<PAGE> 1
REGISTRATION NOS. 33-19836
811-5457
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 18 [X]
REGISTRATION STATEMENT [ ]
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18 [X]
(CHECK APPROPRIATE BOX OR BOXES)
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Keynote Series Account
(EXACT NAME OF REGISTRANT)
MONY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1740 Broadway
New York, New York 10577
(ADDRESS AND DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
(212) 708-2000
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
FREDERICK C. TEDESCHI
VICE PRESIDENT AND CHIEF COUNSEL -- OPERATIONS
MONY LIFE INSURANCE COMPANY
1740 Broadway
New York, New York 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Approximate date of proposed public offering:
It is proposed that this filing will become effective on May 3, 1999
pursuant to paragraph (b) of Rule 485.
Diversified Investors Portfolios has also executed this Post-Effective
Amendment No. 18 to Registration Statement.
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MAY 3, 1999
[MONY LOGO]
<PAGE> 3
KEYNOTE
SERIES ACCOUNT
("KEYNOTE")
GROUP VARIABLE ANNUITY CONTRACTS
SECTIONS 401(A), 401(K), 403(B), 408(IRA), 457 AND NQDC
ISSUED BY
MONY LIFE INSURANCE COMPANY("MONY")
1740 BROADWAY, NEW YORK, NEW YORK 10019; (914) 697-8000
MONY Life Insurance Company was organized as a mutual life insurance company
under the laws of the State of New York in 1842 under the name The Mutual Life
Insurance Company of New York. In 1998 MONY converted to a stock company through
demutualization and was renamed MONY Life Insurance Company. The demutualization
did not have any material effect on the Group Variable Annuity Contracts.
The Group Variable Annuity Contracts ("Contracts") described in this
Prospectus are designed and offered as funding vehicles for retirement plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders, taxed organizations in the case of the Section 401(a)
and/or Section 401(k) Contracts and corporate nonqualified deferred compensation
contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for tax
qualified pension and profit-sharing plans from employee contributions of such
organizations and employer contributions, if any. The Section 403(b) Contract
will purchase tax-deferred annuities for the employees of these same
organizations. The Section 457 Contract will provide deferred compensation
eligible for deferred tax treatment. The Section 401(a) Contract will fund
benefits for tax-qualified pension and profit-sharing plans of such
organizations as well as taxed subsidiaries of such organizations and
stand-alone taxed organizations. The Section 408 (Individual Retirement Account
("IRA")) Contract is a Group Variable Annuity Contract which will provide for
on-going or rollover contributions, from employees of tax-exempt or taxed
organizations and from members and employees of associations. The NQDC Contract
will provide deferred compensation eligible for deferred tax treatment to
employees of taxed organizations. Section references are to the Internal Revenue
Code of 1986, as amended.
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
Purchase Payments under the Contracts are allocated to a segregated
investment account of MONY Life Insurance Company ("MONY"), which account has
been designated Keynote. Purchase Payments directed to Keynote may be allocated
among such of the Subaccounts in Keynote as are made available under the
Contracts. The assets in each Subaccount are invested in a series of Diversified
Investors Portfolios or in the Calvert Social Balanced Portfolio ("Calvert
Series") at their net asset value. (See "Diversified Investors Portfolios" at
page 12 and Calvert Series at page 11.) The six currently available Series of
Diversified Investors Portfolios are the Money Market Series, Intermediate
Government Bond Series, Government/Corporate Bond Series, Balanced Series,
Equity Income Series and Equity Growth Series. The Calvert Series is an actively
managed, diversified portfolio of common and preferred stocks, bonds, and money
market instruments which offer income and capital growth opportunity and which
satisfy the social concern criteria established by the Calvert Series. A copy of
the Calvert Series Prospectus appears at the end of this Keynote Prospectus.
KEYNOTE SUBACCOUNTS WHICH INVEST IN DIVERSIFIED INVESTORS PORTFOLIOS DO SO
UNDER A CORE/FEEDER ARRANGEMENT. UNLIKE OTHER FUNDING VEHICLES INTO WHICH
PURCHASE PAYMENTS MAY BE INVESTED THROUGH VARIABLE ANNUITY CONTRACTS ISSUED BY
INSURANCE COMPANIES, DIVERSIFIED INVESTORS PORTFOLIOS OFFERS ITS INTERESTS FOR
SALE TO OTHER TYPES OF COLLECTIVE INVESTMENT VEHICLES IN ADDITION TO INSURANCE
COMPANY SEPARATE ACCOUNTS REGISTERED AS INVESTMENT COMPANIES UNDER THE
INVESTMENT COMPANY ACT OF 1940. SUCH INVESTORS MAY INCLUDE MUTUAL FUNDS, BANK
COLLECTIVE TRUSTS AND UNREGISTERED INSURANCE COMPANY SEPARATE ACCOUNTS. SEE
"DIVERSIFIED INVESTORS PORTFOLIOS -- CORE/FEEDER STRUCTURE" ON PAGE 29 HEREIN.
The value of the Accumulation Accounts maintained in Keynote will vary based
upon the investment experience of the Subaccounts to which Purchase Payments are
allocated. The investment experience of the Subaccounts will vary based on the
underlying investment performance of the series of Diversified Investors
Portfolios and the Calvert Series.
This Prospectus sets forth the basic information that a prospective
purchaser should know before investing. Please keep this Prospectus for future
reference.
A Statement of Additional Information dated May 3, 1999 incorporated herein
by reference, and containing additional information about the Contracts and
Diversified Investors Portfolios, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information is available from
MONY without charge upon written request to the above address or by telephoning
(914) 697-8000. The Table of Contents of the Statement of Additional Information
can be found on page 50 of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy the Contracts in any jurisdiction in which such may not be lawfully
made.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED (OR PRECEDED) BY A CURRENT PROSPECTUS
FOR THE CALVERT SERIES.
DATED MAY 3, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions................................................. 4
Synopsis.................................................... 6
Fee Table................................................... 6
The Contracts............................................... 7
Keynote..................................................... 8
Charges..................................................... 8
Credit And Allocation Of Purchase Payments.................. 8
Redemption.................................................. 9
Transfers................................................... 9
Payment Options............................................. 9
Substitution of Shares of Diversified Investors
Portfolios................................................ 9
Voting Rights............................................... 9
Death Benefit............................................... 9
Distribution Of The Contracts............................... 9
Condensed Financial Information............................. 10
MONY........................................................ 11
Keynote Series Account...................................... 11
Calvert Series.............................................. 11
Diversified Investors Portfolios............................ 12
The Transaction............................................. 13
Charges..................................................... 14
Charges for Mortality and Expense Risks..................... 14
Annual Contract Charge...................................... 14
Investment Management Fee................................... 14
Premium Tax................................................. 15
Summary Of The Contracts.................................... 16
Eligible Purchasers......................................... 16
Ownership................................................... 16
Purchase Payments........................................... 16
Employer Sponsored Plan Requirements........................ 16
Rights Of The Participant Under The Contract................ 16
Rights Upon Suspension Of Contract or Termination Of Plan... 17
403(b) Contract............................................. 17
401(a) Contract/401(k) Contract and NQDC.................... 17
457 and 408 (IRA) Contracts................................. 17
Failure Of Qualification.................................... 17
Transfers................................................... 17
Rights Reserved By MONY..................................... 18
Credit Of Purchase Payments................................. 18
Allocation Of Purchase Payments............................. 18
Determination Of Unit Values................................ 19
Death Benefit............................................... 19
Redemption During The Accumulation Period................... 20
Restrictions Under The Texas Optional Retirement Program.... 20
Payment Options............................................. 20
Annuity Purchase Date....................................... 20
Fixed Annuity............................................... 21
Fixed Annuity Options....................................... 21
Payments To A Beneficiary Following The Annuitant's Death... 22
Voting Rights............................................... 22
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Distribution Of The Contracts............................... 23
Federal Tax Status.......................................... 24
Tax Treatment of MONY....................................... 24
Taxation of Diversified Investors Portfolios................ 24
Section 403(b) Annuities.................................... 24
Section 401(a) Plans........................................ 25
Section 408 (IRA) Contracts................................. 26
Minimum Distribution Requirements........................... 26
Section 457 Plans........................................... 26
Non-Qualified Deferred Compensation Contracts............... 27
Income Tax Withholding...................................... 27
Performance Data............................................ 28
Diversified Investors Portfolios............................ 29
Core/Feeder Structure....................................... 29
Investment Objectives and Policies.......................... 30
Investment Techniques and Restrictions...................... 41
Management of Diversified Investors Portfolios.............. 43
Other Information Regarding Diversified Investors
Portfolios................................................ 46
Purchase and Redemption of Interests in Diversified
Investors Portfolios...................................... 46
Experts..................................................... 48
Legal Proceedings........................................... 48
Financial Statements........................................ 48
Additional Information...................................... 48
Miscellaneous............................................... 49
Table Of Contents Of Statement Of Additional Information.... 50
Request For Keynote Statement Of Additional Information..... 51
Appendix.................................................... 52
</TABLE>
3
<PAGE> 6
DEFINITIONS
As used in this Prospectus, the following terms have the indicated meaning:
ACCUMULATION ACCOUNT: an account maintained for each Participant in which
is recorded the number of Units held for his/her credit.
ACCUMULATION PERIOD: the accumulation period for each Participant is the
period during which Purchase Payments may be made on his/her behalf. It begins
when the Participant begins participation under the Plan and ends as of his/her
Annuity Purchase Date (See "Annuity Purchase Date" page 20), or earlier
termination of his/her Accumulation Account.
BALANCED SERIES: Diversified Investors Balanced Portfolio, a series of
Diversified Investors Portfolios.
CALVERT SERIES: the Calvert Social Balanced Portfolio, a series of Calvert
Variable Series, Inc., an open-end management investment company registered
under the Investment Company Act of 1940, as amended.
CONTRACT(S): the group variable annuity contract(s) offered by MONY to
Contractholders or IRA Contractholders as described in this Prospectus.
CONTRACTHOLDER: a state educational organization or certain tax-exempt
organization employer or employer association for affiliated employers, taxed
subsidiaries of tax-exempt organizations and taxed stand alone organizations.
CONTRACT YEAR: a period of 12 months measured from the date of the Contract
issued to or adopted by the Contractholder, and anniversaries thereof.
DIVERSIFIED: Diversified Investment Advisors, Inc., a registered investment
adviser under the Investment Advisers Act of 1940.
DIVERSIFIED INVESTORS PORTFOLIOS: Diversified Investors Portfolios, an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended.
EQUITY GROWTH SERIES: Diversified Investors Equity Growth Portfolio, a
series of Diversified Investors Portfolios.
EQUITY INCOME SERIES: Diversified Investors Equity Income Portfolio, a
series of Diversified Investors Portfolios.
FIXED ANNUITY: an annuity with payments which remain fixed throughout the
payment period and which do not reflect the investment experience of a separate
account.
GOVERNMENT/CORPORATE BOND SERIES: Diversified Investors
Government/Corporate Bond Portfolio, a series of Diversified Investors
Portfolios.
INTERMEDIATE GOVERNMENT BOND SERIES: Diversified Investors Intermediate
Government Bond Portfolio, a series of Diversified Investors Portfolios.
IRA CONTRACTHOLDER: a tax-exempt or taxed organization or an association of
members who share a common interest.
MONEY MARKET SERIES: Diversified Investors Money Market Portfolio, a series
of Diversified Investors Portfolios.
NQDC: Non-qualified deferred compensation arrangement available to taxed
organizations only.
PARTICIPANT: an employee participating under a Contract issued to or
adopted by his/her employer.
PLAN: a retirement plan or program under which benefits are to be provided
pursuant to a Contract described herein.
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<PAGE> 7
PORTFOLIO BUSINESS DAY: each day during which the Advisers of a Series are
open for business.
PURCHASE PAYMENT: the amount contributed and remitted to MONY by an
employer on behalf of a Participant.
SUBSTITUTION: the investment by Keynote Subaccounts in corresponding series
of Diversified Investors Portfolios of the proceeds received upon the redemption
by each Subaccount of shares of MONY Series Fund, Inc. in accordance with an
order of the Securities and Exchange Commission dated June 8, 1994.
SUBACCOUNT: a subdivision of Keynote which is available for the allocation
of Purchase Payments under the Contracts. Six Subaccounts invest in a
corresponding series of Diversified Investors Portfolios. The Calvert Series
Subaccount invests in the Calvert Series.
UNIT: the measure by which the value of an investor's interest in each
Subaccount is determined.
VALUATION DATE: each day at the close of business of the New York Stock
Exchange (currently at 4:00 p.m. New York City time), that the New York Stock
Exchange is open for trading or any other day on which there is sufficient
trading in securities of a series of Diversified Investors Portfolios or the
Calvert Series to affect materially the value of the Units of the corresponding
Subaccount. If the New York Stock Exchange extends its closing beyond 4:00 p.m.
New York City time, and continues to value after the time of closing of the
NYSE, MONY reserves the right to treat any payment or communication received
after 4:00 p.m. New York City time as being received as of the beginning of the
next day.
VALUATION PERIOD: The period between the ending of two successive Valuation
Dates.
NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS.
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<PAGE> 8
SYNOPSIS
MONY LIFE INSURANCE COMPANY
KEYNOTE SERIES ACCOUNT
TABLE OF FEES(1)
<TABLE>
<S> <C>
Total Separate Account Annual Expenses (as a percentage
of average account values)
Mortality and Expense Risk Fees............................. 0.90%(2)
</TABLE>
(1) In addition to the mortality and expense risk fees, MONY reserves the
right to deduct an annual contract charge from a Participant's Accumulation
Account not to exceed $50. See "Charges -- Annual Contract Charge" at page 14.
(2) MONY reserves the right to charge maximum mortality and expense risk
fees of 1.25% upon notice.
Portfolio Company Annual Expenses:
DIVERSIFIED INVESTORS PORTFOLIOS AND CALVERT SOCIAL BALANCED PORTFOLIO
ANNUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT/
MONEY GOVERNMENT CORPORATE EQUITY EQUITY
MARKET BOND BOND BALANCED INCOME GROWTH CALVERT
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ------------ ------------ -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee (After fee
reimbursements)(1)............. 0.25% 0.35% 0.35% 0.45% 0.45% 0.62% 0.70%
Other Expenses(2)................ 0.03% 0.04% 0.03% 0.03% 0.02% 0.02% 0.15%
Reimbursement from MONY(3)....... (0.18)% -- -- -- -- (0.14)% --
----- ---- ---- ---- ----- ----- ----
Total Annual Expenses After Fee
Reimbursements(4).............. 0.10% 0.39% 0.38% 0.48% 0.47% 0.50% 0.85%
</TABLE>
- ---------------
(1) The fees shown on the line "Management Fee" are the fees charged to each
series of Diversified Investors Portfolios by Diversified Investment
Advisors, Inc., after waiver. The expense table for Portfolio Company Annual
Expenses and the example reflect a voluntary undertaking by Diversified to
waive a portion of the investment advisory fees payable by series of
Diversified Investors Portfolios. Without such a waiver, the annual
investment advisory fee would be 0.25% for the Money Market Series, 0.35%
for the Intermediate Government Bond Series, 0.35% for the
Government/Corporate Bond Series, 0.45% for the Balanced Series, 0.45% for
the Equity Income Series and 0.62% for the Equity Growth Series. For the
Calvert Series, the fees shown are those charged by Calvert Asset Management
Company to the Calvert Series.
(2) "Other Expenses" for each series of Diversified Investors Portfolios and for
the Calvert Series are actual for the year ended December 31, 1998.
(3) MONY has agreed to provide reimbursements to limit total Diversified
Investors Portfolios expenses for Keynote Participants in the Money Market
Series and the Equity Growth Series to .10% and .50%, respectively, of
average net assets of the applicable series with MONY reserving the right to
raise the limit upon notice.
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<PAGE> 9
(4) "Total Annual Expenses After Fee Reimbursements" for certain of the series
of Diversified Investors Portfolios reflect voluntary waivers and
reimbursements by Diversified. In the absence of such waivers and
reimbursements, "Total Annual Expenses After Fee Reimbursements" would be as
follows for the following series: Money Market Series -- 0.28%; Intermediate
Government Bond Series -- 0.39%; Government/Corporate Bond -- 0.38%;
Balanced -- 0.48%; Equity Income Series -- 0.47%; and Equity Growth
Series -- 0.64%.
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly and indirectly and reflects
expenses of the separate account as well as the portfolio applicable company.
(See Charges at page 14 for a more complete description of applicable costs and
expenses.)
Example
If you (i) surrender your contract at the end of the applicable time
period, (ii) annuitize at the end of the applicable time period or (iii) do not
surrender your contract, you would pay the following expenses on a $1,000
investment, assuming a 5% annual rate of return.
<TABLE>
<CAPTION>
AFTER AFTER AFTER AFTER
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market............................................ $10 $32 $55 $122
Intermediate Government Bond............................ $13 $41 $71 $156
Government/Corporate Bond............................... $13 $41 $70 $155
Balanced................................................ $14 $44 $76 $166
Equity Income........................................... $14 $43 $75 $165
Equity Growth........................................... $14 $44 $77 $168
Calvert Series.......................................... $17 $53 $91 $198
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. PREMIUM
TAXES MAY ALSO BE APPLICABLE.
THE CONTRACTS
The Group Variable Annuity Contract(s) ("Contract(s)") described in this
Prospectus are designed and offered as funding vehicles for retirement Plans
maintained by state educational organizations, certain tax-exempt organizations,
IRA Contractholders and for taxed organizations for Section 401(a) and/or
Section 401(k) Contracts and corporate nonqualified deferred compensation
Contracts ("NQDC"). The Section 401(k) Contract will fund the benefits for
tax-qualified pension and profit-sharing plans from employee/employer
contributions of such organizations. The Section 403(b) Contract will purchase
tax-deferred annuities for employees of these same organizations. The Section
457 Contract will provide deferred compensation eligible for deferred tax
treatment. The Section 401(a) Contract will fund benefits for tax-qualified
pension and profit-sharing Plans of such tax-exempt organizations as well as
taxed subsidiaries of these organizations and stand-alone taxed organizations;
the non-qualified deferred compensation Contracts ("NQDC") will fund benefits
for taxed organizations. The Section 408 (Individual Retirement Account ("IRA"))
Contract is a Group Variable Annuity Contract which will provide for on-going or
rollover contributions from employees of tax-exempt or taxed organizations and
from members and employees of associations. Section references are to the
Internal Revenue Code of 1986, as amended (the "Code").
Insofar as possible, the provisions of the Contracts are identical, and the
information provided in this Prospectus is generally applicable to all
Contracts. However, whenever statutory or administrative considerations require
significant differences among the Contracts, such differences are explained
separately for each.
With respect to Section 401(a), Section 401 (k) and NQDC Contracts, the
employer and/or the employee will make contributions pursuant to the terms and
conditions of the underlying retirement Plan. As to the Section 403(b) and
Section 457 Contracts, the employer will make Purchase Payments for each
participating employee pursuant to either a salary reduction agreement or an
agreement to
7
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forego a salary increase under which the employee decides the level and number
of Purchase Payments to his/her Accumulation Account, except with respect to
employer-sponsored Section 401(a) Plans under which the employer will make
contributions pursuant to the underlying retirement Plan. In the case of the
Section 408 IRA Contract, the employer will make Purchase Payments on behalf of
and as determined by each participating employee pursuant to a salary deduction
agreement.
KEYNOTE
Purchase Payments under the Contract(s) are allocated to Keynote which is a
separate account of MONY. Keynote is divided into Subaccounts, six of which
correspond to Diversified Investors Portfolios' Money Market, Intermediate
Government Bond, Government/Corporate Bond, Balanced, Equity Income, and Equity
Growth Series, respectively. The Calvert Series Subaccount invests in the
Calvert Series. The assets in each Subaccount are invested in the corresponding
series of Diversified Investors Portfolios or the Calvert Series at their net
asset value (See "Diversified Investors Portfolios" at page 12 and "Calvert
Series" at page 11.) Each series of Diversified Investors Portfolios is managed
by Diversified Investment Advisors, Inc. ("Diversified"). MONY Securities Corp.,
a wholly-owned subsidiary of MONY, is the principal underwriter and distributor.
The Calvert Series is a series of Calvert Variable Series, Inc., (formerly,
Acacia Capital Corporation,) (the "Fund") a diversified open-end management
company whose investment adviser is Calvert Asset Management Company, Inc.
The value of a Participant's Accumulation Account maintained in Keynote
will vary based upon the investment experience of the series of Diversified
Investors Portfolios or the Calvert Series to which Purchase Payments are
allocated.
The Calvert Series is an actively managed portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and capital
growth opportunity and which satisfy the social concern criteria established by
the Calvert Series. A copy of the Calvert Series Prospectus appears at the end
of this Keynote Prospectus. Diversified Investors Portfolios is an open-end,
diversified management investment company which has six series with differing
investment objectives available under the Contracts. See "Diversified Investors
Portfolios" at page 12 herein.
CHARGES
MONY makes daily charges against the net assets of Keynote at a maximum
annual rate of 1.25%, consisting of .80% for mortality risks and .45% for
administrative expense risks. Effective May 1, 1993, the annual rate charged is
.90% consisting of .60% for mortality risks and .30% for administrative expense
risk. However, MONY reserves the right to charge a maximum fee of 1.25% upon
notice thereafter. (See "Charges -- Charges for Mortality and Expense Risks" on
page 14.) In addition, MONY reserves the right to deduct an annual contract
charge, not to exceed $50, from a Participant's Accumulation Account (See
"Charges -- Annual Contract Charge" on page 14.)
In addition to the charges set forth above, Diversified, which serves as an
investment adviser to each series of Diversified Investors Portfolios, and
Calvert Asset Management Company, Inc., which serves as investment adviser to
the Calvert Series, impose a charge against the net asset value of each series
of Diversified Investors Portfolios or the Calvert Series, as appropriate,
computed daily, for investment advisory services and other expenses.
Premium taxes may be payable on annuity considerations. (See "Premium Tax"
on page 15.)
CREDIT AND ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments will be credited to the Subaccounts designated by the
Participant in the form of Units. The number of Units credited will not change
but the dollar value of a Unit will vary depending upon the investment
experience of the series of Diversified Investors Portfolios or the Calvert
Series, as appropriate. (See "Credit of Purchase Payments" on page 18.)
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<PAGE> 11
REDEMPTION
A Participant may redeem at any time prior to the time an annuity benefit
takes effect and prior to his death all or a portion of the Units credited to
his Accumulation Account without any charge, subject to any limitations in the
underlying Plan. There are no redemption charges. (See "Restrictions Under the
Texas Optional Retirement Program" on page 20, for withdrawal restrictions
applicable to Contracts issued under the Texas Optional Retirement Program.)
A penalty tax may be payable under the Code upon the redemption of amounts
from an Accumulation Account under the Contract and other significant withdrawal
restrictions may be imposed by the Code. (See, "Section 403(b) Annuities" on
page 24 and "Section 408 IRA Contracts" on page 26.)
TRANSFERS
A Participant may transfer all or a portion of his/her Accumulation Account
in Keynote among the various Subaccounts. No transfer charges are imposed, and
there is no limit to the number of transfers. While MONY has no present
intention to do so, it reserves the right to impose transfer charges at a later
date. Transfers may be made in writing or by telephone by calling (914)
697-8000. (See "Transfers" on page 17.) MONY reserves the right to discontinue
allowing telephone transfers.
PAYMENT OPTIONS
Unless a Fixed Annuity is elected, a Participant will receive a lump sum
payment at the end of the Accumulation Period. The Contracts may provide for
several Fixed Annuity options: Life Annuity, Life Annuity With Period Certain,
Specified Fixed Period Annuity, Contingent Annuity and Contingent Annuity With
Period Certain. For NQDC, an installment payment option may also be available.
(See "Payment Options" on page 20.)
VOTING RIGHTS
To the extent required by law, MONY will vote the interests in Diversified
Investors Portfolios and the Calvert Series held in Keynote in accordance with
the instructions received from Contractholders, IRA Contractholders and NQDC
Contractholders; the Contractholders will instruct MONY in accordance with the
instructions received from Participants. (See "Voting Rights" on page 22.)
DEATH BENEFIT
If a Participant dies before the Annuity Purchase Date, the Accumulation
Account value will be paid to his/her beneficiary in a lump sum. (See "Death
Benefit" on page 19.)
DISTRIBUTION OF THE CONTRACTS
MONY Securities Corp. ("MSC") will be the principal underwriter and
distributor of the Contracts which will be sold by registered representatives
who are also licensed insurance agents of MONY. The Contracts may also be sold
through other broker-dealers authorized by MSC and applicable law and who may be
insurance agents licensed by an insurance company other than MONY. (See
"Distribution of the Contracts" on page 23.)
9
<PAGE> 12
CONDENSED FINANCIAL INFORMATION
KEYNOTE SERIES ACCOUNT
ACCUMULATION UNIT VALUES
KEYNOTE SUBACCOUNT*
<TABLE>
<CAPTION>
UNIT VALUE
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AUG. 1, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1989 1989 1990 1991 1992 1993 1994 1995 1996 1997
------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........ $10.00 $13.89 $13.65 $18.32 $18.07 $19.67 $21.65 $25.58 $30.06 $37.99
Money Market......... 10.00 10.93 11.81 12.49 12.90 13.20 13.65 14.35 15.00 15.71
Balanced............. 10.00 12.46 12.74 15.29 15.37 16.92 16.66 21.25 24.62 29.12
Government/ Corporate
Bond................ 10.00 11.68 12.38 14.52 15.71 17.81 16.70 19.63 20.10 21.66
Equity Income........ 10.00 12.19 11.34 13.60 14.93 16.91 16.86 22.48 26.38 33.99
Intermediate
Government Bond..... -- -- 10.00 11.00 11.73 12.58 12.24 13.84 14,21 15.13
Calvert Series....... -- 10.00 10.26 11.91 12.75 13.36 13.11 16.87 18.83 22.41
<CAPTION>
UNIT VALUE
---------
DEC. 31,
1998
--------
<S> <C>
Equity Growth........ $51.57
Money Market......... 16.45
Balanced............. 32.46
Government/ Corporate
Bond................ 23.15
Equity Income........ 38.08
Intermediate
Government Bond..... 16.07
Calvert Series....... 26.13
<CAPTION>
UNITS OUTSTANDING
-------------------------------------------------------------------------------------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1989 1990 1991 1992 1993 1994 1995 1996 1997
-------- --------- --------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Growth........ 47,235 429,986 1,334,644 2,115,942 2,907,819 994,859 201,470 237,959 242,846
Money Market......... 15,100 590,354 702,177 637,701 656,262 179,143 58,026 56,311 47,018
Balanced............. 59,050 322,563 814,494 1,268,765 1,835,594 762,735 145,593 156,241 163,289
Government/ Corporate
Bond................ 21,080 97,161 493,084 328,126 471,446 125,870 24,207 25,670 26,763
Equity Income........ 30,585 7,198,970 7,227,359 6,883,795 7,852,650 2,135,776 571,730 489,820 474,554
Intermediate
Government Bond..... -- -- 3,840,526 1,628,553 1,591,845 768,905 50,325 47,901 14,366
Calvert Series....... -- 16,681 180,569 355,343 685,428 291,806 19,147 25,095 26,219
<CAPTION>
UNITS OUTSTANDING
------------------
DEC. 31,
1998
---------
<S> <C>
Equity Growth........ 247,234
Money Market......... 40,999
Balanced............. 167,348
Government/ Corporate
Bond................ 39,571
Equity Income........ 434,610
Intermediate
Government Bond..... 27,614
Calvert Series....... 31,111
</TABLE>
- ---------------
* The commencement dates for the Calvert Series Subaccount and the Intermediate
Government Bond Subaccount are May 1, 1990 and May 1, 1991, respectively.
Further information about the performance of Keynote is contained in the
Annual Report of Keynote which is available, free of charge, by contacting
MONY at the address or at the telephone number set forth on the cover of this
Prospectus.
10
<PAGE> 13
MONY
MONY Life Insurance Company formerly organized as a mutual life insurance
company, under the laws of the State of New York in 1842 converted to a stock
life insurance company through demutualization. Its principal place of business
is 1740 Broadway, New York, N.Y. 10019. MONY is currently licensed to sell life
insurance and annuities in all states of the United States, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands.
KEYNOTE SERIES ACCOUNT
Keynote was established by MONY under New York Insurance Law on December
16, 1987 as a separate account. Keynote will hold assets that are segregated
from all of MONY's other assets and at present is used only to support the
Contracts. MONY is the legal holder of the assets in Keynote and will at all
times maintain assets in Keynote with a total market value at least equal to the
contract liabilities for Keynote. The obligations under the Contracts are
obligations of MONY. Income, gains, and losses, whether or not realized, from
assets allocated to Keynote, are, in accordance with the Contracts, credited to
or charged against Keynote without regard to other income, gains, or losses of
MONY. The assets in Keynote may not be charged with liabilities which arise from
any other business MONY conducts. Keynote assets may include accumulation of the
charges MONY makes against a Contract participating in Keynote. From time to
time, any such additional assets may be transferred in cash to MONY's general
account.
Keynote is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
Keynote. For state law purposes, Keynote is treated as a part or division of
MONY.
There are currently seven Subaccounts within Keynote which are available
for allocation of Purchase Payments under the Contracts. The Calvert Series
Subaccount invests only in the Calvert Social Balanced Portfolio (the "Calvert
Series"), a series of Calvert Variable Series, Inc. ("Calvert Variable"), an
open-end management investment company registered with the SEC under the 1940
Act. The six other Subaccounts invest in six respective series of Diversified
Investors Portfolios, an open-end diversified management investment company
registered with the SEC under the 1940 Act. Set forth below is a brief
description of the Calvert Series and Diversified Investors Portfolios. A full
description of the Calvert Series, its investment objectives, policies and
restrictions, its expenses, the risks attendant in investing therein and other
aspects of its operations is contained in the accompanying prospectus for the
Calvert Series. Full descriptions of the six series of Diversified Investors
Portfolios, their investment objectives, policies and restrictions, their
expenses, the risks attendant to investing therein and other aspects of their
operations are set forth herein under "Diversified Investors Portfolios" at page
12. Further disclosure appears in the Statement of Additional Information. Each
Participant should periodically consider his/her allocation among the
Subaccounts in light of current market conditions and the investment risks
attendant to investment in the various series of Diversified Investors
Portfolios and the Calvert Series.
CALVERT SERIES
The Calvert Series is a series of Calvert Variable Series, Inc. ("Calvert
Variable"), a Maryland corporation registered with the SEC under the 1940 Act as
an open-end management company, whose investment adviser is Calvert Asset
Management Company, Inc. The shares of the Fund are currently sold only to
insurance companies for allocation to their separate accounts to fund the
benefits under certain variable annuity and variable life insurance policies
issued by such companies. Because the Calvert Series sells its shares to
insurance companies offering both variable annuity and variable life insurance
policies, potential for conflict between the interests of Contractholders of
these contracts may arise. The Board of Directors of the Fund will monitor the
Calvert Series for the existence of any material irreconcilable conflict between
interests of Contractholders of all separate accounts investing
11
<PAGE> 14
in the Calvert Series. If it is determined by a majority of the Board of the
Fund that such conflict exists then MONY will take whatever steps are necessary
to eliminate the material conflict, including withdrawing the assets allocable
to some of the separate accounts from Calvert Series and reinvesting them in a
different investment medium. For additional risk exposure, see the Calvert
Series prospectus which is contained in the last section of this Prospectus.
Keynote will purchase and redeem shares from the Calvert Series at net asset
value.
The investment objective of the Calvert Series is set forth in the
prospectus for the Calvert Series which appears at the end of this Prospectus.
Briefly, the objective is to achieve a total return above the rate of inflation
through an actively managed, diversified portfolio of common and preferred
stocks, bonds and money market instruments which offer income and capital growth
opportunity and which satisfy the social concern criteria established for the
Calvert Series. There can be no assurance that the objective of the Calvert
Series will be realized.
DIVERSIFIED INVESTORS PORTFOLIOS
Each of the other six Subaccounts of Keynote listed below invests
exclusively in the corresponding series of Diversified Investors Portfolios set
forth below:
<TABLE>
<CAPTION>
DIVERSIFIED SUBACCOUNT SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
---------------------- ------------------------------------------
<S> <C>
Keynote Money Market Subaccount.............. Diversified Investors Money Market Portfolio
(the "Money Market Series")
Keynote Intermediate Government Bond
Subaccount................................. Diversified Investors Intermediate Government
Bond Portfolio (the "Intermediate Government
Bond Series")
Keynote Government/Corporate Bond Subaccount
(formerly the Keynote Long Term Bond
Subaccount)................................ Diversified Investors Government/Corporate
Bond Portfolio (the "Government/Corporate
Bond Series")
Keynote Balanced Subaccount (formerly the
Keynote Diversified/Balanced Subaccount)... Diversified Investors Balanced Portfolio (the
"Balanced Series")
Keynote Equity Income Subaccount............. Diversified Investors Equity Income Portfolio
(the "Equity Income Series")
Keynote Equity Growth Subaccount............. Diversified Investors Equity Growth Portfolio
(the "Equity Growth Series")
</TABLE>
Diversified Investors Portfolios is registered with the SEC under the 1940
Act as an open-end diversified management investment company. This registration
does not involve supervision by the SEC of the management or investment
practices or policies of Diversified Investors Portfolios.
Diversified acts as investment adviser and administrator to each series of
Diversified Investors Portfolios. With respect to each series of Diversified
Investors Portfolios, Diversified has contracted for certain investment advisory
services with one or more subadvisers. Diversified and the subadviser or
subadvisers for a particular series of Diversified Investors Portfolios are
referred to herein collectively as the "Advisers". The investment objectives of
the series of Diversified Investors Portfolios currently available under the
Contracts through Subaccounts are described briefly below. There can be no
assurance that the investment objectives of any of the series will be met.
Money Market Series: To provide liquidity and as high a level of current
income as is consistent with the preservation of capital through investment in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. An investor's interest in the Keynote Money
Market Subaccount is neither insured nor guaranteed by the U.S. Government.
Intermediate Government Bond Series: To provide as high a level of current
income as is consistent with the preservation of capital through investment in
U.S. Government and U.S. Government agency and instrumentality securities with
short and intermediate maturities and high quality short-term obligations.
12
<PAGE> 15
Government/Corporate Bond Series: To achieve the maximum total return
through investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities, collateralized mortgage
obligations guaranteed by these agencies and instrumentalities and high quality
short-term obligations.
Balanced Series: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.
Equity Income Series: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
Equity Growth Series: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above average growth in earnings; current income is a secondary objective.
See "Diversified Investors Portfolios" at page 12 and the Statement of
Additional Information for more information on each series.
THE TRANSACTION
On December 31, 1993, MONY and AEGON USA, Inc. ("AEGON") entered into a
transaction pursuant to which MONY sold its group pension operation to AEGON
(the "Transaction"). As a part of the Transaction, the Contracts may be
transferred through assumption reinsurance to AUSA Life Insurance Company, Inc.
("AUSA"), a New York domiciled stock life insurance company and an indirect,
wholly-owned subsidiary of AEGON. Subject to the receipt of any necessary state
insurance department approvals and authorizations each Contractholder will
receive materials relating to this assumption.
In addition, as a result of the Transaction, the group fixed annuity
contracts which have been issued by MONY to Contractholders may also be
transferred to AUSA through assumption reinsurance. Based upon regulatory and
other consideration, the transfer of any fixed contract may occur before,
concurrent with, or after the transfer of the companion variable Contract which
is offered through this Prospectus. Accordingly, all references in this
Prospectus to a companion fixed annuity contract shall refer to the fixed
contract issued by MONY or the fixed contract which has been assumed by AUSA, as
appropriate.
AUSA is a wholly-owned subsidiary of First AUSA Life Insurance Company, a
stock life insurance company which is wholly-owned by AEGON. AEGON is a
financial services holding company whose primary emphasis is on life and health
insurance and annuity and investment products. AEGON is a wholly-owned indirect
subsidiary of AEGON nv, a Netherlands corporation which is a publicly traded
international insurance group.
13
<PAGE> 16
CHARGES
CHARGES FOR MORTALITY AND EXPENSE RISKS
The maximum daily charges against Keynote for mortality and expense risks
assumed by MONY are computed and deducted from the value of the net assets of
Keynote. This maximum daily charge will be at the rate of 0.003425% (equivalent
to an annual rate of 1.25%) of the average daily net assets of Keynote. The
daily charge will be deducted from the net asset value of Keynote, and therefore
the Subaccounts, on each Valuation Date. Where the previous day (or days) was
not a Valuation Date, the deduction on the Valuation Date will be 0.003425%
multiplied by the number of days since the last Valuation Date. The sum of these
charges on an annual basis will not exceed 1.25% of the average net assets
invested in Keynote. Of this charge, MONY estimates that .80% is for mortality
risk and .45% is for expense risk. (The daily charge from Keynote based on an
annual mortality and expense risk rate of .90%, .60% for mortality risks and
.30% for administrative expense risks, which was effective May 1, 1994, is
0.002466%.)
The mortality risk is that individuals may live for a longer period of time
than projected and therefore a greater amount of annuity benefits than projected
will be payable. The expense risk is that expenses incurred in issuing and
administering the Contract will exceed the administrative expense charge
provided in the Contract. MONY believes that this level of charge is within the
range of industry practice for comparable group variable annuity contracts.
Sales distribution expenses and any other expenses in excess of the
described charges will be paid from MONY's general account and not directly from
Keynote or from the mortality and expense risk charges. However, asset charges
for MONY's assumption of mortality and expense risks might be a source of
contribution to the surplus in MONY's general account.
ANNUAL CONTRACT CHARGE
MONY reserves the right to deduct an annual contract charge from a
Participant's Accumulation Account to reimburse MONY for administrative expenses
relating to the maintenance of the Contracts. MONY has no present intention to
impose such a charge; however, MONY may, in the future, impose such a charge in
accordance with the provisions of the Contracts. Any such annual charge will not
exceed $50. MONY also reserves the right, if such a charge is imposed, to waive,
on a temporary or permanent basis, all or part of such charge for certain
classes of Contracts or for certain new classes of Contracts which may be sold
in the future. If imposed, this charge would represent reimbursement for
administrative costs expected to be incurred over the life of the Contracts.
MONY does not anticipate any profit from this charge.
INVESTMENT MANAGEMENT FEE
Because Keynote purchases interests in certain series of Diversified
Investors Portfolios and the Calvert Series, the net assets of Keynote will
reflect the investment management fee and other expenses incurred by those
series of Diversified Investors Portfolios and the Calvert Series.
Diversified serves as the investment adviser to each series of Diversified
Investors Portfolios. For information with respect to the arrangements under
which Diversified provides such advisory services,including charges and
arrangements with subadvisers, reference is made to the information set forth
under "Management of Diversified Investors Portfolios" at page 43.
The Calvert Series' investment adviser is the Calvert Asset Management Company,
Inc. ("Investment Adviser") which is located at 4550 Montgomery Avenue, Suite
1000N, Bethesda, Maryland 20814. The Investment Adviser is a wholly-owned
subsidiary of Calvert Group, Ltd., which is in turn a wholly-owned subsidiary of
Acacia Mutual Life Insurance Company. Pursuant to its investment advisory
agreement with the Calvert Series, the Investment Adviser manages the fixed
income investment of the Calvert Series and is responsible for the overall
management of the business affairs of the Calvert Series subject to the
direction and authority of the Board of Directors of the Fund. The sub-adviser
to the Calvert Series is NCM Capital Management Group, Inc. ("NCM"). Pursuant to
its Investment Subadvisory Agreement with the Investment Adviser, NCM manages
the equity portion of investments for the Calvert Series. NCM is an
employee-owned subsidiary of Sloan Financial Group. Sloan
14
<PAGE> 17
Financial Group is controlled by Maceo K. Sloan and Justin F. Beckett and is one
of the largest minority-owned investment management firms in the country. The
Investment Adviser receives from the Calvert Series a monthly base fee, computed
on a daily basis at an annual rate of 0.70% of the average daily net assets of
the Calvert Series. The Investment Adviser pays NCM a base fee of 0.25% of
one-half of the Calvert Series' net assets. In addition, the Investment Adviser
and NCM may earn (or have their fees reduced by) performance fee adjustments
based on the extent to which performance of the Calvert Series exceeds or trails
the Lipper Balanced Funds Index. Payment of the performance fee adjustment began
July 1, 1996. The specific adjustments are as follows:
INVESTMENT ADVISER'S PERFORMANCE FEE ADJUSTMENT
<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUND INDEX ADJUSTMENT
-------------------------- ---------------
<S> <C> <C>
6% to <12% 0.05%
12% to <18% 0.10%
18% or more 0.15%
</TABLE>
NCM'S PERFORMANCE FEE ADJUSTMENT
<TABLE>
<CAPTION>
PERFORMANCE VERSUS THE PERFORMANCE FEE
LIPPER BALANCED FUND INDEX ADJUSTMENT
-------------------------- ---------------
<S> <C> <C>
6% to <12% 0.05%
12% to <18% 0.10%
18% or more 0.15%
</TABLE>
The performance fee adjustment to NCM is paid out of the fee the Investment
Adviser receives from the Calvert Series. The initial performance period was the
twelve month period between July 1, 1995 and July 1, 1996. Each month an
additional month's performance is factored into the calculation until a total of
36 months comprises the performance computation period. Payment by the Calvert
Series of the performance fee adjustment will be conditioned on (i) the
performance of the Calvert Series as a whole having exceeded the Lipper Balanced
Fund Index and (ii) payment of the performance fee adjustment not causing the
Calvert Series' performance to fall below the Lipper Balanced Fund Index.
PREMIUM TAX
Under the laws of certain jurisdictions, premium taxes are payable on
annuity considerations which can include Purchase Payments or the Accumulation
Account under the Contracts. Any applicable premium taxes will generally be
deducted when the Accumulation Account under a Contract is applied to purchase
an annuity. Under present laws, the range of premium taxes is from 5% to 4.0%.
Attached as an Appendix to this Prospectus is a schedule of applicable premium
taxes payable upon annuitization which are in effect as of the date of this
Prospectus. The laws of the various jurisdictions relating to annuity taxes and
the interpretations of such laws are subject to changes which may affect the
deductions, if any, under the Contracts for such taxes.
15
<PAGE> 18
SUMMARY OF THE CONTRACTS
ELIGIBLE PURCHASERS
State educational organizations and organizations that qualify for
tax-exempt status under Code Section 501(c)(3), including associations thereof
that qualify for tax-exempt status under Code Section 501(c)(3), are eligible
purchasers. In addition, any organization qualifying as an IRA Contractholder
may purchase an IRA Contract. Any type of non-profit organization as well as
taxed subsidiaries of tax-exempt organizations and taxed stand-alone
organizations may purchase a Section 401(a) and/or a Section 401(k) or an NQDC
Contract(s).
OWNERSHIP
The employer or association purchasing a Contract is the owner of the
Contract for the benefit of the Participants. The Contract will cover all
eligible Participants under a Plan. Each Participant will receive a certificate
at the time his/her first annuity payment becomes payable, or earlier, if
required by applicable law. The certificate summarizes the Participant's
benefits under the Contract.
PURCHASE PAYMENTS
With respect to the Section 401(a) Contract, the employer and/or employee
will make contributions pursuant to the underlying retirement Plan. The Section
401(k) and NQDC Contracts will accept employer and/or employee contributions
pursuant to the terms and conditions of the underlying Plan. As to the Section
403(b) Contract, the employer will make Purchase Payments in accordance with a
salary reduction agreement or an agreement to forego a salary increase, except
with respect to employer-sponsored Section 403(b) Plans under which the employer
will make contributions pursuant to the underlying retirement Plan. In the case
of the Section 408 IRA Contract, the employer will make Purchase Payments on
behalf of and as determined by each participating employee pursuant to a salary
reduction agreement. An Accumulation Account will be established for each
Participant which will record the number of Units held in each Subaccount.
Purchase Payments may be allocated among any of the Subaccounts.
All Purchase Payments in Keynote credited to an Accumulation Account are
vested and nonforfeitable. However, Purchase Payments made by employers,
including all such payments made under a Section 401(a) Contract, which are not
the result of a reduction in salary or a give up in salary agreement, under an
employer-sponsored Plan may be forfeitable but are generally subject to the
vesting requirements, where applicable, of the Employee Retirement Income
Security Act of 1974, as amended. In general, all Purchase Payments made to the
NQDC and Section 457 Contracts may be forfeitable even though partially or fully
vested.
EMPLOYER SPONSORED PLAN REQUIREMENTS
Since the Contracts are intended to implement the Plans of state
educational organizations, organizations that qualify for tax-exempt status
under Code Section 501(c)(3), IRA Contractholders and, in the case of Section
401(a) and/or Section 401(k) and NQDC Contracts, for taxed subsidiaries of such
organizations and stand-alone taxed organizations and since such Plans may be
sponsored by employers or associations who may have their own desires regarding
certain Plan details and the manner in which the Plan is to be administered,
there will be some variations in details in the Contract and Plan to reflect
such desires. Reference to the provisions of the Plan in which the individual is
a Participant must be made in all cases for particulars.
RIGHTS OF THE PARTICIPANT UNDER THE CONTRACT
There are no stipulated or required Purchase Payments to be made under the
Contract. Except for the 15 days prior to a Participant's Annuity Purchase Date
(See "Annuity Purchase Date" at page 20) during which no Purchase Payments will
be accepted by MONY, an employer may make Purchase Payments during a
Participant's Accumulation Period in the amount authorized by the Participant.
The Contract permits the Participant to elect his/her Annuity Purchase Date, to
allocate Purchase Payments, to redeem all or a portion of the Units in his/her
Accumulation Account, to designate beneficiaries, and to elect Fixed Annuity
options, except that employer-sponsored Plans may affect these rights.
16
<PAGE> 19
During a Participant's Accumulation Period, one's rights and those of the
Contractholder or IRA Contractholder shall be as set forth in the Contract and
Plan. On and after the Annuity Purchase Date, or on the Participant's death, if
earlier, all rights, as specified in the Contract and Plan, shall belong to the
Participant or beneficiary as the case may be.
RIGHTS UPON SUSPENSION OF CONTRACT OR TERMINATION OF PLAN
403(b) Contract
In the event that the making or receipt of all Purchase Payments under
certain 403(b) Contracts is discontinued or a Contractholder terminates its Plan
or discontinues Purchase Payments for a Participant, MONY shall give written
notice thereof to the appropriate Participant(s) together with notice of the
right of the Participant to elect to have the value of his/her Accumulation
Account applied under one of the following options: (1) to be held and
distributed by MONY in accordance with the terms of the Contract, (2) to be paid
to him/her in cash, or (3) in the event of suspension of the Contract or
termination of the Plan, to be transferred to an alternate funding agency (e.g.,
another insurance company). Certain other 403(b) Contracts require the
Contractholder, not MONY, to give written notice thereof to Participants.
401(a) Contract/401(k) Contract and NQDC Contracts
If the Contractholder terminates its Plan or discontinues Purchase
Payments, it is the Contractholder's responsibility, and not MONY's, to give
written notice thereof to the affected Participants. In such cases, the
Contractholder shall elect to have the entire balance held under the Contract
applied under one of the following options: (1) to be held and distributed by
MONY in accordance with the terms of the Contract; (2) to be transferred to an
alternate funding agency (e.g., another insurance company); or (3) to purchase
deferred, paid-up life annuity benefits for Participants.
457 and 408(IRA) Contracts
If the Contractholder or IRA Contractholder terminates its Plan or
discontinues Purchase Payments for a Participant, MONY shall give written notice
thereof to the appropriate Participant(s) together with notice of the right of
the Participant to elect to have the value of his/her Accumulation Account
applied under either of the following options: (1) to be held and distributed by
MONY in accordance with the terms of the Contract or (2) to be paid to him/her
in cash, except that, under the terms of certain 457 Contracts, the
Contractholder, not AUSA, shall give notice to affected Participants.
FAILURE OF QUALIFICATION
In the event that a Plan, Contractholder or IRA Contractholder or a
Participant thereunder becomes ineligible for any previously applicable tax
benefits under the Code, MONY upon notice thereof shall refuse during the period
of such ineligibility to accept Purchase Payments with respect to that Plan or
Participant. A failure of qualification under a particular Contract shall have
no effect on other issued and outstanding Contracts.
TRANSFERS
No transfers may be made between any of the Contracts; however, the
following transfers are permissible with respect to each Contract.
401(a), 401(k), 403(b), 457, 408(IRA) and NQDC Contracts
A Participant may transfer all or a portion of his/her Accumulation Account
in Keynote among the various Subaccounts. No transfer charges are imposed, and
there is no limit to the number of transfers permitted. While MONY has no
present intention to do so, MONY reserves the right to impose transfer charges
at a later date.
Transfers from the MONY Section 403(b), Section 401(a), Section 401(k) and
NQDC Group Fixed Annuity Contracts to a Participant's Accumulation Account under
the Keynote Contracts are permitted only to the Subaccounts which invest in the
Balanced Series, Equity Income Series, Equity Growth Series or Calvert Series.
Certain other restrictions which apply to transfers from the MONY Section
403(b), Section 401(a), Section 401(k) and NQDC Group Fixed Annuity and 408(IRA)
Contracts
17
<PAGE> 20
to the Keynote Contracts are contained in the MONY Section 403(b), Section
401(a), Section 401(k) and NQDC Group Fixed Annuity and Section 408(IRA)
Contracts.
Transfers may be made in writing or by telephoning (914) 697-8000.
Transfers are effective within 48 hours of receipt of instructions. All
Participants should be aware that a transfer authorized by telephone and
reasonably believed to be genuine by MONY may subject the Participant to risk of
loss if such instruction is subsequently found not to be genuine. MONY will
employ reasonable procedures, including requiring Participants to give certain
identification information and tape recording of telephone instructions, to
confirm that instructions communicated by telephone are genuine. To the extent
that MONY fails to use reasonable procedures to verify the genuineness of
telephone instructions, MONY may be liable for any losses due to telephone
instructions that prove to be fraudulent or unauthorized.
RIGHTS RESERVED BY MONY
Subject to compliance with applicable laws and, when required by law,
approval of the Contractholders, IRA Contractholders, NQDC Contractholders
and/or Participants and any appropriate regulatory authority, MONY reserves the
right to make the following changes:
(1) To operate Keynote in any form permitted under the 1940 Act or in any
other form permitted by law;
(2) To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act;
(3) To transfer any assets in a Subaccount of Keynote to another Subaccount
of Keynote, or to one or more separate accounts, or to MONY's general
account to the extent permitted by law or to add, combine or remove
Subaccounts in a separate account;
(4) To substitute, for the interests in a series of Diversified Investors
Portfolios or the Calvert Series held in any Subaccount, interests in
another series of Diversified Investors Portfolios or interests in
another investment company or any other investment permitted by law;
and
(5) To make any necessary technical changes in the Contracts in order to
conform with any of the above-described actions or as may be required
or permitted by applicable laws affecting Keynote or the Contracts.
CREDIT OF PURCHASE PAYMENTS
A Participant's initial Purchase Payment will be credited to the
Participant's Accumulation Account to provide Units as of a Valuation Date for
the Valuation Period, not later than (1) two business days after receipt of the
Purchase Payment by MONY at 4 Manhattanville Road, Purchase, New York 10577, if
the contract application and/or Participant's enrollment form is complete upon
receipt, or (2) two business days after an application and/or enrollment form
which is incomplete upon receipt by MONY is made complete, provided that if such
information is not made complete within five business days after receipt, (i)
the prospective Participant will be informed of the reasons for the delay, and
(ii) the initial Purchase Payment will be returned immediately and in full,
unless the prospective Participant specifically consents to MONY retaining the
Purchase Payment until such information is made complete.
Subsequent Purchase Payments will be credited to the Participant's
Accumulation Account to provide Units as of the Valuation Date for the Valuation
Period in which the Purchase Payment is received in good order by MONY.
ALLOCATION OF PURCHASE PAYMENTS
Upon receipt of a Purchase Payment, it will be credited to the Subaccount
designated by the Participant in the form of Units. The number of Units to be
credited is determined by dividing the dollar amount allocated to the particular
Subaccount(s) by the Unit value of that Subaccount for the Valuation Date for
the Valuation Period on which the Purchase Payment is received. The number of
Units shall not be changed by any subsequent change in the value of a Unit, but
the dollar allocation
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<PAGE> 21
value of a Unit will vary in amount depending upon the investment experience of
the applicable Subaccount.
Allocation instructions may be changed at any time by sending to MONY a
correctly completed allocation form. Any change in allocations will be effective
within 10 business days following receipt of the allocation form by MONY. If an
allocation form is incorrectly completed, Purchase Payments will be credited in
accordance with the most recent allocation form on record. MONY reserves the
right to limit a Participant's right to change allocation instructions to four
times a calendar year.
DETERMINATION OF UNIT VALUE
The Unit value for each of the Subaccounts was established at $10 for the
first Valuation Date. The Unit value for a Subaccount for any subsequent
Valuation Date is determined by subtracting (b) from (a) and dividing the result
by (c), where
(a) is the aggregate net asset value on the Valuation Date of all
investments by the Subaccount in the series of Diversified Investors
Portfolios or the Calvert Series in which the Subaccount invests, and
(b) is the mortality and expense risk charge accrued as of that Valuation
Date, and
(c) is the total number of Units held in the Subaccount on the Valuation
Date before the purchase or redemption of any Units on that Date.
DEATH BENEFIT
Under a Section 403(b), Section 457 and Section 408(IRA) Contract, if a
Participant dies before the Annuity Purchase Date (See "Annuity Purchase Date"
on page 20), the value of his/her Accumulation Account will be paid to the
beneficiary in a lump sum. If the beneficiary is under the age of 75 at the time
of the Participant's death, the beneficiary may elect to have this lump sum
applied to provide a Fixed Annuity. A lump sum payment to some extent may be
taxed as ordinary income to the beneficiary in the year received. A beneficiary
should consider the possible tax advantages to electing an annuity. (See
"Section 403(b) Annuities" on page 24). Under a Section 401(a) and/or Section
401(k) Contract, however, the underlying tax-qualified Plan is generally
required to provide that in the case of a married Participant, a survivorship
annuity death benefit will be paid to the surviving spouse if the Participant
dies prior to retirement. In each case involving a Section 401(a) and/or Section
401(k) Contract, reference must be made to the underlying Plan for particulars.
If the Participant dies before the Annuity Purchase Date, his/her entire
interest must generally be distributed within five (5) years after the date of
death, or if payable to a designated beneficiary must be annuitized over the
life of that designated beneficiary or over a period not extending beyond the
life expectancy of that beneficiary, within one year after the date of death. If
the beneficiary is the Participant's spouse, distributions are not required to
be made until the April 1st after the end of the calendar year in which the
Participant would have attained age 70 1/2; if the spouse dies before
distributions begin, the rules discussed above will apply as if the spouse were
the Participant (owner).
If a lump sum payment is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period in which a certified
copy of the death certificate evidencing the Participant's death is received by
MONY. If a Fixed Annuity is elected, the Accumulation Account value will be
determined on the Valuation Date for the Valuation Period of the beneficiary's
Annuity Purchase Date. For Section 401(a) and/or Section 401(k) and NQDC
Contracts, the underlying Plan should be consulted to determine the options
available.
For NQDC Contracts, the remaining value will be paid to a designated
beneficiary. If no such beneficiary is so designated or in existence, the
remaining value will be paid in the following order: Participant's (1) spouse,
(2) children, (3) parents, (4) siblings and (5) estate.
For all Contracts except NQDC Contracts, the death benefit is guaranteed to
be not less than the total amount of all contributions, less any withdrawals,
made by the Participant.
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REDEMPTION DURING THE ACCUMULATION PERIOD
For Section 403(b), Section 457 and Section 408(IRA) Contracts and subject
to applicable federal tax law restrictions, a Participant at any time during
his/her Accumulation Period and prior to his/her death may redeem all or a
portion of the Units credited to the Accumulation Account. There is no
redemption charge. (See "Federal Tax Status" on page 24.)
The Accumulation Account value redeemed or the Units remaining after a
partial redemption will be determined on the Valuation Date for the Valuation
Period in which a written request for a redemption on a form approved by MONY is
received by MONY. The Accumulation Account will be reduced by the lesser of the
number of Units obtained by dividing the amount of the redemption request by the
Unit value for that day or the number of Units remaining in the Accumulation
Account.
A full or partial redemption payment will be made within seven days after
receipt of the written request. A request for a partial redemption must specify
the Subaccount(s) from which the partial withdrawal is to be made. Payment may
be postponed as permitted by the 1940 Act. Currently, deferment is permissible
only when the New York Stock Exchange is closed or trading is restricted, when
an emergency exists as a result of which disposal of the interests in
Diversified Investors Portfolios or Calvert Series held by Keynote is not
reasonably practicable or it is not reasonably practicable to determine fairly
the value of these assets, or when the SEC has provided for such deferment for
the protection of Participants.
A withdrawal will generally have federal income tax consequences which may
include penalties. (See "Federal Tax Status" on page 24.)
With respect to Section 401(a) and Section 401(k) or NQDC Contracts, the
ability to withdraw funds during the Accumulation Period is generally more
limited; however, in each instance the underlying Plan document should be
consulted to determine what options, if any, are available.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
The Teacher Retirement System of Texas permits Participants in the Texas
Optional Retirement Program ("ORP") to redeem their interest in a variable
annuity contract issued under the ORP only upon termination of employment in the
Texas public institutions of higher education, retirement or death. Accordingly,
a Participant in the ORP will be required to obtain a certificate of termination
from his/her employer before he/she can redeem his/her Accumulation Account.
PAYMENT OPTIONS
With respect to Section 403(b), Section 457 and Section 408(IRA) Contracts,
unless a Fixed Annuity as described at page 21 is elected, payment to the
Participant shall be made at the end of his/her Accumulation Period in a lump
sum calculated in the same manner as if a total withdrawal request of one's
Accumulation Account had been received by MONY on his/her Annuity Purchase Date.
(See above for, "Redemption During the Accumulation Period".) However, Section
401(a) and Section 401(k) and NQDC Contracts provide the funding for the Plans
and reference to the particular Plan must be made in each case for details. For
example, tax-qualified Plans must generally provide by law that in the case of a
married Participant who does not properly elect otherwise, retirement annuity
benefits will be paid in the form of a contingent annuity with a survivorship
annuity benefit for his surviving spouse at least equal to 50% of the amount
which would have been payable if the Participant were living. For NQDC
Contracts, the employer may also provide for installment payments without the
purchase of an annuity.
ANNUITY PURCHASE DATE
The Annuity Purchase Date is the first day of the month coincident with or
following the receipt by MONY of written notice, submitted through the
Participant's employer, of the Participant's retirement (i.e., the termination
of employment with his/her employer). Subject to the terms of the Plan, a
Participant may elect to retire at any time and receive annuity benefits. As a
general rule, benefits must begin no later than April 1 of the calendar year
following the year in which the Participant attains age 70 at which time an
election to receive an annuity or lump sum benefit must be made.
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<PAGE> 23
In the case of a beneficiary who elects a Fixed Annuity, the Annuity
Purchase Date will be the first day of the month following receipt by MONY of
the election of a Fixed Annuity; however, if any election is received during the
last 15 days of a month, the Annuity Purchase Date will be the first day of the
second month after receipt of the election.
For Section 408(IRA) Contracts, the Annuity Purchase Date is the date the
annuity first begins under the terms of the IRA Contract.
FIXED ANNUITY
Fixed Annuity payments are not made from Keynote but are made from the
general account of MONY which supports insurance and annuity obligations.
Because of exemptive and exclusionary provisions, Fixed Annuity payments and
interests in the general account have not been registered under the Securities
Act of 1933, nor is the general account registered as an investment company
under the 1940 Act. Accordingly, neither the general account nor any interests
therein are generally subject to the provisions of the 1933 or 1940 Acts. The
SEC staff has not reviewed the disclosures in this Prospectus that relate to the
Fixed Annuity payments and interests in the general account. Disclosures
regarding Fixed Annuity payments and the general account in this Prospectus,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
A Fixed Annuity may not be elected if the initial monthly payment under the
form elected would be less than $20. Fixed Annuity payments will be made monthly
unless the annuitant elects to receive payments annually, semi-annually or
quarterly. Any such election must be made at the same time that the annuitant
elects to receive a Fixed Annuity and cannot be changed during the annuity
period. Once a Fixed Annuity takes effect, it may not be redeemed, surrendered
or changed to any other form of annuity.
FIXED ANNUITY OPTIONS
The following Fixed Annuity options may be available:
(i) Life Annuity -- Annuity payments will be made during the lifetime of
the annuitant. It would be possible for the annuitant to receive no
annuity payment if he/she died prior to the date of the first annuity
payment.
(ii) Life Annuity With Period Certain -- Annuity payments will be made
during the lifetime of the annuitant with the guarantee that if the
annuitant dies before a period certain elected, the beneficiary will
receive payments for the duration of the period. The period certain
may be any number of years between 5 and 20 inclusive.
(iii) Specified Fixed Period Annuity -- Annuity payments will be made for a
specified fixed period elected by the annuitant. If the annuitant
dies during the specified fixed period, the annuity payments for the
remainder of the period will be paid to the beneficiary. No annuity
payments are made after the expiration of the specified fixed period
even if the annuitant survives. The specified fixed period may be for
any number of years between 10 and 30 years inclusive.
(iv) Contingent Annuity -- Annuity payments will be made during the joint
lifetimes of the annuitant and a designated second person ("contingent
annuitant") with payments continued during the remaining lifetime of
the contingent annuitant. Annuity payments to the contingent annuitant
may be made in the same amount paid while both annuitants lived or a
lesser percentage of this amount. For Section 401(a) and/or Section
401(k) Contracts, in the absence of a proper election by the
Participant, a contingent annuity with a survivorship annuity benefit
for the surviving spouse at least equal to 50% of the amount which
would have been payable if the Participant were living will be the
normal form of benefit.
If the contingent annuitant dies before the first annuity payment to
the annuitant, the contingent annuity election will be void and the
annuitant will receive a Life Annuity. If the contingent annuitant dies
after the first annuity payment to the annuitant, but before the death
of the annuitant, annuity payments under the Contingent Annuity
election will be
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made to the annuitant during his/her lifetime. If the annuitant and the
contingent annuitant die before the date of the first annuity payment,
no annuity payments will be made.
(v) Contingent Annuity With Period Certain -- Annuity payments will be
made during the joint lifetimes of the annuitant and a designated
second person ("contingent annuitant"). Annuity payments to the
contingent annuitant may be in the same amount as paid to the
annuitant or a lessor percentage of that amount and will be made for a
period certain of any number of years between 5 and 20 years
inclusive.
The Life Annuity With Period Certain and the Specified Fixed Period Annuity
may only be elected for a number of years that will not exceed an annuitant's
life expectancy. The annuity benefit option elected by the Participant will
affect the level of annuity payments the Participant will receive. The longer
annuity payments are projected to continue based upon actuarial possibilities,
the lower annuity payments will be.
The annuity purchase rates for these Fixed Annuity benefits shall not
exceed, during the first 10 years of the Contracts, the maximum rates set forth
in the Contracts. Thereafter, the annuity purchase rate will be the rate
declared by MONY for all Fixed Annuity benefits purchased under the applicable
Contract in the same Contract Year in which the Annuity Purchase Date occurs.
The guaranteed level of Fixed Annuity payments will be determined based upon (i)
a Participant's Accumulation Account value on the Annuity Purchase Date, (ii)
the applicable annuity purchase rate on the Annuity Purchase Date which will
reflect the age of the Participant and (iii) the type of Fixed Annuity option
elected.
PAYMENTS TO A BENEFICIARY FOLLOWING THE ANNUITANT'S DEATH
If any annuity payment is payable to the beneficiary after the death of an
annuitant on or after his/her Annuity Purchase Date but during a period certain,
it shall be payable as each payment becomes due to the beneficiary. If the
benefit is payable to more than one beneficiary, it shall be paid in equal
shares to such beneficiaries, the survivors or survivor, unless the annuitant
has elected otherwise. Upon the death of the last surviving beneficiary, MONY
shall pay the commuted value of any remaining payments in a lump sum cash
payment to the estate of such last surviving beneficiary in lieu of any further
income payments.
The annuitant's beneficiary may direct in writing to MONY that any income
payable after the death of the annuitant or contingent annuitant be terminated
and a single commuted value be paid to the beneficiary. The commuted values
referred to above shall be based upon the value of the payments for the balance
of the period certain determined as of the date MONY receives written notice of
the beneficiary's election to receive the commuted value on the basis of the
interest rate (compounded annually) inherent in the annuity purchase rate
applied to provide the annuitant's Fixed Annuity.
VOTING RIGHTS
The assets held in the Subaccounts of Keynote will be invested in the
corresponding series of Diversified Investors Portfolios or the Calvert Series.
MONY is the legal holder of these interests and shares held in a Subaccount and
as such has the right to vote to elect the governing Boards of Diversified
Investors Portfolios and the Fund, to vote upon certain matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund, and to vote upon any other matter that may be voted upon at a
shareholders' meeting. To the extent required by law, MONY will vote at regular
and special shareholder meetings in accordance with the instructions received
from Contractholders, IRA Contractholders and NQDC Contractholders. The record
date for any such vote shall be selected by the governing Boards of Diversified
Investors Portfolios or the Calvert Series. MONY will furnish Contractholders,
IRA Contractholders and NQDC Contractholders with the proper forms to enable
them to give it these instructions.
Each Contractholder, IRA Contractholder and NQDC Contractholder will have
the equivalent of one vote per $100 of the dollar value of the Accumulation
Accounts in a Contract held in each Subaccount of Keynote, with fractional votes
for amounts less than $100. These votes, represented as votes per $100 of
Accumulation Account value in each Subaccount of Keynote, are converted into a
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proportionate number of votes in beneficial interests in a series of Diversified
Investors Portfolios or shares of the Calvert Series. Interests held in each
Subaccount for which no timely instructions from Contractholders, IRA
Contractholders or NQDC Contractholders are received will be voted by MONY in
the same proportion as those interests in that Subaccount for which instructions
are received. Should applicable federal securities laws or regulations permit,
MONY may elect to vote in its own right.
A Participant will have the right to instruct the Contractholder, IRA
Contractholder or NQDC Contractholder with respect to interests in the series of
Diversified Investors Portfolios or the Calvert Series attributable to his/her
portion of the Accumulation Account held in each Subaccount of Keynote. Each
Participant under the Contract shall receive a statement of the amount
attributable to his/her participation in each Subaccount of Keynote and stating
his/her right to instruct the Contractholder as to how to vote such interest.
MONY will provide voting instruction materials to the Contractholder, IRA
Contractholder or NQDC Contractholder and to the Participants.
The Contractholder, IRA Contractholder and NQDC Contractholder shall
provide voting instructions to MONY with respect to interests attributable to
the Accumulation Account values held in a Subaccount in accordance with
instructions received by Participants. For interests for which no timely
instructions from Participants are received, the Contractholder, IRA
Contractholder or NQDC Contractholder will instruct MONY to vote these interests
in the same proportion as those shares for which instructions from Participants
are received.
