<PAGE> 1
PENSION
INVESTMENT
OPTIONS
KEYNOTE
SERIES
ACCOUNT
CALVERT SERIES SUBACCOUNT
EQUITY GROWTH SUBACCOUNT
EQUITY INCOME SUBACCOUNT
BALANCED SUBACCOUNT
GOVERNMENT/CORPORATE BOND SUBACCOUNT
INTERMEDIATE GOVERNMENT BOND SUBACCOUNT 1997
ANNUAL
MONEY MARKET SUBACCOUNT REPORT
- --------------------------------------------------------------------------------
MUTUAL OF NEW YORK
<PAGE> 2
This report is not to be construed as an offering for
sale of any contracts participating in the Keynote
Series Account, or as a solicitation as an offer to buy
any contracts unless preceded by or accompanied
by a current prospectus which contains the complete
information of charges and expenses.
<PAGE> 3
(This page intentionally left blank.)
<PAGE> 4
KEYNOTE SERIES ACCOUNT
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Statements of Assets and Liabilities................................................ 1
Statements of Operations............................................................ 2
Statements of Changes in Net Assets................................................. 3
Statements of Changes in Net Assets -- December 31, 1996............................ 4
Notes to Financial Statements....................................................... 5-6
Report of Independent Accountants................................................... 7
DIVERSIFIED INVESTORS PORTFOLIOS:
Economic Market Review.............................................................. 8-22
Statements of Assets and Liabilities................................................ 24-25
Statements of Operations............................................................ 26-27
Statements of Changes in Net Assets................................................. 28-29
Statements of Changes in Net Assets -- December 31, 1996............................ 30-31
PORTFOLIO OF INVESTMENTS:
Money Market Portfolio.............................................................. 32-33
High Quality Bond Portfolio......................................................... 34-36
Intermediate Government Bond Portfolio.............................................. 37-38
Government/Corporate Bond........................................................... 39-41
Balanced Portfolio.................................................................. 42-44
Equity Income Portfolio............................................................. 45-48
Equity Value Portfolio.............................................................. 49-50
Growth & Income Portfolio........................................................... 51-53
Equity Growth Portfolio............................................................. 54-55
Special Equity Portfolio............................................................ 56-60
Aggressive Equity Portfolio......................................................... 61
High Yield Bond Portfolio........................................................... 62-64
International Equity Portfolio...................................................... 65-68
Notes to Financial Statements....................................................... 69-80
Report of Independent Accountants................................................... 81
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL REPORT....................... 82-96
</TABLE>
<PAGE> 5
KEYNOTE SERIES ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in the Funds,
at value (Notes 1 and
2)...................... $757,426 $ 217,675 $ 583,655 $4,765,448 $16,508,319 $9,377,861 $588,000
Receivable for purchase of
units................... -- -- -- 92 -- -- 33,086
Receivable from MONY...... 12,035 -- -- -- 31,329 98,304 --
-------- -------- -------- ---------- ----------- ---------- --------
Total assets.... 769,461 217,675 583,655 4,765,540 16,539,648 9,476,165 621,086
-------- -------- -------- ---------- ----------- ---------- --------
LIABILITIES:
Payable for redemption of
units................... 18,054 86 3,388 7,225 366,390 146,052 --
Payable for securities
purchased............... -- -- -- -- -- -- 33,086
Accrued expenses.......... 12,687 177 470 3,812 44,608 104,689 429
-------- -------- -------- ---------- ----------- ---------- --------
Total
liabilities... 30,741 263 3,858 11,037 410,998 250,741 33,515
-------- -------- -------- ---------- ----------- ---------- --------
NET ASSETS
ATTRIBUTABLE
TO ANNUITY
CONTRACTHOLDERS... $738,720 $ 217,412 $ 579,797 $4,754,503 $16,128,650 $9,225,424 $587,571
======== ======== ======== ========== =========== ========== ========
Accumulation units........ 47,018 14,366 26,763 163,289 474,554 242,846 26,219
======== ======== ======== ========== =========== ========== ========
Unit value................ $ 15.71 $ 15.13 $ 21.66 $ 29.12 $ 33.99 $ 37.99 $ 22.41
======== ======== ======== ========== =========== ========== ========
</TABLE>
See notes to financial statements.
1
<PAGE> 6
KEYNOTE SERIES ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
-----------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Allocated net investment
income from Portfolios
(Note 2).................. $ 46,115 $24,583 $34,791 $155,747 $ 349,038 $ 34,617 $ --
Dividend income (Note 2).... -- -- -- -- -- -- 38,596
------- ------- ------- -------- ---------- ---------- -------
Total investment
income.......... 46,115 24,583 34,791 155,747 349,038 34,617 38,596
------- ------- ------- -------- ---------- ---------- -------
EXPENSES: (NOTE 3)
Mortality and expense
risk................... 7,810 3,926 4,819 39,407 138,663 61,674 4,588
Less expenses reimbursed
by MONY................ (1,590) -- -- -- (1,916) -- --
------- ------- ------- -------- ---------- ---------- -------
Net expenses.............. 6,220 3,926 4,819 39,407 136,747 61,674 4,588
------- ------- ------- -------- ---------- ---------- -------
Net investment income
(loss).................... 39,895 20,657 29,972 116,340 212,291 (27,057) 34,008
------- ------- ------- -------- ---------- ---------- -------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS (NOTE 2)
Net realized gains
(losses) on
investments............ (37) 259 1,205 572,644 1,582,134 534,416 40,353
Net change in unrealized
appreciation on
investments............ -- 6,041 9,083 29,539 2,039,795 1,430,034 20,130
------- ------- ------- -------- ---------- ---------- -------
Net realized and
unrealized gains
(losses) on
investments............ (37) 6,300 10,288 602,183 3,621,929 1,964,450 60,483
------- ------- ------- -------- ---------- ---------- -------
Net increase in net assets
resulting from
operations................ $ 39,858 $26,957 $40,260 $718,523 $3,834,220 $1,937,393 $ 94,491
======= ======= ======= ======== ========== ========== =======
</TABLE>
See notes to financial statements.
2
<PAGE> 7
KEYNOTE SERIES ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
----------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss)................ $ 39,895 $ 20,657 $ 29,972 $ 116,340 $ 212,291 $ (27,057) $ 34,008
Net realized gains
(losses) on
investments........... (37) 259 1,205 572,644 1,582,134 534,416 40,353
Net change in unrealized
appreciation on
investments .......... -- 6,041 9,083 29,539 2,039,795 1,430,034 20,130
-------- -------- -------- ---------- ----------- ---------- --------
Net increase in net
assets resulting
from operations....... 39,858 26,957 40,260 718,523 3,834,220 1,937,393 94,491
-------- -------- -------- ---------- ----------- ---------- --------
FROM UNIT TRANSACTIONS
(NOTE 4):
Net proceeds from the
issuance of units..... 506,259 85,917 115,346 978,238 3,308,282 1,840,578 241,043
Net asset value of units
redeemed.............. (652,343) (575,998) (91,714) (789,215) (3,936,541) (1,705,189) (220,481)
-------- -------- -------- ---------- ----------- ---------- --------
Net increase (decrease)
in net assets from
unit transactions..... (146,084) (490,081) 23,632 189,023 (628,259) 135,389 20,562
-------- -------- -------- ---------- ----------- ---------- --------
Net increase (decrease) in
net assets............... (106,226) (463,124) 63,892 907,546 3,205,961 2,072,782 115,053
NET ASSETS:
Beginning of year........ 844,946 680,536 515,905 3,846,957 12,922,689 7,152,642 472,518
-------- -------- -------- ---------- ----------- ---------- --------
End of year.............. $738,720 $217,412 $579,797 $4,754,503 $16,128,650 $9,225,424 $587,571
======== ======== ======== ========== =========== ========== ========
Units outstanding beginning
of year.................. 56,311 47,901 25,670 156,241 489,820 237,959 25,095
Units issued during year... 32,669 5,913 5,560 35,581 105,882 53,841 11,342
Units redeemed during
year..................... (41,962) (39,448) (4,467) (28,533) (121,148) (48,954) (10,218)
-------- -------- -------- ---------- ----------- ---------- --------
Units outstanding
end of year............... 47,018 14,366 26,763 163,289 474,554 242,846 26,219
======== ======== ======== ========== =========== ========== ========
</TABLE>
See notes to financial statements.
3
<PAGE> 8
KEYNOTE SERIES ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,1996
<TABLE>
<CAPTION>
DIVERSIFIED INVESTORS PORTFOLIOS
----------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income
(loss)................ $ 39,125 $ 31,901 $ 26,421 $ 85,098 $ 279,499 $ (53,312) $ 6,860
Net realized gains
(losses) on
investments........... (38) (4,321) (907) 371,395 614,061 1,667,681 31,681
Net change in unrealized
appreciation
(depreciation) on
investments........... -- (10,125) (12,033) 63,377 1,282,153 (596,767) 4,906
-------- -------- -------- ---------- ----------- ---------- --------
Net increase in net
assets resulting
from operations ...... 39,087 17,455 13,481 519,870 2,175,713 1,017,602 43,447
-------- -------- -------- ---------- ----------- ---------- --------
FROM UNIT TRANSACTIONS
(NOTE 4):
Net proceeds from the
issuance of units..... 370,991 46,617 138,465 766,044 2,341,587 1,972,865 154,841
Net asset value of units
redeemed.............. (397,562) (79,793) (111,135) (533,262) (4,445,437) (991,157) (48,761)
-------- -------- -------- ---------- ----------- ---------- --------
Net increase (decrease)
in net assets from
unit transactions..... (26,571) (33,176) 27,330 232,782 (2,103,850) 981,708 106,080
-------- -------- -------- ---------- ----------- ---------- --------
Net increase (decrease) in
net assets............... 12,516 (15,721) 40,811 752,652 71,863 1,999,310 149,527
NET ASSETS:
Beginning of year........ 832,430 696,257 475,094 3,094,305 12,850,826 5,153,332 322,991
-------- -------- -------- ---------- ----------- ---------- --------
End of year.............. $844,946 $680,536 $515,905 $3,846,957 $12,922,689 $7,152,642 $472,518
======== ======== ======== ========== =========== ========== ========
Units outstanding beginning
of year.................. 58,026 50,325 24,207 145,593 571,730 201,470 19,147
Units issued during year... 25,172 3,364 7,138 34,195 97,638 71,367 8,710
Units redeemed during
year..................... (26,887) (5,788) (5,675) (23,547) (179,548) (34,878) (2,762)
-------- -------- -------- ---------- ----------- ---------- --------
Units outstanding
end of year ............. 56,311 47,901 25,670 156,241 489,820 237,959 25,095
======== ======== ======== ========== =========== ========== ========
</TABLE>
See notes to financial statements.
4
<PAGE> 9
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Keynote Series Account ("Keynote") is a separate investment account
established on December 16, 1987 by The Mutual Life Insurance Company of New
York ("MONY") under the laws of the State of New York.
Keynote operates as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act"). Keynote holds assets that are
segregated from all of MONY's other assets and, at present, is used as an
investment vehicle under certain tax-deferred annuity contracts issued by MONY
to fund retirement plans maintained by certain not-for-profit and other
organizations ("Group Plans"). MONY is the legal holder of the assets in
Keynote.
There are currently seven subaccounts within Keynote which are available to
contractholders of Group Plans. Six of the subaccounts invest in a corresponding
portfolio of Diversified Investors Portfolios (the "Portfolios") and the seventh
subaccount invests in Calvert Responsibly Invested Balanced Portfolio, a series
of Acacia Capital Corporation ("Calvert") (collectively the "Funds"). The
respective financial statements of the Funds are contained elsewhere in this
report.
At December 31, 1997, each of the subaccounts' investment in the
corresponding Portfolios was as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
SUBACCOUNT IN PORTFOLIO
------------------------------------------ ---------------------
<S> <C>
Money Market.............................. 0.33%
Intermediate Government Bond.............. 0.17
Government/Corporate Bond................. 0.16
Balanced.................................. 1.21
Equity Income............................. 1.36
Equity Growth............................. 2.20
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
A. Investments:
The investment by Keynote in the Portfolios reflects Keynote's
proportionate interest in the net assets of each of the Portfolios. The
investment in shares of Calvert is stated at net asset value. The Keynote
subaccount which invests in Calvert records its security transactions at the
prior day's ending net asset value per share. Valuation of the securities held
in each of the Portfolios is discussed in Note 2A of the Portfolios' Notes to
Financial Statements which are included elsewhere in this report. A description
of the portfolio valuation for Calvert can be found in Note A of its financial
statements contained elsewhere in this report.
B. Investment Income:
Each Keynote subaccount earns income, net of expenses, daily on its
investment in the corresponding Portfolio. All of the net investment income and
realized and unrealized gains and losses from the security transactions of the
corresponding Portfolios are allocated pro rata among the investors at the time
of such determination. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from investments sold are determined on the basis of
identified cost.
C. Federal Income Taxes:
The operations of Keynote form a part of, and are taxed with, the
operations of MONY. MONY does not expect, based upon current tax law, to incur
any income tax upon the earnings or realized capital gains
5
<PAGE> 10
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. Federal Income Taxes (Continued):
attributed to Keynote. Based upon this expectation, no charges are currently
being deducted from Keynote for federal income tax purposes.
D. Other:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
Daily charges to Keynote for mortality and expense risks assumed by MONY
are computed at an annual rate of 0.90%; however, MONY reserves the right to
charge maximum fees of 1.25% upon notice.
MONY has voluntarily undertaken to waive expenses of the Money Market
Subaccount, to the extent necessary, to limit all expenses (other than mortality
and expense risk charges) to 0.10% of average net assets. Effective June 24,
1994, MONY has voluntarily undertaken to waive expenses of the Equity Income and
Equity Growth Subaccounts, to the extent necessary, to limit all expenses (other
than mortality and expense risk charges) to 0.46% and 0.50%, respectively, of
their average net assets. MONY reserves the right to raise this limit upon
notice.
4. GROUP PLAN ASSUMPTIONS
On December 31, 1993, MONY entered into an agreement with AUSA Life
Insurance Company, Inc. ("AUSA"), a wholly owned subsidiary of AEGON, USA,
pursuant to which the Group Plans may be transferred through assumption
reinsurance to AUSA. Subject to receipt of any necessary state insurance
department approvals and authorizations, each Group Plan contractholder receives
materials relating to this assumption. The assumption reinsurance of any Group
Plan to AUSA will result in the transfer of the applicable assets out of Keynote
and into a corresponding separate account of AUSA. Assets transferred to AUSA
pursuant to this assumption reinsurance transaction for the years ended December
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS 1997 AMOUNT 1996 AMOUNT
---------------------------------------------------- ----------- -----------
<S> <C> <C>
Money Market........................................ $ 148,490 $ 216,407
Intermediate Government Bond........................ 3,406 10,488
Government/Corporate Bond........................... 22,700 18,592
Balanced............................................ 236,206 14,962
Equity Income....................................... 2,986,640 2,378,391
Equity Growth....................................... 744,738 136,247
Calvert............................................. 100,413 4,201
---------- -----------
$4,242,593 $ 2,779,288
========== ===========
</TABLE>
The amounts related to these assumptions are reflected as redemptions in the
Statements of Changes in Net Assets.
6
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of the
Mutual Life Insurance Company of New York and the
Contractholders of Keynote Series Account:
We have audited the accompanying statements of assets and liabilities of
the Money Market, Intermediate Government Bond, Government/Corporate Bond,
Balanced, Equity Income, Equity Growth and Calvert Subaccounts (seven of the
Subaccounts constituting Keynote Series Account) ("Keynotes") as of December 31,
1997, and the related statements of operations for the year then ended, and
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of Keynotes' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
Subaccounts included herein, constituting Keynote Series Account as of December
31, 1997, the results of their operations and the changes in their net assets
for the periods referred to above, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
February 19, 1998
7
<PAGE> 12
FOURTH QUARTER 1997
ANNUAL ECONOMIC OVERVIEW
The year 1997 can only be described as spectacular from both an economic
and financial markets' perspective. The U.S. economy continued its stellar
performance of robust growth with minimal inflationary pressures. Despite the
potential negative influences of a roiled Asian economy and its financial
markets, it appears the economy will exhibit another strong quarter to end the
year. The nation's Gross Domestic Product averaged 3.8% for the first three
quarters of 1997, well ahead of the Federal Reserve's comfort zone of 2.0-2.5%.
We expect that the fourth quarter's GDP rate will be in the 3% range.
The primary drivers of economic growth were strong housing, manufacturing,
capital spending and consumer-related sectors. This strength was a direct result
of record high levels of consumer confidence. Increased wealth from healthy
stock market returns, rising incomes, ample opportunity for employment, and low
interest rates were among the driving forces. The economy also created an
abundance of new jobs with an unemployment rate of 4.7%, a 24-year low.
Despite the strength of the economy, inflation, as measured by both the CPI
and PPI, continues to be benign. In fact, wholesale prices fell 1.2% for the
year, compared to an increase of 2.8% in 1996. Consumer prices rose 1.7%, versus
an increase of 3.3% in 1996.
FINANCIAL MARKETS
The bond market, as measured by the Lehman Brothers Government/Corporate
Index, rose (+9.8%) for the year. Early economic reports suggested that the
economy was growing faster than the Federal Reserve (Fed) would like, and that
inflation would begin to rise. In an attempt to slow the economy, the Fed raised
the Fed Funds rate to 5.5% in March.
The economy slowed from its torrid first quarter pace and inflation
remained under control. As a result, the bond market rallied during the second
and third quarters. The fourth quarter was also positive for bonds as the Index
rose (+3.2%). Asia's woes caused a general equity market decline and both
domestic and foreign equity investors fled for the safety of U.S. Government
bonds.
For the third consecutive year, stocks posted returns over 20%. The S&P 500
Index rose (+33.4%), despite a decline of eleven percent in October, and the
DJIA was up (+22.6%). Large company stocks out-performed small company stocks
for the fourth straight year, due to the quest for liquidity, superior earnings,
and corporate restructurings. Value investing, as defined by the Russell 1000
Value Index, rose (+35.2%), outpacing the Russell 1000 Growth Index, which
returned (+30.5%).
International equity stocks, as measured by the MSCI GDP EAFE Index,
returned (+6.2%) significantly under-performing U.S. stocks for the third year.
Europe was the star performer, rising (+24%), while Japan fell (-24%), in U.S.
dollars. Japan's difficulties continue, as the country is in a deep recession
and its financial sector remains in trouble. Other Asian markets tumbled,
including Malaysia, Singapore, and Hong Kong, with returns of (-68%), (-30%) and
(-23%), respectively.
8
<PAGE> 13
OUTLOOK FOR 1998
Driven by the economic uncertainty in Asia, global markets continue to
experience dramatic volatility. It will take an extended period for this
situation to settle. We expect GDP growth to decline by 1% in 1998, and there
may be a slight reduction in inflation.
The stock market is expensive by fundamental measures, such as
price-to-earnings, price-to-book ratios and dividend yields. We are currently
caught in a tug-of-war between interest rates and corporate profits. We expect
that profit growth will decelerate in 1998, as wages rise and pricing
flexibility remains limited. The strong dollar will also hinder profits of U.S.
companies.
We expect further volatility in the stock market, accompanied by a 10-15%
decline. The correction in stocks should be limited by several factors. Our
economy should continue to expand, albeit at a slightly slower pace. Inflation
and interest rates will remain low, helping to support stocks prices. Also, if
the stock market declines significantly, or the economy slows more than
expected, the Federal Reserve may lower interest rates to stimulate economic
growth. Bond markets are also experiencing great volatility, as interest rates
and currencies continue to fluctuate. Fortunately in the U.S., this has been
mostly on the upside. U.S. bonds should continue to do well in 1998, with
economic growth slowing and inflation remaining under control.
9
<PAGE> 14
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
MONEY MARKET PORTFOLIO
Managed by Capital Management
- --------------------------------------------------------------------------------
DESCRIPTION:
The Money Market Portfolio invests primarily
in short-term money market instruments and
securities with maturities of less than one
year.
SUMMARY HIGHLIGHTS:
During the fourth quarter of 1997, the bond market continued to exhibit
significant rate volatility. Expectations as to the timing of another move by
the Federal Reserve (Fed) to boost the overnight Fed Funds rate were quickly
doused in the face of growing turmoil in Asia. The market's view on the
prospects for Asia's stabilization and recovery continued to drive the bond
market as it broke below 6% on the long-end. The pace of US economic activity
clearly picked up in the fourth quarter, while inflation has been conspicuously
absent. While economic indicators point to a strong economy, the near absence of
inflation, and the potential drag from Asia's difficulties have left the Fed on
hold in changing interest rates. In fact, market sentiment has shifted to the
view that the next Fed move will be an easing, a conclusion the manager has not
yet adopted.
The yield curve grew increasingly flatter in the fourth quarter. Interest rates
declined by 48 basis points in the fourth quarter to 5.92%. The yield on the
3-month T-bill rose to 5.34% at year-end from 5.09% at the end of the third
quarter. Market sentiment is that the Fed is on hold near-term with the
expectation that an eventual easing may be undertaken in the second quarter of
'98. Thus, the average maturity of the Portfolio will be modestly extended to
capitalize on what is seen as a bullish interest rate environment in the
near-term. As of December 31st, the average maturity of the Portfolio was
approximately 40 days.
The Portfolio continues to be invested in high quality short-term instruments,
principally commercial paper. The manager's strategy is to emphasize purchases
of 30-90 day maturities to provide flexibility to respond to any changes in the
market place without sacrificing current income. The 30-day and 7-day current
yields of the Portfolio were each 5.47% as of December 31, 1997, after charges
imposed by the Portfolio. Of course, past performance does not guarantee future
investment results.
Investments made in the Money Market Portfolio are not insured nor guaranteed by
the U.S. government. There is no assurance that the Portfolio will maintain a
steady net asset value.
MONEY MARKET CHARACTERISTICS AS OF 12/31/97
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
<S> <C>
Average Maturity 40 days
30-Day Yield 5.47%
7-Day Current Yield 5.47%
</TABLE>
10
<PAGE> 15
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
HIGH QUALITY BOND PORTFOLIO
Managed by Merganser Capital Management
- --------------------------------------------------------------------------------
DESCRIPTION:
The High Quality Bond Portfolio offers a
conservative fixed income approach which
emphasizes preservation of capital and
consistent returns.
SUMMARY HIGHLIGHTS:
During the fourth quarter, the High Quality Bond Portfolio underperformed its
benchmark, the Merrill Lynch 1-3 Year Treasury Index, for the quarter.
The Portfolio's performance was affected by holdings in the Korea Development
Bank (KDB). KDB is an agency of the Republic of Korea, and until recently it was
a highly regarded borrower. In December, as a result of the financial crisis in
other Asian countries and the Korean Government's failure to adequately disclose
its financial records to International Monetary Fund officials, the credit
markets began to lose confidence in the issuer, and the bonds were downgraded.
The bonds were sold immediately to protect shareholders capital from further
erosion.
The volatile stock market caused a "flight to quality" as investors moved assets
from stocks to U.S. government bonds, seeking refuge from the turmoil in the
foreign securities markets. Despite stronger than expected economic growth,
interest rates fell during the quarter, as investors focused on the impact of
the Asian turmoil on future U.S. economic growth rates. In addition, improvement
in the budget deficit resulted in a lower current and projected Treasury debt
issuance.
The Portfolio's outlook for bonds is positive because of strong economic
fundamentals. Currently, we are enjoying a period of low inflation. Worker
productivity is rising and producers do not have to raise prices to pass along
the higher costs. The strength of the U.S. dollar has attracted significant
foreign investment. Contrarily, fears of cheaper Asian imports may affect GDP
growth.
FIXED INCOME SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
MERRILL
HIGH LYNCH
QUALITY 1-3 YEAR
BOND TREASURY
PORTFOLIO INDEX
<S> <C> <C>
Yankee 4% 0%
Short-Term/Cash 8% 0%
Asset-Backed/CMO 34% 0%
Financial 27% 0%
Industrial 17% 0%
U.S.
Government/Agencies 10% 100%
--------- --------
100% 100%
*Represents the total composition of this
Portfolio, which may change at any time.
</TABLE>
11
<PAGE> 16
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
INTERMEDIATE GOV'T BOND PORTFOLIO
Managed by Capital Management
- --------------------------------------------------------------------------------
DESCRIPTION:
The Intermediate Government Bond Portfolio may
invest in Government issues, Government Agency
issues, cash and cash equivalents.
SUMMARY HIGHLIGHTS:
Bonds, as measured by the Lehman Intermediate Government Index, gained (+2.3%)
for 3-months ending December 31, and returned (+7.7%) for the year. Fixed income
securities experienced solid gains for the quarter due to increased demand for
U.S. bonds, based on a positive inflation environment and uncertainty overseas.
Results in this sector were particularly strong in October, ranking second to
July for the year's biggest 1-month gain. Most of this return was generated over
the final few days of the month in response to news of further weakness in Asian
financial markets. There was a "flight to quality" as overseas and US investors
poured money into US Treasury securities. During the final two months of the
quarter, bonds continued to benefit from the volatility in equity markets,
driving bond prices higher and yields toward historic lows.
Increased demand, and fundamentals like low inflation and moderate growth
continue to have a positive impact on bond prices. Although economic activity
remains strong and unemployment is running at a 24-year low, the Federal Reserve
does not seem poised to increase lending rates in an attempt to slow overall
growth. Inflation is not expected to be a concern over the short-term.
The Portfolio was managed at a duration slightly shorter than that of its
benchmark throughout the fourth quarter of this year. This more conservative
approach resulted in a slight drag on performance. The Portfolio's duration is
not expected to deviate substantially from the benchmark over the near-term, and
the portfolio remains invested exclusively in AAA-rated US Government issues.
FIXED INCOME SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
INTERMEDIATE LEHMAN
GOVERNMENT BROS.
BOND INT. GOV'T
PORTFOLIO BOND INDEX
<S> <C> <C>
U.S. Government/
Agencies 61% 100%
Mortgage Backed 19% 0%
Short-Term/Cash 20% 0%
------ ----------
100% 100%
*Represents the total composition of this
Portfolio, which may change at any time.
</TABLE>
12
<PAGE> 17
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
GOV'T/CORPORATE BOND PORTFOLIO
Managed by Capital Management
- --------------------------------------------------------------------------------
DESCRIPTION:
The Government/Corporate Bond Portfolio may
invest in Government bonds, corporate bonds,
mortgage-backed securities, cash and cash
equivalents. This flexibility enables the
Portfolio to benefit from higher potential
returns for taking on credit risk, while
providing stability through investments in
Government securities.
SUMMARY HIGHLIGHTS:
Intermediate-term investment grade bonds gained (+3.2%), and (+9.8%) for the
3-months and 1-year ending December 31, respectively, as measured by the Lehman
Government/Corporate Index. Both individual and institutional investors
increased their exposure to fixed income securities toward year-end. Favorable
economic conditions, and fears that the equity markets were both overvalued and
too volatile increased bond demand.
While the impact of Asia's turmoil on foreign and domestic equity markets has
been decidedly negative, the U.S. bond market benefited tremendously. Investors
worldwide reduced equity holdings and sought more stable investments, like US
Treasury securities which were the primary beneficiaries. Consequently, yields
fell and prices rose for Treasuries with maturity dates greater than one year.
Longer-term issues, those maturing in more than ten years, experienced the
biggest price increases. Corporate bonds saw some of this increased buying
activity, but price gains lagged those of Governments.
The absence of inflation has been one of the outstanding features of the current
economic expansion. Also, the improving budget deficit is reducing the need for
new government bond sales. With less supply coming into the market and demand
for these issues increasing, prices for existing bonds have soared.
The Portfolio maintained a duration somewhat shorter than that of the Lehman
Government/ Corporate benchmark during the quarter, which detracted somewhat
from overall return. Also, an over-weighting in corporate issues relative to the
Index hindered return. The Portfolio is expected to be managed at a duration
close to that of its Index over the near-term. As always, the Portfolio's
emphasis is on undervalued, good quality fixed income securities.
FIXED INCOME SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
LEHMAN
GOVERNMENT/ BROS.
CORPORATE GOV'T/
BOND CORP.
PORTFOLIO INDEX
<S> <C> <C>
Government/Agency 15% 75%
Industrial 21% 9%
Yankee Bonds 7% 5%
Asset Backed/CMO 11% 0%
Financial 29% 7%
Utility 9% 4%
Short-Term/Cash 8% 0%
----------- ------
100% 100%
*Represents the total composition of this
Portfolio, which may change at any time.
</TABLE>
13
<PAGE> 18
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
BALANCED PORTFOLIO
Managed by Institutional Capital Corporation
- --------------------------------------------------------------------------------
DESCRIPTION:
The Balanced Portfolio offers active
allocation among stocks, bonds, and cash. A
top-down approach is utilized to make the
asset allocation decision by considering
long-term cyclical trends, and examining
alternative short-term economic scenarios.
SUMMARY HIGHLIGHTS:
Portfolios invested in a mix of stocks and bonds gained (+1.1%) for the 3-months
ending December 31 as measured by the Lipper Balanced Fund Index, and returned
(+19%) this year. During the first three quarters of 1997, stocks outperformed
bonds and were responsible for the majority of overall return. In the fourth
quarter, however, Asia's turmoil reduced overall equity returns. Many investors
lowered their equity positions and increased their bond weightings. The elevated
demand for fixed-income securities enabled them to generate solid returns for
the period.
Equities, as measured by the S&P 500 Index, gained (+2.8%) for the quarter while
bonds in the Lehman Government/Corporate Index returned (+3.2%). The
out-performance of bonds relative to stocks could be attributed to the huge
amount of money that flowed out of the foreign and domestic equity markets and
into fixed income securities, specifically US Treasuries.
From an asset allocation perspective, the Portfolio was well positioned to take
advantage of the strong bond returns this quarter as it was over-weighted in
bonds relative to a static 60/40 mix of the S&P 500 and the Lehman Bond Index.
However, weakness in the equity portion of the Portfolio reduced overall return.
