post 9/11. The market lost traction in the last two months of the reporting period (January and February 2002) in the face of accounting irregularities at several major corporations and ongoing concerns about corporate earnings. With the Fed deciding not to cut rates further at its January meeting, earnings will be a key driver of market performance going forward. For the six-month period ended February 28, the S&P 500 Index of large capitalization U.S. stocks had a total return of -1.67%. Small and mid-cap stocks outperformed their larger cap counterparts and provided positive total returns for the period. U.S. FIXED INCOME PROVIDES POSITIVE RETURNS With the Fed maintaining a stimulative monetary policy, U.S. fixed income markets provided positive returns, with the Lehman Aggregate Index posting a total return of 3.02% for the reporting period. Early in 2002, however, the bond market focus shifted to a stronger economy and the potential for higher rates as a recovery took hold. Additionally, accounting irregularities, both real and imagined, created tremendous volatility in corporate and high yield bonds issued by companies with high-debt loads. Economic recovery, especially if it's robust, tends to be accompanied by inflationary pressures that at some point cause the Fed to step in and tighten monetary policy. We do not see any significant inflationary pressures at this point and do not anticipate that the Fed will move to tighten until final demand is confirmed as a tailwind to the adjustment in inventories that has helped drive stronger economic activity. The highest probability 4 scenario is for a full economic rebound by the end of the second quarter or beginning of the third quarter, and we expect trend-like (3% to 3.5%) GDP growth in the U.S. for the year, with the Fed on hold until the second half of the year. OVERSEAS MARKETS TRAIL THE U.S. Overseas markets, as measured by the MSCI EAFE Index, posted a total return for the period of -8.29%. The MSCI Europe Index was down 6.10% while the MSCI Japan Index was off 18.07%. However, Japan did begin to rally sharply in early February, with the Topix Index bouncing off 17-year lows ahead of the end of the Japanese fiscal year on March 31. Despite the rally in Japan, analysis suggests that the cyclical recovery is likely to be muted and run into strong structural headwinds, leaving the market with little support. It is vital, therefore, that progress is made on the many structural economic issues confronting Japan before the market can push significantly higher. In the commentary that follows on the International Equity Portfolio, the management team makes a positive case for investing in international equities in the months and years ahead. SOLID PERFORMANCE THROUGH A TRYING PERIOD We are pleased with the performance of the management team throughout this trying period, as all of the equity Portfolios sharply outperformed their benchmarks while the fixed income Portfolios performed in line with their peers. As you'll read in the pages that follow, new management teams have taken over several of the Portfolios and are working hard to position each Portfolio for success in the second half of the reporting year and beyond. We appreciate your continued confidence and look forward to helping you reach your most important financial goals. Sincerely yours, /s/ George C.W. Gatch George C.W. Gatch President, JPMorgan Funds 5 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 six months ended February 28, 2002, the Growth and Income Portfolio had a total return of -1.69%, strongly outperforming the -5.82% total return for the S&P 500/ BARRA Value Index. HOW THE PORTFOLIO WAS MANAGED On January 1, 2002, a new management team assumed responsibility for the management of the Portfolio. Led by Jonathan Simon and co-managed by Michael Foss, the new team has over 37 years of investment management experience. Prior to the management changeover, the Portfolio's composition was less exposed to traditional "value" companies than its benchmark, and thus outperformed in the growth-oriented market that characterized the strong rally in stocks off their September 21, 2001 lows. A significant portion of this outperformance came from strong stock-picking in the financial services sector, where the focus was on capital markets-oriented companies which had the most to gain from a revival in financial market activity. When the new management team took over on January 1, Simon and Foss conducted a rigorous review of the portfolio and began a process of realigning it more closely with its S&P 500/BARRA Value benchmark. In certain cases, when the management team knew a stock well and felt that it didn't meet its value criteria, the position was sold relatively quickly, as in the case of Intel. When the management team was less familiar with a position, it took the time to fully understand the companies. Among the sectors where exposure was reduced in January and February were energy, information technology and materials. Energy was reduced to a market weighting because of the difficulty in forecasting energy prices. The information-technology reduction was primarily a function of selling names that didn't fit the value criteria, while materials were reduced by selling poorer-quality companies. Exposure to healthcare was increased, although the management team did cut the allocation to large pharmaceutical companies in favor of hospitals, insurers and HMOs that more closely fall into the value camp. The weighting in financials was added to, and within the sector the focus has shifted to regional banks where the management team believes both valuations and earnings may have bottomed and offer the opportunity for both better earnings growth and price-to-earnings multiple expansion. One large overweight in the portfolio at the end of the period was in consumer staples, primarily a result of owning Philip Morris and Kraft. Although neither of these companies is in the value benchmark, both meet the team's value criteria. In the two months under the new management team, the Portfolio outperformed its benchmark by 260 basis points (2.60%). The primary drivers were the overweight position in consumer staples, good stock selection and an underweight stance in information technology, and excellent positioning in the telecom services area, where the Portfolio had large exposure to regional bell operating companies and minimal exposure to the wireless area. LOOKING AHEAD With most of the structural changes accomplished, the management team is continuing to make minor adjustments to the Portfolio. By aligning the Fund's sectors more closely with its benchmark's, individual stock picking, as opposed to large sector bets, will be the primary driver of performance. In the management team's view, overall prices in the current U.S. stock market have already discounted a decent economic recovery in the second half of 2002, or the first quarter of 2003. With the potential for a rise in interest rates later in the year, in fact, valuations in certain areas of the market may be excessive. Such an environment may prove positive for the Portfolio's carefully selected value-oriented stocks. 6 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 $18,614 from inception on 3/1/95 through 2/28/02.* INVESTMENT RESULTS
AVERAGE ANNUAL RETURNS AS OF 2/28/02 1 year -9.25% 3 year -2.85% 5 year 3.67% Since Inception (3/1/95) 9.29%
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GROWTH & S&P 500/BARRA LIPPER GROWTH & INCOME INCOME PORTFOLIO VALUE INDEX FUNDS INDEX 3/1/1995 $10,000 $10,000 $10,000 3/31/1995 $10,270 $10,276 $10,235 4/30/1995 $10,410 $10,614 $10,517 5/31/1995 $10,729 $11,086 $10,871 6/30/1995 $11,000 $11,170 $11,076 7/31/1995 $11,459 $11,555 $11,449 8/31/1995 $11,479 $11,654 $11,558 9/30/1995 $11,708 $12,059 $11,903 10/31/1995 $11,479 $11,871 $11,741 11/30/1995 $11,959 $12,494 $12,246 12/31/1995 $12,149 $12,840 $12,449 1/31/1996 $12,557 $13,224 $12,819 2/29/1996 $12,767 $13,348 $12,998 3/31/1996 $13,018 $13,660 $13,163 4/30/1996 $13,228 $13,800 $13,365 5/31/1996 $13,375 $14,007 $13,560 6/30/1996 $13,344 $13,940 $13,502 7/31/1996 $12,893 $13,352 $12,952 8/31/1996 $13,343 $13,720 $13,342 9/30/1996 $13,939 $14,308 $13,937 10/31/1996 $14,160 $14,793 $14,253 11/30/1996 $15,050 $15,924 $15,171 12/31/1996 $14,767 $15,663 $15,023 1/31/1997 $15,602 $16,385 $15,693 2/28/1997 $15,542 $16,505 $15,826 3/31/1997 $14,899 $15,940 $15,275 4/30/1997 $15,578 $16,538 $15,839 5/31/1997 $16,569 $17,576 $16,761 6/30/1997 $17,214 $18,247 $17,418 7/31/1997 $18,610 $19,707 $18,668 8/31/1997 $18,085 $18,817 $17,968 9/30/1997 $18,931 $19,920 $18,876 10/31/1997 $18,562 $19,188 $18,249 11/30/1997 $19,171 $19,919 $18,758 12/31/1997 $19,437 $20,361 $19,060 1/31/1998 $19,119 $20,110 $19,096 2/28/1998 $20,488 $21,619 $20,294 3/31/1998 $21,428 $22,714 $21,233 4/30/1998 $21,179 $22,983 $21,348 5/31/1998 $20,722 $22,659 $21,021 6/30/1998 $21,095 $22,831 $21,274 7/31/1998 $20,418 $22,336 $20,752 8/31/1998 $17,098 $18,744 $17,822 9/30/1998 $17,983 $19,883 $18,622 10/31/1998 $19,449 $21,440 $19,974 11/30/1998 $20,293 $22,557 $20,937 12/31/1998 $21,482 $23,349 $21,649 1/31/1999 $21,596 $23,821 $21,853 2/28/1999 $20,300 $23,308 $21,370 3/31/1999 $20,759 $24,015 $22,107 4/30/1999 $22,154 $26,085 $23,539 5/31/1999 $21,645 $25,624 $23,198 6/30/1999 $22,547 $26,608 $24,158 7/31/1999 $21,465 $25,790 $23,465 8/31/1999 $20,727 $25,137 $22,946 9/30/1999 $20,053 $24,154 $22,226 10/31/1999 $20,627 $25,517 $23,177 11/30/1999 $20,759 $25,368 $23,381 12/31/1999 $21,491 $26,321 $24,218 1/31/2000 $21,064 $25,483 $23,269 2/29/2000 $20,059 $23,891 $22,513 3/31/2000 $21,934 $26,382 $24,627 4/30/2000 $21,803 $26,206 $24,188 5/31/2000 $21,491 $26,288 $24,099 6/30/2000 $21,293 $25,249 $24,007 7/31/2000 $21,589 $25,754 $23,921 8/31/2000 $22,889 $27,481 $25,409 9/30/2000 $22,182 $27,475 $24,712 10/31/2000 $22,264 $27,988 $24,784 11/30/2000 $21,079 $26,555 $23,426 12/31/2000 $21,737 $27,922 $24,311 1/31/2001 $21,687 $29,101 $24,803 2/28/2001 $20,507 $27,172 $23,463 3/31/2001 $19,527 $26,100 $22,400 4/30/2001 $20,954 $27,870 $23,897 5/31/2001 $21,170 $28,162 $24,203 6/30/2001 $20,340 $27,250 $23,614 7/31/2001 $20,208 $26,778 $23,404 8/31/2001 $18,929 $25,231 $22,325 9/30/2001 $17,451 $22,834 $20,530 10/31/2001 $17,568 $22,834 $20,791 11/30/2001 $18,530 $24,283 $22,145 12/31/2001 $18,795 $24,652 $22,506 1/31/2002 $18,660 $23,976 $22,179 2/28/2002 $18,614 $23,761 $22,033
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 S&P 500/BARRA Value Index contains large U.S. Companies with low price-to-book ratios relative to the S&P 500 Index. The Lipper Growth and Income Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. 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 CAPITAL GROWTH PORTFOLIO (UNAUDITED) THE CAPITAL GROWTH PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION PRIMARILY THROUGH DIVERSIFIED HOLDINGS OF COMMON STOCKS. HOW THE PORTFOLIO PERFORMED For the six months ended February 28, 2002, the Capital Growth Portfolio had a total return of 1.26%, outperforming the -2.84% total return for the Russell MidCap Growth Index. HOW THE PORTFOLIO WAS MANAGED On January 1, 2002, a new investment team assumed responsibility for the management of the Portfolio. Led by Christopher Jones, the new team has over 55 years of combined investment management experience. The new investment team's philosophy entails making long-term investments in growth companies with leading competitive positions run by highly motivated and talented management that can sustain growth over a period of many years. To reflect this philosophy, the portfolio's benchmark has been changed to the Russell Midcap Growth Index. As the Portfolio is transitioned to reflect the new investment team's philosophy, its overall sector composition will become more aligned to that of the Russell Midcap Growth Index. Thus, the Portfolio will see increased exposure to the more traditional "growth" sectors such as consumer discretionary, healthcare and technology, while the Portfolio's allocation to slower-growing areas such as financial services, utilities and basic materials will be reduced. Tactical market conditions are being considered in implementation of the new management team's investment philosophy in the Portfolio. For example, although the Portfolio's overall exposure to the financial services sector will eventually be reduced, market conditions in the first two months of 2002 favored that sector, prompting the portfolio managers to delay their planned reduction in financial holdings while the Portfolio benefited from their strength. Likewise, planned increases in the healthcare and technology sectors were postponed while those sectors struggled in early 2002. These tactical considerations were the primary drivers behind the Portfolio's outperformance of its benchmark over the last six months, most of which occurred in the first two months of 2002 under the new management team. During that time, the Portfolio benefited significantly from its overweight position in the financial services sector as well as its underweight position in both the technology and healthcare sectors. Performance was also boosted by solid stock selection across all sectors. LOOKING AHEAD At period end, most of the contemplated structural changes to the Portfolio were yet to be completed. As market conditions change, however, the management team expects to move fairly quickly in implementing their target portfolio. As changes are implemented it is expected that individual stock picking, as opposed to large sector bets, will become the primary driver of performance. The shift in the U.S. economy from high growth to recession now seems complete. It is our expectation that the economy will return to growth in 2002 and that corporate earnings will recover in the second half of the year. Growth stocks in particular, which will be the focus of the Portfolio, potentially stand to benefit in the coming year as their greater economic sensitivity and profit leverage becomes a significant advantage in a growing economy. 8 LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the Capital Growth Portfolio at NAV (Net Asset Value) would have grown to $22,892 from inception on 3/1/95 through 2/28/02.* INVESTMENT RESULTS