Matters on which the Contractholder, IRA Contractholder or NQDC
Contractholder may give voting instructions include the following: (1) election
of the governing Boards Diversified Investors Portfolios or the Fund; (2)
ratification of the independent accountant of Diversified Investors Portfolios
or the Calvert Series; (3) approval of any change in the Investment Advisory
Agreement or any Subadvisory Agreement for a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholder's, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); (4) any change
in the fundamental investment policies of a series of Diversified Investors
Portfolios or the Calvert Series corresponding to the Contractholder's, IRA
Contractholder's or NQDC Contractholder's selected Subaccount(s); and (5) any
other matter requiring a vote of the shareholders of Diversified Investors
Portfolios or the Calvert Series. With respect to approval of the Investment
Advisory Agreements or Subadvisory Agreements or any change in a fundamental
investment policy, Contractholders, IRA Contractholders and NQDC Contractholders
participating in that Subaccount will vote separately on the matter pursuant to
the requirements of Rule 18f-2 under the 1940 Act.
MONY may, if required by state insurance officials, disregard voting
instructions if those instructions would require voting to cause a change in the
subclassification or investment objectives or policies of one or more of the
series of Diversified Investors Portfolios or the Calvert Series, or to approve
or disapprove an investment adviser or principal underwriter for one or more
series of Diversified Investors Portfolios or the Calvert Series. In addition,
MONY may disregard voting instructions that would require changes in the
investment objectives or policies of any series of Diversified Investors
Portfolios or the Calvert Series or in an investment adviser or principal
underwriter for Diversified Investors Portfolios or the Calvert Series, if MONY
reasonably disapproves those changes in accordance with applicable federal
regulations. If MONY disregards voting instructions, it will advise
Contractholders, IRA Contractholders, NQDC Contractholders and Participants of
that action and its reasons for the action in the next semiannual report to
Contractholders, IRA Contractholders, NQDC Contractholders and Participants.
DISTRIBUTION OF THE CONTRACTS
MSC will act as the principal underwriter and the distributor of the
Contracts pursuant to an underwriting agreement, on behalf of Keynote, with
Diversified Investors Portfolios and the Calvert Series. MSC will perform all
sales, marketing and administrative functions relative to the Contracts which
participate in Keynote, with certain exceptions in connection with the use of
other authorized broker-dealers. MSC is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers. The Contracts are sold by individuals who are registered
representatives of MSC and who are also licensed as insurance agents for the
Company.
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The Contracts may also be sold through registered representatives of other
broker-dealers authorized by MSC and applicable law who may be insurance agents
licensed by an insurance company other than MONY. Commissions and other expenses
directly related to the sale of the Contracts will not exceed 8 percent of
Purchase Payments. Additional expense allowance may be paid for other services
not directly related to the sale of the Contracts. Such services include the
training of personnel and the production of promotional literature.
FEDERAL TAX STATUS
The ultimate effect of federal income taxes on Fixed Annuity payments and
on the economic benefit to the Participant, annuitant, payee and beneficiary
depends on the tax and employment status of the individual concerned.
The discussion which follows on the treatment of MONY and of the Contracts
under federal income tax law is general in nature, is based upon MONY's
understanding of current federal income tax laws, and is not intended as tax
advice. No representation is made regarding the likelihood of continuation of
the present federal income tax law or of the current interpretations by the
Internal Revenue Service. No attempt is made to consider any applicable state or
other tax laws. Each Contractholder, IRA Contractholder, NQDC Contractholders
and Participant contemplating investment in the Contracts should consult a
qualified tax adviser.
Participants receiving large distributions (generally those in excess of
$150,000 (as indexed) per year; or lump sum distributions in excess of $750,000
(as indexed)) from qualified retirement Plans, including those funded through
Section 401(a), Section 408(IRA) and Section 403(b) Contracts, may be subject to
a 15% excise tax on their distributions in excess of a specified amount. The
Small Business Protection Act of 1996 suspended the imposition of the excess
distribution excise tax in 1997, 1998 and 1999. Finally, the Taxpayer Relief Act
of 1997 has repealed the excise tax (and a related estate tax on excess
retirement accumulations) for all subsequent years.
TAX TREATMENT OF MONY
MONY is taxed as a life insurance company under Part I, Subchapter L of the
Code. Investment income from the assets of Keynote are reinvested and taken into
account in determining the value of Keynote. Under existing federal income tax
law, the investment income of Keynote, including realized capital gains, is
substantially not taxed to MONY.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS
Diversified Investors Portfolios is organized as a New York trust. None of
its series are subject to any income or franchise tax in the State of New York.
Each of its series, since it is taxed as a partnership, is not subject to
federal income taxation. MONY, as an investor in a series of Diversified
Investors Portfolios, will be taxable on its share (as determined in accordance
with the governing instruments of Diversified Investors Portfolios) of such
series' ordinary income and capital gain in determining its income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder. See "Tax Treatment of MONY" above.
SECTION 403(b) ANNUITIES
Purchase Payments made under a Contract meeting the requirements of Section
403(b) of the Code afford certain federal income tax benefits to employees of
state educational organizations, and organizations which are tax-exempt under
Section 501(c)(3) of the Code.
The employer may make contributions to the Contract or the employer may
agree with the Participant that in return for employer contributions to the
Contract, the Participant will take a reduction in salary or give up a salary
increase. The agreement may not be changed with respect to earnings of the
Participant while the agreement is in effect. The Participant can only make one
agreement with his/her employer during the year, but the Participant may
terminate the agreement at any time with respect to amounts not yet earned. No
federal income tax is payable by the Participant on increases in the value of
his/her Accumulation Account until payments are received by the Participant.
Purchase Payments meeting the requirements of Sections 402(g), 403(b) and
415 of the Code are not includable in the gross income of the Participant at the
time they are made. Under Sec-
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<PAGE> 27
tion 402(g) of the Code, Purchase Payments made under a reduction in salary or a
give up in salary increase agreement ("elective deferrals") are excluded from a
Participant's gross income to the extent of the lesser of $9,500 (as indexed) or
the Participant's exclusion allowance. The $9,500 (as indexed) limit will be
reduced on a dollar for dollar basis by employee pre-tax elective deferrals made
by that individual under a Section 401(k) Plan, a simplified employee pension
plan, or other tax deferred annuity. Under Section 403(b) of the Code, Purchase
Payments made under a reduction in salary or a give up in salary agreement
and/or contributed by the employer are excluded from a Participant's gross
income to the extent of the applicable "exclusion allowance". The "exclusion
allowance" is equal to 20% of a Participant's includable compensation (taxable
earnings) for the tax year, multiplied by the number of years of employment,
reduced by the total of Purchase Payments made in prior tax years.
When Fixed Annuity payments commence, or if the Participant obtains a
partial or full redemption of the Units credited to his/her Accumulation Account
under the Contract, the amount received will be includable as ordinary income in
the year received, except that such portion of any amount received as is deemed
to represent a return of Purchase Payments originally included as gross income
made by the Participant will not be taxed. Full redemptions do not qualify for
special capital gains treatment nor 5-year income averaging applicable to
qualified plan lump sum distributions. However if a Participant makes a full
redemption after attaining age 59 1/2 or on account of a separation from
service, he/she may delay including the distribution in income by making a
rollover transfer, subject to requirements set by the Code, to an Individual
Retirement Account or another Section 403(b) annuity. A partial redemption of at
least 50% of the balance to the credit of a Participant on account of a
separation from service may be rolled over to an Individual Retirement Account,
subject to requirements set by the Code.
If the Participant receives any amount under the Contract, the Participant
must pay an additional tax of 10% of the amount of the distribution includable
in gross income for the taxable year. This additional tax shall not apply to
distributions which are (1) made after the date on which the Participant attains
age 59 1/2, (2) made to a beneficiary on or after the death of the Participant,
(3) attributable to the Participant's becoming permanently disabled, (4) made
after separation from service in a series of substantially equal periodic
payments made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his beneficiary, (5)
made to a Participant after separation of service after attainment of age 55,
(6) made to a Participant for medical care (not to exceed the amount deductible
by the employee), or (7) paid to alternate payees under a qualified domestic
relations order.
Restrictions on Withdrawals of Elective Contributions. Effective January
1, 1989 and thereafter, any funds in the Participant's account balance other
than funds attributable to assets held at the close of the last year beginning
before January 1, 1989 will be restricted from withdrawal except upon attainment
of age 59 1/2, separation from service, death, disability or hardship (hardship
withdrawals are to be limited to the amount of the Participant's own
contributions exclusive of earnings). However, any funds in the Participant's
account balance attributable to employer contributions, if any, and the earnings
thereon will not be restricted unless specifically provided for by the
employer's plan.
In tax years beginning after 1988, Section 403(b) Plans (other than church
plans) will be subject to nondiscrimination and coverage requirements, as well
as special rules with respect to minimum distributions.
SECTION 401(a) PLANS
An employer maintaining a pension or profit sharing Plan which satisfies
the requirements of Section 401(a) of the Code may make contributions to the
Contract which are generally currently deductible by the employer and are not
currently taxed to the Participants. The Code prescribes various limitations on
the maximum amount which may be contributed on behalf of any Participant.
Generally, annual contributions on behalf of a Participant may not exceed the
lesser of $30,000 (as indexed) or 25% of such Participant's compensation. In the
case of a 401(k) plan, the annual deferral limit for the Participant's elective
contributions is $9,500 (as indexed). In addition, Participants may make
after-tax contributions to the Contract if their Section 401(a) Plan permits.
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When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received as is deemed to
represent a return of Participant after-tax Purchase Payments will not be taxed.
Full redemptions may qualify for special capital gains treatment or 5-year or
10-year income averaging if the payment constitutes a "lump sum distribution,"
as that term is defined in the Code.
The rules governing rollovers of distributions from a Section 401(a) Plan
are parallel to those dealing with distributions from Section 403(b) annuities.
(If the Participant receives a direct distribution from the plan, automatic
withholding of 20% will be made on the distribution -- even though it is
rendered not currently taxable by the Participant's subsequent rollover or
transfer of the gross amount to an IRA or another employer's plan.
Alternatively, the Participant may avoid the automatic 20% withholding by
directing the plan to transfer the amount involved directly to the IRA or
another employer's qualified plan. See "Income Tax Withholding" below.) In
addition, the 10% penalty on premature distributions from Section 403(b)
annuities is also applicable to Section 401(a) Plan distributions.
SECTION 408 (IRA) CONTRACTS
An individual, participating under a Contract which satisfies the
requirements of Section 408 of the Code, may make contributions to the Contract.
The Code prescribes various limitations on the maximum amounts which may be
contributed by or on behalf of the Participant and on the deductibility of the
contributions for federal income tax purposes. No federal income tax is payable
by the Participant on increases in the value of his/her Accumulation Account
until payments are received by the Participant.
When Fixed Annuity payments commence, or if the Participant obtains a
partial redemption of the units credited to his/her Accumulation Account under
the Contract, the amount received will be includable as ordinary income in the
year received, except that such portion of any amount received which is deemed
to represent a return of Participant nondeductible Purchase Payments will not be
taxed. Full or partial redemptions do not qualify for special capital gains
treatment nor 10-year income averaging applicable to certain qualified plan
distributions.
If the Participant receives any amount under the Contract prior to
attainment of age 59 1/2, the Participant must pay an additional excise tax of
10% of the amount of the distribution includable in gross income for the taxable
year. The additional tax shall not apply to distributions which are (1) made to
a beneficiary on or after the death of the Participant, (2) attributable to the
Participant's becoming permanently disabled or (3) made in a series of
substantially equal periodic payments made for the life (or life expectancy) of
the Participant or the joint lives (or joint life expectancies) of the
Participant and his/her beneficiary. Any full or partial redemption will not be
includable in ordinary income if the Participant rolls over the distribution
within 60 days to another IRA.
MINIMUM DISTRIBUTION REQUIREMENTS
If the actual distributions from a qualified retirement plan, eligible
state or local government deferred compensation plan or an IRA are less than the
minimum required to be distributed commencing by April 1 in the calendar year
following the year the Participant attains age 70 1/2 (or, in the case of a
plan, the year of the Participant's retirement if still employed with the plan
sponsor at that age.) (see "Annuity Purchase Date" on page 20) the difference is
considered to be an excess accumulation and the IRS may impose a 50% excise tax
on this excess amount.
SECTION 457 PLANS
Section 457 of the Code allows employees of or independent contractors who
furnish services to a state or local government to establish an eligible
deferred compensation plan allowing the deferral of certain limited amounts of
compensation by way of salary reduction. Generally, the annual deferral limit is
the lesser of $7,500 (as indexed) or 33 1/3% of the Participant's includable
compensation. There is a "catch-up" provision which may permit a Participant to
defer a greater amount prior to retirement. State and local government includes
a state, a political subdivision of a state, any agency or instrumentality of
either of them, a tax-exempt rural electric cooperative or its tax-exempt
affiliates. Contributions are based on a special definition of compensation and
include any amounts contributed
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to a Section 403(b) tax sheltered annuity for determining the contribution
limits. All amounts deferred and property bought with those amounts or income
earned on those amounts remain the property of the employer and are subject to
the claims of its general creditors. However, under the Small Business Job
Protection Act of 1996 the assets of new eligible plans of state and local
governments must be held in trust for the "exclusive benefit" of the
Participant's (and their beneficiaries). Eligible plans existing before the
enactment of this law must comply with the trust and "exclusive benefit"
requirement by January 1, 1999. Distributions from a Section 457 plan are
subject to Section 401(a)(9) of the Code in addition to the rules applicable
under Section 457 of the Code and must begin no later than the April 1st of the
calendar year following the year in which the participant attains age 70 1/2
(or, if later, the year in which he retires).
NON-QUALIFIED DEFERRED COMPENSATION CONTRACTS
Taxed employers may establish a non-qualified deferred compensation
arrangement funded by non-qualified deferred compensation contracts allowing the
deferral of compensation through salary reduction. Such plans include, but are
not limited to, excess benefit plans, plans maintained by an employer primarily
for a select group of management or highly compensated employees, as well as
rabbi and secular trusts. Taxed employers for these non-qualified deferred
compensation plans include corporations, partnerships, S corporations and any of
their affiliates or subsidiaries. Contributions are determined on the plan's
definition of compensation. All amounts deferred by employees and any income
earned thereon remain the property of the employer and are subject to the claims
of its general creditors. In-service withdrawals from non-qualified deferred
compensation plans may be permitted for reasons of hardship under certain
conditions as specified in the plans. Distributions from these plans are
permitted when the Participant terminates employment, becomes permanently
disabled, retires, dies or as otherwise specified in the plan. As a general
rule, the Participant is subject to taxation upon receipt of the funds, and
there is usually no tax consequences to the employer, i.e., no deduction is
available for an employee's salary reduction agreement until paid out.
Such non-qualified deferred compensation arrangements for taxable employers
may be funded by either a Keynote Contract alone or by a Keynote Contract in
combination with a Fixed Annuity Contract.
INCOME TAX WITHHOLDING
Unless the Participant or payee elects to have no withholding, the taxable
portion of distributions under a Contract will be subject to income tax
withholding under federal and certain state laws. MONY will notify recipients of
taxable distributions under a Contract of their right to elect not to have
withholding apply.
For NQDC Contracts, no withholding is made and no election is needed.
Effective January 1, 1992, distributions from qualified retirement plans
and Section 403(b) Contracts, other than individual retirement arrangements
("IRAs"), generally will be subject to mandatory federal income tax withholding
unless they either are:
1. Part of a series of substantially equal periodic payments (at
least annually) for the participant's life or life expectancy, the joint
lives or life expectancies of the participant and his/her beneficiary, or a
period certain of not less than 10 years, or
2. Required by the Code upon the participant's attainment of age 70
1/2 or death.
Such withholding will apply even if the distribution is rolled over into
another qualified plan including an IRA. The withholding can be avoided if the
participant's interest is directly transferred by the old plan to another
eligible qualified plan including an IRA. A direct transfer to the new plan can
be made only in accordance with the terms of the old plan. If withholding is not
avoided, the amount withheld may be subject to income tax and penalties.
Pursuant to Revenue Ruling 90-24 of the Code, an exchange of a Section
403(b) annuity contract for another Section 403(b) annuity contract may qualify
as a tax-free exchange.
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<PAGE> 30
PERFORMANCE DATA
From time to time the performance of one or more of the Subaccounts may be
advertised. The performance data contained in these advertisements is based upon
historical earnings and is not indicative of future performance. The data for
each Subaccount reflects the results of the corresponding series of Diversified
Investors Portfolios or the Calvert Series and recurring charges and deductions
borne by or imposed on the Subaccount and on the corresponding series of the
Diversified Investors Portfolios or the Calvert Series. Set forth below for each
Subaccount is the manner in which the data contained in such advertisements will
be calculated.
Money Market Subaccount. The performance data for this Subaccount will
reflect the "yield", "effective yield" and "total return". The "yield" of the
Subaccount refers to the income generated by an investment in the Subaccount
over the seven day period stated in the advertisement. This income is
"annualized", that is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in the
Subaccount is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. The total return is calculated as shown below.
Intermediate Government Bond, Government/Corporate Bond, Balanced, Equity
Income, Equity Growth and Calvert Series Subaccounts. The performance data for
these Subaccounts will reflect the "yield" and "total return". The "yield" of
each of these Subaccounts refers to the income generated by an investment in
that Subaccount over the 30 day period stated in the advertisement and is the
result of dividing that income by the value of the Subaccount. The value of each
Subaccount is the average daily number of Units outstanding multiplied by the
Unit Value on the last day of the period. The "yield" reflects deductions for
all charges, expenses, and fees of both the Series and the Subaccount Variable.
"average annual total return" for each of these Subaccounts and the Money Market
Subaccount refers to the return a Contractholder would receive during the period
indicated if a $1,000 Purchase Payment was made the indicated number of years
ago. It reflects historical investment results less charges and deductions of
both the Series and the Subaccount, with the distribution being made in cash
rather than in the form of one of the settlement options, at the close of the
period for which the "annualized total return" data is given.
Total return is historical in nature and is not intended to indicate future
performance. Total return will be quoted for the most recent one-year period,
and the average annual total return will be quoted for the most recent five- and
ten-year periods, or the period from the commencement of the public offering of
the Contracts, if shorter. Actual total return quotations may also be advertised
for other specified periods, such as calendar years and calendar quarters.
Cumulative total return for periods of more than one year may also be quoted.
These figures will be accompanied by the standard, average annual total return
quotations.
From time to time, any series of Diversified Investors Portfolios or the
Calvert Series may provide information concerning general economic conditions
and supply comparative performance data and rankings, with respect to comparable
investments for the same period, for unmanaged market indices such as the Dow
Jones Industrial Average and the Standard and Poor's 500, and from recognized
independent sources such as Donoghue's Money Fund Report, Bank Rate Monitor,
Money, Forbes, Barron's, Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Frank Russell Universe Data, Wiesenberger Investment
Companies Service, Mutual Fund Values, Mutual Fund Forecaster, VARDS and
Morningstar.
In addition, reference may be made in advertisements to various indices
including, without limitation, the Standard & Poor's 500 Stock Index, Salomon
Brothers Broad Investment Grade Index and Lehman Brothers Government/Corporate
Bond Index, and Russell Price Driven Index, in order to provide the reader a
basis of comparison for performance.
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DIVERSIFIED INVESTORS PORTFOLIOS
Six Subaccounts of Keynote invest exclusively in corresponding series of
Diversified Investors Portfolios. Diversified Investors Portfolios is a trust
organized on September 1, 1993 under the laws of the State of New York and is
registered under the 1940 Act as an open-end, diversified management investment
company. The investment objectives of the series of Diversified Investors
Portfolios currently available under the Contracts through such Subaccounts are
as follows:
Money Market Series: To provide liquidity and as high a level of income as
is consistent with the preservation of capital, through investment in domestic
and foreign U.S. dollar-denominated money market obligations with maturities of
397 days or less. An investor's interest in the Money Market Series is neither
insured nor guaranteed by the U.S. Government.
Intermediate Government Bond Series: To provide as high a level of current
income as is consistent with preservation of capital, through investment in U.S.
Government and U.S. Government agency and instrumentality securities with short
and intermediate maturities, and high quality short-term obligations.
Government/Corporate Bond Series: To achieve the maximum total return
through investment in investment grade debt securities, U.S. Government and U.S.
Government agency and instrumentality securities, collateralized mortgage
obligations guaranteed by these agencies or instrumentalities and high quality
short-term obligations.
Balanced Series: To provide a high total return consistent with a broad
diversified mix of stocks, bonds and money market instruments.
Equity Income Series: To provide a high level of current income through
investment in a diversified portfolio of common stocks with relatively high
current yields; capital appreciation is a secondary objective.
Equity Growth Series: To provide a high level of capital appreciation
through investment in a diversified portfolio of common stocks with potential
for above-average growth in earnings; current income is a secondary objective.
There can, of course, be no assurance that any series of Diversified
Investors Portfolios will achieve its investment objectives.
CORE/FEEDER STRUCTURE
Each Subaccount which invests in Diversified Investors Portfolios does so
through a two tier, core/feeder fund structure in which each Subaccount invests
in a corresponding series of Diversified Investors Portfolios.
In addition to selling beneficial interests to such Subaccounts,
Diversified Investors Portfolios may sell beneficial interests of its series to
other insurance company separate accounts, mutual funds, collective investment
vehicles or institutional investors. Such investors will invest in a series of
Diversified Investors Portfolios on the same terms and conditions as the
applicable Subaccount and will pay a proportionate share of the Series'
expenses. However, the other investors investing in such series are not required
to sell their shares at the same public offering price as the Subaccount due to
variations in sales commissions and other operating expenses. Therefore,
Contractholders should be aware that these differences may result in differences
in returns experienced by investors in the different entities that invest in
each series of Diversified Investors Portfolios.
Smaller entities investing in a series of Diversified Investors Portfolios
may be materially affected by the actions of larger entities investing in that
series. For example, if a large fund withdraws from a series of Diversified
Investors Portfolios, the remaining investors may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the affected
series may become less diverse, resulting in increased portfolio risk. (However,
this possibility also exists for any type of collective investment vehicle which
has institutional or other large investors.) Also, investors with a greater pro
rata ownership in a series of Diversified Investors Portfolios could have
effective voting control of the operations of that series. Whenever a Subaccount
is requested to vote on matters pertaining to a series of the Diversified
Investors Portfolios (other than a vote to continue a series upon
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the withdrawal of an investor in the series), MONY, as the legal owner of all
assets in the Subaccount, shall vote in accordance with the procedures set forth
under "Voting Rights" at page 22, including, to the extent required by law,
procedures through which MONY shall receive instructions with respect to such
vote from Contractholders and/or Participants. Certain changes in the investment
objectives, policies or restrictions of a series of Diversified Investors
Portfolios may require that MONY withdraw a Subaccount's interest in that
series. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the series). If
securities are distributed, the Subaccount could incur brokerage or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the Subaccount. Notwithstanding the above, there are
other ways for Diversified Investors Portfolios to meet redemption requests from
its investors, such as temporary borrowings.
INVESTMENT OBJECTIVES AND POLICIES
Each of the Subaccounts described above seeks to achieve its investment
objective by investing all of its assets in a corresponding series of
Diversified Investors Portfolios, which is a diversified, open-end management
investment company. The investment objective of each series of Diversified
Investors Portfolios may be changed without the approval of the investors in
that series, but not without written notice thereof to its investors (including
a Subaccount) 30 days prior to implementing the change. MONY may withdraw the
investment of a Subaccount from its corresponding series of Diversified
Investors Portfolios on any Portfolio Business Day (see page 46). Upon any such
withdrawal, MONY would consider what action might be taken, including the
investment of all the assets of the Subaccount in another pooled investment
entity having the same investment objective.
Each series of Diversified Investors Portfolios has a different investment
objective which it pursues through the investment policies described below.
Since each series of Diversified Investors Portfolios has a different investment
objective, each can be expected to have different investment results and be
subject to different market and financial risks. See "Investment Techniques and
Restrictions" herein and in the Statement of Additional Information for a
description of the fundamental policies of each series of Diversified Investors
Portfolios that cannot be changed without approval by the holders of a "majority
of the outstanding voting securities" (as defined in the 1940 Act) of such
series. Except as stated otherwise, all investment guidelines, policies and
restrictions of each series described herein and in the Statement of Additional
Information are non-fundamental.
Each series of Diversified Investors Portfolios has a different portfolio
turnover rate which is the percentage computed by dividing the lesser of
portfolio purchases or sales by the average value of the series in each case
excluding securities with maturities at the time of acquisition of one year or
less. Brokerage expenses can be expected to be higher as a result of higher
portfolio turnover rates. The rate of portfolio turnover is not a limiting
factor when it is deemed appropriate to purchase or sell securities of a series.
With respect to each series of Diversified Investors Portfolios,
Diversified has contracted for certain investment advisory services with one or
more subadvisers. Diversified and the subadviser(s) for a particular series of
Diversified Investors Portfolios are referred to herein collectively as the
"Advisers". There can be no guarantee that the investment objective of any of
the series of Diversified Investors Portfolios will be met. The following
sections describe the investment objective and policies of each series of
Diversified Investors Portfolio currently available under the Contracts through
Subaccounts.
MONEY MARKET SERIES. The investment objective of the Money Market Series
is to provide liquidity and as high a level of current income as is consistent
with the preservation of capital. The Money Market Series invests in high
quality short-term money market instruments. Securities in which the Money
Market Series invests may not earn as high a level of current income as
long-term or lower quality securities which generally have less liquidity,
greater market risk and more fluctuation in market value.
To achieve its investment objective, the Money Market Series invests in
U.S. dollar-denominated short-term money market obligations, including
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and
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other short-term obligations issued by domestic banks and domestic branches and
subsidiaries of foreign banks, and high quality commercial paper and other
short-term corporate obligations, including those with floating or variable
rates of interest. In addition, the Money Market Series may lend its portfolio
securities, enter into repurchase agreements and reverse repurchase agreements,
and invest in securities issued by foreign banks and corporations outside the
United States. The Money Market Series reserves the right to concentrate 25% or
more of its total assets in obligations of banks.
In accordance with Rule 2a-7 under the 1940 Act, the Money Market Series
will maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less and
invest only in U.S. dollar-denominated securities determined in accordance with
procedures established by the Board of Trustees of Diversified Investors
Portfolios (the "Board of Trustees") to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations (an "NRSRO")
(or one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Trustees (collectively, "Eligible Securities").
Eligible Securities include "First Tier Securities" and "Second Tier
Securities." First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Advisers pursuant to the guidelines adopted by the Board of
Trustees. All other Eligible Securities are Second Tier Securities. The Money
Market Series will invest at least 95% of its total assets in First Tier
Securities.
The NRSROs currently rating instruments of the type the Money Market Series
may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited, IBCA Inc. and Thomson BankWatch, Inc., and their rating criteria are
described in the Appendix to the Statement of Additional Information. The
Statement of Additional Information contains further information concerning the
rating criteria and other requirements governing the Money Market Series'
investments, including information relating to the treatment of securities
subject to a tender or demand feature and securities deemed to possess a rating
based on comparable rated securities of the same issuer.
In addition, the Money Market Series will not invest more than 5% of its
total assets in the securities (including the securities collateralizing a
repurchase agreement) of, or subject to puts (including letters of credit,
guaranties or other credit support) issued by, a single issuer, except that (i)
the Money Market Series may invest more than 5% of its total assets in a single
issuer for a period of up to three business days in certain limited
circumstances, (ii) the Money Market Series may invest in obligations issued or
guaranteed by the U.S. Government without any such limitation, and (iii) the
limitation with respect to puts does not apply to unconditional puts if no more
than 10% of the Money Market Series' total assets is invested in securities
issued or guaranteed by the issuer of the unconditional put. Investments in
Second Tier Securities will be limited to 5% of the Money Market Series' total
assets, with the investment in any one such issuer being limited to no more than
the greater of 1% of the Money Market Series' total assets or $1,000,000. As to
each security, these percentages are measured at the time the Money Market
Series purchases the security.
The Money Market Series seeks to achieve its investment objective through
investments in the following types of U.S. dollar-denominated money market
instruments.
BANK OBLIGATIONS. The Money Market Series may invest in U.S.
dollar-denominated certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by banks. Certificates
of deposit are certificates evidencing the obligation of a bank to repay
funds deposited with it for a specified period of time. Such instruments
include Yankee Certificates of Deposit, which are certificates of deposit
denominated in U.S. dollars and issued in the United States by the domestic
branch of a foreign bank. Time deposits are non-negotiable deposits
maintained in a banking institution for a specified period of time at a
stated interest rate. Time deposits which may be held by the Money Market
Series are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Money Market Series will not
invest more than
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10% of the value of its net assets in time deposits maturing in longer than
seven days and other instruments which are illiquid or not readily
marketable. The Money Market Series may also invest in certificates of
deposit and time deposits issued by foreign banks outside the United
States.
The Money Market Series may also invest in bankers' acceptances and other
short-term obligations. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of
the drawer to pay the face amount of the instrument upon maturity. The
other short-term obligations may include uninsured, direct obligations
which have either fixed, floating or variable interest rates.
To the extent the Money Market Series' investments are concentrated in the
banking industry, the Money Market Series will have correspondingly greater
exposure to the risk factors which are characteristic of such investments.
Sustained increases in interest rates can adversely affect the availability
or liquidity and cost of capital funds for a bank's lending activities, and
a deterioration in general economic conditions could increase the exposure
to credit losses. In addition, the value of and the investment return on
investments in the Money Market Series could be affected by economic or
regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan
portfolios in leveraged transactions and in particular businesses, and
competition within the banking industry, as well as with other types of
financial institutions. The Money Market Series, however, will seek to
minimize its exposure to such risks by investing only in debt securities
which are determined to be of high quality.
U.S. GOVERNMENT AND AGENCY SECURITIES. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S.
Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year
or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal Home Loan Banks, by
the right of the issuer to borrow from the Treasury; others, such as those
issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the
agency or instrumentality; and others, such as those issued by the Student
Loan Marketing Association, only by the credit of the agency or
instrumentality. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance
can be given that it will always do so, since it is not so obligated by
law. The Money Market Series will invest in such securities only when the
Advisers are satisfied that the credit risk with respect to the issuer is
minimal. The Money Market Series itself, and its share price and yield, are
not guaranteed by the U.S. Government. For additional information on U.S.
Government securities, see "Diversified Investors Portfolios" in the
Statement of Additional Information.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Money Market Series will consist only of U.S.
dollar-denominated direct obligations issued by domestic and foreign
entities. The other corporate obligations in which the Money Market Series
may invest consist of high quality, U.S. dollar-denominated short-term
bonds and notes issued by domestic corporations.
The Money Market Series may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions
and must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers,
and individual investor participation in the commercial paper market is
very limited.
UNSECURED PROMISSORY NOTES. The Money Market Series also may purchase
unsecured promissory notes ("Notes") which are not readily marketable and
have not been registered under the
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1933 Act, provided such investments are consistent with the Money Market
Series' investment objective. The Notes purchased by the Money Market
Series will have remaining maturities of 13 months or less and will be
deemed by the Board of Trustees of Diversified Investors Portfolios, or by
the Advisers on its behalf, to present minimal credit risks and will meet
the quality criteria set forth above. The Money Market Series will invest
no more than 10% of its net assets in such Notes and in other securities
that are not readily marketable (which securities would include floating
and variable rate demand obligations as to which the Money Market Series
cannot exercise the demand feature described in the Statement of Additional
Information and as to which there is no secondary market).
RESTRICTED SECURITIES. The Money Market Series may invest in securities
that are subject to legal or contractual restrictions on resale. These
securities may be illiquid and, thus, the Money Market Series may not
purchase them to the extent that more than 10% of the value of its net
assets would be invested in illiquid securities. However, if a substantial
market of qualified institutional buyers develops pursuant to Rule 144A
under the 1933 Act for such securities held by the Money Market Series, the
Money Market Series intends to treat such securities as liquid securities
in accordance with procedures approved by the Board of Trustees of
Diversified Investors Portfolios. To the extent that for a period of time,
qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A, the Money Market Series' investing in such
securities may have the effect of increasing the level of illiquidity in
the Money Market Series during such period.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements involve the acquisition by the Money Market Series of an
underlying debt instrument subject to an obligation of the seller to
repurchase, and the Money Market Series to resell, the instrument at a
fixed price, usually not more than one week after its purchase. The Money
Market Series or a sub-custodian will have custody of securities acquired
by the Money Market Series under a repurchase agreement.
Repurchase agreements may be entered into for the Series with sellers which
are usually member banks of the Federal Reserve System or member firms of
the New York Stock Exchange (or a subsidiary thereof). Such transactions
afford an opportunity for the Series to earn a return on available cash
with minimal market risk. Certain costs may be incurred by the Money Market
Series in connection with the sale of the securities if the seller does not
repurchase them in accordance with the repurchase agreement. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
securities, realization on the securities by the Money Market Series may be
delayed or limited. The Money Market Series will consider on an ongoing
basis the creditworthiness of the institutions with which it enters into
repurchase agreements. Repurchase agreements are considered collateralized
loans under the 1940 Act.
The Money Market Series may borrow funds for temporary or emergency
purposes, such as meeting larger than anticipated redemption requests, and not
for leverage. One means of borrowing is by agreeing to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed date and price (a "reverse repurchase agreement"). At
the time the Money Market Series enters into a reverse repurchase agreement it
will place in a segregated custodial account cash, U.S. Government securities or
high-grade debt obligations having a value equal to the repurchase price,
including accrued interest. Reverse repurchase agreements involve the risk that
the market value of the securities sold by the Money Market Series may decline
below the repurchase price of those securities.
FOREIGN SECURITIES. The Money Market Series may invest in U.S.
dollar-denominated foreign securities issued outside the United States,
such as obligations of foreign branches and subsidiaries of domestic banks
and foreign banks, including Eurodollar certificates of deposit, Eurodollar
time deposits and Canadian time deposits, commercial paper of Canadian and
other foreign issuers, and U.S. dollar-denominated obligations issued or
guaranteed by one or more foreign governments or any of their agencies or
instrumentalities. Foreign securities may represent a greater degree of
risk than do securities of domestic issuers due to possible exchange rate
fluctuations, possible exchange controls, less publicly available
information, more volatile markets, less securities regulation, less
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favorable tax provisions (including possible withholding taxes), changes in
governmental administration or economic or monetary policy (in the United
States or abroad), war or expropriation. For a complete description of
foreign securities the Money Market Series may purchase, see "Diversified
Investors Portfolios -- Investment Policies" in the Statement of Additional
Information.
CERTAIN OTHER OBLIGATIONS. In order to allow for investments in new
instruments that may be created in the future, upon MONY supplementing this
Prospectus, the Money Market Series may invest in obligations other than
those listed previously, provided such investments are consistent with the
investment objective, policies and restrictions of the Money Market Series.
The Statement of Additional Information includes a discussion of additional
investment techniques such as zero coupon obligations, variable rate and
floating rate securities, participation interests, guaranteed investment
contracts and when-issued and forward commitment securities. The Statement
of Additional Information also includes a discussion of non-fundamental
investment policies, as well as a listing of specific investment
restrictions which constitute fundamental policies of the Money Market
Series and which cannot be changed without the approval of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940
Act) of the Money Market Series. See "Diversified Investors
Portfolios -- Investment Restrictions" in the Statement of Additional
Information.
INTERMEDIATE GOVERNMENT BOND SERIES. The investment objective of the
Intermediate Government Bond Series is to provide as high a level of current
income as is consistent with the preservation of capital. The yield of the
Intermediate Government Bond Fund Series normally is expected to be higher than
a money market fund but lower than a longer-term or lower quality bond fund. The
Intermediate Government Bond Series pursues its investment objective by
investing in U.S. Government obligations and high quality short-term obligations
(including repurchase agreements and reverse repurchase agreements).
The Advisers attempt to maintain the Intermediate Government Bond Series'
"duration" between one and five years, which means that the Intermediate
Government Bond Fund Series' overall sensitivity to interest rates should be
similar to that of bonds and notes with remaining average maturities from one to
five years. The Intermediate Government Bond Series' dollar-weighted average
maturity (or dollar-weighted average life in the case of mortgage-backed
securities) may be longer than four years from time to time, but will not exceed
ten years under normal conditions. The Intermediate Government Bond Series may
hold individual securities with remaining maturities of up to thirty years.
Since the value of fixed income securities generally fluctuates inversely
with changes in interest rates, the duration of the Intermediate Government Bond
Series will vary to reflect the Advisers' assessments of prospective changes in
interest rates. The Advisers' strategy will be to adjust the duration of the
Intermediate Government Bond Fund Series so that the Intermediate Government
Bond Series may benefit from relative price appreciation when interest rates
decline and may protect capital value when interest rates rise. The success of
this strategy will depend on the Advisers' ability to manage the Intermediate
Government Bond Fund Series through changes in interest rates, and there is a
risk that the value of the securities held by the Intermediate Government Bond
Series will decline.
The following is a discussion of the various investments of and techniques
employed by the Intermediate Government Bond Series. Additional information
about the investment policies of the Intermediate Government Bond Series appears
under "Diversified Investors Portfolios" in the Statement of Additional
Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Intermediate Government Bond
Series may invest in U.S. Government securities. See "U.S. Government and
Agency Securities" above under Money Market Series.
The Intermediate Government Bond Series may invest a portion of its assets
in short-term U.S. Government securities with remaining maturities of one
year or less and repurchase agreements relating thereto. When the Advisers
believe market conditions warrant a temporary defensive
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position, the Intermediate Government Bond Series may invest up to 100% of
its assets in these instruments.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements or other forms of debt securities may be held to
provide a reserve for future purchases of securities during periods of
unusual market conditions or in order to reduce volatility, or as a
temporary defensive measure when the Advisers determine securities markets
to be overvalued. The Intermediate Government Bond Series limits its
short-term investments to those U.S. dollar-denominated instruments which
are determined by or on behalf of the Board of Trustees to present minimal
credit risks and which are of "high quality" as determined by a major
rating service or, in the case of instruments which are not rated, are of
comparable quality pursuant to procedures established by the Board of
Trustees. Investments in high quality short-term instruments may, in many
circumstances, result in a lower yield than would be available from
investments in instruments with a lower quality or longer term.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. Repurchase
agreements and reverse repurchase agreements may be entered into for the
Intermediate Government Bond Series. See "Repurchase Agreements and Reverse
Repurchase Agreements" under Money Market Series.
The Intermediate Government Bond Series may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The Intermediate Government Bond Series may not
invest more than 15% of its net assets in securities that are subject to
legal or contractual restrictions on resale unless a dealer or
institutional trading market in such securities exists, in which case such
restricted securities would be considered exempt from such 15% limit. Under
the supervision of the Board of Trustees, the Advisers determine the
liquidity of restricted securities and, through reports from the Advisers,
the Board of Trustees will monitor trading activity in restricted
securities. Because Rule 144A is relatively new, it is not possible to
predict how these markets will develop. If institutional trading in
restricted securities were to decline, the liquidity of the Intermediate
Government Bond Series could be adversely affected. See "Restricted
Securities" above under Money Market Series.
OPTIONS AND FUTURES CONTRACTS. The Intermediate Government Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. Some options and futures
strategies, including selling futures, buying puts, and writing calls,
hedge the Intermediate Government Bond Series' investments against price
fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. The Intermediate Government
Bond Series may invest in options (including over-the-counter options) and
futures contracts based on any type of security or index related to its
investments.
Options and futures can be volatile investments, and involve certain risks.
If the Advisers apply a hedge at an inappropriate time or judge interest
rates incorrectly, options and futures strategies may lower the
Intermediate Government Bond Series' return. The costs of hedging are not
reflected in the Intermediate Government Bond Series' yield but are
reflected in the Intermediate Government Bond Series' total return. The
Intermediate Government Bond Series' could also experience losses if its
options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market.
The Intermediate Government Bond Series currently does not intend to engage
in the writing of options, except for the purpose of terminating an
existing position or under the limited circumstances described under
"Diversified Investors Portfolios" in the Statement of Additional
Information. Nevertheless, the Intermediate Government Bond Series has the
authority to write options and may do so in the future if the Advisers
determine that such transactions are in the best interests of the
Intermediate Government Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Intermediate Government Bond Series, the
Advisers may purchase securities for the Interme-
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diate Government Bond Series on a "when-issued" or on a "forward delivery"
basis, which means that the obligations would be delivered to the
Intermediate Government Bond Series at a future date beyond customary
settlement time. Under normal circumstances, the Intermediate Government
Bond Series would take delivery of such securities. In general, the
Intermediate Government Bond Series would not pay for the securities until
they are received, and would not start earning interest on the obligations
until the contractual settlement date. While awaiting delivery of the
obligations purchased on such basis, the Intermediate Government Bond
Series would establish a segregated account consisting of cash, cash
equivalents or high grade liquid debt securities equal to the amount of its
commitments to purchase "when-issued" securities. An increase in the
percentage of the Intermediate Government Bond Series' assets committed to
the purchase of securities on a "when-issued" basis may increase the
volatility of its net asset value.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Intermediate Government
Bond Series may also utilize the following investments and investment
techniques and practices: investments in foreign securities, options on
futures contracts, foreign currency exchange transactions, options on
foreign currencies. The Intermediate Government Bond Series does not intend
to utilize any of these investment practices to the extent of more than 5%
of its assets. See "Diversified Investors Portfolios" in the Statement of
Additional Information for further information.
GOVERNMENT/CORPORATE BOND SERIES. The investment objective of the
Government/Corporate Bond Series is to achieve the maximum total return. The
Government/Corporate Bond Series' yield normally is expected to be higher than a
money market fund but lower than a longer-term or lower quality bond fund. The
Government/Corporate Bond Series pursues its investment objective by investing
in investment grade debt securities, U.S. Government obligations, including U.S.
Government agency and instrumentality obligations and collateralized mortgage
obligations guaranteed by these agencies and high quality short-term obligations
(including repurchase agreements and reverse repurchase agreements). At least
65% of the Series' assets is invested in U.S. Government securities, corporate
bonds and short-term instruments.
The Advisers attempt to maintain the Government/Corporate Bond Series'
"duration" between three and ten years, which means that the
Government/Corporate Bond Series' overall sensitivity to interest rates should
be slightly more then that of bonds and notes with remaining average maturities
from three to fifteen years. The Government/Corporate Bond Government/Corporate
Bond Series' dollar-weighted average maturity (or dollar-weighted average life
in the case of mortgage-backed securities) may be longer than fifteen years from
time to time, but will not exceed thirty years under normal conditions.
Since the value of fixed income securities generally fluctuates inversely
with changes in interest rates, the duration of the Government/Corporate Bond
Series will vary to reflect the Advisers' assessments of prospective changes in
interest rates. The Advisers' strategy will be to adjust the duration of the
Government/Corporate Bond Series so that the Government/Corporate Bond Series
may benefit from relative price appreciation when interest rates decline and may
protect capital value when interest rates rise. The success of this strategy
will depend on the Advisers' ability to manage the Government/Corporate Bond
Series through changes in interest rates, and there is a risk that the value of
the securities held by the Government/Corporate Bond Series will decline.
The following is a discussion of the various investments of and techniques
employed by the Government/Corporate Bond Series. Additional information about
the investment policies of the Government/Corporate Bond Series appears under
"Diversified Investors Portfolios" in the Statement of Additional Information.
U.S. GOVERNMENT AND AGENCY SECURITIES. The Government/Corporate Bond
Series may invest in U.S. Government securities. See "U.S. Government and
Agency Securities" above under Money Market Series.
The Government/Corporate Bond Series may invest a portion of its assets in
short-term U.S. Government securities with remaining maturities of one year
or less and repurchase agreements relating thereto. When the Advisers
believe market conditions warrant a temporary defensive
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position, the Government/Corporate Bond Series may invest up to 100% of its
assets in these instruments.
CORPORATE BONDS. The Government/Corporate Bond Series may purchase debt
securities of United States corporations only if they carry a rating of at
least Baa from Moody's or BBB from S&P or which, if not rated by these
rating agencies, are judged by the Advisers to be of comparable quality.
Securities rated Baa by Moody's or BBB by S&P may have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade securities. See the Appendix to
the Statement of Additional Information for an explanation of these
ratings.
FOREIGN SECURITIES. The Government/Corporate Bond Series may invest in
securities of foreign issuers. The Government/Corporate Bond Series'
investments in unlisted foreign securities are subject to the overall
restrictions applicable to investments in illiquid securities. Foreign
securities may represent a greater degree of risk than do securities of
domestic issuers due to possible exchange rate fluctuations, possible
exchange controls, less publicly available information, more volatile
markets, less securities regulation, less favorable tax provisions
(including possible withholding taxes), changes in governmental
administration or economic or monetary policy (in the United States or
abroad), war or expropriation. Forward foreign currency exchange contracts
may also be entered into for the purchase or sale of foreign currency
solely for hedging purposes against adverse rate changes. A currency
exchange contract allows a definite price in dollars to be fixed for
foreign securities that have been purchased or sold (but not settled) for
the Government/Corporate Bond Series. Entering into such exchange contracts
may result in the loss of all or a portion of the benefits which otherwise
could have been obtained from favorable movements in exchange rates. In
addition, entering into such contracts means incurring certain transaction
costs and bearing the risks of incurring losses if rates do not move in the
direction anticipated.
SHORT-TERM INSTRUMENTS. Cash, commercial paper, short-term obligations,
repurchase agreements, bank certificates of deposit or other forms of debt
securities may be held to provide a reserve for future purchases of
securities, during periods of unusual market conditions or in order to
reduce volatility, or as a temporary defensive measure when the Advisers
determine securities markets to be overvalued. See "Short-Term Instruments"
above under Intermediate Government Bond Series.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS. The
Government/Corporate Bond Series may enter into repurchase agreements and
reverse repurchase agreements. See "Repurchase Agreements and Reverse
Repurchase Agreements" above under Money Market Series. The
Government/Corporate Bond Series may borrow Funds for temporary or
emergency purposes, such as meeting larger then anticipated redemption
requests, and not for leverage.
RESTRICTED SECURITIES. The Government/Corporate Bond Series may not invest
more than 15% of its net assets in securities that are subject to legal or
contractual restrictions on resale. See "Restricted Securities" above under
Money Market Series.
OPTIONS AND FUTURES CONTRACTS. The Government/Corporate Bond Series may
buy and sell options and futures contracts to manage its exposure to
changing interest rates and securities prices. See "Options and Futures
Contracts" above under Intermediate Government Bond Series.
The Government/Corporate Bond Series currently does not intend to engage in
the writing of options, except for the purpose of terminating an existing
position or under the limited circumstances described in the Statement of
Additional Information. Nevertheless, the Government/Corporate Bond Series
has the authority to write options and may do so in the future if the
Advisers determine that such transactions are in the best interests of the
Government/Corporate Bond Series.
DELAYED DELIVERY TRANSACTIONS. In order to help ensure the availability of
suitable securities for the Government/Corporate Bond Series, the Advisers
may purchase securities for the Government/Corporate Bond Series on a
"when-issued" or on a "forward delivery" basis, which means that the
Securities would be delivered to the Government/Corporate Bond Series at a
future date
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beyond customary settlement times. See "Delayed Delivery Transactions"
above under Intermediate Government Bond Series.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES. The Government/Corporate Bond
Series may also utilize the following investments and investment techniques
and practices: options on futures contracts and options on foreign
currencies. The Government/Corporate Bond Series does not intend to utilize
any of these investments or techniques to the extent of more than 5% of its
assets. See the Statement of Additional Information for further
information.
BALANCED SERIES. The investment objective of the Balanced Series is to
provide a high total investment return consistent with a broad diversified mix
of stocks, bonds and money market instruments. The Balanced Series pursues its
investment objective by investing in a managed mix of common stocks (and/or
equivalents including American Depository Receipts), preferred stocks, debt
securities of U.S. domiciled corporations, U.S. government securities,
commercial paper of U.S. corporations, and bank obligations. The Advisers will
determine the proportions of each type of investment to achieve an asset mix
they believe appropriate for an investor who desires diversification of
investment. The Balanced Series will vary the proportion of each type of asset
purchased according to the Advisers' interpretations of changes in economic
conditions and the sensitivity of each type of investment to those changes. The
Advisers seek to shift emphasis among stocks, bonds and short-term instruments
to maximize participation in positive markets and preservation of capital in
negative markets and otherwise in response to market conditions.
The Balanced Series policy is to invest its assets in a broad list of
equity and fixed income securities, such as common stocks, preferred stocks and
bonds, including short-term obligations. The list may be diversified not only by
companies and industries, but also by type of security. Some fixed income
securities may also have a right to purchase common stock by means of a
conversion privilege or attached warrants. The Balanced Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying securities values. However, at least 25% of the total
assets of the Balanced Series are always invested in fixed income senior
securities including debt securities and preferred stock. In selecting common
stocks, emphasis is placed on investing in established companies with market
capitalizations of $100,000,000 or more and seasoned management teams. Most of
the Balanced Series' non-convertible long-term debt investments consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P), although unrated debt securities may be purchased and held if they are
judged by the Advisers to be of equivalent quality. Securities rated Baa by
Moody's or BBB by S&P may have speculative characteristics. Changes in economic
conditions or other circumstances may weaken more severely the capacity of
issuers of Baa or BBB securities to make principal and interest payments than in
the case for issuers of higher grade bonds. Less than 5% of the Balanced Series
investments consist of securities rated Baa by Moody's or BBB by S&P. For a
description of these ratings, see the Appendix to the Statement of Additional
Information.
The Balanced Series may invest a portion of its assets in short-term U.S.
Government securities with remaining maturities of one year or less and
repurchase agreements relating thereto. When the Advisers believe market
conditions warrant a temporary defensive position, the Balanced Series may
invest up to 100% of its assets in these instruments or other money market
instruments.
EQUITY INCOME SERIES. The investment objective of the Equity Income Series
is to provide a high level of current income through investment in a diversified
portfolio of common stocks with relatively high current yields; capital
appreciation is a secondary objective. The Equity Income Series seeks to achieve
its investment objective by investing primarily in a diversified portfolio of
stocks of companies which, in the opinion of the Advisers, are fundamentally
sound financially and which pay relatively high dividends on a consistent basis.
The Advisers attempt to manage the Equity Income Series so that it will
out-perform other equity income funds in negative markets. As a result of this
objective, the Equity Income Series may underperform relative to other equity
income funds in positive markets. The Equity Income Series invests primarily in
common stocks listed on the New York Stock Exchange and on other national
securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Equity Income Series also invests in bonds and short-term
obligations as well as securities
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convertible into common stocks, preferred stocks, debt securities and short-term
obligations. The Equity Income Series allocates its investments among different
industries and companies, and changes its portfolio securities for investment
considerations and not for trading purposes.
The Equity Income Series' policy is to invest in a broad list of equity and
fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Income Series may vary the
percentage of assets invested in any one type of security in accordance with the
Advisers' interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values. It is contemplated that most of the
Equity Income Series' non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the Equity Income Series may also invest not more than 25% of
its assets in fixed income securities which either are rated in lower than
"investment grade" categories by either Moody's or S&P or are unrated when, in
the opinion of the Advisers, such an investment presents a greater opportunity
to achieve the Equity Income Series' investment objective with comparable risk
to an investment in "investment grade" securities. Securities rated Baa by
Moody's or BBB by S&P may have speculative risk characteristics.
Non-Investment Grade Obligations. Non-investment grade obligations (those
that are rated Ba or lower by Moody's or BB or lower by S&P or comparable
unrated obligations), commonly referred to as "junk bonds", are speculative in
nature. Risks associated with junk bonds are (a) the relative youth and growth
of the market for such securities, (b) the sensitivity of such securities to
interest rate and economic changes, (c) the lower degree of protection of
principal and interest payments, (d) the relatively low trading market liquidity
for the securities, (e) the impact that legislation may have on the high yield
bond market (and, in turn, on the Equity Income Series' net asset value and
investment practices), and (f) the creditworthiness of the issuers of such
securities. During an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. An economic downturn could also disrupt the market for junk bonds and
adversely effect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. If the issuer of a debt obligation held by the
Equity Income Series defaulted, the Equity Income Series could incur additional
expenses to seek recovery. Adverse publicity and investor perceptions, whether
or not based on fundamental analysis, may also decrease the values and liquidity
of junk bonds held by the Equity Income Series, especially in a thinly traded
market. For a description of ratings of debt obligations which may be purchased
by the Equity Income Series, see the Appendix to the Statement of Additional
Information.
EQUITY GROWTH SERIES. The investment objective of the Equity Growth Series
is to provide a high level of capital appreciation through investment in a
diversified portfolio of common stocks with potential for above average growth
in earnings and dividends; current income is a secondary objective. The Equity
Income seeks to achieve its investment objective by investing primarily in a
diversified portfolio of common stocks, but may also invest in other types of
securities such as preferred stocks, convertible and non-convertible bonds,
warrants and foreign securities including American Depository Receipts. Under
normal circumstances, at least 65% of the assets of the Equity Income are
invested in equity securities. This is a fundamental investment policy and may
not be changed without investor approval. The Equity Growth Series invests
primarily in stocks of companies that have a market value of all their issued
and outstanding common stock of $10 to $15 billion and preferred stocks and
common stocks listed on the New York Stock Exchange and on other national
securities exchanges and, to a lesser extent, in stocks that are traded
over-the-counter. The Equity Growth Series also invests in bonds and short-term
obligations as well as securities convertible into common stocks, preferred
stocks, debt securities and short-term obligations. The Equity Growth Series
allocates its investments among different industries and companies, and changes
its portfolio securities for investment considerations and not for trading
purposes.
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The Equity Growth Series' policy is to invest in a broad list of equity and
fixed income securities, including short-term obligations. The list may be
diversified not only by companies and industries, but also by type of security.
Some fixed income securities may also have a call on common stock by means of a
conversion privilege or attached warrants. The Equity Growth Series may vary the
percentage of assets invested in any one type of security in accordance with the
Adviser's interpretation of economic and market conditions, fiscal and monetary
policy, and underlying security values. It is contemplated that most of the
Equity Growth Series' non-convertible long-term debt investments will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P). However, the Equity Growth Series may also invest not more than 25% of
its assets in fixed income securities which either are rated in lower than
"investment grade" categories by either Moody's or S&P or are unrated when, in
the opinion of the Adviser, such an investment presents a greater opportunity to
achieve the Equity Growth Series' investment objective with comparable risk to
an investment in "investment grade" securities. Such lower rated or unrated
fixed income securities have speculative risk characteristics. See
"Non-Investment Grade Obligations" above under Equity Income Series.
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INVESTMENT TECHNIQUES AND RESTRICTIONS
INVESTMENT TECHNIQUES FOR THE BALANCED SERIES, EQUITY INCOME SERIES AND EQUITY
GROWTH SERIES (COLLECTIVELY, THE "SERIES").
Foreign Securities. Each Series' current policy is not to invest more than
25% of its assets in securities of foreign issuers, including investments in
sponsored American Depository Receipts ("ADRs"). ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying foreign securities. Each Series' investments in unlisted foreign
securities, not including ADRs, are subject to the overall restrictions
applicable to investments in illiquid securities. Foreign securities, including
ADRs, may represent a greater degree of risk than do securities of domestic
issuers due to possible exchange rate fluctuations, possible exchange controls,
less publicly available information, more volatile markets, less securities
regulation, less favorable tax provisions (including possible withholding
taxes), changes in governmental administration or economic or monetary policy
(in the United States or abroad), war or expropriation. Each Series may invest
up to 5% of its assets in closed-end investment companies which primarily hold
foreign securities. Forward foreign currency exchange contracts may also be
entered into for the purchase or sale of foreign currency solely for hedging
purposes against adverse rate changes. A currency exchange contract allows a
definite price in dollars to be fixed for foreign securities that have been
purchased or sold (but not settled) for each Series. Entering into such exchange
contracts may result in the loss of all or a portion of the benefits which
otherwise could have been obtained from favorable movements in exchange rates.
In addition, entering into such contracts means incurring certain transaction
costs and bearing the risk of incurring losses if rates do not move in the
direction anticipated.
Options and Futures Contracts. Each Series may enter into transactions in
futures contracts, options on futures contracts, options on securities indexes
and options on securities, for the purpose of hedging each Series' securities,
which would have the effect of reducing the volatility of its net asset value.
In general, each such transaction involves the establishment of a position which
is expected to move in a direction opposite to that of the security or
securities being hedged.
For example, each Series may sell futures contracts, or purchase put
options on futures contracts, securities indexes or securities for the purpose
of protecting against an anticipated decline in the value of securities held by
that Series. In the event that such decline occurs, and the hedging transaction
is successful, the reduced value of portfolio securities will be offset, in
whole or in part, by a corresponding gain on the futures or option position.
Conversely, when the Series is not fully invested in the securities market, and
it expects a significant market advance, it may purchase futures contracts or
call options on futures contracts, securities indexes or securities in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that that Series intends to purchase.
The Statement of Additional Information includes further information about
the transactions in futures and option contracts that may be entered into by
each Series.
Gain or loss to each Series on transactions in security index futures or
options will depend on price movements in the stock market generally (or in a
particular industry or segment of the market), rather than price movements of
individual securities. A securities index assigns relative values to the
securities included in the index and the index fluctuates with changes in the
market values of the securities so included. Some securities index futures or
options are based on broad market indexes, such as the Standard & Poor's 500 or
the New York Stock Exchange Composite Index. In contrast, certain exchanges
offer futures or options on narrower market indexes, such as the Standard &
Poor's 100 or indexes based on an industry or market segment, such as oil and
gas stocks. Options on indexes and options on securities are traded on
securities exchanges regulated by the SEC. Futures contracts and options on
futures contracts are traded only on designated contract markets regulated by
the Commodity Futures Trading Commission and through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees
performance between the clearing members which are parties to each contract.
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Each Series currently does not intend to engage in the writing of options,
except for the purpose of terminating an existing position or under the limited
circumstances described in the Statement of Additional Information.
Nevertheless, each Series has the authority to write options and may do so in
the future if the Advisers determine that such transactions are in the best
interests of the Series.
Short-Term Instruments. Each of the Series may invest in cash, commercial
paper, short-term obligations, repurchase agreements or other forms of debt
securities. See "Short-Term Instruments" above under Intermediate Government
Bond Series.
Repurchase Agreements and Reverse Repurchase Agreements. Each of the
Series may enter into repurchase agreements and reverse repurchase agreements
and may borrow funds for temporary or emergency purposes, such as meeting larger
than expected redemption requests, and not for leverage. See "Repurchase
Agreements and Reverse Repurchase Agreements" above under Intermediate
Government Bond Series.
Restricted Securities. Each of the Series may not invest more than 15% of
its net assets in securities that are subject to legal or contractual
restrictions on resale. See "Restricted Securities" above under Money Market
Bond Series.
Delayed Delivery Transactions. In order to help insure the availability of
suitable securities for each of the Series the Advisers may purchase securities
for each such Series on a "when-issued" or on a "forward delivery" basis. See
"Delayed Delivery Transactions" above under Intermediate Government Bond Series.
Changes to the securities of each Series are generally made without regard
to the length of time a security has been held, or whether a sale would result
in the recognition of a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor to trading when such trading is deemed
appropriate. Each Series engages in trading if it believes a transaction net of
costs (including custodian charges) will help it achieve its investment
objectives. The amount of brokerage commissions and realized capital gains will
tend to increase as the level of portfolio activity increases. The primary
consideration in placing portfolio security transactions with broker-dealers for
execution is to obtain, and maintain the availability of, execution at the most
favorable prices and in the most effective manner possible. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS FOR ALL SERIES OF DIVERSIFIED INVESTORS PORTFOLIOS
As "diversified" funds, no more than 5% of the assets of any series of
Diversified Investors Portfolios may be invested in the securities of one issuer
(other than U.S. Government securities), except that up to 25% of each series'
assets may be invested without regard to this limitation. No series of
Diversified Investors Portfolios will invest more than 25% of its assets in the
securities of issuers in any one industry. These are fundamental investment
policies which may not be changed without investor approval. As a nonfundamental
operating policy, no more than 15% (10% in the case of the Money Market Series)
of the net assets of any series may be invested in (i) securities the resale of
which is restricted under federal securities laws and (ii) illiquid or not
readily marketable securities (including repurchase agreements maturing in more
than seven days). Additional fundamental and operating policies of Diversified
Investors Portfolios are contained in the Statement of Additional Information.
LENDING OF PORTFOLIO SECURITIES
The Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid when U.S. Government
obligations are used as collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. A Series will adhere to the following conditions whenever its
securities are loaned: (i) the Series must receive at least 100% cash collateral
or equivalent securities from the borrower; (ii) the borrower must increase this
collateral whenever the market value of the loaned securities including accrued
interest exceeds the level of the collateral; (iii) the Series must be able to
terminate the loan at any time; (iv) the Series must receive reasonable interest
on the loan, as well as any dividends, interest or other
42
<PAGE> 45
distributions on the loaned securities, and any increase in market value; (v)
the Series may pay only reasonable custodian fees in connection with the loan;
and (vi) voting rights on the loaned securities may pass to the borrower.
However, if a material event adversely affecting the loaned securities were to
occur, the Series would terminate the loan and regain the right to vote the
securities.
MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Board of Trustees of Diversified Investors Portfolios provides broad
supervision over the affairs of Diversified Investors Portfolios. For further
information about the Trustees of Diversified Investors Portfolios, see
"Diversified Investors Portfolios" in the Statement of Additional Information. A
majority of the Trustees of Diversified Investors Portfolios are not affiliated
with the Advisers.
INVESTMENT ADVISORY SERVICES. Diversified Investment Advisors, Inc.
("Diversified") manages the assets of each series of Diversified Investors
Portfolios pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") with Diversified Investors Portfolios with respect to each series
and in accordance with the investment policies described herein and in the
Statement of Additional Information. Subject to such further policies as the
Board of Trustees of Diversified Investors Portfolios may determine, Diversified
provides general investment advice to each series. For its services under the
Advisory Agreement, Diversified 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. Diversified is
currently waiving a portion of its investment advisory fee. Investment
management decisions are made by a committee of Diversified's personnel and not
by a particular individual.
Diversified is an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AEGON") which is a financial services holding company whose primary emphasis
is life and health insurance and annuity and investment products. AEGON is an
indirect, wholly-owned subsidiary of AEGON N.V., a Netherlands corporation which
is a publicly traded international insurance group. Diversified was incorporated
in 1992 for the purpose of acting as investment adviser to Diversified Investors
Portfolios. Accordingly, Diversified Investors Portfolios is the first family of
investment companies for which Diversified serves as investment adviser. It is
Diversified's responsibility to select, subject to the review and approval of
the Diversified Investors Portfolios' Board of Trustees, appropriate subadvisers
with distinguished backgrounds and to review such subadvisers' continued
performance.
For each series, Diversified has entered into an Investment Subadvisory
Agreement (each a "Subadvisory Agreement") with the subadvisers listed in the
table below (each a "Subadviser," and collectively the "Subadvisers"). For its
services under each Subadvisory Agreement, the Subadvisers receive a fee from
Diversified at an annual rate equal to the percentages specified in the table
below of the corresponding series' average daily net assets. Each fee will be
accrued monthly by multiplying the arithmetic average of the beginning and
ending monthly net assets in the series by the fee schedule and dividing by 12.
Each fee will be paid on a quarterly basis.
<TABLE>
<CAPTION>
COMPENSATION RATES(%)
DIVERSIFIED INVESTORS PORTFOLIO ------------------------
PORTFOLIO SERIES SUBADVISERS ADVISER(1) SUBADVISERS
--------------------- --------------------------------- ---------- -----------
<S> <C> <C> <C>
Money Market Series Capital Management Group 0.25 0.05
Intermediate Government Bond Series Capital Management Group 0.35 0.15
Government/Corporate Bond Series Capital Management Group 0.35 0.15
Balanced Series Institutional Capital Corporation 0.45 (2)
Equity Income Series Asset Management Group 0.45 (3)
Equity Growth Series Dresdner RCM Global 0.62 (4)
Investors, LLC
Montag & Caldwell, Inc.
</TABLE>
- ---------------
(1) The Adviser is currently waiving a portion of its fee. See
"Synopsis -- Table of Fees" at page 6 for a discussion of the fee waivers
currently in effect.
(2) 0.55% on the first $25,000,000 in assets, 0.45% on the next $25,000,000 in
assets and 0.35% on all assets in excess of $50,000,000.
(3) 0.25% on the first $100,000,000 of average net assets of the Equity Income
Portfolio and 0.20% on assets in excess of $100,000,000.
(4) 0.50% on the first $50,000,000 in assets, 0.25% on the next $50,000,000 in
assets; and 0.20% on assets in excess of $100,000,000.
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<PAGE> 46
Diversified has selected Subadvisers for each series which have been
approved by the Trustees of Diversified Investors Portfolios and the investors
in said series and has entered into an Investment Subadvisory Agreement with
each Subadviser. It is the responsibility of a Subadviser 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 Diversified. Each Subadviser makes the investment
selections for its respective series consistent with the guidelines and
directions set by Diversified and the Board of Trustees of Diversified Investors
Portfolios. Each Subadviser furnishes at its own expense all services,
facilities and personnel necessary in connection with managing the corresponding
series' investments and effecting securities transactions for a series. The
subadvisers are as follows:
MONEY MARKET SERIES,
INTERMEDIATE GOVERNMENT
BOND SERIES AND
GOVERNMENT/CORPORATE
BOND SERIES:
Capital Management Group, a division of 1740
Advisers, Inc., a wholly-owned subsidiary of The
Mutual Life Insurance Company of New York. Capital
Management Group has been a registered investment
adviser since 1971. The address of Capital
Management Group is 1740 Broadway, New York 10019.
The following representatives of Capital Management
Group are primarily responsible for the day-to-day
management of the Portfolios:
Money Market Series: David E. Wheeler, Investment
Vice President and Portfolio Manager, has been
responsible for the day-to-day management of the
Portfolio since 1997. Mr. Wheeler has been employed
by Capital Management Group since 1994 and was
employed at AIG Investment Advisers prior to 1994.
Intermediate Government Bond Series and
Government/Corporate Bond Series: Gregory Staples,
Vice President, has been responsible for the
day-to-day management of the Intermediate
Government Bond Portfolio since 1996 and the
Government/Corporate Bond Portfolio since 1994. Mr.
Staples has been employed by Capital Management
Group since 1987.
EQUITY INCOME SERIES:
Asset Management Group, a division of 1740
Advisers, Inc., which is a wholly-owned subsidiary
of MONY. Asset Management Group has been a
registered investment adviser since 1971. The
address of Asset Management Group is 1740 Broadway,
New York, New York 10019.
Investment management decisions at Asset Management
Group are made by committee and not by managers
individually.
EQUITY GROWTH SERIES:
Dresdner RCM Global Investors, LLC
Montag & Caldwell, Inc.