In the third quarter, the Portfolio's consumer cyclical stocks played a major
role in the out-performance relative to the S&P Index, gaining more than (+14%)
compared to (+7%) for S&P cyclical issues. During the fourth quarter, Portfolio
holdings in this sector gave back some of their previous big advances and
under-performed similar issues in the S&P Index.
The cyclical sector's lower return was concentrated in a few issues. Philips
Electronics (one of the Portfolio's largest equity holdings) made a substantial
investment in Asia and as a result, its price was pushed significantly lower.
Despite the poor return for the quarter, Philips gained (+54%) in 1997.
PORTFOLIO ASSET ALLOCATION AS OF 12/31/97
Equity 54%
Bonds 44%
Cash 2%
14
<PAGE> 19
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
EQUITY INCOME PORTFOLIO
Managed by Asset Management
- --------------------------------------------------------------------------------
DESCRIPTION:
The Equity Income Portfolio is designed to provide
long-term performance at reduced levels of risk versus
the overall market. The Portfolio's strategy is to be
conservatively positioned, which may mean losing some
of the upside market potential in order to protect the
Portfolio against downside losses.
SUMMARY HIGHLIGHTS:
As measured by the Lipper Equity Income Index, the average fund investing in
this style experienced a gain of 2.4% in the fourth quarter of this year.
Returns for the entire year were more impressive, advancing an average 27.5%.
Much of 1997's gain was realized during the first three quarters of the year.
Stock performance over the last 3 months was not as strong, as fears that the
turbulence that hit the Asian markets might spread to our shores. Diversified's
Equity Income Portfolio had a great year, far outperforming the average fund in
the Lipper Universe.
Stocks in the utility sector were by far the top performers in the most recent
quarter. This was not unexpected given the extreme market volatility during the
period. Investors often increase their exposure to these issues during periods
of uncertainty, confident that the higher than average dividend payments will
help insulate returns should the market decline. The outstanding performance of
utility stocks was a positive for the Portfolio, as the Portfolio's strict yield
discipline will typically allow it to have a significant weighting in this
sector. Specifically, telephone company issues performed extremely well in the
fourth quarter, returning on average 18%. Financial related stocks were the next
best performers over the past three months. These issues were positively
impacted by the drop in interest rates over the period, as well as benefiting
from the ongoing consolidation in this industry.
Two of the local telephone companies in the Portfolio that had exceptional
returns for the quarter were Ameritech Corp. (22%) and BellSouth Corp. (23%).
Each of these "Baby Bells" are anticipating higher earnings going forward as
more customers install extra phone lines in their homes for Internet connections
and fax machines. Customers are also ordering high-profit services such as
caller identification, voice mail and call-waiting. The possibility that these
regional companies will soon be allowed to compete for long-distance customers
should translate into additional revenues and profits.
In the financial sector, Bank of New York (21%) and Wells Fargo (24%) were among
the Portfolio's top performers. Both firms expect earnings to rise, driven by
increased lending activity and fee revenues. Banks, in general, are benefiting
from the growing economy, which encourages corporate customers to use loans to
expand their businesses. Additionally, fees from money management, brokerage ATM
and other deposit based services have boosted earnings.
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
EQUITY
INCOME S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 18% 17%
Utilities 18% 10%
Energy 8% 9%
Basic Industries 13% 5%
Industrial 13% 9%
Consumer Cyclical 8% 13%
Consumer Non-Cyclical 15% 24%
Technology 7% 13%
--------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
15
<PAGE> 20
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
EQUITY VALUE PORTFOLIO
Managed by: Ark Asset Management Co., Inc.
- --------------------------------------------------------------------------------
DESCRIPTION:
The Equity Value Portfolio is primarily
invested in large capitalization common stocks
that sell at reasonable prices relative to
their projected earnings (high P/E multiples
are generally avoided). The Portfolio's
strategy will allow it to participate in up
markets while the value discipline will
cushion the Portfolio in down markets.
SUMMARY HIGHLIGHTS:
The Russell 1000 Value Index surged (+35.2%) for the year ending December 31,
1997, and advanced (+4.5%) in the fourth quarter. The Equity Value Portfolio
struggled to keep pace with the benchmark. Both sector allocation and stock
selection detracted from performance.
The Portfolio has under-weighted the financial sector during most of the year.
Continued low unemployment and declining interest rates elevated consumer
confidence to the highest level in 28 years. This helped increase loan activity
and earnings in the banking industry. High loan activity, coupled with "merger
mania" in the banking industry sent prices and valuations higher. The steep
valuation levels prevented the Portfolio, with strict valuation limitations,
from participating in large gains in the sector. The S&P 500 Financial Index
climbed (+48.1%) in 1997, one of the top-performing groups of the year.
An over-weighted position in the technology sector detracted from performance
during the quarter. The Portfolio's 12.9% weighting in technology was twice that
of the benchmark. The technology group was the worst performing sector in the
Russell 1000 Value Index, (-7.5%). Technology stocks led the market through the
first three quarters of the year, but dropped in the fourth quarter, as slower
growth and earnings disappointments sent prices lower. In the fourth quarter,
the Portfolio increased its position in virtually every technology issue, in an
effort to take advantage of the attractive valuation levels.
Portfolio holding Hewlett Packard (HP) fell (-10.1%) during the quarter. The
Portfolio doubled its exposure to the company during the same time to take
advantage of the company's lower valuation. HP unveiled the industry's first
line of PCs to use Intel Corp.'s latest MMX technology and cost under $800. The
aggressive pricing at the low-end of the PC market is intended to help the
company maintain its personal computer sales growth rate of more than 50%
annually. HP's strategy of using Intel's MMX technology in the low-priced
personal computer market, which accounted for 40% of consumer PC sales in
December, provides a superior product in a growing market.
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
EQUITY
VALUE S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 12% 17%
Utilities 9% 10%
Energy 11% 9%
Basic Industry 10% 5%
Industrial 11% 9%
Consumer Cyclical 20% 13%
Consumer Non-Cyclical 14% 24%
Technology 13% 13%
--------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
16
<PAGE> 21
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
GROWTH & INCOME PORTFOLIO
Managed by Putnam Advisory Company, Inc.
- --------------------------------------------------------------------------------
DESCRIPTION:
The Growth & Income Portfolio invests
primarily in a diversified portfolio of stocks
selected for their potential to generate
long-term capital appreciation and current
income.
SUMMARY HIGHLIGHTS:
The Growth & Income Portfolio posted strong returns in 1997, outperforming the
S&P 500 Index return of (+33.4%). The unprecedented third year of 20-plus% gains
left many managers unable to keep pace. The average growth & income manager as
tracked by Lipper Analytical Services returned (+27.1%) for the year,
under-performing the S&P 500 benchmark by 630 basis points. The Portfolio landed
in the top 20% of growth & income managers in the Lipper Growth & Income
Universe.
Superior stock selection in the fourth quarter capped the successful year. A
decision made in September to limit exposure to multinational companies with
significant exposure to slowing Asian economies proved astute. The Portfolio
liquidated company positions in certain technology industries, while increasing
exposure to companies with significant domestic business.
The Portfolio completely liquidated shares in semiconductor giants Intel and
Motorola. A slump in Asian demand for high-tech goods forced prices lower for
semiconductor companies, Intel (-23.9%) and Motorola (-20.3%). Computer chips
are routinely used in a host of products, including automobiles, televisions,
VCR's, phones and personal computers. The drop-off in Asian demand creates
challenges for many businesses, but is especially damaging to semiconductor
companies.
While holdings in semiconductor companies were scaled back, shares in software
companies were purchased. The manager increased exposure to virtually every
software manufacturer held in the Portfolio. Portfolio holdings such as
Peoplesoft, Computer Associates and Compuware continue to boost profits as
corporations link computers through networks, and purchase programs to manage
computer systems, inventory and manufacturing. The Portfolio's (+6.3%) return
for software companies was impressive relative to the technology sector's
decline of (-12.9%).
The Portfolio also realized significant gains in a number of other industries.
Broader exposure to the U.S. economy was achieved by purchasing shares in
pharmaceuticals, food-related companies, and retail companies. The Portfolio
holds a 30% position in a variety of retail stores. Although many retailers
reported disappointing holiday sales, the Portfolio's retail store holdings
advanced an average of (+13.5%), including Costco (+18.6%), Dayton Hudson
(+12.9%) and Home Depot (+13.1%).
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
GROWTH &
INCOME S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 19% 17%
Utilities 3% 10%
Energy 6% 9%
Basic Industry 1% 5%
Industrial 10% 9%
Consumer Cyclical 21% 13%
Consumer Non-Cyclical 25% 24%
Technology 15% 13%
-------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
17
<PAGE> 22
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
EQUITY GROWTH PORTFOLIO
Managed by Chancellor LGT Asset Management, Inc.
- --------------------------------------------------------------------------------
DESCRIPTION:
The Equity Growth Portfolio is primarily
invested in common stocks which have the
long-term potential to achieve greater total
return than the stock market as a whole.
Stocks are selected on the basis of their
superior chances for growth in revenues and
earnings.
SUMMARY HIGHLIGHTS:
In 1997, the Equity Growth Portfolio outperformed the majority of growth
managers tracked by Lipper Analytical Services. The manager, following a strong
third quarter, posted positive returns for the fourth quarter, while the average
manager in the Lipper Growth Universe declined (-1.2%).
In general, sector allocation contributed to the Portfolio's positive return in
the fourth quarter. A decision to scale back technology exposure -- the worst
performing sector in the Russell 1000 Growth Index (-14.8%) -- helped the
Portfolio. Semiconductor companies, considered most vulnerable to the slumping
Asian demand for high-tech products, performed particularly poorly. The Manager
decreased exposure to semiconductor holdings by 50%. Limited exposure to
semiconductor companies helped the Portfolio to avoid some of the losses posted
by Texas Instruments (-33.3%) and Intel (-23.9%). Established chip-makers have
suffered from slowing demand in Asia, and have also been forced to cut profit
margins in order to compete with upstart chip-making companies.
Gains in the technology sector included companies with limited exposure to Asian
economies. Peoplesoft, one of the Portfolio's largest holdings, advanced 30.5%
in the quarter. The company manufactures industry-specific software for
companies in the retailing, financial services, healthcare and education
markets. Portfolio holding Microsoft also generates most of its business from
U.S. and European customers. The company's blockbuster Office 97 package
generated $1.2 billion in sales during the quarter. Although Microsoft declined
2.3% in the period, the stock endured the sector's major losses.
The Portfolio's 12% exposure to pharmaceutical companies (the largest industry
allocation for most of the year) continued to generate gains and returned 17.6%
in the fourth quarter. Overall, this sector rose 53% in 1997, primarily based on
the perception that prescription drug demand will continue to grow regardless of
economic activity. Health care organizations are expected to continue to
increase prescriptions to an aging population in an effort to decrease costly
surgical procedures and hospital stays. Specific Portfolio holdings that
advanced sharply in the period include Schering Plough (+21.0%), Pfizer
(+24.4%), and Eli Lilly (+15.95%).
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
EQUITY
GROWTH S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 15% 17%
Utilities 2% 10%
Energy 2% 9%
Basic Industry 3% 5%
Industrial 11% 9%
Consumer Cyclical 18% 13%
Consumer Non-Cyclical 33% 24%
Technology 16% 13%
--------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
18
<PAGE> 23
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
SPECIAL EQUITY PORTFOLIO
<TABLE>
<S> <C> <C>
Managed by: Ark Asset Management Co., Inc. Westport Asset Management
Liberty Asset Management Pilgrim Baxter & Associates, Ltd.
</TABLE>
- --------------------------------------------------------------------------------
DESCRIPTION:
The Special Equity Portfolio utilizes multiple
portfolio managers to reduce overall fund
volatility. The Portfolio invests in small to
medium-sized companies with high earnings
potential.
SUMMARY HIGHLIGHTS:
The large capitalization market was the winner in 1997, with the S&P 500 Index
surging (+33.4%). While small capitalization stocks failed to keep pace, the
Russell 2000 Index increased an impressive (+22.4%). The small capitalization
market's performance widely diverged between growth- and value-style stocks.
While the Russell 2000 Growth Index gained (+13.0%), the Russell 2000 Value
Index posted a (+31.7%). The huge disparity in returns emphasized the importance
of diversification in the small capitalization market. Growth managers in the
Special Equity Portfolio, advanced an average of 18.8%, while the two value
managers advanced 45.0%. The Portfolio has yielded impressive results,
out-performing over 90% of small cap managers in the Lipper Small Capitalization
Universe over a 3-year period.
Small cap stocks proved unable to sustain the (+15.7%) return in third quarter.
The Russell 2000 Index declined (-3.4%) in the final quarter of the year. The
Portfolio posted negative returns as well, but ended the quarter significantly
ahead of the Index.
The Portfolio's large stake (13%) in the financial sector helped returns. Merger
and acquisition activity in the banking industry rallied the sector's financial
holdings (+9.5%). The activity has made smaller banks more efficient, allowing
them to take advantage of better technology in order to grow fee-based services.
Increased fees from checking accounts, ATMs, and retail brokerage services have
pushed bank earnings higher. Consumer loan activity has increased as well,
influenced by lower interest rates, a strong job market, and an extremely high
level of consumer confidence.
An over-weighted position in the technology sector detracted from performance.
However, several factors helped to minimize losses in a turbulent quarter for
technology holdings. The value component of the Portfolio provided shelter.
Technology issues on the value portion of the Portfolio actually had positive
returns in a quarter (+3.8%), where the Russell 2000 Index technology holdings
declined (-17.7%). The small cap orientation of the Portfolio also insulated
holdings from a volatile overseas economy, since most technology holdings were
domestically-oriented.
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
SPECIAL
EQUITY S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 13% 17%
Utilities 5% 10%
Energy 5% 9%
Basic Industry 4% 5%
Industrial/Multi-
Industrial 21% 9%
Consumer Cyclical 24% 13%
Consumer Non-Cyclical 11% 24%
Technology 17% 13%
--------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
19
<PAGE> 24
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
AGGRESSIVE EQUITY PORTFOLIO
Managed by: McKinley Capital Management Co., Inc.
- --------------------------------------------------------------------------------
DESCRIPTION:
The Aggressive Equity Portfolio invests
primarily in small capitalization stocks
poised for rapid earnings acceleration. This
Portfolio will outperform the broad averages
over longer term periods but with much higher
volatility.
SUMMARY HIGHLIGHTS:
During 1997, Asia's economic concerns played an important part in the pressure
on US stock prices. The decrease in product demand from Asia significantly
contributed to a poor showing for multinational companies, as well as smaller
capitalization technology firms.
The Aggressive Equity Portfolio ended the year under-performing its benchmark,
the Russell 2000 Growth Index. This is due mainly to the Portfolio's
over-weighted exposure to technology. The technology sector, which accounted for
51% of the Portfolio, was the worst performing sector in the index. Technology
holdings were down (-23.8%) compared to (-17.8%) for the Russell 2000 Growth
Index. Price cuts in the personal computer industry, and slow demand in Asia
(which accounts for about a quarter of the world's PC sales and almost half the
semiconductor sales) caused much of this under-performance.
The Portfolio's stock selection in the financial industry yielded a return of
(+10.3%) compared to the benchmark's return of (-1.8%). The financial sector in
general was spurred by increased lending and fee revenues, low inflation and
interest rates, and a consolidation in the industry. Portfolio holding, Federal
National Mortgage Association (Fannie Mae), was up (+21.9%) for the quarter.
Fannie Mae buys and holds mortgages, and issues and sells guaranteed
mortgage-backed securities to facilitate housing ownership for low- to middle-
income Americans.
The Portfolio has been acquiring large-cap companies, due to attractive earnings
growth potential over the short-term. Also, technology holdings are being
repositioned in order to benefit from the strength of the U.S. dollar and avoid
technology companies who rely on revenue from Asia.
EQUITY SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
AGGRESSIVE
EQUITY S&P 500
PORTFOLIO INDEX
<S> <C> <C>
Financial 18% 17%
Utilities 0% 10%
Energy 0% 9%
Basic Industry 0% 5%
Industrial 3% 9%
Consumer Cyclical 19% 13%
Consumer Non-
Cyclical 32% 24%
Technology 28% 13%
---------- -------
100% 100%
*Represents the equity composition of this
Portfolio, which may change at any time.
</TABLE>
20
<PAGE> 25
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
HIGH YIELD BOND PORTFOLIO
Managed by Delaware Investment Advisers
- --------------------------------------------------------------------------------
DESCRIPTION:
The investment objective of the High Yield
Bond Fund is to provide a high level of
current income from a diversified portfolio
consisting primarily of high-yielding,
fixed-income and zero coupon securities.
SUMMARY HIGHLIGHTS:
High yield bonds returned (+2.6%) during the fourth quarter of 1997, and gained
(+13.0%) for the year, as measured by the Salomon Brothers Cash Pay Index. With
the exception of the 30-year Treasury, high yield bonds outperformed all other
fixed income measures over the past twelve months. The impressive returns could
be attributed to declining interest rates in the bond market, as well as solid
gains in equity securities. Relatively conservative high yield approaches were
rewarded, as compared to other styles with exposures to emerging market debt and
lower quality securities. The Diversified Portfolio benefited from a zero
weighting in emerging markets and an average credit quality of B+, enabling it
to outperform 85% of the funds in Lipper's High Yield Bond universe.
The fundamentals for the high yield market remain positive. The demand for high
yield securities is greater than existing supply. Average credit quality of the
overall market is at an all time high, and there are little to no concerns
regarding liquidity constraints. Corporations are posting strong revenues and
profits and interest rate levels are approaching historic lows.
The outlook for the high yield market remains positive, particularly relative to
other fixed income investments. Investor demand for these securities is likely
to remain strong in light of the current low level of interest rates, prospects
of moderating economic growth, and concerns over lofty stock valuations. The
Portfolio remains defensively positioned with respect to industry exposure, and
will continue to seek quality corporations which both dominate within their
industries, and which can also generate steady cash flows.
FIXED INCOME SECTOR BREAKOUTS AS OF 12/31/97*
<TABLE>
<CAPTION>
SALOMON
HIGH BROS.
YIELD CASH
BOND PAY
PORTFOLIO INDEX
<S> <C> <C>
Consumer Growth 35% 44%
Consumer Cyclicals 19% 13%
Finance 0% 5%
Capital Goods 12% 5%
Basic Industry 20% 17%
Energy 8% 8%
Utilities 0% 8%
Cash/Short-term 6% 0%
--------- -------
100% 100%
*Represents the total composition of this
Portfolio, which may change at any time.
</TABLE>
21
<PAGE> 26
QUARTERLY INVESTMENT REVIEW OF THE 4TH QUARTER -- 1997
INTERNATIONAL EQUITY PORTFOLIO
Managed by Capital Guardian Trust Company
- --------------------------------------------------------------------------------
DESCRIPTION:
The International Equity Portfolio
incorporates a fundamental value approach with
an emphasis on common stocks of major foreign
markets.
SUMMARY HIGHLIGHTS:
The Asian market turmoil triggered by the currency crisis in July continued to
cast its pall globally during the fourth quarter. Together with Japan's domestic
banking crisis, the fallout sent Pacific Rim markets tumbling and a tremor
through world-wide equity markets. The MSCI GDP EAFE Index posted a return of
(-6.7%). Diversified's International Equity Portfolio underperformed the Index
for the quarter, but outperformed for the year by over 300 basis points.
The worsening southeast Asian currency crisis negatively impacted equity markets
as well as currency markets during the fourth quarter. The Japanese equity
market dropped sharply, largely due to bad debt problems in its banking system.
Japan is also being hurt by the drop in value of the Korean won, which makes
Korean imports an increased trade threat to Japan. Japan and Korea compete in a
number of the same export industries, such as steel, electronics, shipbuilding,
and cars. Japan also has substantial exports to Korea, which would be hurt by a
Korean economic slowdown. The Portfolio's 16% weighting in Japan pulled overall
Portfolio returns significantly downward, despite the Portfolio's underweighting
in Japan relative to the benchmark's weighting of 27%. A Capital Guardian
international equity portfolio manager stated, "It's not so important how much
you have in Japan as what you have in Japan." The manager continues to assess
the situation on a stock by stock basis as individual countries turn around.
Just as in the third quarter, the picture in Europe was brighter. Equity markets
are getting a boost from the more solid prospects for monetary union, and are
also helped by the recent introduction of mergers, corporate restructuring and
privatizations. In addition, the economies of France and Germany, the
Continent's two largest, continued to recover during the quarter.
TOP TEN COUNTRY WEIGHTINGS AS OF 12/31/97
<TABLE>
<CAPTION>
INTERNATIONAL MORGAN
EQUITY STANLEY GDP
PORTFOLIO EAFE*
<S> <C> <C>
Japan 16.4% 26.8%
United Kingdom 13.7% 9.9%
Canada 6.4% 0.0%
Sweden 6.2% 1.9%
Germany 5.3% 17.6%
Australia 5.2% 2.8%
France 4.5% 11.2%
Switzerland 4.1% 2.0%
Netherlands 3.6% 2.9%
Hong Kong 3.3% 2.1%
*Morgan Stanley Capital International EAFE
GDP-Europe, Australasia, Far East Gross
Domestic Product Index
</TABLE>
22
<PAGE> 27
(This page intentionally left blank)
23
<PAGE> 28
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE EQUITY
MARKET QUALITY BOND BOND BOND BALANCED INCOME
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities, at cost......... $231,800,943 $197,598,515 $132,197,739 $347,542,910 $470,715,722 $ 904,075,061
============ ============ ============ ============ ============ =============
Securities, at market....... $231,800,943 $198,723,832 $133,274,531 $358,330,961 $490,760,447 $1,278,019,941
Repurchase agreement,
at value................... 19,808 17,476,823 5,087,230 97,709 48,524,284 32,140
Cash........................ 21,560 -- 2,470 1,540 -- 5,922
Receivable for securities
sold....................... -- 73,534 -- -- 956,999 505,152
Receivable for foreign
currency forward
contracts.................. -- -- -- -- -- --
Interest receivable......... 554,131 1,994,754 1,342,594 5,374,025 3,212,344 10,653
Dividends receivable........ -- -- -- -- 319,483 1,812,003
Receivable from securities
lending.................... -- 1,346 936 7,793 10,074 11,928
Reimbursement from
advisor.................... -- -- 2,000 -- 14,531 1,087
------------ ------------ ------------ ------------ ------------ -------------
Total assets....... 232,396,442 218,270,289 139,709,761 363,812,028 543,798,162 1,280,398,826
------------ ------------ ------------ ------------ ------------ -------------
LIABILITIES:
Due to Custodian............ -- -- -- -- -- --
Deposit for securities
loaned..................... -- -- 10,461,250 2,020,000 148,440,431 64,740,700
Payable for securities
purchased.................. -- -- -- -- 396,940 --
Payable for foreign currency
forward contracts.......... -- -- -- -- -- --
Payable to advisor.......... 5,312 8,229 -- 2,904 -- --
Accrued expenses:
Investment advisory fees... 54,141 68,532 39,763 114,228 160,649 485,523
Custody fees............... -- -- -- 19,581 3,722 45,442
Professional fees.......... 20,560 20,631 18,872 17,120 19,961 34,743
Reports to shareholders.... 1,828 1,588 754 2,437 2,664 8,326
Miscellaneous fees......... 2,143 1,871 2,725 2,873 3,882 12,923
------------ ------------ ------------ ------------ ------------ -------------
Total
liabilities...... 83,984 100,851 10,523,364 2,179,143 149,028,249 65,327,657
------------ ------------ ------------ ------------ ------------ -------------
NET ASSETS......... $232,312,458 $218,169,438 $129,186,397 $361,632,885 $394,769,913 $1,215,071,169
============ ============ ============ ============ ============ =============
NET ASSETS CONSIST OF:
Paid-in capital............. $232,312,458 $217,044,121 $128,109,605 $350,844,834 $374,725,188 $ 841,126,289
Net unrealized appreciation
on securities............ -- 1,125,317 1,076,792 10,788,051 20,044,725 373,944,880
Net unrealized appreciation
on translation of assets
and liabilities in
foreign currencies....... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ -------------
NET ASSETS......... $232,312,458 $218,169,438 $129,186,397 $361,632,885 $394,769,913 $1,215,071,169
============ ============ ============ ============ ============ =============
</TABLE>
See notes to financial statements
24
<PAGE> 29
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
VALUE INCOME GROWTH EQUITY EQUITY BOND EQUITY
------------ ------------ ------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
226,958,983 $334,499,073 $363,013,968 $664,005,325 $17,881,771 $ 37,853,692 $ 194,419,667
============ ============ ============ ============ ============ ============ ============
232,613,309 $403,253,676 $441,694,290 $811,564,687 $19,875,545 $ 38,662,658 $ 208,323,964
9,250,647 5,974,470 19,802,348 45,551,470 6,561,291 173,760 10,116,743
-- -- -- -- -- -- --
1,306,161 3,512,174 3,600,080 5,494,809 -- -- 315,138
-- -- -- -- -- -- 1,887,073
2,667 5,504 8,748 24,577 1,276 910,121 7,920
435,433 347,472 197,249 222,944 10,697 -- 434,312
941 7,140 3,783 22,145 -- -- 3,077
-- -- -- -- 912 -- 7,763
------------ ------------ ------------ ------------ ------------ ------------ ------------
243,609,158 413,100,436 465,306,498 862,880,632 26,449,721 39,746,539 221,095,990
------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- 27,758
7,533,900 29,523,000 36,010,700 112,647,957 -- -- 14,610,710
936,422 7,071,880 2,714,882 6,249,742 530,002 -- 733,842
-- -- -- -- -- -- 242,701
-- 7,850 12,329 28,586 -- -- --
116,700 199,970 230,497 522,995 21,141 16,899 137,333
10,125 13,861 1,106 9,885 16,173 -- --
17,930 17,930 18,447 19,325 16,988 22,824 28,983
1,412 2,215 2,873 5,563 256 268 1,340
8,954 3,322 3,476 8,318 7,511 6,417 7,255
------------ ------------ ------------ ------------ ------------ ------------ ------------
8,625,443 36,840,028 38,994,310 119,492,371 592,071 46,408 15,789,922
------------ ------------ ------------ ------------ ------------ ------------ ------------
$234,983,715 $376,260,408 $426,312,188 $743,388,261 $25,857,650 $ 39,700,131 $ 205,306,068
============ ============ ============ ============ ============ ============ ============
229,329,389 $307,505,805 $347,631,866 $595,828,899 $23,863,876 $ 38,891,165 $ 189,758,389
5,654,326 68,754,603 78,680,322 147,559,362 1,993,774 808,966 13,904,297
-- -- -- -- -- -- 1,643,382
------------ ------------ ------------ ------------ ------------ ------------ ------------
$234,983,715 $376,260,408 $426,312,188 $743,388,261 $25,857,650 $ 39,700,131 $ 205,306,068
============ ============ ============ ============ ============ ============ ============
</TABLE>
25
<PAGE> 30
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE EQUITY
MARKET QUALITY BOND BOND BOND BALANCED INCOME
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................. $12,424,923 $13,137,754 $5,860,944 $23,025,657 $11,074,669 $ 3,484,499
Dividend income.................. -- -- -- -- 2,816,529 26,727,291
Less: withholding tax............ -- -- -- -- (4,815) (54,612)
---------- ---------- ---------- ----------- ----------- ------------
Total income.............. 12,424,923 13,137,754 5,860,944 23,025,657 13,886,383 30,157,178
---------- ---------- ---------- ----------- ----------- ------------
EXPENSES:
Investment advisory fees......... 553,205 707,143 340,670 1,174,374 1,547,690 4,950,239
Custody fees..................... 43,681 45,152 31,103 72,412 71,312 174,012
Professional fees................ 22,069 22,753 20,459 21,717 23,558 42,925
Reports to shareholders.......... 1,780 1,548 746 2,566 2,743 8,457
Miscellaneous fees............... 5,977 5,545 4,420 7,355 7,686 17,474
---------- ---------- ---------- ----------- ----------- ------------
Total expenses............ 626,712 782,141 397,398 1,278,424 1,652,989 5,193,107
Expenses reimbursed by the
advisor.......................... -- -- (15,525) -- -- --
---------- ---------- ---------- ----------- ----------- ------------
Net expenses.............. 626,712 782,141 381,873 1,278,424 1,652,989 5,193,107
---------- ---------- ---------- ----------- ----------- ------------
Net investment income (loss)....... 11,798,211 12,355,613 5,479,071 21,747,233 12,233,394 24,964,071
---------- ---------- ---------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON SECURITIES AND
FOREIGN CURRENCIES:
Net realized gains (losses) on
securities..................... (8,941) (2,349,712) 43,123 747,528 44,754,963 112,649,761
Net realized gains on foreign
currency transactions.......... -- -- -- -- -- --
Net change in unrealized
appreciation (depreciation) on
securities..................... -- 1,093,124 1,403,813 5,790,454 1,725,897 145,312,803
Net change in unrealized
appreciation on translation of
assets and liabilities in
foreign currencies............. -- -- -- -- -- --
---------- ---------- ---------- ----------- ----------- ------------
Net realized and unrealized gains
(losses) on securities and
foreign currencies............... (8,941) (1,256,588) 1,446,936 6,537,982 46,480,860 257,962,564
---------- ---------- ---------- ----------- ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $11,789,270 $11,099,025 $6,926,007 $28,285,215 $58,714,254 $282,926,635
========== ========== ========== =========== =========== ============
</TABLE>
See notes to financial statements.