AVERAGE ANNUAL RETURNS AS OF 2/28/02 1 year -2.39% 3 year 9.06% 5 year 7.37% Since Inception (3/1/95) 12.57%
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CAPITAL GROWTH S&P MIDCAP LIPPER MID-CAP RUSSELL MID CAP PORTFOLIO 400 INDEX FUNDS INDEX GROWTH INDEX 3/1/1995 $10,000 $10,000 $10,000 $10,000 3/31/1995 $10,350 $10,174 $10,303 $10,397 4/30/1995 $10,470 $10,378 $10,394 $10,484 5/31/1995 $10,870 $10,628 $10,569 $10,742 6/30/1995 $11,140 $11,061 $11,258 $11,231 7/31/1995 $11,829 $11,638 $12,125 $11,938 8/31/1995 $11,899 $11,853 $12,283 $12,069 9/30/1995 $12,089 $12,140 $12,667 $12,337 10/31/1995 $11,659 $11,828 $12,363 $12,026 11/30/1995 $12,219 $12,345 $12,762 $12,563 12/31/1995 $12,706 $12,314 $12,890 $12,570 1/31/1996 $12,871 $12,493 $12,933 $12,792 2/29/1996 $13,077 $12,917 $13,467 $13,276 3/31/1996 $13,674 $13,072 $13,735 $13,380 4/30/1996 $14,363 $13,471 $14,499 $14,027 5/31/1996 $14,785 $13,653 $14,970 $14,313 6/30/1996 $14,405 $13,448 $14,470 $13,881 7/31/1996 $13,571 $12,539 $13,186 $12,803 8/31/1996 $14,240 $13,262 $13,959 $13,495 9/30/1996 $14,960 $13,840 $14,829 $14,352 10/31/1996 $14,765 $13,880 $14,514 $14,184 11/30/1996 $15,526 $14,662 $15,070 $15,020 12/31/1996 $15,671 $14,678 $14,991 $14,767 1/31/1997 $16,285 $15,229 $15,469 $15,420 2/28/1997 $16,042 $15,104 $14,882 $15,081 3/31/1997 $15,277 $14,460 $13,988 $14,228 4/30/1997 $15,404 $14,835 $14,247 $14,577 5/31/1997 $16,493 $16,132 $15,676 $15,883 6/30/1997 $17,141 $16,585 $16,204 $16,323 7/31/1997 $18,322 $18,228 $17,486 $17,885 8/31/1997 $18,124 $18,206 $17,376 $17,710 9/30/1997 $19,070 $19,252 $18,486 $18,607 10/31/1997 $18,487 $18,414 $17,521 $17,675 11/30/1997 $18,709 $18,687 $17,472 $17,861 12/31/1997 $18,905 $19,413 $17,610 $18,095 1/31/1998 $18,905 $19,043 $17,367 $17,769 2/28/1998 $20,289 $20,621 $18,958 $19,440 3/31/1998 $21,001 $21,551 $19,837 $20,255 4/30/1998 $20,923 $21,944 $20,018 $20,530 5/31/1998 $20,005 $20,957 $19,013 $19,686 6/30/1998 $20,185 $21,089 $19,760 $20,243 7/31/1998 $18,867 $20,271 $18,845 $19,375 8/31/1998 $15,156 $16,498 $15,039 $15,677 9/30/1998 $15,906 $18,038 $16,213 $16,863 10/31/1998 $17,237 $19,650 $17,011 $18,105 11/30/1998 $17,780 $20,631 $18,115 $19,326 12/31/1998 $18,669 $23,123 $20,060 $21,327 1/31/1999 $18,367 $22,223 $20,600 $21,967 2/28/1999 $17,647 $21,059 $19,319 $20,893 3/31/1999 $18,510 $21,648 $20,217 $22,056 4/30/1999 $18,812 $23,355 $21,086 $23,061 5/31/1999 $19,186 $23,457 $21,120 $22,765 6/30/1999 $20,337 $24,713 $22,444 $24,354 7/31/1999 $20,121 $24,188 $22,027 $23,578 8/31/1999 $19,789 $23,358 $21,732 $23,334 9/30/1999 $19,315 $22,637 $21,632 $23,135 10/31/1999 $19,790 $23,790 $23,113 $24,924 11/30/1999 $20,322 $25,039 $25,120 $27,505 12/31/1999 $21,450 $26,527 $28,895 $32,267 1/31/2000 $20,519 $25,780 $28,282 $32,261 2/29/2000 $21,869 $27,584 $33,342 $39,043 3/31/2000 $23,483 $29,893 $33,132 $39,083 4/30/2000 $23,312 $28,849 $30,379 $35,289 5/31/2000 $22,272 $28,489 $28,535 $32,717 6/30/2000 $22,862 $28,907 $31,400 $36,189 7/31/2000 $22,800 $29,364 $30,690 $33,897 8/31/2000 $25,315 $32,643 $34,459 $39,009 9/30/2000 $24,789 $32,419 $33,156 $37,102 10/31/2000 $24,571 $31,320 $31,180 $34,563 11/30/2000 $22,600 $28,956 $26,235 $27,052 12/31/2000 $24,550 $31,171 $27,885 $28,477 1/31/2001 $24,717 $31,865 $28,588 $30,103 2/28/2001 $23,457 $30,047 $25,169 $24,896 3/31/2001 $21,730 $27,813 $22,627 $21,333 4/30/2001 $23,490 $30,881 $25,324 $24,889 5/31/2001 $23,939 $31,600 $25,521 $24,772 6/30/2001 $23,740 $31,472 $25,243 $24,785 7/31/2001 $23,342 $31,003 $23,999 $23,114 8/31/2001 $22,611 $29,989 $22,336 $21,438 9/30/2001 $20,088 $26,259 $19,113 $17,895 10/31/2001 $20,753 $27,420 $20,238 $19,777 11/30/2001 $22,031 $29,460 $21,973 $21,906 12/31/2001 $23,511 $30,982 $22,722 $22,738 1/31/2002 $22,964 $30,821 $22,027 $22,000 2/28/2002 $22,892 $30,859 $21,020 $20,753
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 S&P MidCap 400 Index consists of 400 domestic stocks chosen for market size, liquidity and industry group representation. The Lipper Mid-Cap Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. The Russell Mid Cap Growth Index measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values. 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. 9 INTERNATIONAL EQUITY PORTFOLIO (UNAUDITED) THE INTERNATIONAL EQUITY PORTFOLIO SEEKS TO PROVIDE A TOTAL RETURN ON ASSETS FROM LONG-TERM GROWTH OF CAPITAL PRINCIPALLY THROUGH DIVERSIFIED HOLDINGS OF THE STOCKS OF ESTABLISHED FOREIGN COMPANIES OUTSIDE THE UNITED STATES. HOW THE PORTFOLIO PERFORMED For the six months ended February 28, 2002, the International Equity Portfolio had a total return of -3.02%. This compares to a total return of -8.29% for the Morgan Stanley Capital International Europe, Australia and Far East (MSCI EAFE) Index. HOW THE PORTFOLIO WAS MANAGED Given that greater than 70% of the Portfolio's "risk budget" is deployed in the selection of individual stocks, with sector and regional considerations being residual factors, excellent stock selection was the major driver of the significant outperformance of the Index that occurred during the reporting period. As a result of individual stock decisions, the Portfolio was modestly overweight relative to the Index in continental Europe and the U.K., underweight Japan, neutral Asia. The portfolio had a small allocation to Latin America, less than half of 1%, which is not in the Index. The Portfolio entered the period in a fairly defensive position given the management team's suspicions about economic growth and earnings. Post-September 11, the Portfolio's exposure to cyclical stocks was increased in light of monetary authorities' aggressive approach, and this helped performance through December. Moving into 2002, holdings of cyclical stocks were reduced, and this added to relative performance as the market turned more defensive in January and February. LOOKING AHEAD The management team believes that overall international valuations relative to those in the United States are attractive, particularly in Europe. Further, the weakness of the euro and ongoing corporate restructuring have allowed industries in Europe to be more competitive with those in the U.S., just as the weaker yen has helped Japanese firms. Taking a larger view, the management team believes that American investors would be well-served to include, and perhaps even increase, investments in non-U.S. companies. The U.S. stock market in the 1990s benefited from several important factors, central to which was a general increase in the price-to-earnings multiples of U.S. stocks relative to their overseas counterparts. It's important to note that Japan was in decline throughout the period and Europe trailed largely due to a lack of good technology companies. The strong dollar adversely affected returns from overseas investments for dollar-based investors, and the high number of global finan cial crises in the second half of the 1990s and beyond has increased the correlation of global equity markets. This "moving in tandem" during periods of crisis (the Asian currency crisis, the Russian debt default, the painfully slow unwinding of the 1990s financial bubble in Japan, the launch of the euro, the 9/11 terrorist attacks) reduced the important impact overseas diversification can have on an American's portfolio. The management team believes that, absent continuing major crises, the fact that European and U.S. economic and earnings growth rates are relatively similar should lead to a convergence in price-to-earnings multiples that will favor overseas investments. In sum, the management team's view of the future suggests that investors will increasingly benefit from both enhanced returns and reduced risk through holding international equities. 10 LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the International Equity Portfolio at NAV (Net Asset Value) would have grown to $12,958 from inception on 3/1/95 through 2/28/02.* INVESTMENT RESULTS
AVERAGE ANNUAL RETURNS AS OF 2/28/02 1 year -13.55% 3 year -0.45% 5 year 1.89% Since Inception (3/1/95) 3.77%
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INTERNATIONAL LIPPER INTERNATIONAL EQUITY PORTFOLIO MSCI EAFE INDEX FUNDS INDEX 3/1/1995 $10,000 $10,000 $10,000 3/31/1995 $10,180 $10,624 $10,263 4/30/1995 $10,350 $11,023 $10,641 5/31/1995 $10,480 $10,892 $10,745 6/30/1995 $10,470 $10,701 $10,786 7/31/1995 $11,010 $11,367 $11,379 8/31/1995 $10,890 $10,933 $11,187 9/30/1995 $11,070 $11,147 $11,374 10/31/1995 $10,909 $10,847 $11,137 11/30/1995 $10,869 $11,149 $11,253 12/31/1995 $10,889 $11,598 $11,579 1/31/1996 $11,057 $11,646 $11,852 2/29/1996 $11,131 $11,685 $11,903 3/31/1996 $11,426 $11,933 $12,089 4/30/1996 $11,753 $12,280 $12,483 5/31/1996 $11,617 $12,054 $12,469 6/30/1996 $11,680 $12,122 $12,583 7/31/1996 $11,121 $11,768 $12,159 8/31/1996 $11,152 $11,794 $12,317 9/30/1996 $11,447 $12,107 $12,593 10/31/1996 $11,299 $11,983 $12,542 11/30/1996 $11,689 $12,460 $13,132 12/31/1996 $11,647 $12,300 $13,249 1/31/1997 $11,532 $11,869 $13,266 2/28/1997 $11,797 $12,063 $13,506 3/31/1997 $11,751 $12,107 $13,578 4/30/1997 $11,727 $12,171 $13,637 5/31/1997 $12,213 $12,963 $14,407 6/30/1997 $12,687 $13,678 $15,098 7/31/1997 $13,288 $13,900 $15,583 8/31/1997 $12,075 $12,861 $14,459 9/30/1997 $12,733 $13,582 $15,388 10/31/1997 $11,728 $12,538 $14,220 11/30/1997 $11,659 $12,410 $14,100 12/31/1997 $11,815 $12,518 $14,210 1/31/1998 $12,097 $13,091 $14,554 2/28/1998 $12,867 $13,931 $15,478 3/31/1998 $13,442 $14,360 $16,319 4/30/1998 $13,747 $14,474 $16,570 5/31/1998 $13,797 $14,403 $16,603 6/30/1998 $13,626 $14,512 $16,459 7/31/1998 $14,017 $14,659 $16,711 8/31/1998 $11,778 $12,843 $14,306 9/30/1998 $11,154 $12,450 $13,861 10/31/1998 $11,876 $13,747 $14,880 11/30/1998 $12,426 $14,452 $15,625 12/31/1998 $12,885 $15,022 $16,010 1/31/1999 $13,677 $14,977 $16,107 2/28/1999 $13,132 $14,620 $15,693 3/31/1999 $13,417 $15,231 $16,216 4/30/1999 $14,040 $15,848 $16,972 5/31/1999 $13,237 $15,032 $16,340 6/30/1999 $13,756 $15,618 $17,115 7/31/1999 $14,443 $16,082 $17,496 8/31/1999 $14,728 $16,141 $17,635 9/30/1999 $14,819 $16,303 $17,691 10/31/1999 $15,351 $16,914 $18,308 11/30/1999 $17,218 $17,501 $19,650 12/31/1999 $19,549 $19,072 $22,066 1/31/2000 $18,922 $17,860 $20,775 2/29/2000 $20,416 $18,341 $22,146 3/31/2000 $20,402 $19,052 $22,203 4/30/2000 $18,948 $18,050 $20,796 5/31/2000 $18,080 $17,609 $20,224 6/30/2000 $18,506 $18,297 $21,160 7/31/2000 $17,651 $17,530 $20,475 8/31/2000 $17,759 $17,682 $20,821 9/30/2000 $16,663 $16,821 $19,607 10/31/2000 $16,197 $16,424 $18,940 11/30/2000 $15,769 $15,808 $18,141 12/31/2000 $16,282 $16,370 $18,818 1/31/2001 $16,265 $16,362 $18,929 2/28/2001 $14,990 $15,135 $17,600 3/31/2001 $14,067 $14,126 $16,362 4/30/2001 $15,040 $15,108 $17,357 5/31/2001 $14,604 $14,575 $16,937 6/30/2001 $14,017 $13,978 $16,460 7/31/2001 $13,681 $13,724 $16,032 8/31/2001 $13,362 $13,376 $15,709 9/30/2001 $12,237 $12,022 $13,997 10/31/2001 $12,606 $12,329 $14,376 11/30/2001 $13,127 $12,784 $14,913 12/31/2001 $13,412 $12,860 $15,178 1/31/2002 $12,824 $12,177 $14,565 2/28/2002 $12,958 $12,262 $14,769