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<PAGE> 47
Dresdner RCM Global Investors, LLC was established
in 1996, when Dresdner Bank acquired RCM Capital
Management, LLC. Dresdner RCM has been a registered
investment adviser since 1972. The principal
address of Dresdner RCM is Four Embarcadero Center,
Suite 2900, San Francisco, California 94111.
Investment management decisions of Dresdner RCM are
made by committee and not by managers individually.
Montag & Caldwell Incorporated was established in
1945 and is owned by Alleghany Corporation. Montag
& Caldwell has been a registered investment adviser
since 1968. The principal address of Montag &
Caldwell is 3343 Peachtree Road, N.E., Suite 1100,
Atlanta, Georgia 30326-1022.
Investment management decisions of Montag &
Caldwell are made by committee and not by managers
individually.
ADMINISTRATOR. Pursuant to an Administrative Services Agreement (and the
Advisory Agreement), Diversified, as Administrator, provides Diversified
Investors Portfolios with general office facilities and supervises the overall
administration of Diversified Investors Portfolios, including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of
Diversified Investors Portfolios; the preparation and filing of all documents
required for compliance by Diversified Investors Portfolios with applicable laws
and regulations; providing equipment and clerical personnel necessary for
maintaining the organization of Diversified Investors Portfolios; preparation of
certain documents in connection with meetings of Trustees and investors of
Diversified Investors Portfolios; and the maintenance of books and records of
Diversified Investors Portfolios. Diversified provides persons satisfactory to
the Board of Trustees of Diversified Investors Portfolios to serve as officers
of Diversified Investors Portfolios. Such officers, as well as certain other
employees and Trustees of Diversified Investors Portfolios, may be directors,
officers or employees of Diversified or its affiliates. The Administrator
receives no additional fee for its administrative services to Diversified
Investors Portfolios.
EXPENSES. The expenses of Diversified Investors Portfolios include the
compensation of its Trustees who are not affiliated with the Adviser or
Diversified; governmental fees; interest charges; taxes; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, depository,
registrar or dividend disbursing agent of Diversified Investors Portfolios;
insurance premiums; and expenses of calculating the net asset value of, and the
net income on, beneficial interests in the series of Diversified Investors
Portfolios. Expenses of Diversified Investors Portfolios also include the
expenses connected with the execution, recording and settlement of securities
transactions; fees and expenses of Diversified Investors Portfolios' custodian
for all services to the series of Diversified Investors Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of preparing and mailing reports to investors and to governmental
officers and commissions; expenses of meetings of investors and Trustees of
Diversified Investors Portfolios; and the advisory fees payable to Diversified
under the Advisory Agreement.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Investors Bank &
Trust Company is the custodian of the securities held by Diversified Investors
Portfolios and is authorized to use the facilities of the Depository Trust
Company and the facilities of the book-entry system for the Federal Reserve
Bank. Investors Bank & Trust Company is the transfer agent and
dividend-disbursing agent for Diversified Investors Portfolios.
45
<PAGE> 48
EXCLUSIVE PLACEMENT AGENT. Diversified Investors Portfolios has retained
the services of Diversified Investors Securities Corp., ("DISC") as Exclusive
Placement Agent. The principal business address of DISC is 4 Manhattanville
Road, Purchase, New York 10577. DISC receives no compensation as Exclusive
Placement Agent.
OTHER INFORMATION REGARDING
DIVERSIFIED INVESTORS PORTFOLIOS
PURCHASE AND REDEMPTION OF INTERESTS IN DIVERSIFIED INVESTORS
PORTFOLIOS. Beneficial interests in the series of Diversified Investors
Portfolios described in this Prospectus are currently being offered by DISC to
MONY for allocation to Subaccounts to fund benefits payable under the Contracts.
Investments in Diversified Investors Portfolios may only be made by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Prospectus does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the series of Diversified Investors Portfolios.
The net asset value of each series of Diversified Investors Portfolios is
determined each day during which the Advisers of that series are open for
business ("Portfolio Business Day"). This determination is made once each day as
of the close of regular trading on the New York Stock Exchange, currently 4:00
p.m., New York time (the "Valuation Time").
Each investor in a series of Diversified Investors Portfolios may add to or
reduce its investment in such series on each Portfolio Business Day. As of the
Valuation Time on each such day, the value of each investor's beneficial
interest in a series will be determined by multiplying the net asset value of
the series by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the series. Any
additions or reductions, which are to be effected as of the Valuation Time on
such day, will then be effected. The investor's percentage of the aggregate
beneficial interests in a series will then be recomputed as the percentage equal
to the fraction (i) the numerator of which is the value of such investor's
investment in the series as of the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the series effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the series as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate net asset value of the series as of
the Valuation Time on such day, plus or minus as the case may be, the amount of
net additions to or reductions in the aggregate investments in the series by all
investors in such series. The percentage so determined will then be applied to
determine the value of the investor's interest in the series as of the Valuation
time on the following Portfolio Business Day.
An investor in a series of Diversified Investors Portfolios may withdraw
all or any portion of its investment at the net asset value next determined if a
withdrawal request in proper form is furnished by the investor to Diversified
Investors Portfolios by the designated cut-off time for each accredited
investor. The proceeds of a reduction or a withdrawal will be paid by
Diversified Investors Portfolios in federal funds normally on the Portfolio
Business Day the withdrawal is effected, but in any event within seven days.
Diversified Investors Portfolios, on behalf of each of its series, reserves the
right to pay redemptions in kind. Unless requested by an investor, Diversified
Investors Portfolios will not make a redemption in kind to the investor, except
in situations where that investor may make redemptions in kind. Diversified
Investors Portfolios, on behalf of each of its series, has elected, however, to
be governed by Rule 18f-1 under the 1940 Act, as a result of which Diversified
Investors Portfolios is obligated to redeem beneficial interests in each series
with respect to any one investor during any 90 day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the series at the
beginning of the period. Investments in a series may not be transferred.
The right to redeem beneficial interests or to receive payment with respect
to any redemption may be suspended only (i) for any period during which trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission or when the New York Stock Exchange is closed (other than
customary weekend and holiday closings), (ii) for any period during
46
<PAGE> 49
which an emergency exists as defined by the Securities and Exchange Commission
as a result of which disposal of a series' securities or determination of the
net asset value of each series is not reasonably practicable, and (iii) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors in any series of Diversified Investors Portfolios.
NET ASSET VALUE. Diversified Investors Portfolios values the securities of
the Money Market Series based on the amortized cost method of valuation.
Securities of other series of Diversified Investors Portfolios are valued based
on their current market value when market quotations are available. Where market
quotations are not available, assets are valued at fair value as determined in
good faith under the direction of Diversified Investors Portfolios' Board of
Trustees. Debt obligations with 60 days or less remaining to maturity may be
valued by the amortized cost method, which the Diversified Investor Portfolios'
Trustees have determined to constitute fair value for such securities. For more
information on the valuation of portfolio securities, see "Diversified Investors
Portfolios" in the Statement of Additional Information.
TAXATION OF DIVERSIFIED INVESTORS PORTFOLIOS. Diversified Investors
Portfolios is organized as a New York trust. None of its series is subject to
any income or franchise tax in the State of New York. However, each investor in
a series will be taxable on its share (as determined in accordance with the
governing instruments of Diversified Investors Portfolio) of the series'
ordinary income and capital gain in determining its income tax liability. The
determination of such share will be made in accordance with the Code, and
regulations promulgated thereunder.
Diversified Investors Portfolios, since it is taxed as a partnership, is
not subject to federal income taxation. Instead, any investor in Diversified
Investors Portfolios must take into account, in computing its federal income tax
liability, its share of Diversified Investors Portfolios' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from Diversified Investors Portfolios.
Withdrawals by any investor in Diversified Investors Portfolios from its
corresponding series generally will not result in recognizing any gain or loss
for federal income tax purposes, except that (1) gain will be recognized to the
extent that any cash distributed exceeds the basis of such investor's interest
in the series prior to the distribution, (2) income or gain will be realized if
the withdrawal is in liquidation of such investor's entire interest in the
series and includes a disproportionate share of any unrealized receivables held
by the series and (3) loss will be recognized if the distribution is in
liquidation of that entire interest and consists solely of cash and/or
unrealized receivables. The basis of any investor's interest in Diversified
Investors Portfolios generally equals the amount of cash and the basis of any
property that such investor invests in a series, increased by such investor's
share of income from that series and decreased by the amount of any cash
distributions and the basis of any property distributed from that series.
DESCRIPTION OF BENEFICIAL INTERESTS, VOTING RIGHTS AND
LIABILITIES. Diversified Investors Portfolios is organized as a series trust
under the laws of the State of New York. Under the Declaration of Trust, the
Trustees are authorized to issue beneficial interests in one or more series
(each a "Series"). Investment in each series may not be transferred, but an
investor may withdraw all or any portion of its investment at any time at net
asset value. 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). However, the
risk of an investor in a series incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the series itself was unable to meet its obligations. Investments in each
series have no preemptive or conversion rights and are fully paid and
nonassessable, except as set forth below.
Each investor is entitled to a vote in proportion to the amount of its
investment in each series. Investors in a series will vote as a separate class,
except as to voting for election of Trustees of Diversified Investors
Portfolios, as otherwise required by the 1940 Act, or if determined by the
Trustees of Diversified Investors Portfolios to be a matter which affects all
series. As to any matter which does not affect a particular series, only
investors in the one or more affected series are entitled to vote. Diversified
Investors Portfolios is not required and has no current intention of holding
special meetings
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<PAGE> 50
of investors, but special meetings of investors will be held when in the
judgment of the Trustees of Diversified Investors Portfolios, it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors under certain
circumstances (e.g., upon application and submission of certain specified
documents to the Trustees of Diversified Investors Portfolios by a specified
number of investors) have the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees of Diversified Investors Portfolios. Investors also have
the right to remove one or more Trustees of Diversified Investors Portfolios
without a meeting by a declaration in writing by a specified number of
investors. Upon liquidation of a series, investors would be entitled to share
pro rata in the net assets of that series (and no other series) available for
distribution to investors. See "Voting Rights" at page 22.
Each series determines its net income and realized capital gains, if any,
on each Portfolio Business Day and allocates all such income and gain pro rata
among the investors in such series at the time of such determination.
The "net income" of each series shall consist of (i) all income accrued,
less the amortization of any premium, on the assets of the series, less (ii) all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles. Interest income includes discount
earned (including both original issue and market discount) on discount paper
accrued ratably to the date of maturity and any net realized gains or losses on
the assets of a series. All the net income of each series is allocated pro rata
among the investors in the series (and no other series).
Inquiries regarding the Diversified Investors Portfolios may be directed to
4 Manhattanville Road, Purchase, New York 10577 (914-697-8000).
EXPERTS
The balance sheets of MONY as of December 31, 1998 and 1997 and the related
statements of operations and cash flows for the years then ended, as well as the
statements of assets and liabilities for Keynote Series Account as of December
31, 1998, and the related statements of operations for the year then ended and
the statements of changes in net assets for the years ended December 31, 1998
and 1997 have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports thereon are set forth in the Statement of Additional
Information. These financial statements have been included in reliance on the
report of the said firm, given on the authority of that firm as experts in
auditing and accounting.
LEGAL PROCEEDINGS
MONY is engaged in various kinds of routine litigation which, in the
opinion of management, are not of material importance in relation to the total
capital, results of operations, surplus or cash flows of MONY. There are no
legal proceedings to which Keynote is a party.
FINANCIAL STATEMENTS
The financial statements for MONY, included in the Statement of Additional
Information, should be distinguished from the financial statements of Keynote,
included in the Statement of Additional Information, and should be considered
only as bearing on the ability of MONY to meet its obligations under the
Contracts. The financial statements of MONY should not be considered as bearing
on the investment performance of the assets held in Keynote.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted (including
financial statements relating to MONY) pursuant to the rules and regulations of
the SEC. The omitted information may be obtained from the SEC's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
For further information with respect to MONY, the Contracts offered by this
Prospectus and Diversified Investors Portfolios, including the Statement of
Additional Information (which includes
48
<PAGE> 51
financial statements relating to MONY), contact MONY at its address or phone
number set forth on the cover of this Prospectus for requesting such statement.
For further information with respect to the Calvert Series, Calvert
Variable Series, Inc. or Calvert Asset Management Company, Inc., including a
Statement of Additional Information, contact the Fund at 4550 Montgomery Avenue,
Suite 1000N, Bethesda, Maryland 20814, or call (301) 951-4820.
MISCELLANEOUS
The Accounts are separate registered accounts of AUSA. There is a
possibility that one Account might become liable for a misstatement in this
Prospectus about the other Account. AUSA believes this possibility is remote.
YEAR 2000
The Accounts could be adversely affected if the computer system used by the
Accounts or their service providers are not programmed to accurately process
information on or after January 1, 2000. AEGON (the "Company") has adopted and
has in place a Year 2000 Assessment and Planning Project (the "Project") to
review and analyze its information technology and systems to determine if they
are Year 2000 compatible. The Company has begun to convert or modify, where
necessary, critical data processing systems. It is contemplated that the plan
will be substantially completed by early 1999. The Company does not expect this
Project to have a significant effect on operations. However, to mitigate the
effect of outside influences upon the success of the Project, the Company has
undertaken communications with its significant customers, suppliers and other
third parties to determine their Year 2000 compatibility and readiness. AEGON
management believes that the issues associated with the Year 2000 will be
resolved with no material financial impact on the Company.
Since the Year 2000 computer problem and its resolution is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived Project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of AEGON and the Accounts, their
ability to function unaffected to and through Year 2000 may be adversely
affected by actions (or failures to act) of third parties beyond their knowledge
or control.
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<PAGE> 52
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Accountants..................................... 2
Sale of Contracts/Principal Underwriter..................... 2
Performance Data............................................ 2
Diversified Investors Portfolios............................ 5
Investment Objectives, Policies and Restrictions,........... 5
Determination of Net Asset Value; Valuation of Securities... 23
Management of Diversified Investors Portfolios.............. 23
Independent Accountants..................................... 26
Capital Stock and Other Securities.......................... 26
Taxation.................................................... 27
Financial Statements of MONY................................ 28
Appendix.................................................... A-1
</TABLE>
50
<PAGE> 53
REQUEST FOR KEYNOTE
STATEMENT OF ADDITIONAL INFORMATION
Detach and return in an envelope addressed:
MONY
c/o Diversified Investment Advisors, Inc.
4 Manhattanville Road
Purchase, New York 10577
Attn: Not-For-Profit Service
Please make sure that your name and the address to which you wish MONY to
send the current Keynote Statement of Additional Information appears below:
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
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<PAGE> 54
APPENDIX
APPLICABLE PREMIUM TAX RATES
<TABLE>
<CAPTION>
PREMIUM TAX RATE PERCENT
--------------------------
QUALIFIED NON QUALIFIED
--------- -------------
<S> <C> <C>
California.................................................. .50% 2.35%
District of Columbia........................................ 2.25% 2.25%
Kentucky.................................................... 2.00% 2.00%
Maine....................................................... -- 2.00%
Nevada...................................................... -- 3.50%
Pennsylvania................................................ -- --
Puerto Rico................................................. 1.00% 1.00%
South Dakota................................................ -- 1.25%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... -- 1.00%
</TABLE>
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<PAGE> 55
STATEMENT OF ADDITIONAL INFORMATION
MAY 3, 1999
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED BY
KEYNOTE SERIES ACCOUNT
AND
MONY LIFE INSURANCE COMPANY
1740 BROADWAY, NEW YORK, N.Y. 10019;
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT IT RELATES TO,
AND SHOULD BE READ IN CONJUNCTION WITH, THE PROSPECTUS DATED MAY 3, 1999 FOR THE
GROUP VARIABLE ANNUITY CONTRACTS ISSUED BY THE MUTUAL LIFE INSURANCE COMPANY OF
NEW YORK ("MONY") WHICH INVEST IN THE KEYNOTE SERIES ACCOUNT ("KEYNOTE") . THE
PROSPECTUS IS AVAILABLE, AT NO CHARGE, BY WRITING MONY AT 4 MANHATTANVILLE RD.,
PURCHASE, NEW YORK 10577 OR BY CALLING (914) 697-8000.
A SEPARATE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE WITHOUT CHARGE FOR
CALVERT VARIABLE SERIES, INC. OF WHICH THE CALVERT SOCIAL BALANCED PORTFOLIO IS
A PART BY WRITING TO CALVERT VARIABLE SERIES, INC. AT 4550 MONTGOMERY AVENUE,
SUITE 1000N, BETHESDA, MARYLAND 20814 OR BY TELEPHONING 301-951-4820.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Accountants..................................... 2
Sale of Contract/Principal Underwriter...................... 2
Performance Data............................................ 2
Diversified Investors Portfolios............................ 5
Investment Objectives, Policies and Restrictions,......... 5
Determination of Net Asset Value; Valuation of
Securities............................................. 23
Management of Diversified Investors Portfolios............ 23
Independent Accountant.................................... 26
Capital Stock and Other Securities........................ 26
Taxation.................................................. 28
Financial Statements of MONY................................ 29
Appendix.................................................... A-1
</TABLE>
<PAGE> 56
INDEPENDENT ACCOUNTANTS
The financial statements of Keynote and MONY appearing on the following
pages have been audited by PricewaterhouseCoopers LLP, independent accountants,
and are included herein in reliance on the reports of PricewaterhouseCoopers LLP
given upon the authority of said firm as experts in accounting and auditing.
PricewaterhouseCoopers LLP is located at 1177 Avenue of the Americas, New York,
New York 10036.
SALE OF CONTRACTS/PRINCIPAL UNDERWRITER
MONY Securities Corp ("MSC") is the principal underwriter and distributor
of the Contracts which will be sold by registered representatives who are also
licensed insurance agents of MONY. The Contracts may also be sold through other
broker-dealers authorized by MSC and applicable law and who may be insurance
agents licensed by an insurance company other than MONY. MSC is registered with
the Securities and Exchange Commission as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
MSC will not receive underwriting commissions. Registration as a
broker-dealer does not mean that Securities and Exchange Commission ("the SEC")
has passed upon the financial standing, fitness or conduct of any broker or
dealer, or upon the merits of any security offering or upon any other matter
relating to the business of any broker or dealer.
PERFORMANCE DATA
MONEY MARKET SUBACCOUNT
For the seven day period ended December 31, 1998, the yield for the Money
Market Subaccount was 4.38% and the effective yield was 4.47%.
The yield is calculated by dividing the result of subtracting the value of
one Unit at the end of the seven day period ("Seventh Day Value") from the value
of one Unit at the beginning of the seven day period (""First Day Value") by the
First Day Value (the resulting quotient being the "Base Period Return") and
multiplying the Base Period Return by 365 divided by 7 to obtain the annualized
yield.
The effective yield is calculated by compounding the Base Period Return
calculated in accordance with the preceding paragraph, adding 1 to Base Period
Return, raising that sum to a power equal to 365 divided by 7 and subtracting 1
from the result.
As the Money Market Subaccount invests only in the Money Market Series (the
"Money Market Series") of Diversified Investors Portfolios, the First Day Value
reflects the net asset value of the interest in the Money Market Series held in
the Money Market Subaccount. The Seventh Day Value reflects increases or
decreases in the net asset value of the interest in the Money Market Series held
in the Money Market Subaccount due to the declaration of dividends, net
investment income and the daily charges and deductions from the Subaccount for
mortality and expense risk. Net investment income reflects earnings on
investments less expenses of the Money Market Series including the investment
management fee.
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<PAGE> 57
AVERAGE ANNUAL TOTAL RETURNS: The average annual total return for the
Subaccounts is shown for the periods indicated in the table below.
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOR THE FOR THE PERIOD
YEAR 3 YEAR 5 YEAR 10 YEAR SINCE
ENDED ENDED ENDED ENDED INCEPTION
DEC. 31, DEC. 31, DEC. 31, DEC. 31, THROUGH
1998 1998 1998 1998 DEC. 31, 1998
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Subaccount:
Money Market(1)........................ 4.72% 4.67% 4.50% 4.93% 7.30%
Intermediate Government Bond(1)........ 6.16% 5.11% 5.11% N/A 6.66%
Government/Corporate Bond(1)........... 6.87% 5.66% 5.94% 8.21% 8.31%
Balanced(1)............................ 11.50% 15.17% 13.99% N/A 13.77%
Equity Income(1)....................... 12.03% 19.21% 17.50% 14.42% 14.04%
Equity Growth(1)....................... 35.73% 26.32% 19.94% N/A 18.13%
Calvert Series(2)...................... 16.61% 15.71% 13.84% 12.29% 11.20%
</TABLE>
- ---------------
(1) On January 3, 1994, each of the corresponding Pooled Separate Accounts of
MONY set forth below contributed all of its assets to the corresponding
Series of Diversified Investors Portfolios in which a corresponding Keynote
Subaccount invests its assets:
<TABLE>
<CAPTION>
MONY POOLED
SERIES SEPARATE ACCOUNT
------ ----------------
<S> <C>
Money Market................................ Pooled Account No. 4
Intermediate Government Bond................ Pooled Account No. 10d
Government/Corporate Bond................... Pooled Account No. 5
Balanced.................................... Pooled Account No. 14
Equity Income............................... Pooled Account No. 6
Equity Growth............................... Pooled Account No. 1
</TABLE>
Total returns calculated for any period for the Money Market,
Intermediate Government Bond, Government/Corporate Bond, Balanced, Equity
Income Subaccounts reflect the performance of the corresponding Pooled
Separate Account for any period prior to January 3, 1994 and the
performance of the corresponding series of Diversified Investors Portfolios
thereafter. Such total returns calculated for each of the Subaccounts
reflect the performance of the corresponding Pooled Separate Account only
from the date that such corresponding Pooled Separate Account utilized the
services of the same investment adviser as is presently providing such
advice to the corresponding Series of Diversified Investors Portfolios
invested in by the Subaccount. Such commencement dates are November 1978
for the Money Market Subaccount, July 1990 for the Intermediate Government
Bond Subaccount, January 1978 for the Government/Corporate Bond Subaccount,
December 1992 for the Balanced Subaccount and January 1978 for the Equity
Income Subaccount, and February 1993 for the Equity Growth Subaccount. All
total return percentages reflect the historical rates of return for such
period adjusted to assume that all charges, expenses and fees of the
applicable Subaccount and the corresponding series of Diversified Investors
Portfolios which are presently in effect were deducted during such period.
(2) The average annual total returns for the Calvert Series Subaccount reflect
the average annual total returns of the Calvert Series. The commencement
date of the Calvert Series is September 30, 1986.
The table above assumes that a $1,000 payment was made to each Subaccount
at the beginning of the period shown, that no further payments were made, that
any distribution from the corresponding series (or its predecessor investment
vehicle) were reinvested, and that a Contractholder surrendered the Contract for
cash, rather than electing commencement of annuity benefits in the form of one
of the Settlement Options available, at the end of the period shown. The
annualized total return percentages shown in the table reflect the annualized
historical rates of return and deductions for all charges,
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<PAGE> 58
expenses, and fees which would be imposed on the payment assumed by both the
corresponding series and Keynote.
OTHER SUBACCOUNTS
The yield for each of the Subaccounts other than the Money Market
Subaccount and the Calvert Subaccount is shown for the periods indicated in the
table below.
KEYNOTE SERIES ACCOUNT
YIELD FOR 30-DAY PERIOD*
<TABLE>
<CAPTION>
GOVERNMENT/ INTERMEDIATE
YIELD FOR 30 EQUITY EQUITY CORPORATE GOVERNMENT
DAYS ENDED GROWTH INCOME BALANCED BOND BOND
------------ ------ ------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998..................... 0.17% 1.98% 3.74% 5.25% 4.66%
</TABLE>
- ---------------
* The 30 day yield is not indicative of future performance.
The yield shown in the table above is computed by subtracting from the net
investment income of the underlying investment vehicle all charges, expenses and
fees as well as expenses imposed by Keynote and dividing the result by the value
of the Subaccount. For the underlying investment vehicle of the Equity Growth,
Equity Income and for the equity portion of the Balanced Subaccount, net
investment income is the net of the dividends accrued (1/360 of the stated
dividend rate multiplied by the number of days the particular security is in the
underlying investment vehicle) on all equity securities during the 30-day period
and expenses accrued for the period. It does not reflect capital gains or
losses. For the fixed income portion of the Balanced Subaccount, as well as the
Government/Corporate Bond and Intermediate Government Bond Subaccounts, net
investment income is the net of interest earned on the obligations held by the
underlying investment vehicle of the applicable Subaccount and expenses accrued
for the period determined by (i) computing the yield to maturity based on the
market value of each obligation held in the underlying investment vehicle at the
close of business on the thirtieth day of the period, based on the purchase
price plus accrued interest); (ii) dividing the yield to maturity for each
obligation by 360; (iii) multiplying that quotient by the market value of each
obligation (including actual accrued interest) for each day of the subsequent
30-day month that the obligation is in the underlying investment vehicle; and
(iv) totaling the interest on each obligation. Discount or premium amortization
is recomputed at the beginning of each 30-day period and with respect to
discount and premium on mortgage or other receivables-backed obligations subject
to monthly payment of principal and interest, discount and premium is amortized
on the remaining security, based on the cost of the security, to the weighted
average maturity date, if available, or to the remaining term of the security,
if the weighted average maturity date is not available. Gain or loss
attributable to actual monthly paydowns is reflected as an increase or decrease
in interest income during that period.
The yield shown for each Subaccount reflects deductions for all charges,
expenses, and fees of both its underlying investment vehicle and Keynote.
Net investment income of the underlying investment vehicle less all charges
and expenses imposed by Keynote is divided by the product of the average daily
number of Units outstanding and the value of one Unit on the last day of the
period. The sum of the quotient and 1 is raised to the 6th power, 1 is
subtracted from the result, and then multiplied by 2.
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<PAGE> 59
DIVERSIFIED INVESTORS PORTFOLIOS
Six series of Diversified Investors Portfolios are presently available for
investment under the Contracts through Subaccounts of Keynote. This section of
the Statement of Additional Information describes each such series, including
Diversified Investors Money Market Portfolio (the "Money Market Series"),
Diversified Investors Intermediate Government Bond Portfolio (the "Intermediate
Government Bond Series"), Diversified Investors Government/Corporate Bond
Portfolio (the "Government/Corporate Bond Series"), Diversified Investors
Balanced Portfolio (the "Balanced Series"), Diversified Investors Equity Income
Portfolio (the "Equity Income Series") and Diversified Investors Equity Growth
Portfolio (the "Equity Growth Series"). The series of Diversified Investors
Portfolios available under the Contracts may be collectively referred to herein
as the "Series".
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of each Series is described in the Prospectus of
Keynote Series Account. There can, of course, be no assurance that a Series will
achieve its investment objective.
INVESTMENT POLICIES
The following discussion supplements the information regarding the
investment objective of each Series and the policies to be employed to achieve
this objective as set forth in the Prospectus of Keynote Series Account.
BANK OBLIGATIONS
Domestic commercial banks organized under Federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System. Domestic banks organized under state law are
supervised and examined by state banking authorities but are members of the
Federal Reserve System only if they elect to join. In addition, state banks are
subject to Federal examination and to a substantial body of Federal law and
regulation. As a result of Federal or state laws and regulations, domestic
banks, among other things, generally are required to maintain specified levels
of reserves, are limited in the amounts which they can loan to a single
borrower, and are subject to other regulations designed to promote financial
soundness. However, not all of such laws and regulations apply to the foreign
branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as Certificates of Deposit
("CDs") and time deposits ("TDs"), may be general obligations of the parent
banks in addition to the issuing branch, or may be limited by the terms of a
specific obligation and governmental regulation. Such obligations are subject to
different risks than are those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions that may
adversely affect payment of principal and interest on the obligations, foreign
exchange controls and foreign withholding and other taxes on interest income.
These foreign branches and subsidiaries are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial record keeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank or about a foreign
bank than about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to
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<PAGE> 60
reserve requirements imposed by the Federal Reserve System or by the state in
which the branch is located if the branch is licensed in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisers carefully evaluate such investments on a
case-by-case basis.
U.S. GOVERNMENT AND AGENCY SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which differ only in their
interest rates, maturities and times of issuance. Treasury Bills have initial
maturities of one year or less; Treasury Notes have initial maturities of one to
ten years; and Treasury Bonds generally have initial maturities of greater than
ten years. Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. While the U.S.
Government provides financial support to such U.S. Government-sponsored agencies
or instrumentalities, no assurance can be given that it will always do so, since
it is not so obligated by law. A Series will invest in such securities only when
the Advisers are satisfied that the credit risk with respect to the issuer is
minimal.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually from 1 to 270 days)
unsecured promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Each Series may invest in commercial paper issued by major corporations in
reliance on the exemption from registration afforded by Section 3(a)(3) of the
Securities Act of 1933, as amended (the "1933 Act"). Such commercial paper may
be issued only to finance current transactions and must mature in nine months or
less. Trading of such commercial paper is conducted primarily by institutional
investors through investment dealers, and individual investor participation in
the commercial paper market is very limited.
LENDING OF PORTFOLIO SECURITIES
All Series have the authority to lend portfolio securities to brokers,
dealers and other financial organizations. By lending its securities, a Series
can increase its income by continuing to receive interest on the loaned
securities as well as by either investing the cash collateral in short-term
securities or obtaining yield in the form of interest paid by the borrower when
U.S. Government obligations are used as collateral. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. A Series will adhere to the following conditions
whenever its securities are loaned: (i) the
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<PAGE> 61
Series must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (ii) the borrower must increase this collateral
whenever the market value of the securities including accrued interest rises
above the level of the collateral; (iii) the Series must be able to terminate
the loan at any time; (iv) the Series must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities, and any increase in market value; (v) the Series may pay only
reasonable custodian fees in connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower. However, if a material event
adversely affecting the investment were to occur, the Series would terminate the
loan and regain the right to vote the securities.
VARIABLE RATE AND FLOATING RATE SECURITIES
Each Series may purchase floating and variable rate demand notes and bonds,
which are obligations ordinarily having stated maturities in excess of 397 days,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding 397 days, in each case upon not more than 30
days' notice. Variable rate demand notes include master demand notes which are
obligations that permit a Series to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Series, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time. The issuer of such obligations normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders of such obligations. The interest rate on a floating rate
demand obligation is based on a known lending rate, such as a bank's prime rate,
and is adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Series' right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and a Series may invest in obligations which are not so rated only if the
Advisers determine that at the time of investment the obligations are of
comparable quality to the other obligations in which the Series may invest. The
Advisers, on behalf of a Series, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Series. A Series will not invest more than 15% (10% in
the case of the Money Market Series) of the value of its net assets in floating
or variable rate demand obligations as to which it cannot exercise the demand
feature on not more than seven days' notice if there is no secondary market
available for these obligations, and in other securities that are not readily
marketable. See "Investment Restrictions" below.
PARTICIPATION INTERESTS
A Series may purchase from financial institutions participation interests
in securities in which such Series may invest. A participation interest gives a
Series an undivided interest in the security in the proportion that the Series'
participation interest bears to the total principal amount of the security.
These instruments may have fixed, floating or variable rates of interest, with
remaining maturities of 13 months or less. If the participation interest is
unrated, or has been given a rating below that which is permissible for purchase
by the Series, the participation interest will be backed by an irrevocable
letter of credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government securities, or, in the case of unrated
participation interests, the Advisers must have determined that the instrument
is of comparable quality to those instruments in which a Series may invest. For
certain participation interests, a Series will have the right to demand payment,
on not more than seven days' notice, for all or any part of the Series'
participation interest in the security, plus accrued interest. As to these
instruments, a Series intends to exercise its right to demand payment only
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<PAGE> 62
upon a default under the terms of the security, as needed to provide liquidity
to meet redemptions, or to maintain or improve the quality of its investment
portfolio. A Series will not invest more than 15% (10% in the case of the Money
Market Series) of its net assets in participation interests that do not have
this demand feature, and in other securities that are not readily marketable.
See "Investment Restrictions" below.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The SEC has recently adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restriction on
their resale to the general public. Rule 144A establishes a "safe harbor" from
the registration requirements of the 1933 Act of resales of certain securities
to qualified institutional buyers. The Advisers anticipate that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new regulation and the development of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.
The Advisers will monitor the liquidity of Rule 144A securities for each
Series under the supervision of the Diversified Investors Portfolio's Board of
Trustees. In reaching liquidity decisions, the Advisers will consider, among
other things, the following factors: (1) the frequency of trades and quotes for
the security, (2) the number of dealers and other potential purchasers wishing
to purchase or sell the security, (3) dealer undertakings to make a market in
the security and (4) the nature of the security and of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
UNSECURED PROMISSORY NOTES
A Series also may purchase unsecured promissory notes ("Notes") which are
not readily marketable and have not been registered under the 1933 Act, provided
such investments are consistent with the Series' investment objective. The Notes
purchased by a Series will have remaining maturities of 13 months or less and
will be deemed by the Board of Trustees of Diversified Investors Portfolios to
present minimal credit risks and will meet the quality criteria set forth above
under "Investment Policies." A Series will invest no more than 15% (10% in the
case of the Money Market Series) of its
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<PAGE> 63
net assets in such Notes and in other securities that are not readily
marketable(which securities would include floating and variable rate demand
obligations as to which the Series cannot exercise the demand feature described
above and as to which there is no secondary market). See "Investment
Restrictions" below.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person purchases a security
and simultaneously commits to resell that security to the seller (which is
usually a member bank of the Federal Reserve System or a member firm of the New
York Stock Exchange (or a subsidiary thereof)) at an agreed-upon date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the seller to pay
the agreed-upon price, which obligation is in effect secured by the value of the
underlying security, usually U.S. Government or Government agency issues. Under
the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase
agreements may be considered to be loans by the buyer. A Series' risk is limited
to the ability of the seller to pay the agreed upon amount on the delivery date.
If the seller defaults, the underlying security constitutes collateral for the
seller's obligation to pay although a Series may incur certain costs in
liquidating this collateral and in certain cases may not be permitted to
liquidate this collateral. All repurchase agreements entered into by a Series
are fully collateralized, with such collateral being marked to market daily.
A Series may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, and
by agreeing to sell portfolio securities to financial institutions such as banks
and broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time a Series enters into a reverse
repurchase agreement it will place in a segregated custodial account cash, U.S.
Government securities or high-grade debt obligations having a value equal to the
repurchase price, including accrued interest. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Series may
decline below the repurchase price of those securities. Reverse repurchase
agreements are considered to be borrowings by a Series.
FOREIGN SECURITIES - ALL SERIES
Each Series may invest its assets in securities of foreign issuers.
Investing in securities issued by companies whose principal business activities
are outside the United States may involve significant risks not present in
domestic investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing and financial
reporting requirements comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, brokerage or other taxation, limitation on the removal of
funds or other assets of a Series, political or financial instability or
diplomatic and other developments which would affect such investments. Further,
economies of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for foreign
securities would be on exchanges or in over-the-counter markets located outside
the U.S. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S., and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign security
trading practices, including those involving securities settlement where a
Series' assets may be released prior to receipt of payment, may expose a Series
to increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. In addition, foreign brokerage commissions are generally higher
than commis-
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<PAGE> 64
sions on securities traded in the U.S. and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of foreign
securities exchanges, brokers and listed companies than in the U.S.
FOREIGN SECURITIES - MONEY MARKET SERIES
The Money Market Series may invest in foreign securities, including only
U.S. dollar-denominated obligations of foreign branches and subsidiaries of
domestic banks and foreign banks, such as Eurodollar certificates of deposit,
which are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, and Yankee CDs,
which are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States; Eurodollar time
deposits ("ETDs"), which are U.S. dollar-denominated deposits in a foreign
branch of a foreign or domestic bank, and Canadian time deposits, which are
essentially the same as ETDs except they are issued by branches of major
Canadian banks; high quality, U.S. dollar-denominated short-term bonds and notes
(including variable amount master demand notes) issued by foreign corporations,
including Canadian commercial paper, which is commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation, and
Europaper, which is U.S. dollar-denominated commercial paper of a foreign
issuer; and U.S. dollar-denominated obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which the Money Market Series may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
FOREIGN SECURITIES - SERIES OTHER THAN MONEY MARKET SERIES
Each Series' policy is not to invest more than 25% of its assets in
securities of foreign issuers; not more than 5% of a Series' assets may be
invested in closed-end investment companies which primarily hold foreign
securities. Investments in such companies may entail the risk that the market
value of such investments may be substantially less than their net asset value
and that there would be duplication of investment management and other fees and
expenses. Securities of foreign issuers include investments in sponsored
American Depository Receipts ("ADRs"). ADRs are depository receipts for
securities of foreign issuers and provide an alternative method for a Series to
make foreign investments. These securities will not be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities.
Each Series may invest in foreign securities that impose restrictions on
transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Because some Series may buy and sell securities denominated in currencies
other than the U.S. dollar and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, such Series from time to time may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. Such Series either enter into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market or use
forward contracts to purchase or sell foreign currencies.
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A forward foreign currency exchange contract is an obligation by a Series
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
transferable in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. A Series maintains with its custodian a segregated
account of high grade liquid assets in an amount at least equal to its
obligations under each forward foreign currency exchange contract. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Series' securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Series may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Advisers' long-term investment
decisions, the Series will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, the Advisers
believe that it is important to have the flexibility to enter into foreign
currency hedging transactions when they determine that the transactions would be
in a Series' best interest. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event a Series' ability to utilize forward
contracts in the manner set forth herein and in the Prospectus may be
restricted. Forward contracts may reduce the potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for a Series than if it had not entered into such contracts. The use
of foreign currency forward contracts may not eliminate fluctuations in the
underlying U.S. dollar equivalent value of the prices of or rates of return on a
Series' foreign currency denominated portfolio securities and the use of such
techniques will subject a Series to certain risks.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset
that is the subject of the hedge generally will not be precise. In addition, a
Series may not always be able to enter into foreign currency forward contracts
at attractive prices and this will limit a Series' ability to use such contract
to hedge or cross-hedge its assets. Also, with regard to a Series' use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time poor correlation may exist between movements in the
exchange rates of the foreign currencies underlying a Series' cross-hedges and
the movements in the exchange rates of the foreign currencies in which a Series'
assets that are the subject of such cross-hedges are denominated.
GUARANTEED INVESTMENT CONTRACTS
Each Series may invest in guaranteed investment contracts ("GICs") issued
by insurance companies. Pursuant to such contracts, a Series makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the fund guaranteed interest. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs
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allocable to it, and the charges will be deducted from the value of the deposit
fund. Because a Series may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, the GIC is considered an
illiquid investment and, together with other instruments in a Series which are
not readily marketable, will not exceed 15% (10% in the case of the Money Market
Series) of the Series' net assets. The term of a GIC will be thirteen months or
less. In determining average weighted portfolio maturity, a GIC will be deemed
to have a maturity equal to the longer of the period of time remaining until the
next readjustment of the guaranteed interest rate or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
WHEN-ISSUED SECURITIES
Each Series may purchase securities on a "when-issued" or on a "forward
delivery" basis. It is expected that, under normal circumstances, a Series would
take delivery of such securities. When a Series commits to purchase a security
on a "when-issued" or on a "forward delivery" basis, the Series establishes
procedures consistent with the relevant policies of the Securities and Exchange
Commission. Since those policies currently recommend that an amount of a Series'
assets equal to the amount of the purchase be held aside or segregated to be
used to pay for the commitment, the Series expects always to have cash, cash
equivalents, or high quality debt securities sufficient to cover any commitments
or to limit any potential risk. However, although a Series does not intend to
make such purchases for speculative purposes and intends to adhere to the
provisions of Securities and Exchange Commission policies, purchases of
securities on such bases may involve more risk than other types of purchases.
For example, a Series may have to sell assets which have been set aside in order
to meet redemptions. Also, if a Series determines it is advisable as a matter of
investment strategy to sell the "when-issued" or "forward delivery" securities,
the Series would be required to meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or less than the Series' payment
obligation).
ZERO COUPON OBLIGATIONS
Each Series may acquire zero coupon obligations when consistent with its
investment objective and policies. Such obligations have greater price
volatility than coupon obligations and will not result in payment of interest
until maturity. Since dividend income is accrued throughout the term of the zero
coupon obligation but is not actually received until maturity, a Series may have
to sell other securities to pay said accrued dividends prior to maturity of the
zero coupon obligation.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS - SERIES OTHER THAN MONEY
MARKET SERIES
GENERAL. The successful use of such instruments draws upon the Advisers'
skill and experience with respect to such instruments and usually depends on the
Advisers' ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, a
Series may not achieve the anticipated benefits of futures contracts or options
on futures contracts or may realize losses and thus will be in a worse position
than if such strategies had not been used. In addition, the correlation between
movements in the price of futures contracts or options on futures contracts and
movements in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.
FUTURES CONTRACTS. A Series may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices including any index of U.S. Government
securities, foreign government securities or corporate debt securities. U.S.
futures contracts have been designed by exchanges which have been designated
"contracts markets" by the CFTC, and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. A Series may enter
into futures contracts which are
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based on debt securities that are backed by the full faith and credit of the
U.S. Government, such as long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. A Series may also enter into
futures contracts which are based on bonds issued by entities other than the
U.S. Government.
At the same time a futures contract is purchased or sold, the Series must
allocate cash or securities as a deposit payment ("initial deposit"). It is
expected that the initial deposit would be approximately 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Series would
provide or receive cash that reflects any decline or increase in the contract's
value.
At the time of delivery of securities pursuant to such a contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Series will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures contract, in the case
of a Series which holds or intends to acquire fixed-income securities, is to
attempt to protect the Series from fluctuations in interest or foreign exchange
rates without actually buying or selling fixed-income securities or foreign
currencies. For example, if interest rates were expected to increase, a Series
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the debt
securities owned by the Series. If interest rates did increase, the value of the
debt securities in a Series would decline, but the value of the futures
contracts to the Series would increase at approximately the same rate, thereby
keeping the net asset value of the Series from declining as much as it otherwise
would have. The Series could accomplish similar results by selling debt
securities and investing in bonds with short maturities when interest rates are
expected to increase. However, since the futures market is more liquid than the
cash market, the use of futures contracts as an investment technique allows a
Series to maintain a defensive position without having to sell its portfolio
securities.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against anticipated purchases of
debt securities at higher prices. Since the fluctuations in the value of futures
contracts should be similar to those of debt securities, a Series could take
advantage of the anticipated rise in the value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Series could then buy debt securities on
the cash market. To the extent a Series enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to cover the
Series' obligations with respect to such futures contracts will consist of cash,
cash equivalents or high quality liquid debt securities from its portfolio in an
amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Series with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the
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futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to make
or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the margin
deposit requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price distortions. Due to
the possibility of distortion, a correct forecast of general interest rate
trends by the Advisers may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Advisers believe
that use of such contracts will benefit the Series, if the Advisers' investment
judgment about the general direction of interest rates is incorrect, a Series'
overall performance would be poorer than if it had not entered into any such
contract. For example, if a Series has hedged against the possibility of an
increase in interest rates which would adversely affect the price of debt
securities held by it and interest rates decrease instead, the Series will lose
part or all of the benefit of the increased value of its debt securities which
it has hedged because it will have offsetting losses in its futures positions.
In addition, in such situations, if a Series has insufficient cash, it may have
to sell debt securities to meet daily variation margin requirements. Such sales
of bonds may be, but will not necessarily be, at increased prices which reflect
the rising market. A Series may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Series intend to purchase and write
options on futures contracts for edging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when a Series is not fully invested it may
purchase a call option on a futures contract to hedge against a market advance
due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Series will retain the
full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Series' portfolio holdings. The writing of
a put option on a futures contract constitutes a partial hedge against
increasing prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Series will retain the full amount
of the option premium which provides a partial hedge against any increase in the
price of securities which the Series intends to purchase. If a put or call
option the Series has written is exercised, the Series will incur a loss which
will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Series' losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Series may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates.
The amount of risk a Series assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The Board of Trustees of Diversified Investors Portfolios has adopted the
requirement that futures contracts and options on futures contracts be used
either (i) as a hedge without regard to any quantitative limitation, or (ii) for
other purposes to the extent that immediately thereafter the aggregate
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amount of margin deposits on all (non-hedge) futures contracts of the Series and
premiums paid on outstanding (non-hedge) options on futures contracts owned by
the Series does not exceed 5% of the market value of the total assets of a
Series. In addition, the aggregate market value of the outstanding futures
contracts purchased by a Series may not exceed 50% of the market value of the
total assets of the Series. Neither of these restrictions will be changed by the
Board of Trustees of Diversified Investors Portfolios without considering the
policies and concerns of the various applicable federal and state regulatory
agencies.
OPTIONS ON FOREIGN CURRENCIES. A Series may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
a Series may purchase put options on the foreign currency. If the value of the
currency does decline, the Series will have the right to sell such currency for
a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Series may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Series deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Series could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
A Series may write options on foreign currencies for the same types of
hedging purposes. For example, where a Series anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Series
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Series to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Series would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Series also may be required to forego all or
a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.
The Series intend to write covered call options on foreign currencies. A
call option written on a foreign currency by a Series is "covered" if the Series
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other foreign currency held in
its portfolio. A call option is also covered if the Series has a call on the
same foreign currency and in the same principal amount as the call written where
the exercise price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Series in cash, U.S. Government
securities and other high quality liquid debt securities in a segregated account
with its custodian.
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The Series also intend to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the Series
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, a Series collateralizes the option by maintaining in a segregated
account with its custodian, cash or U.S. Government securities or other high
quality liquid debt securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked to market daily.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES. Unlike transactions entered into by a Series in
futures contracts, options on foreign currencies and forward contracts are not
traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) by the SEC. To the contrary, such instruments
are traded through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the margin and
collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation ("OCC"),
thereby reducing the risk of counterparty default. Further, a liquid secondary
market in options traded on a national securities exchange may be more readily
available than in the over-the-counter market, potentially permitting a Series
to liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
As in the case of forward contracts, certain options on foreign currencies
are traded over-the-counter and involve liquidity and credit risks which may not
be present in the case of exchange-traded currency options. A Series' ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, each Series will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities. With respect to options written
with primary dealers in U.S. Government Securities pursuant to an agreement
requiring a closing purchase transaction at a
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formula price, the amount of illiquid securities may be calculated with
reference to the repurchase formula.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the United
States of data on which to make trading decisions, (iii) delays in the Series'
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
OPTIONS ON SECURITIES - SERIES OTHER THAN MONEY MARKET SERIES
The Series may write (sell) covered call and put options to a limited
extent on its portfolio securities ("covered options") in an attempt to increase
income. However, a Series may forgo the benefits of appreciation on securities
sold or may pay more than the market price on securities acquired pursuant to
call and put options written by the Series.
When a Series writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Series will realize income
in an amount equal to the premium received for writing the option. If the option
is exercised, a decision over which a Series has no control, the Series must
sell the underlying security to the option holder at the exercise price. By
writing a covered call option, a Series forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security above the
exercise price.
When a Series writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Series at the specified
exercise price at any time during the option period. If the option expires
unexercised, the Series will realize income in the amount of the premium
received for writing the option. If the put option is exercised, a decision over
which a Series has no control, the Series must purchase the underlying security
from the option holder at the exercise price. By writing a covered put option, a
Series, in exchange for the net premium received, accepts the risk of a decline
in the market value of the underlying security below the exercise price. A
Series will only write put options involving securities for which a
determination is made at the time the option is written that the Series wishes
to acquire the securities at the exercise price.
A Series may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." Where a Series cannot effect a closing purchase transaction, it
may be forced to incur brokerage commissions or dealer spreads in selling
securities it receives or it may be forced to hold underlying securities until
an option is exercised or expires.
When a Series writes an option, an amount equal to the net premium received
by the Series is included in the liability section of the Series' Statement of
Assets and Liabilities as a deferred credit. The amount of the deferred credit
will be subsequently marked to market to reflect the current market value of the
option written. The current market value of a traded option is the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price. If an option expires on its stipulated expiration date or if the Series
enters into a closing purchase transaction, the Series will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold), and the deferred credit related to such option will
be eliminated. If a call option is exercised, the Series will realize a gain or
loss from the sale of the underlying security and the proceeds of the sale will
be increased by the premium originally received. The writing of covered call
options may be deemed to involve the pledge of the securities against which the
option is being
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written. Securities against which call options are written will be segregated on
the books of the custodian for the Series.
A Series may purchase call and put options on any securities in which it
may invest. A Series would normally purchase a call option in anticipation of an
increase in the market value of such securities. The purchase of a call option
would entitle the Series, in exchange for the premium paid, to purchase a
security at a specified price during the option period. A Series would
ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
A Series would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle a Series, in exchange for the premium paid, to sell a
security, which may or may not be held in the Series' portfolio, at a specified
price during the option period. The purchase of protective puts is designed
merely to offset or hedge against a decline in the market value of the Series'
portfolio securities. Put options also may be purchased by a Series for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Series does not own. A Series would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Series have adopted certain other nonfundamental policies concerning
option transactions which are discussed below. A Series' activities in options
may also be restricted by the requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.
The Series may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
Government securities, make these markets. The ability to terminate over-the-
counter option positions is more limited than with exchange-traded option
positions because the predominant market is the issuing broker rather than an
exchange, and may involve the risk that broker-dealers participating in such
transactions will not fulfill their obligations. To reduce this risk, the Series
will purchase such options only from broker-dealers who are primary government
securities dealers recognized by the Federal Reserve Bank of New York and who
agree to (and are expected to be capable of) entering into closing transactions,
although there can be no guarantee that any such option will be liquidated at a
favorable price prior to expiration. The Advisers will monitor the
creditworthiness of dealers with whom a Series enters into such options
transactions under the general supervision of the Trustees of Diversified
Investors Portfolios.
OPTIONS ON SECURITIES INDICES - SERIES OTHER THAN MONEY MARKET SERIES
In addition to options on securities, the Series may also purchase and
write (sell) call and put options on securities indices. Such options give the
holder the right to receive a cash settlement during the term of the option
based upon the difference between the exercise price and the value of the index.
Such options will be used for the purposes described above under "Options on
Securities."
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Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Series generally will only purchase or write such an option if the Advisers
believe the option can be closed out.
Use of options on securities indices also entails the risk that trading in
such options may be interrupted if trading in certain securities included in the
index is interrupted. The Series will not purchase such options unless the
Advisers believe the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Series may not correlate precisely with movements in
the level of an index and, therefore, the use of options on indices cannot serve
as a complete hedge. Because options on securities indices require settlement in
cash, the Advisers may be forced to liquidate portfolio securities to meet
settlement obligations.
SHORT SALES "AGAINST THE BOX" - SERIES OTHER THAN MONEY MARKET SERIES
In a short sale, a Series sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. A Series may engage
in short sales only if at the time of the short sale it owns or has the right to
obtain, at no additional cost, an equal amount of the security being sold short.
This investment technique is known as a short sale "against the box".
In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If a Series engages in a short sale, the collateral for the short
position will be maintained by its custodian or qualified sub-custodian. While
the short sale is open, a Series maintains in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. These
securities constitute the Series' long position.
The Series will not engage in short sales against the box for investment
purposes. A Series may, however, make a short sale as a hedge, when it believes
that the price of a security may decline, causing a decline in the value of a
security (or a security convertible or exchangeable for such security), or when
a Series wants to sell the security at an attractive current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes or
for purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in a Series' long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced depends upon the amount of the
security sold short relative to the amount a Series owns. There are certain
additional transaction costs associated with short sales against the box, but
the Series endeavor to offset these costs with the income from the investment of
the cash proceeds of short sales.
As a non-fundamental operating policy, the Advisers do not expect that more
than 40% of a Series' total assets would be involved in short sales against the
box. The Advisers do not currently intend to engage in such sales.
CERTAIN OTHER OBLIGATIONS
In order to allow for investments in new instruments that may be created in
the future, a Series may, upon supplementing this Statement of Additional
Information, invest in obligations other than those listed previously, provided
such investments are consistent with a Series' investment objective, policies
and restrictions.
RATING SERVICES
The ratings of rating services represent their opinions as to the quality
of the securities that they undertake to rate. It should be emphasized, however,
that ratings are relative and subjective and are
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not absolute standards of quality. Although these ratings are an initial
criterion for selection of portfolio investments, the Advisers also make their
own evaluations of these securities, subject to review by the Board of Trustees
of Diversified Investors Portfolios. After purchase by a Series, an obligation
may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Series. Neither event would require a Series to dispose of
the obligation, but the Advisers will consider such an event in their
determination of whether a Series should continue to hold the obligation. A
description of the ratings used herein and in the Prospectus is set forth in the
Appendix to this Statement of Additional Information.
Except as stated otherwise, all investment policies and restrictions
described herein are non-fundamental, and may be changed without prior
shareholder approval.
INVESTMENT RESTRICTIONS
The following investment restrictions are "fundamental policies" of each
Series and may not be changed without the approval of a "majority of the
outstanding voting securities" of the Series. "Majority of the outstanding
voting securities" under the 1940 Act and as used in this Statement of
Additional Information and the Prospectus, means, with respect to a Series, the
lesser of (i) 67% or more of the total beneficial interests of the Series
present at a meeting if the holders of more than 50% of the total beneficial
interests of the Series are present or represented by proxy or (ii) more than
50% of the total beneficial interests of the Series. If a percentage or a rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made or assets are so utilized, a later change in such percentage
resulting from changes in a Series' total assets or the value of a Series'
securities, or a later change in the rating of a portfolio security, will not be
considered a violation of the relevant policy.
As a matter of fundamental policy, no Series may:
(1) borrow money or mortgage or hypothecate assets of the Series,
except that in an amount not to exceed 1/3 of the current value of the
Series' assets (including such borrowing) less liabilities (not including
such borrowing), it may borrow money and enter into reverse repurchase
agreements, and except that it may pledge, mortgage or hypothecate not more
than 1/3 of such assets to secure such borrowings or reverse repurchase
agreements, provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for
the purpose of participating in a captive insurance company sponsored by
the Investment Company Institute;
(2) underwrite securities issued by other persons except insofar as
Diversified Investors Portfolios or a Series may technically be deemed an
underwriter under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except (a) through the lending of
portfolio securities and provided that any such loans not exceed 30% of the
Series' total assets (taken at market value), (b) through the use of
repurchase agreements or the purchase of short-term obligations or (c) by
purchasing debt securities of types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts), except in the ordinary
course of business a Series may hold and sell portfolio real estate
acquired as a result of a Series' ownership of securities;
(5) concentrate its investments in any particular industry (excluding
U.S. Government Securities), but if it is deemed appropriate for the
achievement of the Series' investment objective(s), up to 25% of its total
assets may be invested in any one industry (except that the
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Money Market Series reserves the right to concentrate 25% or more of its
assets in obligations of domestic branches of domestic banks);
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the issuance
of a senior security for purposes of this restriction; or
(7) enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are not readily
marketable (which securities would include participation interests and
floating and variable rate demand obligations as to which no secondary
market exists and the Series cannot exercise a demand feature on not more
than seven days' notice), if, in the aggregate, more than 15% (10% in the
case of the Money Market Series) of its net assets would be so invested. A
Series may not invest in time deposits maturing in more than seven days.
State and Federal Restrictions. In order to comply with certain state and
federal statutes and policies each Series will not as a matter of operating
policy:
<TABLE>
<C> <S>
(i) borrow money for any purpose in excess of 10% of the Series'
total assets (taken at cost), except that the Series may
borrow for temporary or emergency purposes up to 1/3 of its
assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Series' net assets (taken at market value),
provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit
and variation margin, reverse repurchase agreements,
when-issued securities and other similar investment
techniques are not considered a pledge of assets for
purposes of this restriction;
(iii) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be
necessary for the clearance of purchases and sales of
securities may be obtained and except that deposits of
initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of
futures;
(iv) invest for the purpose of exercising control or management;
(v) purchase securities issued by any other investment company
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when
such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be
purchased for a Series if such purchase at the time thereof
would cause (a) more than 10% of the Series' total assets
(taken at the greater of cost or market value) to be
invested in the securities of such issuers; (b) more that 5%
of the Series' total assets (taken at the greater of cost or
market value) to be invested in any one investment company;
or (c) more than 3% of the outstanding voting securities of
any such issuer to be held for the Series; and provided
further that a Series may not purchase any security from any
open-end investment company;
(vi) purchase securities of any issuer if such purchase at the
time thereof would cause the Series to hold more than 10% of
any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a
single class, except that futures or option contracts shall
not be subject to this restriction;
</TABLE>
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<TABLE>
<C> <S>
(vii) purchase or retain in a Series' portfolio any securities
issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of
Diversified Investors Portfolios or is an officer or partner
of the Adviser or Subadviser, if after the purchase of the
securities of such issuer for a Series one or more of such
persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, all taken at market value, of such
issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5%
of such shares or securities, or both, all taken at market
value;
(viii) invest more than 5% of a Series' net assets in warrants
(valued at the lower of cost or market), but not more than
2% of a Series' net assets may be invested in warrants not
listed on the New York Stock Exchange or the American Stock
Exchange; or
(ix) make short sales of securities or maintain a short position
(excluding short sales if the Series owns an equal amount of
such securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of equivalent kind and amount) if
such short sales represent more than 25% of the Series' net
assets (taken at market value); provided, however, that the
value of the Series' short sales of securities (excluding
U.S. Government Securities) of any one issuer may not be
greater than 2% of the value (taken at market value) of the
Series' net assets or more than 2% of the securities of any
class of any issuer.
</TABLE>
Policies (i) through (ix) may be changed by the Board of Trustees of
Diversified Investors Portfolios.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Portfolio changes are made without regard to the length of time a security
has been held, or whether a sale would result in the recognition of a profit or
loss. Therefore, the rate of portfolio turnover is not a limiting factor when
changes are appropriate. Portfolio trading is engaged in for a Series if the
Advisers believe that a transaction net of costs (including custodian charges)
will help achieve the Series' investment objectives.
A Series' purchases and sales of securities may be principal transactions,
that is, securities may be purchased directly from the issuer or from an
underwriter or market maker for the securities. There usually are no brokerage
commissions paid for such purchases and, therefore, the Series do not anticipate
paying brokerage commissions in such transactions. Any transactions for which a
Series pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price.
Allocations of transactions, including their frequency, to various dealers
is determined by the Subadvisers in their best judgement and in a manner deemed
to be in the best interest of the investors in a Series rather than by any
formula. The primary consideration is prompt execution of orders in an effective
manner at the most favorable price.
Investment decisions for a Series will be made independently from those for
any other account or investment company that is or may in the future become
managed by the Advisers or their affiliates. If, however, a Series and other
investment companies or accounts managed by the Subadvisers are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by a Series or the size of the position obtainable for the Series. In
addition, when purchases or sales of the same security for a Series and for
other investment companies managed by the Subadvisers occur contemporaneously,
the purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales. Further-
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more, in certain circumstances affiliates of the Subadvisers whose investment
portfolios are managed internally, rather than by the Subadvisers, might seek to
purchase or sell the same type of investments at the same time as a Series. Such
an event might also adversely affect that Series.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES
Beneficial interests in each Series of Diversified Investors Portfolios are
issued solely in private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the Act. of 1933 Act.
Portfolio securities are valued on the basis of market quotations when they
are readily available. Each Series values mortgage-backed and other debt
securities for which market quotations are not readily available at their fair
value as determined in good faith, utilizing procedures approved by the Board of
Trustees of Diversified Investors Portfolios, on the basis of valuations
provided either by dealers or a pricing service. Debt securities having a
remaining maturity of sixty days or less when purchased and debt securities
originally purchased with maturities in excess of sixty days but which currently
have maturities of sixty days or less are valued at cost adjusted for
amortization of premiums and accretion of discounts.
Interest rate futures contracts held by a Series are valued on the basis of
closing market quotations, which are normally available daily. When market
quotations are not readily available, the fair value of these contracts will be
determined in good faith utilizing procedures approved by the Board of Trustees
of Diversified Investors Portfolios.
A determination of value used in calculating net asset value must be a fair
value determination made in good faith utilizing procedures approved by
Diversified Investors Portfolios Board of Trustees. While no single standard for
determining fair value exists, as a general rule, the current fair value of a
security would appear to be the amount which a Series could expect to receive
upon its current sale. Some, but not necessarily all, of the general factors
which may be considered in determining fair value include: (i) the fundamental
analytical data relating to the investment; (ii) the nature and duration of
restrictions on disposition of the securities; and (iii) an evaluation of the
forces which influence the market in which these securities are purchased and
sold. Without limiting or including all of the specific factors which may be
considered in determining fair value, some of the specific factors include: type
of security, financial statements of the issuer, cost at date of purchase, size
of holding, discount from market value, value of unrestricted securities of the
same class at the time of purchase, special reports prepared by analysts,
information as to any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the securities, price
and extent of public trading in similar securities of the issuer or comparable
companies, and other relevant matters.
MANAGEMENT OF DIVERSIFIED INVESTORS PORTFOLIOS
The Trustees and officers of Diversified Investors Portfolios and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Trustees who
are "interested persons" (as defined in the 1940 Act) of Diversified Investors
Portfolios. Unless otherwise indicated, the address of each Trustee and officer
of Diversified Investors Portfolios is 4 Manhattanville Road, Purchase, New York
10577.
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TRUSTEES AND OFFICERS OF DIVERSIFIED INVESTORS PORTFOLIOS
TRUSTEES
<TABLE>
<S> <C>
Tom A. Schlossberg*.................. 10/92 to present -- President, Chief Executive Officer and
Managing Board Member Chairman of the Managing board, Diversified Investment
Advisors, Inc.; 3/95 to present -- President and Director,
AUSA Life Insurance Company, Inc.
Neal M. Jewell....................... 1/95 to present -- Consultant; 11/91 to 1/95 -- Executive
Managing Board Member Vice President, American International Group Asset
355 Thornridge Drive, Management
Stamford, Connecticut 06903
Eugene M. Mannella................... 8/93 to present -- Vice President, Investment Management
(Managing Board Member) Services, Inc. 5/96 to present -- President, Brooks Asset
Two Orchard Neck Road, Management LLC
Center Moriches, New York 11934
Mark Mullin*......................... 4/95 to present -- Vice President and Chief Investment
(Managing Board Member) Officer, Diversified Investment Advisors, Inc.; 4/93 to
4/95 -- Portfolio Manager, AEGON, Inc.
Patricia L. Sawyer................... 1990 to present -- President, Smith & Sawyer, Inc.; 1997 to
(Managing Board Member) present -- Partner, Smith & Sawyer LLC
Smith & Sawyer Inc.
230 Park Avenue
33rd Floor
New York, New York 10169
</TABLE>
OFFICERS
Mr. Schlossberg is President, Chief Executive Officer and Chairman of the
Board of Diversified Investors Portfolios.
Robert F. Colby............ 1/94 to present -- Vice President and General
Counsel, Diversified Investment Advisors, Inc.;
3/95 to present -- Vice President and Assistant
Secretary, AUSA Life Insurance Company, Inc.; 3/93
to present -- Director, Vice President and
Secretary, Diversified Investors Securities Corp.
Alfred C. Sylvain.......... 11/93 to present -- Treasurer, Diversified
Investors Portfolios and The Diversified Investors
Funds Group; Vice President, Treasurer and
Assistant Secretary, Diversified Investment
Advisors, Inc.; 1/94 to present -- Treasurer,
Diversified Investors Securities Corp.; 2/95 to
present -- Director, Diversified Investors
Securities Corp.
John F. Hughes............. 11/93 to present -- Vice President and Senior
Counsel, Diversified Investment Advisors, Inc.
The Declaration of Trust provides that the Diversified Investors Portfolios
will indemnify its Trustees and officers as described below under "Description
of the Trust; Fund Shares."
INVESTMENT ADVISORY SERVICES
The Diversified Investment Advisors, Inc. ("Diversified") manages the
assets of each Series pursuant to an Investment Advisory Agreement (the
"Advisory Agreement") with Diversified Inves-
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tors Portfolios with respect to that Series and the investment policies
described herein and in the Prospectus. Subject to such further policies as the
Diversified Investors Portfolios' Board of Trustees may determine, the
Diversified provides general investment advice to each Series. For its services
under each Advisory Agreement, Diversified receives from each Series fees
accrued daily and paid monthly at an annual rate equal to the percentages
specified in the table set forth in the Prospectus of the corresponding Series'
average daily net assets.
For each Series of Diversified Investors Portfolios, Diversified has
entered into an Investment Subadvisory Agreement (each a "Subadvisory
Agreement") with one or more of the subadvisers (each "Subadviser," and
collectively the "Subadvisers"). It is the responsibility of a Subadviser to
make the day to day investment decisions for its Series and to place the
purchase and sales orders for securities transactions of such Series, subject in
all cases to the general supervision of Diversified. Each Subadviser furnishes
at its own expense all services, facilities and personnel necessary in
connection with managing the corresponding Series' investments and effecting
securities transactions for a Series.
Each Advisory Agreement provides that Diversified or a Subadviser, as the
case may be, may render services to others. Each agreement is terminable without
penalty on not more than 60 days' nor less than 30 days' written notice by a
Series when authorized either by majority vote of the investors in the Series
(with the vote of each being in proportion to the amount of their investment) or
by a vote of a majority of its Board of Trustees of Diversified Investors
Portfolios, or by Diversified or a Subadviser on not more than 60 days' nor less
than 30 days' written notice, as the case may be, and will automatically
terminate in the event of its assignment. Each agreement provides that neither
Diversified nor Subadviser nor their personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or for
any act or omission in the execution of security transactions for the
corresponding Series, except for willful misfeasance, bad faith, gross
negligence or reckless disregard of its or their obligations and duties under
the Advisory Agreement and the Subadvisory Agreement, as the case may be.
Diversified's and Subadviser's fees are described in to the Prospectus.
Diversified, if required by applicable state law, shall reimburse a Series or
waive all or part of its fees up to, but not exceeding, its investment advisory
fees from the Series. Such reimbursement, if required, will be equal to the
combined aggregate annual expenses which exceed that expense limitation with the
lowest threshold prescribed by any state in which such Series is qualified for
offer or sale. Management of Diversified Investors Portfolios has been advised
that the lowest such threshold currently in effect is 2 1/2% of net assets up to
$30,000,000, 2% of the next $70,000,000 of net assets and 1/2% of net assets in
excess of that amount.
ADMINISTRATOR
The Administrative Services Agreement between Diversified, as
Administrator, and Diversified Investors Portfolios is described in the
Prospectus. The agreement provides that Diversified may render services to
others as administrator. In addition, the agreement terminates automatically if
it is assigned and may be terminated without penalty by majority vote of the
investors in Diversified Investors Portfolios (with the vote of each being in
proportion to the amount of their investment). The Administrative Services
Agreement also provides that neither Diversified nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
connection with any Series, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their duties or obligations under said agreements.
