-----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, TT02lh2WeKPjy9U2N5RgO2S16Fw1ROvTVPakIiSBwXdOW9qSq0N8oK85RFlWHRyd uY2TGvlX/x2iarODE2Seiw== 0000950146-98-001847.txt : 19981104 0000950146-98-001847.hdr.sgml : 19981104 ACCESSION NUMBER: 0000950146-98-001847 CONFORMED SUBMISSION TYPE: N-30D/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUTUAL FUND VARIABLE ANNUITY TRUST CENTRAL INDEX KEY: 0000927053 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D/A SEC ACT: SEC FILE NUMBER: 811-08630 FILM NUMBER: 98736805 BUSINESS ADDRESS: STREET 1: 1 CHASE MANHATTAN PLAZA STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10081 MAIL ADDRESS: STREET 1: CHASE MANHATTAN BANK STREET 2: ONE CHASE SQ 7TH FLOOR CITY: ROCHESTER STATE: NY ZIP: 14643 N-30D/A 1 1998 GLOBAL ANNUAL REPORT [LOGO] ANNUAL REPORT AUGUST 31, 1998 VISTA CAPITAL ADVANTAGE(SM) MUTUAL FUND VARIABLE ANNUITY TRUST Vista Fund Distributors, Inc., distributor This report must be accompanied or preceded by a current prospectus for Vista Capital Advantage Table of Contents 1 Letter from the Chairman Performance & Commentary 2 Growth and Income 3 Capital Growth 4 International Equity 5 Asset Allocation 6 U.S. Government Income 7 Money Market Portfolio of Investments 8 Growth and Income 10 Capital Growth 12 International Equity 16 Asset Allocation 18 U.S. Government Income 18 Money Market Mutual Fund Variable Annuity Trust 19 Statement of Assets & Liabilities 20 Statement of Operations 21 Statement of Changes in Net Assets 22 Financial Highlights 23-28 Notes to Financial Statements
------------------------------------------------------------------------------- INVESTMENTS IN VISTA CAPITAL ADVANTAGE ARE NOT DEPOSITS OF, OR GUARANTEED OR ENDORSED BY, THE CHASE MANHATTAN BANK, 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 POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ------------------------------------------------------------------------------- VISTA CAPITAL ADVANTATAGE MANAGED BY CHASE MANHATTAN October 1, 1998 Dear Vista Capital Advantage Contract Owner: Enclosed is the August 31, 1998 Annual Report of the Mutual Fund Variable Annuity Trust, whose portfolios serve as the underlying investments for the Vista Capital Advantage variable annuity. The table below shows the one year and since inception results, after the deduction of all insurance and withdrawal fees, of the accounts in the Vista Capital Advantage at fiscal year-end, August 31, 1998. The insurance fees include mortality and expense risk charges, surrender charges and the annual contract administration charge. The surrender charges reflect the sales charges that would have been assessed against the contract value had the contract been surrendered.(1) The first chart applies to all Vista Capital Advantage investors outside of New York state, whose policy is issued by Anchor National Life Insurance Company. The second chart applies to Vista Capital Advantage investors within New York state, whose policy is issued by First SunAmerica Life Insurance Company. Anchor National Life Insurance Company Policy Holders Average Annual Total Return as of 8/31/98(2)
- -------------------------------------------------------------------------- Portfolio (Contract Inception Date) One-Year Since Inception - -------------------------------------------------------------------------- Growth and Income (3/13/95) (12.79%) 14.14% Capital Growth (3/13/95) (23.63%) 10.00% International Equity (3/13/95) (9.89%) 2.35% Asset Allocation (3/13/95) (7.45%) 9.63% U.S. Government Income (7/13/95) 3.50% 3.74% Money Market (6/2/95)(3) (2.46%) 2.12% 7-day current yield as of 8/31/98; 3.47%
First SunAmerica Life Insurance Company Policy Holders (New York) Average Annual Total Return as of 8/31/98(2)
- -------------------------------------------------------------------------- Portfolio (Contract Inception Date) One-Year Since Inception - -------------------------------------------------------------------------- Growth and Income (12/6/95) (12.81%) 10.18% Capital Growth (12/6/95) (23.66%) 4.40% International Equity (12/22/95) (9.95%) (0.97%) Asset Allocation (12/22/95) (7.47%) 6.97% U.S. Government Income (12/22/95) 3.54% 3.05% Money Market (12/22/95)(3) (2.49%) 1.78% 7-day current yield as of 8/31/98; 3.44%
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 1-800-90-VISTA. Sincerely, /s/ Fergus Reid Fergus Reid Chairman - ------------- (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. (3) There can be no assurance that the underlying fund will be able to maintain a stable net asset value of $1.00 per share and fund shares themselves are not insured or guaranteed by the U.S. Government. The Vista Capital Advantage (VCA) is distributed by Vista Fund Distributors, Inc., which is unaffiliated with The Chase Manhattan Bank, Anchor National Life Insurance Company or First SunAmerica Life Insurance Company. Chase Manhattan is the portfolio advisor, administrator and custodian of the underlying investment options of the variable annuity. VCA is issued by Anchor National Life Insurance Company and in New York by First SunAmerica Life Insurance Company. - -------------------------------------------------------------------------------- Investments in Vista Capital Advantage are not deposits, or guaranteed or endorsed by, Chase, and are not insured by the FDIC, Federal Reserve Board or any other government agency. Investments in Vista Capital Advantage, including the underlying variable investment options, involve risk, including the possible loss of principal. - -------------------------------------------------------------------------------- The views expressed on this page are exclusively those of Chase Manhattan. 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. Letter from the Chairman page 1 October 1, 1998 Dear Vista Capital Advantage Investor: We are pleased to present this annual report on the six portfolios underlying the Vista Capital Advantage Variable Annuity for the one-year period ended August 31, 1998. This report summarizes each portfolio's performance in light of events in the financial markets and the economy. U.S. Economy Remains Healthy But Concerns Linger Economic conditions were generally good throughout the period. Inflation was benign, and interest rates fell to record lows. Early in 1998, many economists thought the Federal Reserve might raise rates, but the economic turmoil in southeast Asia and its potential impact on the U.S. kept the Fed from taking this stand. As the period came to a close, the economy was slowing and the problems in Asia were worsening, which eventually encouraged the Fed to lower rates in September (after our reporting period). It was the Fed's first rate cut since December, 1996. U.S. Equities Advance Amidst High Volatility U.S equities posted positive gains but not without significant volatility along the way. The volatility began in October, 1997 when stock prices tumbled around the globe due to concerns over Asia's financial crisis. Before yearend, stocks rebounded to complete the best consecutive three-year performance period in stock market history. After retreating in January, stocks rallied over the next few months, as concerns over the Asian crisis waned. Those worries re-surfaced in the spring but did not stop the market from climbing to new highs. In mid-July, the Russian financial crisis hit, raising new fears about the global economy and causing equity prices to fall worldwide. President Clinton's troubles put more pressure on stock prices as the period came to a close. Europe Advances While Japan Continues to Slide Most European markets fared well, while markets in Japan and southeast Asia and Latin America trended lower. European markets benefitted from falling interest rates, corporate restructuring and generally good earnings. Japan's weak economy and problem-laden banking system kept its stock market under pressure. Southeast Asian markets were hurt by the staggering economic and currency crisis in the region, while most Latin American markets were negatively impacted by the problems in Asia. Bond Market Rallies As Interest Rates Tumble The bond market enjoyed strong performance as long-term interest rates fell sharply. Interest rates began their steep decent in October, 1997, as deepening concerns over the Asian financial crisis gripped global financial markets. Bonds stayed in a relatively narrow trading range early in 1998, but when the turmoil in Asia re-surfaced, the rate slide resumed and bond prices moved higher. Early in the summer, the full impact of Russia's economic troubles emerged, raising serious concerns over the global economy and sending rates even lower. By the end of the period, the yield on the 30-year Treasury bond was at a historic low of 5.26%, down from 6.61% at the start of the period. Sincerely, /s/ Fergus Reid Fergus Reid Chairman page 2 Growth and Income Portfolio The Growth and Income Portfolio seeks to provide long-term capital appreciation and dividend income primarily through diversified holdings of common stocks. Performance The Growth and Income Portfolio produced a total return of -5.45% for the one-year period ended August 31, 1998. Strategy Despite superior stock selection within several sectors, a series of external events from mid-July through the end of August had a negative effect on the equity market and, in turn, the Portfolio's performance. The stock market's summer swoon was predominantly due to the impact of southeast Asia's ongoing economic and political crisis, deepening financial problems in Russia and domestic political uncertainty resulting from President Clinton's personal problems. Leading up to the correction, the Portfolio was faring well. Early in the period, we benefitted from our exposure to financial stocks, consumer cyclicals, utilities, health care and consumer staples. While we were underweighted in technology, several stocks in this sector also contributed favorably to performance. Additionally, the Fund profited from its investment in phar- maceutical stocks and, later in the period, undervalued HMO stocks. Finally, our exposure to economically sensitive stocks proved beneficial to shareholders, thanks in large part to the strength of the domestic economy. As the period progressed, we became increasingly cautious in our investment approach and, in doing so, slightly reduced our exposure to equities. This strategy proved effective in protect- ing shareholder capital from even greater exposure to the stock market's sharp turnaround late in the period. Outlook Looking ahead, we expect the stock market to remain vola- tile given the global political and economic uncertainty. While the U.S. economy remains in relatively good health, we expect it too slow in the months ahead and corporate earnings to remain under pressure. In this environment, stock selection will remain critically important in achieving above-average market results. We intend to focus much of our efforts on finding fundamen- tally sound companies in sectors that have lagged the market and now offer good relative value. 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 $17,098 from inception on 3/1/95 through 8/31/98.* Investment Results - -------------------------------------------------------------------------------- Average Annual Total Return as of 8/31/98 One year (5.45%) Since Inception (3/1/95) 16.53% - --------------------------------------------------------------------------------