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. The Lipper International Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. 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 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 six months ended February 28, 2002, the Asset Allocation Portfolio had a total return of 0.69%. This compares to a total return of 0.23% for a blended benchmark consisting of the S&P 500 (60%) and the Lehman Government Bond Index (40%). HOW THE PORTFOLIO WAS MANAGED On January 1, 2002, a new management team assumed responsibility for the management of the equity portion of the Portfolio. The team, which has an average of over 11 years of investment experience, is managing the equity portion using JPMorgan Fleming Asset Management's Analyst Portfolio Strategy. While the previous strategy was value-oriented and would overweight and underweight industry sectors, the Analyst Portfolio Strategy seeks to take advantage of JPMorgan Fleming Asset Management's research advantage by maintaining strict sector neutrality relative to the S&P 500. Its style characteristics will also mirror the S&P 500, making it a core portfolio as opposed to one focusing specifically on either value or growth. By eliminating style and sector bets, as performance factors relative to the Index, relative performance will be driven by individual-stock picking. Prior to the management changeover, the equity portion of the Portfolio benefited from strong stock-picking in the financial-services sector, where the focus was on capital-markets oriented companies which had the most to gain from a revival in financial market activity. In the first two months under the new management team, strong stock picking in semiconductors and utilities supported relative performance, while difficulties in industrial cyclical and telecommunications holdings detracted. The Portfolio began the period with an overweight in U.S. equities, and this was maintained through the management changeover given the view that the economy was recovering and would support equities versus fixed income securities. On the fixed income side, the Portfolio entered September with modestly long duration positions concentrated in shorter maturities; that is, the management team felt that interest rates would fall, but that short-term interest rates would fall the most, tracking Federal Reserve cuts in rates. These positions were extended throughout the fourth quarter as economic data continued to suggest that the economy was in the midst of a recession, and that the Federal Reserve would continue to cut short-term interest rates. . Towards the end of 2001, the management team increased exposure to mortgage-backed securities given its view that Treasuries would remain range-bound and, absent any spike in volatility, the mortgage allocation would result in a positive return for the Portfolio. Early in 2002, as credit markets proved quite volatile given accounting irregularities both real and imagined, investors' appetite for risk decreased. In this environment, the management team began moving towards a neutral parallel-duration position and further increased the overweight position in mortgage-backed securities. The slight overweight in investment-grade corporate bonds was maintained, but holdings in this sector were diversified opportunistically as a means of reducing exposure to event risk. Approaching the end of the reporting period, economic data began to suggest a rebound in manufacturing. Fourth quarter GDP growth was revised upward more than expected and inventory and consumption numbers began to support a scenario in which an economic rebound would happen sooner than the market had anticipated. As such, the Portfolio ended the reporting period with a strategically neutral-duration position. LOOKING AHEAD Going forward, the highest probability scenario is for a full economic rebound by the end of the second quarter or beginning of the third, with GDP growth in line with its long term trend (3% to 3.5%) for the full year 2002. The management team expects for the Fed to be on hold through the first half of 2002, until final demand is confirmed as a tailwind to the adjustment in inventories that has helped drive stronger economic activity, and will not hesitate to take advantage of tactical-duration positioning opportunities in the coming months. The management team anticipates a significant contribution to performance from the mortgage-backed securities allocation, expecting that the sector's strong rally versus Treasuries over the past few months will continue. Expecting that improved corporate balance sheets and profit margins as the economy moves through the current cyclical adjustment will support credit sectors, the management team expects to remain overweight to capture the performance trend. It is likely that the Portfolio will continue to overweight equities versus fixed income securities given the economic environment. 12 LIFE OF PORTFOLIO PERFORMANCE A $10,000 tax-deferred investment in the Asset Allocation Portfolio at NAV (Net Asset Value) would have grown to $15,666 from inception on 3/1/95 through 2/28/02.* INVESTMENT RESULTS
AVERAGE ANNUAL RETURNS AS OF 2/28/02 1 year -3.35% 3 year -2.00% 5 year 2.93% Since Inception (3/1/95) 6.63%
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ASSET LEHMAN GOV'T/ LIPPER BALANCED ALLOCATION PORTFOLIO S&P 500 INDEX CREDIT INDEX FUNDS INDEX 3/1/1995 $10,000 $10,000 $10,000 $10,000 3/31/1995 $10,160 $10,295 $10,067 $10,177 4/30/1995 $10,270 $10,598 $10,207 $10,368 5/31/1995 $10,570 $11,022 $10,635 $10,700 6/30/1995 $10,729 $11,278 $10,720 $10,890 7/31/1995 $10,979 $11,652 $10,678 $11,119 8/31/1995 $11,040 $11,681 $10,815 $11,206 9/30/1995 $11,200 $12,174 $10,925 $11,474 10/31/1995 $11,120 $12,131 $11,085 $11,445 11/30/1995 $11,440 $12,663 $11,268 $11,801 12/31/1995 $11,595 $12,907 $11,434 $11,986 1/31/1996 $11,880 $13,346 $11,505 $12,203 2/29/1996 $11,935 $13,470 $11,261 $12,209 3/31/1996 $12,045 $13,600 $11,166 $12,256 4/30/1996 $12,132 $13,800 $11,089 $12,337 5/31/1996 $12,198 $14,156 $11,071 $12,463 6/30/1996 $12,231 $14,210 $11,219 $12,504 7/31/1996 $12,000 $13,582 $11,245 $12,182 8/31/1996 $12,241 $13,869 $11,218 $12,375 9/30/1996 $12,625 $14,649 $11,417 $12,834 10/31/1996 $12,834 $15,053 $11,683 $13,106 11/30/1996 $13,361 $16,191 $11,898 $13,717 12/31/1996 $13,218 $15,871 $11,766 $13,552 1/31/1997 $13,595 $16,862 $11,780 $13,971 2/28/1997 $13,555 $16,994 $11,805 $14,023 3/31/1997 $13,192 $16,296 $11,665 $13,615 4/30/1997 $13,594 $17,269 $11,835 $14,024 5/31/1997 $14,100 $18,320 $11,945 $14,599 6/30/1997 $14,464 $19,141 $12,088 $15,083 7/31/1997 $15,320 $20,664 $12,458 $15,942 8/31/1997 $15,009 $19,506 $12,319 $15,437 9/30/1997 $15,464 $20,575 $12,512 $16,053 10/31/1997 $15,360 $19,888 $12,712 $15,761 11/30/1997 $15,646 $20,808 $12,780 $16,051 12/31/1997 $15,823 $21,165 $12,914 $16,304 1/31/1998 $15,725 $21,400 $13,096 $16,420 2/28/1998 $16,360 $22,943 $13,070 $17,072 3/31/1998 $16,812 $24,118 $13,110 $17,594 4/30/1998 $16,770 $24,360 $13,176 $17,717 5/31/1998 $16,642 $23,942 $13,317 $17,539 6/30/1998 $16,882 $24,914 $13,453 $17,861 7/31/1998 $16,515 $24,649 $13,463 $17,652 8/31/1998 $15,006 $21,085 $13,726 $16,131 9/30/1998 $15,570 $22,436 $14,119 $16,827 10/31/1998 $16,262 $24,261 $14,018 $17,457 11/30/1998 $16,684 $25,731 $14,102 $18,096 12/31/1998 $17,290 $27,214 $14,136 $18,763 1/31/1999 $17,368 $28,352 $14,237 $19,064 2/28/1999 $16,647 $27,471 $13,898 $18,606 3/31/1999 $16,913 $28,570 $13,967 $19,066 4/30/1999 $17,556 $29,676 $14,002 $19,691 5/31/1999 $17,259 $28,976 $13,858 $19,388 6/30/1999 $17,605 $30,584 $13,815 $19,923 7/31/1999 $17,119 $29,629 $13,776 $19,550 8/31/1999 $16,790 $29,481 $13,765 $19,345 9/30/1999 $16,587 $28,673 $13,889 $19,097 10/31/1999 $16,837 $30,487 $13,925 $19,651 11/30/1999 $16,758 $31,107 $13,917 $19,864 12/31/1999 $17,378 $32,939 $13,832 $20,451 1/31/2000 $16,940 $31,284 $13,828 $19,938 2/29/2000 $16,940 $30,692 $14,001 $19,890 3/31/2000 $17,996 $33,695 $14,202 $21,062 4/30/2000 $17,607 $32,681 $14,133 $20,676 5/31/2000 $17,088 $32,010 $14,120 $20,482 6/30/2000 $17,704 $32,799 $14,408 $20,810 7/31/2000 $17,720 $32,287 $14,561 $20,754 8/31/2000 $18,353 $34,292 $14,766 $21,679 9/30/2000 $17,656 $32,482 $14,822 $21,224 10/31/2000 $17,543 $32,344 $14,916 $21,205 11/30/2000 $16,715 $29,794 $15,171 $20,435 12/31/2000 $16,763 $29,940 $15,470 $20,944 1/31/2001 $17,113 $31,002 $15,729 $21,388 2/28/2001 $16,213 $28,175 $15,891 $20,558 3/31/2001 $15,597 $26,391 $15,965 $19,894 4/30/2001 $16,280 $28,441 $15,845 $20,730 5/31/2001 $16,280 $28,632 $15,937 $20,914 6/30/2001 $16,030 $27,935 $16,013 $20,594 7/31/2001 $16,113 $27,660 $16,412 $20,580 8/31/2001 $15,563 $25,929 $16,622 $19,993 9/30/2001 $15,047 $23,835 $16,775 $19,032 10/31/2001 $15,430 $24,289 $17,201 $19,349 11/30/2001 $15,964 $26,153 $16,919 $20,119 12/31/2001 $16,014 $26,382 $16,785 $20,264 1/31/2002 $15,927 $25,997 $16,908 $20,086 2/28/2002 $15,666 $25,496 $17,051 $19,949
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 S&P 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 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. The Lipper Balanced Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. 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 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 six months ended February 28, 2002, the U.S. Government Income Portfolio had a total return of 2.74%. This compares to a total return of 2.73% for the Lehman Government Bond Index. HOW THE PORTFOLIO WAS MANAGED The Portfolio entered September with modestly long duration positions concentrated in shorter maturities; that is, the management team felt that interest rates would fall, but that short-term interest rates would fall the most, tracking Federal Reserve cuts in rates. These positions were extended throughout the fourth quarter as economic data continued to suggest that the economy was in the midst of a recession, and that the Federal Reserve would continue to cut short-term interest rates. Towards the end of 2001, the management team increased exposure to mortgage-backed securities given its view that Treasuries would remain range-bound and, absent any spike in volatility, the mortgage allocation would result in a positive return for the Portfolio. Early in 2002, as credit markets proved quite volatile given accounting irregularities both real and imagined, investors' appetite for risk decreased. In this environment, the management team maintained its long duration and further increased exposure to mortgage-backed and agency securities. Approaching the end of the reporting period, economic data began to suggest a rebound in manufacturing. Fourth quarter GDP growth was revised upward more than expected and inventory and consumption numbers began to support a scenario in which an economic rebound would happen sooner than the market had anticipated. As such, the management team began to institute a short duration position versus the Lehman Government Bond Index. LOOKING AHEAD Going forward, the highest probability scenario is for a full economic rebound by the end of the second quarter or beginning of the third, with GDP growth in line with its long term trend for the full year 2002. The management team expects for the Fed to be on hold through the first half of 2002, until final demand is confirmed as a tailwind to the adjustment in inventories that has helped drive stronger economic activity, and anticipates maintaining the Portfolio's short duration. The management team anticipates a significant contribution to performance from the mortgage-backed securities allocation, expecting that the sector's strong rally versus Treasuries over the past few months will continue. The team is likely to tactically trade agency securities on an opportunistic basis and remain underweight in Treasuries due to improving prospects for credit sectors. 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 $15,947 from inception on 3/1/95 through 2/28/02.* INVESTMENT RESULTS