CUSTODIAN AND TRANSFER AGENT
Pursuant to a Custodian Contract, Investors Bank & Trust Company acts as
the custodian of each Series' assets (the "Custodian"). The Custodian's business
address is 89 South Street, Boston, Massachusetts 02205-1537. The Custodian's
responsibilities include safeguarding and controlling cash
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and securities, handling the receipt and delivery of securities, determining
income and collecting interest on the Series' investments, maintaining books of
original entry for portfolio accounting and other required books and accounts,
and calculating the daily net asset value of beneficial interests in each
Series. Securities held by a Series may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depository Trust Company
and may be held by a subcustodian bank if such arrangements are reviewed and
approved by the Board of Trustees of Diversified Investors Portfolios. The
Custodian does not determine the investment policies of any Series or decide
which securities any Series will buy or sell. A Series may, however, invest in
securities of the Custodian and may deal with the Custodian as principal in
securities and foreign exchange transactions. For its services, the Custodian
will receive such compensation as may from time to time be agreed upon by it and
Diversified Investors Portfolios.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, serves as the independent accountants for
Diversified Investors Portfolios providing audit and accounting services
including (i) audit of the annual financial statements, (ii) assistance and
consultation with respect to the filings with the Securities and Exchange
Commission and (iii) preparation of annual income tax returns.
The financial statements of Diversified Investors Portfolios included herein
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CAPITAL STOCK AND OTHER SECURITIES
Diversified Investors Portfolios is organized as a trust under the law of
the State of New York. Under Diversified Investors Portfolios Declaration of
Trust, the Trustees are authorized to issue beneficial interest in one or more
Series. Currently there are nine active Series of Diversified Investors
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by Diversified Investors Portfolios in the event
that there is imposed upon an investor a greater portion of the liabilities and
obligations of the Series than its proportionate beneficial interest in the
Series. The Declaration of Trust also provides that Diversified Investors
Portfolios shall maintain appropriate insurance (for example, a fidelity bond
and errors and omissions insurance) for the protection of Diversified Investors
Portfolios, its investors, Trustees, officers, employees and agents, and
covering possible tort and other liabilities. Thus, the risk of an investor
incurring financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and Diversified
Investors Portfolios itself was unable to meet its obligations.
Investors in a Series are entitled to participate pro rata in distributions
of taxable income, loss, gain and credit of their respective Series only. Upon
liquidation or dissolution of a Series, investors are entitled to share pro rata
in that Series' (and no other Series) net assets available for distribution to
its investors. Diversified Investor Portfolios reserves the right to create and
issue additional Series of beneficial interest, in which case the beneficial
interests in each new Series would participate equally in the earnings,
dividends and assets of that particular Series only (and no other Series). Any
property of Diversified Investors Portfolios is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by Diversified Investors Portfolios for the issuance and sale of beneficial
interests in a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings and proceeds
thereof, and any funds or payments derived from any reinvestment of such
proceeds, is held by the Trustees of Diversified Investors Portfolios in a
separate subtrust (a Series) for the benefit of investors in that Series and
irrevocably belongs to that Series for all purposes. Neither a Series no
investors in that Series possess any right to or interest in the assets
belonging to any other Series.
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Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting for the election of Trustees, as otherwise required by the 1940 Act, or
if determined by the Trustees to be a matter which affects all Series. As to any
matter which does not affect the interest of a particular Series, only investors
in the one or more affected Series are entitled to vote. Diversified Investors
Portfolios is not required and has no current intention of holding annual
meetings of investors, but will hold special meetings of investors when in the
judgment of Trustees it is necessary or desirable to submit matters for an
investor vote. The Declaration of Trust may be amended without the vote of
investors, except that investors have the right to approve by affirmative
majority vote any amendment which would affect their voting rights, alter the
procedures to amend the Declaration of Trust, or as required by law or by
Diversified Investors Portfolios registration statement, or as submitted to them
by the Trustees. Any amendment submitted to investors which the Trustees
determine would affect the investors of any Series shall be authorized by vote
of the investors of such Series and no vote will be required of investors in a
Series not affected.
Diversified Investors Portfolios or any Series may enter into a merger or
consolidation, or sell all or substantially all of its assets, if approved (a)
at a meeting of investors by investors representing the lesser of (i) 67% or
more of the beneficial interest in the affected Series present or represented at
such meeting, if investors in more that 50% of all such beneficial interests are
present or represented by proxy, or (ii) more than 50% of all such beneficial
interests, or (b) by an instrument in writing without a meeting, consented to by
investors representing not less than a majority of the beneficial interest in
the affected Series. Diversified Investors Portfolios or any Series may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment), (ii) by the Trustees by written
notice to its investors, or (iii) upon the bankruptcy or expulsion of an
investor in the affected Series, unless the investors in such Series, by
majority vote, agree to continue the Series. Diversified Investors Portfolios
will be dissolved upon the dissolution of the last remaining Series.
The Declaration of Trust provides that obligations of Diversified Investors
Portfolios are not binding upon the Trustees individually but only upon the
property of Diversified Investors Portfolios and that the Trustees will not be
liable for any action or failure to act, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Declaration of Trust further provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with
Diversified Investors Portfolios, unless, as to liability to Diversified
Investors Portfolios or its investors, it is finally adjudicated that they
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in their offices, or unless with respect to any other
matter it is finally adjudicated that they did not act in good faith in the
reasonable belief that their actions were in the best interests of Diversified
Investors Portfolios. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
27
<PAGE> 82
TAXATION
Diversified Investors Portfolios is organized as a New York trust. The
Trust and each Series are not subject to any income or franchise tax in the
State of New York or the Commonwealth of Massachusetts. However, each investor
in a Series will be taxable on its share (as determined in accordance with the
governing instruments of the Trust) of the Series' ordinary income and capital
gain in determining its income tax liability. The determination of such share
will be made in accordance with the Code and regulations promulgated thereunder.
Each Series, since it is taxed as a partnership, is not subject to federal
income taxation. Instead, and investor must take into account, in computing its
federal income tax liability, its share of the Series' income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Series.
Withdrawals by investors from each Series generally will not result in
their recognizing any gain or loss for federal income tax purposes, except that
(1) gain will be recognized to the extent that any cash distributed exceeds the
basis of the investor's interest in the Series prior to the distribution, (2)
income or gain will be realized if the withdrawal is in liquidation of the
investor's entire interest in the Series and includes a disproportionate share
of any unrealized receivables held by the Series, and (3) loss will be
recognized if the distribution is in liquidation of that entire interest and
consists solely of cash and/or unrealized receivables. The basis of an
investor's interest in a Series generally equals the amount of cash and the
basis of any property that the investor invests in the Series, increased by the
investor's share of income from the Series and decreased by the amount of any
cash distributions and the basis of any property distributed from the Series.
Each Series' taxable year-end will be December 31. Although, as described
above, the Series will not be subject to federal income tax, each will file
appropriate income tax returns.
It is intended that each Series' assets, income and distributions will be
managed in such a way that an investor in each Series will be able to satisfy
the requirements of Subchapter M of the Code.
HEDGING STRATEGIES
The use of hedging strategies, such as a Series' entering into interest
rate futures contracts and purchasing options thereon, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the income received in connection therewith. Income from the
disposition of futures contracts and options thereon will be subject to the
limitation that a Series must derive less than 30% of its gross income from the
sale or other disposition of securities, options or futures contracts held for
less than three months (the "Short-Short Limitation").
If certain requirements are satisfied, any increase in value on a position
that is part of a "designated hedge" will be offset by an decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Short-Short Limitation is
satisfied. Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. Each Series intends to
qualify for this treatment when it engages in hedging transactions, but at the
present time it is not clear whether this treatment will be available for all of
a Series' hedging transactions. To the extent this treatment is not available, a
Series may be forced to defer the closing out of certain options and futures
contracts beyond the time when it otherwise would be advantageous to do so, in
order for an investor in the Series to qualify as a Regulated Investment
Company.
OTHER TAXATION
The investment by an investor in a Series does not cause the investor to be
liable for any income or franchise tax in the State of New York. Investors are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Series.
28
<PAGE> 83
FINANCIAL STATEMENTS OF MONY
The financial statements of MONY that are included in this Statement of
Additional Information are different from the financial statements of Keynote.
The financial statements of MONY should be considered only as bearing upon the
ability of MONY to meet its obligations under the Contracts and should not be
considered as bearing on the investment performance of the assets held in
Keynote.
29
<PAGE> 84
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt rated
"AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree.
The rating "AA" may be modified by the addition of a plus or minus sign to
show relative standing within such category.
MOODY'S BOND RATINGS
Excerpts from Moody's description of its corporate bond ratings: Aaa -
judged to be the best quality, carry the smallest degree of investment risk; Aa
- -judged to be of high quality by all standards.
FITCH INVESTORS SERVICE BOND RATINGS
AAA. Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions, an liable to but slight market fluctuation other than through
changes in the money rate. The factor last named is of importance varying with
the length of maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public utility fields,
though some industrial obligations have this rating. The prime feature of an AAA
rating is showing of earnings several times or many times interest requirements
with such stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may enter in, such
as a wide margin of protection through collateral security or direct lien on
specific property as in the case of high class equipment certificates or bonds
that are first mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors, while guarantee or
assumption by parties other than the original debtor may also influence the
rating.
AA. Securities in this group are of safety virtually beyond question, and
as a class are readily salable while many are highly active. Their merits are
not greatly unlike those of the AAA class, but a security so rated may be of
junior though strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings by the lesser
financial power of the enterprise and more local type of market.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A is the highest commercial paper rating category utilized by S&P, which
uses the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.
A-1 MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset
A-1
<PAGE> 85
protection; broad margins in earnings coverage of fixed financial charges and
high internal cash generation; well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
FITCH-1, FITCH-2, DUFF 1 AND DUFF 2 COMMERCIAL PAPER RATINGS
Commercial paper rated "Fitch-1" is considered to be the highest grade
paper and is regarded as having the strongest degree of assurance for timely
payment. "Fitch-2" is considered very good grade paper and reflects an assurance
of timely payment only slightly less in degree than the strongest issue.
Commercial paper issues rate "Duff 1" by Duff & Phelps, Inc. have the
following characteristics: very high certainty of timely payment, excellent
liquidity factors supported by strong fundamental protection factors, and risk
factors which are very small. Issues rated "Duff 2" have a good certainty of
timely payment, sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets.
A-2
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of MONY Life Insurance Company and the
Contractholders of Keynote Series Account:
In our opinion, the accompanying statements of assets and liabilities, and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of Money Market,
Intermediate Government Bond, Government/Corporate Bond, Balanced, Equity
Income, Equity Growth and Calvert Subaccounts (seven of the subaccounts
constituting the Keynote Series Account) ("Keynote") at December 31, 1998, and
the results of each of their operations for the year then ended, and the changes
in each of their net assets for each of the two years in the period then ended
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Keynote's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our procedures included
confirmation of securities owned at December 31, 1998, by correspondence with
the custodian. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 18, 1999
F-1
<PAGE> 87
KEYNOTE SERIES ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
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)..... $674,959 $443,886 $916,936 $5,436,981 $16,560,171 $12,755,453 $813,612
Receivable for purchase of
units..................... -- -- -- -- -- 905 --
Receivable from MONY........ 1,278 -- -- -- -- -- --
-------- -------- -------- ---------- ----------- ----------- --------
Total assets....... 676,237 443,886 916,936 5,436,981 16,560,171 12,756,358 813,612
-------- -------- -------- ---------- ----------- ----------- --------
LIABILITIES:
Accrued expenses............ 1,684 255 703 4,041 12,395 7,676 598
-------- -------- -------- ---------- ----------- ----------- --------
NET ASSETS
ATTRIBUTABLE TO
ANNUITY
CONTRACTHOLDERS... $674,553 $443,631 $916,233 $5,432,940 $16,547,776 $12,748,682 $813,014
======== ======== ======== ========== =========== =========== ========
Accumulation units.......... 40,999 27,614 39,571 167,348 434,610 247,234 31,111
======== ======== ======== ========== =========== =========== ========
Unit value.................. $ 16.45 $ 16.07 $ 23.15 $ 32.46 $ 38.08 $ 51.57 $ 26.13
======== ======== ======== ========== =========== =========== ========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 88
KEYNOTE SERIES ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
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 Funds (Note 2)............. $37,270 $13,525 $43,276 $165,764 $ 361,359 $ 22,307 $ --
Dividend Income (Note 2).......... -- -- -- -- -- -- 58,865
------- ------- ------- -------- ---------- ---------- --------
Total investment
income................. 37,270 13,525 43,276 165,764 361,359 22,307 58,865
------- ------- ------- -------- ---------- ---------- --------
EXPENSES: (NOTE 3)
Mortality and expense risk...... 6,296 2,218 6,505 46,217 145,540 79,010 6,608
Less expenses reimbursed by
MONY.......................... (1,278) -- -- -- -- -- --
------- ------- ------- -------- ---------- ---------- --------
Net expenses.................... 5,018 2,218 6,505 46,217 145,540 79,010 6,608
------- ------- ------- -------- ---------- ---------- --------
Net investment income (loss)...... 32,252 11,307 36,771 119,547 215,819 (56,703) 52,257
------- ------- ------- -------- ---------- ---------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS (NOTE 2)
Net realized gains (losses) on
investments................... (22) 1,705 7,868 231,594 1,389,524 1,258,012 27,398
Net change in unrealized
appreciation on investments... -- 2,502 2,463 195,487 226,442 2,104,308 34,268
------- ------- ------- -------- ---------- ---------- --------
Net realized and unrealized
gains (losses) on investments. (22) 4,207 10,331 427,081 1,615,966 3,362,320 61,666
------- ------- ------- -------- ---------- ---------- --------
Net increase in net assets
resulting from operations....... $32,230 $15,514 $47,102 $546,628 $1,831,785 $3,305,617 $113,923
======= ======= ======= ======== ========== ========== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 89
KEYNOTE SERIES ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
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).... $ 32,252 $ 11,307 $ 36,771 $ 119,547 $ 215,819 $ (56,703) $ 52,257
Net realized gains (losses) on
investments................... (22) 1,705 7,868 231,594 1,389,524 1,258,012 27,398
Net change in unrealized
appreciation on investments... -- 2,502 2,463 195,487 226,442 2,104,308 34,268
--------- --------- --------- ---------- ----------- ----------- --------
Net increase in net assets
resulting from operations..... 32,230 15,514 47,102 546,628 1,831,785 3,305,617 113,923
--------- --------- --------- ---------- ----------- ----------- --------
FROM UNIT TRANSACTIONS (NOTE 4):
Net proceeds from the issuance
of units...................... 351,264 400,239 482,639 991,140 2,543,029 2,349,988 221,361
Net asset value of units
redeemed...................... (447,661) (189,534) (193,305) (859,331) (3,955,688) (2,132,347) (109,841)
--------- --------- --------- ---------- ----------- ----------- --------
Net increase (decrease) in net
assets from unit
transactions.................. (96,397) 210,705 289,334 131,809 (1,412,659) 217,641 111,520
--------- --------- --------- ---------- ----------- ----------- --------
Net increase (decrease) in net
assets.......................... (64,167) 226,219 336,436 678,437 419,126 3,523,258 225,443
NET ASSETS:
Beginning of year............... 738,720 217,412 579,797 4,754,503 16,128,650 9,225,424 587,571
--------- --------- --------- ---------- ----------- ----------- --------
End of year..................... $ 674,553 $ 443,631 $ 916,233 $5,432,940 $16,547,776 $12,748,682 $813,014
========= ========= ========= ========== =========== =========== ========
Units outstanding beginning of
year............................ 47,018 14,366 26,763 163,289 474,554 242,846 26,219
Units issued during year.......... 21,781 25,480 21,432 32,232 70,782 54,850 9,502
Units redeemed during year........ (27,800) (12,232) (8,624) (28,173) (110,726) (50,462) (4,610)
--------- --------- --------- ---------- ----------- ----------- --------
Units outstanding end of year..... 40,999 27,614 39,571 167,348 434,610 247,234 31,111
========= ========= ========= ========== =========== =========== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 90
KEYNOTE SERIES ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
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.
F-5
<PAGE> 91
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 MONY Life Insurance Company (formerly 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 Social Balanced Portfolio (formerly, Calvert
Responsibly Invested Balanced Portfolio), a series of Calvert Variable Series,
Inc. (formerly, Acacia Capital Corporation), ("Calvert" and collectively, the
"Funds"). The respective financial statements of the Funds are contained
elsewhere in this report.
At December 31, 1998, each of the subaccounts' investment in the
corresponding Portfolios was as follows:
<TABLE>
<CAPTION>
PERCENTAGE INVESTMENT
SUBACCOUNT IN PORTFOLIO
---------- ---------------------
<S> <C>
Money Market............................. 0.23%
Intermediate Government Bond............. 0.28
Government/Corporate Bond................ 0.17
Balanced................................. 1.07
Equity Income............................ 1.21
Equity Growth............................ 1.85
</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. 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
F-6
<PAGE> 92
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. Federal Income Taxes: (continued)
capital gains attributable 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 and
Equity Growth Subaccounts, to the extent necessary, to limit all expenses (other
than mortality and expense risk charges) to 0.10% and 0.50%, respectively, of
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, 1998, and 1997, were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS 1998 AMOUNT 1997 AMOUNT
----------- ----------- -----------
<S> <C> <C>
Money Market...................................... $ -- $ 148,490
Intermediate Government Bond...................... -- 3,406
Government/Corporate Bond......................... 10,172 22,700
Balanced.......................................... 83,369 236,206
Equity Income..................................... 845,929 2,986,640
Equity Growth..................................... 135,469 744,738
Calvert........................................... 13,795 100,413
---------- ----------
$1,088,734 $4,242,593
========== ==========
</TABLE>
The amounts related to these assumptions are reflected as redemptions in the
Statements of Changes in Net Assets.
F-7
<PAGE> 93
FOURTH QUARTER 1998
ANNUAL ECONOMIC OVERVIEW
1998 was a volatile year for economies and financial markets around the
world. Asian and emerging market economies were devastated while Europe and the
U.S. enjoyed strong growth. Stock markets reflected these economic conditions.
Even the strong markets experienced divergence and volatility. U.S. markets in
the second half were very volatile as the fourth quarter saw a dramatic reversal
from the third quarter. International economic turmoil triggered a sharp decline
in stocks and a flight to quality in bonds during the third quarter. Large cap
stocks declined 10% while small cap stocks were down 20%. Government bonds
rallied 5.5% while high yield bonds dropped 4.6%. The Fed lowered interest rates
quickly to restore liquidity and confidence to financial markets. In response
the stock market rebounded, large cap stocks rose over 20% and small cap by over
16%. In the bond market, spreads narrowed as government bonds sold off and high
yield bonds rallied.
FINANCIAL MARKETS
1998 was another strong year for stocks and bonds. The stock market (S&P,
Dow and NASDAQ) once again had the best performance with an unprecedented fourth
straight year of double digit returns. Large cap growth stocks led the way
(Russell 1000 Growth Index +38.7%) followed by international stocks (EAFE GDP
Index +27.1%) and large cap value (Russell 1000 Value Index +15.6%). Small cap
stocks again lagged large cap by a wide margin (Russell 2000 Small Cap Stock
Index -2.6%). The dramatic divergence in stock performance can be shown by
comparing the performance of large cap stocks (Russell 1000 Large Cap Stock
Index) which were up 27.0% to the average performance of all stocks (Value Line
Equally Weighted Index) which were down -3.8%.
Bonds had a good year as long term interest rates declined from
approximately 6% at the beginning of the year to near 5% at year end. Longer
term bonds and government bonds had the best results. Money market rates were
steady for most of the year hovering near 5 1/2%.
OUTLOOK FOR 1999
Economic devastation in Asia has created intense competition for labor
intensive industries in the U.S., contributing to a stronger dollar and an
expansion of the trade deficit. Worldwide overcapacity is keeping prices and
inflation in check. Here in the U.S., strong job growth and low unemployment has
begun to exert pressure on labor costs. Rising costs coupled with intense
pricing competition is creating a squeeze on profits. This in turn will lead to
a slowdown in capital spending and job growth, which will eventually slow
consumer spending.
Bonds should benefit from this scenario as a slowdown in economic activity
along with low inflation will allow interest rates to decline. In the near run,
rates may remain in a range of 4.8% to 5.2%. Rates should break below this range
later this year as economic growth slows and the Fed eases further. The stock
market is once again at record valuation levels. Investors seem to believe that
any economic slowdown or profit decline will be short lived because the Fed will
respond by lowering interest rates. With the economy and sales slowing and the
ability to cut costs more limited than in the recent past, profits should
decline further. Additional interest rate cuts will not be sufficient to support
current stock multiples and therefore the stock market is likely to suffer a
significant selloff in the first half of 1999. Lower interest rates should set
the stage for a recovery in stock prices from more reasonable valuation levels
later in the year.
MONEY MARKET PORTFOLIO
By year-end 1998, the global financial markets had staged a strong rebound
from the precarious state in which they found themselves at the end of September
and in the first half of October. Equity markets bounced back from their lows,
credit spreads contracted appreciably from their mid-October
F-8
<PAGE> 94
wides, and liquidity largely returned to the capital markets. These conditions
enabled new issue markets for equities and bonds to become operable once again,
since the turmoil had all but shut down these markets. Even the money market
securities market experienced upheaval, as yields remained high while short-term
Treasury rates dropped. Lower-rated money market credits traded at historically
wide spreads. The return to more settled conditions was due in no small part to
the Fed's recognition, whether or not in concert with other central banks, of
the serious need to address the global economic and currency problems through a
shift to a program of easing monetary policy. As well, the Fed felt it prudent
to undertake its easing stance given the potential for non-domestic pressures to
spill over into the U.S. economy and cut short the historic expansion. The Fed's
moves restored confidence and brought the overnight fed funds rate target down
to 4.75%, a level consistent with an accommodative stance under more normal
economic conditions. However, the U.S. economy's performance by itself clearly
did not justify such a shift in Fed policy. Presently, there are many
crosscurrents at work as the Fed weighs an economy with robust domestic demand,
surging stock market, softening dollar, tightening credit spreads, quiescent
inflation, and a weak manufacturing sector against a backdrop of potentially
worrisome global financial conditions. Absent an exogenous shock to the system,
such a picture argues for a wait-and-see stance by the Fed.
The Treasury yield curve moved upward and steepened in the fourth quarter
with a particular increase in interest rates in the intermediate area from two
years to ten years. Interest rates on the long bond increased 13 basis points
( 1/100 of a percentage point) during the quarter from a yield of 4.97% at
9/30/98 to 5.09% at year end. The short end also traded off, as evidenced by the
three-month T-bill's 10 basis point rise in yield from 4.36% at 9/30/98 to 4.46%
at year end. The Fed's three easing moves since September were due to the
turmoil seen in global financial markets. Since the unsettled conditions that
prevailed have largely abated and the U.S. economy continues its strong growth,
market expectations are that the Fed is on hold for the foreseeable future.
Nevertheless, renewed problems in the global markets (i.e., a major setback in
Brazil's effort to address its fiscal woes) may push the Fed to lower interest
rates in the face of conflicting U.S. economic conditions. The average maturity
of the portfolio will be adjusted selectively to capitalize on opportunities
where the portfolio will be rewarded for duration extension. Currently, there is
no benefit afforded money market investors for extending much beyond the
thirty-day area. Consequently, the money market fund is maintaining a
shorter-than-target average maturity. At 12/31/98, the average maturity of the
portfolio was approximately 33.6 days.
HIGH QUALITY BOND
Bond spreads widened in most sectors early in the fourth quarter due to
concerns over the loss of liquidity and aversion to risk. The Federal Reserve
Board restored calm to the financial markets in November, which resulted in
spreads tightening, as liquidity gradually returned to the marketplace and
investor confidence was restored.
The lack of liquidity early in the fourth quarter created buying
opportunities in the yankee, financial corporate, and asset backed sectors. The
Portfolio added to the yankee sector with the purchase of Midland Bank (a strong
"A" rated U.K. bank), and the financial sector by purchasing a sinking fund
debenture issued by the Upjohn Corp. The Portfolio swapped out of a global note
issued by Merrill Lynch maturing in 2003 and purchased a less liquid medium term
note issued by Merrill Lynch maturing in 2002 for an additional 30 basis points
pickup in yield.
The Portfolio was active in the asset backed sector as well, with purchases
of securities collateralized by high quality credit card receivables, equipment
loan receivables, automobile receivables and transportation equipment
receivables. The Portfolio continues to find value in selected yankee, corporate
and asset-backed sectors.
F-9
<PAGE> 95
INTERMEDIATE GOVERNMENT BOND
US Treasuries gave back some of their earlier year gains in the last
quarter, as global investors gradually moved away from the comforting but
ultimately expensive safety and liquidity of government securities. Despite two
1/4 point easings by the Federal Reserve, (on the heels of another ease late in
the third quarter), Treasury yields moved up by 15-25 basis points. The fall in
the price of government bonds mirrored their rise in earlier months, reflecting
first the fear of global economic recession, and then the reversal of those
fears. Volatility declined and much of the earlier yield curve inversion -- the
relative rate situation where all longer maturity Treasury securities trade at a
yield below the short-term Fed Funds Rate -- was reserved. The Portfolios'
better performance in the quarter resulted from underweighting the poorly
performing intermediate Treasury sector.
Our view is that while domestic economic growth will cool off somewhat from
the torrid pace of 1998, there is no recession in the near future. The Fed has
finished easing for the interim, and government yields are more likely to drift
higher. The portfolio remains positioned defensively, slightly short of target
duration, with a bias toward higher-yielding government Agency securities.
GOVERNMENT/CORPORATE BOND
The fourth quarter opened with the market for virtually all bonds (except
US Treasuries) in a state of paralysis. A combination of hedge fund insolvency,
and instability in emerging markets debt resulted in a flight from all risky
assets and a draining of liquidity in the market. Corporate securities fell in
price and new issuances in the capital markets grounded to a halt. Fortunately,
several timely easings by the Federal Reserve slowly restored both liquidity and
confidence to the capital markets. By year-end, conditions in the bond market
gradually returned to stabilized.
The incremental return by investors to riskier assets, and away from the
safe-haven Treasuries resulted in somewhat better performance for corporate
bonds, and for the Portfolio. Treasury yields rose and corporate spreads eased
in by 30-40 basis points. However, some sectors, most notably securities from
producers of petroleum products, continued to suffer. Oil prices, along with
select other commodities, fell steadily, keeping inflation pressures subdued.
Our view continues to be that the domestic economy will slow down early in the
new year but a recession will be averted. Without a recession rates should
continue to drift gradually higher. Corporate fundamentals remain strong, and
the portfolio's overweighting in stronger investment grade corporate bonds
should perform well.
HIGH YIELD BOND
Fourth quarter returns reflected a partial recovery from the steep downturn
during the third quarter. With the recovery of equity prices in mid-October,
cash, as well as positive sentiment returned to the high yield market. The yield
premium between high yield bonds and the reference ten-year treasury, finished
the year 5.41%, roughly 100 basis points tighter from the trough in mid-October.
Transaction activity was light during the period, principally reflecting
the disposition of several energy credits: Denbury Management 9%; Dailey
International 9 1/2%; and Rutherford Moran 10 3/4% were sold reflecting the
outlook for continued low energy prices well into 1999. Purchases include Atlas
Air 9 3/8%, a contract air freighter; BE Aerospace 9 1/2%, a manufacturer of
cabin and galley components for Boeing and Airbus; and Fisher Scientific 9%, a
leading manufacturer of laboratory scientific equipment. We continue to believe
that an overweighting in B-rated issues is warranted for 1999, given our
expectations that a moderate, non-inflationary growth rate will reward issues
with greater credit than interest rate risk. However, we do expect to increase
our BB weighting as an insurance policy against unforeseen shocks to the U.S.
economy from overseas.
F-10
<PAGE> 96
BALANCED FUND
There were no major company-specific concerns in the Portfolio, however,
performance lagged the benchmark, primarily due to the equity holdings, which
did not keep up with the supercharged S&P 500. Asset allocation was a modest
positive, while bonds were a small negative.
The Portfolio continued to focus on its restructuring theme, and also
placed more emphasis on domestically oriented stocks. The best performing stocks
were Tele-Communications (merger partner with AT&T), Citigroup, Seagram's,
Philips Electronics, Akzo Nobel, and Bell Atlantic. New stocks include Computer
Associates, Dayton Hudson, Gannett, Monsanto, Northern Telecom and SBC
Communications. Names eliminated from the portfolio included Case, Raytheon, and
Unocal.
Asset allocation is near benchmark levels. Slower economic growth and low
inflation should prompt further rate reductions by the Fed. This should help
underpin equity prices, even if earnings estimates weaken. With monetary and
fiscal policy easing around the world, economic growth is expected to begin to
improve next year. We believe this will help set the stage for more favorable
performance from value-oriented issues.
EQUITY INCOME
The financial crisis, which threatened world economies and markets during
the third quarter, has abated. Central banks around the world lowered interest
rates and provided liquidity helping to avert financial meltdown. Stock markets
stabilized in many areas and in the U.S. recovered sharply.
Large cap growth stocks, especially technology, led the market rise. The
Portfolio cannot own most technology names due to their lack of dividend yield.
The Portfolio did, however, benefit from over-weighted holdings in telephones,
healthcare, financials and some industrials like GE, Xerox, United Technologies,
and Pitney Bowes.
Now that the macro picture has stabilized, the market's focus will likely
shift back to corporate earnings. Earnings problems will limit stocks upside,
but low, and possibly declining interest rates will support the market. In this
environment interest rate sensitive stocks and those which have unit growth
should be favored. The strategy continues to emphasize financials, health care
and telephones.
EQUITY VALUE
Driven by the Federal Reserve Bank's lowering of interest rates which
sparked renewed optimism for technology, financial services and consumer staple
stocks, the S&P 500 staged a dramatic recovery during the fourth quarter. The
market retained its strong, large cap growth stock bias, with growth stocks
continuing to significantly outperform value issues.
Positive returns came from ten of eleven of the Portfolio's sectors,
including financials (Banc One, Bank America, Chase Manhattan), technology (IBM,
Motorola, Seagate) and capital goods (Corning, Allied Signal). However, relative
underperformance is attributed to the Portfolio's underweighting of stocks in
the top performing technology and communications service sectors (i.e.
internet-related issues), as well as the impact to oil and gas stocks from the
dramatic collapse of energy prices.
While we anticipate continued, but more modest growth in the U.S. economy
for 1999, we believe there are disappointments ahead for the market. Most
holdings in the Portfolio are significantly undervalued compared to the market,
giving strong upside potential and good defensive characteristics.
GROWTH & INCOME
The Portfolio outperformed the S&P 500 Index for the quarter due to an
overweight position in technology (the quarter's top-performing sector), and
strong stock selection across consumer sectors, primarily retail stocks,
supermarkets and drugstores.
F-11
<PAGE> 97
Among the top performing holdings were Costco and TJX, which both rose over
50%, Safeway and Walgreen. Technology holdings-AOL, Lucent Technologies, IBM,
and Intel all posted impressive quarterly returns as well. Stock selection
lagged in health care with mediocre returns among large cap drug stocks.
Additionally, a slightly underweight position in the finance sector, which
performed well in the fourth quarter, detracted slightly from relative returns.
We remain generally constructive on the U.S. equity market over the coming
months based on moderate -- but slowing -- economic growth and a lack of
inflation. The Portfolio continues to emphasize companies with domestic exposure
and high quality earnings growth within the retail, technology, and health care
sectors. We are also focused on companies benefiting from merger activity and on
those exposed to the U.S. consumer. We continue to underweight the energy and
commodity cyclical companies due to a lack of earnings growth in those sectors.
Overall, there were no major strategic changes to the portfolio during the
quarter.
EQUITY GROWTH
Following a difficult third quarter and a horrendous first week, the US
stock market exploded in the fourth quarter. The Portfolio benefited from an
overweighted position in technology, communication services and consumer
cyclicals. Stock selection was extremely positive during the quarter, especially
in technology stocks, such as America Online, Cisco and Lucent Technologies.
The Portfolio's overweight in drug companies, which was reduced over the
quarter, was a negative. Dell Computers, a strong contributor for the full year,
had a negative impact for the quarter. Monsanto, after the cancellation of the
planned merger with American Home Products, detracted from performance as well.
We have been, and continue to decrease exposure to health care. Additionally,
the Portfolio sold its position in Schlumberger, while adding Costco and
Carnival Cruise Lines.
Our outlook is one of cautious optimism for the market and positive
expectations for our style. The lower interest rate environment and absence of
inflation is clearly positive for stocks. Our caution is based on the
unprecedented market performance over the last four years and the fact that most
analyst estimates are still too high. We continue to believe that in difficult
earnings environments, our focus on high quality growth stocks will be rewarded.
SPECIAL EQUITY
The market's performance in December was a fitting end to an eventful year.
The Russell 2000 Index increased 6.2% during the month, capping off an
incredible quarter. The market declined significantly in early October, only to
rebound even more dramatically through the end of the year.
The Portfolio benefited from technology holdings such as ISS Group, Legato
Systems, Network Solutions, Vitesse and Mindspring. The Portfolio also had
significant gains in several issues including Alpha Industries, Airborne
Freight, Rational Software, and Houghton Mifflin, as well as Immunex, Best Buy,
and Electronic Arts.
The Portfolio was hurt by underperformance of micro-cap holdings, as well
as other specific stocks, including Allied Capital, DT Industries, and Quorum
Health.
The Portfolio continues to find new ideas at attractive prices, like Coach
USA, and TCA. Looking ahead, we are optimistic that the market will more fairly
reward companies that are able to achieve analysts' earnings expectations.
However, we believe many estimates are too high, setting up the probability of
earnings disappointments and negative price reactions.
AGGRESSIVE EQUITY
The fourth quarter and the past year were marked by wide swings in some
sectors due to Asian fears, political turmoil, and the Internet frenzy. The
Portfolio, however, continues to be positioned to
F-12
<PAGE> 98
take advantage of companies that exhibit consistent and stable earnings growth
with positive earnings revisions. We continue to favor technology companies like
American Online, Cisco Systems, Microsoft and Salectron. We also continue to
favor pharmaceutical companies such as Pfizer, Warner Lambert and Bristol Myers.
During the quarter we added Yahoo, Broadcom, American Power Conversion and Time
Warner. The fourth quarter also saw the Portfolio grow in terms of positions. We
continue to add smaller-cap issues when they meet our strict buy disciplines.
The coming year will likely replay many of the same investment themes as
1998. Volatility will remain extreme, as well as the impact of global turmoil on
earnings. The potential for slower economic growth may cause another round of
earnings reductions. The key for 1999 is selectivity and consistent growth. The
Portfolio's holdings will again consist of companies that can continue to grow
their earnings in a slowing global economic environment.
INTERNATIONAL EQUITY
The fourth quarter marked the return of liquidity to markets worldwide,
fueled, in part, by a series of rate cuts by the central banks of North America,
Europe, and Japan. Markets through much of the world (Japan being a notable
exception) proceeded steadily upward to end the year near their respective
all-time highs.
The Portfolio benefited from stock selection in Europe, excluding France.
Dutch holdings returned, on average, twice that of the local market, driven
mainly by Heineken and ASM Lithography. Canadian holdings such as Northern
Telecom, Toronto Dominion Bank, NewCourt Credit and Bombardier also added to
returns.
Technology holdings, one of the largest themes of the Portfolio, were
notable contributors to performance. Top performing European holdings were
Nokia, and Ericsson. In the Far East, Nidec Corp., Murata Manufacturing and
Tokyo Electron also performed well.
The gains made in Continental Europe were lessened by the underperformance
of French holdings like Peugeot. While European equities may be richly valued on
an absolute basis, they remain reasonably attractive relative to current very
low interest rates. We are selectively optimistic about the prospects for
European equities over the next twelve months. The market will be watching
Japan's recovery effort closely. If and when sentiment can be turned around,
Japanese equities have the potential for strong returns in 1999.
F-13
<PAGE> 99
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Owners of Beneficial Interests of the
Diversified Investors Portfolios:
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations, and changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the 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") at December 31, 1998, and the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Portfolios' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned at December 31, 1998,
by correspondence with the custodian and brokers. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 17, 1999
F-14
<PAGE> 100
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HIGH INTERMEDIATE GOVERNMENT/
MONEY QUALITY GOVERNMENT CORPORATE EQUITY
MARKET BOND BOND BOND BALANCED INCOME
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Securities, at cost........ $291,455,256 $218,423,433 $160,147,247 $568,228,309 $564,380,403 $1,046,958,229
============ ============ ============ ============ ============ ==============
Securities, at market...... $291,455,256 $220,275,776 $162,176,948 $581,288,864 $602,524,830 $1,440,120,327
Repurchase agreements, at
value..................... 35,626 5,174,191 48,075 15,053,135 52,031,701 10,000,000
Cash....................... 52,594 -- 36,786 166,961 -- --
Foreign currency holdings,
at value (Cost $1,509).... -- -- -- -- -- --
Receivable for securities
sold...................... -- -- -- -- 1,000,472 --
Unrealized appreciation on
foreign currency forward
contracts................. -- -- -- -- -- --
Interest receivable........ 991,405 2,370,293 1,337,433 7,255,777 2,752,934 21,115
Dividends receivable....... -- -- -- -- 690,800 2,152,156
Receivable from securities
lending................... -- -- 1,093 11,016 24,461 14,686
Reimbursement from
advisor................... -- -- 2,366 -- 14,531 1,087
------------ ------------ ------------ ------------ ------------ --------------
Total assets...... 292,534,881 227,820,260 163,602,701 603,775,753 659,039,729 1,452,309,371
------------ ------------ ------------ ------------ ------------ --------------
LIABILITIES:
Due to custodian........... -- -- -- -- -- 1,742,016
Deposit for securities
loaned.................... -- -- 4,956,000 51,625,450 152,198,525 72,958,800
Payable for securities
purchased................. -- 252,129 -- -- 614,690 9,854,437
Unrealized depreciation on
foreign currency forward
contracts................. -- -- -- -- -- --
Payable to advisor......... 8,581 12,209 -- 2,904 -- --
Accrued expenses:
Investment advisory
fees.................... 62,883 67,571 48,312 161,217 190,083 509,854
Custody fees.............. 1,573 1,678 1,431 28,029 16,491 91,630
Professional fees......... 18,802 19,158 18,327 14,185 15,921 19,993
Reports to shareholders... 2,188 1,837 985 3,250 3,218 9,524
Miscellaneous fees........ 3,101 2,544 3,179 5,188 5,062 15,621
------------ ------------ ------------ ------------ ------------ --------------
Total
liabilities..... 97,128 357,126 5,028,234 51,840,223 153,043,990 85,201,875
------------ ------------ ------------ ------------ ------------ --------------
NET ASSETS........ $292,437,753 $227,463,134 $158,574,467 $551,935,530 $505,995,739 $1,367,107,496
============ ============ ============ ============ ============ ==============
NET ASSETS CONSIST OF:
Paid-in capital............ $292,437,753 $225,610,791 $156,544,766 $538,874,975 $467,851,312 $ 973,945,398
Net unrealized
appreciation
(depreciation) on
securities.............. -- 1,852,343 2,029,701 13,060,555 38,144,427 393,162,098
Net unrealized
(depreciation) on
translation of assets
and liabilities in
foreign currencies...... -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ --------------
NET ASSETS........ $292,437,753 $227,463,134 $158,574,467 $551,935,530 $505,995,739 $1,367,107,496
============ ============ ============ ============ ============ ==============
</TABLE>
See notes to financial statements.
F-15
<PAGE> 101
<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>
$411,379,305 $616,010,509 $553,903,521 $ 786,618,459 $65,605,339 $84,563,520 $301,703,487
============ ============ ============ ============== =========== =========== ============
$403,406,217 $834,842,226 $748,256,160 $ 965,524,970 $86,986,389 $80,325,567 $332,335,057
6,424,243 25,297,869 12,491,405 79,890,695 2,690,628 12,476,687 13,027,333
-- -- -- 13,977 -- -- --
-- -- -- -- -- -- 1,517
2,211,429 2,307,334 4,532,216 30,452,997 307,999 -- 971,238
-- -- -- -- -- -- 1,139,417
3,859 13,025 12,117 27,721 1,169 2,139,785 20,935
868,142 393,161 449,652 479,610 15,603 -- 411,079
3,689 15,867 17,541 74,606 3,682 -- 19,514
8,375 -- -- -- 5,407 -- 11,094
------------ ------------ ------------ -------------- ----------- ----------- ------------
412,925,954 862,869,482 765,759,091 1,076,464,576 90,010,877 94,942,039 347,937,184
------------ ------------ ------------ -------------- ----------- ----------- ------------
-- -- -- -- -- -- 1,020
20,280,618 66,510,400 69,638,217 119,713,500 5,600,000 -- 24,537,916
2,545,466 24,665,668 7,283,069 31,993,225 2,978,314 -- 463,847
-- -- -- -- -- -- 2,462,651
-- 7,850 11,051 28,586 -- 210 --
188,046 370,684 339,889 585,468 59,932 44,391 199,276
24,496 23,510 15,509 28,250 19,298 -- 17,232
15,545 14,598 13,946 10,264 17,535 22,585 27,530
1,974 3,155 3,453 6,838 353 440 1,641
10,034 5,156 5,392 8,561 7,738 3,432 7,898
------------ ------------ ------------ -------------- ----------- ----------- ------------
23,066,179 91,601,021 77,310,526 152,374,692 8,683,170 71,058 27,719,011
------------ ------------ ------------ -------------- ----------- ----------- ------------
$389,859,775 $771,268,461 $688,448,565 $ 924,089,884 $81,327,707 $94,870,981 $320,218,173
============ ============ ============ ============== =========== =========== ============
$397,832,863 $552,436,744 $494,095,926 $ 745,183,373 $59,946,657 $99,108,934 $290,900,933
(7,973,088) 218,831,717 194,352,639 178,906,511 21,381,050 (4,237,953) 30,631,570
-- -- -- -- -- -- (1,314,330)
------------ ------------ ------------ -------------- ----------- ----------- ------------
$389,859,775 $771,268,461 $688,448,565 $ 924,089,884 $81,327,707 $94,870,981 $320,218,173
============ ============ ============ ============== =========== =========== ============
</TABLE>
F-16
<PAGE> 102
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<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............... $14,694,725 $13,534,621 $8,214,598 $29,191,734 $11,320,585 $ 5,649,355
Dividend income............... -- -- -- -- 5,675,747 29,504,261
Less: withholding taxes....... -- -- -- -- (11,547) (83,610)
----------- ----------- ---------- ----------- ----------- ------------
Total income........... 14,694,725 13,534,621 8,214,598 29,191,734 16,984,785 35,070,006
----------- ----------- ---------- ----------- ----------- ------------
EXPENSES:
Investment advisory fees...... 654,703 753,726 491,360 1,606,383 2,065,391 5,830,442
Custody fees.................. 63,928 54,999 38,361 93,890 107,347 245,286
Professional fees............. 21,470 21,901 20,391 24,964 24,799 33,248
Reports to shareholders....... 846 649 417 1,480 1,272 3,365
Miscellaneous fees............ 2,614 2,004 1,291 4,571 3,932 10,399
----------- ----------- ---------- ----------- ----------- ------------
Total expenses......... 743,561 833,279 551,820 1,731,288 2,202,741 6,122,740
Expenses reimbursed by the
advisor....................... -- -- (2,380) -- -- --
----------- ----------- ---------- ----------- ----------- ------------
Net expenses........... 743,561 833,279 549,440 1,731,288 2,202,741 6,122,740
----------- ----------- ---------- ----------- ----------- ------------
Net investment income (loss).... 13,951,164 12,701,342 7,665,158 27,460,446 14,782,044 28,947,266
----------- ----------- ---------- ----------- ----------- ------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON SECURITIES
AND FOREIGN CURRENCIES:
Net realized gains (losses) on
securities.................. (8,027) 414,827 855,222 4,853,795 20,266,279 110,650,921
Net realized gains on foreign
currency transactions....... -- -- -- -- -- --
Net change in unrealized
appreciation (depreciation)
on securities............... -- 727,026 952,909 2,272,504 18,099,702 19,217,218
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........ (8,027) 1,141,853 1,808,131 7,126,299 38,365,981 129,868,139
----------- ----------- ---------- ----------- ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..... $13,943,137 $13,843,195 $9,473,289 $34,586,745 $53,148,025 $158,815,405
=========== =========== ========== =========== =========== ============
</TABLE>
See notes to financial statements.
F-17
<PAGE> 103
<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>
$ 667,535 $ 1,112,484 $ 883,824 $ 3,389,226 $ 123,935 $ 7,147,046 $ 954,161
6,956,444 3,919,762 3,707,378 4,330,519 211,894 -- 4,680,770
-- (1,354) (11,581) (34,991) -- -- (403,645)
------------ ------------ ------------ ----------- ----------- ----------- -----------
7,623,979 5,030,892 4,579,621 7,684,754 335,829 7,147,046 5,231,286
------------ ------------ ------------ ----------- ----------- ----------- -----------
2,104,570 3,258,008 3,276,416 6,306,553 470,377 423,436 2,029,625
110,700 114,302 102,034 236,687 46,197 45,179 319,417
22,899 25,079 25,557 28,527 19,144 19,566 26,447
1,008 1,530 1,400 1,923 137 248 732
3,115 4,728 4,327 5,906 425 767 2,352
------------ ------------ ------------ ----------- ----------- ----------- -----------
2,242,292 3,403,647 3,409,734 6,579,596 536,280 489,196 2,378,573
(42,746) -- (11,336) (5,925) (51,355) (27,930) (30,764)
------------ ------------ ------------ ----------- ----------- ----------- -----------
2,199,546 3,403,647 3,398,398 6,573,671 484,925 461,266 2,347,809
------------ ------------ ------------ ----------- ----------- ----------- -----------
5,424,433 1,627,245 1,181,223 1,111,083 (149,096) 6,685,780 2,883,477
------------ ------------ ------------ ----------- ----------- ----------- -----------
44,679,908 19,534,576 61,370,721 17,684,596 1,181,993 (553,780) 10,177,768
-- -- -- -- -- 256,147
(13,627,414) 150,077,114 115,672,317 31,347,149 19,387,276 (5,046,919) 16,727,273
-- -- -- -- -- -- (2,957,713)
------------ ------------ ------------ ----------- ----------- ----------- -----------
31,052,494 169,611,690 177,043,038 49,031,745 20,569,269 (5,600,699) 24,203,475
------------ ------------ ------------ ----------- ----------- ----------- -----------
$ 36,476,927 $171,238,935 $178,224,261 $50,142,828 $20,420,173 $ 1,085,081 $27,086,952
============ ============ ============ =========== =========== =========== ===========
</TABLE>
F-18
<PAGE> 104
(This page intentionally left blank)
F-19
<PAGE> 105
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<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)............ $ 13,951,164 $ 12,701,342 $ 7,665,158 $27,460,446 $ 14,782,044
Net realized gains (losses) on
securities............................ (8,027) 414,827 855,222 4,853,795 20,266,279
Net realized gains on foreign currency
transactions.......................... -- -- -- -- --
Net change in unrealized appreciation
(depreciation) on securities.......... -- 727,026 952,909 2,272,504 18,099,702
Net change in unrealized (depreciation)
on translation of assets and
liabilities in foreign currencies..... -- -- -- -- --
--------------- ------------- ------------ ------------ -------------
Net increase in net assets resulting
from operations....................... 13,943,137 13,843,195 9,473,289 34,586,745 53,148,025
--------------- ------------- ------------ ------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from capital invested.......... 1,190,514,074 102,204,372 87,113,056 251,884,825 182,220,839
Value of capital withdrawn.............. (1,144,331,916) (106,753,871) (67,198,275) (96,168,925) (124,143,038)
--------------- ------------- ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from capital transactions..... 46,182,158 (4,549,499) 19,914,781 155,715,900 58,077,801
--------------- ------------- ------------ ------------ -------------
Net increase in net assets................ 60,125,295 9,293,696 29,388,070 190,302,645 111,225,826
NET ASSETS:
Beginning of year....................... 232,312,458 218,169,438 129,186,397 361,632,885 394,769,913
--------------- ------------- ------------ ------------ -------------
End of year............................. $ 292,437,753 $ 227,463,134 $158,574,467 $551,935,530 $ 505,995,739
=============== ============= ============ ============ =============
</TABLE>
See notes to financial statements.
F-20
<PAGE> 106
<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>
$ 28,947,266 $ 5,424,433 $ 1,627,245 $ 1,181,223 $ 1,111,083 $ (149,096) $ 6,685,780 $ 2,883,477
110,650,921 44,679,908 19,534,576 61,370,721 17,684,596 1,181,993 (553,780) 10,177,768
-- -- -- -- -- -- -- 256,147
19,217,218 (13,627,414) 150,077,114 115,672,317 31,347,149 19,387,276 (5,046,919) 16,727,273
-- -- -- -- -- -- -- (2,957,713)
- -------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
158,815,405 36,476,927 171,238,935 178,224,261 50,142,828 20,420,173 1,085,081 27,086,952
- -------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
345,144,527 290,119,254 446,058,507 259,688,127 454,968,479 93,573,841 96,042,481 340,305,978
(351,923,605) (171,720,121) (222,289,389) (175,776,011) (324,409,684) (58,523,957) (41,956,712) (252,480,825)
- -------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
(6,779,078) 118,399,133 223,769,118 83,912,116 130,558,795 35,049,884 54,085,769 87,825,153
- -------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
152,036,327 154,876,060 395,008,053 262,136,377 180,701,623 55,470,057 55,170,850 114,912,105
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
- -------------- ------------- ------------- ------------- ------------- ------------ ------------ -------------
$1,367,107,496 $ 389,859,775 $ 771,268,461 $ 688,448,565 $ 924,089,884 $ 81,327,707 $ 94,870,981 $ 320,218,173
============== ============= ============= ============= ============= ============ ============ =============
</TABLE>
F-21
<PAGE> 107
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 year.......................... 185,012,254 197,294,663 103,059,880 322,676,017 264,909,839
------------- ------------ ------------ ------------- ------------
End of year................................ $ 232,312,458 $218,169,438 $129,186,397 $ 361,632,885 $394,769,913
============= ============ ============ ============= ============
</TABLE>
See notes to financial statements.
F-22
<PAGE> 108
<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>
F-23
<PAGE> 109
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER -- 73.87%
$ 2,400,000 American Crystal Sugar Company,
5.60%, 01/29/99.............. $ 2,389,547
5,800,000 Ameritech, 5.50%, 01/22/99..... 5,781,392
4,000,000 Avco Financial Services, Inc.,
5.35%, 03/15/99.............. 3,956,605
2,000,000 Avco Financial Services, Inc.,
5.40%, 02/08/99.............. 1,988,600
4,000,000 Avco Financial Services, Inc.,
5.30%, 03/01/99.............. 3,965,256
1,400,000 CIT Group Holdings, Inc.,
5.33%, 01/26/99.............. 1,394,818
6,300,000 CIT Group Holdings, Inc.,
5.33%, 01/28/99.............. 6,274,816
3,500,000 Coca-Cola Enterprises, Inc.,
5.18%, 02/16/99.............. 3,476,834
4,000,000 Coca-Cola Enterprises, Inc.,
5.22%, 02/02/99.............. 3,981,440
2,400,000 Coca-Cola Enterprises, Inc.,
5.07%, 02/02/99.............. 2,389,184
10,000,000 Commercial Credit Company,
5.17%, 01/26/99.............. 9,964,097
2,000,000 Conagra, Inc., 5.80%,
01/08/99..................... 1,997,744
7,500,000 Edison Funding, 5.38%,
01/08/99..................... 7,492,154
4,100,000 Edison Funding, 5.38%,
01/08/99..................... 4,095,711
2,700,000 Enterprise Funding Corp.,
5.73%, 01/14/99.............. 2,694,413
3,100,000 Enterprise Funding Corp.,
5.42%, 01/15/99.............. 3,093,466
2,000,000 Enterprise Funding Corp.,
5.43%, 01/20/99.............. 1,994,268
6,400,000 Enterprise Funding Corp.,
5.35%, 01/20/99.............. 6,381,929
3,500,000 Ford Motor Credit Corp., 5.17%,
01/22/99..................... 3,489,445
3,000,000 Ford Motor Credit Corp., 5.17%,
03/03/99..................... 2,973,719
8,000,000 Ford Motor Credit Corp., 5.35%,
01/07/99..................... 7,992,867
6,000,000 General Electric Capital Corp.,
5.33%, 01/13/99.............. 5,989,340
2,250,000 General Electric Capital Corp.,
5.17%, 01/15/99.............. 2,245,476
3,000,000 General Motors Acceptance
Corp., 5.30%, 01/12/99....... 2,995,142
1,400,000 General Motors Acceptance
Corp., 5.04%, 01/04/99....... 1,399,412
6,900,000 Heller Financial Inc., 5.52%,
01/21/99..................... 6,878,840
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 4,200,000 Heller Financial Inc., 5.52%,
01/25/99..................... $ 4,184,544
3,400,000 Heller Financial Inc., 4.75%,
02/03/99..................... 3,385,196
5,000,000 Household International Corp.,
5.15%, 01/12/99.............. 4,992,132
8,000,000 Household International Corp.,
5.35%, 01/14/99.............. 7,984,545
2,000,000 Houston Industries Finance
Company, 6.05%, 01/06/99..... 1,998,319
2,400,000 John Hancock Mutual Life
Insurance, 5.40%, 01/29/99... 2,389,920
1,400,000 Lehman Brothers Holdings Inc.,
5.60%, 01/29/99.............. 1,393,902
8,450,000 Lucent Technologies, 5.15%,
01/25/99..................... 8,420,988
3,000,000 Merrill Lynch and Company,
Inc., 5.19%, 01/26/99........ 2,989,188
1,400,000 Merrill Lynch and Company,
Inc., 5.27%, 01/27/99........ 1,394,671
10,000,000 Merrill Lynch and Company,
Inc., 5.20%, 01/28/99........ 9,961,000
1,900,000 Norfolk Southern Corporation,
6.15%, 01/04/99.............. 1,899,026
10,900,000 Paccar Financial Group, 5.40%,
01/04/99..................... 10,895,095
4,000,000 Panasonic Finance Inc., 5.13%,
01/26/99..................... 3,985,750
7,500,000 Prudential Funding Corp.,
5.34%, 01/15/99.............. 7,484,425
3,000,000 Republic New York Corp., 5.02%,
03/01/99..................... 2,975,318
6,000,000 Sanwa Business Credit, 5.45%,
01/21/99..................... 5,981,833
3,600,000 Sanwa Business Credit, 5.45%,
01/22/99..................... 3,588,555
4,400,000 Sears Roebuck Acceptance Corp.,
5.33%, 01/15/99.............. 4,390,880
7,300,000 Sears Roebuck Acceptance Corp.,
5.16%, 01/28/99.............. 7,271,749
2,000,000 Sony Corp., 5.38%, 01/20/99.... 1,994,321
2,500,000 Textron Inc., 6.10%,
01/06/99..................... 2,497,882
6,000,000 Transamerica Finance Corp.,
5.37%, 01/11/99.............. 5,991,050
700,000 Transamerica Finance Corp.,
5.10%, 02/25/99.............. 694,546
------------
TOTAL COMMERCIAL PAPER
(Cost $216,021,350)............ 216,021,350
------------
</TABLE>
See notes to financial statements.
F-24
<PAGE> 110
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US GOVERNMENT AGENCY SECURITIES -- 2.77%
FEDERAL HOME LOAN BANK -- 2.74%
$ 8,000,000 5.00%, 10/27/99................ $ 8,000,000
FEDERAL HOME LOAN MORTGAGE
CORP. -- 0.03%
100,000 5.00%, 02/03/99................ 99,542
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $8,099,542)... 8,099,542
------------
CERTIFICATES OF DEPOSIT -- 12.48%
7,300,000 Canadian Imperial Bank, 5.74%,
05/07/99..................... 7,300,000
9,200,000 Mellon Bank Corp., 5.50%,
01/06/99..................... 9,200,000
10,000,000 Toronto-Dominion Bank, 5.67%,
07/26/99..................... 9,998,364
10,000,000 Union Bancal Corp., 5.50%,
01/20/99..................... 10,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $36,498,364)............. 36,498,364
------------
SHORT-TERM CORPORATE NOTES -- 10.55%
2,700,000 Banc One, Floating Rate, 5.54%,
01/07/99+.................... 2,700,000
5,136,000 Capital One Funding Corp.,
Floating Rate, 5.54%,
01/07/99+.................... 5,136,000
9,000,000 Goldman Sachs Group, 5.34%,
08/13/99..................... 9,000,000
9,000,000 Lehman Syndicated Loan Fund,
6.04%, 01/15/99.............. 9,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
$ 5,000,000 Asset Backed Securities
Investment Trust, Variable
Rate, 5.54%, 08/15/99++...... $ 5,000,000
------------
TOTAL SHORT-TERM CORPORATE
NOTES (Cost $30,836,000)....... 30,836,000
------------
TOTAL SECURITIES (Cost
$291,455,256).................. 291,455,256
------------
REPURCHASE AGREEMENT -- 0.01%
35,626 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $35,643,
(Collateralized by Fannie
Mae, 5.76%, due 01/25/08 with
a value of $37,785) (Cost
$35,626)..................... 35,626
------------
Total Investments -- 99.68%
(Cost $291,490,882)............ 291,490,882
Other assets less
liabilities -- 0.32%........... 946,871
------------
NET ASSETS -- 100.00%.......... $292,437,753
============
The aggregate cost of investments for federal income tax
purposes at December 31, 1998, is $291,490,882.
</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, 1998.
++ 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, 1998.
See notes to financial statements.
F-25
<PAGE> 111
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 86.66%
BANKS -- 9.32%
$ 8,000,000 First Omni Bank, Series 96-A,
6.65%, 09/15/03.............. $ 8,235,360
3,750,000 First Union Corp., 8.00%,
11/15/02..................... 4,047,521
1,000,000 Midland Bank PLC, 8.625% due
12/15/04..................... 1,140,393
4,000,000 Norwest Corp., 6.75%,
05/12/00..................... 4,064,340
3,686,232 Union Acceptance Corp., 6.40%,
10/10/02..................... 3,705,216
------------
TOTAL BANKS.................... 21,192,830
------------
BROKERAGE -- 8.69%
5,500,000 Bear Stearns & Company, 6.50%,
06/15/00..................... 5,557,926
1,000,000 Lehman Brothers Holdings Inc.,
Medium-Term Note, 6.05%,
04/28/00..................... 997,046
5,000,000 Lehman Brothers Holdings Inc.,
6.00%, 02/26/01.............. 4,963,520
5,000,000 Merrill Lynch & Company,
Medium-Term Note, 5.75%,
11/04/02..................... 5,010,500
3,000,000 Morgan Stanley Dean Witter,
8.875%, 10/15/01............. 3,242,673
------------
TOTAL BROKERAGE................ 19,771,665
------------
FINANCE -- 30.56%
2,000,000 Associates Corp. of N.A.,
6.15%, 01/13/03.............. 2,044,874
3,170,000 Associates Corp. of N.A.,
6.01%, 02/07/03.............. 3,225,786
4,000,000 Associates Corp. of N.A.,
6.00%, 04/15/03.............. 4,062,804
5,000,000 CIT Group Holdings, 6.125%,
11/15/99..................... 5,027,615
2,030,181 Copelco Capital Funding Corp.,
6.34%, 07/20/04.............. 2,042,565
5,000,000 Florida Windstorm Underwriting,
6.50%, 08/25/02.............. 5,096,430
7,000,000 Ford Motor Credit Corp., 7.00%,
09/25/01..................... 7,272,909
3,000,000 General Motors Acceptance
Corp., 5.21%, 02/25/00....... 3,020,499
5,250,000 General Motors Acceptance
Corp., 9.375%, 04/01/00...... 5,498,987
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
FINANCE (CONTINUED)
$ 6,500,000 Household Finance Company,
Medium-Term Note, 7.15%,
06/15/00..................... $ 6,643,253
5,000,000 International Lease Finance,
7.05%, 05/01/01.............. 5,141,595
7,500,000 John Deere Capital, 5.75%,
08/07/00..................... 7,505,363
368,244 Navistar Finance, 6.55%,
11/20/01..................... 368,539
8,000,000 Travelers Group, Inc., 7.25%,
05/01/01..................... 8,272,264
2,024,560 Textron Financial Corp., 6.05%,
03/15/09..................... 2,031,767
2,003,897 Travelers Mortgage, 12.00%,
03/01/14..................... 2,261,298
------------
TOTAL FINANCE.................. 69,516,548
------------
PRIVATE ASSET BACKED: BANKS -- 4.05%
2,452,637 Banc One Auto Grantor Trust,
6.27%, 11/20/03.............. 2,480,278
5,905,898 Banc One Auto Grantor Trust,
6.29%, 07/20/04.............. 5,978,304
747,641 Western Finance Grantor Trust,
5.875%, 03/01/02............. 751,042
------------
TOTAL PRIVATE ASSET BACKED:
BANKS........................ 9,209,624
------------
PRIVATE ASSET BACKED: CREDIT CARDS -- 7.53%
3,900,000 Dayton Hudson Credit Card
Master Trust, Series 97-1A,
6.25%, 08/25/05.............. 4,015,284
2,083,333 Discover Card Master Trust I,
Series 93-2A, 5.40%,
11/16/01..................... 2,084,625
4,000,000 Discover Card Master Trust I,
Series 98-6A, 5.85%,
01/17/06..................... 4,047,960
287,500 MBNA Master Credit Card, 5.40%,
09/15/00..................... 287,003
5,000,000 Sears Credit Account Master
Trust, Series 96-1A, 6.20%,
02/16/06..................... 5,097,100
1,500,000 Sears Credit Account Master
Trust, 7.00%, 07/16/08....... 1,589,508
------------
TOTAL PRIVATE ASSET BACKED:
CREDIT CARDS................... 17,121,480
------------
</TABLE>
See notes to financial statements.
F-26
<PAGE> 112
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
PRIVATE ASSET BACKED: FINANCE -- 4.19%
$ 1,683,539 Chase Manhattan Grantor Trust,
6.61%, 09/15/02.............. $ 1,704,280
4,045,779 Navistar Financial Corp., Owner
Trust, Series 98-A, Class A,
5.94%, 11/15/04.............. 4,082,191
654,057 Pemex Exp Grantor Trust, 7.66%,
08/15/01..................... 680,867
3,040,849 USAA Auto Loan Grantor Trust,
6.00%, 05/15/04.............. 3,059,946
------------
TOTAL PRIVATE ASSET BACKED:
FINANCE........................ 9,527,284
------------
PRIVATE ASSET BACKED: OTHER -- 3.91%
4,089,484 New York City Tax Lien Trust,
Series 98-1C, 6.12%,
07/25/06..................... 4,095,873
4,500,000 Midstate Trust, Series 2-A4,
9.625%, 04/01/03............. 4,791,470
------------
TOTAL PRIVATE ASSET BACKED:
OTHER.......................... 8,887,343
------------
PRIVATE ASSET BACKED: PHARMACEUTICALS --1.53%
3,137,891 Upjohn Company, 9.79%,
02/01/04..................... 3,479,419
------------
PRIVATE ASSET BACKED: RECEIVABLES -- 15.94%
5,120,000 Capital Equipment Receivable
Trust, Series 96-1, 6.28%,
06/15/00..................... 5,146,317
821,176 Chevy Chase Auto Receivable
Trust, 6.00%, 12/15/01....... 822,638
1,358,712 Chevy Chase Auto Receivable
Trust, 6.60%, 12/15/02....... 1,373,984
8,000,000 Compass Auto Receivables Trust,
Series 1998-A3, 5.90%,
05/15/04..................... 8,087,520
3,000,000 EAB Lease Receivables Trust,
5.66%, 09/15/02.............. 3,011,250
2,355,780 First Sierra Receivables II,
6.85%, 02/10/03.............. 2,395,027
964,019 Heller Equipment Asset
Receivables Trust, Series
1997-1, Class A2, 6.39%,
05/25/05..................... 971,943
156,316 IBM Credit Receivable Lease
Asset Master Trust, Series
93-1A, 4.55%, 11/15/00....... 156,210
56,131 IBM Credit Receivable Lease
Asset Master Trust, 6.55%,
07/16/01..................... 56,165
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
PRIVATE ASSET BACKED: RECEIVABLES (CONTINUED)
$ 8,250,000 Newcourt Receivables Asset
Trust, Series 1997-1, Class
A4, 6.193%, 05/20/05......... $ 8,386,455
5,000,000 Textron Financial Corp.
Receivable Trust, Series
1998-A, 5.89%, 01/15/05...... 5,054,688
788,597 Toyota Auto Receivable Trust,
Series 96-AA, 6.30%,
07/20/01..................... 791,191
------------
TOTAL PRIVATE ASSET BACKED:
RECEIVABLES.................... 36,253,388
------------
REAL ESTATE -- 0.94%
552,087 GE Home Equity Loan, Series
91-1A, 7.20%, 09/15/11....... 550,961
659,185 Merrill Lynch Mortgage
Investors, Inc., 10.10%,
11/15/07..................... 660,497
502,057 Merrill Lynch Mortgage
Investors, Inc., 10.35%,
05/15/09..................... 534,062
314,715 Merrill Lynch Mortgage
Investors, Inc., 9.40%,
09/15/09..................... 333,223
73,113 Merrill Lynch Mortgage
Investors, Inc., Series
91-DA, 9.00%, 07/15/11....... 72,969
------------
TOTAL REAL ESTATE.............. 2,151,712
------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $195,371,080)............ 197,111,293
------------
US TREASURY NOTES -- 4.44%
6,000,000 5.50%, 02/29/00................ 6,056,250
4,000,000 5.375%, 06/30/00............... 4,041,252
------------
TOTAL US TREASURY NOTES (Cost
$9,998,117).................... 10,097,502
------------
US GOVERNMENT AGENCY SECURITIES -- 2.19%
FANNIE MAE -- 0.06%
19,878 PL# 6346, 6.75%, 02/01/03...... 20,039
117,073 PL# 137455, 7.00%, 04/01/04.... 116,976
------------
TOTAL FANNIE MAE............... 137,015
------------
FREDDIE MAC -- 0.93%
1,004,541 PL# 850082, 9.00%, 10/01/05.... 1,042,269
150,099 REMIC, Series MH-1, 10.15%,
04/15/06..................... 150,336
572,264 PL# D0677, 7.50%, 03/01/08..... 584,441
</TABLE>
See notes to financial statements.