[PLOT POINTS FOR GROWTH & INCOME CHART] Growth and Income S&P 500 Mar-95 10000 10000 Apr-95 10270 10295 10410 10597 Jun-95 10730 11020 11000 11276 Aug-95 11460 11649 11480 11678 Oct-95 11710 12171 11480 12127 Dec-95 11960 12659 12150 12903 Feb-96 12558 13342 12767 13466 Apr-96 13019 13595 13228 13795 Jun-96 13375 14149 13344 14203 Aug-96 12893 13575 13344 13861 Oct-96 13941 14641 14161 15045 Dec-96 15051 16181 14768 15861 Feb-97 15603 16850 15543 16983 Apr-97 14899 16287 15579 17258 Jun-97 16569 18312 17214 19127 Aug-97 18609 20648 18084 19491 Oct-97 18931 20558 18562 19871 Dec-97 19170 20791 19436 21149 Feb-98 19118 21381 20487 22923 Apr-98 21428 24096 21179 24342 Jun-98 20723 23923 21096 24894 Aug-98 20418 24631 17098 21071 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 perforance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Standard & Poor's 500 Index is an unmanaged broad-based index that replicates the U.S. stock market. It includes 500 widely held common stocks and assumes reinvestment of dividends. An individual cannot invest in an index. 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. The views expressed on this page are exclusively those of Chase Manhattan. 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. Capital Growth Portfolio page 3 The Capital Growth Portfolio seeks to provide long-term capital growth primarily through diversified holdings of common stocks. Performance The Capital Growth Portfolio produced a total return of -16.38% for the one-year period ended August 31, 1998. Strategy The stock market sell-off that took place from mid-July through the end of August had the most significant impact on the Portfolio's performance. The period began with stocks performing well, but in late 1997, the equity market experienced significant turbulence due to the outbreak of the economic and currency crisis in southeast Asia. By the end of 1997, however, these fears waned and stock prices resumed their rise. Early in 1998, prudent sector allocation decisions and good performance by several stocks contributed favorably to performance. Some of the Portfolio's top performers during this period included American Management Systems, a leading information technology consulting firm; Transatlantic Holdings, an insurance company purchased by AIG, and Lear, an auto parts supplier. Specific industry sectors that contributed favorably to the Portfolio's performance during that period included financial stocks, which benefitted from the wave of merger and acquisition activity within the industry, and consumer cyclical stocks, such as retailers, which were helped by a robust economy. The Asian crisis, however, again became a major factor in May. When Russia's financial problems worsened in the summer, the prospect of an economic slowdown shook the financial markets. President Clinton's personal troubles added a layer of political uncertainty to an already fragile market. Particularly under pressure in this environment were small and medium sized companies favored by the fund. Outlook The recent market pullback has created good long-term values in certain industry groups. However, given the problems and concerns currently hanging over the market (Asian turmoil, U.S. political uncertainty, etc.), we expect the market to remain choppy in the months ahead. We plan to maintain our cautious investment approach. We intend to focus on companies with the prospects of generating good earnings despite the state of the economy. As is the case in this type of environment, stock selection will be key in outperforming the broader averages. Life of Portfolio Performance A $10,000 tax-deferred investment in the Capital Growth Portfolio at NAV (Net Asset Value) would have grown to $15,153 from inception on 3/1/95 through 8/31/98.* Investment Results - -------------------------------------------------------------------------------- Average Annual Total Return as of 8/31/98 One year (16.38%) Since Inception (3/1/95) 12.58% - --------------------------------------------------------------------------------
[PLOT POINTS FOR CAPITAL GROWTH CHART] Capital Russell Growth 2000 Mar-95 10000 10000 Apr-95 10350 10172 10470 10398 Jun-95 10870 10577 11140 11126 Aug-95 11830 11766 11900 12010 Oct-95 12090 12225 11660 11679 Dec-95 12220 12169 12707 12490 Feb-96 12872 12477 13077 12866 Apr-96 13674 13132 14364 13835 Jun-96 14785 14380 14405 13789 Aug-96 13571 12585 14240 13316 Oct-96 14960 13837 14765 13624 Dec-96 15526 14185 15670 14557 Feb-97 16284 14848 16041 14489 Apr-97 15276 13805 15404 13843 Jun-97 16493 15383 17141 16043 Aug-97 18322 16789 18123 17173 Oct-97 19069 18430 18485 17621 Dec-97 18707 17507 18903 17813 Feb-98 18904 17531 20287 18829 Apr-98 20998 19605 20921 19712 Jun-98 20003 18650 20184 18690 Aug-98 18865 17175 15154 13840 Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Russell 2000 Index is unmanaged and tracks the shares of 2000 small- capitalization companies. Figures include the reinvestment of dividends. An individual cannot invest in an index. 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. The views expressed on this page are exclusively those of Chase Manhattan. 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. page 4 International Equity Portfolio The International Equity Portfolio seeks to provide a total return on assets from long-term growth of capital and from income principally through diversified holdings of the stocks of established foreign companies outside the United States. Performance The International Equity Portfolio produced a total return of -2.46% for the one-year period ended August 31, 1998. Strategy Early in the period, good corporate earnings, benign inflation and improving economic conditions in Europe helped propel stock prices on the continent. However, in the final two months of the period, Russia's deepening financial problems had a negative spillover effect on most European markets. Japan's banking crisis and lingering economic recession along with the government's unwillingness to introduce a sound economic reform package kept Japanese stocks under pressure for much of the period. Latin American stocks trended lower due to the impact of the economic and currency crisis in southeast Asia. Despite the slide in European equities during the last two months of the period, the Portfolio's overweighting in these securities helped bolster investment results. Through the first eight months of this year, several European markets were among the world's top performing markets. The Portfolio's underweighting in Japan and southeast Asia also contributed favorably to performance. Southeast Asia was plagued by a sweeping economic and currency crisis that resulted in double-digit percentage declines in many markets throughout the region. Outlook Looking ahead, global economic uncertainty may continue to weigh heavily on international markets. We remain positive on the growth potential of European markets. The creation of the 11-country European Monetary Union, which takes effect this January, should be good for business. Moreover, economic conditions are still good. In Asia, we intend to maintain our underweighting in Japan until the government institutes major reforms to repair the country's troubled banking system and the overall economy. Given the impact that southeast Asia can have on emerging markets, we remain neutral on Latin America. Life of Portfolio Performance A $10,000 tax-deferred investment in the International Equity Portfolio at NAV (Net Asset Value) would have grown to $11,779 from inception on 3/1/95 through 8/31/98.* Investment Results - -------------------------------------------------------------------------------- Average Annual Total Return as of 8/31/98 One year (2.46%) Since inception (3/1/95) 4.78% - --------------------------------------------------------------------------------
[PLOT POINTS FOR INTERNATIONAL EQUITY CHART] International MSCI Equity EAFE Mar-95 10000 10000 Apr-95 10180 10627 10350 11029 Jun-95 10480 10900 10470 10712 Aug-95 11010 11381 11890 10950 Oct-95 11070 11167 10910 10870 Dec-95 10870 11175 10890 11628 Feb-96 11058 11678 11132 11720 Apr-96 11427 11972 11753 12322 Jun-96 11616 12098 11679 12170 Aug-96 11121 11817 11153 11845 Oct-96 11448 12162 11300 12041 Dec-96 11690 12522 11648 12365 Feb-97 11532 11934 11798 12132 Apr-97 11752 12180 11729 12248 Jun-97 12214 13047 12688 13769 Aug-97 13289 13995 12075 12952 Oct-97 12734 13680 11729 12632 Dec-97 11659 12506 11816 12619 Feb-98 12097 13199 12867 14049 Apr-98 13442 14485 13748 14602 Jun-98 13797 14535 13626 14648 Aug-98 14017 14801 11779 12970 Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. The MSCI EAFE Index is unmanaged, is a replica (or model) of the performance of the European, Australian and Far Eastern equity markets, and assumes the reinvestment of dividends. An individual cannot invest in an index. Withdrawals prior to age 59-1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. The views expressed on this page are exclusively those of Chase Manhattan. 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. Asset Allocation Portfolio page 5 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. Performance The Asset Allocation Portfolio produced a total return of -0.04% for the one-year period ended August 31, 1998. Strategy The Portfolio's asset allocation strategy contributed favorably to performance. Early in the reporting period, we decreased our exposure to equities due to our concerns over the Asian financial crisis. We raised our stock market exposure early in 1998 when the turmoil appeared to wane, and scaled back our equity investments before the stock market's summer selloff. Good stock selection, especially in the financial, telecommunications and consumer cyclical areas, also contributed positively to the Portfolio's investment results. Additionally, our underweighting in technology helped performance, as these stocks came under intense pressure each time the Asian crisis weighed heavily on the global financial markets. Many sectors that bolstered the Portfolio during the stock market's strong rally in late 1997 and early in 1998 hindered performance when equities declined late in the period. Utilities and telecommunications were among the exceptions. The Portfolio's exposure to small and medium cap stocks also detracted from performance, as secondary issues under-performed their large-cap counterparts. The Portfolio's exposure to fixed-income securities and management's decision to maintain a higher-than-average duration buoyed performance as a result of the sharp decline in interest rates. Additionally, management's decision to reduce the Portfolio's investment in bonds with exposure to the Asian crisis proved rewarding for shareholders. Outlook Looking ahead, we expect to maintain our relatively defensive asset allocation strategy given our belief that earnings growth will slow due to the Asian financial crisis. However, as the economy tapers off and that slowdown is, in our judgment, fully reflected in stock prices, we intend to increase gradually our exposure to equities, particularly among undervalued small stocks. Given our forecast for slower economic growth, we intend to remain overweighted in fixed income securities and to maintain our above-average duration in anticipation of lower interest rates. Life of Portfolio Performance A $10,000 tax-deferred investment in the Asset Allocation Portfolio at NAV (Net Asset Value) would have grown to $15,004 from inception on 3/1/95 through 8/31/98.* Investment Results - -------------------------------------------------------------------------------- Average Annual Total Return as of 8/31/98 One year (0.04%) Since Inception (3/1/95) 12.27% - --------------------------------------------------------------------------------
[PLOT POINTS FOR ASSET ALLOCATION CHART] Asset 60% S&P 500/ Allocation 40% Lehman Gov't Bond Mar-95 10000 10000 Apr-95 10160 10202 10270 10435 Jun-95 10570 10854 10730 11038 Aug-95 10980 11241 11040 11311 Oct-95 11200 11641 11120 11687 Dec-95 11440 12068 11595 12275 Feb-96 11880 12556 11935 12524 Apr-96 12045 12555 12133 12634 Jun-96 12198 12821 12231 12916 Aug-96 12001 12587 12242 12735 Oct-96 12627 13250 12835 13585 Dec-96 13362 14295 13220 14067 Feb-97 13596 14600 13557 14677 Apr-97 13194 14253 13596 14846 Jun-97 14102 15440 14465 15925 Aug-97 15321 16866 15010 16232 Oct-97 15464 16863 15360 16642 Dec-97 15646 17138 15822 17387 Feb-98 15723 17606 16358 18349 Apr-98 16809 18934 16767 19082 Jun-98 16640 18963 16879 19511 Aug-98 16513 19398 15004 17918 Source for Index Returns: Lipper Analytical Services, Inc. * Past performance is no guarantee of future results. Investment returns and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Performance figures do not include any insurance company charges associated with a variable annuity or reflect any withdrawal charges. No expenses are deducted from the performance of the indexes. Hypothetical $10,000 investment assumes an initial investment on 3/1/95, shows changes in Net Asset Value and reinvestment of all distributions, but does not include the effect of any insurance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Standard & Poor's 500 Index is an unmanaged broad-based index that replicates the U.S. stock market. It includes 500 widely held common stocks and assumes reinvestment of all dividends. The unmanaged Lehman Government Bond Index includes the Treasury Bond Index and the Agency Bond Index. Maturities range from 1 to 20 years. An individual cannot invest in an index. 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. The views expressed on this page are exclusively those of Chase Manhattan. 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. page 6 U.S. Government Income Portfolio The U.S. Government Income Portfolio seeks to provide monthly dividends as well as to preserve principal. Performance The U.S. Government Income Portfolio produced a total return of 11.12% for the one-year period ended August 31, 1998. Strategy The sharp decline in interest rates and management's duration strategy were chiefly responsible for the Portfolio's superior investment results. Early in the period, in anticipation of a flattening yield curve, management employed a barbell strategy, meaning the Portfolio was overweighted in long-term bonds (those with maturities over 10 years) and short-term bonds (those with maturities between one and four years.) This strategy proved beneficial to shareholders, as interest rates fell sharply in late 1997 and again in the final three months of the period. The primary driver behind the decline in rates was concern among investors over the impact of the Asian financial crisis on the global economy. During the period, we maintained an above-average duration due to our belief that interest rates would fall in light of the global economic uncertainty. In anticipation of a subsequent flight to quality among investors, we maintained a heavy emphasis on Treasury securities. This strategy helped performance as Treasuries recorded solid gains. Finally, the Portfolio's investment in asset-backed securities bolstered the annual dividend yield. During the first nine and a half months of the year, approximately $230 billion in asset-backed securities was issued, just shy of the annual record for public issuance ($236 billion) set last year. Outlook With the economy showing signs of slowing and the economic crisis in Asia still a threat to the global economy, we expect interest rates to continue to trend lower and bond prices to rise in the months ahead. Given this backdrop, we intend to maintain our above-average duration strategy through the end of this year and into 1999. Any significant increase in interest rates will be viewed as an opportunity to increase the Portfolio's average duration and its income producing potential. As always, we will continue to maintain a high-quality portfolio by emphasizing U.S. government securities. 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 $13,178 from inception on 3/1/95 through 8/31/98.* Investment Results - -------------------------------------------------------------------------------- Average Annual Total Return as of 8/31/98 One year 11.12% Since Inception (3/1/95) 8.19% - --------------------------------------------------------------------------------