AVERAGE ANNUAL RETURNS AS OF 2/28/02 1 year 5.82% 3 year 6.53% 5 year 6.89% Since Inception (3/1/95) 6.90%
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U.S. GOVERNMENT LEHMAN U.S. GOV'T LIPPER GENERAL U.S. INCOME PORTFOLIO BOND INDEX GOV'T FUNDS INDEX 3/1/95 $10,000 $10,000 $10,000 3/31/95 $10,050 $10,063 $10,046 4/30/95 $10,170 $10,195 $10,170 5/31/95 $10,550 $10,606 $10,539 6/30/95 $10,620 $10,687 $10,602 7/31/95 $10,570 $10,648 $10,565 8/31/95 $10,690 $10,772 $10,688 9/30/95 $10,800 $10,876 $10,789 10/31/95 $10,950 $11,041 $10,931 11/30/95 $11,100 $11,213 $11,085 12/31/95 $11,236 $11,373 $11,240 1/31/96 $11,293 $11,442 $11,297 2/29/96 $11,029 $11,209 $11,065 3/31/96 $10,925 $11,116 $10,972 4/30/96 $10,856 $11,044 $10,897 5/31/96 $10,822 $11,026 $10,856 6/30/96 $10,971 $11,168 $10,982 7/31/96 $10,994 $11,196 $11,003 8/31/96 $10,971 $11,171 $10,975 9/30/96 $11,132 $11,357 $11,159 10/31/96 $11,350 $11,606 $11,401 11/30/96 $11,523 $11,808 $11,602 12/31/96 $11,431 $11,688 $11,482 1/31/97 $11,456 $11,701 $11,506 2/28/97 $11,431 $11,717 $11,530 3/31/97 $11,305 $11,593 $11,394 4/30/97 $11,469 $11,760 $11,563 5/31/97 $11,557 $11,861 $11,659 6/30/97 $11,683 $11,994 $11,797 7/31/97 $11,999 $12,334 $12,122 8/31/97 $11,859 $12,212 $11,996 9/30/97 $12,049 $12,396 $12,180 10/31/97 $12,238 $12,610 $12,359 11/30/97 $12,289 $12,674 $12,403 12/31/97 $12,397 $12,807 $12,528 1/31/98 $12,527 $12,999 $12,688 2/28/98 $12,527 $12,964 $12,663 3/31/98 $12,566 $13,001 $12,695 4/30/98 $12,617 $13,059 $12,745 5/31/98 $12,734 $13,194 $12,863 6/30/98 $12,877 $13,344 $12,972 7/31/98 $12,890 $13,364 $12,992 8/31/98 $13,176 $13,712 $13,247 9/30/98 $13,475 $14,082 $13,546 10/31/98 $13,397 $14,034 $13,446 11/30/98 $13,436 $14,038 $13,475 12/31/98 $13,461 $14,069 $13,512 1/31/99 $13,517 $14,151 $13,589 2/28/99 $13,188 $13,814 $13,295 3/31/99 $13,244 $13,868 $13,363 4/30/99 $13,271 $13,900 $13,398 5/31/99 $13,120 $13,777 $13,250 6/30/99 $13,065 $13,750 $13,181 7/31/99 $13,038 $13,729 $13,106 8/31/99 $13,023 $13,729 $13,071 9/30/99 $13,133 $13,840 $13,232 10/31/99 $13,173 $13,862 $13,253 11/30/99 $13,133 $13,843 $13,241 12/31/99 $13,088 $13,753 $13,151 1/31/00 $13,102 $13,772 $13,110 2/29/00 $13,280 $13,968 $13,277 3/31/00 $13,518 $14,214 $13,476 4/30/00 $13,488 $14,174 $13,426 5/31/00 $13,503 $14,182 $13,411 6/30/00 $13,726 $14,435 $13,681 7/31/00 $13,845 $14,575 $13,786 8/31/00 $14,039 $14,791 $13,993 9/30/00 $14,069 $14,832 $14,045 10/31/00 $14,188 $14,974 $14,157 11/30/00 $14,486 $15,269 $14,430 12/31/00 $14,754 $15,573 $14,706 1/31/01 $14,911 $15,731 $14,869 2/28/01 $15,067 $15,910 $15,015 3/31/01 $15,082 $15,966 $15,052 4/30/01 $14,895 $15,803 $14,924 5/31/01 $14,942 $15,855 $14,995 6/30/01 $15,004 $15,928 $15,044 7/31/01 $15,363 $16,310 $15,395 8/31/01 $15,520 $16,512 $15,567 9/30/01 $15,816 $16,800 $15,786 10/31/01 $16,253 $17,233 $16,167 11/30/01 $15,801 $16,847 $15,839 12/31/01 $15,625 $16,700 $15,687 1/31/02 $15,760 $16,809 $15,826 2/28/02 $15,947 $16,964 $15,994
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 Lehman U.S. Gov't 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. Gov't Funds Index represents the total returns of the funds in the indicated category, as defined by Lipper, Inc. 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. 14 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 six months ended February 28, 2002, the Money Market Portfolio had a total return of 0.99%. HOW THE PORTFOLIO WAS MANAGED In the year 2002, the Federal Reserve Board lowered interest rates 11 times, carrying out one of the most aggressive monetary policies in history to counter the U.S. economic slowdown. During the reporting period, the rate-cutting took on new urgency in the aftermath of the September 11 attacks, and the Federal Funds rate ended the year at 1.75%. Understanding that short-term rates were likely to continue falling through the end of 2002, the management team generally maintained a longer-than-benchmark weighted-average maturity in order to capture and lock in higher interest rates. This was done in conjunction with a policy of active security selection and broad allocation to maintain security of principal. With the Fed choosing not to lower interest rates further at its January 2002 meeting, the question moving forward is how quickly the economy will recover. Economic recovery, especially if it's robust, tends to be accompanied by inflationary pressures that, at some point, cause the Fed to step in and tighten monetary policy. Therefore, by the end of the reporting period the average-weighted maturity of the Portfolio had been reduced, partially through the purchase of variable-rate demand notes whose interest rates are reset and therefore offer protection in a rising-rate environment. LOOKING AHEAD Going forward, the highest probability scenario is for a full economic rebound by the end of the second quarter or beginning of the third, with GDP growth in line with its long term trend (3% to 3.5%) for the full year 2002. The management team expects the Fed to be on hold through the first half of 2002, until final demand is confirmed as a tailwind to the adjustment in inventories that has helped drive stronger economic activity. 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. 15 GROWTH AND INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--98.8% COMMON STOCKS--98.8% AEROSPACE--1.5% 800 GENERAL DYNAMICS CORP. $ 72,704 1,000 UNITED TECHNOLOGIES CORP. 72,950 ---------- 145,654 ---------- AUTOMOTIVE--2.1% 700 AUTOZONE, INC.* 46,452 7,812 FORD MOTOR CO. 116,243 2,600 GENERAL MOTORS CORP. 38,350 ---------- 201,045 ---------- BANKING--8.8% 1,900 BANK OF AMERICA CORP. 121,505 1,124 BANK OF NEW YORK CO., INC. 42,307 2,500 PNC FINANCIAL SERVICES GROUP, INC. 137,350 1,200 SUNTRUST BANKS, INC. 75,348 4,300 U.S. BANCORP 89,655 900 WACHOVIA CORP. 29,907 2,400 WASHINGTON MUTUAL, INC. 78,072 6,125 WELLS FARGO & CO. 287,263 ---------- 861,407 ---------- BROADCASTING/CABLE--1.0% 2,200 ADELPHIA COMMUNICATIONS CORP., CLASS A* 48,290 1,000 CLEAR CHANNEL COMMUNICATIONS, INC.* 46,620 ---------- 94,910 ---------- BUSINESS SERVICES--0.6% 2,100 EQUIFAX, INC. 63,000 ---------- CHEMICALS--1.7% 1,400 DOW CHEMICAL CO. 43,792 2,575 E.I. DUPONT DE NEMOURS CO. 120,613 ---------- 164,405 ---------- COMPUTERS/COMPUTER HARDWARE--1.7% 2,200 HEWLETT-PACKARD CO. 44,264 700 INTERNATIONAL BUSINESS MACHINES CORP. 68,684 1,000 LEXMARK INTERNATIONAL, INC.* 49,710 ---------- 162,658 ---------- CONSUMER PRODUCTS--3.3% 5,125 PHILIP MORRIS COMPANIES, INC. 269,883 600 PROCTER & GAMBLE CO. 50,874 ---------- 320,757 ---------- DIVERSIFIED--2.2% 2,425 GENERAL ELECTRIC CO. 93,363 4,150 TYCO INTERNATIONAL LTD (BERMUDA) 120,765 ---------- 214,128 ---------- ELECTRONICS/ELECTRICAL EQUIPMENT--1.2% 1,200 EMERSON ELECTRIC CO. 69,108 2,300 ENERGIZER HOLDINGS, INC.* 50,209 ---------- 119,317 ---------- ENVIRONMENTAL SERVICES--0.4% 1,600 WASTE MANAGEMENT, INC. $ 42,096 ---------- FINANCIAL SERVICES--12.9% 3,250 AMERICAN EXPRESS CO. 118,462 11,691 CITIGROUP, INC. 529,017 2,000 FANNIE MAE 156,499 1,500 GOLDEN WEST FINANCIAL CORP. 95,625 2,450 MERRILL LYNCH & CO., INC. 117,478 2,350 MORGAN STANLEY DEAN WITTER & CO. 115,432 1,225 STATE STREET CORP. 62,108 800 T. ROWE PRICE GROUP, INC. 31,848 400 USA EDUCATION, INC. 37,100 ---------- 1,263,569 ---------- FOOD/BEVERAGE PRODUCTS--4.6% 1,775 ANHEUSER-BUSCH COMPANIES, INC. 90,259 1,000 BROWN-FORMAN CORP., CLASS B 67,950 3,800 KRAFT FOODS, INC., CLASS A 148,579 1,900 PEPSICO, INC. 95,950 1,650 SYSCO CORP. 48,791 ---------- 451,529 ---------- HEALTH CARE/HEALTH CARE SERVICES--1.0% 700 TENET HEALTHCARE CORP.* 40,425 500 WELLPOINT HEALTH NETWORKS, INC.* 60,810 ---------- 101,235 ---------- HOTELS/OTHER LODGING--0.4% 900 MARRIOTT INTERNATIONAL, INC., CLASS A 35,523 ---------- INSURANCE--5.4% 2,925 AMERICAN INTERNATIONAL GROUP, INC. 216,363 400 CIGNA CORP. 35,880 1,000 HARTFORD FINANCIAL SERVICES GROUP, INC. 67,000 1,675 MARSH & MCLENNAN COMPANIES, INC. 176,796 1,000 PRUDENTIAL FINANCIAL, INC.* 30,570 ---------- 526,609 ---------- MACHINERY & ENGINEERING EQUIPMENT--1.3% 1,150 CATERPILLAR, INC. 63,836 1,475 DOVER CORP. 58,366 ---------- 122,202 ---------- MANUFACTURING--0.9% 2,225 HONEYWELL INTERNATIONAL, INC. 84,817 ---------- METALS/MINING--1.0% 2,600 ALCOA, INC. 97,682 ---------- MULTI-MEDIA--5.5% 5,825 AOL TIME WARNER, INC.* 144,460 500 E.W. SCRIPPS CO., CLASS A 37,600 1,600 GANNETT CO., INC. 121,888 3,875 THE WALT DISNEY CO. 89,125 3,134 VIACOM, INC., CLASS B* 145,888 ---------- 538,961 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 16
SHARES ISSUER VALUE ------ ------ ----- OIL & GAS--13.5% 1,300 BURLINGTON RESOURCES, INC. $ 48,854 3,750 CHEVRONTEXACO CORP. 316,650 1,900 CONOCO, INC. 52,554 1,200 DEVON ENERGY CORP. 52,416 12,916 EXXON MOBIL CORP. 533,430 900 PHILLIPS PETROLEUM CO. 53,199 2,825 ROYAL DUTCH PETROLEUM CO., N.Y. REGISTERED SHARES (THE NETHERLANDS) 145,120 2,025 SCHLUMBERGER LTD 117,875 ---------- 1,320,098 ---------- PACKAGING--0.4% 800 SEALED AIR CORP.* 35,984 ---------- PAPER/FOREST PRODUCTS--1.1% 1,252 INTERNATIONAL PAPER CO. 54,775 825 WEYERHAEUSER CO. 51,002 ---------- 105,777 ---------- PHARMACEUTICALS--3.7% 2,150 ABBOTT LABORATORIES 121,582 1,450 AMERICAN HOME PRODUCTS CORP. 92,148 2,000 PFIZER, INC. 81,920 1,709 PHARMACIA CORP. 70,154 ---------- 365,804 ---------- PIPELINES--0.8% 1,200 EL PASO CORP. 46,896 2,000 WILLIAMS COMPANIES, INC. 30,900 ---------- 77,796 ---------- REAL ESTATE INVESTMENT TRUST--0.5% 1,200 PUBLIC STORAGE, INC. 44,112 ---------- RESTAURANTS/FOOD SERVICES--0.6% 2,125 MCDONALD'S CORP. 55,463 ---------- RETAILING--2.5% 2,500 CIRCUIT CITY STORES, INC. 44,700 1,900 GAP, INC. 22,743 2,650 LIMITED, INC. 47,727 1,425 MAY DEPARTMENT STORES CO. 52,211 825 TARGET CORP. 34,568 2,300 TOYS R US, INC.* 40,963 ---------- 242,912 ---------- SEMI-CONDUCTORS--2.2% 2,075 ALTERA CORP.* 39,570 1,125 APPLIED MATERIALS, INC.* 48,904 825 INTEL CORP. 23,579 3,650 TEXAS INSTRUMENTS, INC. 107,127 ---------- 219,180 ---------- TELECOMMUNICATIONS--10.2% 11,127 AT&T CORP. 172,914 5,725 BELLSOUTH CORP. 221,901 5,625 SBC COMMUNICATIONS, INC. 212,850 1,800 SPRINT CORP. (FON GROUP) $ 25,362 3,500 SPRINT CORP. (PCS GROUP)* 32,375 7,000 VERIZON COMMUNICATIONS, INC. 327,599 ---------- 993,001 ---------- TELECOMMUNICATIONS EQUIPMENT--0.3% 2,445 MOTOROLA, INC. 31,785 ---------- UTILITIES--5.5% 2,600 CONSOLIDATED EDISON, INC. 106,080 2,225 DOMINION RESOURCES, INC. 129,673 3,400 DUKE ENERGY CORP. 120,020 2,500 ENERGY EAST CORP. 48,800 1,400 FIRSTENERGY CORP. 51,240 1,625 TXU CORP. 82,664 ---------- 538,477 ---------- TOTAL COMMON STOCKS (COST $9,840,794) 9,641,893 ---------- SHORT-TERM INVESTMENTS--1.2% MONEY MARKET FUND--1.2% 117,176 JPMORGAN PRIME MONEY MARKET FUND (a) (COST $117,176) 117,176 ---------- TOTAL INVESTMENTS--100.0% (COST $9,957,970) $9,759,069 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 17 CAPITAL GROWTH PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--99.6% COMMON STOCKS--99.6% APPAREL--2.0% 4,300 JONES APPAREL GROUP, INC.* $153,338 -------- AUTOMOTIVE--0.9% 1,200 BORGWARNER, INC. 72,180 -------- BANKING--8.5% 2,000 ASSOCIATED BANC-CORP. 73,320 1,890 COMMERCE BANCSHARES, INC. 78,889 3,200 COMPASS BANCSHARES, INC. 95,840 3,500 CULLEN/FROST BANKERS, INC. 120,575 2,800 FIRSTMERIT CORP. 76,664 1,900 MERCANTILE BANKSHARES CORP. 83,239 2,600 TCF FINANCIAL CORP. 133,640 -------- 662,167 -------- BIOTECHNOLOGY--2.2% 2,300 GENZYME CORP.-GENERAL DIVISION* 102,074 800 IDEC PHARMACEUTICALS CORP.* 50,256 1,100 PROTEIN DESIGN LABS, INC.* 17,457 -------- 169,787 -------- BROADCASTING/CABLE--1.2% 2,200 UNIVISION COMMUNICATIONS, INC., CLASS A* 90,728 -------- BUSINESS SERVICES--10.3% 5,400 AFFILIATED COMPUTER SERVICES, INC., CLASS A* 264,114 9,500 CONCORD EFS, INC.* 285,285 3,100 MANPOWER, INC. 103,943 5,000 SUNGARD DATA SYSTEMS, INC.* 154,350 -------- 807,692 -------- COMPUTER SOFTWARE--2.0% 2,100 RATIONAL SOFTWARE CORP.* 38,976 800 SYNOPSYS, INC.* 37,680 2,300 VERITAS SOFTWARE CORP.* 81,627 -------- 158,283 -------- CONSTRUCTION--1.7% 2,400 LENNAR CORP. 132,504 -------- CONSTRUCTION MATERIALS--3.0% 2,400 AMERICAN STANDARD COMPANIES, INC.* 156,720 1,800 MARTIN MARIETTA MATERIALS, INC. 75,150 -------- 231,870 -------- ELECTRONICS/ELECTRICAL EQUIPMENT--3.7% 2,000 AMPHENOL CORP., CLASS A* 84,360 3,700 PERKINELMER, INC. 85,100 2,176 SANMINA-SCI CORP.* 22,086 5,600 VISHAY INTERTECHNOLOGY, INC.* 99,176 -------- 290,722 -------- ENTERTAINMENT/LEISURE--5.9% 4,300 HARRAH'S ENTERTAINMENT, INC.* 173,892 2,000 INTERNATIONAL SPEEDWAY CORP., CLASS A 87,880 9,900 PARK PLACE ENTERTAINMENT CORP.* $ 96,723 2,400 SABRE GROUP HOLDINGS, INC.* 105,624 -------- 464,119 -------- ENVIRONMENTAL SERVICES--0.7% 3,200 REPUBLIC SERVICES, INC.* 57,440 -------- FINANCIAL SERVICES--3.0% 2,800 A.G. EDWARDS, INC. 114,380 2,500 FIRST AMERICAN CORP. 49,475 1,100 GOLDEN WEST FINANCIAL CORP. 70,125 -------- 233,980 -------- FOOD/BEVERAGE PRODUCTS--2.2% 7,000 PEPSI BOTTLING GROUP, INC. 173,950 -------- HEALTH CARE/HEALTH CARE SERVICES--10.7% 5,600 CYTYC CORP.* 131,376 5,850 DENTSPLY INTERNATIONAL, INC. 194,044 8,800 HEALTH MANAGEMENT ASSOCIATES, INC., CLASS A* 155,320 8,800 HEALTHSOUTH CORP.* 104,808 4,800 OXFORD HEALTH PLANS, INC.* 174,480 1,300 STRYKER CORP. 79,950 -------- 839,978 -------- INSURANCE--7.0% 5,500 ACE LTD (BERMUDA) 241,450 4,300 RADIAN GROUP, INC. 200,681 2,700 TORCHMARK CORP. 108,513 -------- 550,644 -------- INTERNET SERVICES/SOFTWARE--2.0% 4,600 RIVERSTONE NETWORKS, INC.* 17,572 1,600 SYMANTEC CORP.* 57,696 2,800 TMP WORLDWIDE, INC.* 78,176 -------- 153,444 -------- MACHINERY & ENGINEERING EQUIPMENT--1.6% 2,500 ZEBRA TECHNOLOGIES CORP., CLASS A* 128,725 -------- MANUFACTURING--1.1% 2,200 FMC CORP.* 83,050 -------- MULTI-MEDIA--1.4% 5,000 BELO CORP., CLASS A 109,750 -------- OIL & GAS--5.6% 3,000 COOPER CAMERON CORP.* 134,700 3,783 FMC TECHNOLOGIES, INC.* 70,402 1,800 NABORS INDUSTRIES, INC.* 63,846 1,341 PANCANADIAN ENERGY CORP. (CANADA)* 38,862 3,500 TALISMAN ENERGY, INC. (CANADA) 132,615 -------- 440,425 -------- PAPER/FOREST PRODUCTS--1.0% 1,500 BOWATER, INC. 77,325 --------