26
<PAGE> 31
<TABLE>
<CAPTION>
EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
VALUE INCOME GROWTH EQUITY EQUITY BOND EQUITY
----------- ----------- ----------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 432,832 $ 653,364 $ 599,436 $ 2,682,418 $ 106,664 $3,056,638 $ 588,982
2,767,553 2,946,154 3,590,774 5,129,430 45,708 -- 3,180,167
-- (5,745) -- (19,304) (92) -- (351,430)
----------- ----------- ----------- ----------- ---------- ---------- -----------
3,200,385 3,593,773 4,190,210 7,792,544 152,280 3,056,638 3,417,719
----------- ----------- ----------- ----------- ---------- ---------- -----------
882,508 1,679,535 2,405,212 4,986,640 182,991 182,367 1,434,770
71,581 72,061 68,526 187,902 45,564 41,237 217,779
19,786 21,735 22,947 26,690 18,268 19,204 25,946
1,470 2,248 3,025 5,397 260 278 1,551
5,448 5,973 5,915 11,923 3,446 3,241 5,218
----------- ----------- ----------- ----------- ---------- ---------- -----------
980,793 1,781,552 2,505,625 5,218,552 250,529 246,327 1,685,264
(56,044) -- -- -- (61,577) (46,946) (16,399)
----------- ----------- ----------- ----------- ---------- ---------- -----------
924,749 1,781,552 2,505,625 5,218,552 188,952 199,381 1,668,865
----------- ----------- ----------- ----------- ---------- ---------- -----------
2,275,636 1,812,221 1,684,585 2,573,992 (36,672) 2,857,257 1,748,854
----------- ----------- ----------- ----------- ---------- ---------- -----------
20,127,411 30,338,224 24,114,431 73,438,581 (1,923,753) 751,900 6,952,374
-- -- -- -- -- -- 1,289,424
4,086,494 46,717,933 64,960,988 69,900,579 1,758,315 436,636 1,832,462
-- -- -- -- -- -- 1,293,392
----------- ----------- ----------- ----------- ---------- ---------- -----------
24,213,905 77,056,157 89,075,419 143,339,160 (165,438) 1,188,536 11,367,652
----------- ----------- ----------- ----------- ---------- ---------- -----------
$26,489,541 $78,868,378 $90,760,004 $145,913,152 $ (202,110) $4,045,793 $ 13,116,506
=========== =========== =========== =========== ========== ========== ===========
</TABLE>
27
<PAGE> 32
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss)................. $ 11,798,211 $ 12,355,613 $ 5,479,071 $ 21,747,233 $ 12,233,394
Net realized gains (losses) on securities.... (8,941) (2,349,712) 43,123 747,528 44,754,963
Net realized gains on foreign currency
transactions............................... -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on securities............... -- 1,093,124 1,403,813 5,790,454 1,725,897
Net change in unrealized appreciation on
translation of assets and liabilities in
foreign currencies......................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations................................. 11,789,270 11,099,025 6,926,007 28,285,215 58,714,254
------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from capital invested............... 902,776,832 102,876,345 68,807,286 123,824,256 170,812,434
Value of capital withdrawn................... (867,265,898) (93,100,595) (49,606,776) (113,152,603) (99,666,614)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from capital transactions.................... 35,510,934 9,775,750 19,200,510 10,671,653 71,145,820
------------ ------------ ------------ ------------ ------------
Net increase in net assets..................... 47,300,204 20,874,775 26,126,517 38,956,868 129,860,074
NET ASSETS:
Beginning of period.......................... 185,012,254 197,294,663 103,059,880 322,676,017 264,909,839
------------ ------------ ------------ ------------ ------------
End of period................................ $232,312,458 $218,169,438 $ 129,186,397 $361,632,885 $394,769,913
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
28
<PAGE> 33
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME VALUE INCOME GROWTH EQUITY EQUITY BOND EQUITY
-------------- ------------ ------------ ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,964,071 $ 2,275,636 $ 1,812,221 $ 1,684,585 $ 2,573,992 $ (36,672) $ 2,857,257 $ 1,748,854
112,649,761 20,127,411 30,338,224 24,114,431 73,438,581 (1,923,753) 751,900 6,952,374
-- -- -- -- -- -- -- 1,289,424
145,312,803 4,086,494 46,717,933 64,960,988 69,900,579 1,758,315 436,636 1,832,462
-- -- -- -- -- -- -- 1,293,392
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
282,926,635 26,489,541 78,868,378 90,760,004 145,913,152 (202,110) 4,045,793 13,116,506
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
342,318,881 252,043,859 227,268,676 218,548,740 300,462,601 45,019,873 34,940,563 149,002,914
(366,995,016) (72,583,198) (137,489,072) (182,124,242) (210,251,735) (34,439,243) (14,658,911) (104,998,249)
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
(24,676,135) 179,460,661 89,779,604 36,424,498 90,210,866 10,580,630 20,281,652 44,004,665
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
258,250,500 205,950,202 168,647,982 127,184,502 236,124,018 10,378,520 24,327,445 57,121,171
956,820,669 29,033,513 207,612,426 299,127,686 507,264,243 15,479,130 15,372,686 148,184,897
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
$1,215,071,169 $234,983,715 $376,260,408 $426,312,188 $743,388,261 $25,857,650 $39,700,131 $ 205,306,068
============ =========== ============ ============ =========== ============ ============ =============
</TABLE>
29
<PAGE> 34
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY HIGH GOVERNMENT CORPORATE
MARKET QUALITY BOND BOND BOND BALANCED
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss).............. $ 9,228,477 $ 10,943,369 $ 5,459,079 $ 22,081,097 $ 7,487,630
Net realized gains (losses) on
securities.............................. (8,786) (34,374) (586,993) (913,114) 23,946,320
Net realized gains on foreign currency
transactions............................ -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on securities............ -- (1,571,971) (1,394,326) (11,013,287) 3,998,704
Net change in unrealized appreciation on
translation of assets and liabilities in
foreign currencies...................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.............................. 9,219,691 9,337,024 3,477,760 10,154,696 35,432,654
------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from capital invested............ 574,726,828 132,353,083 50,100,883 107,972,231 106,232,881
Value of capital withdrawn................ (540,572,513) (116,921,547) (36,510,377) (131,990,320) (43,788,651)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital transactions....... 34,154,315 15,431,536 13,590,506 (24,018,089) 62,444,230
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets....... 43,374,006 24,768,560 17,068,266 (13,863,393) 97,876,884
NET ASSETS:
Beginning of year......................... 141,638,248 172,526,103 85,991,614 336,539,410 167,032,955
------------ ------------ ------------ ------------ ------------
End of year............................... $ 185,012,254 $ 197,294,663 $103,059,880 $ 322,676,017 $264,909,839
============ ============ ============ ============ ============
</TABLE>
- ---------------
* Commencement of operations, April 19, 1996
See notes to financial statements.
30
<PAGE> 35
<TABLE>
<CAPTION>
EQUITY EQUITY GROWTH & EQUITY SPECIAL AGGRESSIVE HIGH YIELD INTERNATIONAL
INCOME VALUE* INCOME GROWTH EQUITY EQUITY* BOND EQUITY
------------- ----------- ------------ ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 25,571,730 $ 240,724 $ 1,776,479 $ (432,797) $ 960,323 $ (70,782) $ 918,330 $ 1,201,575
39,593,303 910,307 16,329,122 64,682,669 55,282,281 594,156 (43,340) 2,640,559
-- -- -- -- -- -- -- 478,445
83,552,175 1,567,832 13,845,816 (25,830,434) 32,173,450 235,459 210,284 10,896,919
-- -- -- -- -- -- -- 190,167
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
148,717,208 2,718,863 31,951,417 38,419,438 88,416,054 758,833 1,085,274 15,407,665
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
293,027,464 28,849,346 146,312,325 136,832,312 247,735,078 20,875,494 7,896,234 77,505,278
(249,226,533) (2,534,696) (95,463,047) (98,486,454) (144,345,114) (6,155,197) (2,606,417) (28,174,361)
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
43,800,931 26,314,650 50,849,278 38,345,858 103,389,964 14,720,297 5,289,817 49,330,917
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
192,518,139 29,033,513 82,800,695 76,765,296 191,806,018 15,479,130 6,375,091 64,738,582
764,302,530 -- 124,811,731 222,362,390 315,458,225 -- 8,997,595 83,446,315
------------ ----------- ------------ ------------ ----------- ------------ ------------ -------------
$ 956,820,669 $29,033,513 $207,612,426 $299,127,686 $ 507,264,243 $15,479,130 $15,372,686 $ 148,184,897
============ =========== ============ ============ =========== ============ ============ =============
</TABLE>
31
<PAGE> 36
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- 75.13%
$1,000,000 American Express Credit Company,
6.09%, 01/02/98............... $ 999,831
4,200,000 American Express Credit Company,
5.60%, 02/02/98............... 4,179,093
1,700,000 Associates Corp. of N.A., 5.60%,
01/13/98...................... 1,696,826
3,000,000 Associates Corp. of N.A., 5.71%,
01/15/98...................... 2,993,338
6,300,000 Avco Financial Services, Inc.,
5.63%, 02/17/98............... 6,253,693
1,000,000 Avco Financial Services, Inc.,
5.78%, 03/09/98............... 989,243
3,500,000 Avco Financial Services, Inc. --
Canada, 5.55%, 01/09/98....... 3,495,683
2,000,000 Bank of Nova Scotia C.P., 5.52%,
01/05/98...................... 1,998,774
600,000 Bell Atlantic Corp., 5.82%,
01/12/98...................... 598,933
2,100,000 Bell Atlantic Corp., 5.76%,
01/15/98...................... 2,095,296
1,900,000 Bellsouth Telecommunications,
Inc., 6.10%, 01/13/98......... 1,896,137
2,900,000 British Columbia -- Province,
5.68%, 02/12/98............... 2,880,783
2,000,000 CSX Corp., 6.04%, 01/07/98...... 1,997,987
4,400,000 Chevron Corp., 5.62%,
01/06/98...................... 4,396,566
2,400,000 Conagra, Inc., 6.15%,
01/02/98...................... 2,399,590
5,013,000 Enterprise Funding Corp., 5.79%,
01/20/98...................... 4,997,681
1,800,000 Enterprise Funding Corp., 5.86%,
01/23/98...................... 1,793,554
1,700,000 Export Development Corp., 5.53%,
01/16/98...................... 1,696,083
6,300,000 Ford Motor Credit Corp., 5.52%,
01/08/98...................... 6,293,238
3,000,000 FPL Fuels, Inc., 5.70%,
01/30/98...................... 2,986,225
6,600,000 General Electric Capital Corp.,
5.58%, 01/13/98............... 6,587,724
700,000 General Electric Capital Corp.,
5.55%, 01/22/98............... 697,734
3,000,000 General Motors Acceptance Corp.,
5.54%, 01/16/98............... 2,993,075
7,300,000 General Motors Acceptance Corp.,
5.55%, 01/20/98............... 7,278,618
7,500,000 Goldman Sachs Group, L.P.,
5.95%, 01/05/98............... 7,495,042
4,600,000 Heller International Corp.,
6.05%, 01/20/98............... 4,585,312
3,700,000 Household International Corp.,
5.55%, 01/12/98............... 3,693,726
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
$2,000,000 Houston Industries Finance
Company, 6.20%, 01/16/98...... $ 1,994,833
2,100,000 Ingersoll-Rand Company, 6.05%,
01/05/98...................... 2,098,588
1,106,000 JHM Funding, Inc. 5.75%,
01/30/98...................... 1,100,877
900,000 Lehman Brothers Holdings Inc.,
5.90%, 01/08/98............... 898,968
2,600,000 Lehman Brothers Holdings Inc.,
6.05%, 01/12/98............... 2,595,194
2,100,000 Lehman Brothers Holdings Inc.,
6.20%, 01/30/98............... 2,089,512
1,700,000 Mellon Bank Corp., 5.65%,
02/20/98...................... 1,686,660
2,100,000 Merrill Lynch and Company, Inc.,
5.81%, 01/16/98............... 2,094,916
7,000,000 Metlife Funding, Inc., 5.68%,
01/22/98...................... 6,976,806
2,100,000 National Rural Utilities, 5.53%,
01/21/98...................... 2,093,549
5,000,000 National Rural Utilities, 5.54%,
01/23/98...................... 4,983,072
4,600,000 National Rural Utilities, 5.67%,
04/06/98...................... 4,531,172
500,000 Paccar Financial Group, 5.56%,
01/12/98...................... 499,150
7,600,000 Prudential Funding Corp., 5.51%,
01/06/98...................... 7,594,184
1,000,000 Prudential Funding Corp., 5.62%,
01/06/98...................... 999,219
800,000 Prudential Funding Corp., 5.59%,
01/07/98...................... 799,254
5,100,000 Sanwa Business Credit, 6.75%,
01/13/98...................... 5,088,525
3,000,000 Sanwa Business Credit, 6.75%,
01/13/98...................... 2,993,250
2,000,000 Sanwa Business Credit, 6.60%,
01/02/98...................... 1,999,633
3,000,000 Sears, Roebuck Acceptance Corp.,
5.54%, 01/14/98............... 2,993,999
4,000,000 Sears, Roebuck Acceptance Corp.,
5.63%, 01/15/98............... 3,991,243
1,000,000 Sears, Roebuck and Company,
5.81%, 01/09/98............... 998,709
3,600,000 Sears, Roebuck and Company,
5.88%, 01/30/98............... 3,582,948
4,200,000 Sony Capital Corp., 5.73%,
01/07/98...................... 4,195,989
2,000,000 Textron Financial Corp., 6.10%,
01/02/98...................... 1,999,661
</TABLE>
See notes to financial statements.
32
<PAGE> 37
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
COMMERCIAL PAPER (CONTINUED)
$3,000,000 Transamerica Corp., 5.85%,
01/21/98...................... $ 2,990,250
350,000 Transamerica Corp., 5.70%,
01/22/98...................... 348,836
5,000,000 Union Bancal Corp., 5.54%,
01/23/98...................... 4,983,072
5,400,000 Union Bancal Corp., 5.75%,
02/09/98...................... 5,366,363
------------
TOTAL COMMERCIAL PAPER
(Cost $174,538,217)............. 174,538,217
------------
CERTIFICATES OF DEPOSIT -- 8.14%
8,000,000 Bank of Nova Scotia, 5.74%,
02/20/98...................... 8,000,000
7,000,000 National Westminster Bank,
5.86%, 08/10/98............... 7,021,932
3,900,000 Royal Bank of Canada, 5.79%,
08/20/98...................... 3,900,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $18,921,932).............. 18,921,932
------------
US GOVERNMENT AGENCY SECURITIES -- 4.74%
FEDERAL HOME LOAN BANK -- 2.58%
6,000,000 5.81%, 08/20/98................. 6,000,000
------------
FEDERAL HOME LOAN MORTGAGE
CORP. -- 2.16%
5,000,000 5.685%, 10/02/98................ 5,005,794
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $11,005,794)... 11,005,794
------------
SHORT-TERM CORPORATE NOTES -- 11.77%
2,900,000 Banc One, Floating Rate, 5.85%,
01/08/98+..................... 2,900,000
5,435,000 Capital One Funding Corp.,
Floating Rate, 5.85%,
01/08/98+..................... 5,435,000
5,000,000 Asset Backed Securities
Investment Trust, Series
1997-E, Class N, Floating
Rate, 5.96%, 01/15/98++....... 5,000,000
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
$8,000,000 Asset Backed Securities
Investment Trust, Series
1997-C, Class N, Floating
Rate, 5.96%, 01/15/98++....... $ 8,000,000
6,000,000 Asset Backed Securities
Investment Trust, Series
1997-I, Class I, Floating
Rate, 5.96%, 01/15/98++....... 6,000,000
------------
TOTAL SHORT-TERM CORPORATE NOTES
(Cost $27,335,000).............. 27,335,000
------------
TOTAL SECURITIES (Cost
$231,800,943)................... 231,800,943
------------
REPURCHASE AGREEMENT -- 0.01%
19,808 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $19,815, 01/02/98
(Collateralized by Government
National Mortgage Association,
7.375%, due 06/20/26, with a
value of $21,232) (Cost
$19,808)...................... 19,808
------------
Total Investments -- 99.79%
(Cost $231,820,751)............. 231,820,751
Other assets less
liabilities -- 0.21%............ 491,707
------------
NET ASSETS -- 100.00%........... $232,312,458
============
The aggregate cost of investments for federal income tax
purposes at December 31, 1997, is $231,820,751.
</TABLE>
- ---------------
+ This interest rate is subject to change weekly based on the greater of the 30
day or 90 day Federal composite rate. The rate shown was in effect as of
December 31, 1997.
++ This interest rate is subject to change monthly based on the London Interbank
Offered Rate ("LIBOR"). The rate shown was in effect at December 31, 1997.
See notes to financial statements.
33
<PAGE> 38
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 74.56%
BANKS -- 10.23%
$ 3,500,000 Banque Nationale de Paris SA,
9.875%, 05/25/98............. $ 3,549,879
8,000,000 First Omni Bank, Series 96-A,
6.65%, 09/15/03.............. 8,150,000
4,000,000 Norwest Corp., 6.75%,
05/12/00..................... 4,055,408
6,556,024 Union Acceptance Corp., 6.40%,
10/10/02..................... 6,567,169
------------
TOTAL BANKS.................... 22,322,456
------------
BROKERAGE -- 8.93%
5,500,000 Bear Stearns & Company, 6.50%,
06/15/00..................... 5,545,601
725,000 Lehman Brothers, Inc., Medium-
Term Note, 6.08%, 07/08/98... 725,100
5,000,000 Lehman Brothers, Inc., 7.625%,
08/01/98..................... 5,042,720
5,000,000 Merrill Lynch & Company, 6.38%,
07/18/00..................... 5,027,480
2,885,000 Morgan Stanley Dean Witter,
8.875%, 10/15/01............. 3,133,433
------------
TOTAL BROKERAGE................ 19,474,334
------------
FINANCE -- 28.18%
4,000,000 Associates Corp. of N.A.,
5.99%, 12/15/00.............. 3,976,864
2,000,000 Associates Corp. of N.A.,
6.15%, 01/13/03.............. 1,986,082
3,170,000 Associates Corp. of N.A.,
6.01%, 02/07/03.............. 3,127,766
1,000,000 British Gas Finance, Inc.,
8.75%, 09/15/98.............. 1,005,072
1,631,203 Chemical Financial Acceptance
Corp., 9.25%, 05/15/98....... 1,665,083
5,000,000 CIT Group Holdings, 6.125%,
11/15/99..................... 5,001,500
1,000,000 Ford Motor Credit Corp., 7.15%,
01/26/00..................... 1,021,062
4,000,000 Ford Motor Credit Corp., 7.06%,
06/06/01..................... 4,108,368
3,500,000 Ford Motor Credit Corp., 6.55%,
09/10/02..................... 3,544,167
3,000,000 General Motors Acceptance
Corp., 5.63%, 02/25/00....... 2,973,000
5,250,000 General Motors Acceptance
Corp., 9.375%, 04/01/00...... 5,605,656
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<C> <S> <C>
FINANCE (CONTINUED)
$ 400,000 Government Export Trust, 4.61%,
09/01/98..................... $ 397,426
6,500,000 Household Finance Company,
Medium-Term Note, 7.15%,
06/15/00..................... 6,632,561
5,000,000 International Lease Finance,
7.05%, 05/01/01.............. 5,130,130
7,500,000 John Deere Capital, 6.30%,
06/01/99..................... 7,540,290
1,153,406 Navistar Finance, 6.55%,
11/20/01..................... 1,156,912
3,572,310 Textron Financial Corp., 6.05%,
03/15/09..................... 3,571,167
2,615,151 Travelers Mortgage, 12.00%,
03/01/14..................... 3,023,776
------------
TOTAL FINANCE.................. 61,466,882
------------
PRIVATE ASSET BACKED: BANKS -- 5.21%
4,114,275 Banc One Auto Grantor Trust,
6.27%, 11/20/03.............. 4,124,026
5,000,000 Banc One Auto Grantor Trust,
6.29%, 07/20/04.............. 5,009,375
739,817 Western Finance Grantor Trust,
4.60%, 04/01/99.............. 736,606
1,501,648 Western Finance Grantor Trust,
5.875%, 03/01/02............. 1,498,329
------------
TOTAL PRIVATE ASSET BACKED:
BANKS........................ 11,368,336
------------
PRIVATE ASSET BACKED: CONSTRUCTION -- 1.03%
2,231,022 Case Equipment Loan Trust,
Series 1994-C, Class A2,
8.10%, 06/15/01.............. 2,255,385
------------
PRIVATE ASSET BACKED: CREDIT CARDS -- 6.24%
5,000,000 Discover Card Master Trust I,
Series 93-2A, 5.40%,
11/16/01..................... 4,973,500
423,333 First Chicago Master Trust,
6.25%, 08/15/99.............. 422,436
1,150,000 MBNA Master Credit Card, 5.40%,
09/15/00..................... 1,142,836
1,000,000 Signet Credit Card Master
Trust, 5.20%, 02/15/02....... 993,920
6,000,000 Standard Credit Card Master
Trust, Series 91-3, 8.875%,
09/07/99..................... 6,089,400
------------
TOTAL PRIVATE ASSET BACKED:
CREDIT CARDS................... 13,622,092
------------
</TABLE>
See notes to financial statements.
34
<PAGE> 39
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
PRIVATE ASSET BACKED: FINANCE -- 4.46%
$ 3,009,890 Chase Manhattan Grantor Trust,
6.61%, 09/15/02.............. $ 3,030,418
235,655 General Motors Acceptance Corp.
Grantor Trust, Series 95-A,
Class A, 7.15%, 03/15/00..... 236,366
895,755 Pemex Exp Grantor Trust, 7.66%,
08/15/01..................... 919,869
5,559,717 USAA Auto Loan Grantor Trust,
6.07%, 05/15/04.............. 5,543,482
------------
TOTAL PRIVATE ASSET BACKED:
FINANCE........................ 9,730,135
------------
PRIVATE ASSET BACKED: RECEIVABLES -- 7.75%
5,000,000 Capital Equipment Receivable
Trust, Series 96-1, 6.28%,
06/15/00..................... 5,020,600
2,307,569 Chevy Chase Auto Receivable
Trust, 6.00%, 12/15/01....... 2,308,076
2,590,272 Chevy Chase Auto Receivable
Trust, 6.60%, 12/15/02....... 2,606,357
3,821,662 First Sierra Receivables II,
6.85%, 06/10/03.............. 3,869,012
916,638 IBM Credit Receivable Lease
Asset Master Trust, Series
93-1A, 4.55%, 11/15/00....... 914,209
329,155 IBM Credit Receivable Lease
Asset Master Trust, 6.55%,
07/16/01..................... 330,218
1,854,719 Toyota Auto Receivable Trust,
Series 96-AA, 6.30%,
07/20/01..................... 1,858,726
------------
TOTAL PRIVATE ASSET BACKED:
RECEIVABLES.................... 16,907,198
------------
REAL ESTATE -- 2.53%
229,278 Daiwa Home Equity Loans,
7.875%, 11/25/19............. 228,384
2,745,280 GE Home Equity Loan, Series
91-1A, 7.20%, 09/15/11....... 2,760,077
901,751 Merrill Lynch Mortgage
Investors, Inc., 10.10%,
11/15/07..................... 937,635
665,783 Merrill Lynch Mortgage
Investors, Inc., 10.35%,
05/15/09..................... 720,077
411,642 Merrill Lynch Mortgage
Investors, Inc., 9.40%,
09/15/09..................... 439,527
434,281 Merrill Lynch Mortgage
Investors, Inc., Series
91-DA, 9.00%, 07/15/11....... 433,312
------------
TOTAL REAL ESTATE.............. 5,519,012
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $161,486,792)............ 162,665,830
------------
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
US TREASURY NOTES -- 10.11%
$ 5,000,000 6.25%, 05/31/99................ $ 5,039,060
5,000,000 5.625%, 10/31/99............... 4,996,875
12,000,000 5.75%, 11/15/00................ 12,022,500
------------
TOTAL US TREASURY NOTES (Cost
$21,987,530)................... 22,058,435
------------
US GOVERNMENT AGENCY SECURITIES -- 4.12%
FEDERAL HOME LOAN MORTGAGE CORP. -- 1.53%
1,568,686 PL# 850082, 9.00%, 10/01/05.... 1,622,678
307,973 REMIC, Series MH-1, 10.15%,
04/15/06..................... 313,603
830,165 PL# D0677, 7.50%, 03/01/08..... 846,195
45,460 PL# 273991, 6.50%, 03/01/13.... 44,778
498,410 PL# 306816, 7.00%, 01/01/18.... 501,515
------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.................. 3,328,769
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.14%
122,508 PL# 6346, 6.75%, 02/01/03...... 122,304
173,249 PL# 137455, 7.00%, 04/01/04.... 173,508
------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION.................... 295,812
------------
OTHER AGENCIES -- 0.73%
850,000 Midstate Trust II, Series A3,
9.35%, 04/01/98.............. 853,485
747,110 Guaranteed Export Certificates,
4.813%, 12/15/98............. 740,958
------------
TOTAL OTHER AGENCIES........... 1,594,443
------------
RESOLUTION TRUST CORP. -- 1.72%
2,414,166 Resolution Trust Corp., 7.94%,
08/25/21..................... 2,433,504
1,309,531 Resolution Trust Corp., 6.74%,
07/25/27..................... 1,327,694
------------
TOTAL RESOLUTION TRUST CORP.... 3,761,198
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $9,051,848)... 8,980,222
------------
FOREIGN GOVERNMENT OBLIGATIONS -- 2.30%
5,000,000 Hydro Quebec, 6.36%, 01/15/02
(Cost $5,072,345)............ 5,019,345
------------
TOTAL SECURITIES (Cost
$197,598,515).................. 198,723,832
------------
</TABLE>
See notes to financial statements.
35
<PAGE> 40
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 8.01%
$17,476,823 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $17,482,551,
01/02/98 (Collateralized by
Federal Home Loan Mortgage
Corp. Adjustable Rate
Mortgage obligations, 7.21%
and 7.72%, due 09/01/23 and
10/01/24, with a total value
of $9,435,998 and $8,914,667,
respectively) (Cost
$17,476,823)................. $ 17,476,823
------------
Total Investments -- 99.10%
(Cost $215,075,338).......... 216,200,655
------------
Other assets less
liabilities -- 0.90%......... 1,968,783
------------
NET ASSETS -- 100.00%.......... $218,169,438
============
</TABLE>
The aggregate cost of investments for federal income tax purposes at December
31, 1997, is $215,075,338.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation......... $ 1,433,161
Gross unrealized depreciation......... (307,844)
------------
Net unrealized appreciation........... $ 1,125,317
===========
</TABLE>
See notes to financial statements.
36
<PAGE> 41
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
US TREASURY NOTES -- 30.40%
$9,000,000 5.25%, 07/31/98................. $ 8,985,933
3,000,000 6.375%, 05/15/99(a)............. 3,027,186
5,000,000 6.00%, 08/15/99................. 5,025,000
7,000,000 7.75%, 12/31/99................. 7,273,434
2,500,000 8.875%, 05/15/00................ 2,675,780
7,000,000 6.25%, 10/31/01(a).............. 7,122,500
5,000,000 6.625%, 03/31/02................ 5,162,500
------------
TOTAL US TREASURY NOTES
(Cost $39,095,380).............. 39,272,333
------------
US GOVERNMENT AGENCY SECURITIES -- 48.94%
FEDERAL HOME LOAN BANK -- 7.92%
5,000,000 6.34%, 03/19/01................. 4,990,340
5,000,000 7.39%, 08/22/01................. 5,237,045
------------
TOTAL FEDERAL HOME LOAN BANK.... 10,227,385
------------
FEDERAL HOME LOAN MORTGAGE CORP. -- 8.64%
3,000,000 REMIC, Series 1574, 6.50%,
02/15/21...................... 3,027,300
5,300,000 REMIC, Series 1500, 7.00%,
06/15/22...................... 5,487,933
1,132,888 REMIC, Series 31, 6.525%,
08/25/23...................... 1,134,893
1,510,504 REMIC, Series 1710, 6.625%,
02/15/24...................... 1,516,536
------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORP............................ 11,166,662
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 7.92%
2,000,000 REMIC, Series 94-75, 7.00%,
01/25/03...................... 2,046,592
3,000,000 6.44%, 06/21/05................. 3,070,677
5,000,000 Series 96-M7, Class B, 6.86%,
06/17/11...................... 5,114,063
------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION..................... 10,231,332
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 17.02%
6,804 PL# 209631, 7.50%, 04/15/02..... 7,005
25,319 PL# 328000, 7.50%, 06/15/07..... 26,071
11,443 PL# 328084, 7.50%, 07/15/07..... 11,782
14,700 PL# 335542, 7.50%, 08/15/07..... 15,137
218,165 PL# 335995, 7.50%, 08/15/07..... 224,642
91,505 PL# 322072, 7.50%, 08/15/07..... 94,222
396,800 PL# 323189, 7.50%, 08/15/07..... 408,580
252,425 PL# 328188, 7.50%, 08/15/07..... 259,919
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(CONTINUED)
$ 447,862 PL# 328192, 7.50%, 08/15/07..... $ 461,157
108,443 PL# 328200, 7.50%, 08/15/07..... 111,663
452,617 PL# 329060, 7.50%, 08/15/07..... 466,054
405,458 PL# 332267, 7.50%, 08/15/07..... 417,495
75,418 PL# 333320, 7.50%, 09/15/07..... 77,657
389,125 PL# 333709, 7.50%, 09/15/07..... 400,677
398,298 PL# 332704, 7.50%, 09/15/07..... 410,122
388,474 PL# 297619, 7.50%, 09/15/07..... 400,007
179,312 PL# 369749, 6.50%, 09/15/08..... 180,096
275,966 PL# 345975, 6.50%, 10/15/08..... 277,174
734,229 PL# 374726, 6.50%, 10/15/08..... 737,442
289,455 PL# 345973, 6.50%, 11/15/08..... 290,721
136,859 PL# 363874, 6.50%, 11/15/08..... 137,458
513,816 PL# 370448, 6.50%, 11/15/08..... 516,064
634,132 PL# 371094, 6.50%, 11/15/08..... 636,907
329,433 PL# 366531, 6.50%, 11/15/08..... 330,874
10,000,000 REMIC, Series 97-2, 7.00%,
06/20/19...................... 10,104,120
4,984,274 PL# 2483, 7.00%, 09/20/27....... 4,990,504
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION............ 21,993,550
------------
HOUSING AND URBAN DEVELOPMENT -- 3.92%
5,000,000 6.23%, 08/01/02................. 5,057,825
------------
STUDENT LOAN MARKETING ASSOCIATION -- 1.55%
2,000,000 6.52%, 09/26/00................. 2,003,644
------------
TENNESSEE VALLEY AUTHORITY -- 1.97%
2,500,000 6.38%, 06/15/05................. 2,550,985
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $62,331,544)... 63,231,383
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 19.59%
US TREASURY BILL -- 4.41%
5,700,000 1.95%, 01/08/98................. 5,697,839
------------
FEDERAL HOME LOAN MORTGAGE CORP. -- 10.00%
2,850,000 5.73%, 01/06/98................. 2,847,732
1,300,000 5.70%, 01/09/98................. 1,298,353
7,000,000 5.73%, 01/14/98................. 6,985,516
1,800,000 5.72%, 01/30/98................. 1,791,706
------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORP............................ 12,923,307
------------
</TABLE>
See notes to financial statements.