[PLOT POINTS FOR U.S. GOVERNMENT INCOME CHART] U.S. Government Lehman Intrmd Income Portfolio U.S. Gov't Mar-95 10000 10000 Apr-95 10050 10057 10170 10180 Jun-95 10550 10488 10620 10558 Aug-95 10570 10559 10690 10655 Oct-95 10800 10732 10950 10851 Dec-95 11100 10993 11235 11109 Feb-96 11292 11204 11027 11073 Apr-96 10924 11016 10855 10978 Jun-96 10820 10969 10970 11085 Aug-96 10993 11119 10970 11128 Oct-96 11131 11282 11350 11482 Dec-96 11152 11634 11430 11559 Feb-97 11455 11604 11430 11626 Apr-97 11304 11546 11468 11681 Jun-97 11556 11778 11683 11885 Aug-97 11998 12126 11859 12066 Oct-97 12048 12206 12238 12341 Dec-97 12288 12368 12397 12467 Feb-98 12527 12631 12527 12605 Apr-98 12566 12646 12618 12709 Jun-98 12735 12802 12878 12884 Aug-98 12891 12929 13178 13132 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 perfor- mance 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 insur- ance charges or the annual maintenance fee. The illustration above would be reduced if these fees were reflected. There is no direct correlation between a hypothetical investment and the anticipated performance of the Portfolio. The investment adviser is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The unmanaged Lehman Intermediate Government Bond Index includes bonds with 1 to 10 year maturities and assumes the reinvestment of dividends. An individual cannot invest in an index. Withdrawals prior to age 59-1/2 from the Vista Capital Advantage variable annuity may be subject to a 10% IRS tax penalty, and are taxed as ordinary income. The views expressed on this page are exclusively those of Chase Manhattan. 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. Money Market Portfolio page 7 The Money Market Portfolio seeks to provide maximum current income consistent with preservation of capital and maintenance of liquidity. Performance The Money Market Portfolio produced a total return of 5.04% for the one-year period ended August 31, 1998. Strategy The Portfolio continued to provide investors with an attractive yield despite the decline in interest rates brought on by the impact of the Asian economic and currency turmoil on the global economy. During the reporting period, the yield on the 3-month Treasury bill fell from 5.14 percent on August 31, 1997 to 4.80 percent on August 31, 1998. The yield on the one-year Treasury bill declined even more--from 5.80 percent at the start of the period to 4.78 percent by the end of the period. Throughout much of the year, management maintained a longer-than-average duration in anticipation of falling interest rates. This strategy helped performance in late 1997 when Asia's financial problems drove down interest rates and again in mid-1998 when the turmoil re-surfaced, culminating with the near-collapse of Russia's economy. Management's emphasis on Treasury securities also proved beneficial to shareholders. Inflows into the Treasury markets were strong, as domestic and international investors turned to the safe haven of U.S. Government securities amidst the uncertainty created by the Asian crisis. Outlook Our outlook for the Money Market Portfolio remains positive. Investor concerns over the global economy are unlikely to abate anytime soon. Given this backdrop, investors should continue to favor high quality, liquid investments, such as those in our portfolio. page 8 Growth & Income Portfolio Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- LONG-TERM INVESTMENTS--94.7% COMMON STOCK--94.7% AEROSPACE--0.9% 3,300 GENERAL DYNAMICS CORP. ..................... $ 156,956 ----------- AGRICULTURAL PRODUCTION/SERVICES--1.5% 8,100 UNIVERSAL CORP. ............................ 255,150 ----------- AIRLINES--1.9% 5,900 AMR CORP.* ................................. 321,550 ----------- AUTOMOTIVE--2.3% 9,000 FORD MOTOR CO. ............................. 396,000 ----------- BANKING--7.7% 2,600 COMERICA, INC. ............................. 135,850 2,500 CULLEN/FROST BANKERS, INC. ................. 106,875 10,900 FIRSTSTAR CORP. ............................ 422,375 2,500 NATIONAL CITY CORP. ........................ 146,875 7,400 NATIONSBANK CORP. .......................... 421,800 5,300 NORTH FORK BANCORP., INC. .................. 100,700 ----------- 1,334,475 ----------- BIOTECHNOLOGY--0.4% 1,700 BIOGEN, INC. ............................... 78,625 ----------- CHEMICALS--0.5% 6,400 CROMPTON & KNOWLES CORP. ................... 93,600 ----------- COMPUTER SOFTWARE--4.0% 7,800 COMPUTER SCIENCES CORP.* ................... 441,188 4,300 MASTECH CORP. .............................. 88,284 4,200 PLATINUM TECHNOLOGY, INC.* ................. 78,750 4,900 SYMANTEC CORP.* ............................ 80,238 ----------- 688,460 ----------- COMPUTERS/COMPUTER HARDWARE--5.9% 8,000 EMC CORP.* ................................. 361,500 7,700 GATEWAY 2000, INC.* ........................ 364,306 1,600 LEXMARK INTERNATIONAL GROUP, INC. (GERMANY)* ................................. 96,900 4,000 STORAGE TECHNOLOGY CORP.* .................. 87,000 2,900 SUN MICROSYSTEMS, INC.* .................... 114,912 ----------- 1,024,618 ----------- CONSUMER PRODUCTS--3.4% 14,200 PHILIP MORRIS COMPANIES, INC. .............. 590,187 ----------- DIVERSIFIED--3.2% 8,400 CANADIAN PACIFIC, LTD. ..................... 159,075 15,300 CBS CORP. .................................. 397,800 ----------- 556,875 ----------- FINANCIAL SERVICES--5.5% 2,261 ASSOCIATES FIRST CAPITAL CORP. ............. 133,670 11,600 FEDERAL HOME LOAN MORTGAGE CORP. ........... 458,200 6,700 MORGAN STANLEY, DEAN WITTER & CO. .......... 389,019 ----------- 980,889 -----------
Shares Issuer Value ------ ------ ----- FOOD/BEVERAGE PRODUCTS--1.3% 3,900 PEPSICO., INC. ............................. $ 107,981 2,300 QUAKER OATS CO. ............................ 122,187 ----------- 230,168 ----------- HEALTH CARE/HEALTH CARE SERVICES--5.7% 4,900 COLUMBIA/HCA HEALTHCARE CORP. .............. 110,556 5,200 CONCENTRA MANAGED CARE, INC.* .............. 66,625 4,900 HBO & CO. .................................. 104,125 26,900 HEALTHSOUTH CORP.* ......................... 509,419 4,700 TENET HEALTHCARE CORP.* .................... 121,319 4,000 TOTAL RENAL CARE HOLDINGS, INC.* ........... 76,000 ----------- 988,044 ----------- INSURANCE--4.7% 12,100 ALLSTATE CORP. ............................. 453,750 2,000 EXEL LTD. (BERMUDA) ........................ 133,625 7,800 RELIANCE GROUP HOLDINGS, INC. .............. 98,475 2,900 TRAVELERS, INC. ............................ 128,687 ----------- 814,537 ----------- MANUFACTURING--4.3% 3,500 INGERSOLL-RAND CO. ......................... 139,125 9,700 JOHNSON CONTROLS ........................... 415,281 3,100 PENTAIR, INC. .............................. 86,412 4,100 UNITED DOMINION INDUSTRIES, LTD. ........... 99,681 ----------- 740,499 ----------- MEDIA/ADVERTISING--0.9% 3,100 OMNICOM GROUP, INC. ........................ 147,637 ----------- METALS/MINING--0.8% ........................ 2,300 ALUMINUM CO. OF AMERICA (ALCOA) ............ 137,713 ----------- OFFICE/BUSINESS EQUIPMENT--2.2% 4,400 XEROX CORP. ................................ 386,375 ----------- OIL & GAS--3.7% 3,300 BJ SERVICES CO.* ........................... 41,663 15,300 COASTAL CORP. .............................. 397,800 2,100 MOBIL CORP. ................................ 145,163 2,200 ULTRAMAR DIAMOND SHAMROCK CORP. ............ 50,875 ----------- 635,501 ----------- PACKAGING--2.2% 12,400 OWENS-ILLINOIS, INC.* ...................... 386,725 ----------- PHARMACEUTICALS--3.9% 6,400 SCHERING-PLOUGH CORP. ...................... 550,400 2,200 SMITHKLINE BEECHAM PLC, ADR (UNITED KINGDOM) ................................... 125,125 ----------- 675,525 ----------- PRINTING & PUBLISHING--1.0% 5,800 NEW YORK TIMES CO., CLASS A ................ 168,200 ----------- REAL ESTATE INVESTMENT TRUST--1.3% 6,000 BRANDYWINE REALTY TRUST .................... 108,000 3,920 ESSEX PROPERTY TRUST, INC. ................. 111,475 ----------- 219,475 -----------
See notes to financial statements. Growth and Income Portfolio (continued) page 9 Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- RESTAURANTS/FOOD SERVICES--1.0% 5,500 CKE RESTAURANTS, INC. .......................... $ 170,500 ----------- RETAILING--10.0% 3,000 COSTCO COMPANIES, INC. A* ...................... 141,188 2,900 CVS CORP. ...................................... 105,488 8,800 FEDERATED DEPARTMENT STORES* ................... 383,350 12,600 KROGER CO.* .................................... 567,000 6,700 NEIMAN-MARCUS GROUP, INC.* ..................... 162,894 14,500 OFFICE DEPOT, INC.* ............................ 369,750 ----------- 1,729,670 ----------- TELECOMMUNICATIONS--3.8% 3,100 BELLSOUTH CORP. ................................ 212,544 2,300 TELLABS, INC.* ................................. 97,175 8,700 WORLDCOM, INC.* ................................ 356,156 ----------- 665,875 ----------- UTILITIES--8.3% 3,600 CMS ENERGY CORP. ............................... 152,325 9,800 CONSOLIDATED EDISON, INC. ...................... 463,663 7,400 DUKE ENERGY CORP. .............................. 461,575 3,300 FPL GROUP INC. ................................. 219,656 5,900 LG&E ENERGY CORP. .............................. 151,188 ----------- 1,448,407 ----------- WASTE MANAGEMENT--2.4% 9,600 WASTE MANAGEMENT, INC.* ........................ 423,600 ----------- TOTAL COMMON STOCK (COST $19,464,387) ............................. 16,445,836 -----------
Shares Issuer Value ------ ------ ----- WARRANTS--0.0% REAL ESTATE INVESTMENT TRUST--0.0% 240 SECURITY CAPITAL GROUP, SER. B, 09/18/98 (COST $0) ...................................... $ 1 ----------- TOTAL LONG-TERM INVESTMENTS (COST $19,464,387).............................. 16,445,837 ----------- Principal Amount ---------- SHORT-TERM INVESTMENTS--5.8% REPURCHASE AGREEMENT--5.8% $1,002,000 GREENWICH CAPITAL MARKETS, 5.80%, DUE 09/01/98, (DATED 08/31/98, PROCEEDS $1,002,161, SECURED BY U.S. TREASURY BOND, $625,000 AT 11.25%, DUE 02/15/15; MARKET $1,026,495) (COST $1,002,000) .............................. 1,002,000 ----------- TOTAL INVESTMENTS--100.5% (COST $20,466,387).............................. $17,447,837 ===========
See notes to financial statements. page 10 Capital Growth Portfolio Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- LONG-TERM INVESTMENTS--84.3% COMMON STOCK--84.3% AGRICULTURAL PRODUCTION/SERVICES--1.4% 5,000 UNIVERSAL CORP. .................................... $ 157,500 ---------- BANKING--4.1% 6,500 CULLEN/FROST BANKERS, INC. ......................... 277,875 4,590 ZIONS BANCORP. ..................................... 176,141 ---------- 454,016 ---------- BIOTECHNOLOGY--2.3% 5,500 BIOGEN, INC.* ...................................... 254,375 ---------- BUSINESS SERVICES--2.4% 5,000 PERSONNEL GROUP OF AMERICA, INC.* .................. 56,562 6,500 SUNGARD DATA SYSTEMS, INC.* ........................ 205,969 ---------- 262,531 ---------- CHEMICALS--2.1% 9,000 CROMPTON & KNOWLES CORP. ........................... 131,625 4,500 CYTEC INDUSTRIES, INC.* ............................ 102,938 ---------- 234,563 ---------- COMPUTER SOFTWARE--6.7% 10,000 AMERICAN MANAGEMENT SYSTEMS, INC.* ................. 267,500 9,000 PLATINUM TECHNOLOGY, INC.* ......................... 168,750 10,000 SYMANTEC CORP.* .................................... 163,750 3,750 WIND RIVER SYSTEMS* ................................ 140,625 ---------- 740,625 ---------- COMPUTERS/COMPUTER HARDWARE--7.3% 6,000 EMC CORP.* ......................................... 271,125 4,700 LEXMARK INTERNATIONAL GROUP, INC. (GERMANY)* ......................................... 284,644 7,000 QUANTUM CORP.* ..................................... 80,062 8,000 STORAGE TECHNOLOGY CORP.* .......................... 174,000 ---------- 809,831 ---------- CONSUMER PRODUCTS--3.5% 6,000 FURNITURE BRANDS INTERNATIONAL, INC.* .............. 134,250 8,400 INTERFACE, INC. CLASS A ............................ 102,900 10,000 SHAW INDUSTRIES .................................... 151,250 ---------- 388,400 ---------- ELECTRONICS/ELECTRICAL EQUIPMENT--2.4% 5,000 WATERS CORP.* ...................................... 269,375 ---------- ENVIRONMENTAL SERVICES--1.9% 11,000 ALLIED WASTE INDUSTRIES, INC.* ..................... 209,000 ---------- FINANCIAL SERVICES--5.2% 6,000 BEAR STEARNS COMPANIES, INC. ....................... 221,625 3,000 FINOVA GROUP, INC. ................................. 133,875 4,000 THE PMI GROUP, INC. ................................ 221,500 ---------- 577,000 ---------- FOOD/BEVERAGE PRODUCTS--1.3% 9,000 WHITMAN CORP. ...................................... 139,500 ---------- HEALTH CARE/HEALTH CARE SERVICES--9.7% 10,000 ASSISTED LIVING CONCEPTS ........................... 126,875