SEE NOTES TO FINANCIAL STATEMENTS. 18
SHARES ISSUER VALUE ------ ------ ----- PHARMACEUTICALS--4.2% 2,500 AMERISOURCEBERGEN CORP.* $ 169,250 2,100 BIOVAIL CORP. (CANADA)* 99,750 2,000 WATSON PHARMACEUTICALS, INC.* 58,560 ---------- 327,560 ---------- PIPELINES--0.8% 1,600 EL PASO CORP. 62,528 ---------- REAL ESTATE--0.8% 1,800 LNR PROPERTY CORP. 59,580 ---------- REAL ESTATE INVESTMENT TRUST--1.1% 3,200 EQUITY RESIDENTIAL PROPERTIES TRUST 86,240 ---------- RESTAURANTS/FOOD SERVICES--1.8% 4,000 BRINKER INTERNATIONAL, INC.* 137,360 ---------- RETAILING--3.1% 1,700 BJ'S WHOLESALE CLUB, INC.* 69,955 2,200 FEDERATED DEPARTMENT STORES, INC.* 92,202 2,700 LINENS `N THINGS, INC.* 77,247 ---------- 239,404 ---------- SEMI-CONDUCTORS--2.9% 1,600 ALTERA CORP.* 30,512 1,800 INTERSIL CORP., CLASS A* 49,284 4,200 MICROCHIP TECHNOLOGY, INC.* 143,556 ---------- 223,352 ---------- SHIPPING/TRANSPORTATION--1.4% 3,700 C.H. ROBINSON WORLDWIDE, INC. 107,670 ---------- TELECOMMUNICATIONS--1.3% 2,700 U.S. CELLULAR CORP.* 104,760 ---------- TRANSPORTATION--0.5% 2,100 CANADIAN PACIFIC RAILWAY LTD (CANADA)* 42,210 ---------- UTILITIES--4.0% 1,100 ALLIANT ENERGY CORP. $ 31,911 2,000 AMERICAN WATER WORKS, INC. 86,220 1,600 NICOR, INC. 66,960 2,618 NISOURCE, INC. 54,952 2,500 SCANA CORP. 69,375 ---------- 309,418 ---------- TOTAL COMMON STOCKS (COST $6,179,435) 7,782,183 ---------- SHORT-TERM INVESTMENTS--0.4% MONEY MARKET FUND--0.4% 30,142 JPMORGAN PRIME MONEY MARKET FUND (a) (COST $30,142) 30,142 ---------- TOTAL INVESTMENTS--100.0% (COST $6,209,577) $7,812,325 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 19 INTERNATIONAL EQUITY PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--100.0% COMMON STOCKS--100.0% AUSTRALIA--1.8% 3,000 BRAMBLES INDUSTRIES PLC $ 13,007 1,500 NATIONAL AUSTRALIA BANK LTD 27,736 3,158 NEWS CORP., LTD 19,905 3,985 WOODSIDE PETROLEUM LTD 28,756 ---------- 89,404 ---------- BELGIUM--2.2% 5,240 DEXIA GROUP 78,600 1,500 FORTIS GROUP* 33,283 ---------- 111,883 ---------- BRAZIL--0.5% 1,065 UNIAO DE BANCOS BRASILEIROS SA, GDR 25,773 ---------- FINLAND--3.2% 7,703 NOKIA OYJ 161,057 ---------- FRANCE--11.7% 1,301 AVENTIS SA 96,506 4,436 AXA 82,695 1,350 BNP PARIBAS* 65,456 438 CAP GEMINI SA 29,042 510 COMPAGNIE DE SAINT-GOBAIN 79,191 1,000 DASSAULT SYSTEMES SA 45,977 390 IMERYS SA 41,024 1,000 TOTALFINAELF SA, CLASS B 146,972 ---------- 586,863 ---------- GERMANY--9.4% 2,941 BAYER AG 93,751 2,309 BAYERISCHE MOTOREN WERKE AG 85,090 1,817 DEUTSCHE BANK AG 106,726 2,466 DEUTSCHE POST AG 31,785 1,945 HEIDELBERGER ZEMENT AG 88,333 1,123 SIEMENS AG 65,767 ---------- 471,452 ---------- HONG KONG--2.2% 7,000 CHEUNG KONG HOLDINGS LTD 58,339 8,000 HENDERSON LAND DEVELOPMENT CO., LTD 31,182 16,500 MTR CORP., LTD 22,425 ---------- 111,946 ---------- ITALY--4.4% 14,153 ENTE NAZIONALE IDROCARBURI SPA 194,554 3,296 TELECOM ITALIA SPA 27,015 ---------- 221,569 ---------- JAPAN--17.0% 500 ACOM CO., LTD 27,398 2,000 CANON, INC. 70,026 5 FUJI TELEVISION NETWORK, INC. 24,636 400 HIROSE ELECTRIC CO., LTD 28,608 1,200 HONDA MOTOR CO., LTD 47,928 800 HOYA CORP. $ 52,557 3,000 KANEKA CORP. 17,984 2,000 KAO CORP. 37,551 1,000 MURATA MANUFACTURING CO., LTD 62,112 11,000 NIKKO SECURITIES CO., LTD 42,291 300 NINTENDO CO., LTD 43,583 17 NIPPON TELEGRAPH AND TELEPHONE CORP. 54,192 2 NIPPON UNIPAC HOLDING 10,019 2 NTT DOCOMO, INC. 20,754 400 ROHM CO., LTD 57,783 1,600 SONY CORP. 72,624 6,000 SUMITOMO CORP. 30,952 1,000 TAKEDA CHEMICAL INDUSTRIES LTD 40,538 500 TAKEFUJI CORP. 30,422 700 TDK CORP. 31,773 1,300 TERUMO CORP. 15,790 1,000 YAMANOUCHI PHARMACEUTICAL CO., LTD 26,055 ---------- 845,576 ---------- NETHERLANDS--5.7% 3,487 ABN AMRO HOLDING NV 60,721 5,200 ELSEVIER NV 66,574 3,492 ING GROEP NV 83,041 2,795 KONINKLIJKE PHILIPS ELECTRONICS NV 73,019 ---------- 283,355 ---------- PORTUGAL--0.8% 9,018 BRISA-AUTO ESTRADAS DE PORTUGAL SA 39,473 ---------- SOUTH KOREA--2.5% 1,300 KOREA TELECOM CORP., ADR 28,990 1,500 POHANG IRON & STEEL CO., LTD, ADR 41,580 400 SAMSUNG ELECTRONICS, GDR, # 52,500 ---------- 123,070 ---------- SPAIN--3.1% 5,360 ALTADIS SA 88,792 1,867 BANCO POPULAR ESPANOL SA 65,894 ---------- 154,686 ---------- SWEDEN--1.1% 11,034 NORDEA AB 57,412 ---------- SWITZERLAND--6.1% 410 NESTLE SA 90,545 2,880 NOVARTIS AG 109,382 1,100 ROCHE HOLDING AG 77,265 140 ZURICH FINANCIAL SERVICES AG 27,058 ---------- 304,250 ---------- UNITED KINGDOM--28.3% 2,100 ABBEY NATIONAL PLC 28,263 4,870 ALLIED DOMECQ PLC 27,648 2,370 ANGLO AMERICAN PLC 40,198 614 AUTONOMY CORP., PLC* 2,829 19,461 BAE SYSTEMS PLC 87,398
SEE NOTES TO FINANCIAL STATEMENTS. 20
SHARES ISSUER VALUE ------ ------ ----- UNITED KINGDOM (CONT'D) 3,198 BARCLAYS PLC $ 93,715 18,337 BG GROUP PLC 75,747 2,009 BOC GROUP PLC 29,592 7,144 BP PLC 58,769 8,771 BRITISH LAND CO., PLC 64,226 6,204 CGNU PLC 62,864 6,290 COMPASS GROUP PLC 42,816 4,335 GKN PLC 17,999 5,646 GLAXOSMITHKLINE PLC 137,463 19,537 LATTICE GROUP PLC 46,697 2,964 POWERGEN PLC 32,232 2,700 RECKITT BENCKISER PLC 42,668 5,357 REUTERS GROUP PLC 39,643 3,180 SCHRODERS PLC 33,009 4,808 SIX CONTINENTS PLC 47,938 28,607 TESCO PLC 101,809 8,662 UNILEVER PLC 71,685 86,094 VODAFONE GROUP PLC 162,622 7,660 WOLSELEY PLC 64,582 ---------- 1,412,412 ---------- TOTAL INVESTMENTS--100.0% (COST $6,097,844) $5,000,181 ==========
SUMMARY OF INVESTMENTS BY INDUSTRY, FEBRUARY 28, 2002
INDUSTRY % OF INVESTMENT SECURITIES Banking 12.2% Oil & Gas 10.1% Pharmaceuticals 9.7% Telecommunications 5.9% Food/Beverage Products 5.6% Consumer Products 5.4% Insurance 5.1% Telecommunications Equipment 4.5% Financial Services 3.3% Retailing 3.3% Manufacturing 3.2% Real Estate 3.1% Automotive 3.0% Multi-Media 3.0% Construction Materials 2.6% Chemicals 2.5% Electronics/Electrical Equipment 2.4% Semi-Conductors 2.2% Other (below 2%) 12.9% - -------------------------------------------------------- Total 100.0%
SEE NOTES TO FINANCIAL STATEMENTS. 21 ASSET ALLOCATION PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
SHARES ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--93.1% COMMON STOCKS--56.3% AEROSPACE--0.4% 450 UNITED TECHNOLOGIES CORP. $ 32,828 ---------- AGRICULTURAL PRODUCTION/SERVICES--0.4% 1,000 MONSANTO CO. 30,960 ---------- AIRLINES--0.5% 1,975 SOUTHWEST AIRLINES, INC. 41,692 ---------- APPAREL--0.4% 850 JONES APPAREL GROUP, INC.* 30,311 ---------- AUTOMOTIVE--0.7% 1,950 FORD MOTOR CO. 29,016 350 JOHNSON CONTROLS, INC. 31,066 ---------- 60,082 ---------- BANKING--1.7% 1,800 BANK ONE CORP. 64,512 3,450 U.S. BANCORP 71,933 ---------- 136,445 ---------- BIOTECHNOLOGY--0.9% 950 AMGEN, INC.* 55,081 1,000 HUMAN GENOME SCIENCES, INC.* 20,520 ---------- 75,601 ---------- BROADCASTING/CABLE--0.4% 1,400 ADELPHIA COMMUNICATIONS CORP., CLASS A* 30,730 ---------- BUSINESS SERVICES--0.6% 1,900 ACCENTURE LTD, CLASS A (BERMUDA)* 49,761 ---------- CHEMICALS--0.8% 850 DOW CHEMICAL CO. 26,588 800 EASTMAN CHEMICAL CO. 35,200 ---------- 61,788 ---------- COMPUTER NETWORKS--1.1% 6,400 CISCO SYSTEMS, INC.* 91,328 ---------- COMPUTER SOFTWARE--2.0% 2,725 MICROSOFT CORP.* 158,977 ---------- COMPUTERS/COMPUTER HARDWARE--3.3% 1,325 DELL COMPUTER CORP.* 32,714 2,200 EMC CORP.* 23,980 1,025 INTERNATIONAL BUSINESS MACHINES CORP. 100,573 1,900 NCR CORP.* 79,420 3,600 SUN MICROSYSTEMS, INC.* 30,636 ---------- 267,323 ---------- CONSUMER PRODUCTS--2.8% 375 COLGATE-PALMOLIVE CO. 20,993 1,300 GILLETTE CO. 44,447 1,425 PHILIP MORRIS COMPANIES, INC. 75,041 1,000 PROCTER & GAMBLE CO. 84,789 ---------- 225,270 ---------- DIVERSIFIED--3.6% 4,375 GENERAL ELECTRIC CO. $ 168,438 4,150 TYCO INTERNATIONAL LTD (BERMUDA) 120,765 ---------- 289,203 ---------- ENVIRONMENTAL SERVICES--0.6% 1,900 WASTE MANAGEMENT, INC. 49,989 ---------- FINANCIAL SERVICES--5.5% 850 CAPITAL ONE FINANCIAL CORP. 41,880 3,150 CITIGROUP, INC.,@ 142,537 1,000 COUNTRYWIDE CREDIT INDUSTRIES, INC. 41,050 4,500 E*TRADE GROUP, INC.* 36,450 875 FANNIE MAE 68,468 1,000 GOLDMAN SACHS GROUP, INC. 80,939 525 HOUSEHOLD INTERNATIONAL, INC. 27,038 ---------- 438,362 ---------- FOOD/BEVERAGE PRODUCTS--1.8% 1,625 COCA-COLA CO. 77,009 775 SYSCO CORP. 22,917 800 UNILEVER NV, N.Y. REGISTERED SHARES (THE NETHERLANDS) 46,624 ---------- 146,550 ---------- HEALTH CARE/HEALTH CARE SERVICES--1.5% 450 BAXTER INTERNATIONAL, INC. 24,966 1,150 BECTON, DICKINSON & CO. 42,193 550 MEDTRONIC, INC. 24,497 525 TENET HEALTHCARE CORP.* 30,319 ---------- 121,975 ---------- INSURANCE--2.6% 1,575 AMBAC FINANCIAL GROUP, INC. 97,729 1,250 CIGNA CORP. 112,125 ---------- 209,854 ---------- INTERNET SERVICES/SOFTWARE--0.3% 400 EBAY, INC.* 20,820 ---------- MANUFACTURING--0.3% 400 DANAHER CORP. 26,892 ---------- METALS/MINING--0.5% 1,100 ALCOA, INC. 41,327 ---------- MULTI-MEDIA--2.0% 1,275 AOL TIME WARNER, INC.* 31,620 650 GANNETT CO., INC. 49,516 1,850 GEMSTAR-TV GUIDE INTERNATIONAL, INC.* 33,837 1,050 VIACOM, INC., CLASS B* 48,878 ---------- 163,851 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 22
SHARES ISSUER VALUE ------ ------ ----- OIL & GAS--4.0% 1,100 ANADARKO PETROLEUM CORP. $ 57,310 1,700 BJ SERVICES CO.* 56,355 1,075 CHEVRONTEXACO CORP. 90,773 2,790 EXXON MOBIL CORP. 115,226 --------- 319,664 --------- PHARMACEUTICALS--5.7% 1,575 ABBOTT LABORATORIES 89,065 825 AMERICAN HOME PRODUCTS CORP. 52,429 1,200 JOHNSON & JOHNSON 73,080 775 LILLY (ELI) & CO. 58,691 2,231 PFIZER, INC. 91,381 1,000 PHARMACIA CORP. 41,050 1,350 SCHERING-PLOUGH CORP. 46,562 --------- 452,258 --------- RESTAURANTS/FOOD SERVICES--0.6% 875 TRICON GLOBAL RESTAURANTS, INC.* 51,739 --------- RETAILING--3.6% 1,475 BED BATH & BEYOND, INC.* 49,265 1,950 HOME DEPOT, INC. 97,499 1,625 TARGET CORP. 68,088 1,275 WAL-MART STORES, INC. 79,063 --------- 293,915 --------- SEMI-CONDUCTORS--2.6% 4,575 INTEL CORP. 130,754 600 LINEAR TECHNOLOGY CORP. 22,098 1,800 TEXAS INSTRUMENTS, INC. 52,830 --------- 205,682 --------- TELECOMMUNICATIONS--2.6% 2,280 AT&T CORP. 35,431 5,350 AT&T WIRELESS SERVICES, INC.* 53,982 4,450 SPRINT CORP. (PCS GROUP)* 41,163 1,623 VERIZON COMMUNICATIONS, INC. 75,956 --------- 206,532 --------- TOYS & GAMES--0.4% 1,850 MATTEL, INC. 35,058 --------- UTILITIES--2.1% 1,550 CMS ENERGY CORP. 33,790 3,000 PG&E CORP.* 63,630 1,700 PINNACLE WEST CAPITAL CORP. 68,952 --------- 166,372 --------- TOTAL COMMON STOCKS (COST $4,713,301) 4,533,139 ---------