37
<PAGE> 42
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<C> <S> <C>
SHORT TERM US GOVERNMENT AGENCY SECURITIES
(CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 5.18%
$ 700,000 5.62%, 01/07/98................. $ 699,344
2,500,000 5.68%, 01/07/98................. 2,497,633
3,300,000 5.45%, 01/16/98................. 3,292,506
200,000 5.47%, 02/05/98................. 198,936
------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION..................... 6,688,419
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES (Cost
$25,309,565).................... 25,309,565
------------
SHARES
- ----------
REGULATED INVESTMENT COMPANY -- 3.10%
4,000,000 Merrimac Cash Fund -- Premium
Class (Cost $4,000,000)(b).... 4,000,000
------------
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C>
TIME DEPOSITS -- 1.13%
$1,227,879 American Express Centurion,
5.90%, 01/21/98(b)............ 1,227,879
233,371 Bank of Boston, N.A., 6.85%,
03/31/98(b)................... 233,371
------------
TOTAL TIME DEPOSITS (Cost
$1,461,250)................... 1,461,250
------------
TOTAL SECURITIES (Cost
$132,197,739)................. 133,274,531
------------
REPURCHASE AGREEMENTS -- 3.94%
5,000,000 With Goldman Sachs & Company
dated 12/31/97, 6.85%,
repurchase proceeds at
maturity $5,001,903
(Collateralized by General
Electric Corp., 6.50%, due
07/24/08, with a value of
$105,227 and Windsor
Petroleum, 7.84%, due
01/15/21, with a value of
$4,962,727) (Cost
$5,000,000)(b)................ 5,000,000
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<C> <S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$87,230 With Investors Bank & Trust dated
12/31/97, 5.90%, repurchase
proceeds at maturity $87,259
(Collateralized by Federal
National Mortgage Association,
6.527%, due 07/01/27, with a
value of $91,592) (Cost $87,230).. $ 87,230
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $5,087,230)................. 5,087,230
------------
Total Investments -- 107.10%
(Cost $137,284,969)............... 138,361,761
Other assets less liabilities --
(7.10)%........................... (9,175,364)
------------
NET ASSETS -- 100.00%............. $129,186,397
============
The aggregate cost of securities for federal income tax purposes at
December 31, 1997, is $137,284,969.
The following amount is based on costs for federal income tax
purposes:
Gross unrealized appreciation.......... $1,146,975
Gross unrealized depreciation.......... (70,183)
------------
Net unrealized appreciation............ $1,076,792
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
See notes to financial statements.
38
<PAGE> 43
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
US GOVERNMENT SECURITIES -- 6.94%
US TREASURY BOND -- 0.57%
$ 2,000,000 6.125%, 11/15/27............... $ 2,055,000
------------
US TREASURY NOTES -- 6.37%
3,000,000 5.625%, 11/30/00 (a)........... 2,994,375
10,000,000 6.625%, 03/31/02............... 10,325,000
10,000,000 3.375%, 01/15/07............... 9,740,620
------------
TOTAL US TREASURY NOTES........ 23,059,995
------------
TOTAL US GOVERNMENT SECURITIES
(Cost $25,275,200)............. 25,114,995
------------
US GOVERNMENT AGENCY SECURITIES -- 9.48%
FEDERAL HOME LOAN BANK -- 1.45%
5,000,000 6.64%, 12/13/16................ 5,231,602
------------
FEDERAL HOME LOAN MORTGAGE CORP. -- 4.45%
3,006,120 Series 1377, 6.63%, 09/15/07... 3,028,756
5,000,000 Series 1666, Class E, 6.00%,
12/15/19..................... 4,968,490
3,398,665 Series 31, 6.53%, 08/25/23..... 3,404,680
4,686,626 Series 1710, 6.63%, 02/15/24... 4,705,339
------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.................. 16,107,265
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.13%
358,358 REMIC Series 1993-219, Class A,
08/25/23 (c)................. 355,625
111,587 PL#250510, 7.00%, 12/01/25..... 112,354
------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION.................... 467,979
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 1.24%
876,327 PL#413611, 7.00%, 01/15/26..... 882,900
960,037 PL#292340, 7.00%, 02/15/26..... 967,237
802,975 PL#373637, 7.00%, 03/15/26..... 808,997
878,474 PL#373622, 7.00%, 03/15/26..... 885,063
925,301 PL#428420, 7.00%, 04/15/26..... 932,241
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION........... 4,476,438
------------
STUDENT LOAN MARKETING ASSOCIATION -- 2.21%
3,000,000 6.52%, 09/26/00................ 3,005,466
5,000,000 Series 1996-2 A2, 5.965%,
07/25/09..................... 4,989,200
------------
TOTAL STUDENT LOAN MARKETING
ASSOCIATION.................... 7,994,666
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$33,267,577)................... 34,277,950
------------
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS & NOTES -- 73.69%
AEROSPACE -- 3.16%
$ 5,000,000 Boeing Company, 8.625%,
11/15/31..................... $ 6,336,855
5,000,000 Lockheed Martin Corp., 6.85%,
05/15/01..................... 5,079,725
------------
TOTAL AEROSPACE................ 11,416,580
------------
AUTOMOTIVE PRODUCTS -- 4.82%
4,000,000 BF Goodrich Company, 8.65%,
04/15/25..................... 4,812,096
5,000,000 Ford Holdings, 9.375%,
03/01/20..................... 6,407,410
5,000,000 General Motors Corp., 8.80%,
03/01/21..................... 6,198,080
------------
TOTAL AUTOMOTIVE PRODUCTS...... 17,417,586
------------
BANKS -- 12.28%
4,000,000 Bank of New York Company,
6.50%, 12/01/03.............. 4,025,584
5,000,000 BankAmerica Corp., 6.625%,
05/30/01..................... 5,068,650
10,000,000 Bankers Trust Company of New
York, 6.75%, 10/03/01........ 10,112,400
5,000,000 Chase Manhattan Corp., 8.00%,
05/01/05..................... 5,025,970
5,000,000 Midland Bank PLC, Floating
Rate, 6.125%, 06/29/49....... 4,179,000
5,000,000 Republic New York Corp., 7.00%,
03/22/11..................... 5,201,860
5,000,000 Societe Generale, 7.85%,
04/29/49..................... 5,255,126
5,000,000 Swiss Bank Corp., 7.75%,
09/01/26..................... 5,552,935
------------
TOTAL BANKS.................... 44,421,525
------------
CONSUMER GOODS AND SERVICES -- 3.33%
5,200,000 Proctor & Gamble Company,
9.36%, 01/01/21.............. 6,678,615
5,000,000 RJR Nabisco, 8.75%, 04/15/04... 5,372,215
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 12,050,830
------------
FINANCE -- 23.60%
10,000,000 Associates Corp., 6.45%,
09/15/00..................... 10,084,579
5,000,000 BT Institutional Capital
Trust -- B, 7.75%,
12/01/26..................... 5,098,510
5,000,000 Capital Equipment Receivables
Trust 96-1 Class B, 6.57%,
03/15/01..................... 5,028,350
</TABLE>
See notes to financial statements.
39
<PAGE> 44
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
FINANCE (CONTINUED)
$ 5,000,000 Cez Finance BV, 7.125%,
07/15/07..................... $ 4,811,531
5,000,000 Chase Capital III Series C,
Floating Rate, 6.363%,
03/01/27..................... 4,813,140
7,040,000 Discover Card Master Trust I,
Series 1994-2 Class A,
Floating Rate, 6.03%,
10/16/04..................... 7,100,403
6,000,000 Dow Capital BV, 9.20%,
06/01/10..................... 7,227,810
5,000,000 General Electric Capital Corp.,
8.50%, 07/24/08.............. 5,809,125
5,000,000 General Motors Acceptance
Corp., Putable Asset Trust,
6.375%, 09/30/98............. 5,013,575
5,000,000 General Motors Acceptance
Corp., 8.40%, 10/15/99....... 5,194,850
4,917,800 Structured Asset Securities
Corp., Series 1996-CFL, Class
A-1C, 5.944%, 02/25/28....... 4,875,851
10,000,000 World Financial Network Credit
Card Master Trust, Series
96-A, Class A, 6.70%,
05/15/06..................... 10,204,800
10,000,000 Xerox Credit Corp., 6.78%,
05/21/01..................... 10,081,570
------------
TOTAL FINANCE.................. 85,344,094
------------
FOOD AND BEVERAGE -- 1.81%
5,000,000 Seagrams (Joseph) & Sons Inc.,
9.65%, 08/15/18.............. 6,559,245
------------
INDUSTRIAL -- 2.78%
5,000,000 Celulosa Arauco Y Constitucion,
6.75%, 12/15/03.............. 4,949,305
5,000,000 ICI Wilmington Inc., 6.75%,
09/15/02..................... 5,089,558
------------
TOTAL INDUSTRIAL............... 10,038,863
------------
INSURANCE -- 2.94%
5,000,000 Aetna Services Inc., 7.625%,
08/15/26..................... 5,278,710
5,000,000 Prudential Insurance Company,
8.10%, 07/15/15.............. 5,350,640
------------
TOTAL INSURANCE................ 10,629,350
------------
LEISURE AND RECREATION -- 2.09%
7,000,000 Marriott International, Inc.,
7.875%, 04/15/05............. 7,548,023
------------
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
OIL AND GAS -- 3.27%
$ 5,000,000 Occidental Petroleum Corp.,
10.125%, 09/15/09............ $ 6,448,250
4,000,000 Texaco Capital Inc., 9.75%,
03/15/20..................... 5,378,136
------------
TOTAL OIL AND GAS.............. 11,826,386
------------
PAPER AND FOREST PRODUCTS -- 2.41%
8,000,000 Westvaco Corp., 10.125%,
06/01/19..................... 8,699,592
------------
PHARMACEUTICALS -- 0.28%
1,000,000 Eli Lilly, 6.77%, 01/01/36..... 1,016,735
------------
TELECOMMUNICATIONS -- 1.45%
5,000,000 GTE South Inc., 7.50%,
03/15/26..................... 5,249,045
------------
TOBACCO -- 1.36%
5,000,000 Universal Corp., 6.50%,
02/15/06..................... 4,918,640
------------
UTILITIES -- 8.11%
10,000,000 Commonwealth Edison Company,
8.125%, 01/15/07............. 10,195,490
5,000,000 Commonwealth Edison Company,
8.50%, 07/15/22.............. 5,418,160
5,000,000 Korea Electric Power Corp.,
7.00%, 02/01/27.............. 3,594,110
5,000,000 Long Island Lighting Company,
9.625%, 07/01/24............. 5,145,315
5,000,000 Philadelphia Electric Company,
5.375%, 08/15/98............. 4,982,604
------------
TOTAL UTILITIES................ 29,335,679
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $256,534,290).......... 266,472,173
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.33%
FEDERAL HOME LOAN MORTGAGE CORP. -- 0.05%
200,000 5.59%, 01/09/98................ 199,752
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.28%
500,000 5.62%, 01/07/98................ 499,532
100,000 5.59%, 01/08/98................ 99,891
400,000 5.75%, 01/27/98................ 398,339
------------
TOTAL FEDERAL NATIONAL MORTGAGE
ASSOCIATION.................... 997,762
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES (Cost
$1,197,514).................... 1,197,514
------------
</TABLE>
See notes to financial statements.
40
<PAGE> 45
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- 7.57%
$ 300,000 American Express Company,
5.60%, 02/02/98.............. $ 298,507
400,000 Associates Corp., 5.71%,
01/15/98..................... 399,111
4,400,000 Bell Atlantic Financial
Services, 6.00%, 01/21/98.... 4,385,333
300,000 Bellsouth Telecom Inc., 6.10%,
01/13/98..................... 299,390
1,400,000 CIT Group Holdings, 5.81%,
01/16/98..................... 1,396,611
2,000,000 Enterprise Funding Corp.,
5.86%, 01/23/98.............. 1,992,838
6,300,000 General Electric Capital Corp.,
5.58%, 01/13/98.............. 6,288,282
2,652,000 Houston Industries Finance,
6.20%, 01/16/98.............. 2,645,149
3,000,000 Lehman Brothers Holdings Inc.,
6.00%, 01/16/98.............. 2,992,500
1,100,000 Sears Roebuck & Company, 5.81%,
01/09/98..................... 1,098,580
2,300,000 Sears Roebuck & Company, 6.14%,
01/09/98..................... 2,296,862
700,000 Sears Roebuck & Company, 5.56%,
01/12/98..................... 698,811
2,600,000 Transamerica Corp., 5.70%,
01/22/98..................... 2,591,355
------------
TOTAL COMMERCIAL PAPER (Cost
$27,383,329)................... 27,383,329
------------
SHORT TERM CORPORATE NOTE -- 0.52%
1,865,000 Capital One Funding Corp.,
5.85%, 04/01/11 (Cost
$1,865,000).................. 1,865,000
------------
SHARES
- -----------
REGULATED INVESTMENT COMPANIES -- 0.38%
1,388,365 Merrimac Cash Fund -- Premium
Class (Cost $1,388,365)
(b).......................... 1,388,365
------------
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
TIME DEPOSITS -- 0.17%
$ 237,095 American Express Centurion
Bank, 5.90%, 01/21/98 (b).... $ 237,095
347,121 BankBoston, N.A., 6.85%,
03/31/98 (b)................. 347,121
47,419 First Union National Bank of
North Carolina, 6.125%,
01/02/98 (b)................. 47,419
------------
TOTAL TIME DEPOSITS (Cost
$631,635)...................... 631,635
------------
TOTAL SECURITIES (Cost
$347,542,910).................. 358,330,961
------------
REPURCHASE AGREEMENT -- 0.03%
97,709 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $97,741, 01/02/98
(Collateralized by Federal
National Mortgage
Association, 8.50%, due
10/01/09 with a value of
$102,992) (Cost $97,709)..... 97,709
------------
Total Investments -- 99.11%
(Cost $347,640,619)............ 358,428,670
Other assets less
liabilities -- 0.89%......... 3,204,215
------------
NET ASSETS -- 100.00%.......... $361,632,885
===========
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $347,640,619.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 12,851,517
Gross unrealized depreciation.......... (2,063,466)
----------
Net unrealized appreciation............ $ 10,788,051
==========
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
</TABLE>
See notes to financial statements.
41
<PAGE> 46
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------
<S> <C> <C>
COMMON STOCK -- 54.39%
AEROSPACE -- 3.69%
114,100 Boeing Company................ $ 5,583,769
42,000 Goodrich BF Company........... 1,740,375
63,050 Northrop Grumman Corp......... 7,250,750
------------
TOTAL AEROSPACE............... 14,574,894
------------
AUTOMOBILES -- 2.17%
141,250 General Motors Corp........... 8,563,281
------------
BANKS -- 5.83%
42,000 Banc One Corp................. 2,281,125
60,050 Citicorp...................... 7,592,572
120,200 NationsBank Corp.............. 7,309,662
17,200 Wells Fargo & Company......... 5,838,325
------------
TOTAL BANKS................... 23,021,684
------------
CHEMICALS -- 4.52%
54,000 Akzo N.V. (ADR)............... 4,691,279
130,000 Du Pont (E.I.) De Nemours..... 7,808,125
120,385 Rhone Poulenc SA (ADR)........ 5,342,084
------------
TOTAL CHEMICALS............... 17,841,488
------------
COMPUTER SOFTWARE AND SERVICES -- 0.59%
80,300 First Data Corp............... 2,348,775
------------
COMPUTERS AND OFFICE EQUIPMENT -- 1.92%
60,050 International Business
Machines Corp............... 6,278,978
65,500 LSI Logic, Inc.(c)............ 1,293,625
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT..................... 7,572,603
------------
DEFENSE -- 1.88%
9,008 Raytheon Company, Class A..... 444,183
138,100 Raytheon Company, Class B..... 6,974,050
------------
TOTAL DEFENSE................. 7,418,233
------------
FINANCE -- 1.37%
51,000 Loews Corp.................... 5,412,375
------------
FOOD AND BEVERAGE -- 1.92%
148,700 Archer Daniels Midland
Company..................... 3,224,931
115,250 Diageo PLC (ADR)(a)........... 4,365,094
------------
TOTAL FOOD AND BEVERAGE....... 7,590,025
------------
LEISURE AND
RECREATION -- 1.02%
205,700 Host Marriott Corp.(a)(c)..... 4,036,863
------------
MACHINERY -- 1.29%
84,050 Case Corp. ................... 5,079,772
------------
<CAPTION>
SHARES VALUE
----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MANUFACTURING -- 5.61%
135,525 Hasbro, Inc. (a).............. $ 4,269,038
187,544 Peninsular & Oriental-SP
(ADR)(a).................... 4,286,224
129,250 Philips Electronics N.V.
(ADR)....................... 7,819,625
96,050 Reynolds Metals Company(a).... 5,763,000
------------
TOTAL MANUFACTURING........... 22,137,887
------------
MEDIA -- 3.08%
154,500 Dun & Bradstreet Corp. ....... 4,779,844
372,100 News Corp., Ltd. (ADR)(a)(c).. 7,395,487
------------
TOTAL MEDIA................... 12,175,331
------------
MEDICAL AND OTHER HEALTH SERVICES -- 2.96%
96,050 American Home Products
Corp. ...................... 7,347,825
6,700 Baxter International,
Inc.(c)..................... 337,931
120,400 Tenet Healthcare Corp.(c)..... 3,988,250
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES...................... 11,674,006
------------
OIL AND GAS -- 4.12%
64,200 Ashland, Inc. ................ 3,446,737
63,300 Elf Aquitaine (ADR)(a)........ 3,710,962
133,500 Union Pacific Resources Group,
Inc......................... 3,237,375
151,400 Unocal Corp. ................. 5,876,213
------------
TOTAL OIL AND GAS............. 16,271,287
------------
PAPER AND FOREST PRODUCTS -- 0.32%
41,300 Boise Cascade Corp. .......... 1,249,325
------------
PHARMACEUTICALS -- 1.92%
158,700 Hoechst AG (ADR)(c)........... 5,564,419
61,000 IMC Global, Inc. ............. 1,997,750
------------
TOTAL PHARMACEUTICALS......... 7,562,169
------------
RETAIL -- 1.17%
107,450 Federated Department Stores,
Inc.(c)..................... 4,627,066
------------
TELECOMMUNICATIONS -- 2.87%
95,200 Motorola, Inc. ............... 5,432,350
204,250 US West Media Group(a)(c)..... 5,897,719
------------
TOTAL TELECOMMUNICATIONS...... 11,330,069
------------
TOBACCO -- 2.35%
204,300 Phillip Morris Companies,
Inc. ....................... 9,257,344
------------
</TABLE>
See notes to financial statements.
42
<PAGE> 47
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TRANSPORTATION -- 3.79%
26,350 AMR Corp.(c).................. $ 3,385,975
60,050 Burlington Northern Santa
Fe.......................... 5,580,897
220,200 Canadian Pacific(a)........... 6,000,450
------------
TOTAL TRANSPORTATION.......... 14,967,322
------------
TOTAL COMMON STOCK (Cost
$200,271,113)................. 214,711,799
------------
REGULATED INVESTMENT COMPANY -- 4.43%
17,500,000 Merrimac Cash Fund -- Premium
Class (Cost
$17,500,000)(b)............. 17,500,000
------------
<CAPTION>
PRINCIPAL
- -----------
<S> <C> <C>
US GOVERNMENT SECURITIES -- 43.24%
US TREASURY BOND -- 7.09%
$ 6,850,000 7.25%, 05/15/16............... 7,798,293
18,050,000 7.875%, 11/15/04.............. 20,176,507
------------
TOTAL US TREASURY BOND........ 27,974,800
------------
US TREASURY NOTE -- 36.15%
19,285,000 8.50%, 02/15/00(a)............ 20,357,728
31,480,000 7.50%, 05/15/02(a)............ 33,614,722
30,625,000 5.75%, 08/15/03(a)............ 30,653,696
17,150,000 6.50%, 05/15/05............... 17,878,875
37,235,000 7.00%, 07/15/06(a)............ 40,202,145
------------
TOTAL US TREASURY NOTE........ 142,707,166
------------
TOTAL US GOVERNMENT SECURITIES
(Cost $165,077,927)........... 170,681,966
------------
TIME DEPOSITS -- 9.08%
12,423,047 American Express Centurian
Bank, 5.90%, 01/21/98(b).... 12,423,047
21,245,797 BankBoston, N.A., 6.85%,
03/31/98(b)................. 21,245,797
2,184,609 First Union National Bank of
North Carolina, 6.125%,
01/02/98(b)................. 2,184,609
------------
TOTAL TIME DEPOSITS (Cost
$35,853,453).................. 35,853,453
------------
SHORT TERM CORPORATE NOTES -- 13.18%
15,000,000 Bear Stearns and Company,
Inc., 6.88%, 07/06/98(b).... 15,000,000
7,013,229 First Union National Bank of
North Carolina, 6.14%,
05/02/98(b)................. 7,013,229
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
SHORT TERM CORPORATE NOTES (CONTINUED)
$13,000,000 JP Morgan Securities Inc.,
6.875%, 04/23/98(b)......... $ 13,000,000
10,000,000 Morgan Stanley Dean Witter,
6.85%, 07/07/98(b).......... 10,000,000
7,000,000 Republic New York Securities
Corp., 6.90%, 04/13/98(b)... 7,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $52,013,229)...... 52,013,229
------------
TOTAL SECURITIES (Cost
$470,715,722)................. 490,760,447
------------
REPURCHASE
AGREEMENTS -- 12.29%
5,450,534 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $5,452,320,
01/02/98 (Collateralized by
Government National Mortgage
Association Adjustable Rate
Mortgage obligation, 7.00%,
due 08/20/23, with a value
of $5,723,404)(b)........... 5,450,534
20,000,000 With Goldman Sachs & Company
dated 12/31/97, 6.85%,
repurchase proceeds at
maturity $20,003,806,
01/02/98, (Collateralized by
Bat Capital Corp., 6.875%,
due 04/15/03, with a value
of $750,366, BT Capital
Trust, 7.90%, due 01/15/27,
with a value of $2,774,664,
Cigna Corp. 7.65%, due
03/01/23, with a value of
$341,872, Ensco
International Inc., 7.20%,
due 11/15/27, with a value
of $185,073, GTE South Inc,
7.25%, due 08/01/02, with a
value of $2,170,365,
Nationsbank Capital Trust
III, 6.30%, due 09/15/27,
with a value of $106,332,
WMC Finance 6.50%, due
11/15/03, with a value of
$14,743,572)(b)............. 20,000,000
</TABLE>
See notes to financial statements.
43
<PAGE> 48
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- -------------
<S> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$23,073,750 With Morgan Stanley Dean
Witter dated 12/31/97,
6.85%, repurchase proceeds
at maturity $23,082,531,
01/02/98, (Collateralized by
Dean Witter Discovery & Co.,
6.25%, due 03/01/00, with a
value of $9,593,182,
Citizens Utilities Company,
7.00%, due 11/01/25 with a
value of $2,784,464, and
Bellsouth Capital Funding
Corp., 7.12%, due 07/15/46,
with a value of
$12,697,476)(b)............. $ 23,073,750
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $48,524,284)............ 48,524,284
------------
Total Investments -- 136.61%
(Cost $519,240,006)........... 539,284,731
Other assets less
liabilities -- (36.61)%....... (144,514,818)
------------
NET ASSETS -- 100.00%......... $ 394,769,913
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $519,355,406.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 24,217,004
Gross unrealized depreciation.......... (4,287,679)
----------
Net unrealized appreciation............ $ 19,929,325
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(c) Non-income producing security
(ADR) -- American Depository Receipt
See notes to financial statements.
44
<PAGE> 49
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------
<S> <C> <C>
COMMON STOCK -- 91.63%
AEROSPACE -- 3.11%
120,000 Northrop Grumman Corp. ...... $ 13,800,000
220,000 Textron, Inc. ............... 13,750,010
140,000 United Technologies ......... 10,193,750
------------
TOTAL AEROSPACE.............. 37,743,760
------------
AUTOMOBILES -- 1.60%
200,000 Ford Motor Company .......... 9,737,500
160,000 General Motors Corp. ........ 9,700,000
------------
TOTAL AUTOMOBILES............ 19,437,500
------------
BANKS -- 11.52%
220,000 Bank of New York............. 12,718,750
220,000 BankAmerica Corp. ........... 16,060,000
160,000 BankBoston Corp. ............ 15,030,000
90,000 Bankers Trust New York
Corp. ..................... 10,119,375
110,000 Chase Manhattan Corp. ....... 12,045,000
270,000 First Union Corp. ........... 13,837,500
70,000 Fleet Financial Group,
Inc.(c).................... 5,245,625
310,000 H. F. Ahmanson & Company..... 20,750,625
160,000 Mellon Bank Corp. ........... 9,700,000
180,000 NationsBank Corp. ........... 10,946,250
40,000 Wells Fargo & Company........ 13,577,500
------------
TOTAL BANKS.................. 140,030,625
------------
CHEMICALS -- 3.35%
300,000 Du Pont (E.I.) de
Nemours(a)................. 18,018,750
260,000 Monsanto Company............. 10,920,000
250,000 Olin Corp.(a)................ 11,718,750
------------
TOTAL CHEMICALS.............. 40,657,500
------------
COMPUTERS AND OFFICE EQUIPMENT -- 5.00%
250,000 General Signal(a)............ 10,546,875
300,000 Harris Corp., Inc.(a)........ 13,762,500
200,000 Pitney Bowes, Inc. .......... 17,987,500
250,000 Xerox Corp. ................. 18,453,125
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 60,750,000
------------
CONSUMER GOODS AND SERVICES -- 7.87%
210,000 Avon Products, Inc. ......... 12,888,750
160,000 Colgate-Palmolive Company.... 11,760,000
300,000 Dana Corp. .................. 14,250,000
100,000 Eastman Kodak Company........ 6,081,250
190,000 Fortune Brands, Inc. ........ 7,041,875
520,000 General Electric Company..... 38,155,000
110,000 Kimberly-Clark Corp.(c)...... 5,424,375
------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 95,601,250
------------
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS -- 4.40%
330,000 AMP, Inc. ................... $ 13,860,000
150,000 Eaton Corp. ................. 13,387,500
280,000 Emerson Electric............. 15,802,500
220,000 Thomas & Betts Corp. ........ 10,395,000
------------
TOTAL ELECTRONICS............ 53,445,000
------------
FINANCE -- 2.59%
250,000 Federal National Mortgage
Association................ 14,265,625
270,000 Washington Mutual, Inc. ..... 17,229,375
------------
TOTAL FINANCE................ 31,495,000
------------
FOOD AND BEVERAGE -- 0.61%
60,000 General Mills, Inc.(c)....... 4,297,500
60,000 Quaker Oats Company.......... 3,165,000
------------
TOTAL FOOD AND BEVERAGE...... 7,462,500
------------
INDUSTRIAL -- 1.33%
140,000 Carpenter Technology......... 6,728,750
220,000 Harsco Corp. ................ 9,487,500
------------
TOTAL INDUSTRIAL............. 16,216,250
------------
INSURANCE -- 3.65%
90,000 CIGNA Corp. ................. 15,575,625
200,000 Lincoln National Corp. ...... 15,625,000
160,000 St. Paul Companies........... 13,130,000
------------
TOTAL INSURANCE.............. 44,330,625
------------
MACHINERY -- 0.89%
220,000 Cooper Industries, Inc. ..... 10,780,000
------------
MANUFACTURING -- 0.68%
100,000 Minnesota Mining &
Manufacturing.............. 8,206,250
------------
MEDICAL AND OTHER HEALTH SERVICES -- 0.91%
220,000 Baxter International,
Inc.(a).................... 11,096,250
------------
METALS AND MINING -- 1.72%
170,000 Freeport McMoran Copper &
Gold -- Class A............ 2,603,125
110,000 Reynolds Metals Company...... 6,600,000
340,000 Timken Company............... 11,687,500
------------
TOTAL METALS AND MINING...... 20,890,625
------------
OIL AND GAS -- 11.88%
100,000 Amoco Corp. ................. 8,512,500
100,000 Atlantic Richfield Company... 8,012,500
111,106 British Petroleum PLC(a)
(ADR)...................... 8,853,759
110,000 Chevron Corp. ............... 8,470,000
</TABLE>
See notes to financial statements.