Shares Issuer Value ------ ------ ----- HEALTH CARE/HEALTH CARE SERVICES (cont'd) 16,000 CONCENTRA MANAGED CARE, INC.* ...................... $ 205,000 7,500 INTEGRATED HEALTH SERVICES, INC. ................... 145,313 6,750 TENET HEALTHCARE CORP.* ............................ 174,234 5,000 TOTAL RENAL CARE HOLDINGS, INC.* ................... 95,000 5,100 UNIVERSAL HEALTH SERVICES, INC., CLASS B* .......... 197,625 2,500 WELLPOINT HEALTH NETWORKS, INC.* ................... 133,437 ---------- 1,077,484 ---------- HOME BUILDING CONSTRUCTION--0.9% 5,690 LENNAR CORP. ....................................... 103,131 ---------- INSURANCE--7.0% 6,000 ORION CAPITAL CORP. ................................ 223,500 8,000 RELIASTAR FINANCIAL CORP. .......................... 314,000 3,000 TRANSATLANTIC HOLDINGS, INC. ....................... 243,562 ---------- 781,062 ---------- MANUFACTURING--3.5% 6,000 PENTAIR, INC. ...................................... 167,250 9,000 UNITED DOMINION INDUSTRIES, LTD. ................... 218,813 ---------- 386,063 ---------- MEDIA/ADVERTISING--1.7% 4,000 OMNICOM GROUP, INC. ................................ 190,500 ---------- OIL & GAS--2.7% 11,000 BJ SERVICES CO.* ................................... 138,875 2,000 CAMCO INTERNATIONAL, INC. .......................... 100,500 3,000 COOPER CAMERON CORP.* .............................. 63,750 ---------- 303,125 ---------- PAPER/FOREST PRODUCTS--1.5% 7,000 BOISE CASCADE CORP. ................................ 171,063 ---------- PIPELINES--2.4% 5,400 COLUMBIA GAS SYSTEM, INC. .......................... 268,650 ---------- REAL ESTATE INVESTMENT TRUST--3.6% 10,000 ARCHSTONE COMMUNITIES TRUST ........................ 193,750 7,000 ESSEX PROPERTY TRUST, INC. ......................... 199,063 ---------- 392,813 ---------- RETAILING--5.2% 4,000 CVS CORP. .......................................... 145,500 7,000 NEIMAN-MARCUS GROUP, INC.* ......................... 170,188 8,000 PROFFITT'S, INC.* .................................. 204,000 5,000 STAGE STORES, INC.* ................................ 52,187 ---------- 571,875 ---------- TELECOMMUNICATIONS--2.2% 10,000 ASPECT TELECOMMUNICATIONS CORP.* ................... 238,125 ---------- UTILITIES--3.3% 3,500 CMS ENERGY CORP. ................................... 148,094 7,500 TNP ENTERPRISES, INC. .............................. 222,656 ---------- 370,750 ---------- TOTAL LONG-TERM INVESTMENTS (COST $10,605,518).................................. 9,351,357 ----------
See notes to financial statements. Capital Growth Portfolio (continued) page 11 Portfolio of Investments August 31, 1998
Principal Amount Issuer Value ------ ------ ----- SHORT-TERM INVESTMENTS--16.1% REPURCHASE AGREEMENT--16.1% $ 1,785,000 GREENWICH CAPITAL MARKETS, 5.80%, DUE 09/01/98, (DATED 08/31/98, PROCEEDS $1,785,288, SECURED BY U.S TREASURY BOND, $1,110,000 AT 11.25%, DUE 02/15/15; MARKET $1,823,054) (COST $1,785,000) .............................. $ 1,785,000 ----------- TOTAL INVESTMENTS--100.4% (COST $12,390,518) ............................. $11,136,357 ===========
See notes to financial statements. page 12 International Equity Portfolio Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- LONG-TERM INVESTMENTS--91.5% COMMON STOCK--91.5% AUSTRALIA--0.3% DIVERSIFIED--0.1% 6,000 FUTURIS CORP., LTD. ................................ $ 4,732 -------- FINANCIAL SERVICES--0.0% 23,000 FXF TRUST* ......................................... 2,366 -------- FOOD/BEVERAGE PRODUCTS--0.1% 2,000 FOSTER'S BREWING GROUP LTD. ........................ 4,114 -------- MINING--0.0% 200 SOUL PATTINSON & COMPANY LTD. (WASHINGTON H.) .................................... 2,806 -------- MULTI-MEDIA--0.1% 1,000 PUBLISHING & BROADCASTING LTD. ..................... 3,514 -------- TOTAL AUSTRALIA 17,532 -------- AUSTRIA--1.2% FINANCIAL SERVICES--0.7% 785 BANK AUSTRIA AG .................................... 43,148 -------- OIL & GAS--0.5% 389 SCHOELLER-BLECKMANN OILFIELD EQUIPMENT AG .......... 34,588 -------- TOTAL AUSTRIA 77,736 -------- BELGIUM--1.8% BANKING--1.8% 1,393 KREDIETBANK NV ..................................... 110,300 -------- BRAZIL--3.0% TELECOMMUNICATIONS--2.3% 800 TELECOMUNICACOES BRASILEIRAS SA, ADR, PREFERRED* ......................................... 57,450 1,270 TELECOMUNICACOES BRASILEIRAS SA, ADR ............... 89,535 -------- 146,985 -------- UTILITIES--0.7% 5,230 CENTRAIS ELECTRICAS BRASILEIRAS SA-ELECTROBRAS, ADR ................................ 41,993 523 CENTRAIS GERADORAS DO SUL DO BRAZIL SA* ............ 2,711 -------- 44,704 -------- TOTAL BRAZIL 191,689 -------- CROATIA--0.3% PHARMECUTICALS--0.3% 2,155 PLIVA D.D., GDR, REG S ............................. 18,533 -------- FINLAND--3.2% FOOD/BEVERAGE PRODUCTS--0.3% 1,240 RAISIO GROUP PLC ................................... 16,333 -------- TELECOMMUNICATIONS--2.9% 2,619 NOKIA OYJ, A SHARES ................................ 185,942 -------- TOTAL FINLAND 202,275 -------- FRANCE--10.1% APPLIANCES & HOUSEHOLD DURABLES--0.9% 2,786 MOULINEX* .......................................... 55,285 --------
Shares Issuer Value ------ ------ ----- FRANCE (cont'd) AUTOMOTIVE--1.0% 299 EQUIPMENT ET COMPOSANTS POUR L'INDUSTRIE AUTOMOBILE ......................................... $ 63,340 -------- BANKING--2.3% 1,469 BANQUE NATIONALE DE PARIS .......................... 97,294 710 CREDIT COMMERCIAL DE FRANCE ........................ 49,734 -------- 147,028 -------- COMPUTER SOFTWARE--1.5% 585 CAP GEMINI SOGETI SA ............................... 92,274 -------- DIVERSIFIED--1.5% 2,595 LAGARDERE SCA ...................................... 97,709 -------- ENTERTAINMENT/LEISURE--0.4% 1,075 PARC ASTERIX SA* ................................... 25,781 -------- TELECOMMUNICATIONS--2.5% 966 ALCATEL ALSTHOM (CIE GENERAL EI) ................... 156,467 -------- TOTAL FRANCE 637,884 -------- GERMANY--11.8% AIRLINES--2.3% 5,865 DEUTSCHE LUFTHANSA AG .............................. 145,115 -------- AUTOMOTIVE--1.0% 2,727 KOLBENSCHMIDT PIERBURG AG .......................... 62,044 -------- BANKING--1.2% 960 BAYERISCHE VEREINSBANK AG .......................... 73,443 -------- CAPITAL GOODS--1.4% 990 MANNESMANN AG* ..................................... 89,534 -------- FOOD/BEVERAGE PRODUCTS--1.8% 2,718 KAMPS AG* .......................................... 113,630 -------- INSURANCE--1.8% 280 MUENCHENER RUECKVERSICHERUNGS- GESELLSCHAFT AG .................................... 109,095 11 MUENCHENER RUECKVERSICHERUNGS- GESELLSCHAFT AG, NEW SHARES ........................ 4,248 -------- 113,343 -------- TELECOMMUNICATIONS--2.3% 558 MOBILCOM AG ........................................ 147,585 -------- TOTAL GERMANY 744,694 -------- GREECE--0.2% TELECOMMUNICATIONS--0.2% 421 STET HELLAS TELECOMMUNICATIONS SA, ADR* ............ 12,314 -------- HONG KONG--0.1% TELECOMMUNICATIONS--0.1% 4,000 HONG KONG TELECOMMUNICATIONS LTD.* ................. 7,072 -------- IRELAND--1.3% COMPUTER SOFTWARE--0.3% 815 IONA TECHNOLOGIES PLC, ADR* ........................ 16,096 -------- REAL ESTATE--0.5% 6,515 GREEN PROPERTY PLC ................................. 32,773 --------
See notes to financial statements. International Equity Portfolio (continued) page 13 Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- IRELAND (cont'd) TELECOMMUNICATIONS--0.5% 1,413 ESAT TELECOM GROUP PLC* ........................... $ 31,086 -------- TOTAL IRELAND 79,955 -------- ITALY--7.2% AUTOMOTIVE--0.0% 400 FIAT SPA, PREFERENCE SHARES ....................... 735 -------- BANKING--3.3% 14,000 ISTITUTO BANCARIO SAN PAOLO DI TORINO ............. 205,093 -------- COMPUTERS/COMPUTER HARDWARE--2.1% 60,000 OLIVETTI GROUP SPA ................................ 134,687 -------- PRINTING & PUBLISHING--1.8% 14,500 POLIGRAFICI EDITORIALE SPA* ....................... 35,777 123,100 SEAT SPA* ......................................... 78,942 -------- 114,719 -------- TOTAL ITALY 455,234 -------- JAPAN--9.8% BANKING--0.2% 2,000 BANK OF TOKYO-MITSUBISHI .......................... 14,168 -------- COMPUTERS/COMPUTER HARDWARE--0.3% 2,000 FUJITSU LTD. ...................................... 20,301 -------- CONSUMER PRODUCTS--1.6% 4,000 CITIZEN WATCH CO. ................................. 28,535 1,000 KAO CORP. ......................................... 15,439 200 SONY CORP. ........................................ 14,637 1,200 UNI-CHARM CORP. ................................... 43,697 -------- 102,308 -------- ELECTRONICS/ELECTRICAL EQUIPMENT--2.2% 5,000 ANRITSU CORP. ..................................... 38,011 300 KEYENCE CORP. ..................................... 30,324 600 MABUCHI MOTOR ..................................... 40,503 1,000 MITSUMI ELECTRIC COMPANY LTD.* .................... 18,597 5,000 OKI ELECTRIC INDUSTRY COMPANY, LTD.* .............. 11,038 -------- 138,473 -------- ENTERTAINMENT/LEISURE--0.4% 300 NINTENDO COMPANY LTD. ............................. 27,832 -------- HEALTH CARE/HEALTH CARE SERVICES--0.4% 1,000 TAKEDA CHEMICAL INDUSTRIES ........................ 26,193 -------- INSURANCE--0.3% 2,000 TOKIO MARINE & FIRE INSURANCE CO. ................. 16,496 -------- MACHINERY & ENGINEERING EQUIPMENT--0.4% 5,000 TOKYO KIKAI SEISAKUSHO ............................ 28,109 -------- MANUFACTURING--1.1% 1,000 FUJI MACHINE MANUFACTURING CO. LTD. ............... 31,090 2,000 KOMORI CORP. ...................................... 36,769 -------- 67,859 -------- OIL & GAS--0.4% 10,000 OSAKA GAS CO. ..................................... 25,412 --------
Shares Issuer Value ------ ------ ----- JAPAN (cont'd) PERSONAL SERVICES--0.9% 1,000 SECOM CO., LTD. ................................... $ 57,780 -------- PHOTOGRAPHIC EQUIPMENT--0.5% 1,000 FUJI PHOTO FILM ................................... 32,297 -------- REAL ESTATE--0.2% 3,000 HANKYU REALTY CO., LTD ............................ 11,712 -------- RETAILING--0.4% 700 MATSUMOTOKIYOSHI .................................. 22,359 -------- TELECOMMUNICATIONS--0.5% 1,000 MATSUSHITA COMMUNICATION INDUSTRIES ............... 33,717 -------- TOTAL JAPAN 625,016 -------- MALTA--1.0% TELECOMMUNICATIONS--1.0% 5,000 MALTACOM PLC, GDR* ................................ 65,000 -------- MEXICO--0.6% DIVERSIFIED--0.3% 8,274 ALFA, SA DE CV, CLASS A ........................... 18,677 -------- FINANCIAL SERVICES--0.1% 10,000 GRUPO FINANCIERO BANAMEX ACCIVAL, SA DE CV (BANACCI), SER. B* ................................ 8,508 -------- HOME BUILDING CONSTRUCTION--0.2% 500 CORPORACION GEO, SA DE CV, SER. B, GDR # .......... 5,117 500 CORPORACION GEO, SA DE CV, SER. B, ADR* ........... 5,117 -------- 10,234 -------- TOTAL MEXICO 37,419 -------- NETHERLANDS--4.4% BUSINESS SERVICES--2.1% 2,543 BRUNEL INTERNATIONAL NV* .......................... 84,585 2,103 KONINKLIJKE AHREND GROEP NV ....................... 48,223 -------- 132,808 -------- COMPUTER SOFTWARE--0.3% 3,000 TAS GROEP NV* ..................................... 20,411 -------- CONSUMER PRODUCTS--0.0% 5 HAGEMEYER NV ...................................... 182 -------- DIVERSIFIED--1.5% 3,000 ORDINA BEHEER NV* ................................. 92,831 -------- RETAILING--0.5% 862 VENDEX INTERNATIONAL NV ........................... 29,628 -------- TOTAL NETHERLANDS 275,860 -------- PHILIPPINES--0.1% UTILITIES--0.1% 2,100 MANILA ELECTRIC CO., CLASS B ...................... 3,448 -------- PORTUGAL--2.0% BANKING--1.7% 3,895 BANCO COMERCIAL PORTUGUES, SA ..................... 108,451 -------- RETAILING--0.3% 520 JERONIMO MARTINS & FILHO, SGPS SA ................. 20,548 -------- TOTAL PORTUGAL 128,999 --------