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- U.S. TREASURY SECURITIES--1.9% U.S. TREASURY NOTES & BONDS, $50,000 5.63%, 05/15/08,@ $ 52,828 20,000 5.38%, 02/15/31,@ 19,875 65,000 8.00%, 11/15/21,@ 83,606 --------- TOTAL U.S. TREASURY SECURITIES (COST $158,151) 156,309 --------- U.S. GOVERNMENT AGENCY SECURITIES--9.4% 700,000 FEDERAL HOME LOAN BANK, DN, 1.84%, 03/01/02,@ 700,000 50,000 TENNESSEE VALLEY AUTHORITY, 6.75%, 11/01/25,@ 53,860 --------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $748,091) 753,860 --------- CORPORATE NOTES & BONDS--6.9% AEROSPACE--0.1% 5,000 NORTHROP GRUMMAN CORP., 7.75%, 02/15/31,@ 5,356 --------- AUTOMOTIVE--0.6% 5,000 DAIMLERCHRYSLER NA HOLDING CORP., 8.50%, 01/18/31,@ 5,601 50,000 FORD MOTOR CREDIT CO., 5.80%, 01/12/09,@ 46,375 --------- 51,976 --------- BANKING--0.9% 5,000 ABBEY NATIONAL CAPITAL TRUST I, FRN, 8.96%, 12/29/49,@ 5,856 10,000 BANK OF AMERICA CORP., 7.40%, 01/15/11,@ 10,918 15,000 BB&T CORP., 6.50%, 08/01/11,@ 15,407 10,000 FIRST UNION NATIONAL BANK, 7.80%, 08/18/10,@ 11,204 5,000 NATIONAL CITY BANK, SER. BKNT, 6.20%, 12/15/11,@ 5,030 5,000 STANDARD CHARTERED BANK PLC (UNITED KINGDOM), #, 8.00%, 05/30/31,@ 5,285 5,000 SUNTRUST BANKS, INC., 6.38%, 04/01/11,@ 5,159 15,000 U.S. BANK NA, 6.38%, 08/01/11,@ 15,383 --------- 74,242 --------- BROADCASTING/CABLE--0.1% 10,000 COX COMMUNICATIONS, INC., 6.75%, 03/15/11,@ 9,734 --------- COMPUTERS/COMPUTER HARDWARE--0.1% 10,000 INTERNATIONAL BUSINESS MACHINES CORP., 6.50%, 01/15/28,@ 9,863 --------- DIVERSIFIED--0.2% 20,000 GENERAL ELECTRIC CAPITAL CORP., MTN, 5.88%, 02/15/12,@ 19,970 --------- FINANCIAL SERVICES--1.0% 10,000 CIT GROUP, INC., 6.50%, 02/07/06,@ 9,745 10,000 CITIGROUP, INC., 7.25%, 10/01/10,@ 10,852 5,000 CREDIT SUISSE FIRST BOSTON USA, INC., 6.50%, 01/15/12,@ 5,094 GENERAL MOTORS ACCEPTANCE CORP., 20,000 7.25%, 03/02/11,@ 20,530 5,000 8.00%, 11/01/31,@ 5,274 5,000 GOLDMAN SACHS GROUP, INC., 6.60%, 01/15/12,@ 5,090
SEE NOTES TO FINANCIAL STATEMENTS. 23
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- $10,000 MORGAN STANLEY DEAN WITTER & CO., 6.10%, 04/15/06,@ $ 10,486 10,000 UBS PREFERRED FUNDING TRUST I, FRN, 8.62%, 10/29/49,@ 11,364 5,000 WASHINGTON MUTUAL BANK FA, 6.88%, 06/15/11,@ 5,137 ----------- 83,572 ----------- FOOD/BEVERAGE PRODUCTS--0.2% 5,000 GENERAL MILLS, INC., 6.00%, 02/15/12,@ 5,024 10,000 SAFEWAY, INC., 6.50%, 03/01/11,@ 10,369 ----------- 15,393 ----------- INSURANCE--0.1% 5,000 METLIFE, INC., 6.13%, 12/01/11,@ 5,096 ----------- MANUFACTURING--0.1% 5,000 HONEYWELL INTERNATIONAL, INC., 6.13%, 11/01/11,@ 4,955 ----------- METALS/MINING--0.1% 5,000 ALCOA, INC., 6.00%, 01/15/12,@ 5,053 ----------- MULTI-MEDIA--0.4% 15,000 AOL TIME WARNER, INC., 6.75%, 04/15/11,@ 15,265 10,000 CLEAR CHANNEL COMMUNICATIONS, INC., 7.65%, 09/15/10,@ 10,241 5,000 TCI COMMUNICATIONS, INC., 7.88%, 02/15/26,@ 5,004 ----------- 30,510 ----------- OIL & GAS--0.3% 5,000 ALBERTA ENERGY CO., LTD (CANADA) (YANKEE), 7.38%, 11/01/31,@ 5,234 5,000 OCCIDENTAL PETROLEUM CORP., 6.75%, 01/15/12,@ 5,187 5,000 PURE RESOURCES, INC., 7.13%, 06/15/11,@ 4,870 5,000 TOSCO CORP., 8.13%, 02/15/30,@ 5,958 ----------- 21,249 ----------- PAPER/FOREST PRODUCTS--0.1% 5,000 INTERNATIONAL PAPER CO., 6.75%, 09/01/11,@ 5,094 ----------- PIPELINES--0.1% 5,000 KINDER MORGAN ENERGY PARTNERS LP, 7.40%, 03/15/31,@ 5,020 5,000 WILLIAMS COMPANIES, INC., SER. A, 7.50%, 01/15/31,@ 4,273 ----------- 9,293 ----------- RETAILING--0.1% 5,000 FEDERATED DEPARTMENT STORES, 7.00%, 02/15/28,@ 4,845 5,000 LOWE'S COMPANIES, INC., 6.88%, 02/15/28,@ 5,127 ----------- 9,972 ----------- SHIPPING/TRANSPORTATION--0.3% $10,000 BURLINGTON NORTHERN SANTA FE CORP., 6.75%, 07/15/11,@ $ 10,410 5,000 NORFOLK SOUTHERN CORP., 6.75%, 02/15/11,@ 5,231 10,000 UNION PACIFIC CORP., 6.65%, 01/15/11,@ 10,367 ----------- 26,008 ----------- TELECOMMUNICATIONS--1.8% 75,000 AT&T CORP., 5.63%, 03/15/04,@ 75,523 10,000 AT&T WIRELESS SERVICES, INC., 7.88%, 03/01/11,@ 10,363 5,000 BELLSOUTH CAPITAL FUNDING, 7.88%, 02/15/30,@ 5,825 10,000 DEUTSCHE TELEKOM INTERNATIONAL FINANCE BV (THE NETHERLANDS), 8.00%, 06/15/10,@ 10,823 15,000 FRANCE TELECOM SA (FRANCE), SUB, #, 7.75%, 03/01/11,@ 15,512 5,000 SBC COMMUNICATIONS, INC., 5.88%, 02/01/12,@ 4,947 10,000 SPRINT CAPITAL CORP., 6.88%, 11/15/28,@ 8,145 WORLDCOM, INC., 10,000 7.50%, 05/15/11,@ 9,605 5,000 8.25%, 05/15/31,@ 4,779 ----------- 145,522 ----------- UTILITIES--0.3% 5,000 DTE ENERGY CO., 7.05%, 06/01/11,@ 5,289 5,000 DUKE ENERGY CORP., 6.25%, 01/15/12,@ 5,120 5,000 NATIONAL RURAL UTILITIES, 6.00%, 05/15/06,@ 5,003 5,000 PACIFICORP, 7.70%, 11/15/31,@ 5,505 ----------- 20,917 ----------- TOTAL CORPORATE NOTES & BONDS (COST $550,290) 553,775 ----------- RESIDENTIAL MORTGAGE BACKED SECURITIES--14.5% MORTGAGE BACKED PASS-THROUGH SECURITIES--14.5% FEDERAL NATIONAL MORTGAGE ASSOCIATION, 100,000 TBA, 6.00%, 03/25/16 101,438 250,000 TBA, 6.00%, 03/25/31 248,515 600,000 TBA, 6.50%, 04/01/32 606,563 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, 38,419 POOL 483490, 6.50%, 10/15/28,@ 39,188 167,086 POOL 550867, 7.00%, 09/15/31,@ 172,620 ----------- TOTAL RESIDENTIAL MORTGAGE BACKED SECURITIES (COST $1,164,050) 1,168,324 ----------- COMMERCIAL MORTGAGE BACKED SECURITIES--1.5% 20,000 CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., SER. 2001-CF2, CLASS A4, 6.51%, 02/15/34,@ 20,701 LB-UBS COMMERCIAL CONDUIT MORTGAGE TRUST, 45,000 SER. 2001-C2, CLASS A2, 6.65%, 11/15/27,@ 47,194 50,000 SER. 2001-C3, CLASS A2, 6.37%, 12/15/28,@ 51,500 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (COST $115,568) 119,395 -----------
SEE NOTES TO FINANCIAL STATEMENTS. 24
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- ASSET BACKED SECURITIES--2.6% $25,000 AMERICREDIT AUTOMOBILE RECEIVABLES TRUST, SER. 2001-B, CLASS A4, 5.37%, 06/12/08,@ $ 25,734 70,000 CAPITAL ONE MASTER TRUST, SER. 2001-3A, CLASS A, 5.45%, 03/16/09,@ 71,969 FORD CREDIT AUTO OWNER TRUST, 30,000 SER. 2001-C, CLASS A4, 4.83%, 02/15/05,@ 30,515 15,000 SER. 2001-C, CLASS A5, 5.25%, 09/15/05,@ 15,328 20,000 HONDA AUTO RECEIVABLES OWNER TRUST, SER. 2001-1, CLASS A4, 5.56%, 06/19/06,@ 20,662 45,000 MBNA CREDIT CARD MASTER NOTE TRUST, SER. 2001-A1, CLASS A1, 5.75%, 10/15/08,@ 46,772 ---------- TOTAL ASSET BACKED SECURITIES (COST $205,154) 210,980 ---------- TOTAL LONG-TERM INVESTMENTS (COST $7,564,605) 7,495,782 ---------- SHARES ISSUER VALUE ------ ------ ----- SHORT-TERM INVESTMENTS--6.9% MONEY MARKET FUND--6.9% 557,330 JPMORGAN PRIME MONEY MARKET FUND (a),@ (COST $557,330) $ 557,330 TOTAL INVESTMENTS--100.0% (COST $8,211,935) $8,053,112 ========== FUTURES NOTIONAL NUMBER VALUE AT UNREALIZED OF EXPIRATION 02/28/02 DEPRECIATION CONTRACTS DESCRIPTION DATE (USD) (USD) - -------------------------------------------------------------------------------------------------- Long Futures Outstanding 4 U.S. 2 Year Treasury Note June, 2002 $834,938 ($256) Short Futures Outstanding 6 U.S. 5 Year Treasury Note June, 2002 638,250 (869)
SEE NOTES TO FINANCIAL STATEMENTS. 25 U.S. GOVERNMENT INCOME PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- LONG-TERM INVESTMENTS--91.5% U.S. TREASURY SECURITIES--39.8% U.S. TREASURY NOTES & BONDS, $1,500,000 5.50%, 01/31/03,@ $1,545,704 200,000 6.00%, 08/15/04 212,656 250,000 6.25%, 08/15/23 269,335 245,000 6.75%, 08/15/26 281,253 550,000 8.50%, 02/15/20 732,017 ---------- TOTAL U.S. TREASURY SECURITIES (COST $2,995,761) 3,040,965 ---------- U.S. GOVERNMENT AGENCY SECURITIES--12.2% FEDERAL FARM CREDIT BANK, 175,000 5.80%, 03/05/08 181,671 750,001 DN, 3.88%, 12/15/04 750,121 ---------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $928,229) 931,792 ---------- RESIDENTIAL MORTGAGE BACKED SECURITIES--39.5% MORTGAGE BACKED PASS-THROUGH SECURITIES--39.5% FEDERAL HOME LOAN MORTGAGE CORP., 650,000 5.75%, 01/15/12 659,341 400,000 TBA, 6.50%, 03/15/31 406,372 500,000 FEDERAL NATIONAL MORTGAGE ASSOCIATION, TBA, 6.50%, 04/01/32 505,470 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, 500,000 TBA, 6.00%, 03/15/31 498,750 453,789 POOL 354779, 6.50%, 03/15/24 465,415 478,884 POOL 466566, 6.50%, 04/15/29 488,160 ---------- TOTAL RESIDENTIAL MORTGAGE BACKED SECURITIES (COST $2,953,862) 3,023,508 ---------- TOTAL LONG-TERM INVESTMENTS (COST $6,877,852) 6,996,265 ---------- SHARES ISSUER VALUE ------ ------ ----- SHORT-TERM INVESTMENTS--8.5% MONEY MARKET FUND--8.5% 649,986 JPMORGAN U.S. GOVERNMENT MONEY MARKET FUND (a),@ (COST $649,986) $ 649,986 TOTAL INVESTMENTS--100.0% (COST $7,527,838) $7,646,251 ==========
SEE NOTES TO FINANCIAL STATEMENTS. 26 MONEY MARKET PORTFOLIO PORTFOLIO OF INVESTMENTS AS OF FEBRUARY 28, 2002 (UNAUDITED)
PRINCIPAL AMOUNT ISSUER VALUE ------ ------ ----- MONEY MARKET INSTRUMENTS--100.0% U.S. TREASURY SECURITIES--13.0% $500,000 U.S. TREASURY BILL, DN, 2.25%, 03/14/02 (COST $499,594) $ 499,594 ---------- U.S. GOVERNMENT AGENCY SECURITIES--66.2% FEDERAL FARM CREDIT BANK, 277,000 DN, 1.74%, 03/01/02 277,000 150,000 DN, 1.75%, 06/04/02 149,307 141,000 FEDERAL HOME LOAN BANK, DN, 1.80%, 06/04/02 140,330 FEDERAL HOME LOAN MORTGAGE CORP., 100,000 DN, 1.75%, 07/18/02 99,324 145,000 DN, 1.79%, 05/31/02 144,344 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 50,000 2.45%, 11/15/02 49,119 200,000 DN, 1.57%, 04/10/02 199,651 100,000 DN, 1.75%, 04/19/02 99,762 161,000 DN, 1.83%, 03/28/02 160,779 100,000 DN, 1.87%, 07/31/02 99,210 93,000 DN, 1.95%, 03/05/02 92,980 1,030,000 STUDENT LOAN MARKETING ASSOCIATION, DN, 1.80%, 03/01/02 1,030,001 ---------- TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $2,541,807) 2,541,807 ---------- COMMERCIAL PAPER--20.8% ASSET BACKED SECURITIES--5.2% 100,000 NESTLE CAPITAL CORP., 1.79%, 04/29/02 99,707 100,000 SPINTAB, 1.90%, 03/08/02 99,963 ---------- 199,670 ---------- BANKING--5.2% 100,000 DEXIA DELAWARE LLC, 1.74%, 04/05/02 99,831 100,000 SWEDBANK, 2.00%, 03/28/02 99,850 ---------- 199,681 ---------- DIVERSIFIED--2.6% 100,000 GENERAL ELECTRIC CAPITAL CORP., 1.58%, 04/15/02 99,803 ---------- FINANCIAL SERVICES--7.8% 100,000 AMERICAN EXPRESS CREDIT CORP., 1.60%, 04/15/02 99,800 100,000 MORGAN STANLEY DEAN WITTER & CO., 1.73%, 04/25/02 99,736 100,000 SOCIETE GENERALE (FRANCE), 1.79%, 03/01/02 99,999 ---------- 299,535 ---------- TOTAL COMMERCIAL PAPER (COST $798,689) 798,689 ---------- TOTAL INVESTMENTS--100.0% (COST $3,840,090) $3,840,090 ==========
INDEX: * = Non-income producing security. # = Security may only be sold to qualified institutional buyers. ^ = Share amounts round to less than a thousand. (a) = Affiliated. Money market fund registered under the Investment Company Act of 1940, as amended and advised by J.P. Morgan Fleming Asset Management (USA). @ = All or a portion of this security is segregated for futures contracts or TBA securities. ADR = American Depositary Receipt. DN = Discount Note. The rate shown is the effective yield at the time of purchase. FRN = Floating Rate Note. The maturity date is the actual maturity date; the rate shown is the rate in effect as of February 28, 2002. GDR = Global Depositary Receipt. MTN = Medium Term Note. SER.= Series. 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 February 28, 2002. TBA = To Be Announced. SEE NOTES TO FINANCIAL STATEMENTS. 27 STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 2002 (UNAUDITED)