45
<PAGE> 50
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
200,000 Consolidated Natural Gas..... $ 12,100,000
350,000 Dresser Industries, Inc. .... 14,678,125
200,000 El Paso Natural Gas
Company.................... 13,300,000
190,000 Exxon Corp. ................. 11,625,625
40,000 MCN Energy Group, Inc. ...... 1,615,000
120,000 Mobil Corp. ................. 8,662,500
180,000 Questar Corp. ............... 8,032,500
210,000 Royal Dutch Petroleum........ 11,379,375
170,000 Texaco, Inc. ............... 9,243,750
700,000 Williams Companies,
Inc.(a).................... 19,862,500
------------
TOTAL OIL AND GAS............ 144,348,134
------------
PAPER AND FOREST PRODUCTS -- 1.97%
60,000 Georgia-Pacific Group(a)..... 3,645,000
60,000 Georgia-Pacific Timber
Group(c)................... 1,361,250
130,000 International Paper
Company(a)................. 5,606,250
130,000 Union Camp Corp. ............ 6,979,375
130,000 Weyerhaeuser Company......... 6,378,125
------------
TOTAL PAPER AND FOREST
PRODUCTS..................... 23,970,000
------------
PHARMACEUTICALS -- 7.52%
190,000 American Home Products
Corp. ..................... 14,535,000
140,000 Bristol-Myers Squibb
Company.................... 13,247,500
200,000 Eli Lilly & Company.......... 13,925,000
100,000 Merck & Company, Inc. ....... 10,625,000
160,000 Schering-Plough Corp. ....... 9,940,000
300,000 SmithKline Beecham PLC
(ADR)...................... 15,431,250
110,000 Warner-Lambert Company....... 13,640,000
------------
TOTAL PHARMACEUTICALS........ 91,343,750
------------
PUBLISHING -- 1.34%
220,000 McGraw-Hill Companies,
Inc. ...................... 16,280,000
------------
REAL ESTATE INVESTMENT TRUSTS -- 3.41%
110,000 Bay Apartment Communities.... 4,290,000
160,000 Crescent Real Estate Equity
Company.................... 6,300,000
100,000 Developers Diversified Realty
Corp. ..................... 3,825,000
100,000 Equity Office Properties..... 3,156,250
80,000 Equity Residential
Properties................. 4,045,000
115,000 FelCor Suite Hotels, Inc. ... 4,082,500
200,000 Health Care Property
Investment, Inc. .......... 7,562,500
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
125,000 Irvine Apartment
Communities................ $ 3,976,562
142,000 Public Storage, Inc.(a)...... 4,171,250
------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS....................... 41,409,062
------------
RETAIL -- 1.06%
70,000 J.C. Penney Company, Inc.
.......................... 4,221,875
190,000 Sears Roebuck................ 8,597,500
------------
TOTAL RETAIL................. 12,819,375
------------
TELECOMMUNICATIONS -- 10.37%
200,000 Ameritech Corp.(a)........... 16,100,000
250,000 AT & T Corp.................. 15,312,500
250,000 Bell Atlantic Corp. ......... 22,750,000
240,000 Bellsouth Corp. ............ 13,515,000
310,000 Frontier Corp................ 7,459,375
220,000 GTE Corp. ................... 11,495,000
250,000 SBC Communications, Inc. ... 18,312,500
220,000 Sprint Corp. ................ 12,897,500
180,000 US West, Inc. .............. 8,122,500
------------
TOTAL TELECOMMUNICATIONS..... 125,964,375
------------
TOBACCO -- 1.34%
160,000 Gallaher Group PLC(ADR)...... 3,420,000
285,000 Philip Morris Companies,
Inc. ...................... 12,914,063
------------
TOTAL TOBACCO................ 16,334,063
------------
TRANSPORTATION -- 1.32%
320,000 Norfolk Southern Corp. ...... 9,860,000
100,000 Union Pacific Corp. ......... 6,243,750
------------
TOTAL TRANSPORTATION......... 16,103,750
------------
UTILITIES: ELECTRIC -- 2.19%
190,000 American Electric Power,
Inc.(a).................... 9,808,750
160,000 Carolina Power & Light....... 6,790,000
170,000 FPL Group, Inc. ............. 10,061,875
------------
TOTAL UTILITIES: ELECTRIC.... 26,660,625
------------
TOTAL COMMON STOCK
(Cost $738,064,249).......... 1,113,376,269
------------
PREFERRED STOCK -- 0.56%
95,000 Aetna Inc., 6.25%,
(Cost $8,159,640)(a)....... 6,792,500
------------
REGULATED INVESTMENT COMPANY -- 0.99%
12,055,500 Merrimac Cash Fund -- Premium
Class
(Cost $12,055,500)(b)...... 12,055,500
------------
</TABLE>
See notes to financial statements.
46
<PAGE> 51
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
COMMERCIAL PAPER -- 7.51%
$ 1,200,000 American Express Company,
5.60%, 02/02/98............ $ 1,194,027
1,400,000 Associates Corp. of North
America, 5.52%, 01/12/98... 1,397,639
1,000,000 Avco Financial Services,
5.78%, 03/09/98............ 989,242
2,800,000 Barclays PLC, 5.57%,
01/09/98................... 2,796,534
2,000,000 Bell Atlantic Corp., 5.76%,
01/15/98................... 1,995,520
6,700,000 Bell Atlantic Financial
Services, 6.00%,
01/21/98................... 6,677,667
5,700,000 British Columbia, Province,
5.68%, 02/12/98............ 5,662,228
3,800,000 Conagra, Inc, 6.15%,
01/02/98................... 3,799,351
2,250,000 General Electric Capital
Company, 5.53%, 01/22/98... 2,242,743
1,415,000 General Motors Acceptance
Corp., 5.63%, 01/07/98..... 1,413,672
400,000 General Motors Acceptance
Corp., 5.55%, 01/20/98..... 398,829
2,500,000 Houston Industries Finance,
6.20%, 01/16/98............ 2,493,542
2,886,000 John Hancock Mutual Life
Insurance, 5.63%,
01/14/98................... 2,880,133
2,300,000 Lehman Brothers Holdings,
6.05%, 01/12/98............ 2,295,748
7,000,000 Lehman Brothers Holdings,
6.00%, 01/16/98............ 6,982,500
1,300,000 Lehman Brothers Holdings,
6.20%, 01/30/98............ 1,293,507
2,500,000 Mellon Bank Corp., 5.65%,
02/20/98................... 2,480,382
3,700,000 Merrill Lynch and Company,
Inc., 5.63%, 01/16/98...... 3,691,320
2,900,000 National Rural Utilities,
5.76%, 01/21/98............ 2,890,720
1,700,000 National Rural Utilities,
5.55%, 02/05/98............ 1,690,827
4,000,000 Paccar Financial, 5.56%,
01/12/98................... 3,993,205
1,400,000 Prudential Funding Corp.,
5.62%, 01/06/98............ 1,398,907
6,700,000 Prudential Funding Corp.,
5.59%, 01/07/98............ 6,693,758
3,000,000 Sears Roebuck & Company,
6.14%, 01/09/98............ 2,995,907
PRINCIPAL VALUE
- ----------- ------------
COMMERCIAL PAPER (CONTINUED)
$ 900,000 Sears Roebuck & Company,
5.56%, 01/12/98............ $ 898,471
9,300,000 Texaco, Inc., 6.07%,
01/08/98................... 9,289,023
10,000,000 Union Bancal Corp., 5.78%,
01/12/98................... 9,982,339
700,000 Xerox Corp., 5.73%,
01/09/98................... 699,109
------------
TOTAL COMMERCIAL PAPER
(Cost $91,216,850)........... 91,216,850
------------
TIME DEPOSITS -- 3.35%
13,698,875 American Express Centurion
Bank, 5.90%, 01/21/98(b)... 13,698,875
23,828,381 BankBoston, N.A., 6.85%,
03/31/98(b)................ 23,828,381
3,157,944 First Union National Bank of
North Carolina, 6.125%,
01/02/98(b)................ 3,157,944
------------
TOTAL TIME DEPOSITS
(Cost $40,685,200)........... 40,685,200
------------
SHORT TERM CORPORATE NOTES -- 0.99%
10,000,000 Bear Stearns and Company
Inc., 6.88%, 07/06/98(b)... 10,000,000
2,000,000 JP Morgan Securities, Inc,
6.875%, 04/23/98(b)........ 2,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $12,000,000)..... 12,000,000
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.15%
FEDERAL HOME LOAN MORTGAGE CORP. -- 0.04%
400,000 Federal Home Loan Mortgage
Corp., 5.65%, 01/08/98..... 399,560
100,000 Federal Home Loan Mortgage
Corp., 5.59%, 01/09/98..... 99,876
------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP................ 499,436
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 0.11%
1,400,000 Federal National Mortgage
Association, 5.75%,
01/27/98................... 1,394,186
------------
TOTAL SHORT TERM US
GOVERNMENT AGENCY SECURITIES
(Cost $1,893,622)............ 1,893,622
------------
TOTAL SECURITIES
(Cost $904,075,061).......... 1,278,019,941
------------
</TABLE>
See notes to financial statements.
47
<PAGE> 52
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- --------------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.00%
$ 32,140 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $32,151, 01/02/98
(Collateralized by Federal
Home Loan Mortgage Corp.,
Series 1625, Class FL,
Floating Rate, 5.30%, due
12/15/08, with a value of
$33,747)
(Cost $32,140)............. $ 32,140
--------------
Total Investments -- 105.18%
(Cost $904,107,201).......... 1,278,052,081
--------------
Other assets less
liabilities -- (5.18)%....... (62,980,912)
--------------
NET ASSETS -- 100.00%........ $1,215,071,169
=============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $905,958,654.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $379,724,460
Gross unrealized depreciation.......... (7,631,033)
-----------
Net unrealized appreciation............ $372,093,427
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(c) Non-income producing security
(ADR) -- American Depository Receipts
See notes to financial statements.
48
<PAGE> 53
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------
<S> <C> <C>
COMMON STOCK -- 95.79%
AEROSPACE -- 4.34%
70,600 Boeing Company................... $ 3,454,987
45,300 Lockheed Martin Corp.(a)......... 4,462,050
43,600 Rockwell International Corp...... 2,278,100
------------
TOTAL AEROSPACE.................. 10,195,137
------------
AUTOMOBILES -- 1.96%
130,600 Chrysler Corp.................... 4,595,488
------------
BANKS -- 2.61%
29,400 Chase Manhattan Corp............. 3,219,300
48,100 NationsBank Corp.(c)............. 2,925,081
------------
TOTAL BANKS...................... 6,144,381
------------
CHEMICALS -- 5.68%
48,200 Du Pont (E.I.) de Nemours........ 2,895,012
26,400 Hercules, Inc.................... 1,321,650
72,100 PPG Industries, Inc.............. 4,118,712
111,200 Praxair, Inc..................... 5,004,000
------------
TOTAL CHEMICALS.................. 13,339,374
------------
COMPUTERS AND OFFICE EQUIPMENT -- 8.26%
57,200 Hewlett-Packard Company.......... 3,575,000
70,800 International Business
Machines....................... 7,403,025
93,200 Seagate Technology, Inc.(c)...... 1,794,100
66,600 Sun Microsystems, Inc.(c)........ 2,655,675
53,800 Xerox Corp....................... 3,971,113
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT........................ 19,398,913
------------
CONSTRUCTION -- 1.52%
17,600 Lowe's Companies, Inc............ 839,300
53,500 Masco Corp....................... 2,721,813
------------
TOTAL CONSTRUCTION............... 3,561,113
------------
CONSUMER GOODS AND SERVICES -- 1.46%
69,400 Kimberly-Clark Corp.............. 3,422,287
------------
DEFENSE -- 1.07%
700 Raytheon Company -- Class A(c)... 34,563
49,800 Raytheon Company -- Class B(a)... 2,514,900
------------
TOTAL DEFENSE.................... 2,549,463
------------
ELECTRONICS -- 2.46%
48,400 AMP, Inc......................... 2,032,800
66,200 Emerson Electric................. 3,736,163
------------
TOTAL ELECTRONICS................ 5,768,963
------------
FINANCE -- 0.97%
42,100 American General Corp............ 2,276,031
------------
FOOD AND BEVERAGE -- 3.76%
101,600 Anheuser Busch Companies, Inc.... 4,470,400
201,044 Archer Daniels Midland........... 4,360,142
------------
TOTAL FOOD AND BEVERAGE.......... 8,830,542
------------
<CAPTION>
SHARES VALUE
- --------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
INSURANCE -- 11.21%
62,100 Aetna, Inc....................... $ 4,381,931
42,900 Allstate Corp.................... 3,898,537
61,200 Chubb Corp....................... 4,628,250
28,600 CIGNA Corp....................... 4,949,588
23,100 General Re Corp.................. 4,897,200
25,000 Loews Corp....................... 2,653,125
17,800 UNUM Corp........................ 967,875
------------
TOTAL INSURANCE.................. 26,376,506
------------
MEDIA -- 1.45%
82,000 Viacom, Inc. Class B(c).......... 3,397,875
------------
MEDICAL AND OTHER HEALTH SERVICES -- 2.20%
37,800 Baxter International, Inc........ 1,906,538
52,000 Columbia/HCA Healthcare Corp..... 1,540,500
83,300 Humana, Inc.(c).................. 1,728,475
------------
TOTAL MEDICAL AND OTHER HEATH
SERVICES......................... 5,175,513
------------
MACHINERY -- 1.80%
45,100 Crown Cork & Seal, Inc........... 2,260,637
33,800 Deere & Company.................. 1,970,963
------------
TOTAL MACHINERY.................. 4,231,600
------------
METALS AND MINING -- 2.19%
35,600 Aluminum Company of America...... 2,505,350
89,700 Newmont Mining................... 2,634,937
------------
TOTAL METALS AND MINING.......... 5,140,287
------------
OIL AND GAS -- 11.83%
51,300 Amerada Hess Corp.(a)............ 2,815,088
24,500 Amoco Corp....................... 2,085,562
24,300 Atlantic Richfield Company....... 1,947,037
7,600 Baker Hughes, Inc................ 331,550
41,000 Burlington Resources, Inc........ 1,837,313
21,900 Dresser Industries, Inc.......... 918,431
89,000 Enron Corp....................... 3,699,063
140,200 Occidental Petroleum............. 4,109,613
43,900 Tenneco, Inc..................... 1,734,050
29,500 Texaco, Inc...................... 1,604,062
90,200 Union Pacific Resources
Group(a)....................... 2,187,350
116,900 Unocal Corp...................... 4,537,181
------------
TOTAL OIL AND GAS................ 27,806,300
------------
PAPER AND FOREST
PRODUCTS -- 3.28%
48,900 Champion International........... 2,215,781
97,500 Fort James Corp.................. 3,729,375
17,800 International Paper Company...... 767,625
20,200 Weyerhauser Company(c)........... 991,063
------------
TOTAL PAPER AND FOREST
PRODUCTS....................... 7,703,844
------------
</TABLE>
See notes to financial statements.
49
<PAGE> 54
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- --------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS -- 2.72%
26,000 Abbott Laboratories.............. $ 1,704,625
61,200 American Home Products Corp...... 4,681,800
------------
TOTAL PHARMACEUTICALS............ 6,386,425
------------
PUBLISHING -- 0.44%
16,700 Gannett Company, Inc............. 1,032,269
------------
RESTAURANTS -- 1.45%
71,200 McDonald's Corporation........... 3,399,800
------------
RETAIL -- 7.05%
56,700 American Stores Company.......... 1,165,894
70,800 Dillards, Inc. Class A........... 2,495,700
127,200 F.W. Woolworth Company(c)........ 2,591,700
68,700 Federated Department Stores(c)... 2,958,394
39,700 May Department Stores............ 2,091,694
116,200 Sears Roebuck.................... 5,258,050
------------
TOTAL RETAIL..................... 16,561,432
------------
SEMICONDUCTORS -- 0.87%
78,900 National Semiconductor
Corp.(c)....................... 2,046,469
------------
TELECOMMUNICATIONS -- 4.48%
25,785 Bell Atlantic Corp............... 2,346,435
91,000 GTE Corp......................... 4,754,750
17,300 SBC Communications, Inc.......... 1,267,225
54,147 Tele-Communications, Inc. Series
A (c).......................... 1,512,732
22,300 US West Media Group(a)(c)........ 643,911
------------
TOTAL TELECOMMUNICATIONS......... 10,525,053
------------
TIRE AND RUBBER -- 0.99%
36,500 Goodyear Tire & Rubber Company... 2,322,313
------------
TRANSPORTATION -- 6.32%
137,100 Allied Signal, Inc............... 5,338,331
34,000 Burlington Northern Santa Fe..... 3,159,875
88,800 CSX Corp......................... 4,795,200
25,000 Union Pacific Corp............... 1,560,937
------------
TOTAL TRANSPORTATION............. 14,854,343
------------
UTILITIES: ELECTRIC -- 3.42%
15,800 Consolidated Edison of N.Y....... 647,800
66,300 Pacificorp....................... 1,810,819
52,900 Southern Company................. 1,368,788
101,300 Texas Utilities Company.......... 4,210,281
------------
TOTAL UTILITIES: ELECTRIC........ 8,037,688
------------
TOTAL COMMON STOCK
(Cost $219,425,083).............. 225,079,409
------------
<CAPTION>
SHARES VALUE
- --------- ------------
<S> <C> <C>
REGULATED INVESTMENT COMPANY -- 2.68%
6,300,000 Merrimac Cash Fund -- Premium
Class (Cost $6,300,000)(b)..... $ 6,300,000
------------
<CAPTION>
PRINCIPAL
- ---------
<C> <S> <C>
TIME DEPOSITS -- 0.52%
$ 884,284 American Express Centurion Bank,
5.90%, 1/21/98(b).............. 884,284
185,352 BankBoston, N.A., 6.85%,
3/31/98(b)..................... 185,352
164,264 First Union National Bank of
North Carolina, 6.125%,
1/2/98(b)...................... 164,264
------------
TOTAL TIME DEPOSITS
(Cost $1,233,900)................ 1,233,900
------------
TOTAL SECURITIES
(Cost $226,958,983).............. 232,613,309
------------
REPURCHASE AGREEMENT -- 3.94%
9,250,647 With Investors Bank & Trust dated
12/31/97, 5.90%, repurchase
proceeds at maturity
$9,253,679, 01/02/98
(Collateralized by various
Government National Mortgage
Association obligations,
7.00% -- 7.50%, due 12/20/10 to
02/20/26, with a total value of
$9,713,349) (Cost
$9,250,647).................... 9,250,647
------------
Total Investments -- 102.93%
(Cost $236,209,630).............. 241,863,956
Other assets less
liabilities -- (2.93)%........... (6,880,241)
------------
NET ASSETS -- 100.00%............ $234,983,715
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $237,026,930.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 12,846,032
Gross unrealized depreciation.......... (8,009,006)
-----------
Net unrealized appreciation $ 4,837,026
===========
</TABLE>
- ---------------
(a) All or part of the security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
See notes to financial statements.
50
<PAGE> 55
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK -- 99.33%
ADVERTISING -- 0.91%
68,900 Interpublic Group, Inc. ....... $ 3,432,081
------------
AEROSPACE -- 1.36%
82,100 Textron, Inc. ................. 5,131,250
------------
APPAREL -- 3.51%
141,200 CVS Corp. ..................... 9,045,625
38,900 Jones Apparel Group, Inc.(c)... 1,672,700
59,700 Liz Claiborne.................. 2,496,206
------------
TOTAL APPAREL.................. 13,214,531
------------
BANKS -- 7.35%
16,700 Associates First Capital
Corp.(c)..................... 1,187,787
123,900 BankAmerica Corp. ............. 9,044,700
44,700 Comerica, Inc. ................ 4,034,175
15,900 Fifth Third Bancorp............ 1,299,825
68,200 First Chicago NBD(a)(c)........ 5,694,700
208,400 MBNA Corp. .................... 5,691,925
1,200 Southtrust Corp.(c) ........... 76,125
9,000 Suntrust Banks, Inc. .......... 642,375
------------
TOTAL BANKS.................... 27,671,612
------------
COMPUTER SOFTWARE AND SERVICES -- 9.89%
72,300 BMC Software, Inc.(c).......... 4,744,688
115,900 Computer Associates
International, Inc.(a)....... 6,128,212
82,300 Compuware Corp.(c)............. 2,633,600
116,400 HBO & Company.................. 5,587,200
72,400 Microsoft Corp.(c)............. 9,357,700
60,100 Parametric Technology
Corp.(c)..................... 2,847,237
150,200 Peoplesoft(a)(c)............... 5,857,800
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 37,156,437
------------
COMPUTERS AND OFFICE EQUIPMENT -- 4.12%
74,800 Compaq Computer................ 4,221,525
69,500 CompUSA, Inc.(c)............... 2,154,500
39,100 Dell Computer Corp.(c)......... 3,284,400
139,700 EMC Corp.(c)................... 3,833,019
22,300 Pitney Bowes, Inc.(c).......... 2,005,606
------------
TOTAL COMPUTER AND OFFICE
EQUIPMENT...................... 15,499,050
------------
CONSUMER GOODS AND SERVICES -- 9.11%
115,900 Cendant Corp.(c)............... 3,984,063
62,600 Clorox Company................. 4,949,313
59,700 Colgate-Palmolive Company...... 4,387,950
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
CONSUMER GOODS AND SERVICES (CONTINUED)
174,300 General Electric Company....... $ 12,789,263
102,400 Proctor & Gamble Company(a).... 8,172,800
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 34,283,389
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.96%
91,600 USA Waste Services,
Inc.(a)(c)................... 3,595,300
------------
FINANCE -- 4.33%
99,600 American Express Company....... 8,889,300
38,000 Franklin Resources, Inc. ...... 3,303,625
69,100 Morgan Stanley Dean Witter..... 4,085,538
------------
TOTAL FINANCE.................. 16,278,463
------------
FOOD AND BEVERAGE -- 4.40%
52,200 Campbell Soup Company.......... 3,034,125
138,800 Coca-Cola Enterprises,
Inc.(a)...................... 4,936,075
80,800 Conagra, Inc. ................. 2,651,250
42,200 Safeway, Inc.(c)............... 2,669,150
57,800 Sara Lee Corp. ................ 3,254,863
------------
TOTAL FOOD AND BEVERAGE........ 16,545,463
------------
INSURANCE -- 6.71%
52,000 American International
Group(a)..................... 5,655,000
97,700 Conseco, Inc. ................. 4,439,244
162,997 Travelers, Inc. ............... 8,781,463
99,700 Washington Mutual, Inc. ....... 6,362,106
------------
TOTAL INSURANCE................ 25,237,813
------------
LEISURE AND RECREATION -- 2.49%
74,200 Carnival Corp. Class A......... 4,108,825
76,100 Marriott International,
Inc. ........................ 5,269,925
------------
TOTAL LEISURE AND RECREATION... 9,378,750
------------
MACHINERY -- 0.91%
84,700 Ingersoll-Rand Company......... 3,430,350
------------
MANUFACTURING -- 3.16%
70,400 Masco Corp. ................... 3,581,600
184,100 Tyco International LTD......... 8,296,006
------------
TOTAL MANUFACTURING............ 11,877,606
MEDIA -- 3.77%
169,900 CBS Corp. ..................... 5,001,431
148,300 Gannett Company, Inc. ......... 9,166,794
------------
TOTAL MEDIA.................... 14,168,225
------------
</TABLE>
See notes to financial statements.
51
<PAGE> 56
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MEDICAL AND OTHER HEALTH SERVICES -- 2.56%
43,000 Cardinal Health, Inc. ......... $ 3,230,375
165,600 Healthsouth Corp.(a)(c)........ 4,595,400
46,900 Quintiles Transnational
Corp.(c)..................... 1,793,925
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 9,619,700
OIL AND GAS -- 6.05%
91,500 Exxon Corp. ................... 5,598,656
135,500 Halliburton Company............ 7,037,531
44,200 Mobil Corp. ................... 3,190,688
86,200 Schlumberger Ltd. ............. 6,939,100
------------
TOTAL OIL AND GAS.............. 22,765,975
------------
PHARMACEUTICALS -- 11.03%
91,300 Bristol-Myers Squibb Company... 8,639,263
59,500 Eli Lilly & Company............ 4,142,688
55,300 Merck & Company, Inc. ......... 5,875,625
119,600 Pfizer, Inc. .................. 8,917,675
94,000 Schering-Plough Corp. ......... 5,839,750
65,300 Warner Lambert Company......... 8,097,200
------------
TOTAL PHARMACEUTICALS.......... 41,512,201
------------
REAL ESTATE INVESTMENT TRUST -- 0.45%
29,500 Starwood Lodging Trust(a)...... 1,707,313
------------
RETAIL -- 9.28%
82,900 Consolidated Stores Corp.(c)... 3,642,419
130,100 Costco Companies, Inc.(c)...... 5,805,712
67,900 Dayton-Hudson Corp. ........... 4,583,250
36,900 Estee Lauder Companies Class
A............................ 1,898,044
49,400 Home Depot, Inc. .............. 2,908,425
115,300 TJX Companies, Inc. ........... 3,963,437
203,300 Wal-Mart Stores, Inc. ......... 8,017,644
131,200 Walgreen Company............... 4,116,400
------------
TOTAL RETAIL................... 34,935,331
------------
TELECOMMUNICATIONS -- 6.23%
52,300 Ericsson L M Telephone
(ADR)(c)..................... 1,951,444
50,100 Lucent Technologies............ 4,001,737
50,600 SBC Communications, Inc.(c).... 3,706,450
124,700 Sprint Corp. .................. 7,310,537
106,500 Tele-Communications TCI
Ventures Group(c)............ 3,015,280
65,700 Tellabs, Inc.(a)(c)............ 3,473,888
------------
TOTAL TELECOMMUNICATIONS....... 23,459,336
------------
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
SEMICONDUCTORS -- 0.75%
62,900 Texas Instruments.............. $ 2,830,500
------------
TOTAL COMMON STOCK (Cost
$304,976,073).................. 373,730,676
REGULATED INVESTMENT COMPANIES -- 0.50%
1,900,000 Merrimac Cash Fund -- Premium
Class (Cost $1,900,000)(b)... 1,900,000
------------
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C>
COMMERCIAL PAPER -- 2.13%
$ 8,000,000 Republic New York Securities
Corp., 6.90%, 04/13/98 (Cost
$8,000,000)(b)............... 8,000,000
------------
TIME DEPOSITS -- 5.21%
3,465,233 American Express Centurion
Bank, 5.90%, 01/21/98(b)..... 3,465,233
693,047 First Union National Bank of
North Carolina, 6.125%,
01/02/98(b).................. 693,047
15,464,720 BankBoston, N.A., 6.85%,
03/31/98(b).................. 15,464,720
------------
TOTAL TIME DEPOSITS (Cost
$19,623,000)................... 19,623,000
------------
TOTAL SECURITIES (Cost
$334,499,073).................. 403,253,676
------------
REPURCHASE AGREEMENT -- 1.59%
5,974,470 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $5,976,427, 01/02/98
(Collateralized by Government
National Mortgage
Association, 7.00%, due
01/20/23 with a value of
$6,273,514) (Cost
$5,974,470).................. 5,974,470
------------
Total Investments -- 108.76%
(Cost $340,473,543)............ 409,228,146
Other assets less
liabilities -- (8.76)%......... (32,967,738)
------------
NET ASSETS -- 100.00%.......... $376,260,408
===========
</TABLE>
See notes to financial statements.
52
<PAGE> 57
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<S> <C>
The aggregate cost of investments for federal income tax
purposes at December 31, 1997, is $340,575,121.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 70,366,212
Gross unrealized depreciation.......... (1,713,187)
Net unrealized appreciation............ $ 68,653,025
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
(ADR) American Depository Receipt
See notes to financial statements.
53
<PAGE> 58
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK -- 95.16%
AEROSPACE -- 0.99%
83,600 Sundstrand Corp. .............. $ 4,211,350
------------
BANKS -- 6.26%
106,000 BankAmerica Corp. ............. 7,738,000
67,200 Citicorp....................... 8,496,600
172,200 Nationsbank Corp. ............. 10,471,912
------------
TOTAL BANKS.................... 26,706,512
------------
CHEMICALS -- 5.01%
161,900 Imperial Chemical Industries
Plc (ADR)(a)................. 10,513,381
50,500 Monsanto Company............... 2,121,000
108,400 W.R. Grace & Company........... 8,719,425
------------
TOTAL CHEMICALS................ 21,353,806
------------
COMPUTER SOFTWARE AND SERVICES -- 14.00%
151,950 Cisco Systems, Inc. ........... 8,471,212
231,200 HBO & Company(a)............... 11,097,600
99,600 Microsoft Corp.(c)............. 12,873,300
343,400 PeopleSoft, Inc.(a)(c)......... 13,392,600
133,600 Textron, Inc. ................. 8,350,000
157,600 3 Com Corp. ................... 5,506,150
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 59,690,862
------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.02%
152,400 Compaq Computer Corp. ......... 8,601,075
------------
CONSUMER GOODS AND SERVICES -- 15.70%
163,100 Avon Products, Inc. ........... 10,010,262
367,674 Cendant Corp. ................. 12,638,804
147,100 Colgate-Palmolive Company...... 10,811,850
184,300 General Electric Company....... 13,523,012
95,100 Gillette Company............... 9,551,606
281,700 Service Corporate
International................ 10,405,294
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 66,940,828
------------
FOOD AND BEVERAGE -- 2.95%
188,600 Coca-Cola Company.............. 12,565,475
------------
FINANCE -- 2.42%
74,300 SLM Holding Corp. ............. 10,336,987
------------
INSURANCE -- 5.09%
201,300 Conseco, Inc.(a)............... 9,146,569
233,243 Travelers, Inc.(a)............. 12,565,967
------------
TOTAL INSURANCE................ 21,712,536
------------
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
LEISURE AND RECREATION -- 2.86%
269,600 Hilton Hotels Corp. ........... $ 8,020,600
184,300 Mirage Resorts, Inc.(a)........ 4,192,825
------------
TOTAL LEISURE AND RECREATION... 12,213,425
------------
MEDIA -- 2.53%
173,700 Time Warner, Inc. ............. 10,769,400
------------
MEDICAL AND OTHER HEALTH SERVICES -- 2.35%
160,900 Guidant Corp. ................. 10,016,025
------------
OIL AND GAS -- 2.12%
148,900 Anadarko Petroleum Corp. ...... 9,036,369
------------
PHARMACEUTICALS -- 14.17%
184,000 Eli Lilly & Company............ 12,811,000
245,100 Glaxo Wellcome Plc (ADR)(a).... 11,734,163
147,100 Pfizer, Inc. .................. 10,968,144
197,100 Schering-Plough Corp. ......... 12,244,838
102,000 Warner-Lambert Company......... 12,648,000
------------
TOTAL PHARMACEUTICALS.......... 60,406,145
------------
RETAIL -- 6.53%
60,000 Dayton-Hudson Corp. ........... 4,050,000
155,800 Home Depot, Inc. .............. 9,172,725
63,900 Kohls Corp. ................... 4,353,188
214,800 TJX Companies, Inc. ........... 7,383,750
90,900 Toys "R" Us, Inc. ............. 2,857,669
------------
TOTAL RETAIL................... 27,817,332
------------
SEMICONDUCTORS -- 2.25%
136,300 Intel Corp.(a)................. 9,575,075
------------
TELECOMMUNICATIONS -- 5.94%
391,160 Tele-Communications, Inc.,
Series A(c).................. 10,928,032
142,700 Tellabs, Inc. ................. 7,545,262
226,500 Worldcom, Inc. ................ 6,851,625
------------
TOTAL TELECOMMUNICATIONS....... 25,324,919
------------
TOBACCO -- 1.97%
185,500 Philip Morris Companies,
Inc. ........................ 8,405,469
------------
TOTAL COMMON STOCK (Cost
$327,003,268).................. 405,683,590
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
REGULATED INVESTMENT COMPANIES -- 3.40%
14,500,000 Merrimac Cash Fund -- Premium
Class (Cost
$14,500,000)(b)............. $ 14,500,000
-------------
</TABLE>
See notes to financial statements.