See notes to financial statements. page 14 International Equity Portfolio (continued) Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- SINGAPORE--0.3% BANKING--0.1% 2,000 OVERSEAS CHINESE BANKING CORP. ..................... $ 5,166 ---------- PRINTING & PUBLISHING--0.1% 1,000 SINGAPORE PRESS HOLDINGS LTD. ...................... 7,050 ---------- REAL ESTATE--0.1% 2,000 CITY DEVELOPMENTS, LTD. ............................ 3,519 ---------- TOTAL SINGAPORE 15,735 ---------- SPAIN-- 2.4% BANKING--0.7% 3,342 BANCO BILBOA VIZCAYA, SA ........................... 44,324 ---------- CONSUMER PRODUCTS--0.5% 3,030 CORP. FINANCIERA REUNIDA, SA (COFIR)* .............. 34,503 ---------- TELECOMMINCIATIONS--1.2% 1,980 TELEPHONICA DE ESPANA .............................. 75,996 ---------- TOTAL SPAIN ........................................ 154,823 ---------- SWEDEN--2.2% COMPUTER SOFTWARE--0.2% 1,832 INDUSTRI-MATEMATIK INTERNATIONAL CORP.* .......... 10,992 ---------- INSURANCE--2.0% 9,338 SKANDIA FORSAKRINGS AB ............................. 131,440 ---------- TOTAL SWEDEN 142,432 ---------- SWITZERLAND--5.7% BANKING--1.1% 390 CREDIT SUISSE GROUP ................................ 68,561 ---------- HEALTH CARE/HEALTH CARE SERVICES--3.3% 132 NOVARTIS AG (REGISTERED)* .......................... 205,872 ---------- MANUFACTURING--0.6% 70 SULZER AG .......................................... 38,495 ---------- PHOTOGRAPHIC EQUIPMENT--0.7% 162 FOTOLABO SA ........................................ 44,825 ---------- TOTAL SWITZERLAND 357,753 ---------- THAILAND--0.1% OIL & GAS--0.1% 400 PTT EXPLORATION AND PRODUCTION PUBLIC CO., LTD. (FOREIGN) ..................................... 2,635 ---------- UTILITIES--0.0% 1,900 ELECTRICITY GENERATING PUBLIC COMPANY LTD. (FOREIGN) .......................................... 2,630 ---------- TOTAL THAILAND 5,265 ---------- UNITED KINGDOM--22.2% AEROSPACE--1.2% 11,772 BRITISH AEROSPACE PLC .............................. 77,181 ---------- AIRLINES--0.8% 6,735 BRITISH AIRWAYS PLC ................................ 50,763 ---------- BANKING--2.6% 9,471 NATIONAL WESTMINSTER BANK .......................... 166,750 ---------- BUSINESS SERVICES--0.3% 2,625 DELPHI GROUP PLC ................................... 17,386 ----------
Shares Issuer Value ------ ------ ----- UNITED KINGDOM (cont'd) CONSTRUCTION--0.8% 5,733 BERKELEY GROUP PLC ................................. $ 49,507 ---------- CONSUMER PRODUCTS--0.9% 6,260 UNILEVER PLC ....................................... 58,467 ---------- ELECTRONICS/ELECTRICAL EQUIPMENT--1.0% 50,000 VERITY GROUP PLC ................................... 60,365 ---------- ENTERTAINMENT/LEISURE 0.5% 2,391 GRANADA GROUP PLC .................................. 31,793 ---------- FINANCIAL SERVICES--3.3% 6,500 BARCLAYS PLC ....................................... 154,224 4,560 LEGAL & GENERAL GROUP PLC .......................... 54,441 ---------- 208,665 ---------- HOTELS/OTHER LODGING--0.5% 16,259 JARVIS HOTELS PLC* ................................. 32,716 ---------- OIL & GAS--2.0% 7,800 BRITISH PETROLEUM CO., PLC ......................... 100,235 6,367 BRITISH-BORNEO PETROLEUM SYNDICATE PLC ............. 25,836 ---------- 126,071 ---------- PHARMACEUTICALS--3.1% 6,459 GLAXO WELLCOME PLC ................................. 194,948 ---------- PRINTING & PUBLISHING--0.7% 5,425 JARVIS PORTER GROUP, PLC ........................... 45,483 ---------- REAL ESTATE--0.8% 31,756 TBI PLC ............................................ 48,989 ---------- TELECOMMUNICATIONS--3.7% 13,680 SECURICOR PLC ...................................... 118,822 8,161 VODAFONE GROUP PLC ................................. 113,854 ---------- 232,676 ---------- TOTAL UNITED KINGDOM 1,401,760 ---------- VENEZUELA--0.2% TELECOMMUNICATIONS--0.2% 1,000 COMPANIA ANONIMA NACIONAL TELEFONOS DE VENEZUELA (CANTV), ADR* ......................... 10,500 ---------- TOTAL COMMON STOCK (COST $6,377,859) .................................. 5,779,228 ---------- WARRANTS--0.0% GERMANY--0.0% INSURANCE--0.0% 11 MUENCHENER RUECKVERSICHERUNGS- GESELLSCHAFT AG, EXPIRES 06/03/02 .................. 447 ---------- HONG KONG--0.0% DIVERSIFIED--0.0% 1,600 GUANGDONG INVESTMENT LTD., EXPIRES 07/30/99 ........ 2 300 WHARF HOLDINGS, EXPIRES 12/31/99 ................... 3 ---------- TOTAL HONG KONG 5 ----------
See notes to financial statements. International Equity Portfolio (continued) page 15 Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- MALAYSIA--0.0% CONSTRUCTION--0.0% 4,000 SUNWAY BUILDING TECHNOLOGY, BHD., 3.0%, REDEEMABLE, UNSECURED ................. $ 535 ---------- TOTAL WARRANTS (COST $1,284) ......................... 987 ---------- Principal Amount (USD) CORPORATE NOTES & BONDS--0.0% --------- GERMANY--0.0% AUTOMOTIVE--0.0% $1,000 DAIMLER BENZ AG, 5.75%, DUE 06/14/02 (COST $769) ........................... 852 ---------- TOTAL INVESTMENTS--91.5% (COST $6,379,911) ..................... $5,781,067 ----------
Number Original Value Unrealized Expiration of Cost (USD) at Appreciation/ Description Date Contracts (USD) 08/31/98 (Depreciation) - ---------------------- ------------ ----------- ---------- ---------- --------------- LONG INDEX FUTURES CONTRACTS OUTSTANDING NIKKEI 225 (CME) Sept. 1998 2 $164,000 $134,500 ($ 29,500) NIKKEI 225 (SMX) Sept. 1998 4 217,348 199,602 (17,746) HANG SENG Index Sept. 1998 1 48,263 45,166 (3,097) SHORT INDEX FUTURES CONTRACTS OUTSTANDING Financial Times Stock Exchange 100 Index Sept. 1998 3 305,833 264,349 41,484
See notes to financial statements. page 16 Asset Allocation Portfolio Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- LONG-TERM INVESTMENTS--97.6% COMMON STOCK--51.7% AEROSPACE--0.5% 800 GENERAL DYNAMICS CORP. ...................... $ 38,050 -------- AGRICULTURAL PRODUCTION/SERVICES--0.9% 2,100 UNIVERSAL CORP. ............................. 66,150 -------- AIRLINES--1.0% 1,400 AMR CORP.* .................................. 76,300 -------- AUTOMOTIVE--1.3% 2,200 FORD MOTOR CO. .............................. 96,800 -------- BANKING--4.1% 600 COMERICA, INC. .............................. 31,350 600 CULLEN/FROST BANKERS, INC. .................. 25,650 2,600 FIRSTSTAR CORP. ............................. 100,750 600 NATIONAL CITY CORP. ......................... 35,250 1,800 NATIONSBANK CORP. ........................... 102,600 1,300 NORTH FORK BANCORP., INC. ................... 24,700 -------- 320,300 -------- BIOTECHNOLOGY--0.3% 400 BIOGEN, INC. ................................ 18,500 -------- CHEMICALS--0.3% 1,600 CROMPTON & KNOWLES CORP. .................... 23,400 -------- COMPUTER SOFTWARE--2.2% 2,000 COMPUTER SCIENCES CORP. ..................... 113,125 1,000 MASTECH CORP. ............................... 20,531 1,100 PLATINUM TECHNOLOGY, INC.* .................. 20,625 1,200 SYMANTEC CORP.* ............................. 19,650 -------- 173,931 -------- COMPUTERS/COMPUTER HARDWARE--3.3% 2,000 EMC CORP.* .................................. 90,375 1,900 GATEWAY 2000, INC.* ......................... 89,894 400 LEXMARK INTERNATIONAL GROUP, INC.* .......... 24,225 1,000 STORAGE TECHNOLOGY CORP.* ................... 21,750 700 SUN MICROSYSTEMS, INC.* ..................... 27,737 -------- 253,981 -------- CONSUMER PRODUCTS--1.9% 3,500 PHILIP MORRIS COMPANIES, INC. ............... 145,469 -------- DIVERSIFIED--1.7% 2,100 CANADIAN PACIFIC, LTD. ...................... 39,769 3,700 CBS CORP. ................................... 96,200 -------- 135,969 -------- FINANCIAL SERVICES--3.0% 571 ASSOCIATES FIRST CAPITAL CORP. .............. 33,760 2,800 FEDERAL HOME LOAN MORTGAGE CORP. ............ 110,600 1,600 MORGAN STANLEY, DEAN WITTER & CO. ........... 92,900 -------- 237,260 -------- FOOD/BEVERAGE PRODUCTS--0.7% 900 PEPSICO., INC. .............................. 24,919 600 QUAKER OATS CO. ............................. 31,875 -------- 56,794 --------
Shares Issuer Value ------ ------ ----- HEALTH CARE/HEALTH CARE SERVICES--3.2% 1,200 COLUMBIA/HCA HEALTHCARE CORP. ............... $ 27,075 1,300 CONCENTRA MANAGED CARE, INC.* ............... 16,656 1,200 HBO & CO. ................................... 25,500 6,800 HEALTHSOUTH CORP.* .......................... 128,775 1,200 TENET HEALTHCARE CORP.* ..................... 30,975 1,000 TOTAL RENAL CARE HOLDINGS, INC.* ............ 19,000 -------- 247,981 -------- INSURANCE--2.5% 2,900 ALLSTATE CORP. .............................. 108,750 500 EXEL LIMITED, CLASS A ....................... 33,406 1,900 RELIANCE GROUP HOLDINGS, INC. ............... 23,987 700 TRAVELERS, INC. ............................. 31,063 -------- 197,206 -------- MANUFACTURING--2.3% 850 INGERSOLL-RAND CO. .......................... 33,788 2,400 JOHNSON CONTROLS ............................ 102,750 800 PENTAIR, INC. ............................... 22,300 1,000 UNITED DOMINION INDUSTRIES, LTD. ............ 24,313 -------- 183,151 -------- MEDIA/ADVERTISING--0.5% 800 OMNICOM GROUP, INC. ......................... 38,100 -------- METALS/MINING--0.5% 600 ALUMINUM CO. OF AMERICA (ALCOA) ............. 35,925 -------- OFFICE/BUSINESS EQUIPMENT--1.2% 1,100 XEROX CORP. ................................. 96,594 -------- OIL & GAS--2.0% 800 BJ SERVICES CO.* ............................ 10,100 3,700 COASTAL CORP. ............................... 96,200 500 MOBIL CORP. ................................. 34,562 500 ULTRAMAR DIAMOND SHAMROCK CORP. ............. 11,563 -------- 152,425 -------- PACKAGING--1.2% 3,000 OWENS-ILLINOIS, INC.* ....................... 93,563 -------- PHARMACEUTICALS--2.2% 1,600 SCHERING-PLOUGH CORP. ....................... 137,600 600 SMITHKLINE BEECHAM PLC, ADR (UNITED KINGDOM) .................................... 34,125 -------- 171,725 -------- PRINTING & PUBLISHING--0.5% 1,400 NEW YORK TIMES CO., CLASS A ................. 40,600 -------- REAL ESTATE INVESTMENT TRUST--0.7% 1,500 BRANDYWINE REALTY TRUST ..................... 27,000 900 ESSEX PROPERTY TRUST, INC. .................. 25,594 -------- 52,594 -------- RESTAURANTS/FOOD SERVICES--0.5% 1,300 CKE RESTAURANTS, INC. ....................... 40,300 -------- RETAILING--5.4% 800 COSTCO COMPANIES, INC.* ..................... 37,650 700 CVS CORP. ................................... 25,462
See notes to financial statements. Asset Allocation Portfolio (continued) page 17 Portfolio of Investments August 31, 1998
Shares Issuer Value ------ ------ ----- RETAILING (cont'd) 2,100 FEDERATED DEPARTMENT STORES* .................... $ 91,481 3,100 KROGER CO.* ..................................... 139,500 1,600 NEIMAN-MARCUS GROUP, INC.* ...................... 38,900 3,500 OFFICE DEPOT, INC.* ............................. 89,250 --------- 422,243 --------- TELECOMMUNICATIONS--2.0% 700 BELLSOUTH CORP. ................................. 47,994 600 TELLABS, INC.* .................................. 25,350 2,100 WORLDCOM, INC.* ................................. 85,969 --------- 159,313 --------- UTILITIES--4.5% 900 CMS ENERGY CORP. ................................ 38,081 2,400 CONSOLIDATED EDISON, INC. ....................... 113,550 1,800 DUKE ENERGY CORP. ............................... 112,275 800 FPL GROUP INC. .................................. 53,250 1,400 LG&E ENERGY CORP. ............................... 35,875 --------- 353,031 --------- WASTE MANAGEMENT--1.3% 2,300 WASTE MANAGEMENT, INC.* ......................... 101,487 --------- TOTAL COMMON STOCK (COST $4,752,046) ............................... 4,029,142 ========= WARRANTS--0.0% REAL ESTATE INVESTMENT TRUST--0.0% 54 SECURITY CAPITAL GROUP, SER. B, EXPIRES 09/18/98 (COST $0) ....................................... 0 --------- Principal Amount --------- CORPORATE NOTES & BONDS--7.4% AEROSPACE--1.4% $ 100,000 LOCKHEED MARTIN CORP., 7.45%, 06/15/04 .......... 105,946 --------- BROADCASTING--1.5% .............................. 100,000 TIME WARNER, INC., 9.15%, 02/01/23 .............. 120,016 --------- CONSUMER PRODUCTS--1.9% ......................... 150,000 KIMBERLY-CLARK CORP., 6.25%, 07/15/18 ........... 149,250 --------- FINANCIAL SERVICES--2.2% ........................ 50,000 ASSOCIATES CORP. OF NORTH AMERICA, 5.88%, 07/15/02 ................................. 49,910 100,000 GENERAL ELECTRIC CAPITAL CORP., MTN, 9.18%, 12/30/08 ................................. 125,381 --------- 175,291 --------- TELECOMMUNICATIONS--0.4% 30,000 WORLDCOM, INC., 6.13%, 08/15/01 ................. 30,065 --------- TOTAL CORPORATE NOTES & BONDS (COST $560,129) ................................. 580,568 ---------
Principal Amount Issuer Value ------ ------ ----- MORTGAGE-BACKED PASS THRU SECURITIES--11.9% $ 500,000 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 15 YEAR, TBA, 6.00%, 09/01/13 .......................... $ 498,905 73,647 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 30 YEAR, TBA, 10.50%, 06/01/27 ......................... 81,943 250,000 GE CAPITAL MORTGAGE SERVICES, INC., SER. 1998-13, CLASS A10, FRN, 5.96%, 08/25/28 ........................ 250,703 100,000 SALOMON BROTHERS MORTGAGE SECURITIES VII, SER. 1998-NC2, CLASS M2, FRN, 6.26%, 06/25/28 .......... 99,406 ---------- (COST $926,860) ........................................ 930,957 ---------- ASSET BACKED SECURITIES--1.1% 89,345 MID-STATE TRUST, SER. 6, CLASS A4, 7.79%, 07/01/35 (COST $89,428).......................................... 89,596 ---------- U.S. TREASURY OBLIGATIONS--23.9% U.S. TREASURY NOTES AND BONDS, 500,000 6.13%, 08/15/07 ........................................ 535,390 100,000 6.13%, 11/15/27 + ...................................... 111,078 500,000 6.50%, 10/15/06 + ...................................... 545,470 50,000 7.00%, 07/15/06 + ...................................... 56,031 345,000 7.88%, 11/15/04 + ...................................... 395,994 125,000 8.50%, 02/15/20 + ...................................... 172,617 50,000 8.75%, 08/15/00 ........................................ 53,485 ---------- TOTAL U.S. TREASURY OBLIGATIONS (COST $1,784,454) ...................................... 1,870,065 ---------- STATE & LOCAL OBLIGATIONS--1.6% 130,000 WAYNE CHARTER COUNTY, MICHIGAN, DETROIT METROPOLITAN WAYNE COUNTY, SER. A, REV., 5.00%, 12/01/28 ........................................ 126,628 ---------- (COST $123,584) TOTAL LONG-TERM INVESTMENTS (COST $8,236,501)....................................... 7,626,956 ---------- SHORT-TERM INVESTMENTS--8.6% REPURCHASE AGREEMENT--8.6% 671,000 GREENWICH CAPITAL MARKETS, 5.80%, DUE 09/01/98, (PROCEEDS $671,108, SECURED BY U.S. TREASURY BOND, $420,000 AT 11.25%, DUE 02/15/15; MARKET $689,804) (COST $671,000) ........................................ 671,000 ---------- TOTAL INVESTMENTS--106.2% (COST $8,907,501)....................................... $8,297,956 ==========