F-27
<PAGE> 113
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
FREDDIE MAC (CONTINUED)
$ 2,844 PL# 273991, 6.50%, 03/01/13.... $ 2,858
323,194 PL# 306816, 7.00%, 01/01/18.... 327,712
------------
TOTAL FREDDIE MAC.............. 2,107,616
------------
RESOLUTION TRUST CORP. -- 1.20%
1,832,069 Resolution Trust Corp., 7.94%,
08/25/21..................... 1,825,455
904,862 Resolution Trust Corp., 6.74%,
07/25/27..................... 902,075
------------
TOTAL RESOLUTION TRUST CORP.... 2,727,530
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $5,025,913)... 4,972,161
------------
FOREIGN GOVERNMENT OBLIGATION -- 2.25%
5,000,000 Hydro Quebec, 6.36%, 01/15/02
(Cost $5,055,868)............ 5,122,365
------------
COMMERCIAL PAPER -- 1.30%
2,979,000 Banque Generale Du Luxembourg,
5.65%, 01/15/99 (Cost
$2,972,455).................. 2,972,455
------------
TOTAL SECURITIES (Cost
$218,423,433).................. 220,275,776
------------
REPURCHASE AGREEMENT -- 2.27%
5,174,191 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $5,176,634
(Collateralized by various
Freddie Mac Adjustable Rate
Mortgages, 7.40%-7.86%, due
03/01/24 to 07/01/26 with a
total value of $5,433,139)
(Cost $5,174,191)............ 5,174,191
------------
Total Investments -- 99.11%
(Cost $223,597,624)............ 225,449,967
------------
Other assets less liabilities--
0.89%.......................... 2,013,167
------------
NET ASSETS -- 100.00%.......... $227,463,134
============
</TABLE>
The aggregate cost of investments for federal income tax purposes at December
31, 1998, is $223,597,624.
The following amount is based on costs for federal income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation......... $ 2,092,898
Gross unrealized depreciation......... (240,555)
------------
Net unrealized appreciation........... $ 1,852,343
============
</TABLE>
See notes to financial statements.
F-28
<PAGE> 114
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US TREASURY NOTES -- 21.13%
$ 3,000,000 6.375%, 05/15/99(a)............................... $ 3,017,814
5,000,000 6.00%, 08/15/99................................... 5,040,625
7,000,000 7.75%, 12/31/99................................... 7,210,000
2,500,000 8.875%, 05/15/00.................................. 2,637,500
10,000,000 6.25%, 01/31/02................................... 10,440,630
5,000,000 5.625%, 12/31/02(a)............................... 5,164,065
------------
TOTAL US TREASURY NOTES
(Cost $33,146,585)................................ 33,510,634
------------
US GOVERNMENT AGENCY SECURITIES -- 58.35%
FANNIE MAE -- 6.54%
2,000,000 CMO, Series 94-75, 7.00%, 01/25/03................ 2,016,832
3,000,000 6.44%, 06/21/05................................... 3,201,210
5,000,000 Series 96-M7, Class B, 6.84%, 06/17/11............ 5,160,350
------------
TOTAL FANNIE MAE.................................. 10,378,392
------------
FEDERAL HOME LOAN BANK -- 4.61%
5,000,000 7.39%, 08/22/01................................... 5,284,380
2,000,000 5.50%, 01/21/03................................... 2,020,702
------------
TOTAL FEDERAL HOME LOAN
BANK.............................................. 7,305,082
------------
FREDDIE MAC -- 6.41%
3,000,000 CMO, Series 1574, 6.50%, 02/15/21................. 3,053,901
5,300,000 CMO, Series 1500, 7.00%, 06/15/22................. 5,445,315
726,176 CMO, Series 31, Floating Rate, 6.025%, 08/25/23... 726,483
932,091 CMO, Series 1710, Floating Rate, 6.062%,
02/15/24........................................ 932,468
------------
TOTAL FREDDIE MAC................................. 10,158,167
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 24.28%
5,231 PL# 209631, 7.50%, 04/15/02....................... 5,409
18,343 PL# 328000, 7.50%, 06/15/07....................... 18,968
8,601 PL# 328084, 7.50%, 07/15/07....................... 8,894
10,958 PL# 335542, 7.50%, 08/15/07....................... 11,331
128,343 PL# 335995, 7.50%, 08/15/07....................... 132,714
70,773 PL# 322072, 7.50%, 08/15/07....................... 73,184
265,169 PL# 323189, 7.50%, 08/15/07....................... 274,201
200,578 PL# 328188, 7.50%, 08/15/07....................... 207,410
255,673 PL# 328192, 7.50%, 08/15/07....................... 264,382
80,265 PL# 328200, 7.50%, 08/15/07....................... 83,000
313,209 PL# 329060, 7.50%, 08/15/07....................... 323,878
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 301,329 PL# 332267, 7.50%, 08/15/07....................... $ 311,593
56,716 PL# 333320, 7.50%, 09/15/07....................... 58,648
208,169 PL# 333709, 7.50%, 09/15/07....................... 215,259
268,696 PL# 332704, 7.50%, 09/15/07....................... 277,848
310,954 PL# 297619, 7.50%, 09/15/07....................... 321,546
167,405 PL# 369749, 6.50%, 09/15/08....................... 170,334
232,574 PL# 345975, 6.50%, 10/15/08....................... 236,644
562,335 PL# 374726, 6.50%, 10/15/08....................... 572,176
214,347 PL# 345973, 6.50%, 11/15/08....................... 218,098
118,922 PL# 363874, 6.50%, 11/15/08....................... 121,003
425,407 PL# 370448, 6.50%, 11/15/08....................... 432,852
592,315 PL# 371094, 6.50%, 11/15/08....................... 602,681
300,527 PL# 366531, 6.50%, 11/15/08....................... 305,787
4,034,164 CMO, Series 97-2, 7.00%, 06/20/19................. 4,048,687
4,404,677 PL# 2483, 7.00%, 09/20/27......................... 4,474,879
14,512,446 PL# 2631, 7.00%, 08/20/28......................... 14,743,746
9,834,697 PL# 2645, 7.00%, 09/20/28......................... 9,991,442
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION.............................. 38,506,594
------------
US TREASURY INFLATION INDEX -- 6.41%
10,000,000 3.625%, 07/15/02.................................. 10,168,905
------------
HOUSING AND URBAN DEVELOPMENT -- 3.26%
5,000,000 6.23%, 08/01/02................................... 5,171,195
------------
TENNESSEE VALLEY AUTHORITY -- 3.57%
2,500,000 6.375%, 06/15/05.................................. 2,654,742
3,000,000 5.375%, 11/13/08.................................. 3,011,370
------------
TOTAL TENNESSEE VALLEY AUTHORITY.................. 5,666,112
------------
US GOVERNMENT GUARANTEED BOND -- 3.27%
5,000,000 6.12%, 04/01/08................................... 5,185,000
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost $90,873,795)..................... 92,539,447
------------
SHORT TERM US GOVERNMENT AGENCY SECURITIES -- 19.66%
FANNIE MAE -- 7.28%
400,000 5.05%, 01/14/99................................... 399,271
1,700,000 5.07%, 01/15/99................................... 1,696,648
4,500,000 4.72%, 01/21/99................................... 4,488,200
100,000 5.02%, 02/05/99................................... 99,512
500,000 5.00%, 02/10/99................................... 497,222
</TABLE>
See notes to financial statements.
F-29
<PAGE> 115
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM US GOVERNMENT AGENCY SECURITIES (CONTINUED)
FANNIE MAE (CONTINUED)
$ 1,000,000 4.87%, 02/19/99................................... $ 993,371
3,400,000 4.75%, 03/23/99................................... 3,363,663
------------
TOTAL FANNIE MAE.................................. 11,537,887
------------
FEDERAL HOME LOAN BANK -- 0.38%
600,000 5.03%, 01/08/99................................... 599,413
------------
FREDDIE MAC -- 12.00%
300,000 4.91%, 01/08/99................................... 299,714
100,000 5.06%, 01/08/99................................... 99,902
1,700,000 5.10%, 01/13/99................................... 1,697,110
100,000 5.09%, 01/14/99................................... 99,816
1,400,000 5.14%, 01/14/99................................... 1,397,401
400,000 4.93%, 01/15/99................................... 399,233
400,000 4.88%, 01/19/99................................... 399,024
300,000 5.04%, 01/20/99................................... 299,202
3,600,000 5.05%, 01/20/99................................... 3,590,405
1,900,000 5.08%, 01/20/99................................... 1,894,906
6,000,000 5.07%, 01/29/99................................... 5,976,340
300,000 5.00%, 02/03/99................................... 298,625
200,000 5.04%, 02/12/99................................... 198,824
1,200,000 4.99%, 02/17/99................................... 1,192,182
1,000,000 4.99%, 02/22/99................................... 992,792
200,000 4.91%, 03/12/99................................... 198,091
------------
TOTAL FREDDIE MAC................................. 19,033,567
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $31,170,867)................................ 31,170,867
------------
<CAPTION>
SHARES
- -----------
REGULATED INVESTMENT COMPANIES -- 2.20%
2,000,000 Janus Money Market Fund(b)........................ 2,000,000
1,488,680 Merrimac Cash Fund - Premium Class(b)............. 1,488,680
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $3,488,680)....................... 3,488,680
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
TIME DEPOSITS -- 0.93%
$ 197,048 American Express Centurion Bank, 5.33%,
02/08/99(b)..................................... $ 197,048
1,015,585 BankBoston, N.A., 5.63%, 04/30/99(b).............. 1,015,585
97,048 Bank of Montreal, 5.25%, 01/29/99(b).............. 97,048
157,639 Toronto Dominion, 5.125%, 03/17/99(b)............. 157,639
------------
TOTAL TIME DEPOSITS
(Cost $1,467,320)................................. 1,467,320
------------
TOTAL SECURITIES
(Cost $160,147,247)............................... 162,176,948
------------
REPURCHASE AGREEMENT -- 0.03%
48,075 With Investors Bank & Trust, dated 12/31/98,
4.25%, due 01/04/99, repurchase proceeds at
maturity $48,097 (Collateralized by Freddie Mac,
Adjustable Rate Mortgage, 7.354%, due 09/01/18,
with a value of $50,491) (Cost $48,075)......... 48,075
Total Investments -- 102.30% (Cost
$160,195,322)..................................... 162,225,023
Other assets less liabilities -- (2.30)%.......... (3,650,556)
------------
NET ASSETS -- 100.00%............................. $158,574,467
============
The aggregate cost of securities for federal income tax purposes at December 31,
1998, is $160,195,322.
The following amount is based on costs for federal income tax purposes:
</TABLE>
<TABLE>
<S> <C>
Gross unrealized appreciation.......... $ 2,089,370
Gross unrealized depreciation.......... (59,669)
------------
Net unrealized appreciation............ $ 2,029,701
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
See notes to financial statements.
F-30
<PAGE> 116
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US TREASURY NOTES & BONDS -- 9.25%
US TREASURY NOTES -- 6.12%
$26,000,000 6.25%, 01/31/02(a)............. $ 27,145,638
6,000,000 6.50%, 10/15/06(a)............. 6,660,000
------------
TOTAL US TREASURY NOTES........ 33,805,638
------------
US TREASURY BONDS -- 3.13%
15,000,000 6.375%, 08/15/27(a)............ 17,250,000
------------
TOTAL US TREASURY NOTES & BONDS
(Cost $50,760,904)............. 51,055,638
------------
US GOVERNMENT AGENCY SECURITIES -- 21.85%
FEDERAL HOME LOAN BANK -- 1.00%
5,000,000 6.64%, 12/13/16................ 5,522,315
------------
FANNIE MAE -- 0.02%
96,696 7.00%, 12/01/25................ 98,569
------------
FREDDIE MAC -- 3.14%
2,107,848 Series 1377, Floating Rate,
6.0625%, 09/15/07............ 2,122,308
5,000,000 Series 1666, Class E, 6.00%,
12/15/19..................... 5,036,165
2,178,528 Series 31, Floating Rate,
6.025%, 08/25/23............. 2,179,450
2,957,286 Series 1710, Floating Rate,
6.0625%, 02/15/24............ 2,958,481
5,000,000 Series 2068, 6.50%, 03/15/26... 5,057,140
------------
TOTAL FREDDIE MAC.............. 17,353,544
------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 8.80%
755,038 PL# 413611, 7.00%, 01/15/26.... 772,260
877,133 PL# 292340, 7.00%, 02/15/26.... 897,141
698,556 PL# 373637, 7.00%, 03/15/26.... 714,490
866,753 PL# 373622, 7.00%, 03/15/26.... 886,524
914,435 PL# 428420, 7.00%, 04/15/26.... 935,293
38,699,857 PL# 2631, 7.00%, 08/20/28...... 39,316,656
4,917,348 PL# 2645, 7.00%, 09/20/28...... 4,995,721
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION........... 48,518,085
------------
US TREASURY INFLATION INDEX -- 4.73%
1,000,000 3.625%, 04/15/28............... 987,909
10,000,000 3.625%, 07/15/02............... 10,168,900
15,000,000 3.375%, 01/15/07(a)............ 14,962,785
------------
TOTAL US TREASURY INFLATION
INDEX.......................... 26,119,594
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
US GOVERNMENT AGENCY SECURITIES (CONTINUED)
STUDENT LOAN MARKETING ASSOCIATION -- 0.89%
$ 5,000,000 Series 1996-2 A2, Floating
Rate, 5.4623%, 07/25/09...... $ 4,903,550
------------
TENNESSEE VALLEY AUTHORITY -- 3.27%
18,000,000 5.37%, 11/13/08................ 18,068,220
------------
TOTAL US GOVERNMENT AGENCY
SECURITIES (Cost
$119,182,965).................. 120,583,877
------------
CORPORATE BONDS & NOTES -- 58.07%
AEROSPACE -- 2.09%
5,000,000 Boeing Company, 8.625%,
11/15/31..................... 6,391,055
5,000,000 Lockheed Martin Corp., 6.85%,
05/15/01..................... 5,160,075
------------
TOTAL AEROSPACE................ 11,551,130
------------
AUTOMOTIVE PRODUCTS -- 6.18%
4,000,000 BF Goodrich Company, 8.65%,
04/15/25..................... 4,990,588
5,000,000 Ford Holdings, 9.30%,
03/01/30..................... 6,708,710
6,000,000 Ford Motor Company, 6.625%,
10/01/28..................... 6,173,286
10,000,000 Ford Motor Credit Company,
6.125%, 04/28/03............. 10,166,610
5,000,000 General Motors Corp., 8.80%,
03/01/21..................... 6,095,865
------------
TOTAL AUTOMOTIVE PRODUCTS...... 34,135,059
------------
BANKS -- 7.24%
4,000,000 Bank of New York Company,
6.50%, 12/01/03.............. 4,169,616
5,000,000 BankAmerica Corp., 6.625%,
05/30/01..................... 5,121,355
10,000,000 Bankers Trust Company of New
York, 6.75%, 10/03/01........ 10,235,560
6,000,000 Midland Bank PLC, Floating
Rate, 6.125%, 06/29/49....... 4,470,000
5,000,000 Republic New York Corp., 7.00%,
03/22/11..................... 5,249,055
5,000,000 Societe Generale, Rule 144A,
7.85%, 04/29/49.............. 5,096,735
5,000,000 Swiss Bank Corp., 7.75%,
09/01/26..................... 5,613,255
------------
TOTAL BANKS.................... 39,955,576
------------
</TABLE>
See notes to financial statements.
F-31
<PAGE> 117
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS & NOTES (CONTINUED)
CONSUMER GOODS AND SERVICES -- 2.17%
$ 5,200,000 Proctor & Gamble, 9.36%,
01/01/21..................... $ 6,890,936
5,000,000 RJR Nabisco, 8.75%, 04/15/04... 5,082,310
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 11,973,246
------------
FINANCE -- 18.55%
15,275,000 Abbey National PLC, 6.7%,
06/29/49..................... 14,961,342
10,000,000 Associates Corp., 6.45%,
09/15/00..................... 10,139,170
5,000,000 BT Institutional Capital
Trust -- B, 7.75%,
12/01/26..................... 5,156,670
5,000,000 Capital Equipment Receivables
Trust 96-1 Class B, 6.57%,
03/15/01..................... 5,038,300
5,000,000 Cez Finance BV, 7.125%,
07/15/07..................... 4,278,140
5,000,000 Chase Capital IV, Floating
Rate, 5.84438%, 08/01/28..... 4,833,900
7,040,000 Discover Card Master Trust,
Series 1994-2 Class A,
Floating Rate, 5.88547%,
10/16/04..................... 7,066,541
6,000,000 Dow Capital BV, 9.20%,
06/01/10..................... 7,537,062
5,000,000 General Electric Capital Corp.,
8.50%, 07/24/08.............. 6,081,260
5,000,000 General Motors Acceptance
Corp., 8.40%, 10/15/99....... 5,111,455
5,000,000 Household Finance Corp.,
5.875%, 11/01/02............. 5,032,850
5,000,000 Merrill Lynch & Co., 6.375%,
10/15/08..................... 5,185,675
1,603,779 Structured Assets Securities
Corporation, Series 1996-CFL,
Class A-1C, 5.944%,
02/25/28..................... 1,601,951
10,000,000 World Financial Network Credit
Card Master Trust, Series
96-A, Class A, 6.70%,
02/15/04..................... 10,306,440
10,000,000 Xerox Credit Corp., 6.78%,
05/21/01..................... 10,051,040
------------
TOTAL FINANCE.................. 102,381,796
------------
FOOD AND BEVERAGE -- 1.21%
5,000,000 Seagrams (Joseph) & Sons,
9.65%, 08/15/18.............. 6,690,235
------------
FREIGHT -- 0.24%
1,000,000 United Parcel Service, 8.375%,
04/01/30..................... 1,324,060
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS & NOTES (CONTINUED)
INDUSTRIAL -- 5.40%
$ 5,000,000 Celulosa Arauco Y Constitucion,
6.75%, 12/15/03.............. $ 4,507,150
5,000,000 Conagra Inc., 5.50%,
10/15/02..................... 4,978,650
5,000,000 ICI Wilmington Inc., 6.75%,
09/15/02..................... 5,032,465
10,000,000 ICI Wilmington Inc., 6.95%,
09/15/04..................... 10,118,930
5,000,000 Zeneca Wilmington, 6.30%,
06/15/03..................... 5,169,900
------------
TOTAL INDUSTRIAL............... 29,807,095
------------
INSURANCE -- 2.70%
5,000,000 Aetna Services, 7.625%,
08/15/26..................... 5,052,405
4,000,000 Prudential Insurance Company,
6.375%, 07/23/06............. 4,118,900
5,000,000 Prudential Insurance Company,
8.10%, 07/15/15(a)........... 5,714,760
------------
TOTAL INSURANCE................ 14,886,065
------------
OIL AND GAS -- 2.14%
5,000,000 Occidental Petroleum Corp.,
10.125%, 09/15/09............ 6,244,230
4,000,000 Texaco Capital Inc., 9.75%,
03/15/20..................... 5,545,520
------------
TOTAL OIL AND GAS.............. 11,789,750
------------
PAPER AND FOREST PRODUCTS -- 1.55%
8,000,000 Westvaco, 10.125%, 06/01/19.... 8,538,720
------------
TELECOMMUNICATIONS -- 3.18%
6,000,000 Cable & Wireless Communication,
6.75%, 12/01/08.............. 6,076,152
5,000,000 GTE South Inc., 7.50%,
03/15/26..................... 5,386,630
6,000,000 MCI Worldcom Inc., 6.125%,
08/15/01..................... 6,100,554
------------
TOTAL TELECOMMUNICATIONS....... 17,563,336
------------
TOBACCO -- 0.93%
5,000,000 Universal Corp., 6.50%,
02/15/06..................... 5,122,795
------------
TRANSPORTATION -- 0.91%
5,000,000 Union Pacific Corp., 6.34%,
11/25/03..................... 5,047,095
------------
</TABLE>
See notes to financial statements.
F-32
<PAGE> 118
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
CORPORATE BONDS & NOTES (CONTINUED)
UTILITIES -- 3.58%
$10,000,000 Commonwealth Edison Company,
8.125%, 01/15/07............. $ 10,189,400
5,000,000 Commonwealth Edison Company,
8.50%, 07/15/22.............. 5,458,985
5,000,000 Korea Electric Power Corp.,
7.00%, 02/01/27.............. 4,095,595
------------
TOTAL UTILITIES................ 19,743,980
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $309,145,029)............ 320,509,938
------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.25%
FREDDIE MAC -- 0.20%
400,000 5.09%, 01/14/99................ 399,265
100,000 5.07%, 01/14/99................ 99,817
500,000 4.93%, 01/15/99................ 499,041
100,000 5.04%, 02/12/99................ 99,412
------------
TOTAL FREDDIE MAC.............. 1,097,535
------------
FANNIE MAE -- 0.05%
300,000 5.02%, 02/05/99................ 298,535
------------
TOTAL SHORT TERM US GOVERNMENT
AGENCY SECURITIES
(Cost $1,396,070).............. 1,396,070
------------
COMMERCIAL PAPER -- 8.94%
100,000 American Express Company,
4.80%, 02/01/99.............. 99,587
5,800,000 American Express Credit
Company, 5.30%, 01/15/99..... 5,788,045
200,000 American Express Credit Corp.,
5.05%, 01/04/99.............. 199,916
2,900,000 Bank of Nova Scotia, 5.40%,
01/19/99..................... 2,892,170
3,800,000 CIT Group Holdings, 5.33%,
01/26/99..................... 3,785,935
2,600,000 Coca-Cola Enterprises, 5.07%,
02/02/99..................... 2,588,283
1,100,000 Conagra, Inc., 5.80%,
01/08/99..................... 1,098,759
900,000 DuPont (EI) DeNemours & Co.,
5.14%, 02/05/99.............. 895,502
2,500,000 Edison Funding, 5.38%,
01/08/99..................... 2,497,385
200,000 General Electric Capital
Company, 5.33%, 01/22/99..... 199,378
600,000 General Electric Capital Corp.,
5.50%, 01/29/99.............. 597,433
4,300,000 General Motors Acceptance
Corp., 5.29%, 01/21/99....... 4,287,363
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 4,200,000 Merrill Lynch & Company, Inc.,
5.19%, 01/26/99.............. $ 4,184,862
3,000,000 Merrill Lynch & Company, Inc.,
5.27%, 01/27/99.............. 2,988,582
800,000 Norfolk Southern Corporation,
6.15%, 01/04/99.............. 799,590
5,900,000 Riverwood Funding Corp., 5.38%,
01/14/99..................... 5,888,538
1,400,000 Texaco Inc., 5.34%, 01/12/99... 1,397,716
1,600,000 Textron Inc., 5.80%,
01/14/99..................... 1,596,649
7,600,000 Wells Fargo & Company, 5.38%,
01/29/99..................... 7,568,198
------------
TOTAL COMMERCIAL PAPER (Cost
$49,353,891)................... 49,353,891
------------
SHORT TERM CORPORATE NOTES -- 1.23%
1,764,000 Capital One Funding Corp.,
5.54%, 01/07/99.............. 1,764,000
5,000,000 JP Morgan Securities, Inc.,
Floating Rate, 5.605%,
01/15/99(b).................. 5,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $6,764,000)........ 6,764,000
------------
REGULATED INVESTMENT COMPANIES -- 2.21%
1,000 Janus Money Market Fund(b)..... 1,000
12,185,221 Merrimac Cash Fund -- Premium
Class(b)..................... 12,185,221
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $12,186,221)... 12,186,221
------------
TIME DEPOSITS -- 3.52%
759,181 American Express Centurion
Bank, 5.33%, 02/08/99(b)..... 759,181
3,226,661 Bank of Boston, N.A., 5.63%,
04/30/99(b).................. 3,226,661
14,560,000 Bank of Montreal, 5.50%,
01/25/99(b).................. 14,560,000
231,736 Bank of Montreal, 5.25%,
01/29/99(b).................. 231,736
661,651 Toronto Dominion, 5.125%,
03/17/99 (b)................. 661,651
------------
TOTAL TIME DEPOSITS (Cost
$19,439,229)................... 19,439,229
------------
TOTAL SECURITIES (Cost
$568,228,309).................. 581,288,864
------------
</TABLE>
See notes to financial statements.
F-33
<PAGE> 119
GOVERNMENT/CORPORATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 2.73%
$ 53,135 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $53,160,
(Collateralized by Freddie
Mac, Floating Rate, 4.14%,
due 10/15/08 with a value of
$55,791)..................... $ 53,135
15,000,000 With Goldman Sachs Corporate,
dated 12/31/98, 5.60%, due
01/04/99, repurchase proceeds
at maturity $15,002,333
(Collateralized by United
Utilities, 6.45%, due
04/01/08, with a value of
$3,037,578, Texas Eastern
Trans., 8.00%, due 07/15/02,
with a value of $2,291,133,
Texaco Capital, Inc., 5.70%,
due 12/01/08, with a value of
$20,223, Socgen Real Estate,
LLC., 7.64%, due 09/03/49,
with a value of $3,788,300,
Ontario Province, 7.75%, due
06/04/02, with a value of
$1,049,407, Georgia Power
Company, 6.875%, due
09/01/02, with a value of
$1,908,478, Dover
Corporation, 6.25%, due
06/01/08, with a value of
$4,662,931, and Archer
Daniels, 8.125%, due
06/01/12, with a value of
$4,324,063)(b)............... 15,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $15,053,135)............. 15,053,135
------------
Total Investments -- 108.05%
(Cost $583,281,444)............ 596,341,999
Other assets less
liabilities -- (8.05)%......... (44,406,469)
------------
NET ASSETS -- 100.00%.......... $551,935,530
============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1998, is $583,281,444.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 16,314,253
Gross unrealized depreciation.......... (3,253,698)
------------
Net unrealized appreciation............ $ 13,060,555
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
See notes to financial statements.
F-34
<PAGE> 120
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -------------
<C> <S> <C>
COMMON STOCK -- 63.03%
ADVERTISING -- 0.12%
41,800 R.H. Donnelley Corp. ......... $ 608,713
-------------
AUTOMOBILES -- 1.94%
137,150 General Motors Corp. ......... 9,814,797
-------------
BANKS -- 2.47%
207,900 BankAmerica Corp. ............ 12,499,988
-------------
CHEMICALS -- 1.86%
211,300 Akzo Nobel N.V. (ADR)......... 9,429,263
-------------
COMPUTERS AND OFFICE EQUIPMENT -- 1.46%
39,850 International Business
Machines Corp. ............. 7,362,287
-------------
COMPUTER SOFTWARE AND SERVICES -- 2.28%
47,800 Computer Associates
International, Inc. ........ 2,037,475
218,400 First Data Corp.(a)........... 6,920,550
85,600 Newbridge Network Corp. ...... 2,600,100
-------------
TOTAL COMPUTER SOFTWARE AND
SERVICES...................... 11,558,125
-------------
ELECTRONICS -- 2.79%
81,900 Circuit City Stores........... 4,089,881
148,300 Philips Electronics N.V.
(ADR)(a).................... 10,038,056
-------------
TOTAL ELECTRONICS............. 14,127,937
-------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 2.85%
115,600 U.S. Filter Corp. ............ 2,644,350
253,000 Waste Management, Inc. ....... 11,796,125
-------------
TOTAL ENVIRONMENTAL MANAGEMENT
SERVICES...................... 14,440,475
-------------
FINANCE -- 1.65%
211,050 Household International,
Inc. ....................... 8,362,856
-------------
FOOD AND BEVERAGE -- 0.82%
108,800 Seagrams Company, Ltd. ....... 4,134,400
-------------
INSURANCE -- 5.51%
209,200 Allstate Corp. ............... 8,080,350
86,550 Cigna Corp. .................. 6,691,397
167,100 Citigroup..................... 8,271,450
87,900 Hartford Financial Services
Group....................... 4,823,513
-------------
TOTAL INSURANCE............... 27,866,710
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
LEISURE AND RECREATION -- 1.61%
322,900 Host Marriott Corp. .......... $ 4,460,056
99,900 Royal Caribbean Cruises,
Ltd.(a)..................... 3,696,300
-------------
TOTAL LEISURE AND
RECREATION.................. 8,156,356
-------------
MANUFACTURING -- 0.72%
100,525 Hasbro, Inc. ................. 3,631,466
-------------
MEDIA -- 4.23%
138,100 Dun & Bradstreet Corp. ....... 4,358,781
81,900 Gannett Company, Inc. ........ 5,420,756
471,300 News Corp., Ltd. (ADR)(a)..... 11,635,219
-------------
TOTAL MEDIA................... 21,414,756
-------------
MEDICAL AND OTHER HEALTH SERVICES -- 5.82%
191,050 American Home Products
Corp. ...................... 10,758,503
120,700 Baxter International, Inc. ... 7,762,519
139,700 Humana, Inc.(c)............... 2,488,406
87,000 Service Corp.
International(a)............ 3,311,438
194,750 Tenet Healthcare Corp.(c)..... 5,112,188
-------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES...................... 29,433,054
-------------
OIL AND GAS -- 2.32%
107,450 Elf Aquitaine (ADR)........... 6,084,356
122,250 Schlumberger, Ltd. ........... 5,638,781
-------------
TOTAL OIL AND GAS............. 11,723,137
-------------
PAPER AND FOREST PRODUCTS -- 1.76%
135,100 Fort James Corp. ............. 5,404,000
124,100 UPM-Kymmene Corp. (ADR)(c).... 3,480,384
-------------
TOTAL PAPER AND FOREST
PRODUCTS.................... 8,884,384
-------------
PHARMACEUTICALS -- 5.97%
71,500 Bristol-Myers Squibb
Company..................... 9,567,594
267,900 Hoechst AG (ADR).............. 10,983,900
132,992 IMC Global, Inc. ............. 2,842,704
143,700 Monsanto Company(a)........... 6,825,750
-------------
TOTAL PHARMACEUTICALS......... 30,219,948
-------------
REAL ESTATE INVESTMENT TRUSTS -- 0.09%
32,290 Crestline Capital Corp. ...... 472,241
-------------
</TABLE>
See notes to financial statements.
F-35
<PAGE> 121
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
RETAIL -- 3.88%
181,600 Dayton-Hudson Corp. .......... $ 9,851,800
207,100 Federated Department Stores,
Inc.(c)..................... 9,021,794
26,100 Masco Corp.(a)................ 750,375
-------------
TOTAL RETAIL.................. 19,623,969
-------------
TELECOMMUNICATIONS -- 8.15%
204,400 Bell Atlantic Corp.(a)........ 11,612,475
164,900 Northern Telecom, Ltd.(a)..... 8,265,612
139,800 SBC Communications, Inc. ..... 7,496,775
224,400 Tele-Communications, Inc. --
Series A.................... 12,412,125
60,400 Tele-Communications TCI
Ventures Group A............ 1,423,175
-------------
TOTAL TELECOMMUNICATIONS...... 41,210,162
-------------
TOBACCO -- 2.34%
221,700 Phillip Morris Companies,
Inc. ....................... 11,860,950
-------------
TRANSPORTATION -- 2.39%
90,350 AMR Corp.(c).................. 5,364,531
199,800 Burlington Northern Santa
Fe.......................... 6,743,250
-------------
TOTAL TRANSPORTATION.......... 12,107,781
-------------
TOTAL COMMON STOCK (Cost
$290,864,485)................. 318,943,755
-------------
REGULATED INVESTMENT COMPANIES -- 0.00%
1,000 Janus Money Market Fund(b).... 1,000
10,000 Merrimac Cash Fund -- Premium
Class(b).................... 10,000
-------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $11,000)...... 11,000
-------------
<CAPTION>
PRINCIPAL
- -----------
US GOVERNMENT SECURITIES -- 34.80%
US TREASURY BONDS -- 13.78%
$18,175,000 7.25%, 05/15/16(a)............ 22,048,547
24,975,000 7.875%, 11/15/04(a)........... 28,931,989
17,185,000 6.00%, 02/15/26(a)............ 18,753,131
-------------
TOTAL US TREASURY BONDS....... 69,733,667
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
US TREASURY NOTES -- 21.02%
$22,865,000 7.50%, 05/15/02(a)............ $ 24,822,816
27,550,000 6.50%, 05/15/05(a)............ 30,193,092
45,080,000 7.00%, 07/15/06(a)............ 51,334,850
-------------
TOTAL US TREASURY NOTES....... 106,350,758
-------------
TOTAL US GOVERNMENT SECURITIES
(Cost $166,019,268)........... 176,084,425
-------------
COMMERCIAL PAPER -- 1.98%
10,000,000 Lehman Brothers, Floating
Rate, 5.59%, 01/22/99(b)
(Cost $10,000,000).......... 10,000,000
-------------
TIME DEPOSITS -- 6.03%
100,000 American Express Centurion
Bank, 5.33%, 02/08/99(b).... 100,000
5,325,650 BankBoston, N.A., 5.63%,
04/30/99(b)................. 5,325,650
22,960,000 Bank of Montreal, 5.50%,
01/25/99(b)................. 22,960,000
1,100,000 Bank of Montreal, 5.25%,
01/29/99(b)................. 1,100,000
1,000,000 Toronto Dominion, 5.125%,
03/17/99(b)................. 1,000,000
-------------
TOTAL TIME DEPOSITS (Cost
$30,485,650).................. 30,485,650
-------------
SHORT TERM CORPORATE NOTES -- 13.24%
15,000,000 Bear Stearns and Company,
Floating Rate, 5.63%,
04/02/99(b)................. 15,000,000
28,000,000 JP Morgan Securities, Inc.,
Floating Rate, 5.605%,
01/15/99(b)................. 28,000,000
24,000,000 Republic New York Securities
Corp., Floating Rate, 5.70%,
01/12/99(b)................. 24,000,000
-------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $67,000,000)...... 67,000,000
-------------
TOTAL SECURITIES
(Cost $564,380,403)........... 602,524,830
-------------
REPURCHASE AGREEMENTS -- 10.28%
7,329,826 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$7,333,287, (Collateralized
by various Fannie Mae,
Adjustable Rate Mortgages,
7.00%-7.42%, due 04/01/09 to
06/01/23, with a total value
of $7,696,469).............. 7,329,826
</TABLE>
See notes to financial statements.
F-36
<PAGE> 122
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$15,000,000 With Goldman Sachs & Co. dated
12/31/98, 5.60%, due
01/04/99, repurchase
proceeds at maturity
$15,009,333, (Collateralized
by Archer Daniels, 8.13% due
06/01/12, with a value of
$1,235,446, JC Penney
Company, Inc., 9.05% due
03/01/01, with a value of
$1,264,034, Monsanto
Company, 5.88% due 12/01/08,
with a value of $1,998,844,
Ontario Province, 7.75% due
06/04/02, with a value of
$2,625,138, and Texas
Eastern Trans, 8.00% due
07/15/02, with a value of
$12,035,337)(b)............. $ 15,000,000
29,701,875 With Morgan Stanley Dean
Witter dated 12/31/98,
5.60%, due 01/04/99,
repurchase proceeds at
maturity $29,720,356,
(Collateralized by Abbey
National PLC, 6.70% due
06/15/08, with a value of
$2,695,000, Ameritech
Capital Funding Group, 6.45%
due 01/15/18, with a value
of $4,097,810, Bellsouth
Capital Funding Group, 7.12%
due 07/15/46, with a value
of $6,785,735, BTC Mortgage
Investment Trust, 6.26% due
12/31/09, with a value of
$1,299,883, CMO Regal Trust,
0.01% due 11/25/30, with a
value of $93,461, Ford Motor
Credit, 7.50% due 01/15/03,
with a value of $549,721,
International Business
Machines Corp., 8.38% due
11/01/19, with a value of
$12,175,633, JC Penney
Company, Inc., 7.95% due
04/01/17, with a value of
$3,382,125, and PPG
Industries, 9.00% due
05/01/21, with a value of
$1,637,159)(b).............. 29,701,875
-------------
TOTAL REPURCHASE AGREEMENTS
(Cost $52,031,701)............ 52,031,701
-------------
Total Investments -- 129.36%
(Cost $616,412,104)........... $ 654,556,531
Other assets less
liabilities -- (29.36)%....... (148,560,792)
-------------
NET ASSETS -- 100.00%......... $ 505,995,739
=============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1998, is $618,577,066.
Gross unrealized appreciation.......... $ 43,479,262
Gross unrealized depreciation.......... (7,499,797)
------------
Net unrealized appreciation............ $ 35,979,465
============
</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.
F-37
<PAGE> 123
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 95.93%
AEROSPACE -- 3.32%
160,000 Northrop Grumman Corp. ...... $ 11,700,000
200,000 Textron, Inc. ............... 15,187,500
170,000 United Technologies.......... 18,487,500
--------------
TOTAL AEROSPACE.............. 45,375,000
--------------
AUTOMOBILES -- 2.33%
310,000 Ford Motor Company........... 18,193,125
190,000 General Motors Corp.......... 13,596,875
--------------
TOTAL AUTOMOBILES............ 31,790,000
--------------
BANKS -- 8.43%
410,000 Bank of New York............. 16,502,500
270,000 BankAmerica Corp. ........... 16,233,750
290,000 BankBoston Corp. ............ 11,291,875
45,000 Bankers Trust New York
Corp. ..................... 3,844,687
250,000 Chase Manhattan Corp. ....... 17,015,625
190,000 First Union Corp. ........... 11,554,375
270,000 Fleet Financial Group,
Inc. ...................... 12,065,625
180,000 Mellon Bank Corp. ........... 12,375,000
360,000 Wells Fargo & Company........ 14,377,500
--------------
TOTAL BANKS.................. 115,260,937
--------------
CHEMICALS -- 2.13%
270,000 du Pont (E.I.) de Nemours.... 14,326,875
250,000 Olin Corp. .................. 7,078,125
255,000 Rohm & Haas Company.......... 7,681,875
--------------
TOTAL CHEMICALS.............. 29,086,875
--------------
COMPUTERS AND OFFICE EQUIPMENT -- 4.72%
170,000 Harris Corp., Inc. .......... 6,226,250
400,000 Pitney Bowes, Inc. .......... 26,425,000
270,000 Xerox Corp.(a)............... 31,860,000
--------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 64,511,250
--------------
CONSUMER GOODS AND SERVICES -- 7.84%
500,000 Avon Products, Inc........... 22,125,000
150,000 Colgate-Palmolive
Company(a)................. 13,931,250
300,000 Dana Corp. .................. 12,262,500
40,000 Eastman Kodak Company........ 2,880,000
190,000 Fortune Brands, Inc. ........ 6,008,750
490,000 General Electric Company..... 50,010,625
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 107,218,125
--------------
ELECTRONICS -- 4.48%
350,000 AMP, Inc. ................... 18,221,875
100,000 Eaton Corp. ................. 7,068,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS (CONTINUED)
410,000 Edison International......... $ 11,428,750
280,000 Emerson Electric............. 17,517,500
160,000 Thomas & Betts Corp. ........ 6,930,000
--------------
TOTAL ELECTRONICS............ 61,166,875
--------------
FINANCE -- 3.09%
250,000 Fannie Mae................... 18,500,000
80,000 J.P. Morgan & Company........ 8,405,000
400,000 Washington Mutual, Inc. ..... 15,275,000
--------------
TOTAL FINANCE................ 42,180,000
--------------
INDUSTRIAL -- 0.84%
140,000 Carpenter Technology......... 4,751,250
220,000 Harsco Corp. ................ 6,696,250
--------------
TOTAL INDUSTRIAL............. 11,447,500
--------------
INSURANCE -- 4.76%
270,000 CIGNA Corp. ................. 20,874,375
360,000 Citigroup.................... 17,820,000
200,000 Lincoln National Corp........ 16,362,500
290,000 St. Paul Companies........... 10,077,500
--------------
TOTAL INSURANCE.............. 65,134,375
--------------
MACHINERY -- 1.30%
220,000 Caterpiller Inc. ............ 10,120,000
160,000 Cooper Industries, Inc. ..... 7,630,000
--------------
TOTAL MACHINERY.............. 17,750,000
--------------
MANUFACTURING -- 0.52%
100,000 Minnesota Mining &
Manufacturing(a)............. 7,112,500
--------------
MEDICAL AND OTHER HEALTH SERVICES -- 1.18%
250,000 Baxter International,
Inc. ...................... 16,078,125
--------------
METALS AND MINING -- 1.27%
80,000 Phelps Dodge Corp. .......... 4,070,000
160,000 Reynolds Metals Company...... 8,430,000
260,000 Timken Company............... 4,907,500
--------------
TOTAL METALS AND MINING...... 17,407,500
--------------
OIL AND GAS -- 15.26%
120,000 Amoco Corp. ................. 7,245,000
120,000 Atlantic Richfield Company... 7,830,000
350,000 Baker Hughes, Inc. .......... 6,190,625
100,001 British Petroleum PLC
(ADR)(a)..................... 8,962,549
140,000 Chevron Corp. ............... 11,611,250
290,000 CMS Energy Corp. ............ 14,046,875
280,000 Consolidated Natural Gas..... 15,120,000
</TABLE>
See notes to financial statements.
F-38
<PAGE> 124
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
260,000 Diamond Offshore
Drilling, Inc.(a)............ $ 6,158,750
400,000 El Paso Energy Corp. ........ 13,925,000
280,000 Enron Corp. ................. 15,977,500
200,000 Exxon Corp.(a)............... 14,625,000
380,000 Halliburton Company.......... 11,257,500
180,000 Mobil Corp. ................. 15,682,500
360,000 Questar Corp. ............... 6,975,000
90,000 Royal Dutch Petroleum........ 4,308,750
220,000 Schlumberger, Ltd. .......... 10,147,500
140,000 Texaco, Inc.(a).............. 7,402,500
310,000 USX-Marathon Group........... 9,338,750
700,000 Williams Companies,
Inc.(a).................... 21,831,250
--------------
TOTAL OIL AND GAS............ 208,636,299
--------------
PAPER AND FOREST PRODUCTS -- 4.92%
180,000 Bowater, Inc. ............... 7,458,750
230,000 Georgia-Pacific Group........ 13,469,375
270,000 International Paper
Company(a)................. 12,099,375
150,000 Temple Inland, Inc. ......... 8,896,875
210,000 Union Camp Corp. ............ 14,175,000
220,000 Weyerhaeuser Company......... 11,178,750
--------------
TOTAL PAPER AND FOREST
PRODUCTS..................... 67,278,125
--------------
PHARMACEUTICALS -- 8.02%
410,000 American Home Products
Corp. ..................... 23,088,125
170,000 Bristol-Myers Squibb
Company.................... 22,748,125
80,000 Eli Lilly & Company.......... 7,110,000
80,000 Merck & Company, Inc. ....... 11,815,000
300,000 Pharmacia & Upjohn, Inc. .... 16,987,500
80,000 Schering-Plough Corp. ....... 4,420,000
230,000 SmithKline Beecham
PLC (ADR).................... 15,985,000
100,000 Warner-Lambert Company....... 7,518,750
--------------
TOTAL PHARMACEUTICALS........ 109,672,500
--------------
PUBLISHING -- 1.79%
240,000 McGraw-Hill Companies,
Inc. ...................... 24,450,000
--------------
REAL ESTATE INVESTMENT TRUSTS -- 2.60%
110,000 Avalonbay Communities,
Inc. ...................... 3,767,500
120,000 Boston Properties Inc. ...... 3,660,000
220,000 Crescent Real Estate Equity
Company.................... 5,060,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
200,000 Developers Diversified Realty
Corp. ..................... $ 3,550,000
250,000 Equity Office
Properties(a).............. 6,000,000
130,000 Equity Residential
Properties................. 5,256,875
90,000 FelCor Lodging Trust,
Inc. ...................... 2,075,625
200,000 Health Care Property
Investment, Inc. .......... 6,150,000
--------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS....................... 35,520,000
--------------
RETAIL -- 0.59%
190,000 Sears, Roebuck & Co. ........ 8,075,000
--------------
TELECOMMUNICATIONS -- 11.85%
320,000 Ameritech Corp. ............. 20,280,000
290,000 AT & T Corp. ................ 21,822,500
310,000 Bell Atlantic Corp.(a)....... 17,611,875
420,000 Bellsouth Corp. ............. 20,947,500
310,000 Frontier Corp. .............. 10,540,000
260,000 GTE Corp. ................... 17,533,750
360,000 SBC Communications, Inc. .... 19,305,000
200,000 Sprint Corp. (FON Grp.)...... 16,825,000
100,000 Sprint Corp. (PCS Grp.)...... 2,312,500
230,000 US West, Inc. ............... 14,863,750
--------------
TOTAL TELECOMMUNICATIONS..... 162,041,875
--------------
TOBACCO -- 1.21%
310,000 Philip Morris Companies,
Inc. ...................... 16,585,000
--------------
UTILITIES: ELECTRIC -- 3.48%
220,000 American Electric Power,
Inc. ...................... 10,353,750
230,000 Carolina Power & Light....... 10,824,375
230,000 Duke Energy Corp.(a)......... 14,734,375
190,000 FPL Group, Inc. ............. 11,708,750
--------------
TOTAL UTILITIES: ELECTRIC.... 47,621,250
--------------
TOTAL COMMON STOCK
(Cost $918,237,013).......... 1,311,399,111
--------------
REGULATED INVESTMENT COMPANIES -- 0.00%
100 Janus Money Market
Fund(b).................... 100
10,000 Merrimac Cash Fund -- Premium
Class(b)................... 10,000
--------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $10,100)..... 10,100
--------------
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C>
COMMERCIAL PAPER -- 4.72%
$ 3,000,000 Avco Financial Services,
Inc., 5.30%, 01/26/99...... 2,988,958
</TABLE>
See notes to financial statements.
F-39
<PAGE> 125
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 1,000,000 Banc One Funding Corp.,
5.41%, 01/22/99............ $ 996,844
800,000 Barclays US Funding Corp.,
5.10%, 01/19/99............ 797,960
900,000 Bellsouth Telecommunications
Inc., 5.50%, 01/20/99...... 897,387
2,300,000 Bellsouth Telecommunications
Inc., 5.05%, 01/27/99...... 2,291,611
2,200,000 CIT Group Holdings, 5.33%,
01/26/99................... 2,191,857
2,200,000 Conagra Inc., 5.80%,
01/08/99................... 2,197,519
800,000 du Pont (E.I.) de Nemours,
5.14%, 02/05/99............ 796,002
5,850,000 Edison Funding, 5.24%,
02/12/99................... 5,814,237
575,000 Enterprise Funding Corp.,
5.42%, 01/19/99............ 573,442
10,000,000 First National Bank Chicago,
5.10%, 2/12/99............. 9,940,500
1,250,000 General Electric Capital
Corp, 5.14%, 01/20/99...... 1,246,609
600,000 General Motors Acceptance
Corp., 5.31%, 01/20/99..... 598,319
1,800,000 General Motors Acceptance
Corp., 5.29%, 01/21/99..... 1,794,710
1,500,000 Household Mortgage Corp.,
5.17%, 1/21/99............. 1,495,692
1,000,000 Merrill Lynch and Company,
Inc., 5.27%, 01/27/99...... 996,194
2,000,000 Merrill Lynch and Company,
Inc., 5.20%, 01/28/99...... 1,992,200
1,500,000 Paccar Financial Group,
5.40%, 01/04/99............ 1,499,325
2,500,000 Riverwood Funding Corp.,
5.33%, 1/11/99............. 2,496,299
2,425,000 Riverwood Funding Corp.,
5.38%, 1/14/99............. 2,420,289
1,775,000 Sanwa Business Credit, 5.45%,
1/22/99.................... 1,769,357
4,400,000 Sears Roebuck and Company,
5.50%, 01/19/99............ 4,387,900
5,400,000 Textron Inc., 5.80%,
1/14/99.................... 5,388,690
2,000,000 Union Bancal Corp., 5.50%,
01/20/99................... 2,000,000
7,025,000 Wells Fargo & Company, 5.38%,
1/29/99.................... 6,995,604
--------------
TOTAL COMMERCIAL PAPER
(Cost $64,567,505)........... 64,567,505
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
TIME DEPOSITS -- 0.58%
$ 1,000 American Express Centurion
Bank, 5.33%, 02/08/99(b)... $ 1,000
987,788 BankBoston, N.A., 5.63%,
04/30/99(b)................ 987,788
4,639,264 Bank of Montreal, 5.25%,
01/29/99(b)................ 4,639,264
2,320,648 Toronto Dominion, 5.125%,
03/17/99(b)................ 2,320,648
--------------
TOTAL TIME DEPOSITS
(Cost $7,948,700)............ 7,948,700
--------------
SHORT TERM CORPORATE NOTES -- 4.02%
10,000,000 Bear Stearns and Company
Inc., Floating Rate, 5.63%,
04/02/99(b)................ 10,000,000
20,000,000 JP Morgan Securities, Inc.,
Floating Rate, 5.605%,
01/15/99(b)................ 20,000,000
25,000,000 Prudential Securities, Inc.,
Floating Rate, 5.70%,
06/14/99(b)................ 25,000,000
--------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $55,000,000)..... 55,000,000
--------------
SHORT TERM US GOVERNMENT AGENCY
SECURITIES -- 0.09%
FANNIE MAE -- 0.03%
300,000 4.75%, 01/25/99.............. 299,050
100,000 5.02%, 02/05/99.............. 99,512
--------------
TOTAL FANNIE MAE............. 398,562
--------------
FREDDIE MAC -- 0.06%
300,000 5.08%, 01/20/99.............. 299,196
500,000 5.00%, 02/11/99.............. 497,153
--------------
TOTAL FREDDIE MAC............ 796,349
--------------
TOTAL SHORT TERM US
GOVERNMENT AGENCY SECURITIES
(Cost $1,194,911)............ 1,194,911
--------------
TOTAL SECURITIES
(Cost $1,046,958,229)........ 1,440,120,327
--------------
</TABLE>
See notes to financial statements.
F-40
<PAGE> 126
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 0.73%
$10,000,000 With Morgan Stanley Dean
Witter, dated 12/31/98,
5.60%, due 01/04/99,
repurchase proceeds at
maturity $10,006,222
(Collateralized by CMO
Regal Trust, 0.01% due
11/25/30, with a value of
$11,215,320)(b) (Cost
$10,000,000)............... $ 10,000,000
--------------
Total Investments -- 106.07%
(Cost $1,056,958,229)........ 1,450,120,327
Other assets less
liabilities -- (6.07)%....... (83,012,831)
--------------
NET ASSETS -- 100.00%........ $1,367,107,496
==============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December
31, 1998, is $1,056,858,504. The following amount is based on costs for federal
income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation.......... $419,019,764
Gross unrealized depreciation.......... (25,757,941)
------------
Net unrealized appreciation............ $393,261,823
============
</TABLE>
- ---------------
(a) All or part of this security is on loan
(b) Collateral for securities on loan
(ADR) -- American Depository Receipts
See notes to financial statements.
F-41
<PAGE> 127
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 98.27%
AEROSPACE -- 1.82%
83,900 Lockheed Martin Corp. ......... $ 7,110,525
------------
BANKS -- 7.52%
145,900 BankAmerica Corp. ............. 8,772,238
110,200 Bank One Corp. ................ 5,627,087
64,400 Chase Manhattan Corp. ......... 4,383,225
90,400 Citigroup...................... 4,474,800
62,400 Household International,
Inc. ........................ 2,472,600
94,200 Washington Mutual, Inc. ....... 3,597,262
------------
TOTAL BANKS.................... 29,327,212
------------
CHEMICALS -- 4.71%
160,100 Air Products & Chemicals....... 6,404,000
29,300 Hercules, Inc. ................ 802,088
85,600 PPG Industries, Inc. .......... 4,986,200
174,400 Praxair, Inc. ................. 6,147,600
------------
TOTAL CHEMICALS................ 18,339,888
------------
COMPUTERS AND OFFICE EQUIPMENT -- 2.33%
9,200 Electronic Data Systems
Corp. ....................... 462,300
28,900 Hewlett-Packard Company........ 1,974,231
18,500 International Business Machines
Corp. ....................... 3,417,875
106,500 Seagate Technology, Inc.(c).... 3,221,625
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 9,076,031
------------
CONSUMER GOODS AND SERVICES -- 7.07%
171,700 Dana Corp. .................... 7,018,238
110,800 Eastman Kodak.................. 7,977,600
112,000 Kimberly-Clark Corp. .......... 6,104,000
157,000 Newell Company(a).............. 6,476,250
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 27,576,088
------------
DEFENSE -- 1.33%
63,500 Raytheon Company -- Class A.... 3,282,156
35,900 Raytheon Company -- Class B.... 1,911,675
------------
TOTAL DEFENSE.................. 5,193,831
------------
ELECTRIC -- INTEGRATED -- 0.52%
43,500 Dominion Resources, Inc. ...... 2,033,625
------------
ELECTRONICS -- 2.20%
48,448 AMP, Inc. ..................... 2,522,324
96,900 Emerson Electric............... 6,062,306
------------
TOTAL ELECTRONICS.............. 8,584,630
------------
FINANCE -- 1.04%
41,300 Loews Corp. ................... 4,057,725
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FOOD AND BEVERAGE -- 3.65%
466,397 Archer Daniels Midland......... $ 8,016,198
197,400 ConAgra, Inc. ................. 6,218,100
------------
TOTAL FOOD AND BEVERAGE........ 14,234,298
------------
INSURANCE -- 11.62%
119,100 Aetna, Inc. ................... 9,364,237
183,500 Allstate Corp. ................ 7,087,687
132,900 Chubb Corp. ................... 8,621,887
99,500 CIGNA Corp. ................... 7,692,594
181,500 St. Paul Companies............. 6,307,125
106,500 UNUM Corp. .................... 6,216,938
------------
TOTAL INSURANCE................ 45,290,468
------------
MACHINERY -- 2.47%
145,700 Crown Cork & Seal, Inc. ....... 4,489,381
155,600 Deere & Company................ 5,154,250
------------
TOTAL MACHINERY................ 9,643,631
------------
MANUFACTURING -- 4.01%
65,100 Corning, Inc. ................. 2,929,500
261,000 Masco Corp.(a)................. 7,503,750
45,600 Minnesota Mining &
Manufacturing(a)............. 3,243,300
45,500 Nucor Corp. ................... 1,967,875
------------
TOTAL MANUFACTURING............ 15,644,425
------------
MEDIA -- 1.55%
91,200 Gannett Company, Inc. ......... 6,036,300
------------
MEDICAL AND OTHER HEALTH SERVICES -- 2.91%
74,700 Baxter International, Inc. .... 4,804,144
248,600 Tenet Healthcare Corp.(c)...... 6,525,750
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 11,329,894
------------
METALS AND MINING -- 0.61%
32,000 Aluminum Company of America.... 2,386,000
------------
OIL AND GAS -- 16.29%
83,300 Amerada Hess Corp. ............ 4,144,175
134,300 Atlantic Richfield Company..... 8,763,075
178,500 Burlington Resources,
Inc.(a)...................... 6,392,531
221,400 Conoco, Inc.(c)................ 4,621,725
103,700 duPont (E.I.) de Nemours....... 5,502,581
176,200 Halliburton Company............ 5,219,925
318,500 Occidental Petroleum........... 5,374,688
111,300 Schlumberger Ltd. ............. 5,133,713
97,100 Tenneco, Inc. ................. 3,307,469
68,300 Texaco, Inc. .................. 3,611,363
88,800 Union Pacific Corp.(a)......... 4,001,550
232,900 Union Pacific Resources
Group........................ 2,110,656
</TABLE>
See notes to financial statements.
F-42
<PAGE> 128
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
181,900 Unocal Corp. .................. $ 5,309,206
------------
TOTAL OIL AND GAS.............. 63,492,657
------------
PAPER AND FOREST PRODUCTS -- 3.01%
66,900 Champion International......... 2,709,450
185,600 Fort James Corp. .............. 7,424,000
13,300 Georgia-Pacific Group.......... 778,881
16,300 Weyerhauser Company............ 828,244
------------
TOTAL PAPER AND FOREST
PRODUCTS..................... 11,740,575
------------
RETAIL -- 5.86%
119,500 Consolidated Stores Corp.(c)... 2,412,406
239,500 Federated Department
Stores(c).................... 10,433,219
64,300 May Department Stores.......... 3,882,113
121,300 Sears, Roebuck & Company....... 5,155,250
148,900 Venator Group, Inc.(c)......... 958,544
------------
TOTAL RETAIL................... 22,841,532
------------
TELECOMMUNICATIONS -- 8.19%
78,300 AT&T Corp. .................... 5,892,075
126,202 Bell Atlantic Corp.(a)......... 7,169,851
138,000 GTE Corp. ..................... 9,306,375
43,000 MediaOne Group, Inc.(c)........ 2,021,000
123,400 Motorola, Inc. ................ 7,535,113
------------
TOTAL TELECOMMUNICATIONS....... 31,924,414
------------
TIRE AND RUBBER -- 1.45%
112,000 Goodyear Tire & Rubber
Company...................... 5,649,000
------------
TRANSPORTATION -- 5.30%
137,300 Allied Signal, Inc. ........... 6,084,106
244,300 Burlington Northern Santa Fe... 8,245,125
152,900 CSX Corp. ..................... 6,345,350
------------
TOTAL TRANSPORTATION........... 20,674,581
------------
UTILITIES: ELECTRIC -- 2.81%
16,200 American Electric Power,
Inc. ........................ 762,412
120,300 FirstEnergy Corp. ............. 3,917,269
11,200 Pacificorp..................... 235,900
129,000 Texas Utilities Company........ 6,022,688
------------
TOTAL UTILITIES: ELECTRIC...... 10,938,269
------------
TOTAL COMMON STOCK
(Cost $391,098,687)............ 383,125,599
------------
REGULATED INVESTMENT COMPANY -- 0.51%
1,999,745 Merrimac Cash Fund -- Premium
Class(b) (Cost $1,999,745)... 1,999,745
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES -- 1.28%
$ 5,000,000 Republic New York Securities
Corp., Floating Rate, 5.70%,
01/12/99(b) (Cost
$5,000,000).................. $ 5,000,000
------------
TIME DEPOSITS -- 3.41%
1,000 American Express Centurion
Bank, 5.33%, 02/08/99(b)..... 1,000
1,000 Bank of Montreal, 5.25%,
01/29/99(b).................. 1,000
13,277,651 BankBoston, N.A., 5.63%,
04/30/99(b).................. 13,277,651
1,222 Toronto Dominion, 5.125%,
03/17/99(b).................. 1,222
------------
TOTAL TIME DEPOSITS
(Cost $13,280,873)............. 13,280,873
------------
TOTAL SECURITIES
(Cost $411,379,305)............ 403,406,217
REPURCHASE AGREEMENT -- 1.65%
6,424,243 With Investors Bank & Trust
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $6,427,277
(Collateralized by various
Federal National Mortgage
Association obligations,
7.154% -- 7.352%, due
04/01/26 through 06/01/27,
with a total value of
$6,745,667 (Cost
$6,424,243).................. 6,424,243
------------
Total Investments -- 105.12%
(Cost $417,803,548)............ 409,830,460
Other assets less
liabilities -- (5.12)%......... (19,970,685)
------------
NET ASSETS -- 100.00%.......... $389,859,775
============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December
31, 1998 is $419,691,282. The following amount is based on costs for federal
income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation............ $ 25,011,272
Gross unrealized depreciation............ (34,872,094)
------------
Net unrealized depreciation.............. $ 9,860,822
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
See notes to financial statements.
F-43
<PAGE> 129
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 99.62%
ADVERTISING -- 1.44%
139,200 Interpublic Group, Inc.(a).... $ 11,101,200
------------
AEROSPACE -- 0.97%
68,900 United Technologies Corp. .... 7,492,875
------------
BANKS -- 6.49%
90,300 Associates First Capital
Corp. ...................... 3,826,462
108,800 Comerica, Inc. ............... 7,418,800
84,800 Fifth Third Bancorp........... 6,047,300
106,492 Firstar Corp. ................ 9,930,379
372,750 MBNA Corp. ................... 9,295,453
339,000 Wells Fargo Company........... 13,538,813
------------
TOTAL BANKS................... 50,057,207
------------
COMPUTER SOFTWARE AND SERVICES -- 10.80%
28,800 America Online, Inc. ......... 4,606,200
168,950 BMC Software, Inc.(c)......... 7,528,834
90,850 Cisco Systems, Inc.(c)........ 8,432,016
106,200 Computer Sciences Corp.(c).... 6,843,262
87,300 Compuware Corp.(c)............ 6,820,312
341,000 HBO & Company................. 9,782,437
76,100 Micron Technology,
Inc.(a)(c).................. 3,847,806
197,400 Microsoft Corp.(c)............ 27,376,913
58,400 Sun Microsystems, Inc.(c)..... 5,000,500
68,300 3 Com Corp.(c)................ 3,060,694
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES...................... 83,298,974
------------
COMPUTERS AND OFFICE EQUIPMENT -- 8.29%
93,900 Dell Computer Corp.(c)........ 6,872,306
149,900 EMC Corp.(c).................. 12,741,500
146,100 Intel Corp. .................. 17,321,981
109,500 International Business
Machines Corp. ............. 20,230,125
102,200 Pitney Bowes, Inc. ........... 6,751,588
------------
TOTAL COMPUTER AND OFFICE
EQUIPMENT..................... 63,917,500
------------
CONSUMER GOODS AND SERVICES -- 4.32%
41,300 Clorox Company(a)............. 4,824,356
93,000 Colgate-Palmolive
Company(a).................. 8,637,375
194,500 General Electric Company...... 19,851,156
------------
TOTAL CONSUMER GOODS AND
SERVICES...................... 33,312,887
------------
ENVIRONMENTAL MANAGEMENT
SERVICES -- 1.08%
178,900 Waste Management, Inc. ....... 8,341,213
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES -- 5.22%
46,800 American Express Company...... $ 4,785,300
36,800 Charter One Financial Inc. ... 1,021,200
276,400 Freddie Mac................... 17,810,525
53,800 Merrill Lynch & Co. .......... 3,591,150
74,800 Providian Financial Corp. .... 5,610,000
92,100 SunAmerica Inc. .............. 7,471,613
------------
TOTAL FINANCIAL SERVICES...... 40,289,788
------------
FOOD AND BEVERAGE -- 4.16%
60,700 Kroger Company(a)(c).......... 3,672,350
74,900 Quaker Oats Company........... 4,456,550
230,400 Safeway, Inc.(c).............. 14,040,000
182,900 Sara Lee Corp. ............... 5,155,494
94,100 Tricon Global
Restaurants(c).............. 4,716,763
------------
TOTAL FOOD AND BEVERAGE....... 32,041,157
------------
INSURANCE -- 2.20%
64,900 American General Corp. ....... 5,062,200
123,500 American International
Group(a).................... 11,933,187
------------
TOTAL INSURANCE............... 16,995,387
------------
LEISURE AND RECREATION -- 1.33%
213,400 Carnival Corp., Class A....... 10,243,200
------------
MANUFACTURING -- 3.85%
140,100 Masco Corp.(a)................ 4,027,875
340,200 Tyco International Ltd. ...... 25,663,838
------------
TOTAL MANUFACTURING........... 29,691,713
------------
MEDIA -- 4.20%
335,900 Time Warner Inc. ............. 20,846,794
156,100 Viacom Inc. Class B(c)........ 11,551,400
------------
TOTAL MEDIA................... 32,398,194
------------
MEDICAL AND OTHER HEALTH SERVICES -- 3.15%
94,350 Cardinal Health, Inc. ........ 7,158,806
81,300 Centocor Inc.(a)(c)........... 3,668,662
85,000 IMS Health Inc. .............. 6,412,187
41,000 McKesson Corp.(a)............. 3,241,563
71,200 Quintiles Transnational
Corp.(c).................... 3,800,300
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES...................... 24,281,518
------------
OIL AND GAS -- 1.80%
189,800 Exxon Corp. .................. 13,879,125
------------
PHARMACEUTICALS -- 10.90%
126,700 Bristol-Myers Squibb Company.. 16,954,044
</TABLE>
See notes to financial statements.
F-44
<PAGE> 130
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS (CONTINUED)
148,300 Eli Lilly & Company........... $ 13,180,162
127,800 Pfizer, Inc. ................. 16,030,913
350,200 Schering-Plough Corp. ........ 19,348,550
247,100 Warner Lambert Company........ 18,578,831
------------
TOTAL PHARMACEUTICALS......... 84,092,500
------------
RETAIL -- 14.19%
202,400 Costco Companies, Inc.(c)..... 14,610,750
368,200 CVS Corp. .................... 20,251,000
83,900 Estee Lauder Companies --
Class A..................... 7,173,450
75,650 Gap, Inc. .................... 4,255,312
238,000 Home Depot, Inc. ............. 14,562,625
367,700 TJX Companies, Inc. .......... 10,663,300
306,700 Wal-Mart Stores, Inc.(a)...... 24,976,881
220,800 Walgreen Company(a)........... 12,930,600
------------
TOTAL RETAIL.................. 109,423,918
------------
TELECOMMUNICATIONS -- 13.51%
76,500 Airtouch Communications,
Inc.(c)..................... 5,517,563
110,400 Ascend Communications,
Inc.(a)(c).................. 7,258,800
95,100 General Instrument Corp.(c)... 3,227,456
216,800 Lucent Technologies........... 23,848,000
275,200 MCI Worldcom, Inc.(c)......... 19,745,600
240,900 SBC Communications, Inc. ..... 12,918,263
157,300 Sprint Corp. ................. 13,232,863
324,800 Tele-Communications TCI
Ventures Group(c)........... 7,653,100
195,400 Tele-Communications, Inc.
Series A(a)(c).............. 10,808,063
------------
TOTAL TELECOMMUNICATIONS...... 104,209,708
------------
TOBACCO -- 0.83%
119,000 Philip Morris Companies,
Inc. ....................... 6,366,500
------------
UTILITIES -- 0.89%
165,700 Peco Energy Company........... 6,897,262
------------
TOTAL COMMON STOCK
(Cost $549,500,109)........... 768,331,826
------------
REGULATED INVESTMENT COMPANIES -- 2.46%
4,400,000 Janus Money Market Fund(b).... 4,400,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
COMMON STOCK (CONTINUED)
REGULATED INVESTMENT COMPANIES (CONTINUED)
14,558,174 Merrimac Cash Fund -- Premium
Class(b).................... $ 14,558,174
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost
$18,958,174).................. 18,958,174
------------
PRINCIPAL
- ------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES -- 5.57%
$11,000,000 JP Morgan Securities, Inc.,
Floating Rate, 5.605%,
01/15/99(b)................. 11,000,000
20,000,000 Morgan Stanley Dean Witter,
Floating Rate, 5.60%,
04/02/99(b)................. 20,000,000
12,000,000 Republic New York Securities
Corp., Floating Rate, 5.70%,
01/12/99(b)................. 12,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $43,000,000)...... 43,000,000
------------
TIME DEPOSITS -- 0.59%
1,544,425 American Express Centurion
Bank, 5.33%, 02/08/99(b).... 1,544,425
547,838 BankBoston, N.A., 5.63%,
04/30/99(b)................. 547,838
1,344,425 Bank of Montreal, 5.25%,
01/29/99(b)................. 1,344,425
1,115,538 Toronto Dominion, 5.125%,
03/17/99(b)................. 1,115,538
------------
TOTAL TIME DEPOSITS (Cost
$4,552,226)................... 4,552,226
------------
TOTAL SECURITIES (Cost
$616,010,509)................. 834,842,226
------------
</TABLE>
See notes to financial statements.