54
<PAGE> 59
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ----------- -------------
<S> <C> <C>
SHORT TERM CORPORATE NOTES -- 3.75%
$ 6,000,000 JP Morgan Securities, Inc.
Floating Rate, 6.875%,
04/23/98(b)................. $ 6,000,000
10,000,000 Morgan Stanley Dean Witter
Floating Rate, 6.85%,
07/07/98(b)................. 10,000,000
-------------
TOTAL SHORT TERM CORPORATE
NOTE (Cost $16,000,000)....... 16,000,000
-------------
TIME DEPOSITS -- 1.29%
4,226,720 American Express Centurion
Bank, 5.90%, 01/21/98(b).... 4,226,720
518,636 Bank of Boston, N.A., 6.85%,
03/31/98(b)................. 518,636
765,344 First Union National Bank of
North Carolina, 6.125%,
01/02/98(b)................. 765,344
-------------
TOTAL TIME DEPOSITS (Cost
$5,510,700)................... 5,510,700
-------------
TOTAL SECURITIES (Cost
$363,013,968)................. 441,694,290
-------------
REPURCHASE AGREEMENT -- 4.65%
$19,802,348 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $19,808,839,
01/02/98 (Collaterized by
Federal Home Loan Mortgage
Corp., 7.778%, due 04/01/24
with a value of $3,340,131
and by Government National
Mortgage Association
obligations, 6.875% and
7.00%, due 10/20/22 and
06/20/26, with a total value
of $17,452,459) (Cost
$19,802,348)................ $ 19,802,348
-------------
Total Investments -- 108.25%
(Cost $382,816,316)........... 461,496,638
Other assets less
liabilities -- (8.25)%........ (35,184,450)
-------------
NET ASSETS -- 100.00%......... $ 426,312,188
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $382,846,115.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 85,962,380
Gross unrealized depreciation.......... (7,311,857)
-----------
Net unrealized appreciation............ $ 78,650,523
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
(ADR) -- American Depository Receipts
See notes to financial statements.
55
<PAGE> 60
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK -- 94.02%
ADVERTISING -- 0.88%
179,400 Snyder Communications,
Inc.(c)...................... $ 6,548,100
------------
AEROSPACE -- 0.76%
146,600 AAR Corp....................... 5,680,750
------------
BANKS -- 6.74%
64,080 CCB Financial Corp............. 6,888,600
111,793 Charter One Financials, Inc.... 7,056,932
45,600 Citicorp(a).................... 5,765,550
26,676 First Republic Bank(c)......... 851,965
125,600 First Savings Bank of
Washington................... 3,454,000
163,079 HUBCO, Inc..................... 6,380,466
68,455 Mercantile Bancorporation...... 4,209,982
116,400 NSS Bancorp, Inc.(a)........... 4,394,100
165,000 Peoples Bank(a)................ 6,270,000
95,000 Riverview Bancorp, Inc......... 1,686,250
145,400 Sterling Financial Corp.(c).... 3,162,450
------------
TOTAL BANKS.................... 50,120,295
------------
BROKERAGE -- 0.22%
39,000 Charles Schwab & Company,
Inc.......................... 1,635,562
------------
BUSINESS SERVICES -- 1.85%
92,700 ABM Industries, Inc............ 2,833,144
64,600 Alternative Resources
Corp.(c)..................... 1,489,838
46,100 American Business
Information(a)(c)............ 472,525
96,000 F.Y.I., Inc.(c)................ 2,208,000
50,500 Iron Mountain, Inc.(c)......... 1,818,000
51,600 Manpower, Inc.................. 1,818,900
48,400 MARC, Inc...................... 871,200
196,200 Protection One, Inc.(a)........ 2,219,512
------------
TOTAL BUSINESS SERVICES........ 13,731,119
------------
CHEMICALS -- 0.29%
52,400 Chemed Corp.................... 2,171,325
------------
COMMUNICATIONS -- 2.03%
194,300 Arch Communications Group,
Inc.(c)...................... 995,788
34,500 Caribiner International,
Inc.(a)(c)................... 1,535,250
66,100 Davox Corp.(a)(c).............. 2,156,512
149,100 Jones Intercable, Inc. -- Class
A............................ 2,618,569
121,100 PMT Services, Inc.(c).......... 1,680,263
55,400 Powerwave Technologies,
Inc.(c)...................... 931,413
72,440 Registry, Inc.(a)(c)........... 3,323,185
86,175 Saga Communications, Inc.(c)... 1,831,219
------------
TOTAL COMMUNICATIONS........... 15,072,199
------------
COMPUTER AND SOFTWARE SERVICES -- 9.87%
96,000 Affiliated Computer Services,
Inc. -- Class A(c)........... 2,526,000
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMPUTER AND SOFTWARE SERVICES
(CONTINUED)
102,900 America Online, Inc.(a)(c)..... $ 9,177,394
69,400 American Business Information,
Inc. -- Class A(c)........... 728,700
112,900 Box Hill Systems Corp.(c)...... 1,178,394
72,700 CACI International, Inc.(c).... 1,440,369
132,900 Cambridge Technology Partners,
Inc.(a)(c)................... 5,531,962
29,900 Complete Business Solutions,
Inc.(c)...................... 1,300,650
72,100 Computer Horizons
Corp.(a)(c).................. 3,280,550
121,088 Concord EFS, Inc.(c)........... 3,012,052
36,100 Data Transmission Network
Corp.(c)..................... 1,010,800
76,300 Documentum, Inc.(c)............ 3,214,138
117,600 Electronic Arts, Inc.(c)....... 4,446,750
30,300 HNC Software, Inc.(a)(c)....... 1,302,900
74,400 IDX Systems Corp.(a)(c)........ 2,752,800
88,500 Information Management
Resources, Inc.(c)........... 3,318,750
50,900 JDA Software Group, Inc.(c).... 1,781,500
8,500 National Computer System,
Inc.......................... 299,625
132,000 Network Appliance, Inc.(c)..... 4,686,000
264,700 Sterling Commerce, Inc.(c)..... 10,174,406
38,050 Technology Solutions
Company(c)................... 1,003,569
84,350 Veritas Software Corp.(c)...... 4,301,850
64,900 Viasoft, Inc.(a)(c)............ 2,742,025
18,300 Whittman-Hart, Inc.(c)......... 626,775
87,650 Wind River Systems(a)(c)....... 3,478,609
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 73,316,568
------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.34%
66,500 Apex PC Solutions,
Inc.(a)(c)................... 1,471,312
63,200 Bay Networks, Inc.(c).......... 1,615,550
71,900 CIBER, Inc.(c)................. 4,170,200
63,200 Cisco Systems, Inc.(c)......... 3,523,400
38,300 Comverse Technology,
Inc.(a)(c)................... 1,493,700
103,800 National Data Corp............. 3,749,775
105,900 Neomagic Corp.(c).............. 1,350,225
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 17,374,162
------------
CONSTRUCTION -- 0.19%
147,500 Michael Baker Corp.(c)......... 1,438,125
------------
CONSUMER GOODS AND SERVICES -- 2.12%
90,700 Carriage Services, Inc.(c)..... 1,723,300
</TABLE>
See notes to financial statements.
56
<PAGE> 61
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
CONSUMER GOODS AND SERVICES
(CONTINUED)
317,601 Cendant Corp.(a)(c)............ $ 10,917,529
30,400 Glacier Water Services,
Inc.(c)...................... 942,400
135,900 Helen of Troy Ltd.(c).......... 2,191,388
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 15,774,617
------------
EDUCATION -- 0.41%
136,825 ITT Educational Services,
Inc.(c)...................... 3,052,908
------------
ELECTRONICS -- 3.83%
16,400 Galileo Technology
Ltd.(a)(c)................... 473,550
52,950 Hughes Supply, Inc............. 1,849,941
141,400 ILC Technology, Inc.(c)........ 2,050,300
22,800 Jaco Electronics, Inc.(c)...... 142,500
54,500 LSI Industries Inc............. 994,625
100,750 Remec, Inc.(c)................. 2,266,875
29,030 Richardson Electronics, Ltd.... 322,959
105,000 Rogers Corp.(c)................ 4,291,875
51,300 Sanmina Corp.(a)(c)............ 3,475,575
79,000 Sawtek, Inc.(c)................ 2,083,625
309,300 Sensormatic Electronics
Corp.(a)..................... 5,084,119
54,000 Sipex Corp.(c)................. 1,633,500
117,600 Teradyne, Inc.(c).............. 3,763,200
------------
TOTAL ELECTRONICS.............. 28,432,644
------------
ENGINEERING -- 0.22%
107,000 URS Corp.(c)................... 1,665,188
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 2.53%
158,900 Allied Waste Industries,
Inc.(c)...................... 3,704,356
154,600 American Disposal Services,
Inc.(c)...................... 5,642,900
83,030 BHA Group, Inc................. 1,619,085
96,300 Superior Services, Inc.(c)..... 2,780,662
181,970 Tetra Tech, Inc.(c)............ 3,639,400
75,900 Waste Industries, Inc.(c)...... 1,413,638
------------
TOTAL ENVIRONMENTAL MANAGEMENT
SERVICES....................... 18,800,041
------------
EQUIPMENT RENTAL AND LEASING -- 1.92%
97,500 Aaron Rents, Inc. -- Class B... 1,889,063
95,800 Alrenco, Inc.(a)(c)............ 1,568,725
140,000 Amplicon, Inc.................. 2,310,000
67,500 Electro Rent Corp.(c).......... 2,413,125
59,700 Rental Service
Corporation(c)............... 1,466,381
79,000 XTRA Corp...................... 4,631,375
------------
TOTAL EQUIPMENT RENTAL AND
LEASING........................ 14,278,669
------------
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FINANCE -- 4.21%
259,800 Allied Capital Advisers,
Inc.(c)...................... $ 1,623,750
101,600 Allied Capital Commercial
Corp......................... 3,352,800
35,000 Allied Capital Corp............ 1,010,625
112,292 Allied Capital Lending
Company(a)................... 2,498,497
33,100 American Express Company....... 2,954,175
71,500 Amresco, Inc.(c)............... 2,162,875
134,400 Cash American Investments,
Inc.......................... 1,738,800
137,100 ContiFinancial Corp.(a)(c)..... 3,453,206
54,450 Dollar Tree Stores, Inc.(c).... 2,252,869
77,900 Kansas City Southern
Industries, Inc.............. 2,473,325
189,200 The Money Store, Inc.(a)....... 3,973,200
60,000 Washington Mutual, Inc......... 3,828,750
------------
TOTAL FINANCE.................. 31,322,872
------------
FOOD AND BEVERAGE -- 3.22%
99,900 Benihana, Inc.(c).............. 1,298,700
80,150 CKE Restaurants, Inc........... 3,376,319
147,100 Landry's Seafood
Restaurants(c)............... 3,530,400
97,100 Rainforest Cafe Inc.(c)........ 3,204,300
238,300 Ruby Tuesday, Inc.(c).......... 6,136,225
48,025 Suiza Foods Corporation(c)..... 2,860,489
82,200 Sylvan, Inc.(c)................ 1,150,800
46,700 Whole Foods Market, Inc.(c).... 2,387,538
------------
TOTAL FOOD AND BEVERAGE........ 23,944,771
------------
INSURANCE -- 1.19%
54,700 HCC Insurance Holdings, Inc.... 1,162,375
38,600 National Western Life
Insurance -- Class A(c)...... 3,917,900
36,900 Penn Treaty American
Corp.(c)..................... 1,171,575
208,800 Willis Corroon Group (ADR)(a).. 2,570,850
------------
TOTAL INSURANCE................ 8,822,700
------------
LEISURE AND RECREATION -- 0.93%
79,500 CapStar Hotel Company(c)....... 2,727,844
83,400 Harveys Casinos Resorts........ 1,730,550
110,900 Signature Resorts,
Inc.(a)(c)................... 2,425,938
------------
TOTAL LEISURE AND RECREATION... 6,884,332
------------
</TABLE>
See notes to financial statements.
57
<PAGE> 62
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MACHINERY -- 0.44%
207,600 JLG Industries, Inc............ $ 2,932,350
19,000 K-Tron International,
Inc.(c)...................... 327,750
------------
TOTAL MACHINERY................ 3,260,100
------------
MANUFACTURING -- 6.03%
44,900 ADE Corporation(c)............. 785,750
200,600 Alpha Industries, Inc.(c)...... 3,234,675
139,000 Blyth Industries, Inc.(a)(c)... 4,161,312
190,900 C&D Technologies, Inc.......... 9,210,925
124,150 Cable Design Technologies(c)... 4,826,331
69,000 Chase Industries, Inc.(c)...... 1,759,500
78,500 DT Industries, Inc............. 2,669,000
47,200 Edelbrock Corp.(c)............. 802,400
139,800 Lydall, Inc.(c)................ 2,726,100
154,600 Mail-Well, Inc.(a)(c).......... 6,261,300
117,800 MotivePower Industries,
Inc.(a)(c)................... 2,738,850
74,900 Motorcar Parts and Accessories,
Inc.(c)...................... 1,254,575
83,600 Rock of Ages Corp.(c).......... 1,295,800
54,100 Scotsman Industries, Inc....... 1,322,069
73,250 Watsco, Inc.................... 1,808,359
------------
TOTAL MANUFACTURING............ 44,856,946
------------
MEDIA -- 4.84%
85,000 American Radio Systems
Corp.(c)..................... 4,531,563
82,400 Chancellor Media Corporation --
Class A(a)(c)................ 6,149,100
69,400 Consolidated Graphics,
Inc.(c)...................... 3,235,775
188,900 Emmis Broadcasting Corp. --
Class A(c)................... 8,618,562
165,900 Granite Broadcasting
Corp.(a)(c).................. 1,503,469
46,000 Gray Communications Systems,
Inc.(a)...................... 1,207,500
171,000 Houghton Mifflin Company....... 6,562,125
282,900 Steck Vaughn Publishing
Corp.(c)..................... 4,172,775
------------
TOTAL MEDIA.................... 35,980,869
------------
MEDICAL AND OTHER HEALTH SERVICES -- 8.01%
53,000 Advanced Health Corp.(a)(c).... 841,375
207,000 Advocat, Inc.(c)............... 1,759,500
77,900 Assisted Living Concepts,
Inc.(a)(c)................... 1,538,525
55,900 BioChem Pharma, Inc.(a)(c)..... 1,166,912
173,300 Daniel Industries.............. 3,336,025
45,300 DAOU Systems, Inc.(c).......... 1,415,625
28,900 ESC Medical Systems Ltd.
(a)(c)....................... 1,119,875
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MEDICAL AND OTHER HEALTH
SERVICES (CONTINUED)
95,500 Gulf South Medical Supply,
Inc.(c)...................... $ 3,557,375
63,100 Horizon Health Corp.(c)........ 1,467,075
27,900 Immunex Corp.(c)............... 1,506,600
64,000 Lifeline Systems, Inc.(c)...... 1,608,000
98,600 Mariner Health Group,
Inc.(c)...................... 1,602,250
56,500 Medirisk, Inc.(c).............. 621,500
138,000 Morrison Health Care, Inc...... 2,760,000
51,200 National Dentex Corp.(c)....... 1,126,400
17,200 NBTY, Inc.(c).................. 574,050
79,600 Orthodontic Centers of America,
Inc.(a)(c)................... 1,323,350
285,000 Owens & Minor Holding Company.. 4,132,500
120,500 Prime Medical Service,
Inc.(c)...................... 1,664,406
47,600 Quintiles Transnational
Corp.(a)(c).................. 1,820,700
82,700 Quorum Health Group, Inc.(c)... 2,160,538
128,300 Renal Treatment Centers,
Inc.(c)...................... 4,634,838
61,600 Res-Care, Inc.(a)(c)........... 1,786,400
69,400 Retirement Care Associates,
Inc.(c)...................... 589,900
29,900 Summit Care Corp.(c)........... 489,612
74,100 Sunrise Assisted Living,
Inc.(c)...................... 3,195,562
232,800 Universal Health Services --
Class B (c).................. 11,727,300
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 59,526,193
------------
METALS AND MINING -- 0.67%
85,200 Furon Company.................. 1,778,550
88,500 Maverick Tube Corp.(a)(c)...... 2,240,156
30,300 Wolverine Tube, Inc.(c)........ 939,300
------------
TOTAL METALS AND MINING........ 4,958,006
------------
OIL AND GAS -- 5.19%
101,600 Berry Petroleum................ 1,771,650
41,000 Gulf Island Fabrication,
Inc.(c)...................... 820,000
35,900 Gulfmark Offshore, Inc.(c)..... 1,184,700
87,900 Halter Marine Group, Inc.(c)... 2,538,112
120,500 Hanover Compressor Company(c).. 2,462,719
36,900 Key Energy Group, Inc.(c)...... 800,269
272,500 Newpark Resources, Inc.(c)..... 4,768,750
58,300 Patterson Energy, Inc.(a)(c)... 2,255,481
96,200 Petroleum Helicopters, Inc..... 2,164,500
144,200 Pool Energy Services(c)........ 3,208,450
50,400 Pride International, Inc.(c)... 1,272,600
216,700 Tosco Corp..................... 8,193,969
</TABLE>
See notes to financial statements.
58
<PAGE> 63
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
98,200 Tuboscope, Inc.(c)............. $ 2,362,938
149,500 Varco International, Inc.(c)... 3,204,906
76,050 World Fuel Services Corp....... 1,597,050
------------
TOTAL OIL AND GAS.............. 38,606,094
------------
PHARMACEUTICALS -- 1.95%
64,600 Applied Analytical Industries,
Inc.(c)...................... 1,065,900
95,600 Dura Pharmaceuticals,
Inc.(a)(c)................... 4,385,650
88,100 NCS HealthCare, Inc. -- Class
A(a)(c)...................... 2,323,638
128,100 Parexel International
Corp.(a)(c).................. 4,739,700
82,100 Vitalink Pharmacy
Services(c).................. 1,980,662
------------
TOTAL PHARMACEUTICALS.......... 14,495,550
------------
REAL ESTATE INVESTMENT TRUST -- 1.50%
58,369 Chateau Communities, Inc....... 1,838,624
131,200 Equity Inns, Inc............... 1,935,200
40,900 Health Care Property
Investments, Inc............. 1,546,531
20,700 National Health Investors,
Inc.......................... 866,812
89,600 RFS Hotel Investors, Inc....... 1,786,400
55,200 Sovran Self Storage, Inc....... 1,790,550
38,300 Sun Communities, Inc........... 1,376,406
------------
TOTAL REAL ESTATE INVESTMENT
TRUST.......................... 11,140,523
------------
RETAIL -- 2.42%
139,350 Consolidated Stores Corp.(c)... 6,122,691
200,000 Fingerhut Companies, Inc....... 4,275,000
175,000 MacFrugals Bargains Close-
Outs(c)...................... 7,196,875
141,100 Michael Anthony Jewelers,
Inc.(c)...................... 343,931
16,100 Uni-Marts, Inc................. 56,350
------------
TOTAL RETAIL................... 17,994,847
------------
SECURITY -- 1.16%
215,000 Pittston Brink's Group......... 8,653,750
------------
SEMICONDUCTORS -- 0.72%
59,700 Integrated Circuit Systems,
Inc.(c)...................... 1,701,450
33,100 Kulicke & Soffa
Industries(c)................ 616,488
79,900 Vitesse Semiconductor
Corp.(c)..................... 3,016,225
------------
TOTAL SEMICONDUCTORS........... 5,334,163
------------
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS -- 9.00%
127,900 Airtouch Communications,
Inc.(c)...................... $ 5,315,844
139,475 Centennial Cellular Corp. --
Class A(c)................... 2,859,238
53,800 CFW Communications Company..... 1,203,775
213,200 CIENA Corp.(c)................. 13,031,850
90,400 Comdial Corp.(c)............... 836,200
42,900 CommNet Cellular, Inc.(c)...... 1,525,631
177,000 Communications Central,
Inc.(c)...................... 1,781,062
78,000 Davel Communications Group(c).. 1,989,000
51,300 ITC DeltaCom, Inc.(c).......... 846,450
38,700 Lucent Technologies, Inc....... 3,091,162
143,190 Metrocall, Inc.(c)............. 707,000
82,400 Nextel Communications, Inc. --
Class A(a)(c)................ 2,142,400
28,000 NICE-Systems Ltd.(c)........... 1,176,000
98,500 Nokia Corp. (ADR).............. 6,895,000
271,800 Omnipoint Corp.(c)............. 6,319,350
147,000 P-COM, Inc.(c)................. 2,535,750
225,800 Peoples Telephone Company,
Inc.(c)...................... 832,637
84,700 Rural Cellular Corp. --
Class A(c)................... 1,106,394
105,500 Tekelec(c)..................... 3,217,750
127,900 Teleport Communications Group,
Inc. -- Class A(a)(c)........ 7,018,512
10,300 Teligent, Inc. -- Class A(c)... 253,638
93,800 World Access, Inc.(c).......... 2,239,475
------------
TOTAL TELECOMMUNICATIONS....... 66,924,118
------------
TRANSPORTATION: FREIGHT -- 5.50%
185,700 Air Express International
Corp......................... 5,663,850
215,000 Airborne Freight Corp.......... 13,356,875
240,700 Circle International Group,
Inc.......................... 5,521,056
148,700 CNF Transportation, Inc........ 5,706,362
115,474 Fritz Companies, Inc.(a)(c).... 1,609,419
265,350 Pittston Burlington Group...... 6,965,437
65,000 Sea Containers Ltd............. 2,080,000
------------
TOTAL TRANSPORTATION:
FREIGHT........................ 40,902,999
------------
UTILITIES: ELECTRIC -- 0.84%
850,000 El Paso Electric Company(c).... 6,215,625
------------
TOTAL COMMON STOCK (Cost
$551,357,368).................. 698,916,730
------------
</TABLE>
See notes to financial statements.
59
<PAGE> 64
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
REGULATED INVESTMENT COMPANY -- 4.88%
36,306,135 Merrimac Cash Fund -- Premium
Class(b)(Cost $36,306,135)... $ 36,306,135
------------
PRINCIPAL
- -----------
TIME DEPOSITS -- 5.16%
$12,121,941 American Express Centurion
Bank, 5.90%, 01/21/98(b)..... 12,121,941
23,588,722 BankBoston, N.A., 6.85%,
03/31/98(b).................. 23,588,722
2,644,388 First Union National Bank of
North Carolina, 6.12%,
01/02/98(b).................. 2,644,388
------------
TOTAL TIME DEPOSITS (Cost
$38,355,051)................... 38,355,051
------------
FLOATING RATE NOTES -- 5.11%
17,986,771 First Union National Bank of
North Carolina, 6.14%,
05/02/98(b).................. 17,986,771
15,000,000 JP Morgan Securities Inc.,
6.875%, 04/23/98 (b)......... 15,000,000
5,000,000 Republic New York Securities
Corp., 6.90%, 04/13/98(b).... 5,000,000
------------
TOTAL FLOATING RATE NOTES (Cost
$37,986,771)................... 37,986,771
------------
TOTAL SECURITIES (Cost
$664,005,325).................. 811,564,687
------------
REPURCHASE AGREEMENTS -- 6.13%
11,647,312 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $11,651,130,
01/02/98 (Collateralized by
various Government National
Mortgage Association
Obligations, 6.875 -- 9.000%,
maturity dated 11/15/21 to
12/20/23, with a total value
of $12,230,019).............. 11,647,312
4,714,481 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $4,716,026, 01/02/98
(Collateralized by Government
National Mortgage
Association, 6.875%, due
10/20/25 with a value of
$4,950,215).................. 4,714,481
<CAPTION>
PRINCIPAL VALUE
- ----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$ 5,871,466 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $5,873,391, 01/02/98
(Collateralized by Government
National Mortgage
Association, 7.00%, due
01/20/26 with a value of
$6,165,154).................. $ 5,871,466
18,518,211 With Investors Bank & Trust
dated 12/31/97, 5.90%,
repurchase proceeds at
maturity $18,524,280,
01/02/98 (Collateralized by
various Federal Home Loan
Mortgage Corporation
Obligations, 7.325 -- 7.881%,
maturity dated 03/01/20 to
01/01/25, with a total value
of $19,444,301).............. 18,518,211
4,800,000 With Morgan Stanley, dated
12/31/97, 5.75%, repurchase
proceeds at maturity
$4,801,533, 01/02/98
(Collateralized by US
Treasury Bill 5.30%, due
09/17/98, with a value of
$4,896,264).................. 4,800,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $45,551,470)............. 45,551,470
------------
Total Investments -- 115.30%
(Cost $709,556,795)............ 857,116,157
Other assets less
liabilities -- (15.30)%........ (113,727,896)
------------
NET ASSETS -- 100.00%.......... $743,388,261
===========
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $714,059,387.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $167,591,877
Gross unrealized depreciation.......... (24,535,107)
-----------
Net unrealized appreciation............ $143,056,770
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
(ADR) -- American Depository Receipt
See notes to financial statements.
60
<PAGE> 65
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -----------
<S> <C> <C>
COMMON STOCK -- 76.87%
BANKS -- 4.44%
20,600 Dime Bancorp, Inc. .............. $ 623,150
7,525 Northern Trust................... 524,869
------------
TOTAL BANKS...................... 1,148,019
------------
COMPUTER SOFTWARE AND SERVICES -- 9.94%
9,000 BMC Software, Inc. .............. 590,625
18,000 Compuware Corp. ................. 576,000
16,550 Infinium Software, Inc. ......... 268,938
4,900 Microsoft Corp. ................. 633,325
12,000 Siebel Systems, Inc. ............ 501,750
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES......................... 2,570,638
------------
COMPUTERS AND OFFICE EQUIPMENT -- 7.54%
11,775 Cisco Systems, Inc.(c)........... 656,456
9,500 Compaq Computer.................. 536,156
9,000 Dell Computer Corp. ............. 756,000
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT........................ 1,948,612
------------
CONSUMER GOODS AND SERVICES -- 8.22%
20,300 Cendant Corp. ................... 697,813
6,550 General Electric Company......... 480,606
4,750 Gillette Company................. 477,078
5,875 Proctor & Gamble Company......... 468,898
------------
TOTAL CONSUMER GOODS AND
SERVICES......................... 2,124,395
------------
ELECTRONICS -- 2.44%
15,200 Solectron Corp. ................. 631,750
------------
FINANCIAL SERVICES -- 6.15%
5,525 American Express Company......... 493,106
8,825 Federal National Mortgage
Association(c)................. 503,577
11,025 Travelers Inc. .................. 593,972
------------
TOTAL FINANCIAL SERVICES......... 1,590,655
------------
FOOD AND BEVERAGE -- 1.91%
10,830 Sysco Corp. ..................... 493,442
------------
INSURANCE -- 2.69%
6,400 American International Group..... 696,000
------------
LEISURE AND RECREATION -- 4.61%
10,000 Marriott International, Inc. .... 692,500
5,050 Walt Disney Company.............. 500,266
------------
TOTAL LEISURE AND RECREATION..... 1,192,766
------------
MANUFACTURING -- 2.16%
15,000 Mattel Inc. ..................... 558,750
------------
MEDICAL AND OTHER HEALTH SERVICES -- 8.05%
15,000 Arterial Vascular Engineering.... 975,000
10,200 Guidant Corp. ................... 634,950
9,000 Medtronics Inc.(c)............... 470,812
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES......................... 2,080,762
------------
<CAPTION>
SHARES VALUE
- ---------- -----------
<S> <C> <C>
COMMON STOCK (CONTINUED)
OIL & GAS -- 1.97%
14,500 Falcon Drilling Company, Inc. ... $ 508,406
------------
PHARMACEUTICALS -- 10.49%
7,600 Bristol-Myers Squibb Company..... 719,150
11,050 Eli Lilly & Company.............. 769,356
4,825 Merck & Company, Inc. ........... 512,656
9,550 Pfizer, Inc. .................... 712,072
------------
TOTAL PHARMACEUTICALS............ 2,713,234
------------
RETAIL -- 4.63%
18,150 Gap Stores....................... 643,191
9,400 Home Depot Inc. ................ 553,425
------------
TOTAL RETAIL..................... 1,196,616
------------
SEMICONDUCTOR -- 1.63%
6,000 Intel Corporation................ 421,500
------------
TOTAL SECURITIES
(Cost $17,881,771)............... 19,875,545
------------
<CAPTION>
PRINCIPAL
- ----------
<S> <C> <C>
REPURCHASE AGREEMENT -- 25.37%
$6,561,291 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at maturity
$6,563,442, 01/02/98
(Collateralized by Government
National Mortgage Association
Adjustable Rate Mortgage,
7.00%, due 7/20/25 with a value
of $6,641,653 and Government
National Mortgage Association,
9.00%, due 11/15/21 with a
value of $247,721)
(Cost $6,561,291).............. 6,561,291
------------
Total Investments -- 102.24%
(Cost $24,443,062)............... 26,436,836
Other assets less
liabilities -- (2.24)%........... (579,186)
------------
NET ASSETS -- 100.00%............ $25,857,650
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $24,486,266.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation........... $ 2,232,619
Gross unrealized depreciation........... (282,049)
----------
Net unrealized appreciation............. $ 1,950,570
===========
</TABLE>
- ---------------
(c) Non-income producing security.