GROWTH AND CAPITAL INTERNATIONAL ASSET INCOME GROWTH EQUITY ALLOCATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- --------- ASSETS: Investment securities, at value $ 9,759,069 $7,812,325 $ 5,000,181 $8,053,112 Cash 570 772 74,237 220 Foreign currency, at value -- -- 8,806 -- Receivables: Investment securities sold 39,647 -- -- 927,576 Interest and dividends 21,348 2,058 5,108 20,428 Foreign tax reclaim -- -- 5,520 -- Margin account for futures contracts -- -- -- 375 Expense reimbursement from Administrator 4,841 6,805 48,477 25,601 ----------- ---------- ----------- ---------- TOTAL ASSETS 9,825,475 7,821,960 5,142,329 9,027,312 ----------- ---------- ----------- ---------- LIABILITIES: Payables: Dividends -- -- -- -- Investment securities purchased 12,106 -- -- 1,857,476 Accrued Liabilities: Custodian fees 6,806 4,056 20,829 6,553 Trustee fees 3,937 1,919 2,409 2,667 Other 29,349 21,659 13,527 16,794 ----------- ---------- ----------- ---------- TOTAL LIABILITIES 52,198 27,634 36,765 1,883,490 ----------- ---------- ----------- ---------- NET ASSETS: Paid in capital 10,890,049 6,082,874 6,446,830 8,077,837 Accumulated undistributed (overdistributed) net investment income 19,794 (7,062) (9,657) 34,587 Accumulated net realized gain (loss) on investments, futures and foreign currency (937,665) 115,766 (233,396) (808,654) Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currency (198,901) 1,602,748 (1,098,213) (159,948) ----------- ---------- ----------- ---------- NET ASSETS APPLICABLE TO INVESTOR' BENEFICIAL INTERESTS $ 9,773,277 $7,794,326 $ 5,105,564 $7,143,822 =========== ========== =========== ========== Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized) 885,900 565,337 661,506 781,513 Net asset value, maximum offering price per share and redemption price per share $ 11.03 $ 13.79 $ 7.72 $ 9.14 =========== ========== =========== ========== Cost of investments $ 9,957,970 $6,209,577 $ 6,097,844 $8,211,935 =========== ========== =========== ========== Cost of foreign currency $ -- $ -- $ 8,839 $ -- =========== ========== =========== ========== U.S. GOVERNMENT MONEY INCOME MARKET PORTFOLIO PORTFOLIO --------- --------- ASSETS: Investment securities, at value $7,646,251 $3,840,090 Cash 2,282 953 Foreign currency, at value -- -- Receivables: Investment securities sold 506,484 -- Interest and dividends 32,730 -- Foreign tax reclaim -- -- Margin account for futures contracts -- -- Expense reimbursement from Administrator 18,032 41,135 ---------- ---------- TOTAL ASSETS 8,205,779 3,882,178 ---------- ---------- LIABILITIES: Payables: Dividends -- 6,158 Investment securities purchased 1,904,875 -- Accrued Liabilities: Custodian fees 9,046 28,562 Trustee fees 5,520 1,532 Other 22,999 17,132 ---------- ---------- TOTAL LIABILITIES 1,942,440 53,384 ---------- ---------- NET ASSETS: Paid in capital 6,065,167 3,829,397 Accumulated undistributed (overdistributed) net investment income 72,318 (169) Accumulated net realized gain (loss) on investments, futures and foreign currency 7,441 (434) Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currency 118,413 -- ---------- ---------- NET ASSETS APPLICABLE TO INVESTOR' BENEFICIAL INTERESTS $6,263,339 $3,828,794 ========== ========== Shares of beneficial interest outstanding ($0.001 par value; unlimited number of shares authorized) 661,424 3,829,344 Net asset value, maximum offering price per share and redemption price per share $ 9.47 $ 1.00 ========== ========== Cost of investments $7,527,838 $3,840,090 ========== ========== Cost of foreign currency $ -- $ -- ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS. 28 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 (UNAUDITED)
GROWTH AND CAPITAL INTERNATIONAL ASSET U.S. GOVERNMENT MONEY INCOME GROWTH EQUITY ALLOCATION INCOME MARKET PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- --------- --------- --------- INVESTMENT INCOME: Interest $ 2,197 $ 3,182 $ 165 $ 68,588 $137,749 $49,273 Dividend 94,573 27,880 27,280 18,820 -- -- Dividend income from affiliated investments* 2,593 3,549 -- 5,415 10,462 -- Foreign tax withheld (658) (168) (2,745) (109) -- -- ---------- --------- ---------- --------- --------- ------- TOTAL INVESTMENT INCOME 98,705 34,443 24,700 92,714 148,211 49,273 ---------- --------- ---------- --------- --------- ------- EXPENSES: Investment advisory fees 30,579 25,581 20,398 19,654 15,391 4,906 Administration fees 7,645 6,395 3,825 5,360 4,618 2,943 Accounting fees -- -- 22,947 -- -- -- Custodian fees 28,909 27,671 24,222 50,055 24,837 25,509 Printing and postage 3,296 6,470 5,099 5,606 3,546 3,131 Professional fees 11,212 10,659 15,553 12,507 12,313 11,773 Transfer agent fees 8,664 6,395 10,199 7,147 11,319 10,792 Trustees' fees 51 43 25 36 31 20 Other 223 -- 565 1,071 498 703 ---------- --------- ---------- --------- --------- ------- TOTAL EXPENSES 90,579 83,214 102,833 101,436 72,553 59,777 ---------- --------- ---------- --------- --------- ------- Less amounts waived 38,224 31,976 24,223 25,014 20,009 7,849 Less expense reimbursements 6,484 12,865 50,564 46,039 27,708 41,135 Less earnings credits 2 1 -- 9 211 -- ---------- --------- ---------- --------- --------- ------- NET EXPENSES 45,869 38,372 28,046 30,374 24,625 10,793 ---------- --------- ---------- --------- --------- ------- NET INVESTMENT INCOME (LOSS) 52,836 (3,929) (3,346) 62,340 123,586 38,480 ---------- --------- ---------- --------- --------- ------- NET REALIZED GAIN (LOSS) ON TRANSACTIONS FROM: Investments (470,160) (349,066) (40,421) (143,828) 112,840 -- Futures -- -- -- 15,272 -- -- Foreign currency -- -- 99 -- -- -- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) OF: Investments 195,453 341,100 (127,667) 118,091 (49,118) -- Futures -- -- -- (1,081) -- -- Foreign currency translations -- -- (355) -- -- -- ---------- --------- ---------- --------- --------- ------- Net realized and unrealized gain (loss) (274,707) (7,966) (168,344) (11,546) 63,722 -- ---------- --------- ---------- --------- --------- ------- Net increase (decrease) in net assets from operations $(221,871) $ (11,895) $(171,690) $ 50,794 $187,308 $38,480 ========== ========= ========== ========= ========= ======== * Includes Reimbursements of Investment Advisory and Administration fees: $ 281 $ 221 $ -- $ 393 $ 473 $ --
SEE NOTES TO FINANCIAL STATEMENTS. 29 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIODS INDICATED (UNAUDITED)
GROWTH AND INCOME CAPITAL GROWTH INTERNATIONAL EQUITY PORTFOLIO PORTFOLIO PORTFOLIO ------------------------ ------------------------ ------------------------- 9/1/01 YEAR 9/1/01 YEAR 9/1/01 YEAR THROUGH ENDED THROUGH ENDED THROUGH ENDED 2/28/02 8/31/01 2/28/02 8/31/01 2/28/02 8/31/01 ------- ------- ------- ------- ------- ------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 52,836 $ 136,460 $ (3,929) $ (789) $ (3,346) $ 46,678 Net realized gain loss on investments, futures and foreign currency transactions (470,160) 259,442 (349,066) 357,990 (40,322) (150,861) Change in net unrealized appreciation (depreciation) on investments, futures and foreign currency translations 195,453 (3,007,929) 341,100 (1,736,688) (128,022) (1,799,641) ----------- ---------- ----------- ----------- ---------- ----------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (221,871) (2,612,027) (11,895) (1,379,487) (171,690) (1,903,824) ----------- ---------- ----------- ----------- ---------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (158,117) (132,673) (1,217) -- -- -- Net realized gain on investment -- -- -- (759,878) -- (1,424,148) ----------- ---------- ----------- ----------- ---------- ----------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (158,117) (132,673) (1,217) (759,878) -- (1,424,148) ----------- ---------- ----------- ----------- ---------- ----------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares issued 77,048 296,228 90,574 326,661 42,578 75,067 Dividends reinvested 158,117 132,673 1,217 759,878 -- 1,424,148 Cost of shares redeemed (1,714,336) (2,274,370) (2,711,238) (1,697,269) (208,676) (688,191) ----------- ---------- ----------- ----------- ---------- ----------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS (1,479,171) (1,845,469) (2,619,447) (610,730) (166,098) 811,024 ----------- ---------- ----------- ----------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,859,159) (4,590,169) (2,632,559) (2,750,095) (337,788) (2,516,948) NET ASSETS: Beginning of period 11,632,436 16,222,605 10,426,885 13,176,980 5,443,352 7,960,300 ----------- ---------- ----------- ----------- ---------- ----------- End of period $ 9,773,277 $11,632,436 $ 7,794,326 $10,426,885 $5,105,564 $ 5,443,352 =========== ========== =========== =========== ========== =========== Undistributed net investment income (loss) 19,794 125,075 (7,062) (1,916) (9,657) 3,181 ----------- ---------- ----------- ----------- ---------- ----------- Share Transactions: Issued 6,863 23,364 6,700 22,212 5,500 7,346 Reinvested 14,335 10,135 87 54,904 -- 150,383 Redeemed (155,728) (179,642) (207,262) (119,258) (27,662) (72,394) ----------- ---------- ----------- ----------- ---------- ----------- Change in Shares (134,530) (146,143) (200,475) (42,142) (22,162) 85,335 =========== ========== =========== =========== ========== =========== ASSET ALLOCATION U.S. GOVERNMENT INCOME MONEY MARKET PORTFOLIO PORTFOLIO PORTFOLIO ------------------------- --------------------------- ------------------------ 9/1/01 YEAR 9/1/01 YEAR 9/1/01 YEAR THROUGH ENDED THROUGH ENDED THROUGH ENDED 2/28/02 8/31/01 2/28/02 8/31/01 2/28/02 8/31/01 ------- ------- ------- ------- ------- ------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) $ 62,340 $ 189,124 $ 123,586 $ 311,506 $ 38,480 $ 194,400 Net realized gain loss on investments, futures and foreign currency transactions (128,556) (391,952) 112,840 88,032 -- 29 Change in net unrealized appreciation (depreciation) on investments, futures and foreign currency translations 117,010 (1,152,046) (49,118) 199,698 -- -- ---------- ---------- ----------- ---------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 50,794 (1,354,874) 187,308 599,236 38,480 194,429 ---------- ---------- ----------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (205,827) (211,314) (355,820) (281,296) (38,626) (194,365) Net realized gain on investment -- -- (84,486) -- -- -- ---------- ---------- ----------- ---------- ---------- ---------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS (205,827) (211,314) (440,306) (281,296) (38,626) (194,365) ---------- ---------- ----------- ---------- ---------- ---------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares issued 37,488 122,538 251,165 268,092 365,159 441,442 Dividends reinvested 205,825 211,314 440,293 281,296 32,489 194,365 Cost of shares redeemed (235,033) (589,198) (346,798) (580,179) (443,322) (644,693) ---------- ---------- ----------- ---------- ---------- ---------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 8,280 (255,346) 344,660 (30,791) (45,674) (8,886) ---------- ---------- ----------- ---------- ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (146,753) (1,821,534) 91,662 287,149 (45,820) (8,822) NET ASSETS: Beginning of period 7,290,575 9,112,109 6,171,677 5,884,528 3,874,614 3,883,436 ---------- ---------- ----------- ---------- ---------- ---------- End of period $7,143,822 $ 7,290,575 $6,263,339 $6,171,677 $3,828,794 $3,874,614 ========== ========== =========== ========== ========== ========== Undistributed net investment income (loss) 34,587 178,074 72,318 304,552 (169) (23) ---------- ---------- ----------- ---------- ---------- ---------- Share Transactions: Issued 4,029 12,546 27,724 27,643 365,158 441,473 Reinvested 22,037 21,005 47,962 29,736 32,489 194,313 Redeemed (25,470) (58,251) (34,358) (60,611) (443,322) (644,693) ---------- ---------- ----------- ---------- ---------- ---------- Change in Shares 596 (24,700) 41,328 (3,232) (45,675) (8,907) ========== ========== =========== ========== ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS. 30 FINANCIAL HIGHLIGHTS (UNAUDITED)
GROWTH AND INCOME PORTFOLIO ---------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 2001 2000 1999 1998 1997 ------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 11.40 $ 13.91 $12.63 $12.36 $15.16 $12.74 --------- ------- ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.08 0.14 0.11 0.06 0.09 0.15 Net gains or losses on investments (both realized and unrealized) (0.27) (2.53) 1.21 2.58 (0.71) 3.99 --------- ------- ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS (0.19) (2.39) 1.32 2.64 (0.62) 4.14 --------- ------- ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income 0.18 0.12 0.04 0.09 0.13 0.15 Distributions from capital gains -- -- -- 2.28 2.05 1.57 --------- ------- ------ ------ ------ ------ TOTAL DISTRIBUTIONS 0.18 0.12 0.04 2.37 2.18 1.72 --------- ------- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 11.03 $ 11.40 $13.91 $12.63 $12.36 $15.16 ========= ======= ====== ====== ====== ====== TOTAL RETURN (1.69%) (17.29%) 10.44% 21.23% (5.45%) 35.53% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 9,773 $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% 0.90% Net investment income (loss) 1.04% 0.99% 0.73% 0.54% 0.78% 1.18% Expenses without waivers, reimbursements and earnings credits 1.78% 1.51% 1.37% 1.33% 1.70% 1.70% Net investment income (loss) without waivers, reimbursements and earnings credits 0.16% 0.38% 0.26% 0.11% (0.02%) 0.38% Portfolio Turnover Rate 29% 14% 65% 114% 170% 89% CAPITAL GROWTH PORTFOLIO --------------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 2001 2000 1999 1998 1997 ------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 13.62 $ 16.31 $13.75 $11.72 $15.52 $13.84 -------- ------- ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (0.01) --(c) 0.03 0.07 0.10 0.09 Net gains or losses on investments (both realized and unrealized) 0.18 (1.73) 3.54 3.37 (2.37) 3.42 -------- ------- ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 0.17 (1.73) 3.57 3.44 (2.27) 3.51 -------- ------- ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income --(c) -- 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 $ 13.79 $ 13.62 $16.31 $13.75 $11.72 $15.52 ======== ======= ====== ====== ====== ====== TOTAL RETURN 1.26% (10.70%) 27.92% 30.59% (16.38%) 27.27% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 7,794 $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% 0.90% Net investment income (loss) (0.09%) (0.01%) 0.21% 0.59% 0.72% 0.64% Expenses without waivers, reimbursements and earnings credits 1.95% 1.75% 1.69% 1.70% 1.70% 1.70% Net investment income (loss) without waivers, reimbursements and earnings credits (1.14%) (0.86%) (0.58%) (0.21%) (0.08%) (0.16%) Portfolio Turnover Rate 11% 47% 128% 27% 71% 54% INTERNATIONAL EQUITY PORTFOLIO ----------------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 2001 2000 1999 1998 1997 ------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 7.96 $ 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) (0.24) (2.98) 2.38 2.32 (0.28) 0.65 ---------- ------- ------ ----- ------ ------ TOTAL FROM INVESTMENT OPERATIONS (0.24) (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 $ 7.72 $ 7.96 $13.30 $11.36 $9.63 $10.45 ========== ======= ====== ====== ====== ====== TOTAL RETURN (3.02%) (24.76%) 20.58% 25.03% (2.46%) 8.27% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 5,106 $ 5,443 $7,960 $7,337 $6,318 $5,421 Ratios to Average Net Assets: Expenses 1.10% 1.10% 1.10% 1.10% 1.10% 1.11% Net investment income (loss) (0.13%) 0.71% (0.15%) 0.04% 0.19% 1.96% Expenses without waivers, reimbursements and earnings credits 4.04% 3.38% 2.62% 3.24% 3.05% 2.99% Net investment income (loss) without waivers, reimbursements and earnings credits (3.07%) (1.57%) (1.67%) (2.10%) (1.76%) 0.08% Portfolio Turnover Rate 4% 98% 102% 170% 157% 158% ASSET ALLOCATION PORTFOLIO -------------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 2001 2000 1999 1998 1997 ------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 9.34 $ 11.31 $10.72 $10.64 $11.57 $11.15 --------- ------- ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.06 0.25 0.29 0.24 0.28 0.33 Net gains or losses on investments (both realized and unrealized) (0.01) (1.95) 0.68 1.04 (0.25) 1.94 --------- ------- ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 0.07 (1.70) 0.97 1.28 0.03 2.27 --------- ------- ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income 0.27 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 0.27 0.38 1.20 0.96 1.85 --------- ------- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.14 $ 9.34 $11.31 $10.72 $10.64 $11.57 ========= ======= ====== ====== ====== ====== TOTAL RETURN 0.69% (15.20%) 9.31% 11.88% (0.04%) 22.61% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 7,144 $ 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% 0.85% Net investment income (loss) 1.75% 2.39% 2.52% 2.48% 2.81% 3.28% Expenses without waivers, reimbursements and earnings credits 2.84% 2.25% 2.16% 1.90% 1.91% 2.03% Net investment income (loss) without waivers, reimbursements and earnings credits (0.24%) 0.99% 1.21% 1.43% 1.75% 2.10% Portfolio Turnover Rate 124% 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. 31
U.S. GOVERNMENT INCOME PORTFOLIO ++ --------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 2001 2000 1999 1998 1997 ------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 9.95 $ 9.44 $9.51 $10.12 $9.40 $9.53 --------- ------- ----- ------ ----- ----- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.21 0.51 0.59 0.52 0.39 0.52 Net gains or losses on investments (both realized and unrealized) 0.04 0.46 0.10 (0.62) 0.64 0.22 --------- ------- ----- ------ ----- ----- TOTAL FROM INVESTMENT OPERATIONS 0.25 0.97 0.69 (0.10) 1.03 0.74 --------- ------- ----- ------ ----- ----- LESS DISTRIBUTIONS: Dividends from net investment income 0.59 0.46 0.58 0.51 0.31 0.54 Distributions from capital gains 0.14 -- 0.18 -- -- 0.33 --------- ------- ----- ------ ----- ----- TOTAL DISTRIBUTIONS 0.73 0.46 0.76 0.51 0.31 0.87 --------- ------- ----- ------ ----- ----- NET ASSET VALUE, END OF PERIOD $ 9.47 $ 9.95 $9.44 $9.51 $10.12 $9.40 ========= ======= ===== ====== ===== ===== TOTAL RETURN 2.74% 10.53% 7.80% (1.15%) 11.12% 8.11% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 6,263 $ 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% 0.80% Net investment income 4.01% 5.21% 5.70% 5.35% 5.40% 5.91% Expenses without waivers, reimbursements and earnings credits 2.36% 2.26% 2.49% 1.97% 1.99% 1.50% Net investment income without waivers, reimbursements and earnings credits 2.46% 3.75% 4.01% 4.18% 4.21% 5.21% Portfolio Turnover Rate 218% 91% 37% 31% 14% 40% MONEY MARKET PORTFOLIO --------------------------------------------------- 9/1/01 THROUGH YEAR ENDED AUGUST 31, 2/28/02 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 $1.00 -------- ------ ----- ----- ----- ----- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.01 0.05 0.05 0.05 0.05 0.05 Net gains or losses on investments (both realized and unrealized) -- -- -- -- -- -- -------- ------ ----- ----- ----- ----- TOTAL FROM INVESTMENT OPERATIONS 0.01 0.05 0.05 0.05 0.05 0.05 -------- ------ ----- ----- ----- ----- LESS DISTRIBUTIONS: Dividends from net investment income 0.01 0.05 0.05 0.05 0.05 0.05 Distributions from capital gains -- -- -- -- -- -- -------- ------ ----- ----- ----- ----- TOTAL DISTRIBUTIONS 0.01 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 $1.00 ======== ====== ===== ===== ===== ===== TOTAL RETURN 0.99% 5.05% 5.57% 4.66% 5.04% 4.93% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $ 3,829 $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% 0.55% Net investment income 1.96% 4.90% 5.43% 4.54% 4.94% 4.84% Expenses without waivers, reimbursements and earnings credits 3.05% 2.77% 2.51% 2.28% 2.24% 1.46% Net investment income without waivers, reimbursements and earnings credits (0.54%) 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. 32 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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, purchased options and futures contracts 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 mean between the bid and ask quotations. Bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations supplied by pricing services or by matrix pricing systems of a major dealer in bonds. Short-term debt securities with 61 days or more to maturity at time of purchase are valued, through the 61st day prior to maturity, at market value based on quotations obtained from market makers or other appropriate sources; thereafter, the value on the 61st day is amortized on a straight-line basis over the remaining number of days to maturity. Trading in securities on most foreign exchanges and over-the-counter markets is normally completed before the close of the domestic market and may also take place on days when the domestic market is closed. If events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Funds' net assets are calculated, such securities will be valued at fair value in accordance with procedures adopted by the Trustees. 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. 33 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 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 February 28, 2002, 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 accounting principles generally accepted in the United States of America. 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. 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. 34 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") 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.C. J.P. Morgan Fleming Asset Management (London) Ltd. ("JPMFAM London"), a registered investment adviser, is the investment sub-adviser to IEP pursuant to a Investment Sub-Advisory Agreement between JPFAM London and JPMFAM. 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 0.50% of the average daily net assets of IEP. The Portfolios, other than MMP, may invest in one or more of the affiliated JPMorgan Money Market Funds. 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 the Administration Agreement, JPMorgan Chase Bank ("JPMorgan") (the "Administrator") provides certain administration services and facilities to each Portfolio at a fee accrued daily and paid monthly at the annual rate of 0.15% of the average daily net assets for complex wide non-money market fund assets. Prior to September 10, 2001, the Portfolios paid administration fees at an annual rate of 0.20% (0.05% to the Administrator and 0.15% to a sub-administrator) of each Portfolio's respective average daily net assets. Effective September 10, 2001, the Trustees approved a new combined administration agreement that eliminated the Portfolios from directly paying the 0.15% of average daily net assets of sub-administration fees and instead increased the amount the Administrator receives from 0.05% to a total of 0.15% of average daily net assets. ("BISYS") serves as the Funds' Sub-Administrator. For its services as Sub-Administrator, BISYS receives a portion of the fees payable to JPMorgan as Administrator. C. Assumption of Expenses--For the six months ended February 28, 2002, the Portfolios' vendors voluntarily waived expenses as follows:
GIP CGP IEP AAP USGIP MMP --- --- --- --- ----- --- Advisory $30,579 $25,581 $20,398 $19,654 $15,391 $4,906 Administration 7,645 6,395 3,825 5,360 4,618 2,943
The Administrator voluntarily reimbursed certain expenses of the portfolios as follows:
GIP CGP IEP AAP USGIP MMP --- --- --- --- ----- --- Assumed Expenses $6,484 $12,865 $50,564 $46,039 $27,708 $41,135
D. Other--JPMorgan provides portfolio custody and fund accounting services for GIP, CGP, AAP and USGIP (only custody services is provided for IEP by JPMorgan) for which JPMorgan receives compensation as presented in the Statement of Operations as Custodian Fees. Custodian fees are subject to reduction by credits earned by each Portfolio, based on cash balances held by JPMorgan as custodian. Such earnings credits are presented separately in the Statement of Operations. Certain officers of the Trust are officers of J.P. Morgan Chase &Co. or of BISYS or their subsidiaries. 3. INVESTMENT TRANSACTIONS--For the six months ended February 28, 2002, 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) $2,936,404 $ 960,151 $197,897 $3,405,833 $ 1,161,467 Sales (excluding U.S. Government) 4,582,566 3,210,619 355,206 3,468,203 2,239,120 Purchases of U.S. Government -- -- -- 5,208,298 12,662,677 Sales of U.S. Government -- -- -- 4,786,597 12,212,211
35 4. FEDERAL INCOME TAX MATTERS--For Federal income tax purposes, the cost and unrealized appreciation/(depreciation) in value of the investment securities as of February 28, 2002, are as follows:
GIP CGP IEP AAP USGIP --- --- --- --- ----- Aggregate cost $ 9,957,970 $6,209,577 $ 6,097,844 $8,211,935 $7,527,838 ----------- ---------- ----------- ---------- ---------- Gross unrealized appreciation $ 874,662 $1,854,529 $ 345,554 $ 316,649 $ 121,697 Gross unrealized depreciation (1,073,563) (251,781) (1,443,217) (475,472) (3,284) ----------- ---------- ----------- ---------- ---------- Net unrealized appreciation (depreciation) $ (198,901) $1,602,748 $(1,097,663) $ (158,823) $ 118,413 ============ ========== =========== ========== ==========
5. FOREIGN CASH POSITIONS--International Equity Portfolio
NET DELIVERY MARKET UNREALIZED VALUE (LOCAL COST VALUE GAIN (LOSS) CURRENCY CURRENCY) (USD) (USD) (USD) -------- --------- ----- ----- ----- Euro Dollar 1,587 $1,356 $1,373 $ 17 Great British Pound 3,804 5,406 5,372 (34) Indonesian Rupiah 894,077 58 88 30 Malaysian Ringgit 5,835 1,484 1,535 51 Philippine Peso 22,439 535 438 (97)
6. CONCENTRATION OF SHAREHOLDERS As of February 28, 2002, all shares outstanding for each Portfolio are owned either directly or indirectly by a single insurance company. 7. CONCENTRATION OF CREDIT RISK As of February 28, 2002, IEP invested 17.0% and 28.3% 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. MMP has invested 26.8% of the Portfolio in one issuer. Such concentration may subject the Fund to additional risk. 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 February 28, 2002, nor at any time during the year then ended. 9. CORPORATE EVENT On November 10, 2001, Morgan Guarantee Trust Company of New York merged with and into The Chase Manhattan Bank to create The JPMorgan Chase Bank. [GRAPHIC] A-7036-CRT (C)J.P. MORGAN CHASE & CO., 2002. ALL RIGHTS RESERVED. APRIL, 2002 F-7036(CMB) SAN-VCA-402 -----END PRIVACY-ENHANCED MESSAGE-----