F-45
<PAGE> 131
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
PRINCIPAL VALUE
- ------------ ------------
REPURCHASE AGREEMENTS -- 3.28%
$ 4,497,869 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$4,499,993, (Collateralized
by Freddie Mac, 7.50%, due
04/01/07 with a value of
$4,722,834)................. $ 4,497,869
20,800,000 With Morgan Stanley Dean
Witter, dated 12/31/98,
4.02%, due 01/04/99,
repurchase proceeds at
maturity $20,809,291,
(Collateralized by U.S.
Government National Strips,
7.625%, due 02/15/25 with a
value of $21,217,552)....... 20,800,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $25,297,869)............ 25,297,869
------------
Total Investments -- 111.52%
(Cost $641,308,378)........... 860,140,095
Other assets less
liabilities -- (11.52)%....... (88,871,634)
------------
NET ASSETS -- 100.00%......... $771,268,461
============
The aggregate cost of investments for federal income tax purposes at December
31, 1998, is $642,310,162. The following amount is based on costs for federal
income tax purposes:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation.......... $218,345,789
Gross unrealized depreciation.......... (515,856)
------------
Net unrealized appreciation............ $217,829,933
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing securities.
See notes to financial statements.
F-46
<PAGE> 132
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK -- 98.57%
ADVERTISING -- 1.71%
60,000 Clear Channel Communications,
Inc.(c)...................... $ 3,270,000
40,000 Infinity Broadcasting
Corp.(c)..................... 1,095,000
93,300 Interpublic Group, Inc. ....... 7,440,675
------------
TOTAL ADVERTISING.............. 11,805,675
------------
BANKS -- 0.95%
50,000 Associates First Capital
Corp. ....................... 2,118,750
110,000 Bank of New York............... 4,427,500
------------
TOTAL BANKS.................... 6,546,250
------------
BUSINESS SERVICES -- 0.53%
146,200 Manpower, Inc. ................ 3,682,413
------------
CHEMICALS -- 0.48%
70,000 Monsanto Company............... 3,325,000
------------
COMPUTER SOFTWARE AND SERVICES -- 10.98%
108,000 America Online, Inc. .......... 17,280,000
40,000 BMC Software, Inc.(a)(c)....... 1,782,500
256,050 Cisco Systems, Inc.(c)......... 23,764,641
93,300 Electronic Arts(c)............. 5,236,462
178,000 Microsoft Corp.(c)............. 24,686,375
43,000 Network Associates, Inc.(c).... 2,848,750
------------
TOTAL COMPUTER SOFTWARE AND
SERVICES....................... 75,598,728
------------
COMPUTERS AND OFFICE EQUIPMENT -- 6.28%
280,700 Compaq Computer Corp. ......... 11,771,856
97,000 Dell Computer Corp.(c)......... 7,099,187
100,000 EMC Corp.(c)................... 8,500,000
146,600 Hewlett-Packard Company........ 10,014,612
24,000 International Business
Machines..................... 4,434,000
12,000 Xerox Corp. ................... 1,416,000
------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT...................... 43,235,655
------------
CONSUMER GOODS AND SERVICES -- 11.07%
46,000 Colgate-Palmolive Company(a)... 4,272,250
281,500 General Electric Company....... 28,730,594
426,000 Gillette Company(a)............ 20,581,125
247,600 Proctor & Gamble Company(a).... 22,608,975
------------
TOTAL CONSUMER GOODS AND
SERVICES....................... 76,192,944
------------
DEFENSE -- 0.42%
50,000 General Dynamics Corp. ........ 2,931,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS -- 2.05%
37,000 General Motors Corp.,
Class H(c)................... $ 1,468,437
136,200 Solectron Corp.(c)............. 12,658,088
------------
TOTAL ELECTRONICS.............. 14,126,525
------------
FINANCE -- 2.79%
88,600 American Express Company....... 9,059,350
90,000 Amresco, Inc.(c)............... 787,500
45,000 Citigroup, Inc. ............... 2,227,500
81,000 Fannie Mae..................... 5,994,000
32,000 Newcourt Credit Group.......... 1,118,000
------------
TOTAL FINANCE.................. 19,186,350
------------
FOOD AND BEVERAGE -- 4.75%
108,400 Bestfoods...................... 5,772,300
247,800 Coca-Cola Company.............. 16,571,625
220,000 Coca-Cola Enterprises,
Inc.(a)...................... 7,865,000
61,000 Pepsico, Inc................... 2,497,187
------------
TOTAL FOOD AND BEVERAGE........ 32,706,112
------------
INSURANCE -- 2.21%
157,300 American International
Group(a)..................... 15,199,112
------------
LEISURE AND RECREATION -- 3.28%
132,900 Carnival Corp. ................ 6,379,200
100,000 Host Marriott Corp. ........... 1,381,250
227,500 Marriot International, Inc.,
Class A...................... 6,597,500
273,000 Walt Disney Company(a)......... 8,190,000
------------
TOTAL LEISURE AND RECREATION... 22,547,950
------------
MANUFACTURING -- 2.90%
113,500 Mattel, Inc.(a)................ 2,589,219
35,000 Perkin-Elmer Corp. ............ 3,414,688
185,000 Tyco International Ltd. ....... 13,955,938
------------
TOTAL MANUFACTURING............ 19,959,845
------------
MEDICAL AND OTHER HEALTH SERVICES -- 6.47%
35,000 Bausch & Lomb, Inc. ........... 2,100,000
269,200 Boston Scientific
Corp.(a)(c).................. 7,217,925
25,000 Cardinal Health, Inc. ......... 1,896,875
212,200 Johnson & Johnson.............. 17,798,275
151,600 Medtronics, Inc. .............. 11,256,300
35,000 Sofamor Danek Group, Inc.(c)... 4,261,250
------------
TOTAL MEDICAL AND OTHER HEALTH
SERVICES....................... 44,530,625
------------
</TABLE>
See notes to financial statements.
F-47
<PAGE> 133
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS -- 0.23%
75,000 Conoco, Inc.(c)................ $ 1,565,625
------------
PHARMACEUTICALS -- 14.01%
112,665 Alza Corp.(a)(c)............... 5,886,746
85,000 American Home Products Corp. .. 4,786,562
98,900 Bristol-Myers Squibb Company... 13,234,056
260,600 Eli Lilly & Company............ 23,160,825
59,500 Merck & Company, Inc. ......... 8,787,406
238,400 Pfizer, Inc. .................. 29,904,300
19,000 Sepracor, Inc.(a)(c)........... 1,663,688
100,000 Warner-Lambert Company......... 7,518,750
33,000 Zeneca Group PLC(ADR)(a)....... 1,480,875
------------
TOTAL PHARMACEUTICALS.......... 96,423,208
------------
REAL ESTATE INVESTMENT TRUST -- 0.02%
10,000 Crestline Capital Corp. ....... 146,250
------------
RESTAURANTS -- 3.50%
104,000 Cracker Barrel Old Country
Store, Inc. ................. 2,424,500
233,900 McDonald's Corp. .............. 17,922,587
75,000 Tricon Global Restaurants,
Inc.(c)...................... 3,759,375
------------
TOTAL RESTAURANTS.............. 24,106,462
------------
RETAIL -- 7.72%
153,200 Costco Companies, Inc.(c)...... 11,059,125
32,000 CVS Corp. ..................... 1,760,000
68,000 Dayton-Hudson Corp.(a)......... 3,689,000
90,000 Family Dollar Stores........... 1,980,000
156,800 Gap Stores..................... 8,820,000
327,800 Home Depot, Inc. .............. 20,057,262
58,000 Nordstrom, Inc. ............... 2,011,875
30,000 Walgreen Company............... 1,756,875
25,000 Wal-Mart Stores, Inc. ......... 2,035,938
------------
TOTAL RETAIL................... 53,170,075
------------
SEMICONDUCTORS -- 4.28%
40,000 Altera Corp.(c)................ 2,435,000
213,000 Intel Corp. ................... 25,253,812
21,000 Texas Instruments, Inc. ....... 1,796,813
------------
TOTAL SEMICONDUCTORS........... 29,485,625
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS -- 7.79%
55,000 Ascend Communications,
Inc.(a)(c)................... $ 3,616,250
50,000 Intermedia Communications,
Inc.(a)(c)................... 862,500
65,000 Lucent Technologies............ 7,150,000
230,000 MCI Worldcom, Inc.(c).......... 16,502,500
117,500 Nextel Communications, Inc.
Class A(c)................... 2,775,938
85,000 Nokia Corp.(ADR)(a)............ 10,237,188
45,000 SBC Communications, Inc. ...... 2,413,125
146,600 Tellabs, Inc.(a)(c)............ 10,051,263
------------
TOTAL TELECOMMUNICATIONS....... 53,608,764
------------
THERAPEUTICS -- 2.36%
140,000 Amgen, Inc.(c)................. 14,638,750
75,000 SangStat Medical Corp.(a)(c)... 1,593,750
------------
TOTAL THERAPEUTICS............. 16,232,500
------------
TOBACCO -- 1.79%
230,000 Philip Morris Companies,
Inc. ........................ 12,305,000
------------
TOTAL COMMON STOCK (Cost
$484,265,304).................. 678,617,943
------------
REGULATED INVESTMENT COMPANIES -- 1.75%
9,197,900 Janus Money Market Fund(b)..... 9,197,900
2,825,737 Merrimac Cash Fund -- Premium
Class(b)..................... 2,825,737
------------
TOTAL REGULATED INVESTMENT
COMPANIES (Cost $12,023,637)... 12,023,637
------------
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C>
SHORT TERM CORPORATE NOTES -- 5.81%
$10,000,000 JP Morgan Securities Inc.,
Floating Rate, 5.605%,
01/15/99(b).................. 10,000,000
10,000,000 Morgan Stanley Dean Witter,
Floating Rate, 5.60%,
04/02/99(b).................. 10,000,000
15,000,000 Prudential Securities, Inc.,
Floating Rate, 5.70%,
06/14/99(b).................. 15,000,000
</TABLE>
See notes to financial statements.
F-48
<PAGE> 134
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT TERM CORPORATE NOTES (CONTINUED)
$ 5,000,000 Republic New York Securities
Corp., Floating Rate, 5.70%,
01/12/99(b).................. $ 5,000,000
------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $40,000,000)....... 40,000,000
------------
TIME DEPOSITS -- 2.56%
1,375,205 American Express Centurion
Bank, 5.33%, 02/08/99(b)..... 1,375,205
9,264,242 BankBoston, N.A., 5.63%,
04/30/99(b).................. 9,264,242
4,760,104 Bank of Montreal, 5.25%,
01/29/99(b).................. 4,760,104
2,215,029 Toronto Dominion, 5.125%,
03/17/99(b).................. 2,215,029
------------
TOTAL TIME DEPOSITS (Cost
$17,614,580)................... 17,614,580
------------
TOTAL SECURITIES (Cost
$553,903,521).................. 748,256,160
------------
REPURCHASE AGREEMENTS -- 1.81%
5,564,722 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $5,567,350
(Collateralized by Freddie
Mac, Floating Rate, 6.662%
(++), with a value of
$189,984, due 12/15/22, and
Fannie Mae, Series 1998-24,
6.50%, with a value of
$5,653,197, due 05/18/28).... 5,564,722
$ 6,926,683 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $6,929,953,
(Collateralized by Freddie
Mac Adjustable Rate Mortgage,
6.618%, due 01/01/21, with a
value of $5,854,159 and
Fannie Mae Adjustable Rate
Mortgage, 7.045%, due
10/01/23, with a value of
$1,419,139).................. 6,926,683
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $12,491,405)............. 12,491,405
------------
Total Investments -- 110.50%
(Cost $566,394,926)............ 760,747,565
Other assets less
liabilities -- (10.50)%........ (72,299,000)
------------
NET ASSETS -- 100.00%.......... $688,448,565
============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1998, is $569,812,770.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $201,627,079
Gross unrealized depreciation.......... (10,692,284)
------------
Net unrealized appreciation............ $190,934,795
============
</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.
(++) 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, 1998.
</TABLE>
(ADR) -- American Depository Receipts.
See notes to financial statements.
F-49
<PAGE> 135
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK -- 91.53%
ADVERTISING -- 3.39%
53,600 Doubleclick, Inc.(a)(c)...... $ 2,442,150
115,900 Lamar Advertising
Company(c)................. 4,317,275
728,700 Snyder Communications,
Inc.(a)(c)................. 24,593,625
--------------
TOTAL ADVERTISING............ 31,353,050
--------------
AEROSPACE -- 1.62%
219,900 AAR Corp. ................... 5,250,112
181,800 Gulfstream Aerospace
Corp.(c)................... 9,680,850
--------------
TOTAL AEROSPACE.............. 14,930,962
--------------
BANKS -- 3.54%
234,765 Charter One Financials,
Inc. ...................... 6,514,729
138,160 First Washington Bancorp,
Inc. ...................... 3,315,840
167,971 HUBCO, Inc. ................. 5,060,126
68,455 Mercantile Bancorporation.... 3,157,487
325,000 Peoples Bank................. 8,978,125
145,400 Sterling Financial
Corp.(c)................... 2,471,800
73,304 Summit Bancorp............... 3,202,469
--------------
TOTAL BANKS.................. 32,700,576
--------------
BUSINESS SERVICES -- 4.36%
107,100 ABM Industries, Inc. ........ 3,708,337
90,200 Century Business Services,
Inc.(a)(c)................. 1,296,625
32,400 CSG Systems International,
Inc.(a)(c)................. 2,559,600
89,000 F.Y.I., Inc.(c).............. 2,848,000
76,650 Iron Mountain, Inc.(c)....... 2,764,191
151,600 Manpower, Inc. .............. 3,818,425
71,800 MARC, Inc. .................. 762,875
283,900 Metzler Group, Inc.(a)(c).... 13,822,381
69,700 Pre-Paid Legal Services,
Inc.(c).................... 2,300,100
257,500 Protection One, Inc.(a)(c)... 2,204,844
50,000 Reynolds & Reynolds Co. ..... 1,146,875
64,000 USWeb Corp.(a)(c)............ 1,688,000
60,000 Volt Information Sciences,
Inc.(c).................... 1,353,750
--------------
TOTAL BUSINESS SERVICES...... 40,274,003
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
CHEMICALS -- 0.21%
57,000 Chemed Corp. ................ $ 1,909,500
--------------
COMMERCIAL SERVICES -- 0.35%
138,200 Coinmach Laundry
Corp.(a)(c)................ 1,796,600
4,700 MPW Industrial Services
Group, Inc. ............... 52,875
38,861 Nova Corp.(c)................ 1,347,991
--------------
TOTAL COMMERCIAL SERVICES.... 3,197,466
--------------
COMMUNICATIONS -- 2.00%
82,000 American Tower Corp. -- Class
A(a)(c).................... 2,424,125
302,900 Arch Communications Group,
Inc.(c).................... 435,419
116,600 Clear Channel
Communications(c).......... 6,354,700
4,700 EchoStar Communications --
Class A(a)(c).............. 227,362
109,000 Inter-Tel, Inc. ............. 2,547,875
119,600 Jones Intercable, Inc. --
Class A(a)(c).............. 4,260,750
107,718 Saga Communications,
Inc.(c).................... 2,208,219
--------------
TOTAL COMMUNICATIONS......... 18,458,450
--------------
COMPUTER AND SOFTWARE SERVICES -- 19.21%
28,800 Advantage Learning Systems,
Inc.(c).................... 1,893,600
105,900 Aspect Development,
Inc.(c).................... 4,692,694
104,900 At Home Corporation -- Class
A(a)(c).................... 7,788,825
31,900 AVT Corporation(c)........... 925,100
62,100 AXENT Technologies,
Inc.(c).................... 1,897,931
50,900 Bindview Development
Corp.(c)................... 1,399,750
37,600 Broadvision, Inc.(a)(c)...... 1,203,200
82,400 CACI International,
Inc.(c).................... 1,390,500
27,900 Citrix Systems, Inc.(c)...... 2,708,044
70,600 Complete Business Solutions,
Inc.(c).................... 2,391,575
56,000 Computer Horizons Corp.(c)... 1,491,000
19,100 Concord Communications,
Inc.(c).................... 1,083,925
109,800 Dendrite International,
Inc.(c).................... 2,741,574
21,700 Documentum, Inc.(c).......... 1,159,594
202,800 Electronic Arts, Inc.(c)..... 11,382,150
55,100 Electronics For Imaging,
Inc.(c).................... 2,214,331
</TABLE>
See notes to financial statements.
F-50
<PAGE> 136
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMPUTER AND SOFTWARE SERVICES (CONTINUED)
38,600 Engineering Animation,
Inc.(a)(c)................. $ 2,084,400
10,600 Factset Research Systems,
Inc.(c).................... 654,550
66,700 First Virtual Corp.,
Inc.(c).................... 1,050,525
91,000 Genesys Telecomm Labs,
Inc.(c).................... 2,024,750
33,000 Great Plains Software,
Inc.(c).................... 1,592,250
37,200 IDX Systems Corp.(c)......... 1,636,800
34,750 IMR Global Corporation(c).... 1,022,953
65,300 Inktomi Corp.(a)(c).......... 8,448,187
69,400 International Network
Services(a)(c)............. 4,615,100
46,600 Intuit Inc.(c)............... 3,378,500
296,100 ISS Group, Inc.(c)........... 16,285,500
151,600 Legato Systems, Inc.(c)...... 9,996,125
35,100 Maxwell Technologies,
Inc.(c).................... 1,412,775
62,000 Mercury Interactive
Corp.(c)................... 3,921,500
80,200 Microchip Technology,
Inc.(c).................... 2,967,400
69,200 Micromuse, Inc.(a)(c)........ 1,349,400
49,700 Microsoft Corp.(c)........... 6,892,769
42,400 MicroStrategy, Inc.(a)(c).... 1,335,600
34,100 Mindspring Enterprises,
Inc.(c).................... 2,082,231
38,900 National Computer System,
Inc........................ 1,439,300
102,200 Network Appliance, Inc.(c)... 4,599,000
39,000 Network Solutions, Inc. --
Class A(a)(c).............. 5,104,125
19,600 New Era of Networks,
Inc.(c).................... 862,400
55,000 Peregrine Systems,
Inc.(a)(c)................. 2,550,625
61,300 Pomeroy Computer Resources,
Inc.(c).................... 1,379,250
74,100 Progress Software Corp.(c)... 2,500,875
80,500 Quadramed Corp.(a)(c)........ 1,650,250
267,800 Rational Software Corp.(c)... 7,096,700
33,100 Sapient Corporation(a)(c).... 1,853,600
37,500 Siebel Systems, Inc.(c)...... 1,272,656
101,200 Software AG Systems,
Inc.(c).................... 1,834,250
142,200 Sterling Commerce, Inc.(c)... 6,399,000
118,700 Systems & Computer Tech
Corp.(c)................... 1,632,125
51,300 Tele-Comm, Inc. A Liberty
Media(a)(c)................ 2,363,006
51,500 Transaction Systems
Architects, Inc. Class
A(c)....................... 2,575,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMPUTER AND SOFTWARE SERVICES (CONTINUED)
39,000 TSI International Software
Ltd.(c).................... $ 1,867,125
45,425 Veritas Software Corp.(c).... 2,722,661
32,500 Verity Inc.(c)............... 861,250
28,900 Visual Networks, Inc.(c)..... 1,083,750
86,700 Whittman-Hart, Inc.(c)....... 2,395,088
44,750 Wind River Systems(a)(c)..... 2,103,250
128,400 Xylan Corp.(a)(c)............ 2,255,025
--------------
TOTAL COMPUTER AND SOFTWARE
SERVICES..................... 177,515,419
--------------
COMPUTERS AND OFFICE EQUIPMENT -- 1.99%
142,200 Compaq Computer Corp. ....... 5,963,512
100,000 Dell Computer Corp.(c)....... 7,318,750
52,100 Insight Enterprises,
Inc.(c).................... 2,650,588
36,600 Jack Henry & Associates,
Inc. ...................... 1,820,850
9,500 SCM Microsystems, Inc.(c).... 675,094
--------------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT.................... 18,428,794
--------------
CONSTRUCTION -- 0.31%
185,200 Michael Baker Corp.(c)....... 1,805,700
21,000 Lowe's Companies, Inc. ...... 1,074,937
--------------
TOTAL CONSTRUCTION........... 2,880,637
--------------
CONSUMER GOODS AND SERVICES -- 0.87%
103,300 Carriage Services, Inc.(c)... 2,937,594
58,800 Glacier Water Services,
Inc.(a)(c)................. 1,528,800
116,800 Helen of Troy Ltd.(c)........ 1,715,500
87,400 infoUSA, Inc. -- Class
A(c)....................... 426,075
44,700 infoUSA, Inc. -- Class
B(c)....................... 234,675
99,800 Pameco Corp.(c).............. 1,153,938
--------------
TOTAL CONSUMER GOODS AND
SERVICES..................... 7,996,582
--------------
EDUCATION -- 1.34%
109,800 Apollo Group, Inc. --
Class A(c)................. 3,719,475
8,500 Childrens Comprehensive
Services, Inc.(c).......... 120,062
74,100 DeVry, Inc.(c)............... 2,269,312
136,825 ITT Educational Services,
Inc.(c).................... 4,652,050
54,500 Sylvan Learning Systems,
Inc.(a)(c)................. 1,662,250
--------------
TOTAL EDUCATION.............. 12,423,149
--------------
</TABLE>
See notes to financial statements.
F-51
<PAGE> 137
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS -- 2.71%
65,800 Applied Micro Circuits
Corp.(c)................... $ 2,235,147
132,300 Gentex Corp.(c).............. 2,646,000
78,050 Hughes Supply, Inc. ......... 2,282,962
70,000 Jabil Circuit, Inc.(c)....... 5,223,750
86,600 Level One Communications,
Inc.(a)(c)................. 3,074,300
45,100 LSI Industries Inc. ......... 1,011,931
25,300 Micrel, Inc.(c).............. 1,391,500
15,000 MIPS Technologies, Inc.(c)... 480,000
50,030 Richardson Electronics,
Ltd. ...................... 481,539
105,000 Rogers Corp.(c).............. 3,136,875
309,300 Sensormatic Electronics
Corp.(a)(c)................ 2,145,769
26,200 Sipex Corp.(c)............... 920,275
--------------
TOTAL ELECTRONICS............ 25,030,048
--------------
ENGINEERING -- 0.27%
107,900 URS Corp.(a)(c).............. 2,522,163
--------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 1.79%
110,220 Allied Waste Industries,
Inc.(c).................... 2,603,947
146,793 BHA Group, Inc. ............. 2,036,753
116,000 Superior Services, Inc.(c)... 2,327,250
232,462 Tetra Tech, Inc.(c).......... 6,291,016
63,100 US Liquids, Inc.(c).......... 1,419,750
106,300 Waste Industries, Inc.(c).... 1,833,675
--------------
TOTAL ENVIRONMENTAL
MANAGEMENT SERVICES.......... 16,512,391
--------------
EQUIPMENT RENTAL AND LEASING -- 0.98%
97,500 Aaron Rents, Inc. -- Class
B.......................... 1,474,687
140,000 Amplicon, Inc. .............. 2,108,750
135,000 Electro Rent Corp.(c)........ 2,176,875
79,000 XTRA Corp.................... 3,268,625
--------------
TOTAL EQUIPMENT RENTAL AND
LEASING...................... 9,028,937
--------------
FINANCE -- 2.93%
311,690 Allied Capital Corp. ........ 5,396,133
94,300 Cash American Investments,
Inc. ...................... 1,432,181
128,160 CCB Financial Corp. ......... 7,305,120
77,000 Kansas City Southern
Industries, Inc. .......... 3,787,438
63,670 Metris Companies, Inc. ...... 3,203,397
42,800 NCO Group, Inc.(c)........... 1,926,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FINANCE (CONTINUED)
16,000 Profit Recovery Group
International, Inc.(c)..... $ 599,000
90,000 Washington Mutual, Inc. ..... 3,436,875
--------------
TOTAL FINANCE................ 27,086,144
--------------
FOOD AND BEVERAGE -- 2.23%
71,700 American Italian Pasta --
Class A(c)................. 1,891,087
110,000 Applebees International,
Inc. ...................... 2,268,750
128,700 Benihana, Inc.(c)............ 1,335,262
476,600 Ruby Tuesday, Inc. .......... 10,127,750
90,800 Sylvan, Inc.(c).............. 1,350,650
89,300 United Natural Foods,
Inc.(c).................... 2,154,363
30,000 Whole Foods Market,
Inc.(c).................... 1,451,250
--------------
TOTAL FOOD AND BEVERAGE...... 20,579,112
--------------
INSURANCE -- 1.02%
58,100 Mutual Risk Management
Ltd.(a).................... 2,273,163
38,600 National Western Life
Insurance -- Class A(c).... 4,535,500
96,500 Penn Treaty American
Corp.(a)(c)................ 2,599,469
--------------
TOTAL INSURANCE.............. 9,408,132
--------------
LEISURE AND RECREATION -- 1.83%
162,100 American Coin
Merchandising(c)........... 952,338
70,500 Family Golf Centers,
Inc.(a)(c)................. 1,392,375
63,900 Harveys Casinos Resorts...... 1,769,231
207,500 SFX Entertainment, Inc. --
Class A(a)(c).............. 11,386,562
101,200 Vistana, Inc.(a)(c).......... 1,416,800
--------------
TOTAL LEISURE AND
RECREATION................... 16,917,306
--------------
MACHINERY -- 0.92%
85,200 Applied Power, Inc. -- Class
A.......................... 3,216,300
207,600 JLG Industries, Inc. ........ 3,243,750
74,100 Specialty Equipment Co.(c)... 2,005,331
--------------
TOTAL MACHINERY.............. 8,465,381
--------------
MANUFACTURING -- 4.57%
200,600 Alpha Industries, Inc.(c).... 7,221,600
381,800 C&D Technology, Inc. ........ 10,499,500
82,300 Chase Industries, Inc.(c).... 859,006
94,200 DT Industries, Inc. ......... 1,483,650
48,600 E-Tek Dynamics, Inc.(c)...... 1,300,050
</TABLE>
See notes to financial statements.
F-52
<PAGE> 138
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MANUFACTURING (CONTINUED)
114,800 Flextronics International
Ltd.(a)(c)................. $ 9,829,750
139,800 Lydall, Inc.(c).............. 1,660,125
149,400 Motorcar Parts and
Accessories, Inc.(c)....... 1,708,763
119,200 Rock of Ages Corp.(c)........ 1,698,600
70,300 Scotsman Industries, Inc..... 1,445,544
28,200 Waters Corp.(c).............. 2,460,450
122,175 Watsco, Inc. ................ 2,046,431
--------------
TOTAL MANUFACTURING.......... 42,213,469
--------------
MEDIA -- 3.39%
116,600 Chancellor Media Corp. --
Class A(a)(c).............. 5,582,225
38,100 Consolidated Graphics,
Inc.(c).................... 2,574,131
209,500 Emmis Broadcasting Corp. --
Class A(a)(c).............. 9,087,062
206,600 Granite Broadcasting
Corp.(a)(c)................ 1,239,600
78,550 Gray Communications Systems,
Inc. ...................... 1,438,447
171,000 Houghton Mifflin Company..... 8,079,750
20,800 TCA Cable TV, Inc. .......... 742,300
77,000 USA Networks, Inc.(c)........ 2,550,625
--------------
TOTAL MEDIA.................. 31,294,140
--------------
MEDICAL AND OTHER HEALTH SERVICES -- 10.00%
187,300 Advocat, Inc.(c)............. 1,041,856
78,500 Alternative Living Services,
Inc.(a)(c)................. 2,688,625
20,600 Brookdale Living Communities,
Inc.(c).................... 401,700
105,100 Centennial Healthcare
Corp.(c)................... 1,629,050
29,600 Cerner Corp.(a)(c)........... 791,800
29,500 Cytyc Corp.(c)............... 759,625
173,300 Daniel Industries............ 2,101,262
37,300 Express Scripts, Inc. --
Class A(c)................. 2,503,762
93,200 Genzyme Corp.(a)............. 4,636,700
61,700 Hooper Holmes, Inc. ......... 1,789,300
138,400 Horizon Health Corp.(c)...... 1,089,900
9,300 Immunex Corp.(c)............. 1,170,056
60,000 Lifeline Systems, Inc.(c).... 1,500,000
50,400 Lunar Corp.(c)............... 478,800
204,000 Mariner Post -- Acute
Network, Inc.(c)........... 930,750
78,800 Medical Manager Corp.(c)..... 2,472,350
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
MEDICAL AND OTHER HEALTH
SERVICES (CONTINUED)
191,000 Medirisk, Inc.(c)............ $ 955,000
45,600 MedQuist, Inc.(c)............ 1,801,200
23,800 MiniMed, Inc.(c)............. 2,493,050
138,000 Morrison Health Care,
Inc. ...................... 2,630,625
84,200 National Dentex Corp.(c)..... 1,410,350
134,400 Orthalliance, Inc. -- Class
A(c)....................... 1,478,400
285,000 Owens & Minor Holding
Company.................... 4,488,750
73,600 Pediatrix Medical Group,
Inc.(a)(c)................. 4,411,400
232,400 Prime Medical Service,
Inc.(c).................... 1,699,425
65,000 Province Healthcare Co.(c)... 2,331,875
509,000 Quorum Health Group,
Inc.(c).................... 6,585,188
112,650 Renal Care Group, Inc.(c).... 3,245,728
188,100 Res-Care, Inc.(a)(c)......... 4,643,719
36,700 ResMed, Inc.(a)(c)........... 1,665,263
95,300 Rural/Metro Corp.(c)......... 1,042,344
187,400 Shared Medical Systems
Corp. ..................... 9,346,575
42,200 Sunrise Assisted Living,
Inc.(a)(c)................. 2,189,125
91,300 Theragenics Corp.(c)......... 1,534,981
239,700 Universal Health Services --
Class B(c)................. 12,434,438
--------------
TOTAL MEDICAL AND OTHER
HEALTH SERVICES.............. 92,372,972
--------------
METALS AND MINING -- 0.33%
116,500 Furon Company................ 1,987,781
50,500 Wolverine Tube, Inc.(c)...... 1,060,500
--------------
TOTAL METALS AND MINING...... 3,048,281
--------------
OIL AND GAS -- 1.18%
121,300 Berry Petroleum.............. 1,720,944
96,200 Petroleum Helicopters,
Inc. ...................... 1,731,600
147,600 Pride International,
Inc.(c).................... 1,042,425
216,700 Tosco Corp. ................. 5,607,113
76,050 World Fuel Services Corp. ... 817,538
--------------
TOTAL OIL AND GAS............ 10,919,620
--------------
PHARMACEUTICALS -- 2.81%
76,900 Agouron Pharmaceuticals,
Inc.(a)(c)................. 4,517,875
93,200 ALZA Corp. -- Class
A(a)(c).................... 4,869,700
74,000 Duane Reade, Inc.(a)(c)...... 2,849,000
64,800 Medicis Pharmaceutical
Corp. -- Class A(a)........ 3,863,700
</TABLE>
See notes to financial statements.
F-53
<PAGE> 139
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS (CONTINUED)
41,100 PathoGenesis Corp.(a)(c)..... $ 2,383,800
100,000 Warner-Lambert Co. .......... 7,518,750
--------------
TOTAL PHARMACEUTICALS........ 26,002,825
--------------
REAL ESTATE INVESTMENT TRUSTS -- 1.39%
49,669 Chateau Communities, Inc. ... 1,455,923
179,700 Equity Inns, Inc. ........... 1,729,612
60,100 Health Care Property
Investments, Inc. ......... 1,848,075
46,900 National Health Investors,
Inc. ...................... 1,157,844
93,900 Pacific Gulf Properties,
Inc. ...................... 1,883,869
105,300 RFS Hotel Investors, Inc. ... 1,289,925
87,000 Sovran Self Storage, Inc. ... 2,185,875
38,300 Sun Communities, Inc. ....... 1,333,319
--------------
TOTAL REAL ESTATE INVESTMENT
TRUSTS....................... 12,884,442
--------------
RETAIL -- 3.31%
32,900 American Eagle Outfitters,
Inc.(c).................... 2,191,962
142,200 Best Buy Company, Inc.(c).... 8,727,525
303,850 Consolidated Stores
Corp.(c)................... 6,133,972
116,000 Duckwall -- Alco Stores,
Inc.(c).................... 1,537,000
200,000 Fingerhut Companies, Inc. ... 3,087,500
61,100 Fred's, Inc. ................ 916,500
77,600 Linens 'n Things, Inc.(c).... 3,074,900
141,100 Michael Anthony Jewelers,
Inc.(c).................... 458,575
68,400 MSC Industrial Direct Co. --
Class A(c)................. 1,547,550
49,300 Party City Corp.(c).......... 711,769
32,900 School Specialty, Inc.(c).... 703,237
197,000 U.S. Vision, Inc.(c)......... 1,526,750
--------------
TOTAL RETAIL................. 30,617,240
--------------
SECURITY -- 1.33%
110,600 Borg-Warner Security
Corp.(c)................... 2,073,750
71,200 Kroll-O'Gara Company(c)...... 2,807,950
232,500 Pittston Brink's Group....... 7,410,938
--------------
TOTAL SECURITY............... 12,292,638
--------------
SEMICONDUCTORS -- 0.57%
13,200 Qlogic Corp.(c).............. 1,727,550
30,900 TranSwitch Corporation(c).... 1,203,169
51,300 Vitesse Semiconductor
Corp.(c)................... 2,340,563
--------------
TOTAL SEMICONDUCTORS......... 5,271,282
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TELECOMMUNICATIONS -- 4.02%
42,900 Aware, Inc.(c)............... $ 1,166,344
48,575 Centennial Cellular Corp. --
Class A(c)................. 1,991,575
82,900 CFW Communications Co. ...... 1,937,787
170,100 Comdial Corp.(c)............. 1,499,006
218,328 Davel Communications
Group(a)(c)................ 3,984,477
23,900 Dycom Industries, Inc.(c).... 1,365,287
121,000 Excel Switching Corp.(c)..... 4,598,000
48,800 GeoTel Communications
Corp.(c)................... 1,817,800
69,900 Lucent Technologies, Inc. ... 7,689,000
188,190 Metrocall, Inc.(c)........... 823,331
39,600 Motorola, Inc. .............. 2,418,075
51,800 Pacific Gateway Exchange,
Inc.(c).................... 2,489,638
71,100 Polycom, Inc.(c)............. 1,581,975
22,000 Proxim, Inc.(c).............. 587,125
31,700 RF Micro Devices,
Inc.(a)(c)................. 1,470,088
172,000 Rural Cellular Corp. -- Class
A(c)....................... 1,806,000
--------------
TOTAL TELECOMMUNICATIONS..... 37,225,508
--------------
TRANSPORT SERVICES -- 0.18%
48,700 Coach USA, Inc.(c)........... 1,689,281
--------------
TRANSPORTATION: FREIGHT -- 3.78%
185,700 Air Express International
Corp. ..................... 4,038,975
430,000 Airborne Freight Corp.(a).... 15,506,875
266,400 Circle International Group,
Inc. ...................... 5,461,200
148,700 CNF Transportation, Inc. .... 5,585,544
115,474 Fritz Companies, Inc.(c)..... 1,248,563
102,200 Pittston BAX Group........... 1,136,975
65,000 Sea Containers Ltd. ......... 1,945,938
--------------
TOTAL TRANSPORTATION:
FREIGHT...................... 34,924,070
--------------
UTILITIES: ELECTRIC -- 0.80%
850,000 El Paso Electric
Company(c)................. 7,437,500
--------------
TOTAL COMMON STOCK (Cost
$666,904,959)................ 845,811,470
--------------
</TABLE>
See notes to financial statements.
F-54
<PAGE> 140
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
REGULATED INVESTMENT COMPANIES -- 2.89%
4,000,000 Janus Money Market Fund(b)... $ 4,000,000
22,731,643 Merrimac Cash Fund -- Premium
Class(b)................... 22,731,643
--------------
Total Regulated Investment
Companies (Cost
$26,731,643)................. 26,731,643
--------------
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C>
TIME DEPOSITS -- 5.62%
$16,192,848 American Express Centurion
Bank, 5.33%, 02/08/99(b)... 16,192,848
22,592,466 BankBoston, N.A., 5.63%,
04/30/99(b)................ 22,592,466
2,859,758 Bank of Montreal, 5.25%,
01/29/99(b)................ 2,859,758
10,336,785 Toronto Dominion, 5.125%,
03/17/99(b)................ 10,336,785
--------------
TOTAL TIME DEPOSITS (Cost
$51,981,857)................. 51,981,857
--------------
SHORT TERM CORPORATE NOTES -- 4.44%
11,000,000 JP Morgan Securities Inc.,
5.605%, 01/15/99 (b)....... 11,000,000
20,000,000 Morgan Stanley Dean Witter,
5.60%, 04/02/99(b)......... 20,000,000
10,000,000 Republic New York Securities
Corp., 5.70%,
01/12/99(b)................ 10,000,000
--------------
TOTAL SHORT TERM CORPORATE
NOTES (Cost $41,000,000)..... 41,000,000
--------------
TOTAL SECURITIES (Cost
$786,618,459)................ 965,524,970
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- 8.65%
$18,640,038 With Investors Bank & Trust
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$18,648,840 (Collateralized
by various Fannie Mae
obligations,
6.50% -- 7.50%, due
02/01/10 through 04/01/27,
with a total value of
$19,572,051)............... $ 18,640,038
26,545,268 With Investors Bank & Trust
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$26,557,803 (Collateralized
by various Government
National Mortgage
Association Adjustable Rate
Mortgage obligations,
6.625% -- 7.00%, due
10/20/22 through 02/20/26,
with a total value of
$27,872,624)............... 26,545,268
20,790,404 With Investors Bank & Trust
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$20,800,222 (Collateralized
by various Government
National Mortgage
Association Adjustable Rate
Mortgage obligations,
6.625% -- 6.875%, due
01/20/23 through 06/20/26,
with a total value of
$21,830,044)............... 20,790,404
</TABLE>
See notes to financial statements.
F-55
<PAGE> 141
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
$13,914,985 With Investors Bank & Trust
dated 12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$13,921,556 (Collateralized
by various Government
National Mortgage
Association Adjustable Rate
Mortgage obligations,
6.625% -- 9.00%, due
11/15/21 through 06/20/26,
with a total value of
$14,610,936)............... $ 13,914,985
--------------
TOTAL REPURCHASE AGREEMENTS
(Cost $79,890,695)........... 79,890,695
--------------
Total Investments -- 113.13%
(Cost $866,509,154).......... 1,045,415,665
Other assets less
liabilities -- (13.13)%...... (121,325,781)
--------------
NET ASSETS -- 100.00%........ $ 924,089,884
==============
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1998, is $879,554,249.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $200,232,698
Gross unrealized depreciation.......... (34,371,282)
------------
Net unrealized appreciation............ $165,861,416
============
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
See notes to financial statements.
F-56
<PAGE> 142
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
COMMON STOCK -- 100.07%
ADVERTISING -- 2.55%
26,000 Interpublic Group, Inc........... $ 2,073,500
-----------
COMPUTER SOFTWARE AND SERVICES -- 17.54%
15,000 America Online, Inc. ............ 2,399,063
22,500 Cisco Systems, Inc.(c)........... 2,088,281
25,000 Compuware Corp.(c)............... 1,953,125
15,000 Microsoft Corp.(c)............... 2,080,313
45,000 New Era of Networks.............. 1,980,000
25,000 Secure Computing Corp. .......... 476,562
45,000 Siebel Systems, Inc.............. 1,527,187
7,500 Yahoo, Inc.(a)................... 1,762,969
-----------
TOTAL COMPUTER SOFTWARE AND
SERVICES......................... 14,267,500
-----------
COMPUTERS AND OFFICE EQUIPMENT -- 7.83%
15,000 CDW Computer Centers, Inc.(a).... 1,439,063
30,000 Cybex Corp. ..................... 881,250
25,000 Dell Computer Corp.(c)........... 1,829,688
10,000 Sun Microsystems, Inc............ 856,250
40,000 Xircom, Inc...................... 1,360,000
-----------
TOTAL COMPUTERS AND OFFICE
EQUIPMENT........................ 6,366,251
-----------
CONSUMER GOODS AND SERVICES -- 3.26%
50,000 Convergys Corp.(a)............... 1,118,750
15,000 General Electric Company......... 1,530,937
-----------
TOTAL CONSUMER GOODS AND
SERVICES......................... 2,649,687
-----------
ELECTRONICS -- 10.16%
30,445 American Power Conversion
Corp. ......................... 1,474,680
30,000 Plexus Corp. .................... 1,016,250
25,000 Sanmina Corp. ................... 1,562,500
25,000 Solectron Corp. ................. 2,323,438
25,000 Tyco International Ltd. ......... 1,885,937
-----------
TOTAL ELECTRONICS................ 8,262,805
-----------
FINANCIAL SERVICES -- 1.89%
15,000 American Express Company......... 1,533,750
-----------
INSURANCE -- 2.23%
18,750 American International Group..... 1,811,719
-----------
LEISURE AND RECREATION -- 1.77%
30,000 Carnival Corp. .................. 1,440,000
-----------
MEDIA -- 5.06%
30,000 Clear Channel Communications..... 1,635,000
40,000 Time Warner, Inc................. 2,482,500
-----------
TOTAL MEDIA...................... 4,117,500
-----------
MEDICAL AND OTHER HEALTH SERVICES -- 2.28%
24,985 Medtronics, Inc. ................ 1,855,136
-----------
PHARMACEUTICALS -- 21.84%
12,500 Bristol-Myers Squibb Company..... 1,672,656
20,000 Cardinal Health, Inc............. 1,517,500
25,000 Chattem, Inc..................... 1,196,875
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<C> <S> <C>
PHARMACEUTICALS (CONTINUED)
15,000 Eli Lilly & Company.............. $ 1,333,125
20,000 Johnson & Johnson................ 1,677,500
40,000 King Pharmaceuticals, Inc. ...... 1,045,000
10,000 Merck & Company, Inc. ........... 1,476,875
17,500 Pfizer, Inc. .................... 2,195,156
30,000 Schering-Plough Corp. ........... 1,657,500
20,000 Sepracor, Inc.(a)................ 1,751,250
29,725 Warner-Lambert Company........... 2,234,948
-----------
TOTAL PHARMACEUTICALS............ 17,758,385
-----------
RETAIL -- 7.53%
4,000 Amazon.com, Inc.................. 1,285,000
20,000 Costco Companies, Inc............ 1,443,750
25,000 Gap Stores....................... 1,406,250
32,500 Home Depot, Inc.................. 1,988,594
-----------
TOTAL RETAIL..................... 6,123,594
-----------
RESTAURANTS -- 1.88%
20,000 McDonald's Corp. ................ 1,532,500
-----------
SEMICONDUCTORS -- 6.02%
15,000 Broadcom Corp. -- Class A........ 1,811,250
15,000 Intel Corp. ..................... 1,778,437
10,000 Qlogic Corp...................... 1,308,750
-----------
4,898,437
-----------
TELECOMMUNICATIONS -- 8.23%
30,000 Bellsouth Corp................... 1,496,250
20,000 Lucent Technologies.............. 2,200,000
32,500 MCI Worldcom, Inc.(c)............ 2,331,875
30,000 Polycom, Inc..................... 667,500
-----------
TOTAL TELECOMMUNICATIONS......... 6,695,625
-----------
TOTAL COMMON STOCK
(Cost $60,005,339)............... 81,386,389
-----------
REGULATED INVESTMENT COMPANIES -- 3.63%
2,400,000 Janus Money Market Fund(b)....... 2,400,000
552,181 Merrimac Cash Fund -- Premium
Class(b)....................... 552,181
-----------
TOTAL REGULATED INVESTMENT
COMPANIES
(Cost $2,952,181)................ 2,952,181
-----------
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C>
TIME DEPOSITS -- 0.80%
$ 222,654 American Express Centurion Bank,
5.33%, 02/08/99(b)............. 222,654
24,388 BankBoston, N.A., 5.63%,
04/30/99(b).................... 24,388
222,654 Bank of Montreal, 5.25%,
01/29/99(b).................... 222,654
178,123 Toronto Dominion, 5.13%,
03/17/99(b).................... 178,123
-----------
TOTAL TIME DEPOSITS
(Cost $647,819).................. 647,819
-----------
</TABLE>
See notes to financial statements.
F-57
<PAGE> 143
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- --------- -----------
<C> <S> <C>
SHORT TERM CORPORATE NOTES -- 2.46%
$2,000,000 Republic New York Securities
Corp., 5.70%, 01/12/99(b)
(Cost $2,000,000).............. $ 2,000,000
-----------
TOTAL SECURITIES
(Cost $65,605,339)............... 86,986,389
REPURCHASE AGREEMENT -- 3.31%
2,690,628 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $2,691,898
(Collateralized by Freddie Mac,
Floating Rate, 6.16%, due
07/15/23 with a value of
$2,826,948)
(Cost $2,690,628).............. 2,690,628
-----------
Total Investments -- 110.27%
(Cost $68,295,967)............... 89,677,017
Other assets less
liabilities -- (10.27%).......... (8,349,310)
-----------
NET ASSETS -- 100.00%............ $81,327,707
===========
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of securities for federal income tax
purposes at December 31, 1998, is $68,295,967.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation........... $21,485,500
Gross unrealized depreciation........... (104,450)
-----------
Net unrealized appreciation............. $21,381,050
===========
</TABLE>
- ---------------
(a) All or part of this security is on loan.
(b) Collateral for securities on loan.
(c) Non-income producing security.
See notes to financial statements.
F-58
<PAGE> 144
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- 84.67%
ADVERTISING -- 0.67%
$ 600,000 Outdoor Communications, 9.25%,
08/15/07...................... $ 636,000
-----------
AEROSPACE -- 3.00%
1,000,000 BE Aerospace, 8.00%, 03/01/08... 990,000
650,000 BE Aerospace, 9.50%, 11/01/08... 689,000
1,200,000 Compass Aerospace, 10.125%,
04/15/05...................... 1,164,000
-----------
TOTAL AEROSPACE................. 2,843,000
-----------
AUTOMOTIVE PRODUCTS -- 0.73%
700,000 Venture Holdings Trust, 9.75%,
04/01/04...................... 689,500
-----------
BUSINESS SERVICES -- 5.19%
1,200,000 Axiohm Transaction Solutions,
9.75%, 10/01/07............... 1,134,000
1,250,000 Brand Scaffold Services, 10.25%,
02/15/08...................... 1,187,500
1,600,000 Fisher Scientific International,
9.00%, 02/01/08............... 1,600,000
1,000,000 Fisher Scientific
International -- 144A, 9.00%,
02/01/08...................... 1,000,000
-----------
TOTAL BUSINESS SERVICES......... 4,921,500
-----------
CHEMICALS -- 3.99%
1,700,000 Anker Coal Group, Inc., 9.75%,
10/01/07...................... 901,000
650,000 Hydrochem Industrial Service,
10.375%, 08/01/07............. 617,500
1,300,000 Octel Developments, PLC, 10.00%,
05/01/06...................... 1,352,000
625,000 PCI Chemicals Canada, Inc.,
9.25%, 10/15/07............... 481,250
500,000 Sterling Chemicals, Inc.,
11.75%, 08/15/06.............. 430,000
-----------
TOTAL CHEMICALS................. 3,781,750
-----------
CONSTRUCTION -- 0.41%
400,000 Ryland Group, 8.25%, 04/01/08... 388,000
-----------
CONSUMER GOODS AND SERVICES -- 3.20%
1,350,000 Amscan Holdings, Inc., 9.875%,
12/15/07...................... 1,242,000
1,800,000 Huntsman Packaging Corp.,
9.125%, 10/01/07.............. 1,791,000
-----------
TOTAL CONSUMER GOODS AND
SERVICES........................ 3,033,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
FINANCIAL SERVICES -- 1.13%
$ 600,000 Engle Homes, Inc., 9.25%,
02/01/08...................... $ 600,000
460,000 Muzak LP/Capital, 10.00%,
10/01/03...................... 476,100
-----------
TOTAL FINANCIAL SERVICES........ 1,076,100
-----------
FOOD AND BEVERAGE -- 3.44%
500,000 Ameriking, Inc., 10.75%,
12/01/06...................... 521,250
1,400,000 Aurora Foods, Inc., 8.75%,
07/01/08...................... 1,456,000
100,000 Cott Corp., 9.375%, 07/01/05.... 98,000
325,000 Delta Beverage Group, 9.75%,
12/15/03...................... 338,000
400,000 Eagle Family Foods, 8.75%,
01/15/08...................... 378,000
275,000 Fleming Companies, Inc., 10.50%,
12/01/04...................... 259,875
225,000 Pueblo Xtra International,
9.50%, 08/01/03............... 212,625
-----------
TOTAL FOOD AND BEVERAGE......... 3,263,750
-----------
INDUSTRIAL -- 24.79%
800,000 AEI Resources, Inc., 10.50%,
11/15/07...................... 784,000
500,000 AK Steel Corp., 9.125%,
12/15/06...................... 520,000
1,000,000 American Pacific Corp., 9.25%,
03/01/05...................... 990,000
1,000,000 Anthony Crane Rentals, 10.375%,
08/01/08...................... 960,000
1,300,000 Atlas Air, Inc., 9.375%,
11/15/06...................... 1,326,000
1,500,000 Biovail Corporation
International, 10.875%,
11/15/05...................... 1,507,500
1,800,000 Building Materials Corp., 8.00%,
12/01/08...................... 1,795,500
450,000 Burke Industries, Inc., 10.00%,
08/15/07...................... 436,500
1,000,000 Carrols Corp., 9.50%,
12/01/08...................... 1,017,500
1,600,000 CEX Holdings, Inc., 9.625%,
06/01/08...................... 1,424,000
900,000 Classic Cable, Inc., 9.875%,
08/01/08...................... 936,000
250,000 Dyncorp, Inc., 9.50%,
03/01/07...................... 250,000
825,000 Environdyne Industries, Inc.,
10.25%, 12/01/01.............. 660,000
1,125,000 Geologistics Corp., 9.75%,
10/15/07...................... 900,000
1,000,000 Henry Company Senior Notes,
10.00%, 04/15/08.............. 1,000,000
</TABLE>
See notes to financial statements.
F-59
<PAGE> 145
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
INDUSTRIAL (CONTINUED)
$ 1,100,000 HMH Properties, 7.875%,
08/01/08...................... $ 1,061,500
750,000 Holt Group, 9.75%, 01/15/06..... 517,500
1,000,000 Jackson Products, Inc., 9.50%,
04/15/05...................... 980,000
1,300,000 Numatics, Inc., 9.625%,
04/01/08...................... 1,215,500
625,000 P&L Coal Holdings Corp., 8.875%,
05/15/08...................... 637,500
625,000 Pronet, Inc., 11.875%,
06/15/05...................... 662,500
1,100,000 Republic Group, Inc., 9.50%,
07/15/08...................... 1,075,250
1,000,000 Safety-Kleen Services, 9.25%,
06/01/08...................... 1,030,000
300,000 Scotsman Group, Inc., 8.625%,
12/15/07...................... 307,500
1,500,000 Vectura Group, Inc., 10.25%,
06/30/08...................... 1,522,500
-----------
TOTAL INDUSTRIAL................ 23,516,750
-----------
LEISURE AND RECREATION -- 5.91%
1,250,000 Alliance Gaming Corp., 10.00%,
08/01/07...................... 1,125,000
1,000,000 Bally Total Fitness Holding,
9.875%, 10/15/07.............. 980,000
1,025,000 Cinemark USA, 9.625%, 08/01/08.. 1,071,125
900,000 Riddell Sports, Inc., 10.50%,
07/15/07...................... 850,500
1,200,000 Six Flags Entertainment, 8.875%,
04/01/06...................... 1,231,500
350,000 True Temper Sports, Inc.,
10.875%, 12/01/08............. 348,250
-----------
TOTAL LEISURE AND RECREATION.... 5,606,375
-----------
MACHINERY -- 3.20%
1,975,000 Advance Lighting Techs, 8.00%,
03/15/08...................... 1,777,500
2,000,000 American Reefer Company Ltd.,
10.25%, 03/01/08.............. 1,260,000
-----------
TOTAL MACHINERY................. 3,037,500
-----------
MANUFACTURING -- 10.36%
625,000 Acetex Corp., 9.75%, 10/01/03... 625,000
1,600,000 AEP Industries, 9.875%,
11/15/07...................... 1,612,000
1,075,000 Anchor Lamina, Inc., 9.875%,
02/01/08...................... 967,500
25,000 Derlan Manufacturing, 10.00%,
01/15/07...................... 20,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MANUFACTURING (CONTINUED)
$ 625,000 Dyersburg Corp., 9.75%,
09/01/07...................... $ 556,250
700,000 Fedders North America, 9.375%,
8/15/07....................... 705,250
1,500,000 Federal-Mogul Corp., 7.875%,
07/01/10...................... 1,531,204
1,000,000 Galey & Lord, Inc., 9.125%,
03/01/08...................... 870,000
1,250,000 Gaylord Container Corp., 9.75%,
6/15/07....................... 1,075,000
675,000 Keystone Consolidated
Industries, 9.625%,
08/01/07...................... 644,625
750,000 Portola Packaging, 10.75%,
10/01/05...................... 765,000
500,000 Safelite Glass, 9.875%,
12/15/06...................... 461,250
-----------
TOTAL MANUFACTURING............. 9,833,079
-----------
MEDIA -- 0.21%
190,000 Rogers Cantel, 9.375%,
06/01/08...................... 200,450
-----------
MEDICAL AND OTHER HEALTH SERVICES -- 0.07%
75,000 Paracelsus Healthcare, 10.00%,
08/15/06...................... 67,500
-----------
METALS AND MINING -- 1.92%
500,000 Renco Metals Senior Notes,
11.50%, 07/01/03.............. 515,000
1,400,000 WHX Corp., 10.50%, 04/15/05..... 1,302,000
-----------
TOTAL METALS AND MINING......... 1,817,000
-----------
OIL AND GAS -- 2.20%
1,800,000 Frontier Oil Corp., 9.125%,
02/15/06...................... 1,674,000
350,000 Rutherford-Moran Oil, 10.75%,
10/01/04...................... 413,000
-----------
TOTAL OIL AND GAS............... 2,087,000
-----------
PAPER AND FOREST PRODUCTS -- 0.79%
750,000 US Timberlands, 9.625%,
11/15/07...................... 753,750
-----------
RETAIL -- 2.64%
1,200,000 Duane Reade, Inc., 9.25%,
02/15/08...................... 1,224,000
1,250,000 Jitney-Jungle Stores, 10.375%,
09/15/07...................... 1,281,250
-----------
TOTAL RETAIL.................... 2,505,250
-----------
SEMICONDUCTOR -- 0.65%
625,000 Fairchild Semiconductor,
10.125%, 03/15/07............. 620,313
-----------
</TABLE>
See notes to financial statements.
F-60
<PAGE> 146
HIGH YIELD BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
TELECOMMUNICATIONS -- 8.34%
$ 1,450,000 Call-Net Enterprises, Inc.,
8.00%, 08/15/08............... $ 1,399,250
1,400,000 ITC Deltacom, Inc., 9.75%,
11/15/08...................... 1,449,000
475,000 Jacor Communications, 9.75%,
12/15/06...................... 524,875
1,275,000 Metrocall, Inc., 10.375%,
10/01/07...................... 1,249,500
1,300,000 Metronet Communications,
10.625%, 11/01/08............. 1,378,000
700,000 Nextlink Communications, 9.625%,
10/01/07...................... 668,500
625,000 Paging Network, 10.125%,
08/01/07...................... 603,125
625,000 Rogers Communications, 8.875%,
07/15/07...................... 643,750
-----------
TOTAL TELECOMMUNICATIONS........ 7,916,000
-----------
TRANSPORTATION -- 0.53%
500,000 Oshkosh Truck Corp., 8.75%,
03/01/08...................... 500,000
-----------
UTILITIES: ELECTRIC -- 1.30%
100,000 Calpine Corp., 9.25%,
02/01/04...................... 105,000
1,150,000 Prestolite Electric, Inc.,
9.625%, 02/01/08.............. 1,127,000
-----------
TOTAL UTILITIES: ELECTRIC....... 1,232,000
-----------
TOTAL SECURITIES (Cost
$84,563,520).................... 80,325,567
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
REPURCHASE AGREEMENT -- 13.15%
$12,476,687 With Investors Bank & Trust,
dated 12/31/98, 4.25%, due
01/04/99, repurchase proceeds
at maturity $12,482,579
(Collateralized by Fannie Mae,
6.50%, due 02/11/02, with a
value of $6,242,627, Freddie
Mac, 7.50%, due 06/01/22, with
a value of $1,247,702 and
various Government National
Mortgage Association
Adjustable Rate Mortgage
obligations, 6.875%-7.50%, due
12/20/10 through 02/20/26 with
a total value of $5,610,307)
(Cost $12,476,687)............ $12,476,687
-----------
Total Investments -- 97.82%
(Cost $97,040,207).............. 92,802,254
Other assets less liabilities --
2.18%........................... 2,068,727
-----------
NET ASSETS -- 100.00%........... $94,870,981
===========
</TABLE>
<TABLE>
<S> <C>
The aggregate cost of investments for federal income tax
purposes at December 31, 1998, is $97,040,207.
The following amount is based on costs for federal income
tax purposes:
Gross unrealized appreciation.......... $ 826,499
Gross unrealized depreciation.......... (5,064,452)
------------
Net unrealized depreciation............ $ (4,237,953)
============
</TABLE>
See notes to financial statements.
F-61
<PAGE> 147
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS -- 94.91%
APPAREL -- 0.43%
29,000 Gucci Group N.V. ..... $ 1,375,311 NET
------------
AUTOMOBILE -- 5.04%
1,200 Bayerische Motoren
Werke AG............ 931,598 GER
970,000 Fiat SpA.............. 1,873,652 ITA
200,000 Fiat SpA(c)........... 696,220 ITA
36,000 Honda Motor Company,
Ltd................. 1,184,080 JPN
485,539 LucasVerity PLC....... 1,619,710 UK
605,000 Nissan Motor Company,
Ltd.(a)............. 1,855,838 JPN
21,500 Peugeot SA............ 3,329,301 FRA
151,000 Suzuki Motor Corp..... 1,793,850 JPN
20,444 Valeo SA.............. 1,611,801 FRA
15,500 Volkswagen AG......... 1,237,748 GER
------------
TOTAL AUTOMOBILE...... 16,133,798
------------
BANKS -- 8.84%
274,961 Australia & New
Zealand Bank Group,
Ltd. ............... 1,801,187 AUS
31,668 Bank of Montreal...... 1,272,129 CDA
210,000 Bank of Scotland...... 2,505,174 UK
143,700 Barclays PLC.......... 3,098,574 UK
65,000 Canadian Imperial
Bank................ 1,604,687 CDA
33,000 Deutsche Bank AG(c)... 1,942,720 GER
42,700 Forenings
Sparbanken -- Class
A(c)................ 1,106,280 SWE
1,860 Holderbank Financial
Glaris -- Class B... 2,201,965 SWI
112,136 National Westminster
Bank................ 2,162,363 UK
28,400 Royal Bank of Canada.. 1,416,450 CDA
126,943 Royal Bank of Scotland
Group PLC........... 2,027,597 UK
10,700 Standard Chartered
PLC................. 123,996 UK
193,000 Sumitomo Bank......... 1,984,812 JPN
60,000 Toronto-Dominion
Bank................ 2,101,644 CDA
275,000 Toyo Trust & Banking
Co., Ltd. (a)....... 692,395 JPN
341,000 Westpac Banking
Corp. .............. 2,283,984 AUS
------------
TOTAL BANKS........... 28,325,957
------------
CHEMICALS -- 0.92%
90,400 Imperial Chemical
Industries PLC...... 783,623 UK
63,400 Norsk Hydro ASA....... 2,138,641 NOR
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS (CONTINUED)
300 Norsk Hydro AS
(ADR)(c)............ $ 10,256 NOR
------------
TOTAL CHEMICALS....... 2,932,520
------------
COMPUTER EQUIPMENT -- 1.32%
34,600 Nidec Corporation..... 4,242,309 JPN
------------
COMPUTER SOFTWARE AND SERVICES -- 0.42%
20,000 Meitec Corp. ......... 500,016 JPN
14,100 Softbank Corp.(a)..... 850,026 JPN
------------
TOTAL COMPUTER
SOFTWARE AND
SERVICES.............. 1,350,042
------------
CONSTRUCTION -- 1.90%
170,000 Okumura Corp. ........ 755,072 JPN
22,000 Rohm Company, Ltd. ... 2,006,974 JPN
111,000 Sekisui House,
Ltd. ............... 1,175,967 JPN
10,500 Suez Lyonnaise des
Eaux................ 2,157,892 FRA
------------
TOTAL CONSTRUCTION.... 6,095,905
------------
CONSUMER GOODS AND SERVICES -- 7.24%
95,000 Cifra SA (ADR)(a)(c).. 1,140,000 MEX
245,000 EMI Group PLC......... 1,638,683 UK
22,000 Fuji Photo Film....... 819,174 JPN
23,500 Hennes & Mauritz...... 1,919,304 SWE
21,000 Hoya Corp. ........... 1,023,966 JPN
71,083 Koninklijke Ahold
N.V. ............... 2,628,678 NET
171,000 Nikon Corp. (c)....... 1,667,609 JPN
28,900 Nintendo Corp.,
Ltd. ............... 2,805,537 JPN
48,000 Orkla Asa -- Class
B................... 626,875 NOR
98,203 Reckitt and Colman
PLC................. 1,300,581 UK
45,300 Sony Corp. ........... 3,305,233 JPN
24,900 Sony Music
Entertainment,
Inc. ............... 1,147,907 JPN
380,000 Storehouse PLC........ 859,864 UK
25,000 TDK Corp. ............ 2,289,520 JPN
------------
TOTAL CONSUMER GOODS
AND SERVICES.......... 23,172,931
------------
ELECTRONICS -- 6.25%
19,800 ASM Lithography
Holding N.V. (c).... 605,605 NET
79,200 ASM Lithography
Holding N.V.
(ADR)(a)(c)......... 2,415,600 NET
400,000 Caradon PLC........... 685,480 UK
14,900 Keyence Corp. ........ 1,836,137 JPN
</TABLE>
See notes to financial statements.
F-62
<PAGE> 148
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS (CONTINUED)
29,500 Kyocera Corp. ........ $ 1,561,349 JPN
85,000 Murata Manufacturing
Company, Ltd. ...... 3,534,241 JPN
108,000 NEC Corp. ............ 995,771 JPN
51,600 Samsung Electronics
(GDR)(a)(c)......... 1,999,500 KOR
29,000 STMicroelectronics
N.V.(a)(c).......... 2,263,813 FRA
108,300 Tokyo Electron,
Ltd. ............... 4,118,985 JPN
------------
TOTAL ELECTRONICS..... 20,016,481
------------
ENGINEERING -- 0.12%
18,700 Chudenko Corp. ....... 399,542 JPN
------------
ENVIRONMENTAL MANAGEMENT SERVICES -- 0.00%
900 Kurita Water
Industries.......... 13,229 JPN
------------
FINANCE -- 6.41%
1,815 CIE Financial
Richemont........... 2,566,272 SWI
124,000 De Beers Consolidated
Mines, Ltd. (ADR)... 1,581,000 SOA
3,600 Fairfax Financial
Holding
Company(c).......... 1,265,673 CDA
115,396 Lend Lease Corp.,
Ltd. ............... 1,557,142 AUS
85,000 Newcourt Credit Group,
Inc. ............... 2,960,720 CDA
25,500 Nichiei Company,
Ltd. ............... 2,034,635 JPN
257,000 Nomura Securities
Company, Ltd. ...... 2,244,252 JPN
26,000 Orix Corp. ........... 1,945,447 JPN
6,000 Shohkoh Fund &
Company, Ltd. ...... 1,936,228 JPN
30,100 Takefuji
Corporation......... 2,201,529 JPN
181,000 Wako Securities
Company, Ltd.(c).... 221,435 JPN
------------
TOTAL FINANCE......... 20,514,333
------------
FOOD AND BEVERAGE -- 6.10%
216,000 Asahi Breweries,
Ltd. ............... 3,188,398 JPN
125,000 Cadbury Schweppes
PLC................. 2,131,738 UK
315,862 Coca-Cola Amatil,
Ltd. ............... 1,177,913 AUS
216,988 Coca-Cola Beverages
PLC(c).............. 399,410 AUS
295,000 Fraser and Neave,
Ltd. ............... 861,784 SIN
53,375 Heineken N.V. ........ 3,213,874 NET
1,655 Nestle................ 3,602,849 SWI
55,000 Panamerican Beverages,
Inc. -- Class A..... 1,199,688 MEX
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD AND BEVERAGE (CONTINUED)
16,000 Seagrams Company,
Ltd. ............... $ 608,000 CDA
275,000 Tate & Lyle PLC....... 1,514,480 UK
569,241 Tesco PLC............. 1,621,938 UK
------------
TOTAL FOOD AND
BEVERAGE............ 19,520,072
------------
INDUSTRIAL -- 3.52%
35,322 Advantest Corp. ...... 2,242,138 JPN
11,200 Compagnie de Saint-
Gobain.............. 1,581,953 FRA
5,400 Preussag AG(a)........ 2,441,393 GER
1,025 SGS Societe Generale
de Surveillance
Holding SA.......... 1,003,744 SWI
15,600 Sidel................. 1,323,736 FRA
322,500 Tomkins PLC........... 1,521,200 UK
384,236 Western Mining Corp.
Holding, Ltd. ...... 1,159,509 AUS
------------
TOTAL INDUSTRIAL...... 11,273,673
------------
INSURANCE -- 2.13%
80,000 Assicurazioni
Generali, Ltd. ..... 3,347,704 ITA
815 Schweizerische
Rueckversicherungs-
Gesellschaft........ 2,124,902 SWI
279,000 Yasuda Fire and Marine
Insurance........... 1,345,561 JPN
------------
TOTAL INSURANCE....... 6,818,167
------------
INVESTMENT HOLDING COMPANIES -- 0.75%
275,000 Hutchison Whampoa..... 1,943,480 HNG
579,000 Sime Darby Berhad..... 464,937 MAL
------------
TOTAL INVESTMENT
HOLDING COMPANIES..... 2,408,417
------------
LEISURE AND RECREATION -- 0.68%
10,000 Accor SA(a)........... 2,166,127 FRA
------------
MACHINERY -- 0.32%
271,800 BPB Industries........ 1,027,676 UK
------------
MANUFACTURING -- 6.48%
166,000 ABB AB -- Class A..... 1,771,502 SWE
93,000 Mannesmann AG......... 10,665,110 GER
80,000 Metra Oy.............. 1,390,400 FIN
175,963 Morgan Crucible
Company PLC......... 808,040 UK
74,200 Scania AB -- Class
B................... 1,373,138 SWE
</TABLE>
See notes to financial statements.