See notes to financial statements.
61
<PAGE> 66
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- -----------
<S> <C> <C>
CORPORATE BONDS AND NOTES -- 97.38%
ADVERTISING -- 2.76%
$ 500,000 Lamar Advertising, 9.625%,
12/01/06....................... $ 538,125
525,000 Outdoor Systems, Inc., 9.375%,
10/15/06....................... 559,125
------------
TOTAL ADVERTISING................ 1,097,250
------------
APPAREL -- 1.06%
400,000 William Carter, 10.375%,
12/01/06....................... 420,000
------------
AUTOMOTIVE PRODUCTS -- 6.19%
420,000 Blue Bird Body, 10.75%,
11/15/06....................... 450,450
625,000 Chief Auto Parts Inc., 10.50%,
05/15/05....................... 612,500
700,000 Delco Remy International. Inc.,
8.625%, 12/15/07............... 709,625
700,000 Venture Holdings Trust, 9.75%,
04/01/04....................... 684,250
------------
TOTAL AUTOMOTIVE PRODUCTS........ 2,456,825
------------
BUSINESS SERVICES -- 4.11%
350,000 Atrium Companies, Inc., 10.50%,
11/15/06....................... 368,375
700,000 Axiohm Transaction Solutions,
9.75%, 10/1/07................. 712,250
500,000 Iron Mountain, 10.125%,
10/01/06....................... 550,000
------------
TOTAL BUSINESS SERVICES.......... 1,630,625
------------
CHEMICALS -- 2.84%
625,000 PCI Chemicals Canada Inc., 9.25%,
10/15/07....................... 615,625
500,000 Sterling Chemicals, Inc., 11.75%,
08/15/06....................... 510,000
------------
TOTAL CHEMICALS.................. 1,125,625
------------
CONSUMER GOODS AND SERVICES -- 3.75%
750,000 Amscan Holdings Inc., 9.875%,
12/15/07....................... 766,875
700,000 Huntsman Packaging Corp., 9.125%,
10/01/07....................... 721,000
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 1,487,875
------------
ELECTRONICS -- 2.37%
900,000 Insilco Corp., 10.25%,
08/15/07....................... 942,750
------------
FINANCE -- 2.45%
500,000 Imperial Credit Industries, Inc.,
9.875%, 01/15/07............... 490,000
460,000 Muzak LP/Capital, 10.00%,
10/01/03....................... 483,000
------------
TOTAL FINANCE.................... 973,000
------------
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
FOOD AND BEVERAGE -- 5.36%
$ 500,000 Ameriking, Inc., 10.75%,
12/01/06....................... $ 525,000
100,000 Cott Corp., 9.375%, 07/01/05..... 104,000
325,000 Delta Beverage Group, 9.75%,
12/15/03....................... 338,000
275,000 Fleming Companies Inc., 10.50%,
12/01/04....................... 288,062
625,000 Gorges/Quik To Fix Food, 11.50%,
12/01/06....................... 659,375
225,000 Pueblo Xtra International, 9.50%,
08/01/03....................... 213,750
------------
TOTAL FOOD AND BEVERAGE.......... 2,128,187
------------
INDUSTRIAL -- 21.56%
300,000 AEI Holding Co., 10.00%,
11/15/07....................... 308,250
725,000 American Lawyer Media Inc.,
9.75%, 12/15/07................ 735,875
700,000 Anker Coal Group, Inc., 9.75%,
10/01/07....................... 703,500
700,000 Burke Industries, Inc., 10.00%,
08/15/07....................... 719,250
300,000 Clark Material, 10.75%,
11/15/06....................... 318,750
500,000 Elgin National Industries,
11.00%, 11/01/07............... 518,750
625,000 Environdyne Industries, Inc.,
10.25%, 12/01/01............... 615,625
250,000 Gaylord Container Corp., 9.75%,
6/15/07........................ 242,500
650,000 Hydrochem Industrial Service,
10.375%, 08/01/07.............. 671,125
625,000 International Logistics Ltd.,
9.75%, 10/15/07................ 618,750
600,000 Outdoor Communications, 9.25%,
08/15/07....................... 612,000
450,000 Pierce Leahy Corp., 9.125%,
07/15/07....................... 468,000
175,000 Portola Packaging, 10.75%,
10/01/05....................... 185,063
625,000 Pronet, Inc., 11.875%,
06/15/05....................... 671,875
228,000 Rayovac Corp., 10.25%,
11/01/06....................... 248,520
300,000 Scotsman Group Inc., 8.625%,
12/15/07....................... 300,750
625,000 Southwest Royalties Inc., 10.50%,
10/15/04....................... 621,875
------------
TOTAL INDUSTRIAL................. 8,560,458
------------
</TABLE>
See notes to financial statements.
62
<PAGE> 67
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
LEISURE AND RECREATION -- 4.44%
$ 200,000 Act III Theatres, 11.875%,
02/01/03....................... $ 213,000
525,000 Cinemark USA, 9.625%, 08/01/08... 544,688
900,000 Riddell Sports, Inc., 10.50%,
07/15/07....................... 924,750
75,000 Station Casinos, 10.125%,
03/15/06....................... 79,125
------------
TOTAL LEISURE AND RECREATION..... 1,761,563
------------
MACHINERY -- 4.13%
130,000 Carrols Corp., 11.50%,
08/15/03....................... 137,800
875,000 Central Tractor Farm & Country,
10.625%, 04/01/07.............. 923,125
530,000 Clark USA, Inc., 10.875%,
12/01/05....................... 577,700
------------
TOTAL MACHINERY.................. 1,638,625
------------
MANUFACTURING -- 9.49%
625,000 Acetex Corp, 9.75%, 10/01/03..... 643,750
450,000 DVI, Inc., 9.875%, 02/01/04...... 469,125
625,000 Dyersburg Corp., 9.75%,
09/01/07....................... 653,125
700,000 Fedders North America, 9.375%,
8/15/07........................ 714,000
625,000 Keystone Consolidated Industries,
9.625%, 08/01/07............... 627,344
500,000 Safelite Glass, 9.875%,
12/15/06....................... 532,500
125,000 Windy Hill Pet Food Co., 9.75%,
05/15/07....................... 127,500
------------
TOTAL MANUFACTURING.............. 3,767,344
------------
MEDIA -- 1.83%
350,000 LDM Technologies, 10.75%,
01/15/07....................... 381,500
125,000 Rogers Cablesystems, Ltd.,
11.00%, 12/01/15............... 144,375
190,000 Rogers Cantel, 9.375%,
06/01/08....................... 199,500
------------
TOTAL MEDIA...................... 725,375
------------
METALS AND MINING -- 1.83%
180,000 Oregon Steel Mills, 11.00%,
06/15/03....................... 195,075
500,000 Renco Metals Senior Notes,
11.50%, 07/01/03............... 531,250
------------
TOTAL METALS AND MINING.......... 726,325
------------
OIL AND GAS -- 5.17%
200,000 Coho Energy Inc., 8.875%,
10/15/07....................... 200,500
420,000 Costilla Energy, 10.25%,
10/01/06....................... 438,900
700,000 Panaco Inc., 10.625%, 10/01/04... 707,000
700,000 Rutherford-Moran Oil, 10.75%,
10/1/04........................ 707,000
------------
TOTAL OIL AND GAS................ 2,053,400
------------
<CAPTION>
PRINCIPAL VALUE
- ---------- ------------
<S> <C> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS -- 15.77%
$ 525,000 Adelphia Communications, 9.875%,
03/01/05....................... $ 554,531
700,000 Allbritton Communications, 9.75%,
11/30/07....................... 717,500
350,000 Century Communications, 9.75%,
02/15/02....................... 371,875
1,000,000 Communications Instrument,
10.00%, 09/15/04............... 1,000,000
500,000 Gray Communication System, Inc.,
10.625%, 10/01/06.............. 541,250
500,000 Jacor Communications, 9.75%,
12/15/06....................... 531,875
100,000 Lenfest Communications, 8.375%,
11/01/05....................... 103,125
400,000 Lenfest Communications, 10.50%,
06/15/06....................... 445,000
700,000 Nextlink Communications, 9.625%,
10/01/07....................... 724,500
625,000 Paging Network,10.125%,
08/01/07....................... 650,000
625,000 Rogers Communications, 8.875%,
07/15/07....................... 625,000
------------
TOTAL TELECOMMUNICATIONS......... 6,264,656
------------
TEXTILES -- 1.36%
550,000 CMI Industries, 9.50%,
10/01/03....................... 540,375
TRANSPORTATION -- 0.65%
248,000 Viking Star Shipping, 9.625%,
07/15/03....................... 260,400
------------
UTILITIES: ELECTRIC -- 0.26%
100,000 Calpine Corp., 9.25%, 02/01/04... 102,000
------------
TOTAL SECURITIES
(Cost $37,853,692)............... 38,662,658
------------
</TABLE>
See notes to financial statements.
63
<PAGE> 68
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ---------- -----------
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.44%
$ 173,760 With Investors Bank & Trust,
dated 12/31/97, 5.90%,
repurchase proceeds at maturity
$173,817, 01/02/98
(Collateralized by Government
National Mortgage Association,
7.00%, due 08/20/23 with a
value of $183,047) (Cost
$173,760)...................... $ 173,760
------------
Total Investments -- 97.82% (Cost
$38,027,452)..................... 38,836,418
Other assets less liabilities --
2.18%............................ 863,713
------------
NET ASSETS -- 100.00%............ $39,700,131
============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $38,027,452
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 937,512
Gross unrealized depreciation.......... (128,546)
------------
Net unrealized appreciation............ $ 808,966
============
</TABLE>
See notes to financial statements.
64
<PAGE> 69
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------ -------
<S> <C> <C> <C>
COMMON STOCKS -- 92.40%
AEROSPACE -- 1.22%
88,000 British Aerospace PLC..... $ 2,512,189 UK
------------
APPAREL -- 0.57%
29,000 Gucci Group N.V. ......... 1,167,308 NET
------------
AUTOMOBILE -- 4.58%
12,000 Daimler Benz.............. 842,249 GER
36,000 Honda Motor Company,
Ltd. .................... 1,326,244 JPN
67,000 Mitsubishi Motor Corp. ... 226,728 JPN
3,800,000 Mitsubishi Motors Warrants
(expire 6/23/99)(c)...... 30,598 JPN
18,000 Peugeot SA................ 2,270,995 FRA
151,000 Suzuki Motor Corp. ....... 1,370,385 JPN
32,000 Toyota Motor Company...... 920,464 JPN
20,187 Valeo SA.................. 1,369,767 FRA
1,850 Volkswagen AG............. 1,041,243 GER
------------
TOTAL AUTOMOBILE.......... 9,398,673
------------
BANKS -- 10.01%
137,900 Allied Irish Banks PLC.... 1,317,621 UK
185,000 Australia & New Zealand
Bank Group, Ltd. ........ 1,222,258 AUS
8,000 Banco Popular Espanola
SA....................... 558,998 SPA
385,000 Bank of Scotland.......... 3,547,467 UK
8,000 Credit Suisse Group....... 1,239,586 SWI
25,000 Deutsche Bank AG(c)....... 1,765,808 GER
78,300 Forenings Sparbanken --
Class A(c)............... 1,781,255 SWE
1,860 Holderbank Financial
Glaris -- Class B........ 1,520,084 SWI
112,136 National Westminster
Bank..................... 1,867,221 UK
167,800 Royal Bank of Scotland
Group PLC................ 2,134,231 UK
130,000 Sumitomo Bank(a).......... 1,489,748 JPN
219,900 Thai Farmers Bank......... 399,602 THA
266,000 Westpac Banking Corp. .... 1,701,256 AUS
------------
TOTAL BANKS............... 20,545,135
------------
CHEMICALS -- 1.05%
500 Mitsubishi Chemical
Corp.(c)................. 719 JPN
43,800 Norsk Hydro ASA........... 2,135,876 NOR
300 Norsk Hydro AS (ADR)(c)... 15,300 NOR
------------
TOTAL CHEMICALS........... 2,151,895
------------
COMPUTER SOFTWARE AND SERVICES -- 0.18%
14,100 Softbank Corp.(a)......... 368,709 JPN
------------
CONSTRUCTION -- 1.49%
200,000 Okumura Corp. ............ 476,840 JPN
16,000 Rohm Company, Ltd. ....... 1,636,656 JPN
145,000 Sekisui House, Ltd. ...... 935,642 JPN
------------
TOTAL CONSTRUCTION........ 3,049,138
------------
CONSUMER GOODS AND SERVICES -- 6.38%
22,000 Fuji Photo Film........... 846,017 JPN
43,500 Hennes & Mauritz.......... 1,918,868 SWE
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER GOODS AND
SERVICES (CONTINUED)
40,000 Hoya Corp. ............... $ 1,261,332 JPN
24,000 Izumi..................... 111,672 JPN
16,200 Loewen Group, Inc. ....... 418,163 USA
221,000 Nikon Corp. .............. 2,192,629 JPN
12,200 Nintendo Corp., Ltd. ..... 1,201,035 JPN
12,000 Orkla Asa -- Class B...... 934,321 NOR
113,203 Reckitt and Colman PLC.... 1,778,815 UK
10,700 Sony Corp. ............... 954,613 JPN
380,000 Storehouse PLC............ 1,475,578 UK
------------
TOTAL CONSUMER GOODS AND
SERVICES.................. 13,093,043
------------
ELECTRONICS -- 4.01%
350 ABB AG.................... 440,334 SWI
400,000 Caradon PLC............... 1,164,920 UK
80,000 Electrocomponents PLC..... 596,288 UK
50,000 Hitachi, Ltd. ............ 357,630 JPN
29,500 Kyocera Corp. ............ 1,343,165 JPN
47,000 Murata Manufacturing
Company, Ltd. ........... 1,185,650 JPN
114,000 NEC Corp. ................ 1,218,717 JPN
60,000 Tokyo Electron, Ltd. ..... 1,928,916 JPN
------------
TOTAL ELECTRONICS......... 8,235,620
------------
ENGINEERING -- 0.20%
18,700 Chudenko Corp. ........... 409,895 JPN
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.01%
900 Kurita Water Industries... 9,206 JPN
------------
FINANCE -- 4.76%
63,000 De Beers Centenary AG
(ADR)(a)................. 1,287,562 SOA
55,953 Lend Lease Corp., Ltd. ... 1,093,708 AUS
63,000 Lloyds TSB Group PLC...... 815,799 UK
70,000 Newcourt Credit Group,
Inc. .................... 2,340,632 CDA
99,000 Nomura Securities Company,
Ltd.(c).................. 1,324,857 JPN
730,500 PT Hm Sampoerna
International Finance
Company.................. 551,674 IDN
6,000 Shohkoh Fund.............. 1,836,625 JPN
2,900 Societe Generale de
Belgique................. 265,345 BEL
181,000 Wako Securities Company,
Ltd.(c).................. 260,314 JPN
------------
TOTAL FINANCE............. 9,776,516
------------
FOOD AND BEVERAGE -- 6.38%
130,898 Amatil, Ltd. ............. 977,913 AUS
172,000 Asahi Breweries, Ltd. .... 2,513,436 JPN
227,000 Fraser and Neave, Ltd. ... 983,455 SIN
6,300 Heineken N.V. ............ 1,097,015 NET
55,000 Jusco Company............. 778,333 JPN
</TABLE>
See notes to financial statements.
65
<PAGE> 70
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
1,450 Nestle.................... $ 2,176,166 SWI
55,000 Panamerican Beverages,
Inc. -- Class A.......... 1,794,375 MEX
16,000 Seagrams Company,
Ltd.(a).................. 517,000 CDA
275,000 Tate & Lyle PLC........... 2,266,935 UK
------------
TOTAL FOOD AND BEVERAGE... 13,104,628
------------
INDUSTRIAL -- 3.42%
26,320 Advantest Corp. .......... 1,497,971 JPN
160,000 Reed International,
Ltd. .................... 1,605,904 UK
800 SGS Societe Generale de
Surveillance Holding
SA(c).................... 1,535,771 SWI
15,600 Sidel..................... 1,034,664 FRA
384,236 Western Mining Corp.
Holding, Ltd. ........... 1,339,370 AUS
------------
TOTAL INDUSTRIAL.......... 7,013,680
------------
INSURANCE -- 2.47%
161,210 Alleanza Assicuraz........ 1,044,947 ITA
277,072 GIO Australian Holdings,
Ltd. .................... 708,196 AUS
24,000 Mapfre Vida Seguros....... 844,008 SPA
78,000 Siebe PLC................. 1,533,675 UK
217,000 Yasuda Fire and Marine
Insurance................ 931,277 JPN
------------
TOTAL INSURANCE........... 5,062,103
------------
INVESTMENT HOLDING COMPANIES -- 1.68%
590 Baloise Holdings.......... 1,093,393 SWI
145,000 Hutchison Whampoa......... 909,484 HNG
500,000 Hysan Development
Company.................. 996,950 HNG
465,000 Sime Darby Berhad......... 446,772 MAL
------------
TOTAL INVESTMENT HOLDING
COMPANIES................. 3,446,599
------------
LEISURE AND RECREATION -- 1.05%
10,000 Accor SA.................. 1,860,082 FRA
109,000 Euro Disneyland SCA(c).... 126,822 FRA
142,120 San Miquel Corp. -- Class
B........................ 176,314 PHI
------------
TOTAL LEISURE AND
RECREATION............... 2,163,218
------------
MACHINERY -- 0.58%
200,000 BPB Industries............ 1,118,860 UK
5,000 Komori Corp. ............. 74,603 JPN
------------
TOTAL MACHINERY........... 1,193,463
------------
MANUFACTURING -- 5.99%
166,000 ABB AB -- Class A......... 1,966,635 SWE
39,600 ASM Lithography Holding
N.V.(a)(c)............... 2,673,000 NET
9,100 Mannesmann AG............. 4,600,501 GER
99,000 Morgan Crucible Company
PLC...................... 752,568 UK
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING (CONTINUED)
7,800 Philips Electronics
N.V. .................... $ 467,871 NET
14,600 Philips Electronics N.V.
(ADR).................... 883,300 NET
125,900 TI Group PLC.............. 961,196 UK
------------
TOTAL MANUFACTURING....... 12,305,071
------------
MEDIA -- 3.18%
44 Canal Plus................ 8,184 FRA
17,100 Grupo Televisa (GDR)(c)... 661,556 MEX
69,638 News Corp., Ltd. ......... 384,311 AUS
20,300 News Corp., Ltd.
(ADR)(a)................. 452,944 AUS
16,600 Reuters Holdings PLC(c)... 181,636 UK
53,000 Rogers Communications --
Class B(c)............... 255,550 CDA
89,000 Singapore Press Holdings,
Ltd. .................... 1,114,520 SIN
111,000 Thomson Corp. ............ 3,029,391 CDA
35,000 Tokyo Broadcasting........ 444,157 JPN
------------
TOTAL MEDIA............... 6,532,249
------------
MEDICAL AND OTHER HEALTH
SERVICES -- 0.45%
7,400 Synthelabo................ 925,021 FRA
------------
METALS AND MINING -- 0.93%
46,000 Inco, Ltd.(a)............. 782,000 CDA
28,663 Pechiney SA -- Class A.... 1,132,060 FRA
------------
TOTAL METALS AND MINING... 1,914,060
------------
OIL AND GAS -- 4.48%
237,400 Eni Spa(c)................ 1,346,770 ITA
27,300 Sasol Beperk Limited(c)... 285,544 SOA
210,000 Shell Transport &
Trading(c)............... 1,520,337 UK
7,000 Suncor, Inc. ............. 240,028 CDA
40,000 Suncor, Inc. (ADR)(a)..... 1,365,000 CDA
48,000 Talisman Energy,
Inc.(c).................. 1,467,485 CDA
15,000 Total S.A. -- Series B.... 1,633,182 FRA
115,900 Woodside Petroleum,
Ltd. .................... 817,083 AUS
15,000 YPF Sociedad Anonima
(ADR).................... 512,813 ARG
------------
TOTAL OIL AND GAS......... 9,188,242
------------
PAPER AND FOREST PRODUCTS -- 1.02%
124,000 Sumitomo Forestry......... 605,591 JPN
74,000 UPM-Kymmeme............... 1,481,221 FIN
------------
TOTAL PAPER AND FOREST
PRODUCTS.................. 2,086,812
------------
PHARMACEUTICALS -- 7.84%
178,666 Astra AB.................. 3,096,210 SWE
21,333 Astra AB -- Class A
(ADR).................... 366,661 SWE
52,000 Banyu Pharmaceutical
Company.................. 575,905 JPN
105,000 BOC Group................. 1,729,392 UK
27,000 Hoechst AG(a)............. 946,026 GER
</TABLE>
See notes to financial statements.
66
<PAGE> 71
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS (CONTINUED)
3,600 Hoechst AG -- Warrants
(expire 03/19/99)(c)..... $ 136,148 GER
2,525 Novartis AG............... 4,102,873 SWI
57,000 Sankyo Company, Ltd. ..... 1,293,250 JPN
107,200 Zeneca Group PLC.......... 3,769,377 UK
800 Zeneca Group PLC (ADR).... 86,400 UK
------------
TOTAL PHARMACEUTICALS..... 16,102,242
------------
REAL ESTATE -- 0.43%
62,000 City Developments......... 287,010 SIN
103,000 Sumitomo Realty &
Development.............. 594,125 JPN
------------
TOTAL REAL ESTATE......... 881,135
------------
TELECOMMUNICATIONS -- 14.28%
87,336 Cable & Wireless PLC...... 768,801 UK
304 DDI Corp. ................ 806,638 JPN
61,100 Ericsson AB -- Class B.... 2,298,649 SWE
27,900 Ericsson L M Telephone
(ADR).................... 1,041,019 SWE
12,400 France Telecom SA
(ADR)(a)(c).............. 446,400 FRA
940,000 Hong Kong
Telecommunications....... 1,934,990 HNG
20,800 Hong Kong
Telecommunications, Ltd.
(ADR)(a)................. 429,000 HNG
49 Nippon Telegraph and
Telephone Corp. ......... 422,085 JPN
8,300 Nokia AB -- K shares...... 594,437 FIN
20,000 Nokia AB -- Class A(c).... 1,421,360 FIN
2,400 Nokia Corp. (ADR)(c)...... 168,000 FIN
20,000 Northern Telecom, Ltd. ... 1,780,000 CDA
7,400 Portugal Telecom
S.A.(c).................. 343,457 POR
54,900 Portugal Telecom S.A.
(ADR).................... 2,580,300 POR
34,600 Tele Danmark A/S
(ADR)(a)................. 1,066,113 DEN
300 Tele Danmark -- Class B... 18,621 DEN
179,000 Telecom Italia Mobile..... 826,658 ITA
253,000 Telecom Italia Mobile..... 719,785 ITA
148,555 Telecom Italia Spa(c)..... 949,474 ITA
300,000 Telecom Italia Spa........ 1,323,510 ITA
13,500 Telecomunicacoes
Brasileiras (ADR)........ 1,539,890 BRA
89,000 Telefonica................ 2,540,096 SPA
30,000 Telefonica De Argentina
(ADR)(a)................. 1,117,500 ARG
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------
<S> <C> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS
(CONTINUED)
51,400 Telefonos De Mexico
(ADR)(a)................. $ 2,881,612 MEX
18,000 Vodafone Group PLC
(ADR).................... 1,305,000 UK
------------
TOTAL
TELECOMMUNICATIONS....... 29,323,395
------------
TEXTILES -- 0.25%
74,000 Italcenenti Fabbriche
Riunit................... 516,069 ITA
------------
TIRE AND RUBBER -- 0.61%
58,000 Bridgestone Corp. ........ 1,262,405 JPN
------------
TOBACCO -- 1.20%
88,348 B.A.T. Industries......... 805,336 UK
47,000 Imasco, Ltd. ............. 1,658,607 CDA
------------
TOTAL TOBACCO............. 2,463,943
------------
TRANSPORTATION -- 1.10%
50,000 Brambles Industries,
Ltd. .................... 992,005 AUS
189,000 Citic Pacific, Ltd. ...... 751,275 HNG
122,000 Kawasaki Kisen Kaisha
Ltd.(c).................. 148,242 JPN
446,000 Malaysian Airline System
BHD...................... 357,469 MAL
------------
TOTAL TRANSPORTATION...... 2,248,991
------------
UTILITIES -- 0.60%
328,000 Hong Kong Electric
Holdings................. 1,246,662 HNG
------------
TOTAL COMMON STOCK
(Cost $177,198,152)....... 189,697,315
------------
PREFERRED STOCK -- 1.53%
COMPUTER SOFTWARE AND SERVICES -- 1.05%
6,600 SAP AG Vorzug............. 2,160,181 GER
------------
MEDIA -- 0.48%
200,000 News Corp., Ltd. ......... 989,580 AUS
------------
TOTAL PREFERRED STOCK
(Cost $1,832,580)......... 3,149,761
------------
<CAPTION>
PRINCIPAL
- -----------
<S> <C> <C> <C>
NON-CONVERTIBLE BONDS AND NOTES -- 0.10%
$ 115,031 Sekisui House, 2.50%,
01/31/02................. 130,350 JPN
69,018 Sumitomo Bank
International Finance
N.V., 0.75%, 05/31/01.... 73,197 JPN
------------
TOTAL NON-CONVERTIBLE
BONDS AND NOTES (Cost
$246,869)................. 203,547
------------
CONVERTIBLE BONDS AND NOTES -- 0.32%
BANKS -- 0.01%
2,000 Ericson LM, 4.25%,
06/30/00................. 10,500 SWE
------------
</TABLE>
See notes to financial statements.
67
<PAGE> 72
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
- ----------- ------------ -------
<S> <C> <C> <C>
CONVERTIBLE BONDS AND NOTES (CONTINUED)
FOOD AND BEVERAGE -- 0.31%
$ 168,712 Asahi Breweries Series 8,
0.90%, 12/26/01.......... $ 301,180 JPN
38,344 Asahi Breweries Series 9,
0.95%, 12/26/02.......... 63,450 JPN
176,380 Asahi Breweries Series 10,
1.00%, 12/26/03.......... 287,431 JPN
------------
TOTAL FOOD AND BEVERAGE... 652,061
------------
TOTAL CONVERTIBLE BONDS
AND NOTES (Cost
$531,286)................. 662,561
------------
REGULATED INVESTMENT COMPANY -- 2.95%
6,050,000 Merrimac Cash Fund --
Premium Class (Cost
$6,050,000)(b)........... $ 6,050,000 USA
------------
PRINCIPAL
- -----------
TIME DEPOSITS -- 4.17%
$ 1,714,926 American Express Centurion
Bank, 5.90%,
01/21/98(b).............. 1,714,926 USA
6,502,869 BankBoston, N.A., 6.85%,
03/31/98(b).............. 6,502,869 USA
342,985 First Union National Bank
of North Carolina,
6.125%, 01/02/98(b)...... 342,985 USA
------------
TOTAL TIME DEPOSITS
(Cost $8,560,780)......... 8,560,780
------------
TOTAL SECURITIES
(Cost $194,419,667)....... 208,323,964
------------
REPURCHASE AGREEMENT -- 4.93%
10,116,743 With Investors Bank and
Trust, dated 12/31/97,
5.90%, repurchase
proceeds at maturity
$10,120,059, 01/02/98
(Collateralized by
Government National
Mortgage Association,
7.375%, due 05/20/22,
with a value of
$3,705,069 and Federal
Home Loan Mortgage Corp.,
7.71%, due 07/01/26, with
a value of $6,917,512)
(Cost $10,116,743)....... 10,116,743 USA
------------
Total
Investments -- 106.40%
(Cost $204,536,410)....... 218,440,707
Other assets less
liabilities -- (6.40%).... (13,134,639)
------------
NET ASSETS -- 100.00%..... $205,306,068
==============
The aggregate cost of securities for federal income tax
purposes at December 31, 1997, is $205,338,190.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 35,038,956
Gross unrealized depreciation.......... (21,936,439)
------------
Net unrealized appreciation............ $ 13,102,517
============
</TABLE>
- ---------------
(a) All or part of the security is on loan
(b) Collateral for securities on loan
(c) Non-income producing securities
(ADR) -- American Depository Receipt
(GDR) -- Global Depository Receipt
<TABLE>
<CAPTION>
PERCENT OF TOTAL
COUNTRY COMPOSITION SECURITIES AT VALUE
- ------------------------------------- -------------------
<S> <C>
Argentina (ARG)...................... 0.75%
Australia (AUS)...................... 4.89%
Belgium (BEL)........................ 0.12%
Brazil (BRA)......................... 0.70%
Canada (CDA)......................... 6.15%
Denmark (DEN)........................ 0.50%
Finland (FIN)........................ 1.68%
France (FRA)......................... 4.95%
Germany (GER)........................ 5.26%
Hong Kong (HNG)...................... 2.87%
Indonesia (IDN)...................... 0.25%
Italy (ITA).......................... 3.08%
Japan (JPN).......................... 17.41%
Malaysia (MAL)....................... 0.37%
Mexico (MEX)......................... 2.44%
Netherlands (NET).................... 2.88%
Norway (NOR)......................... 1.41%
Philippines (PHI).................... 0.08%
Portugal (POR)....................... 1.34%
Singapore (SIN)...................... 1.09%
South Africa (SOA)................... 0.72%
Spain (SPA).......................... 1.81%
Sweden (SWE)......................... 5.71%
Switzerland (SWI).................... 5.54%
Thailand (THA)....................... 0.18%
United Kingdom (UK).................. 16.31%
United States (USA).................. 11.51%
------
TOTAL PERCENTAGE..................... 100.00%
=================
</TABLE>
See notes to financial statements.