SHORT FUTURES CONTRACTS OUTSTANDING
Number Expiration of Original Value at Unrealized Description Date Contracts Cost 08/31/98 (Depreciation) - -------------------- ------------ ----------- ---------- ---------- --------------- U.S. Treasury Bond Dec. 98 5 $584,685 $585,625 (940)
See notes to financial statements. page 18 U.S. Government Income Portfolio Portfolio of Investments August 31, 1998
Principal Amount Issuer Value ------ ------ ----- LONG-TERM INVESTMENTS--98.7% U.S. TREASURY OBLIGATIONS--35.4% U.S. TREASURY NOTES & BONDS $ 500,000 6.13%, 09/30/00 ......................... $ 511,405 1,000,000 6.75%, 08/15/26 ......................... 1,187,970 400,000 8.50%, 02/15/20 ......................... 552,376 60,000 10.75%, 08/15/05 ........................ 79,631 ---------- TOTAL U.S. TREASURY OBLIGATIONS (COST $2,135,541) ........................ 2,331,382 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS--50.6% 750,000 FEDERAL HOME LOAN MORTGAGE CORP., 5.70%, 03/25/03 .......................... 760,193 1,100,000 FEDERAL HOME LOAN MORTGAGE CORP., DN, 5.70%, 09/01/98 ...................... 1,100,000 450,000 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 6.24%, 07/29/02 .......................... 463,712 1,000,000 STUDENT LOAN MARKETING ASSOCIATION, 5.57%, 03/17/00 .......................... 1,004,220 ---------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $3,295,034) ........................ 3,328,125 ---------- COLLATERALIZED MORTGAGE OBLIGATION--12.7 % 829,046 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, POOL 354779, 6.50%, 03/15/24 ............. (COST $761,954) .......................... 837,070 ---------- TOTAL INVESTMENTS--98.7% (COST $6,192,529) ........................ $6,496,577 ==========
Money Market Portfolio Portfolio of Investments August 31, 1998
Principal Amount Issuer Value ------ ------ ----- U.S. TREASURY OBLIGATION--21.0% $ 695,000 U.S. TREASURY BILL, 4.84%, 11/19/98 (COST $687,543) ...................................... $ 687,543 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS--24.5% FEDERAL FARM CREDIT BANK, DN, 96,000 5.39%, 09/11/98 ..................................... 95,856 100,000 5.42%, 09/01/98 ..................................... 100,000 98,000 5.70%, 09/01/98 ..................................... 98,000 172,000 FEDERAL HOME LOAN BANK, DN, 5.40%, 09/18/98 .......... 171,561 170,000 FEDERAL HOME LOAN MORTGAGE CORP., DN, 5.42%, 11/06/98 .................................. 168,311 170,000 FEDERAL NATIONAL MORTGAGE ASSOCIATION, DN, 5.44%, 09/28/98 .................................. 169,306 ---------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $803,034) ...................................... 803,034 ---------- COMMERCIAL PAPER--54.6% 100,000 BANKERS TRUST CORP., 5.53%, 09/09/98 ................. 99,877 150,000 BRITISH COLUMBIA, PROVINCE OF CANADA, 5.38%, 02/02/99 ...................................... 146,548 155,000 BUDGET FUNDING CORP., 5.54%, 09/16/98 ................ 154,642 108,000 CIESCO L.P., 5.52%, 09/10/98 ......................... 107,851 120,000 DAIMLER-BENZ NORTH AMERICA CORP., (GERMANY) 5.55%, 09/24/98 ...................................... 119,575 150,000 DEN DANSKE CORP., (DENMARK) 5.53%, 09/04/98 .......... 149,931 139,000 FORMOSA PLASTIC CORP. OF USA, SER. B, 5.53%, 09/10/98 ...................................... 138,808 160,000 GENERAL ELECTRIC CAPITAL CORP., SER. A, MTN, 5.52%, 09/09/98 ................................. 159,804 150,000 GLENCORE FINANCE (BERMUDA), SER. B, 5.53%, 09/18/98 ...................................... 149,608 160,000 KFW INTERNATIONAL FINANCE, 5.53%, 09/17/98 ........... 159,607 145,000 METLIFE FUNDING INC., 5.52%, 09/10/98 ................ 144,800 150,000 NATIONWIDE BUILDING SOCIETY, (UNITED KINGDOM) 5.48%, 11/24/98 ............................. 148,082 113,000 SVENSKA HANDELSBANK, INC., (SWEDEN) 5.52%, 09/24/98 ...................................... 112,601 ---------- TOTAL COMMERCIAL PAPER (COST $1,791,734) .................................... 1,791,734 ---------- TOTAL INVESTMENTS--100.1% (COST $3,282,311)** .................................. $3,282,311 ==========
INDEX: * = Non-income producing securities ** = The cost of securities is substantially the same for federal income tax purposes # = Security may only be sold to institutional buyers + = All or a portion of this security is segregated ADR = American Depository Receipt DN = Discount Note FRN = Floating Rate Note: The maturity date shown is the next interest reset date; the rate shown is the rate in effect at August 31, 1998. GDR = Global Depository Receipt MTN = Medium Term Note TBA = To be announced See notes to financial statements. Statement of Assets and Liabilities page 19 August 31, 1998
GROWTH AND CAPITAL INTERNATIONAL INCOME GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- --------------- ASSETS: Investment securities, at value (Note 1) $ 17,447,837 $ 11,136,357 $5,781,067 Cash 235 159 196,504 Foreign Currency (Cost $118,539) -- -- 119,878 Other assets (a) 250 166 83,848 Receivables: Open forward foreign currency contracts -- -- 53,347 Investment securities sold -- -- 174,228 Dividends and Interest 19,178 5,823 17,613 Expense reimbursement from Sub-administrator -- -- -- Portfolio shares sold 125 92 95 ------------ ------------ ---------- TOTAL ASSETS 17,467,625 11,142,597 6,426,580 ------------ ------------ ---------- LIABILITIES: Payables: Investment securities purchased -- -- 20,411 Portfolio shares redeemed 1,264 502 442 Open forward foreign currency contracts -- -- 40,994 Variation margin -- -- 8,859 Accrued liabilities: (Note 2) Custody fees 22,571 15,602 3,226 Other 74,079 30,729 34,821 ------------ ------------ ---------- TOTAL LIABILITIES 97,914 46,833 108,753 ------------ ------------ ---------- NET ASSETS: Paid in capital 17,321,875 11,357,267 6,566,052 Accumulated undistributed net investment income 92,433 62,324 (3,409) Accumulated net realized gain (loss) on investment and futures transactions 2,973,953 930,334 347,352 Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currencies (3,018,550) (1,254,161) (592,168) ------------ ------------ ---------- NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $ 17,369,711 $ 11,095,764 $6,317,827 ============ ============ ========== Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized) 1,404,813 946,752 655,819 Net asset value, redemption price per share and maximum offering price per share $ 12.36 $ 11.72 $ 9.63 Cost of investments $ 20,466,387 $ 12,390,518 $6,379,911 ------------ ------------ ---------- ASSET U.S. GOVERNMENT MONEY ALLOCATION INCOME MARKET PORTFOLIO PORTFOLIO PORTFOLIO -------------- ----------------- ------------- ASSETS: Investment securities, at value (Note 1) $8,297,956 $6,496,577 $3,282,311 Cash 1,773 35,139 347 Foreign Currency (Cost $118,539) -- -- -- Other assets (a) 107 78 40 Receivables: Open forward foreign currency contracts -- -- -- Investment securities sold 1,020,028 -- -- Dividends and Interest 42,299 68,758 -- Expense reimbursement from Sub-administrator 4,000 8,000 22,004 Portfolio shares sold 92 -- -- ---------- ---------- ---------- TOTAL ASSETS 9,366,255 6,608,552 3,304,702 ---------- ---------- ---------- LIABILITIES: Payables: Investment securities purchased 1,514,330 852 -- Portfolio shares redeemed 177 -- 29 Open forward foreign currency contracts -- -- -- Variation margin 1,719 -- -- Accrued liabilities: (Note 2) Custody fees 19,412 16,094 3,000 Other 17,829 10,177 22,565 ---------- ---------- ---------- TOTAL LIABILITIES 1,553,467 27,123 25,594 ---------- ---------- ---------- NET ASSETS: Paid in capital 7,508,089 6,004,922 3,279,096 Accumulated undistributed net investment income 144,502 278,334 409 Accumulated net realized gain (loss) on investment and futures transactions 770,682 (5,875) (397) Net unrealized appreciation (depreciation) of investments, futures and assets and liabilities denominated in foreign currencies (610,485) 304,048 -- ---------- ---------- ---------- NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS $7,812,788 $6,581,429 $3,279,108 ========== ========== ========== Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized) 733,982 650,225 3,279,082 Net asset value, redemption price per share and maximum offering price per share $ 10.64 $ 10.12 $ 1.00 Cost of investments $8,907,501 $6,192,529 $3,282,311 ---------- ---------- ----------
(a) Including cash segregated for margin on futures contracts. See notes to financial statements. page 20 Statement of Operations For the year ended August 31, 1998
Growth and Capital International Income Growth Equity Portfolio Portfolio Portfolio --------------- --------------- --------------- INVESTMENT INCOME (NOTE 1C): Interest $ 77,099 $ 125,008 $ 21,180 Dividends 225,850 86,572 66,656 Foreign taxes withheld (1,249) (342) (5,571) ----------- ----------- --------- TOTAL INVESTMENT INCOME 301,700 211,238 82,265 ----------- ----------- --------- EXPENSES: Investment advisory fees (Note 2) 107,568 78,176 50,982 Administration fees (Note 2) 35,856 26,059 12,755 Accounting fees -- -- 64,999 Custodian fees 61,279 64,237 24,398 Printing and postage 46,151 20,178 8,031 Professional fees 43,576 30,855 31,976 Trustees fees and expenses 896 651 319 Miscellaneous expenses 9,585 1,374 1,000 ----------- ----------- --------- TOTAL EXPENSES 304,911 221,530 194,460 ----------- ----------- --------- Less amounts waived (Note 2) 143,424 104,235 63,737 Less amounts borne by VFD (Note 2) -- -- 60,623 ----------- ----------- --------- NET EXPENSES 161,487 117,295 70,100 ----------- ----------- --------- NET INVESTMENT INCOME 140,213 93,943 12,165 ----------- ----------- --------- NET REALIZED GAIN (LOSS) ON: Investment transactions 3,688,903 1,362,111 474,168 Futures transactions -- -- (45,428) Foreign exchange transactions -- -- (51,069) CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (5,264,810) (3,730,448) (630,184) Futures transactions -- -- (8,859) Foreign currency contracts and foreign currency translation -- -- 27,873 ----------- ----------- --------- Net realized and unrealized gain (loss) (1,575,907) (2,368,337) (233,499) ----------- ----------- --------- Net increase (decrease) in net assets from operations ($ 1,435,694) ($ 2,274,394) ($ 221,334) =========== =========== ========= Asset U.S. Government Money Allocation Income Market Portfolio Portfolio Portfolio --------------- ----------------- ------------ INVESTMENT INCOME (NOTE 1C): Interest $ 225,288 $336,625 $192,632 Dividends 57,936 -- -- Foreign taxes withheld (431) -- -- ------------ -------- -------- TOTAL INVESTMENT INCOME 282,793 336,625 192,632 ------------ -------- -------- EXPENSES: Investment advisory fees (Note 2) 42,474 27,037 8,742 Administration fees (Note 2) 15,445 10,815 6,979 Accounting fees -- -- -- Custodian fees 62,132 50,810 40,863 Printing and postage 6,713 1,191 1,192 Professional fees 18,236 17,161 20,224 Trustees fees and expenses 386 270 175 Miscellaneous expenses 2,241 500 549 ------------ -------- -------- TOTAL EXPENSES 147,627 107,784 78,724 ------------ -------- -------- Less amounts waived (Note 2) 57,919 37,852 15,721 Less amounts borne by VFD (Note 2) 24,089 26,673 43,771 ------------ -------- -------- NET EXPENSES 65,619 43,259 19,232 ------------ -------- -------- NET INVESTMENT INCOME 217,174 293,366 173,400 ------------ -------- -------- NET REALIZED GAIN (LOSS) ON: Investment transactions 876,005 (4,875) (380) Futures transactions (15,236) -- -- Foreign exchange transactions -- -- -- CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION ON: Investments (1,191,328) 270,455 -- Futures transactions (941) -- -- Foreign currency contracts and foreign currency translation -- -- -- ------------ -------- -------- Net realized and unrealized gain (loss) (331,500) 265,580 (380) ------------ -------- -------- Net increase (decrease) in net assets from operations ($ 114,326) $558,946 $173,020 ============ ======== ========
See notes to financial statements. Statement of Changes in Net Assets page 21 For the year ended August 31,