F-63
<PAGE> 149
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
MANUFACTURING (CONTINUED)
51,000 Siemens AG............ $ 3,291,754 GER
270,900 TI Group PLC.......... 1,459,230 UK
------------
TOTAL MANUFACTURING... 20,759,174
------------
MEDIA -- 2.91%
44 Canal Plus............ 12,012 FRA
17,100 Grupo Televisa
(GDR)(c)............ 422,156 MEX
69,751 News Corp., Ltd. ..... 461,194 AUS
20,300 News Corp., Ltd.
(ADR)............... 536,681 AUS
246,806 Reuters Group PLC..... 2,591,117 UK
433 Reuters Group PLC
(ADR)(a)............ 27,441 UK
53,000 Rogers
Communications --
Class B(c).......... 471,016 CDA
102,207 Singapore Press
Holdings, Ltd. ..... 1,108,823 SIN
141,225 Thomson Corp. ........ 3,309,379 CDA
35,000 Tokyo Broadcasting.... 391,899 JPN
------------
TOTAL MEDIA........... 9,331,718
------------
MEDICAL AND OTHER HEALTH SERVICES -- 1.15%
17,400 Synthelabo............ 3,684,956 FRA
------------
METALS AND MINING -- 1.05%
256,439 Broken Hill
Proprietary......... 1,890,468 AUS
3,250 Broken Hill
Proprietary (ADR)... 46,719 AUS
43,663 Pechiney SA -- Class
A................... 1,426,510 FRA
------------
TOTAL METALS AND
MINING................ 3,363,697
------------
OIL AND GAS -- 4.12%
357,400 Eni Spa(c)............ 2,340,934 ITA
165,000 Sasol Beperk
Limited............. 624,079 SOA
340,000 Shell Transport &
Trading............. 2,088,824 UK
16,000 Suncor Energy,
Inc. ............... 479,186 CDA
40,000 Suncor Energy, Inc.
(ADR)(a)............ 1,195,000 CDA
48,000 Talisman Energy,
Inc.(c)............. 842,218 CDA
20,000 Total S.A. -- Series
B................... 2,026,492 FRA
30,000 Veba AG............... 1,795,830 GER
305,900 Woodside Petroleum,
Ltd. ............... 1,369,667 AUS
15,000 YPF Sociedad Anonima
(ADR)............... 419,062 ARG
------------
TOTAL OIL AND GAS..... 13,181,292
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
PAPER AND FOREST PRODUCTS -- 1.49%
189,000 Sumitomo Forestry..... $ 1,357,228 JPN
122,000 UPM-Kymmeme (a)....... 3,421,490 FIN
------------
TOTAL PAPER AND FOREST
PRODUCTS.............. 4,778,718
------------
PHARMACEUTICALS -- 6.94%
263,666 Astra AB.............. 5,383,559 SWE
21,333 Astra AB -- Class A
(ADR)(a)............ 441,326 SWE
197,400 BOC Group............. 2,822,899 UK
1,275 Novartis AG........... 2,506,403 SWI
14,000 Sankyo Company,
Ltd. ............... 306,569 JPN
86,000 Takeda Chemical
Industries, Ltd. ... 3,316,590 JPN
168,200 Zeneca Group PLC...... 7,323,697 UK
2,400 Zeneca Group PLC
(ADR)(a)............ 107,700 UK
------------
TOTAL
PHARMACEUTICALS..... 22,208,743
------------
REAL ESTATE -- 1.10%
233,000 Cheung Kong Holdings
Ltd. ............... 1,676,738 HNG
134,000 Mitsui Fudosan........ 1,015,720 JPN
251,000 Sumitomo Realty &
Development......... 816,654 JPN
------------
TOTAL REAL ESTATE..... 3,509,112
------------
TELECOMMUNICATIONS -- 15.86%
162,000 Deutsche Telekom AG... 5,330,205 GER
100 Embratel Participacoes
S.A. (ADR)(c)....... 1,394 BRA
54,700 Ericsson AB -- Class
B................... 1,302,456 SWE
45,500 Ericsson L M Telephone
(ADR)............... 1,089,156 SWE
641,600 Hong Kong
Telecommunications,
Ltd.(a)............. 1,122,223 HNG
6,819 Hong Kong
Telecommunications,
Ltd. (ADR).......... 119,759 HNG
183 Nippon Telegraph and
Telephone Corp. .... 1,414,723 JPN
9,600 Nokia AB -- K
Shares.............. 1,175,521 FIN
43,800 Nokia AB -- Class A... 5,363,314 FIN
</TABLE>
See notes to financial statements.
F-64
<PAGE> 150
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
15,700 Nokia Corp. (ADR)..... $ 1,890,869 FIN
40,000 Northern Telecom,
Ltd.(a)............. 2,005,000 CDA
560 NTT Mobile
Communications
Network, Inc. ...... 2,306,875 JPN
53,500 Orange PLC(c)......... 621,756 UK
24,300 Portugal Telecom S.A.
(ADR)(a)............ 1,084,387 POR
6,375 Swisscom AG(c)........ 2,668,855 SWI
10 Tele Celular Sul
Participacoes S.A.
(ADR)(a)(c)......... 174 BRA
33 Tele Centro Oeste
Celular
Participacoes S.A.
(ADR)(a)............ 97 BRA
20 Tele Centro Sul
Participacoes S.A.
(ADR) (a)(c)........ 836 BRA
15,200 Tele Danmark A/S
(ADR)............... 1,031,700 DEN
2 Tele Leste Celular
Participacoes S.A.
(ADR)(a)(c)......... 57 BRA
5 Tele Nordeste Celular
Participacoes S.A.
(ADR)(c)............ 93 BRA
2 Tele Norte Celular
Participacoes S.A.
(ADR)(a)(c)......... 45 BRA
100 Tele Norte Leste
Participacoes S.A.
(ADR)(a)(c)......... 1,244 BRA
20 Tele Sudeste Celular
Participacoes S.A.
(ADR)(a)(c)......... 414 BRA
179,000 Telecom Italia
Mobile.............. 1,324,403 ITA
253,000 Telecom Italia
Mobile.............. 1,193,730 ITA
148,555 Telecom Italia
Spa(c).............. 1,270,324 ITA
683,000 Telecom Italia Spa.... 4,307,886 ITA
39,900 Telecomunicacoes
Brasileiras
(ADR)(c)............ 2,900,231 BRA
110,272 Telefonica S.A.(c).... 4,910,787 SPA
110,272 Telefonica S.A. --
Rights.............. 98,065 SPA
30,000 Telefonica De
Argentina (ADR)(a).. 838,125 ARG
51,400 Telefonos De Mexico
(ADR)............... 2,502,537 MEX
5 Telemig Celular
Participacoes S.A.
(ADR)(a)(c)......... 106 BRA
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
40 Telesp Celular
Participacoes
S.A.(c)............. $ 700 BRA
100 Telesp Participacoes
S.A. (ADR)(c)....... 2,212 BRA
18,000 Vodafone Group PLC
(ADR)(a)............ 2,900,250 UK
------------
TOTAL
TELECOMMUNICATIONS.... 50,780,509
------------
TIRE AND RUBBER -- 0.41%
58,000 Bridgestone Corp. .... 1,318,920 JPN
------------
TRANSPORTATION -- 1.01%
130,000 Bombardier Inc., Class
B (ADR)............. 1,866,841 CDA
83,200 Bombardier Inc., Class
B................... 1,191,715 CDA
446,000 Malaysian Airline
System BHD.......... 170,863 MAL
------------
TOTAL
TRANSPORTATION...... 3,229,419
------------
TOTAL COMMON STOCK
(Cost $274,846,989)... 303,932,748
------------
PREFERRED STOCK -- 0.46%
COMPUTER SOFTWARE AND SERVICES -- 0.46%
3,100 SAP AG Vorzug (Cost
$538,386)........... 1,480,086 GER
------------
<CAPTION>
PRINCIPAL
- -----------
<C> <S> <C> <C>
NON-CONVERTIBLE BOND -- 0.06%
$ 132,884 Sekisui House, 2.50%,
01/31/02 (Cost
$166,291)............. 180,720 JPN
------------
CONVERTIBLE BONDS AND NOTES -- 0.69%
BANKS -- 0.01%
2,000 Ericson LM, 4.25%,
06/30/00............ 12,750 SWE
------------
FOOD AND BEVERAGE -- 0.20%
194,897 Asahi Breweries Series
8, 0.90%,
12/26/01............ 278,322 JPN
44,295 Asahi Breweries Series
9, 0.95%,
12/26/02............ 68,710 JPN
203,756 Asahi Breweries Series
10, 1.00%,
12/26/03............ 286,488 JPN
------------
TOTAL FOOD AND
BEVERAGE............ 633,520
------------
</TABLE>
See notes to financial statements.
F-65
<PAGE> 151
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE COUNTRY
--------- ------------ -------
<C> <S> <C> <C>
TELECOMMUNICATIONS -- 0.48%
$ 2,500,000 Colt Telecom Grp PLC,
2.00%, 08/06/05..... $ 1,557,317 UK
------------
TOTAL CONVERTIBLE
BONDS AND NOTES
(Cost $1,613,905)..... 2,203,587
------------
SHARES
- -----------
REGULATED INVESTMENT COMPANY -- 0.50%
1,619,530 Merrimac Cash Fund --
Premium Class(b)
(Cost $1,619,530)... 1,619,530 USA
------------
PRINCIPAL
- -----------
TIME DEPOSITS -- 3.41%
$ 1,578 American Express
Centurion Bank,
5.33%,
02/08/99(b)......... 1,578 USA
7,207,133 Bank of Montreal,
5.25%,
01/29/99(b)......... 7,207,133 USA
2,929,181 BankBoston, N.A.,
5.63%,
04/30/99(b)......... 2,929,181 USA
780,494 Toronto Dominion,
5.125%,
03/17/99(b)......... 780,494 USA
------------
TOTAL TIME DEPOSITS
(Cost $10,918,386).... 10,918,386
------------
SHORT TERM CORPORATE NOTES -- 3.75%
10,000,000 Prudential Securities,
Inc. 5.70%,
06/14/99(b)......... 10,000,000 USA
2,000,000 Republic New York
Securities Corp.,
5.70%,
01/12/99(b)......... 2,000,000 USA
------------
TOTAL SHORT TERM
CORPORATE NOTES
(Cost $12,000,000).... 12,000,000
------------
TOTAL SECURITIES (Cost
$301,703,487)....... 332,335,057
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE COUNTRY
--------- ------------ -------
<C> <S> <C> <C>
REPURCHASE AGREEMENT -- 4.07%
$13,027,333 With Investors Bank
and Trust, dated
12/31/98, 4.25%, due
01/04/99, repurchase
proceeds at maturity
$13,033,485
(Collateralized by
various Government
National Mortgage
Association
Adjustable Rate
Mortgage
obligations,
6.625% -- 7.00%, due
05/20/22 through
01/20/26, with a
total value of
$13,678,835) (Cost
$13,027,333)........ $ 13,027,333 USA
------------
Total Investments -- 107.85%
(Cost $314,730,820)... 345,362,390
Other assets less
liabilities -- (7.85)%... (25,144,217)
------------
NET ASSETS --100.00%.. $320,218,173
============
</TABLE>
The aggregate cost of securities for federal income tax purposes at December
31, 1998, is $317,028,113. The following amount is based on costs for federal
income tax purposes:
<TABLE>
<S> <C>
Gross unrealized appreciation... $ 60,037,291
Gross unrealized depreciation... (31,703,014)
------------
Net unrealized appreciation..... $ 28,334,277
============
</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
See notes to financial statements.
F-66
<PAGE> 152
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT OF TOTAL
COUNTRY COMPOSITION SECURITIES AT VALUE
------------------- -------------------
<S> <C>
Argentina (ARG).................... 0.36%
Australia (AUS).................... 3.67%
Brazil (BRA)....................... 0.84%
Canada (CDA)....................... 6.54%
Denmark (DEN)...................... 0.30%
Finland (FIN)...................... 3.83%
France (FRA)....................... 6.25%
Germany (GER)...................... 8.43%
Hong Kong (HNG).................... 1.41%
Italy (ITA)........................ 4.74%
Japan (JPN)........................ 21.13%
Korea(KOR)......................... 0.58%
Malaysia (MAL)..................... 0.18%
Mexico (MEX)....................... 1.52%
Netherlands (NET).................. 2.97%
Norway (NOR)....................... 0.81%
Portugal (POR)..................... 0.31%
Singapore (SIN).................... 0.57%
South Africa (SOA)................. 0.64%
Spain (SPA)........................ 1.45%
Sweden (SWE)....................... 4.17%
Switzerland (SWI).................. 4.83%
United Kingdom (UK)................ 13.59%
United States (USA)................ 10.88%
------
TOTAL PERCENTAGE................... 100.00%
======
</TABLE>
See notes to financial statements.
F-67
<PAGE> 153
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).
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.
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 agreements 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 not isolate
realized gains and losses attributable to changes in exchange
F-68
<PAGE> 154
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
C. FOREIGN CURRENCY TRANSLATION -- (CONTINUED)
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
prevailing 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. 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 premiums and accretion of discounts on
investments. Realized gains and losses from securities transactions are
recorded on the identified cost basis.
F-69
<PAGE> 155
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................................................ 25.03
High Quality Bond........................................... 46.33
Intermediate Government Bond................................ 45.75
Government/Corporate Bond................................... 27.48
Balanced.................................................... 60.83
Equity Income............................................... 58.64
Equity Value................................................ 19.46
Growth & Income............................................. 49.27
Equity Growth............................................... 63.55
Special Equity.............................................. 45.00
Aggressive Equity........................................... 36.37
High Yield Bond............................................. 30.99
International Equity........................................ 39.51
</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. For its services the
Subadvisors receive a fee from the Advisor at an annual
F-70
<PAGE> 156
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 (4)
Equity Value Series....................... Ark Asset Management Company, Inc. 0.57(1) (5)
Growth & Income Series.................... Putnam Advisory Company, Inc. 0.60 (6)
Equity Growth Series...................... (7) 0.62(1) (8)
Special Equity Series..................... (9) 0.80(1) 0.50
Aggressive Equity Series.................. McKinley Capital Management 0.97(1) (10)
High-Yield Bond Series.................... Delaware Investment Advisors 0.55(1) (11)
International Equity Series............... Capital Guardian Trust Company 0.75(1) (12)
</TABLE>
- ---------------
(1) The Advisor is currently waiving a portion of its fee.
(2) 0.25% on the first $100,000,000 in average daily net assets, and 0.15% on
all average daily net assets in excess of $100,000,000.
(3) For the period from January 1 through March 31, 1998, the Subadvisor
received 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. For the period from
April 1 through December 31, 1998, the Subadvisor received 0.35% on the
first $500,000,000 in average daily net assets, 0.30% on the next
$500,000,000 in average daily net assets, and 0.25% on all average daily
net assets in excess of $1,000,000,000.
(4) 0.25% 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.
(5) 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.
(6) 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.
(7) The Equity Growth Series changed subadvisors on January 25, 1998. Montag &
Caldwell, Inc. and Dresdner RCM Global Investors, Inc. replaced Chancellor
LGT Capital Management, Inc.
(8) For the period from January 1 through January 25, 1998, the Subadvisor
received 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. For the period from January 26 through
December 31, 1998, the Subadvisor received 0.50% on the first $50,000,000
in average daily net assets, 0.25% on the next
F-71
<PAGE> 157
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
$50,000,000 in average daily net assets, and 0.20% on all average daily net
assets in excess of $100,000,000.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
For the year ended December 31, 1998, the Advisor has voluntarily
undertaken to waive fees in accordance with the following expense caps:
<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 period ended December 31, 1998, amounted to
$31,750.
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
F-72
<PAGE> 158
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
4. SECURITIES LENDING (CONTINUED)
the Statements of Operations. At December 31, 1998, the Series loaned securities
having market values as follows:
<TABLE>
<CAPTION>
MARKET VALUE COLLATERAL
------------ ------------
<S> <C> <C>
Intermediate Government Bond Series......................... $ 4,802,004 $ 4,956,000
Government Corporate Bond Series............................ 50,218,744 51,625,450
Balanced Series............................................. 147,398,084 152,198,525
Equity Income Series........................................ 71,007,244 72,958,800
Equity Value Series......................................... 19,468,284 20,280,618
Growth & Income Series...................................... 64,508,538 66,510,400
Equity Growth Series........................................ 67,535,552 69,638,217
Special Equity Series....................................... 115,688,344 119,713,500
Aggressive Equity Series.................................... 5,465,625 5,600,000
International Equity Series................................. 23,481,003 24,537,916
</TABLE>
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,
1998, were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C> <C>
High Quality Bond Series........... Government Obligations $ 9,997,656 $ 23,493,554
145,176,930 113,828,790
Other
Intermediate Government Bond Government Obligations
Series........................... 105,787,576 83,802,579
Government/Corporate Bond Series... Government Obligations 460,846,004 358,836,826
125,620,591 68,082,721
Other
Balanced Series.................... Government Obligations 73,353,229 75,010,927
405,063,713 331,254,574
Other
Equity Income Series............... Other 429,860,696 368,510,798
Equity Value Series................ Other 499,042,617 372,048,922
Growth & Income Series............. Other 619,176,111 394,186,652
Equity Growth Series............... Other 627,684,075 531,792,760
Special Equity Series.............. Other 1,364,163,136 1,266,300,141
Aggressive Equity Series........... Other 97,455,734 56,514,158
High-Yield Bond Series............. Other 105,229,195 57,984,495
International Equity Series........ Other 171,988,718 84,799,948
</TABLE>
F-73
<PAGE> 159
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS
At December 31, 1998, 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>
NET
UNREALIZED
FOREIGN IN EXCHANGE SETTLEMENT APPRECIATION/
CONTRACT CURRENCY FOR DATE VALUE (DEPRECIATION)
- -------- ----------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
PURCHASES:
Australian Dollar.................. 33,733 $ 20,590 01/04/99 $ 20,689 $ 99
Australian Dollar.................. 53,357 32,654 01/07/99 32,726 72
Australian Dollar.................. 54,281 33,177 01/08/99 33,294 117
Australian Dollar.................. 1,986,982 1,246,235 03/23/99 1,219,534 (26,701)
Australian Dollar.................. 2,188,598 1,385,019 07/30/99 1,344,976 (40,043)
British Pound...................... 617,538 1,039,378 01/04/99 1,026,644 (12,734)
British Pound...................... 50,390 84,565 01/04/99 83,772 (793)
British Pound...................... 93,017 155,627 01/04/99 154,639 (988)
British Pound...................... 16,910 28,256 01/05/99 28,111 (145)
British Pound...................... 17,409 28,929 01/08/99 28,940 11
Canadian Dollar.................... 1,654,656 1,066,832 01/06/99 1,080,049 13,217
Deutsche Mark...................... 1,740,695 1,066,832 01/06/99 1,044,907 (21,925)
Deutsche Mark...................... 2,097,852 1,254,296 02/04/99 1,261,162 6,866
Deutsche Mark...................... 3,161,920 1,897,000 02/08/99 1,901,221 4,221
Deutsche Mark...................... 2,058,350 1,238,323 02/10/99 1,237,782 (541)
Deutsche Mark...................... 1,562,190 952,886 03/15/99 940,989 (11,897)
Deutsche Mark...................... 1,750,521 1,066,740 04/26/99 1,056,761 (9,979)
Deutsche Mark...................... 1,308,023 776,316 04/28/99 789,716 13,400
Japanese Yen....................... 2,486,828 21,501 01/04/99 22,043 542
Japanese Yen....................... 6,759,884 58,547 01/05/99 59,927 1,380
Japanese Yen....................... 158,205,960 1,182,044 01/08/99 1,403,099 221,055
Japanese Yen....................... 25,385,340 210,667 01/28/99 225,765 15,098
Japanese Yen....................... 78,393,300 680,911 03/03/99 700,203 19,292
Japanese Yen....................... 464,122,746 3,501,994 03/15/99 4,152,629 650,635
Japanese Yen....................... 35,238,500 265,851 04/08/99 316,347 50,496
Japanese Yen....................... 92,490,300 776,316 04/28/99 832,524 56,208
Swiss Franc........................ 2,484,310 1,772,797 01/08/99 1,812,599 39,802
-----------
TOTAL......................... $ 966,765
===========
SELLS:
Australian Dollar.................. 918,722 $ 562,258 01/07/99 $ 563,497 $ (1,239)
Australian Dollar.................. 556,943 340,403 01/08/99 341,604 (1,201)
Australian Dollar.................. 1,986,982 1,160,000 03/23/99 1,219,534 (59,534)
British Pound...................... 617,538 1,050,000 01/04/99 1,026,644 23,356
</TABLE>
F-74
<PAGE> 160
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS (CONTINUED)
<TABLE>
<CAPTION>
NET
UNREALIZED
FOREIGN IN EXCHANGE SETTLEMENT APPRECIATION/
CONTRACT CURRENCY FOR DATE VALUE (DEPRECIATION)
- -------- ----------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
British Pound...................... 13,495 $ 22,640 01/04/99 $ 22,435 $ 205
British Pound...................... 565,847 952,886 03/15/99 938,821 14,065
British Pound...................... 843,033 1,385,019 07/30/99 1,396,871 (11,852)
Canadian Dollar.................... 49,821 32,149 01/04/99 32,520 (371)
Canadian Dollar.................... 12,336 8,060 01/05/99 8,052 8
Canadian Dollar.................... 1,654,656 1,066,832 01/06/99 1,080,049 (13,217)
Canadian Dollar.................... 1,895,873 1,238,323 02/10/99 1,237,529 794
Deutsche Mark...................... 1,740,698 1,039,915 01/06/99 1,044,907 (4,992)
Deutsche Mark...................... 1,308,023 765,447 04/28/99 789,715 (24,268)
Japanese Yen....................... 158,205,960 1,242,000 01/08/99 1,403,099 (161,099)
Japanese Yen....................... 25,385,340 213,000 01/28/99 225,765 (12,765)
Japanese Yen....................... 146,000,000 1,254,296 02/04/99 1,299,627 (45,331)
Japanese Yen....................... 78,393,300 590,000 03/03/99 700,203 (110,203)
Japanese Yen....................... 284,081,325 2,409,000 03/10/99 2,539,933 (130,933)
Japanese Yen....................... 464,122,746 3,774,000 03/15/99 4,152,629 (378,629)
Japanese Yen....................... 368,802,210 3,206,000 03/17/99 3,300,716 (94,716)
Japanese Yen....................... 35,238,500 275,000 04/08/99 316,348 (41,348)
Japanese Yen....................... 123,683,050 1,066,740 04/26/99 1,113,001 (46,261)
Japanese Yen....................... 127,824,994 1,111,000 04/26/99 1,150,273 (39,273)
Japanese Yen....................... 92,490,300 776,316 04/28/99 832,524 (56,208)
Japanese Yen....................... 98,000,000 865,954 05/06/99 883,058 (17,104)
Japanese Yen....................... 437,811,000 3,300,000 06/04/99 3,960,318 (660,318)
Japanese Yen....................... 360,444,800 3,086,000 08/27/99 3,295,931 (209,931)
Japanese Yen....................... 267,161,280 2,328,000 10/13/99 2,457,690 (129,690)
Singapore Dollar................... 365,274 213,000 05/17/99 223,811 (10,811)
Swedish Krona...................... 46,445 5,727 01/04/99 5,739 (12)
Swedish Krona...................... 2,325,820 296,000 01/15/99 287,522 8,478
Swiss Franc........................ 2,484,310 1,737,000 01/08/99 1,812,599 (75,599)
-----------
TOTALS........................ $(2,289,999)
===========
</TABLE>
F-75
<PAGE> 161
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
7. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET SERIES
------------------------------------------------------------------------
FOR THE YEAR ENDED
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net assets, end of period................. $292,437,753 $232,312,458 $185,012,254 $141,638,248 $161,509,792
Ratio of expenses to average net assets... 0.28% 0.28% 0.30% 0.31% 0.32%
Ratio of expenses to average net assets
(net of reimbursements).................. 0.28% 0.28% 0.30% 0.30% 0.30%
Ratio of net investment income (loss) to
average net assets....................... 5.32% 5.33% 5.19% 5.70% 4.05%
Ratio of net investment income (loss) to
average net assets (net of
reimbursements).......................... 5.32% 5.33% 5.19% 5.69% 4.07%
Portfolio turnover........................ N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT/CORPORATE BOND SERIES
------------------------------------------------------------------------
FOR THE YEAR ENDED
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net assets, end of period................. $551,935,530 $361,632,885 $322,676,017 $336,539,410 $246,985,392
Ratio of expenses to average net assets... 0.38% 0.38% 0.39% 0.39% 0.40%
Ratio of expenses to average net assets
(net of reimbursements).................. 0.38% 0.38% 0.39% 0.39% 0.40%
Ratio of net investment income (loss) to
average net assets....................... 5.98% 6.49% 6.30% 5.90% 5.71%
Ratio of net investment income (loss) to
average net assets (net of
reimbursements).......................... 5.98% 6.49% 6.30% 5.90% 5.72%
Portfolio turnover........................ 102% 64% 146% 122% 122%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Annualized (except for Portfolio turnover)
+ 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>
F-76
<PAGE> 162
<TABLE>
<CAPTION>
HIGH QUALITY BOND SERIES
------------------------------------------------------------------------
FOR THE YEAR ENDED
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$227,463,134 $218,169,438 $197,294,663 $172,526,103 $143,996,216
0.39% 0.39% 0.40% 0.41% 0.41%
0.39% 0.39% 0.40% 0.40% 0.40%
5.90% 6.12% 6.14% 5.83% 5.77%
5.90% 6.12% 6.14% 5.82% 5.79%
68% 62% 66% 25% 37%
<CAPTION>
INTERMEDIATE GOVERNMENT BOND SERIES
----------------------------------------------------------------------
FOR THE YEAR ENDED
----------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$158,574,467 $129,186,397 $103,059,880 $85,991,614 $86,638,740
0.39% 0.41% 0.43% 0.45% 0.45%
0.39% 0.39% 0.40% 0.40% 0.40%
5.46% 5.61% 5.63% 5.57% 5.71%
5.46% 5.62% 5.66% 5.52% 5.76%
70% 45% 60% 59% 21%
</TABLE>
<TABLE>
<CAPTION>
BALANCED SERIES EQUITY INCOME SERIES
------------------------------------------------------------------------ ----------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------------------------------------------------ ----------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996
------------ ------------ ------------ ------------ ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$505,995,739 $394,769,913 $264,909,839 $167,032,955 $125,509,115 $1,367,107,496 $1,215,071,169 $956,820,669
0.48% 0.48% 0.50% 0.54% 0.53% 0.47% 0.47% 0.48%
0.48% 0.48% 0.50% 0.50% 0.50% 0.47% 0.47% 0.48%
3.22% 3.55% 3.39% 4.19% 3.57% 2.23% 2.27% 2.97%
3.22% 3.55% 3.39% 4.15% 3.61% 2.23% 2.27% 2.97%
91% 87% 113% 124% 118% 31% 33% 26%
<CAPTION>
EQUITY INCOME SERIES
---------------------------
FOR THE YEAR ENDED
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
$764,302,530 $588,694,098
0.49% 0.49%
0.49% 0.49%
3.37% 3.43%
3.37% 3.43%
23% 30%
</TABLE>
F-77
<PAGE> 163
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
7. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY VALUE SERIES+
-------------------------------------------
FOR THE YEAR ENDED
-------------------------------------------
1998 1997 1996*
------------ ------------ -----------
<S> <C> <C> <C>
Net assets, end of period................................... $389,859,775 $234,983,715 $29,033,513
Ratio of expenses to average net assets..................... 0.61% 0.63% 1.06%
Ratio of expenses to average net assets (net of
reimbursements)............................................ 0.60% 0.60% 0.60%
Ratio of net investment income (loss) to average net
assets..................................................... 1.46% 1.43% 1.60%
Ratio of net investment income (loss) to average net assets
(net of reimbursements).................................... 1.47% 1.46% 2.07%
Portfolio turnover.......................................... 107% 120% 65%
</TABLE>
<TABLE>
<CAPTION>
SPECIAL EQUITY SERIES
------------------------------------------------------------------------
FOR THE YEAR ENDED
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net assets, end of period................. $924,089,884 $743,388,261 $507,264,243 $315,458,225 $217,671,865
Ratio of expenses to average net assets... 0.83% 0.84% 0.86% 0.88% 0.88%
Ratio of expenses to average net assets
(net of reimbursements).................. 0.83% 0.84% 0.85% 0.85% 0.85%
Ratio of net investment income (loss) to
average net assets....................... 0.14% 0.41% 0.24% 0.33% 0.27%
Ratio of net investment income (loss) to
average net assets (net of
reimbursements).......................... 0.14% 0.41% 0.25% 0.30% 0.30%
Portfolio turnover........................ 173% 146% 140% 155% 90%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Annualized (except for Portfolio turnover)
+ 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>
F-78
<PAGE> 164
<TABLE>
<CAPTION>
GROWTH & INCOME SERIES EQUITY GROWTH SERIES
-------------------------------------------------------------------- ----------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
-------------------------------------------------------------------- ----------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996
------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$771,268,461 $376,260,408 $207,612,426 $124,811,731 $94,583,300 $688,448,565 $426,312,188 $299,127,686
0.63% 0.64% 0.67% 0.68% 0.67% 0.64% 0.65% 0.73%
0.63% 0.64% 0.65% 0.65% 0.65% 0.64% 0.65% 0.73%(1)
0.30% 0.65% 1.02% 1.49% 1.35% 0.22% 0.43% (0.17%)
0.30% 0.65% 1.04% 1.47% 1.37% 0.22% 0.43% (0.17%)
75% 87% 142% 155% 21% 104% 91% 133%
<CAPTION>
EQUITY GROWTH SERIES
--------------------------
FOR THE YEAR ENDED
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
$222,362,390 $148,817,830
0.75% 0.76%
0.75% 0.75%
0.41% 0.08%
0.41% 0.11%
62% 75%
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY SERIES+ HIGH YIELD BOND SERIES ++
--------------------------------------- ----------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
--------------------------------------- ----------------------------------------------------
1998 1997 1996* 1998 1997 1996 1995*
----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$81,327,707 $25,857,650 $15,479,130 $94,870,981 $39,700,131 $15,372,686 $8,997,595
1.10% 1.33% 1.59% 0.63% 0.74% 1.25% 1.32%
1.00% 1.00% 1.00% 0.60% 0.60% 0.60% 0.60%
(0.41%) (0.52%) (0.72%) 8.64% 8.46% 8.34% 8.45%
(0.31%) (0.19%) (0.13%) 8.67% 8.60% 9.00% 7.73%
121% 243% 186% 83% 109% 107% 21%
</TABLE>
F-79
<PAGE> 165
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
7. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY SERIES+++
-----------------------------------------------------------------
FOR THE YEAR ENDED
-----------------------------------------------------------------
1998 1997 1996 1995*
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net assets, end of period................................... $320,218,173 $205,306,068 $148,184,897 $83,446,315
Ratio of expenses to average net assets..................... 0.88% 0.88% 0.96% 0.83%
Ratio of expenses to average net assets (net of
reimbursements)............................................ 0.87% 0.87% 0.90% 0.80%
Ratio of net investment income (loss) to average net
assets..................................................... 1.05% 0.90% 1.12% 0.53%
Ratio of net investment income (loss) to average net assets
(net of reimbursements).................................... 1.06% 0.91% 1.18% 0.50%
Portfolio turnover.......................................... 33% 31% 29% 7%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Annualized (except for Portfolio turnover)
+ 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>
F-80
<PAGE> 166
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
MONY Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income, changes in
shareholder's equity and cash flows present fairly, in all material respects,
the financial position of MONY Life Insurance Company and Subsidiaries (the
"Company"), formerly known as The Mutual Life Insurance Company of New York and
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 4 to the consolidated financial statements, the
Company adopted in 1996, Statements of Financial Accounting Standards No. 120
(SFAS 120) and Financial Accounting Standards Board Interpretation No. 40 (FIN
40) which required implementation of several accounting pronouncements not
previously adopted. The effects of adopting SFAS 120 and FIN 40 were
retroactively applied to the Company's previously issued financial statements,
consistent with the implementation guidance of those standards.
PricewaterhouseCoopers LLP
New York, New York
February 15, 1999, except for Note 17(b)
as to which the date is March 22, 1999.
F-81
<PAGE> 167
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
($ IN MILLIONS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair
value.................................................. $ 3,132.0 $ 5,950.1
Equity securities available-for-sale at fair value........ 457.2 337.8
Mortgage loans on real estate (Note 12)................... 988.3 1,430.1
Policy loans.............................................. 61.1 1,247.2
Real estate to be disposed of (Note 12)................... 312.9 621.2
Real estate held for investment (Note 12)................. 321.3 495.9
Other invested assets..................................... 40.7 68.6
--------- ---------
5,313.5 10,150.9
--------- ---------
Cash and cash equivalents................................... 270.2 313.4
Accrued investment income................................... 68.9 182.8
Amounts due from reinsurers................................. 475.9 574.5
Premiums receivable......................................... 9.1 21.6
Deferred policy acquisition costs........................... 439.7 1,007.1
Other assets................................................ 316.5 243.0
Assets transferred in Group Pension Transaction (Note 9).... 5,751.8 5,714.9
Separate account assets..................................... 6,090.3 5,403.1
Closed Block assets (Note 19)............................... 6,161.2 --
--------- ---------
Total assets...................................... $24,897.1 $23,611.3
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits...................................... $ 960.0 $ 7,469.4
Policyholders' account balances............................. 1,991.7 2,352.8
Other policyholders' liabilities............................ 104.8 238.5
Amounts due to reinsurers................................... 93.4 104.3
Accounts payable and other liabilities...................... 518.3 539.0
Debt (Note 15).............................................. 375.4 423.6
Current federal income taxes payable........................ 79.1 120.5
Deferred federal income taxes (Note 7)...................... -- 11.5
Liabilities transferred in Group Pension Transaction (Note
9)........................................................ 5,678.5 5,638.7
Separate account liabilities................................ 6,078.1 5,392.4
Closed Block liabilities (Note 19).......................... 7,290.7 --
--------- ---------
Total liabilities................................. 23,170.0 22,290.7
Commitments and contingencies (Notes 8, 17)
Common stock, $1.00 par value; 2 million shares authorized,
issued and outstanding.................................... 2.0 --
Capital in excess of par.................................... 1,564.1 --
Retained earnings........................................... 8.6 1,202.5
Accumulated other comprehensive income...................... 152.4 118.1
--------- ---------
Total shareholder's equity........................ 1,727.1 1,320.6
--------- ---------
Total liabilities and shareholder's equity........ $24,897.1 $23,611.3
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-82
<PAGE> 168
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998
PRO FORMA*
1998 1997 1996 (UNAUDITED)
-------- -------- -------- -----------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
REVENUES:
Premiums....................................... $ 621.7 $ 838.6 $ 859.8 $ 77.9
Universal life and investment-type product
policy fees.................................. 151.6 127.3 100.9 151.6
Net investment income (Note 10)................ 688.3 733.0 751.6 361.1
Net realized gains on investments (Note 10).... 168.7 72.1 75.9 160.9
Group Pension Profits.......................... 56.8 60.0 59.5 56.8
Other income................................... 162.6 145.4 117.3 161.3
Contribution from the Closed Block............. 5.7 52.2
-------- -------- -------- --------
1,855.4 1,976.4 1,965.0 1,021.8
-------- -------- -------- --------
BENEFITS AND EXPENSES:
Benefits to policyholders...................... 679.8 840.1 872.2 124.4
Interest credited to policyholders' account
balances..................................... 112.7 125.9 146.9 105.0
Amortization of deferred policy acquisition
costs........................................ 122.0 181.2 158.2 52.2
Dividends to policyholders..................... 195.8 224.3 231.4 3.3
Other operating costs and expenses............. 451.7 417.2 455.8 443.5
-------- -------- -------- --------
1,562.0 1,788.7 1,864.5 728.4
-------- -------- -------- --------
Income before income taxes and extraordinary
item......................................... 293.4 187.7 100.5 293.4
Income tax expense............................. 102.7 57.3 44.0 102.7
-------- -------- -------- --------
Income before extraordinary item............... 190.7 130.4 56.5 190.7
-------- -------- -------- --------
Extraordinary item -- demutualization expenses,
net (Note 4)................................. 27.2 13.3 -- --
-------- -------- -------- --------
Net income..................................... 163.5 117.1 56.5 $ 190.7
-------- -------- -------- ========
Other comprehensive income, net (Note 10)...... 34.3 33.0 (59.9)
-------- -------- --------
Comprehensive income........................... $ 197.8 $ 150.1 $ (3.4)
======== ======== ========
</TABLE>
- ---------------
* The pro forma information gives effect to the transactions referred to in
Notes 1 and 21.
See accompanying notes to consolidated financial statements.
F-83
<PAGE> 169
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON IN EXCESS RETAINED COMPREHENSIVE SHAREHOLDER'S
STOCK OF PAR EARNINGS INCOME EQUITY
------ --------- --------- ------------- -------------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............ $ $ $ 1,028.9 $145.0 $1,173.9
Comprehensive income:
Net income.......................... 56.5 56.5
Other comprehensive income:
Unrealized losses on investments,
net of unrealized gains,
reclassification adjustments,
and taxes (Note 10)............ (59.9) (59.9)
---- -------- --------- ------ --------
Comprehensive income.................. (3.4)
--------
Balance, December 31, 1996............ 1,085.4 85.1 1,170.5
Comprehensive income:
Net income.......................... 117.1 117.1
Other comprehensive income:
Unrealized gains on investments,
net of unrealized losses,
reclassification adjustments,
and taxes (Note 10)............ 35.9 35.9
Minimum pension liability
adjustment..................... (2.9) (2.9)
------ --------
Other comprehensive income:......... 33.0 33.0
---- -------- --------- ------ --------
Comprehensive income.................. 150.1
--------
Balance, December 31, 1997............ 1,202.5 118.1 1,320.6
Demutualization Transaction........... 1,344.2 (1,357.4) (13.2)
Contribution from MONY Group.......... 2.0 219.9 221.9
Comprehensive income:
Net income before demutualization... 154.9 154.9
Net income after demutualization.... 8.6 8.6
---- -------- --------- ------ --------
Net income for the year.......... 163.5 163.5
Other comprehensive income:
Unrealized losses on investments,
net of unrealized gains,
reclassification adjustments,
and taxes (Note 10)............ 31.4 31.4
Minimum pension liability
adjustment..................... 2.9 2.9
------ --------
Other comprehensive income:......... 34.3 34.3
---- -------- --------- ------ --------
Comprehensive income.................. 197.8
--------
Balance, December 31, 1998............ $2.0 $1,564.1 $ 8.6 $152.4 $1,727.1
==== ======== ========= ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-84
<PAGE> 170
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (SEE NOTE 4):
Net income................................................ $ 163.5 $ 117.1 $ 56.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to policyholders' account balances.... 110.6 122.3 141.2
Universal life and investment-type product policy fee
income............................................... (123.6) (112.9) (98.4)
Capitalization of deferred policy acquisition costs..... (124.5) (141.0) (145.3)
Amortization of deferred policy acquisition costs....... 122.0 181.2 158.2
Provision for depreciation and amortization............. 41.4 55.0 53.8
Provision for deferred federal income taxes............. 11.4 (50.2) (32.6)
Net realized gains on investments....................... (168.7) (72.1) (75.9)
Non-cash distributions from investments................. (35.1) (31.1) (56.1)
Change in other assets and accounts payable and other
liabilities.......................................... (32.7) (177.5) 57.0
Change in future policy benefits........................ 136.2 206.9 191.7
Change in other policyholders' liabilities.............. 32.9 (17.4) 21.4
Change in current federal income taxes payable.......... (14.9) (11.2) 63.3
Initial cash transferred to the Closed Block............ (46.9) -- --
Contribution from the Closed block...................... (5.7) -- --
--------- --------- ---------
Net cash provided by operating activities................. 65.9 69.1 334.8
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities or repayments of:
Fixed maturities........................................ 887.3 952.0 690.1
Equity securities....................................... 177.4 246.7 170.7
Mortgage loans on real estate........................... 424.4 334.4 353.6
Real estate............................................. 578.3 430.8 442.4
Other invested assets................................... 46.0 5.0 13.3
Acquisitions of investments:
Fixed maturities........................................ (1,479.7) (1,336.2) (1,200.8)
Equity securities....................................... (230.5) (211.5) (119.7)
Mortgage loans on real estate........................... (422.4) (183.1) (166.8)
Real estate............................................. (39.5) (52.7) (63.6)
Other invested assets................................... (2.1) (1.7) (1.6)
Policy loans, net....................................... (17.8) (15.9) (12.7)
Other, net.............................................. 8.8 10.1 0.1
Property & equipment, net............................... (30.9) (35.8) (3.9)
Acquisition of subsidiaries, net of cash acquired....... (46.0) -- --
--------- --------- ---------
Net cash provided by investing activities................. $ (146.7) $ 142.1 $ 101.1
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-85
<PAGE> 171
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt.......................................... -- 115.0 --
Repayments of debt........................................ (61.3) (126.0) (174.1)
Receipts from annuity and universal life policies credited
to policyholders' account balances...................... 1,254.0 1,226.4 1,204.9
Return of policyholders' account balances on annuity
policies and universal life policies.................... (1,377.0) (1,435.2) (1,584.1)
Other..................................................... -- 6.6 6.7
Contribution from MONY Group (Note 4)..................... 221.9 -- --
--------- --------- ---------
Net cash provided by/(used in) financing activities....... 37.6 (213.2) (546.6)
--------- --------- ---------
Net decrease in cash and cash equivalents................. (43.2) (2.0) (110.7)
Cash and cash equivalents, beginning of year.............. 313.4 315.4 426.1
--------- --------- ---------
Cash and cash equivalents, end of year.................... $ 270.2 $ 313.4 $ 315.4
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Income taxes.............................................. $ 97.4 $ 114.6 $ 13.6
Interest.................................................. $ 20.3 $ 20.8 $ 36.8
</TABLE>
See accompanying notes to consolidated financial statements.
F-86
<PAGE> 172
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
On November 16, 1998, pursuant to its Plan of Reorganization (the "Plan")
which was approved by the New York Superintendent of Insurance on the same day
(the "Plan Effective Date"), The Mutual Life Insurance Company of New York
("MONY") converted from a mutual life insurance company to a stock life
insurance company (the "Demutualization") and became a wholly owned subsidiary
of The MONY Group Inc., (the "MONY Group" or the "Holding Company"), a Delaware
corporation organized on June 24, 1997 for the purpose of becoming the parent
holding company of MONY. The MONY Group has no other operations or subsidiaries.
In connection with the Plan, MONY established a closed block, as more fully
discussed in Note 3, to fund the guaranteed benefits and dividends of certain
participating insurance policies, and eligible policyholders received cash,
policy credits, or shares of common stock of the MONY Group in exchange for
their membership interests in MONY (see Note 4). Also on November 16, 1998, the
MONY Group consummated an initial public offering (the "Offerings") of
approximately 12.9 million shares of its common stock (see Note 4) and MONY
changed its name to MONY Life Insurance Company (MONY Life Insurance Company and
its subsidiaries are hereafter collectively referred to as "MONY Life" or "the
Company"). The shares of common stock issued in the Offerings are in addition to
approximately 34.3 million shares of common stock of the MONY Group distributed
to the aforementioned eligible policyholders. The Plan and the Offerings are
hereafter collectively referred to as the "Transaction".
The Company is primarily engaged in the business of providing a wide range
of life insurance, annuity, and investment products to higher income
individuals, particularly family builders, pre-retirees, and small business
owners. The Company distributes its products primarily through its career agency
sales force. The Company primarily sells its products in all 50 of the United
States, the District of Columbia, the U.S. Virgin Islands, Guam and the
Commonwealth of Puerto Rico.
On December 31, 1998, MONY Life acquired Sagamore Financial Corporation,
the parent company of U.S. Financial Life Insurance Company ("USFL") for a
purchase price of $48 million. USFL is a special-risk carrier based in Ohio,
which distributes its products in 41 states through brokerage general agencies.
The acquisition was accounted for as a purchase. In conjunction therewith, MONY
Life recorded $18.8 million of goodwill which will be amortized over 20 years.
2. INVESTMENT AGREEMENT:
On December 30, 1997, affiliates of Goldman, Sachs & Co. (the "Investors"),
one of the underwriters for the Offerings, entered into an investment agreement
with MONY (the "Investment Agreement"), pursuant to which: (i) The Investors
purchased, for $115.0 million (the "Consideration"), Surplus Notes issued by
MONY (the "MONY Notes") with an aggregate principal amount equal to the
Consideration (see Note 15), and (ii) the Investor purchased, for $10.0 million,
warrants (the "Warrants") to purchase from the Holding Company (after giving
effect to the initial public offering) in the aggregate 7.0% of the fully
diluted Common Stock as of the first date following such effectiveness on which
shares of Common Stock were first issued to eligible policyholders (December 24,
1998).
3. THE CLOSED BLOCK:
On November 16, 1998, the Company established a closed block (the "Closed
Block") of certain participating insurance policies as defined in the Plan (the
"Closed Block Business"). In conjunction therewith, the Company allocated assets
to the Closed Block expected to produce cash flows which, together with
anticipated revenues from the Closed Block Business, are reasonably expected to
be sufficient to support the Closed Block Business, including but not limited
to, provision for payment of claims and surrender benefits, certain expenses and
taxes, and for continuation of current payable
F-87
<PAGE> 173
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividend scales in effect at the date of Demutualization, assuming the
experience underlying such dividend scales continues, and for appropriate
adjustments in such scales if the experience changes. The assets allocated to
the Closed Block and the aforementioned revenues inure solely to the benefit of
the owners of policies included in the Closed Block.
The assets and liabilities allocated to the Closed Block are recorded in
the Company's financial statements at their historical carrying values. The
carrying value of the assets allocated to the Closed Block are less than the
carrying value of the Closed Block liabilities at the Plan Effective Date. The
excess of the Closed Block liabilities over the Closed Block assets at the Plan
Effective Date represents the total estimated future post-tax contribution
expected to emerge from the operation of the Closed Block, which will be
recognized in the Company's income over the period the policies and the
contracts in the Closed Block remain in force.
In determining the amount of assets to be allocated to the Closed Block,
management made certain estimates and assumptions regarding the expected cash
flows from the Closed Block assets and the Closed Block Business, including
estimates and assumptions regarding investment cash flows, mortality,
persistency, and expenses which are to be funded in the Closed Block. The
estimated net cash flows assumed in determining the Closed Block funding
consisted of premiums from policies included in the Closed Block, investment
income from Closed Block assets, proceeds from maturities and dispositions of
Closed Block assets, less benefits paid on Closed Block policies, certain
expenses (including taxes) funded in the Closed Block, and dividends on Closed
Block policies based on current payable dividend scales. To the extent that the
actual cash flows, subsequent to the Plan Effective Date, from the assets
allocated to the Closed Block and the Closed Block Business are, in the
aggregate, more favorable than assumed in establishing the Closed Block, total
dividends paid to the Closed Block policyholders in future years will be greater
than the total dividends that would have been paid to such policyholders if the
current payable dividend scales had been continued. Conversely, to the extent
that the actual cash flows, subsequent to the Plan Effective Date, from the
assets allocated to the Closed Block and the Closed Block Business are, in the
aggregate, less favorable than assumed in establishing the Closed Block, total
dividends paid to the Closed Block policyholders in future years will be less
than the total dividends that would have been paid to such policyholders if the
current payable dividend scales had been continued. Accordingly, the recognition
of the aforementioned estimated future post-tax contribution expected to emerge
from the operation of the Closed Block is not affected by the aggregate actual
experience of the Closed Block assets and the Closed Block Business subsequent
to the Plan Effective Date, except in the unlikely event that the Closed Block
assets and the actual experience of the Closed Block Business subsequent to the
Plan Effective Date are not sufficient to pay the guaranteed benefits on the
Closed Block policies, in which case the Company will be required to fund any
such deficiency from its general account assets outside of the Closed Block.
In addition, MONY Life has undertaken to reimburse the Closed Block from
its general account assets outside the Closed Block for any reduction in
principal payments due on the Series A Notes (which have been allocated to the
Closed Block) pursuant to the terms thereof, as described in Note 9. Since the
Closed Block will be funded to provide for payment of guaranteed benefits and
the continuation of current payable dividends on the policies included therein,
it will not be necessary to use general funds to pay guaranteed benefits unless
the Closed Block Business experiences very substantial ongoing adverse
experience in investment, mortality, persistency or other experience factors.
The Company regularly (at least quarterly) monitors the experience from the
Closed Block and may make changes to the dividend scale, when appropriate, to
ensure that the profits are distributed to the Closed Block policyholders in a
fair and equitable manner. In addition, periodically the New York Insurance
Department requires the filing of an independent auditor's report on the
operations of the Closed Block.
F-88
<PAGE> 174
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of the Closed Block are presented as a single line item in the
Company's statements of income entitled, "Contribution from the Closed Block".
Prior to the establishment of the Closed Block the results of the assets and
policies comprising the Closed Block were reported in various line items in the
Company's income statements, including: premiums, investment income, net
realized gains and losses on investments, benefits, amortization of deferred
acquisition costs, etc. In addition, all assets and liabilities allocated to the
Closed Block will be reported in the Company's balance sheet separately under
the captions "Closed Block assets" and "Closed Block liabilities", respectively.
Accordingly, certain line items in the Company's financial statements subsequent
to the establishment of the Closed Block reflect material reductions in reported
amounts, as compared to years prior to the establishment of the Closed Block,
while having no effect on net income.
The pre-tax Contribution from the Closed Block includes only those
revenues, benefit payments, dividends, premium taxes, state guaranty fund
assessments, and investment expenses considered in funding the Closed Block.
However, many expenses associated with operating the Closed Block and
administering the policies included therein were excluded from and, accordingly,
are not funded in the Closed Block. These expenses are reported in the Company's
statement of operations, outside of the Contribution from the Closed Block,
consistent with how they are funded. Such expenses are reported in the separate
line items to which they apply based on the nature of such expenses. Federal
income taxes applicable to the Closed Block, which are funded in the Closed
Block, are reflected as a component of federal income tax expense in the
Company's statement of operations. Since many expenses related to the Closed
Block are funded outside the Closed Block, operating costs and expenses outside
the Closed Block are disproportionate to the level of business outside the
Closed Block.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with GAAP. Prior to 1996, MONY, as a mutual life insurance company,
prepared its financial statements in conformity with accounting practices
prescribed or permitted by the New York State Insurance Department ("SAP"),
which accounting practices were considered to be GAAP for mutual life insurance
companies. As of January 1, 1996, MONY adopted Financial Accounting Standards
Board ("FASB") Interpretation No. 40, Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises (the
"Interpretation"), and Statement of Financial Accounting Standards ("SFAS") No.
120, Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long Duration Participating Policies (the
"Standard"). The Interpretation and the Standard require mutual life insurance
companies to adopt all applicable authoritative GAAP pronouncements in their
general purpose financial statements. Accordingly, the initial effect of
applying the Interpretation and the Standard has been reported retroactively
through the restatement of previously issued financial statements presented
herein for comparative purposes (see Note 18). Certain reclassifications have
been made in the amounts presented for prior periods to conform those periods to
the current presentation.
During 1997, the Company adopted SFAS No. 130, Reporting Comprehensive
Income and SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, which were issued by the FASB in June of 1997. SFAS No. 130
established standards for reporting and display of comprehensive income and its
components in general purpose financial statements. SFAS No. 131 established
standards for the way that public business enterprises report information about
operating segments in their annual and interim financial statements. SFAS No.
131 also established standards for disclosures about an enterprise's products
and services, geographic areas, and major customers. All periods presented
herein reflect the provisions of both SFAS No. 130 and SFAS 131.
F-89
<PAGE> 175
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pension and Other Postretirements Benefits", which is effective for fiscal
years beginning after December 15, 1997. SFAS 132 revises and standardizes
disclosure required by SFAS 87, SFAS 88 and SFAS 106. The Company had adopted
this standard for its 1998 fiscal year (see Note 6).
The preparation of financial statements in conformity with GAAP 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 significantly
from those estimates. The most significant estimates made in conjunction with
the preparation of the Company's financial statements include those used in
determining (i) deferred policy acquisition costs, (ii) the liability for future
policy benefits, and (iii) valuation allowances for mortgage loans and real
estate to be disposed of, and impairment writedowns for real estate held for
investment.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and those partnerships in which the Company has a majority voting
interest. All significant intercompany accounts and transactions have been
eliminated.
Minority interest related to partnerships that are consolidated, which is
included in Accounts Payable and Other Liabilities, amounted to $33.5 million
and $48.7 million at December 31, 1998 and 1997, respectively.
Transaction
In connection with the Demutualization on the Plan Effective Date, eligible
policyholders received, in the aggregate, approximately $20.6 million of cash,
$13.2 million of policy credits and 34.3 million shares of common stock of the
MONY Group in exchange for their membership interest in MONY. The
demutualization was accounted for as a reorganization. Accordingly, the
Company's retained earnings at the Plan Effective Date (net of aforementioned
cash payments and policy credits which were charged directly to retained
earnings) were reclassified to "Common stock" and "Capital in excess of par".
Also, on the Plan Effective Date, the MONY Group consummated the Offerings.
In conjunction therewith, approximately 12.9 million shares of its common stock
were issued at an initial public offering price of $23.50 per share. Net
proceeds from the Offerings totaled $282.5 million. Of the net proceeds,
approximately $221.9 million was contributed to the Company.
In addition, the capital of the Company includes $10.0 million relating to
the Warrants issued by MONY Group(see Note 2), which as a subsidiary of the
Company prior to the Plan Effective Date, was recorded in the Company's
consolidated financial statements as minority interest.
Valuation of Investments and Realized Gains and Losses
All of the Company's fixed maturity securities are classified as
available-for-sale and are reported at estimated fair value. The Company's
equity securities are comprised of investments in common stocks and limited
partnership interests. The Company's investments in common stocks are classified
as available-for-sale and are reported at estimated fair value. The Company
accounts for its investments in limited partnership interests in accordance with
the equity method of accounting or the cost method of accounting depending upon
the Company's percentage of ownership of the partnership and the date it was
acquired. In general, partnership interests acquired after May 18, 1995 are
accounted for in accordance with the equity method of accounting if the
Company's ownership interest exceeds
F-90
<PAGE> 176
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3 percent, whereas, if the partnership was acquired prior to May 18, 1995, the
equity method would be applied only if the Company's ownership interest exceeded
20 percent. In all other circumstances the Company accounts for its investment
in limited partnership interests in accordance with the cost method. Unrealized
gains and losses on fixed maturity securities and common stocks are reported as
a separate component of other comprehensive income, net of deferred income taxes
and an adjustment for the effect on deferred policy acquisition costs that would
have occurred if such gains and losses had been realized. The cost of fixed
maturity securities and common stock is adjusted for impairments in value deemed
to be other than temporary. These adjustments are reflected as realized losses
on investments. Realized gains and losses on sales of investments are determined
on the basis of specific identification.
Mortgage loans on real estate are stated at their unpaid principal
balances, net of valuation allowances. Valuation allowances are established for
the excess of the carrying value of a mortgage loan over its estimated fair
value when the loan is considered to be impaired. Mortgage loans are considered
to be impaired when, based on current information and events, it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Estimated fair value is based on either
the present value of expected future cash flows discounted at the loan's
original effective interest rate, or the loan's observable market price (if
considered to be a practical expedient), or the fair value of the collateral if
the loan is collateral dependent and if foreclosure of the loan is considered
probable. The provision for loss is reported as a realized loss on investment.
Loans in foreclosure and loans considered to be impaired, other than
restructured loans, are placed on non-accrual status. Interest received on
non-accrual status mortgage loans is included in investment income in the period
received. Interest income on restructured mortgage loans is accrued at the
restructured loans' interest rate.
Real estate held for investment, as well as related improvements, is
generally stated at cost less depreciation. Depreciation is determined using the
straight-line method over the estimated useful life of the asset (which may
range from 5 to 40 years). Cost is adjusted for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. In performing the review for recoverability, management
estimates the future cash flows expected from real estate investments, including
the proceeds on disposition. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the real estate, an impairment loss is
recognized. Impairment losses are based on the estimated fair value of the real
estate, which is generally computed using the present value of expected future
cash flows from the real estate discounted at a rate commensurate with the
underlying risks. Real estate acquired in satisfaction of debt is recorded at
estimated fair value at the date of foreclosure. Real estate that management
intends to sell is classified as "to be disposed of ". Real estate to be
disposed of is reported at the lower of its current carrying value or estimated
fair value less estimated sales costs. Changes in reported values relating to
real estate to be disposed of and impairments of real estate held for investment
are reported as realized gains or losses on investments.
Policy loans are carried at their unpaid principal balances.
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments with an original maturity of three months or
less.
Recognition of Insurance Revenue and Related Benefits
Premiums from participating and non-participating traditional life, health
and annuity policies with life contingencies are recognized as premium income
when due. Benefits and expenses are matched with such income so as to result in
the recognition of profits over the life of the contracts. This
F-91
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MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
match is accomplished by means of the provision for liabilities for future
policy benefits and the deferral and subsequent amortization of policy
acquisition costs.
Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenue from these types of
products consists of amounts assessed during the period against policyholders'
account balances for policy administration charges, cost of insurance and
surrender charges. Policy benefits charged to expense include benefit claims
incurred in the period in excess of the related policyholders' account balance.
Deferred Policy Acquisition Costs ("DAC")
The costs of acquiring new business, principally commissions, underwriting,
agency, and policy issue expenses, all of which vary with and are primarily
related to the production of new business, are deferred.
For participating traditional life policies, DAC is amortized over the
expected life of the contracts (30 years) as a constant percentage based on the
present value of estimated gross margins expected to be realized over the life
of the contracts using the expected investment yield. At December 31, 1998, the
expected investment yield was 7.32%, for the year 1999 with subsequent years
grading down to an ultimate aggregate yield of 7.12% in year 2013. Estimated
gross margins include anticipated premiums and investment results less claims
and administrative expenses, changes in the net level premium reserve and
expected annual policyholder dividends.
For universal life products and investment-type products, DAC is amortized
over the expected life of the contracts (ranging from 15 to 30 years) as a
constant percentage based on the present value of estimated gross profits
expected to be realized over the life of the contracts using the initial locked
in contract rate. The contract rate is 8% for all products. Estimated gross
profits arise principally from investment results, mortality and expense margins
and surrender charges.
DAC is subject to recoverability testing at the time of policy issuance and
loss recognition testing at the end of each accounting period. The effect on the
amortization of DAC of revisions in estimated experience is reflected in
earnings in the period such estimates are revised. In addition, the effect on
the DAC asset that would result from the realization of unrealized gains
(losses) is recognized through an offset to Other Comprehensive Income as of the
balance sheet date.
Future Policy Benefits and Policyholders' Account Balances
Future policy benefit liabilities for participating traditional life
policies are calculated using a net level premium method on the basis of
actuarial assumptions equal to guaranteed mortality and dividend fund interest
rates. The liability for annual dividends represents the accrual of annual
dividends earned. Dividend fund interest assumptions range from 2.0 percent to
5.5 percent.
Policyholders' account balances for universal life and investment-type
contracts represent an accumulation of gross premium payments plus credited
interest less expense and mortality charges and withdrawals. The weighted
average interest crediting rate for universal life products was approximately
5.7 percent, 5.8 percent, and 5.8 percent for the years ended December 31, 1998,
1997, and 1996, respectively. The weighted average interest crediting rate for
investment-type products was approximately 5.6 percent for each of the years
ended December 31, 1998, 1997, and 1996, respectively.
Dividends to Policyholders
Dividends to policyholders, which are substantially all on the Closed Block
Business (see Note 3) are determined annually by the Board of Directors of MONY
Life. The aggregate amount of
F-92
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MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
policyholders' dividends is related to actual interest, mortality, morbidity and
expense experience for the year.
Participating Business
At December 31, 1998 and 1997, participating business, substantially all of
which is in the Closed Block, represented approximately 72.6% and 81.0% of the
Company's life insurance in force, and 84.2% and 88.4% of the number of life
insurance policies in force, respectively. For each of the years ended December
31, 1998 and 1997, participating business, represented approximately 99.9% of
life insurance premiums.
Property, Equipment, and Leasehold Improvements
Property, equipment and leasehold improvements, which are reported in Other
Assets, are stated at cost less accumulated depreciation and amortization.
Depreciation is determined using the straight-line method over the estimated
useful lives of the related assets which generally range from 3 to 40 years.
Amortization of leasehold improvements is determined using the straight-line
method over the lesser of the unexpired lease term or the estimated useful life
of the improvement.
Accumulated depreciation of property and equipment and amortization of
leasehold improvements was $71.0 million and $58.5 million at December 31, 1998
and 1997, respectively. Related depreciation and amortization expense was $11.4
million, $8.8 million, and $5.9 million for the years ended December 31, 1998,
1997, and 1996, respectively.
Federal Income Taxes
The Company files a consolidated federal income tax return with its life
and non-life affiliates, except Sagamore Financial Corporation and its
subsidiaries. Deferred income tax assets and liabilities are recognized based on
the difference between financial statement carrying amounts and income tax bases
of assets and liabilities using enacted income tax rates and laws.
Reinsurance
The Company has reinsured certain of its life insurance and investment
contracts with other insurance companies under various agreements. Amounts due
from reinsurers are estimated based on assumptions consistent with those used in
establishing the liabilities related to the underlying reinsured contracts.
Policy and contract liabilities are reported gross of reserve credits. Gains on
reinsurance are deferred and amortized into income over the remaining life of
the underlying reinsured contracts.
In determining whether a reinsurance contract qualifies for reinsurance
accounting, SFAS No. 113 requires that there be a "reasonable possibility" that
the reinsurer may realize a "significant loss" from assuming insurance risk
under the contract. In making this assessment, the Company projects the results
of the policies reinsured under the contract under various scenarios and
assesses the probability of such results actually occurring. The projected
results represent the present value of all the cash flows under the reinsurance
contract. The Company generally defines a "reasonable possibility" as having a
probability of at least 10%. In assessing whether the projected results of the
reinsured business constitute a "significant loss", the Company considers: (i)
the ratio of the aggregate projected loss, discounted at an appropriate rate of
interest (the "aggregate projected loss"), to an estimate of the reinsurer's
investment in the contract, as hereafter defined, and (ii) the ratio of the
aggregate projected loss to an estimate of the total premiums to be received by
the reinsurer under the contract discounted at an appropriate rate of interest.
F-93
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MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reinsurer's investment in a reinsurance contract consists of amounts
paid to the ceding company at the inception of the contract (e.g. expense
allowances and the excess of liabilities assumed by the reinsurer over the
assets transferred to the reinsurer under the contract) plus the amount of
capital required to support such business consistent with prudent business
practices, regulatory requirements, and the reinsurer's credit rating. The
Company estimates the capital required to support such business based on what it
considers to be an appropriate level of risk-based capital in light of
regulatory requirements and prudent business practices.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business of
the Company. Separate account assets are subject to general account claims only
to the extent that the value of such assets exceeds the separate account
liabilities. Investments held in separate accounts and liabilities of the
separate accounts are reported separately as assets and liabilities.
Substantially all separate account assets are reported at estimated fair value.
Investment income and gains or losses on the investments of separate accounts
accrue directly to contractholders and, accordingly, are not reflected in the
Company's consolidated statements of income and cash flows. Fees charged to the
separate accounts by the Company (including mortality charges, policy
administration fees and surrender charges) are reflected in the Company's
revenues.
Consolidated Statements of Cash Flows -- Non-cash Transactions
For the years ended December 31, 1998, 1997, and 1996, respectively, real
estate of $5.0 million, $14.4 million, and $29.1 million was acquired in
satisfaction of debt. At December 31, 1998 and 1997, the Company owned real
estate acquired in satisfaction of debt of $143.2 million and $326.1 million,
respectively. Other non-cash transactions, which are reflected in the statement
of cash flows as a reconciling item from net income to net cash provided by
operating activities, consisted primarily of stock distributions from the
Company's partnership investments and payment-in-kind for interest due on
certain fixed maturity securities.
Extraordinary Item -- Demutualization Expenses
The accompanying consolidated statements of income and comprehensive income
reflect extraordinary charges (net of taxes) of $27.2 million and $13.3 million
for the years ended December 31, 1998 and 1997, respectively, relating to costs
associated with the Demutualization.
New Accounting Pronouncements
In January 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments". SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty fund and
other insurance-related assessments and when it may recognize an asset for a
portion or all of the assessment liability or paid assessment that can be
recovered through premium tax offsets or policy surcharges. SOP 97-3 is
effective for fiscal years beginning after December 15, 1998. Adoption of SOP
97-3 is not expected to have a material effect on the Company's financial
condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 provides guidance for determining when an
entity should capitalize or expense external and internal costs of computer
software developed or obtained for internal use. SOP 98-1 is effective for
fiscal years
F-94
<PAGE> 180
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning after December 15, 1998. Adoption of SOP 98-1 is not expected to have
a material effect on the Company's financial condition or results of operations.
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires all derivatives to be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The corresponding derivative gains and
losses should be reported based on the hedge relationship that exists, if there
is one. Changes in the fair value of derivatives that are not designated as
hedges or that do not meet the hedge accounting criteria in SFAS 133, are
required to be reported in earnings. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. Adoption of SFAS 133 is not expected to have a
material effect on the Company's financial condition or results of operations.
5. DEFERRED POLICY ACQUISITION COSTS:
Policy acquisition costs deferred and amortized in 1998, 1997 and 1996 are
as follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year.................................. $1,007.1 $1,095.2 $1,047.1
Balance transferred to the Closed Block at November 16,
1998...................................................... (562.3) -- --
-------- -------- --------
444.8 1,095.2 1,047.1
-------- -------- --------
Cost deferred during the year............................... 124.7 141.0 145.3
Amortized to expense during the year........................ (122.0) (181.2) (158.2)
Effect on DAC from unrealized gains (losses) (see Note 4)... (7.8) (47.9) 61.0
-------- -------- --------
Balance, end of year........................................ $ 439.7 $1,007.1 $1,095.2
======== ======== ========
</TABLE>
6. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS:
Pension Plans --
The Company has a qualified pension plan covering substantially all of its
salaried employees. The provisions of the plan provide both (a) defined benefit
accruals based on (i) years of service, (ii) the employee's final average annual
compensation and (iii) wage bases or benefits under Social Security and (b)
defined contribution accruals based on a Company matching contribution equal to
100% of the employee's elective deferrals under the incentive savings plan for
employees up to 3% of the employee's eligible compensation and an additional 2%
of eligible compensation for each active participant. The Company did not make
any contribution in the current year or prior years under Section 404 of the
Internal Revenue Code ("IRC") because the plan was fully funded under Section
412 of IRC.