68
<PAGE> 73
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements
1. ORGANIZATION AND BUSINESS
Diversified Investors Portfolios (the "Series Portfolio"), a series trust
organized on September 1, 1993, under the laws of the State of New York, is
composed of thirteen different series that are, in effect, separate investment
funds: the Money Market Series, the High Quality Bond Series, the Intermediate
Government Bond Series, the Government/Corporate Bond Series, the Balanced
Series, the Equity Income Series, the Equity Value Series, the Growth & Income
Series, the Equity Growth Series, the Special Equity Series, the Aggressive
Equity Series, the High-Yield Bond Series, and the International Equity Series
(each a "Series"). The Declaration of Trust permits the Board of Trustees to
issue an unlimited number of beneficial interests in each Series. Investors in a
Series (e.g., investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
that Series (and of no other Series). The Equity Value Series and Aggressive
Equity Series commenced operations on April 19, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION
Short-term securities having remaining maturities of 60 days or less
are valued at amortized cost which approximates value. The amortized cost
of a security is determined by valuing it at original cost and thereafter
amortizing any discount or premium at a constant rate until maturity.
Securities traded on national securities exchanges are valued at the last
sales price as of the close of business on each day or at the closing bid
price for over-the-counter securities. Equity securities are valued at the
last sale price on the exchange on which they are primarily traded or at
the bid price on the NASDAQ system for unlisted national market issues, or
at the last quoted bid price for securities not reported on the NASDAQ
system. Bonds are valued at the last available price provided by an
independent pricing service for securities traded on a national securities
exchange. Bonds that are listed on a national securities exchange but are
not traded and bonds that are regularly traded in the over-the-counter
market are valued at the mean of the last available bid and asked prices by
an independent pricing service. All other securities will be valued at
their fair value as determined by the Board of Trustees.
B. REPURCHASE AGREEMENTS
Each Series, along with other affiliated entities of the investment
advisor, may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Series investment advisor, subject to the
seller's agreement to repurchase and the Series agreement to resell such
securities at a mutually agreed upon price. Securities purchased subject to
repurchase agreements are segregated at the custodian, and pursuant to the
terms of the repurchase agreement must have an aggregate market value
greater than or equal to 102% and 105% of domestic and international
securities, respectively, of the repurchase price plus accrued interest at
all times. If the value of the underlying securities falls below the value
of the repurchase price plus accrued interest, the Series will require the
seller to deposit additional collateral by the next business day. If the
request for additional collateral is not met or the seller defaults on its
repurchase obligation, the Series maintains the right to sell the
underlying securities at market value and may claim any resulting loss
against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to
legal proceedings.
C. FOREIGN CURRENCY TRANSLATION
The accounting records of the International Equity Series are
maintained in U.S. dollars. The market values of foreign securities,
currency holdings and other assets and liabilities are translated to U.S.
dollars based on the prevailing exchange rates each business day. Income
and expenses denominated in foreign currencies are translated at prevailing
exchange rates when accrued or incurred. The Series does
69
<PAGE> 74
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
not isolate realized gains and losses attributable to changes in exchange
rates from gains and losses that arise from changes in the market value of
investments. Such fluctuations are included with net realized and
unrealized gains or losses on investments. Net realized gains and losses on
foreign currency transactions represent net exchange gains and losses on
disposition of foreign currencies and foreign currency forward contracts,
and the difference between the amount of investment income receivable and
foreign withholding taxes receivable recorded on the Series' books and the
U.S. dollar equivalent of amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end and
foreign currency forward contracts, resulting from changes in the exchange
rates.
D. FOREIGN CURRENCY FORWARD CONTRACTS
Each Series may enter into foreign currency forward contracts and
forward cross currency contracts in connection with settling planned
purchases or sales of securities or to hedge the currency exposure
associated with some or all of the Series' portfolio securities. A foreign
currency forward contract is an agreement between two parties to buy and
sell a currency at a set price on a future date. The market value of a
foreign currency forward contract fluctuates with changes in forward
currency exchange rates. Foreign currency forward contracts are marked to
market daily and the change in value is recorded by the Series as an
unrealized gain or loss. When a foreign currency forward contract is
extinguished, through delivery or offset by entering into another foreign
currency forward contract, the Series records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it was extinguished or
offset. These contracts may involve market risk in excess of the unrealized
gain or loss reflected in the Series' Statement of Assets and Liabilities
and Statement of Operations. In addition, the Series could be exposed to
risk if the counterparties are unable to meet the terms of the contracts or
if the value of the currency changes unfavorably to the U.S. dollar.
E. OPTIONS
Each Series, with the exception of the Money Market Series, may
purchase and write (sell) call and put options on securities indices for
the purpose of protecting against an anticipated decline in the value of
the securities held by that Series. Index options are marked to market
daily and the change in value is recorded by the Series as an unrealized
gain or loss. A realized gain or loss equal to the difference between the
exercise price and the value of the index is recorded by the Series upon
cash settlement of the option. The use of index options may expose the
Series to the risk that trading in such options may be interrupted if
trading in certain securities included in the index is interrupted or the
value of the securities in the index may not move in direct correlation
with the movements of the Series portfolio. In addition, there is the risk
the Series may not be able to enter into a closing transaction because of
an illiquid secondary market.
F. FEDERAL INCOME TAXES
It is the Series' policy to comply with the applicable provisions of
the Internal Revenue Code. Therefore, no federal income tax provision is
required.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on a trade date basis (the
date the order to buy or sell is executed). Dividend income is recorded on
the ex-dividend date. Interest income is recorded on the accrual basis and
includes amortization of premium and discount on investments. Realized
gains and losses from securities transactions are recorded on the
identified cost basis.
70
<PAGE> 75
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
All of the net investment income and realized and unrealized gains and
losses from security transactions are determined on each valuation day and
allocated pro rata among the investors in a Series at the time of such
determination.
H. OPERATING EXPENSES
The Series Portfolio accounts separately for the assets, liabilities
and operations of each Series. Expenses directly attributable to a Series
are charged to that Series, while expenses attributable to all Series are
allocated among them.
I. OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
3. FEES AND TRANSACTIONS WITH AFFILIATES
AUSA Life Insurance Company, Inc. ("AUSA") is an affiliate of Diversified
Investment Advisors, Inc. (the "Advisor"). AUSA has sub-accounts which invest in
the corresponding Portfolios as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
AUSA SUB-ACCOUNT IN PORTFOLIO
----------------------------------------------------------------- -----------------------
<S> <C>
Money Market..................................................... 30.30
High Quality Bond................................................ 48.35
Intermediate Government Bond..................................... 50.21
Government/Corporate Bond........................................ 26.03
Balanced......................................................... 71.17
Equity Income.................................................... 62.71
Equity Value..................................................... 26.26
Growth & Income.................................................. 55.36
Equity Growth.................................................... 73.64
Special Equity................................................... 53.26
Aggressive Equity................................................ 42.44
High Yield Bond.................................................. 29.68
International Equity............................................. 44.75
</TABLE>
The Advisor manages the assets of each Series of the Series Portfolio
pursuant to an Investment Advisory Agreement with the Series Portfolio. Subject
to such further policies as the Board of Trustees may determine, the Advisor
provides general investment advice to each Series. For its services, the Advisor
receives from each Series fees accrued daily and paid monthly at an annual rate
equal to the percentages specified in the table below of the corresponding
Series' average daily net assets. The Advisor is currently waiving a portion of
its investment advisory fee to certain Series.
For each Series, the Advisor has entered into Investment Subadvisory
Agreements with the subadvisors listed in the table below (each a "Subadvisor",
collectively the "Subadvisors"). It is the responsibility of a Subadvisor to
make the day-to-day investment decisions of the Series and to place the purchase
and sales orders for securities transactions of such Series, subject in all
cases to the general supervision of the Advisor.
71
<PAGE> 76
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For its services the Subadvisors receive a fee from the Advisor at an annual
rate equal to the percentages specified in the table below of the corresponding
Series' average daily net assets.
<TABLE>
<CAPTION>
ADVISOR SUBADVISOR
PORTFOLIO SERIES PORTFOLIO SUBADVISORS FEE(%) FEE(%)
- ----------------------------------- ------------------------------------- ------- -----------
<S> <C> <C> <C>
Money Market Series................ Capital Management Group 0.25 0.05
High Quality Bond Series........... Merganser Capital Management
Corporation 0.35 (2)
Intermediate Government Bond
Series........................... Capital Management Group 0.35(1) 0.15
Government/Corporate Bond Series... Capital Management Group 0.35 0.15
Balanced Series.................... Institutional Capital Corporation 0.45 (3)
Equity Income Series............... Asset Management Group 0.45 0.25
Equity Value Series................ Ark Asset Management Company, Inc. 0.57(1) (4)
Growth & Income Series............. Putnam Advisory Company, Inc. 0.60 (5)
Equity Growth Series............... Chancellor LGT Asset Management, Inc. 0.62 (6)
Special Equity Series.............. (7) 0.80 0.50
Aggressive Equity Series........... McKinley Capital Management 0.97(1) (8)
High-Yield Bond Series............. Delaware Investment Advisors 0.55(1) (9)
International Equity Series........ Capital Guardian Trust Company 0.75(1) (10)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.50% on the first $10,000,000 in average daily net assets, 0.375% on the
next $15,000,000 in average daily net assets, 0.25% on the next $75,000,000
in average daily net assets and 0.1875% on all average daily net assets in
excess of $100,000,000.
(3) 0.55% on the first $25,000,000 in average daily net assets, 0.45% on the
next $25,000,000 in average daily net assets, and 0.35% on all average
daily net assets in excess of $50,000,000.
(4) 0.45% on the first $100,000,000 in average daily net assets, 0.40% on the
next $50,000,000 in average daily net assets, and 0.35% on the next
$50,000,000 in average daily net assets; when average daily net assets
reach $200,000,000, 0.40% on the first $200,000,000 in average daily net
assets, and 0.35% on all average daily net assets in excess of
$200,000,000.
(5) 0.30% on the first $100,000,000 in average daily net assets, and 0.20% on
all average daily net assets in excess of $100,000,000.
(6) 0.50% on the first $50,000,000 in average daily net assets, 0.30% on the
next $75,000,000 in average daily net assets, 0.25% on the next $75,000,000
in average daily net assets, and 0.20% on all average daily net assets in
excess of $200,000,000.
(7) The Special Equity Series has four Subadvisors: Pilgrim Baxter &
Associates, Ltd., Ark Asset Management Co., Inc.; Liberty Investment
Management, Inc.; and Westport Asset Management, Inc.
(8) 0.90% on the first $10,000,000 in average daily net assets, 0.80% on the
next $15,000,000 in average daily net assets, 0.60% on the next $25,000,000
in average daily net assets, 0.40% on the next $50,000,000 in average daily
net assets, and 0.35% on all average daily net assets in excess of
$100,000,000.
(9) 0.40% on the first $20,000,000 in average daily net assets, 0.30% on the
next $20,000,000 in average daily net assets, and 0.20% on all average
daily net assets in excess of $40,000,000.
(10) 0.75% on the first $25,000,000 in average daily net assets, 0.60% on the
next $25,000,000 in average daily net assets, 0.425% from $50,000,000 to
$250,000,000 in average daily net assets and 0.375% on all average daily
net assets in excess of $250,000,000.
72
<PAGE> 77
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For the year ended December 31, 1997, the Advisor has voluntarily
undertaken to waive fees in accordance with the expense caps as follows:
<TABLE>
<CAPTION>
FUND EXPENSE CAP
-------------------------------------------------------------- ------------------------
<S> <C>
Money Market Series........................................... 30 basis points (b.p.)
High Quality Bond Series...................................... 40 b.p.
Intermediate Government Bond Series........................... 40 b.p.
Government/Corporate Bond Series.............................. 40 b.p.
Balanced Series............................................... 50 b.p.
Equity Income Series.......................................... 50 b.p.
Equity Value Series........................................... 60 b.p.
Growth & Income Series........................................ 65 b.p.
Equity Growth Series.......................................... 65 b.p.
Special Equity Series......................................... 85 b.p.
Aggressive Equity Series...................................... 100 b.p.
High-Yield Bond Series........................................ 60 b.p.
International Equity Series................................... 90 b.p.
</TABLE>
Certain trustees and officers of the Series Portfolio are also directors,
officers or employees of the Advisor or its affiliates. None of the trustees so
affiliated receive compensation for services as trustees of the Series
Portfolio. Similarly, none of the Series Portfolio officers receive compensation
from the Series Portfolio. Aggregate remuneration incurred to non-affiliated
trustees of the trust for the year ended December 31, 1997, amounted to
$31,687.50.
4. SECURITIES LENDING
All but the High Yield Bond Series may lend its securities to certain
member firms of the New York Stock Exchange. The loans are collateralized at all
times with cash or securities with a market value at least equal to the market
value of the securities on loan. Any deficiencies or excess of collateral must
be delivered or transferred by the member firms no later than the close of
business on the next business day. As with other extensions of credit, the
Series may bear the risk of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. The Series
receives compensation, net of related expenses, for lending its securities which
is included in interest income on the Statement of Operations. At December 31,
1997, the Series loaned securities having market values as follows:
<TABLE>
<CAPTION>
MARKET VALUE COLLATERAL
------------ ------------
<S> <C> <C>
Intermediate Government Bond Series.............................. $ 10,244,323 $ 10,461,250
Government Corporate Bond Series................................. 2,006,449 2,020,000
Balanced Series.................................................. 145,004,065 148,440,431
Equity Income Series............................................. 54,421,331 64,740,700
Equity Value Series.............................................. 7,433,162 7,533,900
Growth & Income Series........................................... 28,947,300 29,523,000
Equity Growth Series............................................. 35,391,969 36,010,700
Special Equity Series............................................ 110,513,716 112,647,957
International Equity Series...................................... 14,025,837 14,610,710
</TABLE>
73
<PAGE> 78
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
5. PURCHASE AND SALES OF INVESTMENTS
The aggregate cost of investments purchased and proceeds from sales or
maturities (excluding short-term securities) for the year ended December 31,
1997, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
---------------------- ----------------------
<S> <C> <C> <C>
High Quality Bond Series............... Government Obligations $ 31,978,125 $ 22,965,932
Other 94,862,124 91,171,997
Intermediate Government Bond Series.... Government Obligations 44,103,632 38,774,921
Government/Corporate Bond Series....... Government Obligations 134,445,183 123,447,431
Other 88,146,397 73,193,866
Balanced Series........................ Government Obligations 113,819,875 45,564,794
Other 254,102,508 240,309,384
Equity Income Series................... Other 340,134,384 375,389,668
Equity Value Series.................... Other 341,371,688 169,033,926
Growth & Income Series................. Other 329,757,378 234,154,068
Equity Growth Series................... Other 366,024,370 339,615,736
Special Equity Series.................. Other 928,883,721 843,097,514
Aggressive Equity Series............... Other 46,044,838 40,802,404
High-Yield Bond Series................. Other 56,773,730 32,624,292
International Equity Series............ Other 100,274,519 55,220,746
</TABLE>
74
<PAGE> 79
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS
At December 31, 1997, the International Equity Series had entered into
Foreign Currency Forward contracts which contractually obligate the Series to
deliver/receive currency at specified future dates. The open contracts were as
follows:
<TABLE>
<CAPTION>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
CONTRACT CURRENCY FOR DATE VALUE APPRECIATION/(DEPRECIATION)
- ------------------------ ----------- ----------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES:
Deutsche Mark........... 1,239,111 $ 711,596 02/27/98 $ 691,667 $ (19,929)
Deutsche Mark........... 531,637 298,505 03/09/98 296,933 (1,572)
British Pound........... 107,934 180,379 01/06/98 177,595 (2,784)
British Pound........... 25,000 41,468 05/13/98 40,885 (583)
British Pound........... 50,100 83,657 05/13/98 81,933 (1,724)
British Pound........... 44,000 73,040 05/13/98 71,958 (1,082)
British Pound........... 88,200 147,232 05/13/98 144,242 (2,990)
Japanese Yen............ 8,739,718 67,143 01/07/98 67,093 (50)
Japanese Yen............ 179,333,298 1,534,337 04/23/98 1,398,757 (135,580)
Japanese Yen............ 455,675,040 3,586,101 04/30/98 3,557,923 (28,178)
Japanese Yen............ 72,346,010 584,851 04/30/98 564,880 (19,971)
Swedish Krona........... 1,625,640 207,146 01/05/98 204,953 (2,193)
Swedish Krona........... 1,622,318 205,896 01/07/98 204,546 (1,350)
Rand.................... 196,040 40,222 01/06/98 40,239 17
Rand.................... 160,791 33,056 01/06/98 33,004 (52)
--------
TOTAL.............. $ (218,021)
========
SELLS:
Australian Dollar....... 643,554 $ 452,000 01/27/98 $ 419,758 $ 32,242
Canadian Dollar......... 2,946,207 2,056,000 03/24/98 2,066,980 (10,980)
Swiss Franc............. 188,046 128,745 01/27/98 128,877 (132)
Swiss Franc............. 859,435 624,000 02/12/98 591,540 32,460
Swiss Franc............. 2,282,753 1,612,000 03/05/98 1,574,725 37,275
Deutsche Mark........... 439,136 249,000 01/22/98 244,633 4,367
French Franc............ 1,261,706 213,000 01/06/98 209,697 3,303
French Franc............ 1,779,138 298,505 03/09/98 296,754 1,751
British Pound........... 598,001 996,000 01/30/98 982,784 13,216
British Pound........... 425,621 711,596 02/27/98 698,601 12,995
British Pound........... 264,596 431,000 05/13/98 432,720 (1,720)
British Pound........... 150,381 242,000 05/13/98 245,932 (3,932)
Hong Kong Dollar........ 2,862,489 356,000 05/14/98 363,899 (7,899)
Japanese Yen............ 194,370,660 1,602,000 02/09/98 1,499,446 102,554
Japanese Yen............ 187,628,636 1,532,000 02/12/98 1,448,044 83,956
Japanese Yen............ 88,504,320 688,000 03/26/98 687,377 623
Japanese Yen............ 179,333,298 1,611,000 04/23/98 1,398,757 212,243
Japanese Yen............ 77,286,690 681,000 04/30/98 603,457 77,543
Japanese Yen............ 72,346,010 638,000 04/30/98 564,880 73,120
Japanese Yen............ 508,009,600 4,480,000 04/30/98 3,966,552 513,448
</TABLE>
75
<PAGE> 80
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
CONTRACT CURRENCY FOR DATE VALUE APPRECIATION/(DEPRECIATION)
- ------------------------ ----------- ----------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C>
Japanese Yen............ 455,675,040 $ 4,020,000 04/30/98 $3,557,923 $ 462,077
Japanese Yen............ 73,407,880 602,000 05/18/98 574,737 27,263
Japanese Yen............ 304,358,000 2,480,000 05/26/98 2,385,826 94,174
Japanese Yen............ 102,033,000 900,000 10/20/98 817,371 82,629
Norwegian Krone......... 2,686,629 374,000 01/23/98 365,071 8,929
Swedish Krona........... 2,547,641 331,000 01/23/98 321,371 9,629
Swedish Krona........... 504,563 65,000 03/18/98 63,741 1,259
--------
TOTAL.............. $ 1,862,393
========
</TABLE>
76
<PAGE> 81
(This page intentionally left blank)
77
<PAGE> 82
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
7. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET SERIES HIGH QUALITY BOND SERIES
--------------------------------------------------------------- -----------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
--------------------------------------------------------------- -----------------------------
1997 1996 1995 1994 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of
period.................. $232,312,458 $185,012,254 $141,638,248 $161,509,792 $218,169,438 $197,294,663
Ratio of expenses to
average net assets...... 0.28% 0.30% 0.31% 0.32% 0.39% 0.40%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.28% 0.30% 0.30% 0.30% 0.39% 0.40%
Ratio of net investment
income to average net
assets.................. 5.33% 5.19% 5.70% 4.05% 6.12% 6.14%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 5.33% 5.19% 5.69% 4.07% 6.12% 6.14%
Portfolio turnover....... N/A N/A N/A N/A 62% 66%
Average commission rate
per share**............. N/A N/A N/A N/A N/A N/A
<CAPTION>
HIGH QUALITY BOND SERIES
-----------------------------
FOR THE YEAR ENDED
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net assets, end of
period.................. $172,526,103 $143,996,216
Ratio of expenses to
average net assets...... 0.41% 0.41%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.40% 0.40%
Ratio of net investment
income to average net
assets.................. 5.83% 5.77%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 5.82% 5.79%
Portfolio turnover....... 25% 37%
Average commission rate
per share**............. N/A N/A
</TABLE>
<TABLE>
<CAPTION>
BALANCED SERIES EQUITY INCOME SERIES
--------------------------------------------------------------- -------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
--------------------------------------------------------------- -------------------------------
1997 1996 1995 1994 1997 1996
------------ ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of
period.................. $394,769,913 $264,909,839 $167,032,955 $125,509,115 $1,215,071,169 $956,820,669
Ratio of expenses to
average net assets...... 0.48% 0.50% 0.54% 0.53% 0.47% 0.48%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.48% 0.50% 0.50% 0.50% 0.47% 0.48%
Ratio of net investment
income to average net
assets.................. 3.55% 3.39% 4.19% 3.57% 2.27% 2.97%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 3.55% 3.39% 4.15% 3.61% 2.27% 2.97%
Portfolio turnover....... 87% 113% 124% 118% 33% 26%
Average commission rate
per share**............. $0.0341 $0.0372 N/A N/A $0.0600 $0.0620
<CAPTION>
EQUITY INCOME SERIES
-------------------------------
FOR THE YEAR ENDED
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net assets, end of
period.................. $764,302,530 $588,694,098
Ratio of expenses to
average net assets...... 0.49% 0.49%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.49% 0.49%
Ratio of net investment
income to average net
assets.................. 3.37% 3.43%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 3.37% 3.43%
Portfolio turnover....... 23% 30%
Average commission rate
per share**............. N/A N/A
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Annualized (except for Portfolio turnover and Average commission rate per share)
** For fiscal years beginning on or after September 1, 1995, the Portfolios are required to disclose their average commission
rate per share for trades on which a commission is charged.
+ Commencement of Operations, April 19, 1996.
++ Commencement of Operations, August 22, 1995.
+++ Commencement of Operations, September 29, 1995.
(1) For the period January 1, 1996 -- November 14, 1996, the expense cap was 75 bp.
For the period November 15, 1996 -- December 31, 1996, the expense cap was 65 bp.
</TABLE>
78
<PAGE> 83
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT BOND SERIES GOVERNMENT/CORPORATE BOND SERIES
------------------------------------------------------- ---------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------------------------------- ---------------------------------------------------------
1997 1996 1995 1994 1997 1996 1995 1994
------------ ------------ ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$129,186,397 $103,059,880 $85,991,614 $86,638,740 $361,632,885 $322,676,017 $336,539,410 $246,985,392
0.41% 0.43% 0.45% 0.45% 0.38% 0.39% 0.39% 0.40%
0.39% 0.40% 0.40% 0.40% 0.38% 0.39% 0.39% 0.40%
5.61% 5.63% 5.57% 5.71% 6.49% 6.30% 5.90% 5.71%
5.62% 5.66% 5.52% 5.76% 6.49% 6.30% 5.90% 5.72%
45% 60% 59% 21% 64% 146% 122% 122%
N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUE SERIES+ GROWTH & INCOME SERIES
-------------------------- --------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
-------------------------- --------------------------------------------------------
1997 1996* 1997 1996 1995 1994
------------ ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$234,983,715 $29,033,513 $376,260,408 $207,612,426 $124,811,731 $94,583,300
0.63% 1.06% 0.64% 0.67% 0.68% 0.67%
0.60% 0.60% 0.64% 0.65% 0.65% 0.65%
1.43% 1.60% 0.65% 1.02% 1.49% 1.35%
1.46% 2.07% 0.65% 1.04% 1.47% 1.37%
120% 65% 87% 142% 155% 21%
$0.0549 $0.0600 $0.0447 $0.0476 N/A N/A
</TABLE>
79
<PAGE> 84
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
7. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY GROWTH SERIES SPECIAL EQUITY SERIES
--------------------------------------------------------------- -----------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
--------------------------------------------------------------- -----------------------------
1997 1996 1995 1994 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of
period.................. $426,312,188 $299,127,686 $222,362,390 $148,817,830 $743,388,261 $507,264,243
Ratio of expenses to
average net assets...... 0.65% 0.73% 0.75% 0.76% 0.84% 0.86%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.65% 0.73%(1) 0.75% 0.75% 0.84% 0.85%
Ratio of net investment
income to average net
assets.................. 0.43% (0.17%) 0.41% 0.08% 0.41% 0.24%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 0.43% (0.17%) 0.41% 0.11% 0.41% 0.25%
Portfolio turnover....... 91% 133% 62% 75% 146% 140%
Average commission rate
per share**............. $0.0557 $0.0553 N/A N/A $0.0522 $0.0507
<CAPTION>
SPECIAL EQUITY SERIES
-----------------------------
FOR THE YEAR ENDED
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net assets, end of
period.................. $315,458,225 $217,671,865
Ratio of expenses to
average net assets...... 0.88% 0.88%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.85% 0.85%
Ratio of net investment
income to average net
assets.................. 0.33% 0.27%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 0.30% 0.30%
Portfolio turnover....... 155% 90%
Average commission rate
per share**............. N/A N/A
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
SERIES+++
AGGRESSIVE EQUITY SERIES+ HIGH YIELD BOND SERIES++ ------------
--------------------------- ------------------------------------------
FOR THE YEAR
FOR THE YEAR ENDED FOR THE YEAR ENDED ENDED
--------------------------- ------------------------------------------ ------------
1997 1996* 1997 1996 1995 1997
----------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets, end of
period.................. $25,857,650 $15,479,130 $39,700,131 $15,372,686 $8,997,595 $205,306,068
Ratio of expenses to
average net assets...... 1.33% 1.59% 0.74% 1.25% 1.32% 0.88%
Ratio of expenses to
average net assets (net
of reimbursements)...... 1.00% 1.00% 0.60% 0.60% 0.60% 0.87%
Ratio of net investment
income to average net
assets.................. (0.52%) (0.72%) 8.46% 8.34% 8.45% 0.90%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... (0.19%) (0.13%) 8.60% 9.00% 7.73% 0.91%
Portfolio turnover....... 243% 186% 109% 107% 21% 31%
Average commission rate
per share**............. $0.0498 $0.0540 N/A N/A N/A $0.0022
<CAPTION>
INTERNATIONAL
EQUITY
SERIES+++
----------------------------
FOR THE YEAR
ENDED
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net assets, end of
period.................. $148,184,897.. $83,446,315
Ratio of expenses to
average net assets...... 0.96%....... 0.83%
Ratio of expenses to
average net assets (net
of reimbursements)...... 0.90%....... 0.80%
Ratio of net investment
income to average net
assets.................. 1.12% 0.53%
Ratio of net investment
income to average net
assets (net of
reimbursements)......... 1.18%....... 0.50%
Portfolio turnover....... 29%......... 7%
Average commission rate
per share**............. $0.0030 N/A
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Annualized (except for Portfolio turnover and Average commission rate per share)
** For fiscal years beginning on or after September 1, 1995, the Portfolios are required to disclose their average commission
rate per share for trades on which a commission is charged.
+ Commencement of Operations, April 19, 1996.
++ Commencement of Operations, August 22, 1995.
+++ Commencement of Operations, September 29, 1995.
(1) For the period January 1, 1996 -- November 14, 1996, the expense cap was 75 bp.
For the period November 15, 1996 -- December 31, 1996, the expense cap was 65 bp.
</TABLE>
8. SUBSEQUENT EVENT
Effective January 26, 1998, Dresdner RCM Global Investors and Montag &
Caldwell Investment Counsel replaced Chancellor LGT Asset Management, Inc. as
the investment subadvisor for the Equity Growth Series.
80
<PAGE> 85
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Owners of Beneficial Interests of the
Diversified Investors Portfolios:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments of Diversified Investors Portfolios
(comprising, respectively, the Money Market Portfolio, High Quality Bond
Portfolio, Intermediate Government Bond Portfolio, Government/Corporate Bond
Portfolio, Balanced Portfolio, Equity Income Portfolio, Equity Value Portfolio,
Growth & Income Portfolio, Equity Growth Portfolio, Special Equity Portfolio,
Aggressive Equity Portfolio, High Yield Bond Portfolio and International Equity
Portfolio) (collectively the "Portfolios") as of December 31, 1997, and the
related statements of operations for the year then ended, the statements of
changes in net assets for the year then ended and for the year ended December
31, 1996 for each of the Portfolios, other than the Equity Value Portfolio and
the Aggressive Equity Portfolio for which the period is from April 19, 1996
(commencement of operations) to December 31, 1996 and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
respective Portfolios constituting Diversified Investors Portfolios as of
December 31, 1997, the results of their operations, the changes in their net
assets, and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 19, 1998
81
<PAGE> 86
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<PAGE> 87
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<PAGE> 88
---------------
BULK RATE
U.S. POSTAGE
PAID
NEW YORK, N.Y.
PERMIT NO. 8048
---------------
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
4 Manhattanville Road
Purchase, New York 10577
(914) 697 8000
DISTRIBUTOR:
Diversified Investors Securities Corp (DISC)
4 Manhattanville Road
Purchase, New York 10577
(914) 697 8000
03-70472 (2/98)