Growth and Income Capital Growth Portfolio Portfolio ------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- --------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 140,213 $ 136,850 $ 93,943 $ 63,795 Net realized gain (loss) on investment and foreign currency transactions 3,688,903 1,488,185 1,362,111 790,892 Change in net unrealized appreciation/ depreciation on investments and foreign currency transactions (5,264,810) 1,876,210 (3,730,448) 1,575,253 ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,435,694) 3,501,245 (2,274,394) 2,429,940 ----------- ----------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (152,413) (100,605) (75,294) (57,567) Net realized gain on investment transactions (2,095,439) (1,052,999) (1,086,897) (1,021,229) ----------- ----------- ----------- ----------- (2,247,852) (1,153,604) (1,162,191) (1,078,796) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 6,051,590 4,572,685 2,159,053 3,112,197 ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS 2,368,044 6,920,326 (1,277,532) 4,463,341 NET ASSETS: Beginning of period 15,001,667 8,081,341 12,373,296 7,909,955 ----------- ----------- ----------- ----------- End of period $17,369,711 $15,001,667 $11,095,764 $12,373,296 =========== =========== =========== =========== International Equity Asset Allocation Portfolio Portfolio ---------------------------- ----------------------------- 1998 1997 1998 1997 ------------- -------------- --------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 12,165 $ 94,650 $ 217,174 $ 168,248 Net realized gain (loss) on investment and foreign currency transactions 377,671 229,815 860,769 399,608 Change in net unrealized appreciation/ depreciation on investments and foreign currency transactions (611,170) 23,702 (1,192,269) 466,666 ---------- ---------- ----------- ---------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (221,334) 348,167 (114,326) 1,034,522 ---------- ---------- ----------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (103,835) (53,064) (188,322) (118,324) Net realized gain on investment transactions (217,881) (346,955) (398,931) (611,347) ---------- ---------- ----------- ---------- (321,716) (400,019) (587,253) (729,671) ---------- ---------- ----------- ---------- NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 1,440,335 1,571,627 2,232,224 1,944,075 ---------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS 897,285 1,519,775 1,530,645 2,248,926 NET ASSETS: Beginning of period 5,420,542 3,900,767 6,282,143 4,033,217 ---------- ---------- ----------- ---------- End of period $6,317,827 $5,420,542 $ 7,812,788 $6,282,143 ========== ========== =========== ========== U.S. Government Income Money Market Portfolio Portfolio -------------------------- ----------------------------- 1998 1997 1998 1997 ------------- ------------- --------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 293,366 $ 200,891 $ 173,400 $ 161,224 Net realized gain (loss) on investment and foreign currency transactions (4,875) (1,000) (380) (11) Change in net unrealized appreciation/ depreciation on investments and foreign currency transactions 270,455 62,226 -- -- ---------- ---------- ----------- ---------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 558,946 262,117 173,020 161,213 ---------- ---------- ----------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (152,142) (175,708) (172,997) (161,224) Net realized gain on investment transactions -- (107,377) -- -- ---------- ---------- ----------- ---------- (152,142) (283,085) (172,997) (161,224) ---------- ---------- ----------- ---------- NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS 2,373,233 828,347 (1,575,230) 1,903,996 ---------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS 2,780,037 807,379 (1,575,207) 1,903,985 NET ASSETS: Beginning of period 3,801,392 2,994,013 4,854,315 2,950,330 ---------- ---------- ----------- ---------- End of period $6,581,429 $3,801,392 $ 3,279,108 $4,854,315 ========== ========== =========== ==========
See notes to financial statements. page 22 Financial Highlights
Growth and Income Capital Growth Portfolio Portfolio ------------------------------------------------ ------------------------------------- Year Ended 03/01/95* Year Ended August 31, through August 31, 1998 1997 1996 08/31/95 1998 1997 1996 ------------ ----------- ----------- ----------- ------------- ----------- -------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $ 15.16 $ 12.74 $11.48 $10.00 $ 15.52 $ 13.84 $ 11.90 ------- ------- ------ ------ ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.091 0.149 0.294 0.110 0.100 0.088 0.158 Net Gains or Losses on Investments (both realized and unrealized) (0.709) 3.991 1.516 1.370 (2.374) 3.422 2.139 ------- ------- ------ ------ ------- ------- ------- TOTAL FROM INVESTMENT OPERATIONS (0.618) 4.140 1.810 1.480 (2.274) 3.510 2.297 ------- ------- ------ ------ ------- ------- ------- LESS DISTRIBUTIONS: Dividends from net investment income 0.130 0.150 0.300 -- 0.090 0.100 0.142 Distributions from capital gains 2.052 1.570 0.250 -- 1.436 1.730 0.215 ------- ------- ------ ------ ------- ------- ------- TOTAL DISTRIBUTIONS 2.182 1.720 0.550 -- 1.526 1.830 0.357 ------- ------- ------ ------ ------- ------- ------- NET ASSET VALUE, END OF PERIOD $ 12.36 $ 15.16 $12.74 $11.48 $ 11.72 $ 15.52 $ 13.84 ======= ======= ====== ====== ======= ======= ======= TOTAL RETURN (5.45%) 35.53% 16.24% 14.80% (16.38%) 27.27% 19.66% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $17,370 $15,002 $8,081 $6,247 $11,096 $12,373 $7,910 Ratios to Average Net Assets#: Expenses 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% 0.90% Net investment income 0.78% 1.18% 1.71% 2.14% 0.72% 0.64% 0.97% Expenses without waivers and assumption of expenses 1.70% 1.70% 1.98% 1.80% 1.70% 1.70% 1.97% Net investment income without waivers and assumption of expenses (0.02%) 0.38% 0.63% 1.24% (0.08%) (0.16%) (0.09)% Portfolio Turnover Rate 170% 89% 129% 32% 71% 54% 107% Capital Growth International Equity Portfolio Portfolio ----------- ------------------------------------------------- 03/01/95* Year Ended 03/01/95* through August 31, through 08/31/95 1998 1997 1996 08/31/95 ----------- --------------- ----------- ----------- ---------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $10.00 $10.45 $10.59 $ 10.89 $10.00 ------ ------ ------ ------- ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.055 0.020(b) 0.190 0.216 0.101 Net Gains or Losses on Investments (both realized and unrealized) 1.845 (0.282) 0.650 0.034 0.789 ------ ------ ------- ------- ------ TOTAL FROM INVESTMENT OPERATIONS 1.900 (0.262) 0.840 0.250 0.890 ------ ------ ------- ------- ------ LESS DISTRIBUTIONS: Dividends from net investment income -- 0.175 0.130 0.250 -- Distributions from capital gains -- 0.382 0.850 0.300 -- ------ ------ ------ ------- ------ TOTAL DISTRIBUTIONS -- 0.557 0.980 0.550 -- ------ ------ ------ ------- ------ NET ASSET VALUE, END OF PERIOD $11.90 $ 9.63 $10.45 $ 10.59 $10.89 ====== ====== ====== ======= ====== TOTAL RETURN 19.00% (2.46%) 8.27% 2.42% 8.90% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $6,329 $6,318 $5,421 $ 3,901 $5,482 Ratios to Average Net Assets#: Expenses 0.90% 1.10% 1.11% 1.10% 1.09% Net investment income 1.04% 0.19% 1.96% 0.82% 1.92% Expenses without waivers and assumption of expenses 1.80% 3.05% 2.99% 4.22% 2.90% Net investment income without waivers and assumption of expenses 0.14% (1.76%) 0.08% (2.30)% 0.11% Portfolio Turnover Rate 28% 157% 158% 200% 75%
Asset Allocation U.S. Government Income Portfolio Portfolio++ ----------------------------------------------- --------------------------------- Year Ended 03/01/95* Year Ended August 31, through August 31, 1998 1997 1996 08/31/95 1998 1997 1996 ----------- ----------- ----------- ----------- ---------- ---------- ----------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $11.57 $11.15 $11.04 $10.00 $ 9.40 $ 9.53 $10.69 ------ ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.282 0.328 0.657 0.205 0.391 0.522 1.173 Net Gains or Losses on Investments (both realized and unrealized) (0.248) 1.942 0.488 0.835 0.635 0.218 (0.858) ------ ------ ------ ------- ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 0.034 2.270 1.145 1.040 1.026 0.740 0.315 ------ ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income 0.300 0.300 0.670 -- 0.306 0.540 1.134 Distributions from capital gains 0.664 1.550 0.365 -- -- 0.330 0.341 ------ ------ ------ ------ ------ ------ ------ TOTAL DISTRIBUTIONS 0.964 1.850 1.035 -- 0.306 0.870 1.475 ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.64 $11.57 $11.15 $11.04 $10.12 $ 9.40 $ 9.53 ====== ====== ====== ====== ====== ====== ====== TOTAL RETURN (0.04%) 22.61% 10.90% 10.40% 11.12% 8.11% 2.62% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $7,813 $6,282 $4,033 $5,546 $6,581 $3,801 $2,994 Ratios to Average Net Assets#: Expenses 0.85% 0.85% 0.85% 0.85% 0.80% 0.80% 0.80% Net investment income 2.81% 3.28% 3.18% 3.86% 5.40% 5.91% 6.06% Expenses without waivers and assumption of expenses 1.91% 2.03% 2.33% 1.65% 1.99% 1.50% 1.79% Net investment income without waivers and assumption of expenses 1.75% 2.10% 1.71% 3.06% 4.21% 5.21% 5.08% Portfolio Turnover Rate 162% 122% 155% 45% 14% 40% 83% U.S. Government Income Money Market Portfolio++ Portfolio ----------- --------------------------------------- 03/01/95* Year Ended 03/01/95* through August 31, through 08/31/95 1998 1997 1996 08/31/95 ----------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE Net Asset Value, Beginning of Period $10.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.322 0.050 0.048 0.050 0.028 Net Gains or Losses on Investments (both realized and unrealized) 0.368 -- -- -- -- ------ ------ ------ ------ ------ TOTAL FROM INVESTMENT OPERATIONS 0.690 0.050 0.048 0.050 0.028 ------ ------ ------ ------ ------ LESS DISTRIBUTIONS: Dividends from net investment income -- 0.050 0.048 0.050 0.028 Distributions from capital gains -- -- -- -- -- ------ ------ ------ ------ ------ TOTAL DISTRIBUTIONS -- 0.050 0.048 0.050 0.028 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.69 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ====== ====== TOTAL RETURN 6.90% 5.04% 4.93% 5.15% 2.79% RATIOS/SUPPLEMENTAL DATA: Net Assets, End of Period (000 omitted) $5,390 $3,279 $4,854 $2,950 $5,422 Ratios to Average Net Assets#: Expenses 0.80% 0.55% 0.55% 0.55% 0.55% Net investment income 6.19% 4.94% 4.84% 5.10% 5.46% Expenses without waivers and assumption of expenses 1.62% 2.24% 1.46% 1.74% 1.21% Net investment income without waivers and assumption of expenses 5.37% 3.25% 3.93% 3.90% 4.80% Portfolio Turnover Rate 46% -- -- -- --
* Commencement of operations. # Short periods have been annualized. ++ On 12/27/96, the Portfolio changed its name from U.S. Treasury Income Portfolio to U.S. Government Income Portfolio. b Net investment income per share has been calculated based on average shares outstanding during the period. See notes to financial statements. Notes to Financial Statements page 23 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, 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 generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. Valuation of Investments--Equity securities and options are valued at the last sale price on the exchange on which they are primarily traded, including the NASDAQ National Market. Securities for which sale prices are not available and other over-the-counter securities are valued at the last quoted bid price. Bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service. In making such valuations, the pricing service utilizes both dealer-supplied valuations and electronic data processing techniques that take into account appropriate factors such as institutional-sized trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted prices. Short-term obligations are valued at amortized cost if acquired with fewer than 61 days to maturity, or at value, based on quoted exchange or over-the-counter prices, until the 61st day prior to maturity and thereafter by amortizing the value on the 61st day to par at maturity. 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 on 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 accrued as earned. Dividend income is recorded on the ex-dividend date. 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 Trust'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 Trust 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 the broker. Changes in the value of the contract are recorded as unrealized appreciation/depreciation until the contract is closed or settled. The Portfolios may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures transaction, therefore, the Portfolio's credit risk is limited to failure of the exchange or board of trade. The 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 subject the Portfolio to risk of loss up to the amount of the value of the contract. Short index futures contracts are used page 24 Notes to Financial Statements for hedging purposes (to reduce the exposure to equities). The use of short futures contracts subject the Portfolio to unlimited risk of loss. AAP may invest in interest rate futures contracts as a hedge against rate risk or to change the duration of the fixed income components of the portfolio. As of August 31, 1998, the IEP and AAP had outstanding futures contracts as described on the respective 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 the Trust's policy to comply individually for each portfolio 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 its shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment. IEP accumulated undistributed net investment income was decreased by $19,568 and undistributed net realized gain was increased by $19,568. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. I. Expenses--Direct expenses of a portfolio are charged to the respective Portfolio and general Trust expenses are allocated on the basis of relative net assets or on another reasonable basis. 2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES A. Investment Advisory Fees--The Chase Manhattan Bank ("Chase"), a direct wholly-owned subsidiary of the Chase Manhattan Corporation, is the Portfolios' investment advisor (the "Advisor") and custodian (the "Custodian"). The Advisor manages the assets of the Portfolios pursuant to an Advisory Agreement and, for such services, is paid an annual fee computed daily and paid monthly based on an annual rate equal to 0.80% of the International Notes to Financial Statements page 25 Equity Portfolio's, 0.60% of the Capital Growth and Growth and Income Portfolios', 0.55% of the Asset Allocation Portfolio's, 0.50% of the U.S. Government Income Portfolio's and 0.25% of the Money Market Portfolio's average daily net assets. The Advisor voluntarily waived all its fees. Chase Asset Management, Inc. ("CAM"), a registered investment advisor, is the sub-investment advisor to each Portfolio pursuant to a Sub- Investment Advisory Agreement between CAM and Chase. CAM is a wholly owned subsidiary of Chase and is entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.30% of the Growth and Income and Capital Growth Portfolio's, 0.25% of the Asset Allocation and U.S. Government Income Portfolio's and 0.10% of the Money Market Portfolio's average daily net assets. Chase Asset Management (London) Limited (CAM London), a registered investment advisor, is the sub-investment advisor to the International Equity Portfolio pursuant to a Sub-Investment Advisory Agreement between CAM London and Chase. CAM London is a wholly owned subsidiary of Chase and is entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.40% of the average daily net assets of the International Equity Portfolio. B. Administration Fee--Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Portfolios. For these services, the Administrator receives from each Portfolio a fee computed at an annual rate equal to 0.05% of the respective Portfolio's average daily net assets. The Administrator voluntarily waived all of its fees. C. Sub-Administration Fees--Pursuant to a Sub-administration Agreement, Vista Fund Distributors, Inc. ("VFD" or the "Sub-administrator"), an indirect wholly-owned subsidiary of BISYS Group Inc., provides certain sub-administration services to the Portfolios, including providing officers, clerical staff and office space for an annual fee of 0.15% of the average daily net assets of each Portfolio. The Sub-administrator voluntarily waived all of its fees. D. Assumption of Expenses--For the year ended August 31, 1998, the Sub-administrator voluntarily assumed expenses for the portfolios as follows:
U.S. International Asset Government Money Equity Allocation Income Market Portfolio Portfolio Portfolio Portfolio --------- --------- --------- -------- $ 60,623 $ 24,089 $ 26,673 $ 43,771 --------------- ---------- ---------- ---------
E. Other--Chase provides portfolio custody and fund accounting services for all of the Portfolios, with the exception of the IEP for which it provides only the custody services. Compensation for such services from Chase are presented in the Statement of Operations as Custodian fees. The Trust has adopted an unfunded noncontributory defined benefit pension plan covering all independent trustees of the Trust who will have served as an independent trustee for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Pension expenses for the year ended August 31, 1998, included in Trustees Fees and Expenses in the Statement of Operations, and accrued pension liability included in other accrued liabilities in the Statement of Assets and Liabilities were as follows:
Accrued Pension Pension Portfolio: Expenses Liability -------- --------- Growth and Income Portfolio $ 321 $ 937 Capital Growth Portfolio 245 767 International Equity Portfolio 115 387 Asset Allocation Portfolio 137 434 U.S. Government Income Portfolio 90 309 Money Market Portfolio 65 244
3. INVESTMENT TRANSACTIONS--For the year ended August 31, 1998, the cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
U.S. Growth Capital Intl. Asset Government & Income Growth Equity Allocation Income Portfolio Portfolio Portfolio Portfolio Portfolio ----------- -------- -------- -------- -------- Purchases (excluding U.S. Government) $32,592,802 $10,008,310 $9,744,296 $8,550,255 $ -- Sales (excluding U.S. Government) 28,467,067 9,142,268 8,878,574 7,841,334 -- Purchases of U.S. Government -- -- -- 3,237,883 2,406,283 Sales of U.S. Government -- -- -- 2,500,523 600,000
page 26 Notes to Financial Statements 4. FEDERAL INCOME TAX MATTERS--For Federal income tax purposes, the cost and unrealized appreciation/(depreciation) in value of the investment securities at August 31, 1998 are as follows:
U.S. Growth Capital Intl. Asset Government & Income Growth Equity Allocation Income Portfolio Portfolio Portfolio Portfolio Portfolio ----------- -------- ------- -------- --------- Aggregate Cost $20,507,554 $ 12,390,518 $ 6,387,165 $ 8,914,834 $ 6,192,529 ------------ ------------ ------------ ----------- ----------- Gross Unrealized Appreciation 541,748 1,223,925 450,762 244,524 306,739 Gross Unrealized Depreciation (3,601,465) (2,478,086) (1,056,860) (861,402) (2,691) ------------ ------------ ------------ ----------- ----------- Net Unrealized Appreciation (Depreciation) $(3,059,717) $ (1,254,101) $ (606,098) $ (616,878) $ 304,048 ============ ============ ============ =========== ===========
5. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest for the periods presented were as follows:
Growth and Income Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------------------------ --------------------------------- Amount Shares Amount Shares ------------ ------ ---------- ------ Shares sold $ 7,392,467 487,129 $ 5,749,214 426,540 Shares issued in reinvestment of distributions 2,247,852 162,983 1,153,604 93,214 Shares redeemed (3,588,729) (234,746) (2,330,133) (164,444) ------------- --------- ------------- --------- Net increase (decrease) in Trust shares outstanding $ 6,051,590 415,366 $ 4,572,685 355,310 ============= ========= ============= ========= Capital Growth Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------------------------ --------------------------------- Amount Shares Amount Shares ------------- --------- ------------- --------- Shares sold $ 4,208,043 270,050 $ 3,889,436 271,956 Shares issued in reinvestment of distributions 1,162,192 81,196 1,078,795 78,724 Shares redeemed (3,211,182) (201,529) (1,856,034) (125,230) ------------- --------- ------------- --------- Net increase (decrease) in Trust shares outstanding $ 2,159,053 149,717 $ 3,112,197 225,450 ============= ========= ============= ========= International Equity Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------------------------ --------------------------------- Amount Shares Amount Shares ------------- --------- ------------- --------- Shares sold $ 1,608,468 150,107 $ 1,376,612 129,737 Shares issued in reinvestment of distributions 321,716 33,368 400,018 39,666 Shares redeemed (489,849) (46,315) (205,003) (19,191) ------------- --------- ------------- --------- Net increase (decrease) in Trust shares outstanding $ 1,440,335 137,160 $ 1,571,627 150,212 ============= ========= ============= =========
Asset Allocation Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------- ------------- Amount Shares Amount Shares ------------------------------ ---------------------------------- Shares sold $ 2,149,078 182,176 $ 1,347,903 121,979 Shares issued in reinvestment of distributions 587,253 52,028 729,672 71,619 Shares redeemed (504,107) (43,387) (133,500) (12,026) ------------- --------- ------------- --------- Net increase (decrease) in Trust shares outstanding $ 2,232,224 190,817 $ 1,944,075 181,572 ============= ========= ============= ========= U.S. Government Income Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------------------------ ---------------------------------- Amount Shares Amount Shares ------------- --------- ------------- --------- Shares sold $ 2,677,221 276,633 $ 696,656 75,260 Shares issued in reinvestment of distributions 152,142 15,978 283,085 31,241 Shares redeemed (456,130) (46,840) (151,394) (16,243) ------------- --------- ------------- --------- Net increase (decrease) in Trust shares outstanding $ 2,373,233 245,771 $ 828,347 90,258 ============= ========= ============= ========= Money Market Portfolio Year Ended August 31 ------------------------------------------------------------------- 1998 1997 ------------------------------ ---------------------------------- Amount Shares Amount Shares ------------- --------- ------------- --------- Shares sold $ 827,196 827,196 $ 3,081,078 3,081,078 Shares issued in reinvestment of distributions 179,352 179,352 161,224 161,224 Shares redeemed (2,581,778) (2,581,778) (1,338,306) (1,338,306) ------------- ---------- ------------- ---------- Net increase (decrease) in Trust shares outstanding ($ 1,575,230) (1,575,230) $ 1,903,996 1,903,996 ============= ========== ============= ==========
6. OPEN FORWARD FOREIGN CURRENCY CONTRACTS The following forward foreign currency contracts were held by the International Equity Portfolio at August 31, 1998:
Unrealized Contract Amount Contract Amount Settlement Gain/(Loss) Purchased/(Sold) Sold/(Purchased) Date (USD) - ----------------------------- ------------------------- ------------ ------------ Unrealized Gain - ----------------------------- 178,930 (DEM) 100,000 (USD) 09/01/98 $ 1,781 293,118 (GBP) 69,000,000 (JPY) 09/10/98 750 69,000,000 (JPY) 290,967 (GBP) 09/10/98 2,854 (102,336,500) (JPY) (781,971) (USD) 11/10/98 47,962 -------- $53,347 -------- Unrealized Loss - ----------------------------- 499,115 (DEM) 41,160,000 (JPY) 09/10/98 $ (8,518) 707,275,000 (ITL) 250,000 (GBP) 11/10/98 (10,459) (84,600,000) (ITL) (47,396) (USD) 09/02/98 (1,262) (10,000,000) (JPY) (69,735) (USD) 09/01/98 (1,258) 78,336,500 (JPY) 575,570 (USD) 11/10/98 (13,701) 24,000,000 (JPY) 177,936 (USD) 11/10/98 (5,796) -------- $(40,994) --------
DEM = Deutsche Mark GBP = Great British Pound ITL = Italian Lira JPY = Japanese Yen Notes to Financial Statements page 27 7. FOREIGN CASH POSITIONS--International Equity Portfolio
Net Delivery Market Unrealized Value (Local Value Gain (Loss) Currency Currency) Cost (USD) (USD) (USD) - ---------------------- --------- ---------- ------ ---------- Australian Dollar 1,159 $ 719 $ 663 $ (56) Austrian Schilling 5,980 466 483 17 Belgian Franc 70,653 1,939 1,943 4 Finnish Markka 1,157 211 216 5 French Franc 6,772 1,120 1,149 29 German Deutsche Mark 1,109 612 631 19 Great British Pound 408 680 683 3 Hong Kong Dollar 247 32 32 0 Indonesian Rupiah 894,077 58 80 22 Irish Punt 7,000 10,259 9,976 (283) Italian Lira 3,027,212 1,712 1,741 29 Japanese Yen 4,927,365 34,897 34,975 78 Malaysian Ringgit 2,220 524 530 6 Netherlands Guilder 17,603 8,761 8,871 110 Philippine Peso 22,439 535 512 (23) Portuguese Escudo 47,106 257 261 4 Singapore Dollar 258 154 146 (8) Spanish Peseta 6,797,827 44,332 45,534 1,202 Swedish Krona 19,807 2,517 2,456 (61) Swiss Franc 12,938 8,727 8,973 246 Thai Baht 964 27 23 (4) -------- -------- ------ Total $118,539 $119,878 $1,339 ======== ======== ======
8. CONCENTRATION OF SHAREHOLDERS At August 31, 1998, all shares outstanding for each Portfolio are owned either directly or indirectly by a single insurance company. 9. CONCENTRATION OF CREDIT RISK As of August 31, 1998, MMP invested 42.3% of its net assets in financial institutions, of which 31.2% was invested in other financial service providers and 11.1% in Banking. General economic conditions, as well as exposure to credit losses arising from possible financial difficulties of borrowers, play an important role in the operation of the financial services industry. IEP invested 22.2% of its net assets in the United Kingdom. The issuers' abilities to meet their obligations may be affected by economic or political developments in a specific country or region. 10. 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, which enables it to participate with other Chase Vista 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 a rate equal to the sum of the Federal Funds Rate plus 0.35%. Borrowings are payable on demand. IEP pays a committment fee of approximately $200 annually. IEP had no borrowings outstanding at August 31, 1998. page 28 Report of Independent Accountants To the Trustees and Shareholders of Mutual Fund Variable Annuity Trust In our opinion, the accompanying statement of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Growth and Income Portfolio, Capital Growth Portfolio, International Equity Portfolio, Asset Allocation Portfolio, U.S. Government Income Portfolio (formerly U.S. Treasury Income Portfolio), and Money Market Portfolio (separate portfolios constituting Mutual Fund Variable Annuity Trust, hereafter referred to as the "Trust") at August 31, 1998, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1998 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 October 9, 1998 [LOGO] A-7036-CRT (C)The Chase Manhattan Corporation, 1998. All Rights Reserved. October 1998 F-7036(CMB) VCA-2-1098 -----END PRIVACY-ENHANCED MESSAGE-----