In April 1996, the Company offered special benefits to its employees who
elected by May 31, 1996, voluntary termination of employment (special
termination benefits). The special termination benefits represented benefits in
excess of that which would normally be due to employees electing to retire
early. These excess benefits were calculated based on grants of additional years
of service and age used in the benefit calculation. All of the special
termination benefits relating to the Company's qualified plan, which aggregated
$10.6 million, were paid from the plan's assets. All the benefits paid relating
to the Company's non-qualified plan, which aggregated $3.4 million, were paid
directly from the Company's assets. As a result of the aforementioned early
retirement offer, the Company recorded a charge of $14.0 million in 1996 and
reflected this amount in Other Operating Costs and Expenses.
The assets of the qualified pension plan are primarily invested in MONY
Pooled Accounts which include common stock, real estate, private placement debt
securities and bonds. At December 31, 1998
F-95
<PAGE> 181
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997, $457.3 million and $430.3 million were invested in the MONY Pooled
Accounts. Benefits of $26.3 million, $24.2 million and $30.7 million were paid
by this plan for the years ended December 31, 1998, 1997, and 1996,
respectively.
The Company also sponsors a non-qualified employee excess pension plan,
which provides both defined benefits and defined contribution accruals in excess
of Internal Revenue Service limits to certain employees. The benefits are based
on years of service and the employees final average annual compensation. Pension
benefits are paid from the Company's general account.
Postretirement Benefits --
The Company provides certain health care and life insurance for retired
employees and field underwriters. The Company amortizes its unamortized
postretirement transaction obligation over a period of twenty years.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT POINT
INCREASE DECREASE
------------- -------------
<S> <C> <C>
Effect on total of service and interest cost components..... $ 27,328 $ (29,218)
Effect on postretirement benefit obligation................. 294,001 (328,624)
</TABLE>
F-96
<PAGE> 182
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents the change in the benefit obligation, change in plan
assets and other information with respect to the Company's qualified and
non-qualified defined benefit pension plans and other benefits which represents
the Company's postretirement benefit obligation:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ------------------
1998 1997 1998 1997
------ ------ ------- -------
($ IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year............... $390.1 $348.5 $ 101.1 $ 93.4
Service cost.......................................... 14.4 12.9 1.3 1.0
Interest cost......................................... 26.3 27.5 6.4 6.7
Actuarial (gain)/loss................................. 2.0 33.0 (3.0) 7.4
Benefit paid.......................................... (34.5) (31.8) (5.8) (7.4)
------ ------ ------- -------
Benefit obligation at end of year..................... 398.3 390.1 100.0 101.1
------ ------ ------- -------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year........ $432.5 $393.4 $ $
Actual return on plan assets.......................... 56.7 66.5
Employer contribution................................. 5.1 4.4 5.8 7.4
Benefits and expenses paid............................ (34.5) (31.8) (5.8) (7.4)
------ ------ ------- -------
Fair value of plan assets at end of year.............. 459.8 432.5 -- --
------ ------ ------- -------
Funded status......................................... 61.5 42.4 (100.0) (101.1)
Unrecognized actuarial loss/(gain).................... 16.4 19.7 11.1 14.3
Unamortized transition obligation..................... (19.8) (27.3) 42.7 45.8
Unrecognized prior service cost....................... 9.7 10.7 0.0 0.0
------ ------ ------- -------
Net amount recognized................................. $ 67.8 $ 45.5 $ (46.2) $ (41.0)
====== ====== ======= =======
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost.................................. $103.0 $ 89.4 $ 0.0 $ 0.0
Accrued benefit liability............................. (39.5) (45.3) (46.2) (41.0)
Intangible asset...................................... 1.4 4.3 0.0 0.0
Accumulated other comprehensive income................ 2.9 (2.9) 0.0 0.0
------ ------ ------- -------
Net amount recognized................................. $ 67.8 $ 45.5 $ (46.2) $ (41.0)
====== ====== ======= =======
</TABLE>
The Company's qualified plan had assets of $459.8 million and $432.5
million as of December 31, 1998 and December 31, 1997, respectively. The
projected benefit obligation and accumulated benefit obligation for the
qualified plan were $350.8 million and $311.5 million as of December 31, 1998
and $333.2 million and $306.3 million as of December 31, 1997, respectively.
The projected benefit obligation and accumulated benefit obligation for the
unfunded non-qualified defined benefit pension plan, which is unfunded, were
$47.5 million and $39.5 million as of December 31, 1998, and $56.9 million and
$45.3 million as of December 31, 1997, respectively.
F-97
<PAGE> 183
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1998 1997 1998 1997
------ ------ ----- -----
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate............................................... 6.75% 6.75% 6.75% 6.75%
Expected return on plan assets.............................. 10.0% 10.0% -- --
Rate of compensation increase............................... 5.0% 5.0% 5.0% 5.0%
</TABLE>
For measurement purposes, an 11% percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 6% percent for 2010 and remain at that level
thereafter.
Components of net periodic benefit cost for the pension and other
post-retirement plans are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------- -----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost............................ $ 14.4 $ 12.9 $ 13.9 $ 1.3 $ 1.0 $ 1.8
Interest cost........................... 26.3 27.5 25.1 6.4 6.7 6.4
Expected return on plan assets.......... (41.8) (38.0) (36.7) 0.0 0.0 0.0
Amortization of prior service cost...... 1.0 1.0 1.0 0.0 0.0 0.0
Special termination benefits............ 0.0 0.0 14.0 0.0 0.0 0.0
Recognized net actuarial loss........... 0.0 0.1 0.1 0.1 0.0 0.4
Amortization of transition items........ (7.5) (7.5) (7.5) 3.1 3.1 3.1
------ ------ ------ ----- ----- -----
Net periodic benefit cost............... $ (7.6) $ (4.0) $ 9.9 $10.9 $10.8 $11.7
====== ====== ====== ===== ===== =====
</TABLE>
The Company also has a qualified money purchase pension plan covering
substantially all career field underwriters. Company contributions of 5% of
earnings plus an additional 2% of such earnings in excess of the social security
wage base are made each year. In addition, after-tax voluntary field underwriter
contributions of up to 10% of earnings are allowed. At December 31, 1998 and
1997, the fair value of plan assets was $222.2 million and $211.0 million,
respectively. For the years ended December 31, 1998, 1997, and 1996, the Company
contributed $3.2 million, $3.3 million and $3.7 million to the plan,
respectively, which amounts are reflected in Other Operating Costs and Expenses.
The Company has a non-qualified defined contribution plan, which is
unfunded. The non-qualified defined contribution plan projected benefit
obligation which equaled the accumulation benefit was $48.4 million and $42.9
million as of December 31, 1998 and 1997, respectively. The non-qualified
defined contribution plan's net periodic expense was $6.6 million, $9.4 million
and $7.2 million for the years ending December 31, 1998, 1997 and 1996,
respectively.
The Company also has incentive savings plans in which substantially all
employees and career field underwriters are eligible to participate. The Company
matches field underwriter contributions up to 2% of eligible compensation and
may also make an additional profit sharing contribution for non-officer
employees. As with the Employee Excess Plan, the Company also sponsors
non-qualified excess defined contribution plans for both the field underwriter
retirement plan and the incentive savings plan for field underwriters.
7. FEDERAL INCOME TAXES:
The Company files a consolidated federal income tax return with its life
and non-life affiliates, except Sagamore Financial Corporation and its
subsidiaries.
F-98
<PAGE> 184
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal income taxes have been calculated in accordance with the provisions
of the Internal Revenue Code of 1986, as amended. A summary of the Federal
income tax expense (benefit) is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Federal income tax (benefit) expense:
Current................................................... $ 84.6 $104.1 $ 76.6
Deferred.................................................. 18.1 (46.8) (32.6)
------ ------ ------
Total............................................. $102.7 $ 57.3 $ 44.0
====== ====== ======
</TABLE>
Federal income taxes reported in the consolidated statements of income are
different from the amounts determined by multiplying the earnings before federal
income taxes by the statutory federal income tax rate of 35%. The sources of the
difference and the tax effects of each are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
($ IN MILLIONS)
<S> <C> <C> <C>
Tax at statutory rate....................................... $102.7 $65.7 $ 35.2
Differential earnings amount................................ -- (5.8) 12.8
Dividends received deduction................................ (1.4) (0.5) (0.5)
Other....................................................... 1.4 (2.1) (3.5)
------ ----- ------
Provision for income taxes.................................. $102.7 $57.3 $ 44.0
====== ===== ======
</TABLE>
The Company's federal income tax returns for years through 1991 have been
examined by the Internal Revenue Service ("IRS"). No material adjustments were
proposed by the IRS as a result of these examinations. In the opinion of
management, adequate provision has been made for any additional taxes which may
become due with respect to open years.
The components of deferred tax liabilities and assets at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
($ IN MILLIONS)
<S> <C> <C>
Deferred policy acquisition costs........................... $127.9 $251.4
Fixed maturities and equity securities...................... 68.2 65.8
Other (net)(1).............................................. 71.3 27.3
Nonlife subsidiaries........................................ 8.3 0.0
------ ------
Total deferred tax liabilities.............................. 275.7 344.5
------ ------
Policyholder and separate account liabilities............... 113.8 176.0
Accrued expenses............................................ 70.4 55.2
Deferred compensation and benefits.......................... 24.0 8.6
Policyholder dividends...................................... 39.8 39.1
Real estate and mortgages................................... 29.4 54.1
------ ------
Total deferred tax assets................................... 277.4 333.0
------ ------
Net deferred tax asset/(liability).......................... $ 1.7 $(11.5)
====== ======
</TABLE>
- ---------------
(1) Includes $25.7 million and $20.9 million at December 31, 1998 and 1997 of
deferred taxes relating to net unrealized gains on fixed maturity securities
in the AEGON Portfolio (see Note 9).
F-99
<PAGE> 185
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is required to establish a valuation allowance for any portion
of the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that it will realize the
benefit of the deferred tax assets and, therefore, no such valuation allowance
has been established.
8. LEASES:
The Company has entered into various operating lease agreements for office
space, furniture and equipment. These leases have remaining non-cancelable lease
terms in excess of one year. Total rental expense for these operating leases
amounted to $8.6 million in 1998, $14.5 million in 1997 and $15.1 million in
1996. The future minimum rental obligations under these leases at December 31,
1998 are as follows ($ in millions):
<TABLE>
<S> <C>
1999........................................................ $ 8.6
2000........................................................ 7.3
2001........................................................ 6.1
2002........................................................ 7.7
2003........................................................ 7.5
Later years................................................. 106.7
------
$143.9
======
</TABLE>
9. THE GROUP PENSION TRANSACTION:
On December 31, 1993 (the "Group Pension Transaction Date"), the Company
entered into an agreement (the "Agreement") with AEGON USA, Inc. ("AEGON") under
which the Company transferred a substantial portion of its group pension
business (hereafter referred to as the "Group Pension Transaction"), including
its full service group pension contracts, consisting primarily of tax-deferred
annuity, 401(k) and managed funds lines of business, to AEGON's wholly owned
subsidiary, AUSA Life Insurance Company, Inc. ("AUSA"). The Company also
transferred to AUSA the corporate infrastructure supporting the group pension
business, including data processing systems, facilities and regional offices.
AUSA was newly formed by AEGON solely for the purpose of facilitating this
transaction. In connection with the transaction, the Company and AEGON have
entered into certain service agreements. These agreements, among other things,
provide that the Company will continue to manage the transferred assets, and
that AUSA will continue to provide certain administrative services to the
Company's remaining group pension contracts not included in the transfer.
The transferred group pension business consisted of approximately $6.4
billion in group pension assets and liabilities, which was comprised of
approximately $2.8 billion of general account assets and liabilities, and $3.6
billion of separate account assets and liabilities. The transfer was initially
structured in the form of indemnity reinsurance, however, the Agreement
contemplated that the transfer would be restructured in the form of assumption
reinsurance as soon as practicable following the consent of contractholders to
assumption of their contracts. Substantially all of the contractholders
consented to the assumption of their contracts by AUSA.
In addition, pursuant to the Agreement, MONY agreed to make a $200 million
capital investment in AEGON by purchasing $150 million face amount of Series A
Notes and $50 million face amount of Series B Notes (hereinafter referred to as
the "Notes"). The Series A Notes pay interest at 6.44 percent per annum and the
Series B Notes pay interest at 6.24 percent per annum. Both the Series A Notes
and the Series B Notes mature on December 31, 2002. MONY's investment in the
Series A Notes was intended to provide AEGON with the funding necessary to
capitalize AUSA.
F-100
<PAGE> 186
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into the Group Pension Transaction due to downgrades of
its financial strength ratings resulting from the deterioration of its financial
position during the period from 1989 through the early 1990s. The Company's
group pension business was considered to be particularly sensitive to heightened
withdrawal and surrender activity due to requirements of many pension fund
advisors that insurance carriers have a minimum financial strength rating
consistent with a "AA" claims-paying ability rating from Standard & Poor's. In
light of the downgrades and certain highly publicized failures of life insurance
companies in the 1990s resulting from abnormally high withdrawal and surrender
activity, management became concerned with respect to the Company's ability to
sustain inordinate amounts of such activity and entered into the Group Pension
Transaction to preserve the value of such business. The transaction allowed the
Company to: (i) place the transferred Group Pension Business in a higher rated
entity which significantly diminished the risk of adverse persistency with
respect to such business, and (ii) retain all the profits resulting from the
$6.4 billion of deposits on contracts in force and transferred to AEGON on the
Group Pension Transaction Date (the "Existing Deposits"). As consideration for
the transaction, MONY remunerated AEGON by transferring to AUSA (i) the
intangible value associated with MONY's group pension franchise, including
established customer relationships, (ii) rights to substantially all the profits
associated with any new deposits made after the Group Pension Transaction Date
on the contracts which were in force and transferred by MONY to AUSA on the
Group Pension Transaction Date, and (iii) rights to substantially all the
profits on any new business generated subsequent to the Group Pension
Transaction Date.
In accordance with GAAP, the transaction did not constitute a sale because
the Company retained substantially all the risks and rewards associated with the
Existing Deposits. Accordingly, the Company continues to reflect the transferred
assets and liabilities on its balance sheet under separate captions entitled
"Assets transferred in Group Pension Transaction" and "Liabilities transferred
in Group Pension Transaction". In addition, the Company reports in its GAAP
earnings the profits from the Existing Deposits as discussed below.
Pursuant to the Agreement, MONY receives from AUSA (i) payments on an
annual basis through December 31, 2002 (the "Group Pension Payments") equal to
all of the earnings from the Existing Deposits, (ii) a final payment (the "Final
Value Payment") at December 31, 2002 based on the remaining fair value of the
Existing Deposits, and (iii) a contingent payment (the "New Business Growth
Payment") at December 31, 2002 based on new business growth subsequent to the
Transaction Date. However, the level of new business growth necessary for MONY
to receive the New Business Growth Payment make it unlikely that MONY will ever
receive any such payment.
With respect to the Group Pension Payments, the annual results from the
Existing Deposits are measured on a basis in accordance with the Agreement (such
basis hereafter referred to as the "Earnings Formula") which is substantially
the same as GAAP, except that; (i) asset impairments on fixed maturity
securities are only recognized when such securities are designated with an NAIC
rating of "6", and (ii) no impairment losses are recognized on mortgage loans
until such loans are disposed of or at the time, and in the calculation, of the
Final Value Payment.
Earnings which emerge from the Existing Deposits pursuant to the
application of the Earnings Formula are recorded in the Company's financial
statements only after adjustments (primarily to recognize asset impairments in
accordance with SFAS Nos. 114 and 115) to reflect such earnings on a basis
entirely in accordance with GAAP (such earnings hereafter referred to as the
"Group Pension Profits"). Losses which arise from the application of the
Earnings Formula for any annual period will be reflected in the Company's
results of operations (after adjustments to reflect such losses in accordance
with GAAP) only up to the amount for which the Company is at risk (as described
below), which at any time is equal to the then outstanding principal amount of
the Series A Notes.
F-101
<PAGE> 187
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating losses reported in any annual period pursuant to the Earnings
Formula are carried forward to reduce any earnings in subsequent years reported
pursuant to the Earnings Formula. Any resultant deficit remaining at December
31, 2002 will be deducted from the Final Value Payment and New Business Growth
Payment, if any, due to the Company. If a deficit still remains, it will be
applied (as provided for in the Agreement) as an offset against the principal
payment due to the Company upon maturity of the Series A Notes.
For the years ended December 31, 1998, 1997 and 1996, AUSA reported
earnings to the Company pursuant to the application of the Earnings Formula of
$49.8 million, $55.7 million, and $66.7 million, respectively, and the Company
recorded Group Pension Profits of $56.8 million, $60.0 million and $59.5
million, respectively. In addition, the Company earned $12.8 million, $17.7
million, and $23.0 million of interest income on the Notes during the
aforementioned years. From 1994 through 1996, the Company reinvested an
aggregate of $169 million of the aforementioned profits and interest in
additional Series A notes (the "Additional Notes") with a face amount equal to
the amount reinvested. The Additional Notes paid interest at 1% above the
two-year U.S. Treasury rate in effect at the time of their issuance. All of the
Additional Notes were redeemed at face value by AEGON during 1997. At December
31, 1998, the remaining Series A notes held by the Company consisted of the
$150.0 million face amount of Series A Notes it acquired on December 31, 1993.
The following sets forth certain summarized financial information relating
to the Group Pension Transaction as of and for the periods indicated, including
information regarding: (i) the general account assets transferred to support the
Existing Deposits in the Group Pension Transaction (such
F-102
<PAGE> 188
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets hereafter referred to as the "AEGON Portfolio"), (ii) the transferred
separate account assets and liabilities, and (iii) the components of revenue and
expense comprising the Group Pension Profits:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1998 1997
-------- --------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
General Account
Fixed maturities: available for sale, at estimated fair
value (amortized cost; $1,564.6 and $1,585.4,
respectively)......................................... $1,620.2 $1,645.0
Mortgage loans on real estate.......................... 214.8 347.9
Real estate held for investment........................ 37.9 50.4
Cash and cash equivalents.............................. 21.7 24.5
Accrued investment income.............................. 27.6 33.1
-------- --------
Total general account assets........................... 1,922.2 2,100.9
Separate account assets................................... 3,829.6 3,614.0
-------- --------
Total assets...................................... $5,751.8 $5,714.9
======== ========
LIABILITIES:
General Account(1)
Policyholders' account balances........................ $1,824.9 $1,991.0
Other liabilities...................................... 24.0 33.7
-------- --------
Total general account liabilities................. 1,848.9 2,024.7
Separate account liabilities(2)........................... 3,829.6 3,614.0
-------- --------
Total liabilities................................. $5,678.5 $5,638.7
======== ========
</TABLE>
- ---------------
(1) Includes general account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $121.7
million and $142.8 million as of December 31, 1998 and 1997, respectively.
(2) Includes separate account liabilities transferred in connection with the
Group Pension Transaction pursuant to indemnity reinsurance of $33.3 million
and $31.1 million as of December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Product policy fees......................................... $ 23.3 $ 23.7 $ 24.7
Net investment income....................................... 154.7 169.3 192.4
Net realized gains (losses) on investments.................. 7.2 7.1 (7.4)
------ ------ ------
Total revenues.................................... 185.2 200.1 209.7
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances........ 108.7 117.3 125.9
Other operating costs and expenses.......................... 19.7 22.8 24.3
------ ------ ------
Total benefits and expenses....................... 128.4 140.1 150.2
Group Pension Profits............................. $ 56.8 $ 60.0 $ 59.5
====== ====== ======
</TABLE>
F-103
<PAGE> 189
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Maturity Securities
At December 31, 1998 and 1997, there were no fixed maturity securities in
the AEGON Portfolio deemed to have other than temporary impairments in value. In
addition, there were no fixed maturity securities at such dates which have been
non-income producing for the preceding twelve months.
At December 31, 1998 and 1997, the carrying value of problem fixed
maturities (as hereafter defined -- see Note 11) held in the AEGON Portfolio was
$0.0 million and $24.4 million, respectively. In addition, at such dates the
carrying value of potential problem fixed maturities held in the AEGON Portfolio
was $3.7 million and $7.4 million, respectively. Also, none of the fixed
maturity securities held in the AEGON Portfolio at December 31, 1998 and 1997 or
prior thereto had been restructured.
The amortized cost and estimated fair value of fixed maturity securities
held in the AEGON Portfolio, by contractual maturity dates, (excluding scheduled
sinking funds), as of December 31, 1998 are as follows ($ in millions):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 162.6 $ 164.1
Due after one year through five years....................... 752.2 778.2
Due after five years through ten years...................... 304.6 322.2
Due after ten years......................................... 37.7 38.3
-------- --------
Subtotal.................................................... 1,257.1 1,302.8
Mortgage and asset backed securities........................ 307.5 317.4
-------- --------
Total............................................. $1,564.6 $1,620.2
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
The net change in unrealized investment gains (losses) represents the only
component of other comprehensive income generated by the AEGON Portfolio for the
years ended December 31, 1998, 1997, 1996 and prior thereto. Following is a
summary for the AEGON Portfolio of the change in unrealized investment gains
(losses) (see Note 10):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
($ IN MILLIONS)
<S> <C> <C> <C>
CHANGE IN UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $(4.0) $(1.5) $(41.6)
----- ----- ------
</TABLE>
Mortgage Loans on Real Estate
Mortgage loans on real estate in the AEGON Portfolio at December 31, 1998
and 1997 consist of the following ($ in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Mortgage loans.............................................. $230.8 $361.5
Less: valuation allowances.................................. (16.0) (13.6)
------ ------
Mortgage loans, net of valuation allowance.................. $214.8 $347.9
====== ======
</TABLE>
F-104
<PAGE> 190
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the valuation allowances with respect to the AEGON Portfolio
for 1998, 1997 and 1996 is as follows ($ in millions):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Balance, beginning of year.................................. $13.6 $22.2 $31.8
Increase (decrease) in allowance............................ 2.9 (5.1) (8.7)
Reduction due to pay downs and pay offs..................... ( 0.5) (1.6) 0.0
Transfers to real estate.................................... 0.0 (1.9) (0.9)
----- ----- -----
Balance, end of year........................................ $16.0 $13.6 $22.2
===== ===== =====
</TABLE>
Impaired mortgage loans along with related valuation allowances with
respect to the AEGON Portfolio at December 31, 1998 and 1997 are as follows
($ in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Investment in impaired mortgage loans (before valuation
allowances):
Loans that have valuation allowances...................... $ 71.1 $ 56.6 $ 92.2
Loans that do not have valuation allowances............... 4.4 45.8 53.5
------ ------ ------
Subtotal.......................................... 75.5 102.4 145.7
Valuation allowances........................................ (11.4) (5.8) (9.8)
------ ------ ------
Impaired mortgage loans, net of valuation allowances........ $ 64.1 $ 96.6 $135.9
====== ====== ======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans.
During the years ended December 31, 1998, 1997, and 1996, the average
recorded investment in impaired mortgage loans with respect to the AEGON
Portfolio was approximately $80.4 million, $116.3 million, and $127.4 million,
respectively. For the years ended December 31, 1998, 1997, and 1996
approximately $4.5 million, $6.5 million, and $13.1 million, respectively, of
interest income on impaired loans with respect to the AEGON Portfolio was
earned.
At December 31, 1998 and 1997, the carrying values of mortgage loans which
were non-income producing for the twelve months preceding such dates with
respect to the AEGON Portfolio were $0.0 million and $21.6 million,
respectively.
At December 31, 1998 and 1997 the AEGON Portfolio held restructured
mortgage loans of $59.7 million and $88.5 million, respectively. Interest income
of $4.0 million, $6.6 million, and $10.4 million was recognized on restructured
mortgage loans for the years ended December 31, 1998, 1997, and 1996,
respectively. Gross interest income on these loans that would have been recorded
in accordance with the original terms of such loans amounted to approximately
$6.9 million, $9.2 million, and $11.1 million for the years ended December 31,
1998, 1997, and 1996, respectively.
F-105
<PAGE> 191
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the maturity distribution of mortgage loans
held in the AEGON Portfolio as of December 31, 1998 ($ in millions).
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
CARRYING % OF
VALUE TOTAL
-------- -----
<S> <C> <C>
Due in one year or less..................................... $ 64.3 29.9%
Due after one year through five years....................... 101.2 47.1
Due after five years through ten years...................... 42.1 19.6
Due after ten years......................................... 7.2 3.4
------ -----
Total............................................. $214.8 100.0%
====== =====
</TABLE>
Real Estate
As of December 31, 1998 and 1997, the AEGON Portfolio had real estate held
for investment of $37.9 million and $50.4 million, respectively, which includes
$18.2 million and $25.6 million, respectively, of impairments taken upon
foreclosure of mortgage loans. Losses recorded during the years ended December
31, 1998, 1997 and 1996 related to impairments taken upon foreclosure were $0.0
million, $4.3 million, and $16.8 million, respectively.
Real estate is net of accumulated depreciation of $2.5 million, and $1.8
million at December 31, 1998 and 1997, respectively. Depreciation expense of
$1.1 million, $1.4 million, and $0.7 million, was recorded for the years ended
December 31, 1998, 1997, and 1996, respectively.
There was no real estate included in the AEGON Portfolio which was
non-income producing for the twelve months preceding December 31, 1998, 1997,
and 1996, respectively.
10. INVESTMENT INCOME, REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES), AND
OTHER COMPREHENSIVE INCOME:
Net investment income for the years ended December 31, 1998, 1997 and 1996
was derived from the following sources ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities............................................ $418.1 $422.5 $392.4
Equity securities........................................... 53.6 53.5 54.5
Mortgage loans.............................................. 118.7 137.1 159.2
Real estate................................................. 44.4 56.2 84.1
Policy loans................................................ 72.5 82.2 80.2
Other investments (including cash & short-terms)............ 23.1 22.4 29.3
------ ------ ------
Total investment income..................................... 730.4 773.9 799.7
Investment expenses......................................... 42.1 40.9 48.1
------ ------ ------
Net investment income....................................... $688.3 $733.0 $751.6
====== ====== ======
</TABLE>
F-106
<PAGE> 192
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net realized gains (losses) on investments for the years ended December 31,
1998, 1997 and 1996 are summarized as follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $ 8.3 $ 7.3 $ 6.2
Equity securities........................................... 6.9 35.8 30.0
Mortgage loans.............................................. 5.4 10.4 8.4
Real estate................................................. 127.6 20.1 20.8
Other invested assets....................................... 20.5 (1.5) 10.5
------ ----- -----
Net realized gains on investments........................... $168.7 $72.1 $75.9
====== ===== =====
</TABLE>
Following is a summary of the change in unrealized investment gains
(losses), net of related deferred income taxes and adjustment for deferred
policy acquisition costs (see Note 5), which are reflected in Accumulated Other
Comprehensive Income for the periods presented. The net change in unrealized
investment gains (losses) and the change in the Company's minimum pension
liability represent the only components of other comprehensive income for the
years ended December 31, 1998, 1997 and 1996 as presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME
Change in Unrealized Gains (Losses):
Fixed maturities............................................ $ 66.8 $ 98.7 $(126.7)
Equity securities........................................... 24.2 0.6 13.8
Other....................................................... (1.8) 3.7 1.0
------ ------ -------
Subtotal.................................................... 89.2 103.0 (111.9)
AEGON Portfolio (See Note 9)................................ (4.0) (1.5) (41.6)
------ ------ -------
Subtotal.................................................... 85.2 101.5 (153.5)
Effect on unrealized gains (losses) on investments
attributable to:
DAC....................................................... (6.7) (47.9) 61.0
Deferred federal income taxes............................. (28.4) (17.7) 32.6
Net unrealized gains and DAC transferred to the Closed
Block..................................................... (18.7) -- --
------ ------ -------
Change in unrealized gains (losses) on investments, net..... 31.4 35.9 (59.9)
Minimum pension liability adjustment (See Note 6)........... 2.9 (2.9) --
------ ------ -------
Other comprehensive income............................. $ 34.3 $ 33.0 $ (59.9)
====== ====== =======
</TABLE>
The following table sets forth the reclassification adjustments required
for the years ended December 31, 1998, 1997, and 1996 to avoid double-counting
in comprehensive income items that are
F-107
<PAGE> 193
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included as part of net income for a period that also had been part of other
comprehensive income in earlier periods ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
($ IN MILLIONS)
<S> <C> <C> <C>
RECLASSIFICATION ADJUSTMENTS
Unrealized gains (losses) on investments arising during
period.................................................... $ 39.3 $ 53.5 $ (44.8)
Reclassification adjustment for gains included in net
income.................................................... (7.9) (17.6) (15.1)
------ ------ -------
Unrealized gains (losses) on investments, net of
reclassification adjustments.............................. $ 31.4 $ 35.9 $ (59.9)
====== ====== =======
</TABLE>
Unrealized gains (losses) on investments, (excluding net unrealized gains
(losses) and DAC on assets allocated to the Closed Block), reported in the above
table for the years ended December 31, 1998, 1997 and 1996 are net of income tax
expense (benefit) of $24.1 million, $8.2 million, and $(40.8) million,
respectively, and $0.8 million, $(30.2) million, and $(75.5) million,
respectively, relating to the effect of such unrealized gains (losses) on DAC.
Reclassification adjustments, (excluding net unrealized gains (losses) and
DAC on assets allocated to the Closed Block), reported in the above table for
the years ended December 31, 1998, 1997 and 1996 are net of income tax expense
of $4.3 million, $9.5 million and $8.2 million, respectively, and $(7.5)
million, $(17.7) million and $(14.5) million, respectively, relating to the
effect of such amounts on DAC.
11. INVESTMENTS:
Fixed Maturity Securities Available-For-Sale:
The amortized cost, gross unrealized gains and losses, and estimated fair
value of fixed maturity securities available for sale as of December 31, 1998
and 1997 are as follows ($ in millions):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------- --------------- ------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- ------ ------ ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury securities and obligations
of U.S government agencies.......... $ 63.8 $ 131.4 $ 3.2 $ 2.3 $ 0.0 $ 0.1 $ 67.0 $ 133.6
Collateralized mortgage Obligations:
Government agency-backed............ 180.2 398.9 3.3 6.6 0.0 0.3 183.5 405.2
Non-agency backed................... 85.7 112.4 3.4 4.4 0.0 0.0 89.1 116.8
Other asset-backed securities:
Government agency-backed............ 20.0 68.1 1.0 1.3 0.0 0.3 21.0 69.1
Non-agency backed................... 347.5 474.4 12.2 17.5 0.9 0.3 358.8 491.6
Foreign governments................... 16.6 0.0 1.2 0.0 0.6 0.0 17.2 0.0
Utilities............................. 385.2 719.1 17.2 30.6 5.1 2.2 397.3 747.5
Corporate bonds....................... 1,908.0 3,852.2 75.3 141.4 9.0 14.7 1,974.3 3,978.9
-------- -------- ------ ------ ----- ----- -------- --------
Total bonds.................. 3,007.0 5,756.5 116.8 204.1 15.6 17.9 3,108.2 5,942.7
Redeemable preferred stocks........... 23.5 7.9 0.6 0.1 0.3 0.6 23.8 7.4
-------- -------- ------ ------ ----- ----- -------- --------
Total........................ $3,030.5 $5,764.4 $117.4 $204.2 $15.9 $18.5 $3,132.0 $5,950.1
======== ======== ====== ====== ===== ===== ======== ========
</TABLE>
The carrying value of the Company's fixed maturity securities at December
31, 1998 and 1997 is net of adjustments for impairments in value deemed to be
other than temporary of $15.1 million and $7.3 million, respectively.
F-108
<PAGE> 194
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no fixed maturity securities at December 31, 1998 and 1997,
which have been non-income producing for the twelve months preceding such dates.
The Company classifies fixed maturity securities which, (i) are in default
as to principal or interest payments, or (ii) are to be restructured pursuant to
commenced negotiations, (iii) went into bankruptcy subsequent to acquisition, or
(iv) are deemed to have other than temporary impairments to value as "problem
fixed maturity securities". At December 31, 1998 and 1997, the carrying value of
problem fixed maturities held by the Company was $33.9 million and $30.2
million, respectively. In addition, at December 31, 1998 and 1997, the Company
held $8.6 million and $0.0 million of fixed maturity securities which had been
restructured. Gross interest income that would have been recorded in accordance
with the original terms of restructured fixed maturity securities amounted to
$0.9 million and $0.0 million for the years ended December 31, 1998 and 1997,
respectively. Gross interest income on these fixed maturity securities included
in net investment income aggregated $1.3 million and $0.0 million for the years
ended December 31, 1998 and 1997, respectively.
The amortized cost and estimated fair value of fixed maturity securities,
by contractual maturity dates (excluding scheduled sinking funds) as of December
31, 1998, are as follows ($ in millions):
<TABLE>
<CAPTION>
1998
-----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 108.2 $ 108.4
Due after one year through five years....................... 667.9 685.9
Due after five years through ten years...................... 998.5 1,040.8
Due after ten years......................................... 622.5 644.5
-------- --------
Subtotal.......................................... 2,397.1 2,479.6
Mortgage- and asset-backed securities....................... 633.4 652.4
-------- --------
Total............................................. $3,030.5 $3,132.0
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of fixed maturity securities including those in the
Closed Block during 1998, 1997 and 1996 were $396.9 million, $225.0 million and
$197.3 million, respectively. Gross gains of $10.6 million, $5.2 million, and
$4.1 million and gross losses of $2.9 million, $2.6 million, and $4.3 million
were realized on these sales, respectively.
Equity Securities
The cost, gross unrealized gains and losses, and estimated fair value of
marketable and nonmarketable equity securities at December 31, 1998 and 1997 are
as follows ($ in millions):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- -------------- ------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
------ ------ ------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable equity securities....... $233.6 $165.3 $ 48.7 $30.2 $ 6.7 $ 4.9 $275.6 $190.6
Nonmarketable equity securities.... 128.2 101.4 65.7 53.0 12.3 7.2 181.6 147.2
------ ------ ------ ----- ----- ----- ------ ------
$361.8 $266.7 $114.4 $83.2 $19.0 $12.1 $457.2 $337.8
====== ====== ====== ===== ===== ===== ====== ======
</TABLE>
F-109
<PAGE> 195
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales of equity securities during 1998, 1997 and 1996 were
$165.0 million, $234.1 million and $164.7 million, respectively. Gross gains of
$24.4 million, $44.4 million, and $35.9 million and gross losses of $17.2
million, $4.7 million, and $4.5 million were realized on these sales,
respectively.
12. MORTGAGE LOANS ON REAL ESTATE AND REAL ESTATE:
Mortgage loans on real estate at December 31, 1998 and 1997 consist of the
following ($ in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Commercial mortgage loans................................... $ 546.1 $ 963.5
Agricultural and other loans................................ 465.4 521.5
-------- --------
Total loans................................................. 1,011.5 1,485.0
Less: valuation allowances.................................. ( 23.2) (54.9)
-------- --------
Mortgage loans, net of valuation allowances................. $ 988.3 $1,430.1
======== ========
</TABLE>
An analysis of the valuation allowances for 1998, 1997 and 1996 is as
follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Balance, beginning of year.................................. $54.9 $67.0 $79.6
Increase (decrease) in allowance............................ 11.9 1.4 (4.2)
Reduction due to pay downs and pay offs..................... (16.0) (12.7) (0.6)
Transfers to real estate.................................... (4.0) (0.8) (7.8)
Transfers to the Closed Block............................... (23.6) -- --
----- ----- -----
Balance, end of year........................................ $23.2 $54.9 $67.0
===== ===== =====
</TABLE>
Impaired mortgage loans along with related valuation allowances were as
follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Investment in impaired mortgage loans (before valuation
allowances):
Loans that have valuation allowances........................ $116.7 $199.1
Loans that do not have valuation allowances................. 29.5 167.1
------ ------
Subtotal............................................... 146.2 366.2
Valuation allowances........................................ 10.9 32.8
------ ------
Impaired mortgage loans, net of valuations
allowances............................................ $135.3 $333.4
====== ======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans or
loans on which impairment writedowns were taken prior to the adoption of SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan".
During 1998 and 1997, the average recorded investment in impaired mortgage
loans was approximately $300.1 million and $349.9 million, respectively
including Closed Block mortgages. During 1998, 1997, and 1996, the Company
recognized $24.2 million, $28.5 million, and $33.3 million, respectively, of
interest income on impaired loans. See Note 19.
At December 31, 1998 and 1997, the carrying values of mortgage loans which
were non-income producing for the twelve months preceding such dates were $12.9
million and $21.1 million, respectively.
F-110
<PAGE> 196
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 and 1997, the Company had restructured mortgage loans
of $110.6 million (excluding the Closed Block) and $242.7 million, respectively.
Interest income of $13.0 million, $20.3 million and $19.8 million was recognized
on restructured mortgage loans in 1998, 1997, and 1996, respectively. Gross
interest income on these loans that would have been recorded in accordance with
the original terms of such loans amounted to approximately $18.1 million, $26.7
million, and $26.3 million in 1998, 1997 and 1996, respectively.
The following table summarizes the Company's real estate at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1997
------- -------
($ IN MILLIONS)
<S> <C> <C>
Real estate to be disposed of(1)............................ $393.7 $800.2
Impairment writedowns....................................... (50.2) (96.3)
Valuation allowance......................................... (30.6) (82.7)
------ ------
Carrying value of real estate to be disposed of............. $312.9 $621.2
====== ======
Real estate held for investment(2).......................... $381.9 $533.6
Impairment writedowns....................................... (60.6) (37.7)
------ ------
Carrying value of real estate held for investment........... $321.3 $495.9
====== ======
</TABLE>
- ---------------
(1) Amounts presented as of December 31, 1998 and 1997 are net of $29.0 million
and $75.0 million, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
(2) Amounts presented as of December 31, 1998 and 1997 are net of $26.8 million
and $35.0 million, respectively, relating to impairments taken upon
foreclosure of mortgage loans.
An analysis of the valuation allowances relating to real estate classified
as to be disposed of for the years ended December 31, 1998, 1997 and 1996 is as
follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Balance, beginning of year.................................. $82.7 $46.0 $49.1
Increase due to transfers of properties to real estate to be
disposed of during the year............................... 1.7 66.1 11.6
Increases (decreases) in valuation allowances from the end
of the prior period on properties to be disposed of....... 5.0 (2.3) 5.2
Decrease as a result of transfers of valuation allowances to
held for investment....................................... (13.5) 0.0 0.0
Decrease as a result of sale................................ (45.3) (27.1) (19.9)
----- ----- -----
Balance, end of year........................................ $30.6 $82.7 $46.0
===== ===== =====
</TABLE>
Real estate is net of accumulated depreciation of $290.1 million and $494.4
million for 1998 and 1997, respectively, and depreciation expense recorded was
$26.6 million, $45.1 million and $48.3 million for the years ended December 31,
1998, 1997 and 1996, respectively.
At December 31, 1998 and 1997, the carrying value of real estate which was
non-income producing for the twelve months preceding such dates was $12.5
million and $34.5 million, respectively. Approximately 77.8% of such real estate
at December 31, 1998 consisted of land and the balance consisted of vacant
buildings.
The carrying value of impaired real estate as of December 31, 1998 and 1997
was $78.4 million and $62.3 million, respectively. The depreciated cost of such
real estate as of December 31, 1998 and 1997
F-111
<PAGE> 197
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was $189.1 million and $196.4 million before impairment writedowns of $110.7
million and $134.0 million, respectively. The aforementioned impairments
occurred primarily as a result of low occupancy levels and other market related
factors. Losses recorded during 1998, 1997, and 1996 related to impaired real
estate aggregated $5.9 million, $0.0 million, and $3.8 million, respectively,
and are included as a component of net realized gains on investments.
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments
approximate their carrying amounts except for long-term debt as described below.
The methods and assumptions utilized in estimating the fair values of the
Company's financial instruments are summarized as follows:
Fixed Maturities and Equity Securities
The estimated fair values of fixed maturity securities are based upon
quoted market prices, where available. The fair values of fixed maturity
securities not actively traded and other non-publicly traded securities are
estimated using values obtained from independent pricing services or, in the
case of private placements, by discounting expected future cash flows using a
current market interest rate commensurate with the credit quality and term of
the investments. Equity securities primarily consist of investments in common
stocks and limited partnership interests. The fair values of the Company's
investment in common stocks are determined based on quoted market prices, where
available. The fair value of the Company's investments in limited partnership
interests are based on amounts reported by such partnerships to the Company.
Mortgage Loans
The fair values of mortgage loans are estimated by discounting expected
future cash flows, using current interest rates for similar loans to borrowers
with similar credit risk. Loans with similar characteristics are aggregated for
purposes of the calculations. The fair value of mortgages in process of
foreclosure is the estimated fair value of the underlying collateral.
Policy Loans
Policy loans are an integral component of insurance contracts and have no
maturity dates. Management has determined that it is not practicable to estimate
the fair value of policy loans.
Long-term Debt
The fair value of long-term debt at December 31, 1998 was $419.9 million
and is determined based on contractual cash flows discounted at market rates.
The estimated fair values for non-recourse mortgage debt are determined by
discounting contractual cash flows at a rate which takes into account the level
of current market interest rates and collateral risk.
Separate Account Assets and Liabilities
The estimated fair value of assets held in Separate Accounts is based on
quoted market prices. The fair value of liabilities related to Separate Accounts
is the amount payable on demand, which includes surrender charges.
Investment-Type Contracts
The fair values of annuities are based on estimates of the value of
payments available upon full surrender. The fair values of the Company's
liabilities under guaranteed investment contracts are
F-112
<PAGE> 198
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated by discounting expected cash outflows using interest rates currently
offered for similar contracts with maturities consistent with those remaining
for the contracts being valued.
14. REINSURANCE:
Life insurance business is ceded on a yearly renewable term basis under
various reinsurance contracts. The Company's general practice is to retain no
more than $4.0 million of risk on any one person for individual products and
$6.0 million for last survivor products.
The Company has entered into coinsurance agreements with other insurers
related to a portion of its extended term insurance, guaranteed interest
contract and long-term disability claim liabilities and reinsures approximately
50% of its block of paid-up life insurance policies.
The following table summarizes the effect of reinsurance for the years
indicated:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Direct premiums (includes $78.4, $78.1 and $78.2 of accident
and health premiums for 1998, 1997, and 1996,
respectively)............................................. $ 728.7 $871.0 $889.4
Reinsurance Assumed......................................... 5.3 6.2 8.3
Reinsurance ceded (includes $(78.2), $(3.5), and $(3.4) of
accident and health premiums for 1998, 1997, and 1996,
respectively)............................................. (112.3) (38.6) (37.9)
------- ------ ------
Net premiums................................................ $ 621.7 $838.6 $859.8
======= ====== ======
Universal life and investment type product policy fee income
ceded..................................................... $ 8.9 $ 8.8 $ 8.5
======= ====== ======
Policyholders' benefits ceded............................... $ 107.3 $ 69.0 $ 44.6
======= ====== ======
Interest credited to policyholders' account balances
ceded..................................................... $ 6.5 $ 9.9 $ 14.5
======= ====== ======
</TABLE>
The Company is contingently liable with respect to ceded insurance should
any reinsurer be unable to meet its obligations under these agreements. To limit
the possibility of such losses, the Company evaluates the financial condition of
its reinsurers and monitors concentration of credit risk.
Effective December 31, 1997, the Company transferred all of its existing in
force disability income insurance business to a third party reinsurer under an
indemnity reinsurance contract and ceased writing new disability income
insurance business. As a result of this transaction, the Company recorded a loss
before tax of approximately $9.1 million for the year ended December 31, 1997.
15. DEBT:
The Company's debt at December 31, 1998 and 1997 consists of the following
($ in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
DEBT:
Surplus Notes............................................... $231.7 $219.6
Real Estate Mortgage Encumbrances........................... 94.6 155.8
Other....................................................... 49.1 48.2
------ ------
$375.4 $423.6
====== ======
</TABLE>
F-113
<PAGE> 199
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Surplus Notes
On December 31, 1997, the Company issued the MONY Notes in connection with
the Investment Agreement (see Note 2). The MONY Notes have a face amount of
$115.0 million, a coupon rate of interest of 9.5% per annum, and mature on
December 30, 2012. Interest on the MONY Notes is payable semi-annually and
principal is payable at maturity. Payment of interest on the MONY Notes may only
be made upon the prior approval of the New York State Superintendent of
Insurance.
On August 15, 1994, the Company issued Surplus Notes due August 15, 2024
with a face amount of $125.0 million. The notes were issued at a discount of
42.1% from the principal amount payable at maturity, resulting in net proceeds
after issuance expenses of approximately $70.0 million. The amount of such
original issue discount represents a yield of 11.25% per annum for the period
from August 15, 1994 until August 15, 1999. Interest on the notes will not
accrue until August 15, 1999; thereafter, interest on the notes is scheduled to
be paid on February 15 and August 15 of each year, commencing February 15, 2000,
at a rate of 11.25% per annum.
Payment of interest on the notes may only be made upon the prior approval
of the New York State Superintendent of Insurance. The Company amortizes the
discount using the interest method. For the years ended December 31, 1998, 1997,
and 1996, the Company recorded interest expense of $12.1 million, $10.8 million,
and $9.7 million, respectively, related to these notes.
Real Estate Mortgage Encumbrances
The Company has mortgage loans on certain of its real estate properties.
The interest rates on these loans range from 7.9% to 8.7%. Maturities range from
June 2000 to July 2009. For the years ended December 31, 1998, 1997 and 1996,
interest expense on such mortgage loans aggregated $9.0 million, $12.3 million,
and $12.9 million, respectively.
Other
During 1989, the Company entered into a transaction which is accounted for
as a financing arrangement involving certain real estate properties held for
investment. Pursuant to the terms of the agreement, the Company effectively
pledged the real estate properties as collateral for a loan of approximately
$35.0 million bearing simple interest at a rate of 8% per annum. Interest is
cumulative. Periodic interest payments are not required. All principal and
interest are effectively due at the maturity of the obligation (March 30, 2000)
which is subject to extension at the option of the creditor. However, interest
may be paid periodically subject to available cash flow from the real estate
properties. At December 31, 1998 and 1997, the outstanding balance of the
obligation including accrued interest was $42.4 million and $41.3 million,
respectively. Interest expense on the obligation of $3.1 million, $3.0 million,
and $2.9 million is reflected in Other Operating Costs and Expenses on the
statements of income for the years ended December 31, 1998, 1997 and 1996,
respectively.
In 1988, the Company financed one of its real estate properties under a
sales/leaseback arrangement. The facility was sold for $66.0 million, $56.0
million of which was in the form of an interest bearing note receivable and
$10.0 million in cash. The note is due January 1, 2009. The transaction is
accounted for as a financing. Accordingly, the facility remains on the Company's
books and continues to be depreciated. An obligation representing the total
proceeds on the sale was recorded by the Company at the effective date of the
transaction, and is reduced based on payments under the lease. The lease has a
term of 20 years beginning December 21, 1988 and requires minimum annual rental
payments of $7.1 million in 1999, $7.3 million in 2000, $7.4 million in 2001,
$7.6 million in 2002, $7.7 million in 2003 and $41.0 million thereafter. The
Company has the option to renew the lease at the end of the lease term.
F-114
<PAGE> 200
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to December 31, 1997, the Company had outstanding debt which
represented floating rate notes that were issued by a trust that qualified as a
Real Estate Mortgage Investment Conduit (REMIC) under Section 860 of the
Internal Revenue Code. For the years ended December 31, 1997 and 1996, the
Company recorded interest expense of $0.8 million and $3.3 million,
respectively, related to the REMIC. The weighted average interest rate on the
notes for the years ended December 31, 1997 and 1996 was 5.9%, and 5.8%,
respectively.
Prior to December 31, 1997, the Company had outstanding Eurobond debt. For
the years ended December 31, 1997 and 1996 interest expense on the Eurobonds
outstanding aggregated $2.1 million and $18.3 million, respectively. The
weighted average interest rate on such debt for the years ended December 31,
1997 and 1996 was 8.13%, and 8.2%, respectively.
At December 31, 1998, aggregate maturities of long-term debt based on
required principal payments for 1999 and the succeeding four years are $12.2
million, $87.0 million, $35.9 million, $0.5 million, and $0.5 million,
respectively, and $247.6 million thereafter.
16. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK:
Financial Instruments with Off-Balance Sheet Risk:
Pursuant to a securities lending agreement with a major financial
institution, the Company from time to time lends securities to approved
borrowers. At December 31, 1998 and 1997, securities loaned by the Company under
this agreement had a fair value of approximately $98.9 million and $36.4
million, respectively. The minimum collateral on securities loaned is 102
percent of the market value of the loaned securities. Such securities are marked
to market on a daily basis and the collateral is correspondingly increased or
decreased.
Concentration of Credit Risk:
At December 31, 1998 and 1997, the Company had no single investment or
series of investments with a single issuer (excluding U.S. Treasury securities
and obligations of U.S. government agencies) exceeding 3.5% and 1.9%,
respectively, of total cash and invested assets.
The Company's fixed maturity securities are diversified by industry type.
The industries that comprise 10% or more of the carrying value of the fixed
maturity securities at December 31, 1998 are Non-Government
Asset/Mortgage-Backed of $448.0 million (14.3%), Public Utilities of $412.9
million (13.2%), Consumer Goods and Services of $408.5 million (13.1%) and Other
Manufacturing of $391.3 million (12.5%).
At December 31, 1997 the industries that comprise 10% or more of the
carrying value of the fixed maturity securities were Other Manufacturing of
$804.9 million (13.5%), Public Utilities of $747.9 million (12.6%), Consumer
Goods and Services of $614.6 million (10.3%), Non-Government Asset/
Mortgage-Backed of $608.4 million (10.2%), and Government and Agencies of $607.9
million (10.2%).
The Company holds below investment grade fixed maturity securities with a
carrying value of $252.0 million at December 31, 1998. These investments consist
mostly of privately issued bonds which are monitored by the Company through
extensive internal analysis of the financial condition of the issuers and which
generally include protective debt covenants. At December 31, 1997, the carrying
value of the Company's investments in below investment grade fixed maturity
securities amounted to $304.3 million.
F-115
<PAGE> 201
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has significant investments in commercial and agricultural
mortgage loans and real estate (including joint ventures and partnerships). The
locations of property collateralizing mortgage loans and real estate investment
carrying values (in millions) at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C> <C> <C>
GEOGRAPHIC REGION:
Mountain.............................................. $ 392.5 24.2% $ 591.5 23.2%
West.................................................. 315.8 19.5 399.2 15.7
Southeast............................................. 292.2 18.0 616.3 24.2
Northeast............................................. 261.5 16.1 494.2 19.4
Midwest............................................... 220.7 13.6 253.7 10.0
Southwest............................................. 139.8 8.6 192.3 7.5
-------- ------ -------- -----
$1,622.5 100.0% $2,547.2 100.0%
======== ====== ======== =====
</TABLE>
The states with the largest concentrations of mortgage loans and real
estate investments at December 31, 1998 are: Arizona, $235.3 million (14.5%);
California $179.6 million (11.1%); New York, $140.7 million (8.7%); Georgia,
$96.9 million (6.0%); Illinois, $93.0 million (5.7%); New Jersey, $93.0 million
(5.7%); Texas, $91.1 million (5.6%).
As of December 31, 1998 and 1997, the real estate and mortgage loan
portfolio was also diversified as follows ($ in millions):
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings...................................... $ 585.4 36.1% $1,092.4 42.9%
Agricultural.......................................... 459.7 28.4 515.0 20.2
Hotel................................................. 264.9 16.3 344.8 13.5
Retail................................................ 164.1 10.1 332.1 13.0
Industrial............................................ 51.0 3.1 111.4 4.4
Other................................................. 72.7 4.5 84.6 3.4
Apartment Buildings................................... 24.7 1.5 66.9 2.6
-------- ------ -------- -----
$1,622.5 100.0% $2,547.2 100.0%
======== ====== ======== =====
</TABLE>
17. COMMITMENTS AND CONTINGENCIES:
(a) In late 1995 and thereafter, a number of purported class actions were
commenced in various state and federal courts against the Company alleging that
the Company engaged in deceptive sales practices in connection with the sale of
whole and/or universal life insurance policies in the 1980s and 1990s. Although
the claims asserted in each case are not identical, they seek substantially the
same relief under essentially the same theories of recovery (i.e. breach of
contract, fraud, negligent misrepresentation, negligent supervision and
training, breach of fiduciary duty, unjust enrichment and/or violation of state
insurance and/or deceptive business practice laws). Plaintiffs in these cases
(including the Goshen case discussed below) seek primarily equitable relief
(e.g., reformation, specific performance, mandatory injunctive relief
prohibiting the Company from canceling policies for failure to make required
premium payments, imposition of a constructive trust and/or creation of a claims
resolution facility to adjudicate any individual issues remaining after
resolution of all class-wide issues) as opposed to compensatory damages,
although they also seek compensatory damages in unspecified amounts. The Company
has answered the complaints in each action (except for one recently filed
F-116
<PAGE> 202
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
action and another being voluntarily held in abeyance), has denied any
wrongdoing, and has asserted numerous affirmative defenses.
On June 7, 1996, the New York State Supreme Court certified the Goshen
case, being the first of the aforementioned class actions filed, as a nationwide
class consisting of all persons or entities who have, or at the time of the
policy's termination had, an ownership interest in a whole or universal life
insurance policy issued by the Company and sold on an alleged "vanishing
premium" basis during the period January 1, 1982 to December 31, 1995. On March
27, 1997, the Company filed a motion to dismiss or, alternatively, for summary
judgment on all counts of the complaint. All of the other putative class actions
(with one exception discussed below) have been consolidated and transferred by
the Judicial Panel on Multidistrict Litigation to the United States District
Court for the District of Massachusetts, or are being voluntarily held in
abeyance pending the outcome of the Goshen case. The Massachusetts District
Court in the multidistrict litigation has entered an order essentially holding
all of the federal cases in abeyance pending the action of the Goshen case. On
October 21, 1997, the New York State Supreme Court granted the Company's motion
for summary judgment and dismissed all claims filed in the Goshen case against
the Company on the merits.
In addition to the matters discussed above, the Company is involved in
various other legal actions and proceedings in connection with its businesses.
The claimants in certain of these actions and proceedings seek damages of
unspecified amounts. During 1996, the Company paid $12.6 million to settle a
number of these claims in the state of Alabama and, accordingly, recorded such
amount in Other Operating Costs and Expenses for the year then ended.
With respect to all of the other aforementioned pending litigation, the
Company recorded a provision, which is reflected in Other Operating Costs and
Expenses, of $10.3 million, $0.0 million, and $27.6 million during the years
ended December 31, 1998, 1997 and 1996, respectively. While the outcome of such
matters cannot be predicted with certainty, in the opinion of management, any
additional liability beyond that recorded in the consolidated financial
statements at December 31, 1998, resulting from the resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, such assessments will not have a
material adverse effect on the consolidated financial position and the results
of operations of the Company.
The Company maintains two lines of credit with domestic banks totaling
$150.0 million with scheduled renewal dates in September 1999 and September
2003. Under these lines of credit, the Company is required to maintain a certain
statutory tangible net worth and debt to capitalization ratio. The Company has
not borrowed against the lines of credit since their inception.
At December 31, 1998, the Company had commitments to issue $39.2 million of
fixed rate agricultural loans with periodic interest rate reset dates. The
initial interest rates on such loans range from approximately 6.7% to 7.7%. In
addition, the Company had commitments to issue $76.4 million of fixed rate
commercial mortgage loans with interest rates ranging from 7.0% to 8.1%. The
Company had no commitments outstanding to purchase private fixed maturity
securities as of December 31, 1998. At December 31, 1998, the Company had
commitments to contribute capital to its equity partnership investment of $100.8
million.
(b) The order, referred to above, by the New York State Supreme Court on
October 21, 1997 was affirmed by the New York State Appellate Division, First
Department on March 18, 1999. All actions before the United States District
Court for the District of Massachusetts are still pending. In addition, on or
about February 25, 1999, a purported class action was filed against MONY Life
Insurance Company
F-117
<PAGE> 203
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of America ("MLOA") in Kentucky State Court covering policyholders who purchased
individual universal life insurance policies from MLOA after January 1, 1998
claiming breach of contract and violations of the Kentucky Consumer Protection
Act. On March 26, 1999, MLOA removed that action to the United States District
Court for the Eastern District of Kentucky, requested the Judicial Panel on
multidistrict litigation to transfer the action to the Judicial Panel of
multidistrict litigation for the District of Massachusetts and sought a stay of
further proceedings in the Kentucky District Court pending a determination on
multidistrict transfer. The Company intends vigorously to defend that
litigation. Due to the early stage of this litigation no determination can be
made as to whether the Company will incur any loss with respect to this matter.
18. STATUTORY FINANCIAL INFORMATION AND REGULATORY RISK-BASED CAPITAL:
Financial statements of the Company prepared in accordance with SAP for
filing with the New York State Insurance Department (the "Department") differ
from financial statements of the Company prepared in accordance with GAAP. The
principal differences result from the following: (i) subsidiaries are generally
accounted for under the equity method of accounting under SAP, whereas
subsidiaries in which the Company has a majority voting interest are
consolidated under GAAP; (ii) acquisition costs are charged to operations as
incurred under SAP rather than being amortized over the expected life of the
contracts under GAAP; (iii) certain assets designated as "non-admitted assets"
are charged directly to statutory surplus under SAP but are reflected as assets
under GAAP; (iv) federal income taxes are provided only on taxable income for
which income taxes are currently payable under SAP, whereas under GAAP deferred
income taxes are recognized; (v) an interest maintenance reserve ("IMR") and
asset valuation reserve ("AVR") are computed based on specific statutory
requirements and recorded under SAP, whereas under GAAP, such reserves are not
recognized; (vi) surplus notes are reported in statutory surplus under SAP,
whereas under GAAP, such notes are recorded as a liability; (vii) premiums for
universal life and investment-type products are recognized as revenue when due
under SAP, whereas under GAAP, such amounts are recorded as deposits and not
included in the Company's revenues; (viii) future policy benefit reserves are
based on specific statutory requirements regarding mortality and interest,
without consideration of withdrawals, and are reported net of reinsurance under
SAP, whereas, under GAAP, such reserves are calculated using a net level premium
method based on actuarial assumptions equal to guaranteed mortality and dividend
fund interest rates and are reported gross of reinsurance; (ix) investments in
bonds and redeemable preferred stocks are generally carried at amortized cost
under SAP, whereas under GAAP, such investments are classified as "available for
sale" and reported at estimated fair value; (x) pension expense for the
Company's qualified defined benefit pension plan is recognized when pension
contributions are deductible for federal income tax purposes, whereas under
GAAP, such expense is recognized over the service period for all eligible
employees; (xi) postretirement benefits are recognized for vested employees and
current retirees under SAP, whereas under GAAP, such expenses are recognized
over the service period for all eligible employees; (xii) methods used for
calculating real estate and mortgage loan impairments, valuation allowances, and
real estate depreciation under GAAP are different from those permitted under
SAP; and (xiii) certain contracts with reinsurers are accounted for as
reinsurance under SAP, whereas under GAAP, such contracts are accounted for as
deposits ("financial reinsurance").
MONY Life is restricted as to the amounts it may pay as dividends to the
MONY Group. Under the New York Insurance Law, the New York Superintendent has
broad discretion to determine whether the financial condition of a stock life
insurance company would support the payment of dividends to its shareholders.
The New York Insurance Department has established informal guidelines for the
Superintendent's determinations which focus upon, among other things, the
overall financial condition and profitability of the insurer under statutory
accounting practices.
F-118
<PAGE> 204
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Set forth below are reconciliations of the Company's combined capital and
surplus and the net change in capital and surplus, determined in accordance with
SAP, with its equity and net income reported in accordance with GAAP as of and
for each year ended December 31, 1998, 1997, and 1996, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C>
Capital and surplus......................................... $1,015.8 $ 835.4 $ 703.5
AVR......................................................... 341.8 348.6 317.7
-------- -------- --------
Capital and surplus, and AVR................................ 1,357.6 1,184.0 1,021.2
Adjustments:
Future policy benefits and policyholders' account
balances............................................... (254.8) (386.5) (356.8)
Deferred policy acquisition costs......................... 439.7 1,007.1 1,095.2
Valuation of investments:
Real estate............................................ (182.1) (343.9) (372.7)
Mortgage loans......................................... (30.9) (77.1) (91.2)
Fixed maturity securities.............................. 55.8 154.4 39.9
Other.................................................. 25.8 12.0 12.7
Deferred federal income taxes............................. 12.4 (6.6) (42.6)
Reinsurance............................................... (106.7) (108.7) (141.0)
Surplus notes............................................. (231.7) (219.6) (93.8)
Pension and postretirement benefits....................... 89.4 71.3 66.2
Non-admitted assets....................................... 95.3 51.5 40.8
Other, net................................................ (10.0) (17.3) (7.4)
Closed Block:
Investments............................................... 123.1 -- --
Future Policy Benefits and Policyholders' account
balance................................................ (130.5) -- --
Deferred Policy Acquisition costs......................... 554.6 -- --
Deferred Federal income taxes............................. (61.2) -- --
Other..................................................... (18.7) -- --
-------- -------- --------
GAAP Equity................................................. $1,727.1 $1,320.6 $1,170.5
======== ======== ========
Net change in capital and surplus........................... $ 180.4 $ 131.9 $ 14.5
Change in AVR............................................... (6.8) 30.9 32.4
-------- -------- --------
Net change in capital and surplus, and AVR.................. 173.6 162.8 46.9
Adjustments:
Future policy benefits and policyholders' account
balances............................................... 1.2 (29.7) (9.9)
Reinsurance............................................... 2.0 32.3 5.3
Deferred policy acquisition costs......................... (6.5) (40.2) (12.9)
Valuation of investments
Real estate............................................ 161.8 28.8 12.0
Mortgage loans......................................... 8.0 14.1 15.0
Fixed maturity securities.............................. (13.8) 8.6 (13.6)
Other.................................................. 2.8 6.3 (2.0)
Deferred federal income taxes............................. (13.7) 53.4 35.3
Issuance of surplus notes................................. -- (115.0) --
Amortization of discount on surplus notes................. (12.1) (10.8) (9.7)
Pension and postretirement benefits....................... 18.1 5.1 (4.1)
</TABLE>
F-119
<PAGE> 205
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C>
Capital contribution...................................... (221.9) -- --
Policy credits............................................ 13.2 -- --
Change in non-admitted assets............................. 43.8 10.7 0.9
Other, net................................................ 7.0 (9.3) (6.7)
-------- -------- --------
Net income.................................................. $ 163.5 $ 117.1 $ 56.5
======== ======== ========
</TABLE>
The difference between statutory basis "net income" and the "net change in
capital and surplus, and AVR" reflected in the reconciliation above primarily
relates to the AVR, unrealized gains (losses) on equity securities, reinsurance
gains, and certain contingency provisions which for statutory reporting purposes
are charged directly to surplus and are not reflected in statutory basis net
income. The combined statutory net income reported by the Company for the years
ended December 31, 1998, 1997, and 1996 was $9.7 million, $88.5 million, and
$62.7 million, respectively.
In March 1998, the National Association of Insurance Commissioners ("NAIC")
voted to adopt its Codification of Statutory Accounting Principles project
(referred to hereafter as "codification"). Codification is a modified form of
statutory accounting principles that will result in changes to the current NAIC
Accounting Practices and Procedures Manual applicable to insurance enterprises.
Although adoption of codification by all states is not a certainty, the NAIC has
recommended that all states enact codification as soon as practicable with an
effective date of January 1, 2001. It is currently anticipated that codification
will become an NAIC state accreditation requirement starting in 2002. In
addition, the American Institute of Certified Public Accountants and the NAIC
have agreed to continue to allow the use of certain permitted accounting
practices when codification becomes effective in 2001. Any accounting
differences from codification principles, however, must be disclosed and
quantified in the footnotes to the audited financial statements. Therefore,
codification will likely result in changes to what are currently considered
prescribed statutory insurance accounting practices.
Each insurance company's state of domicile imposes minimum risk-based
capital requirements. The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial balances
or various levels of activity based on the perceived degree of risk. Regulatory
compliance is determined by a ratio of the Company's regulatory total adjusted
capital, as defined by the NAIC, to its authorized control level risk-based
capital, as defined by the NAIC. Companies below specific trigger points or
ratios are classified within certain levels, each of which requires specified
corrective action. Each of the Company's insurance subsidiaries exceed the
minimum risk based capital requirements.
As part of their routine regulatory oversight, the Department recently
completed an examination of MONY for each of the five years in the period ended
December 31, 1996, and the Arizona State Insurance Department recently completed
an examination of MONY's wholly owned life insurance subsidiary, MONY Life
Insurance Company of America, for each of the three years in the period ended
December 31, 1996. The reports did not cite any matter which would result in a
material effect on the Company's financial condition or results of operations.
F-120
<PAGE> 206
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. CLOSED BLOCK -- SUMMARY FINANCIAL INFORMATION
Summarized financial information of the Closed Block as of December 31,
1998 and November 16, 1998 (date of establishment) and for the period from
November 16, 1998 through December 31, 1998 is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 16,
1998 1998
------------ ------------
($ IN MILLIONS)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Available for sale, at estimated fair value (amortized
cost, $3,423.0 and $3,433.9)........................... $3,574.0 $3,586.5
Mortgage loans on real estate............................... 431.7 464.9
Policy loans................................................ 1,208.4 1,205.7
Cash and cash equivalents................................... 134.4 46.9
Premiums receivable......................................... 16.8 17.9
Deferred policy acquisition costs........................... 554.6 562.3
Other assets................................................ 241.3 249.2
-------- --------
Total Closed Block assets......................... $6,161.2 $6,133.4
======== ========
LIABILITIES:
Future policy benefits...................................... $6,715.6 $6,681.8
Policyholders' account balances............................. 298.0 296.4
Other policyholders' liabilities............................ 163.5 171.3
Other liabilities........................................... 113.6 109.7
-------- --------
Total Closed Block liabilities.................... $7,290.7 $7,259.2
======== ========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 16,
1998 THROUGH
DECEMBER 31,
1998
---------------
($ IN MILLIONS)
<S> <C>
REVENUES:
Premiums.................................................... $100.1
Net investment income....................................... 46.6
Net realized gains (losses) on investments.................. 2.4
Other Income................................................ 0.6
------
Total revenues.................................... 149.7
------
BENEFITS AND EXPENSES:
Benefits to policyholders................................... 110.0
Interest credited to policyholders' account balances........ 1.0
Amortization of deferred policy acquisition costs........... 9.0
Dividends to policyholders.................................. 22.4
Other operating costs and expenses.......................... 1.6
------
Total benefits and expenses....................... $144.0
------
Contribution from the Closed Block.......................... $ 5.7
======
</TABLE>
F-121
<PAGE> 207
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998 and November 16, 1998, there were no adjustments in
the value of fixed maturity securities in the Closed Block deemed to be other
that temporary or fixed maturities which have been non-income producing for the
twelve months preceding such date.
At December 31, 1998 and November 16, 1998, there were no problem fixed
maturities which were restructured.
The amortized cost and estimated fair value of fixed maturity securities in
the Closed Block, by contractual maturity dates, (excluding scheduled sinking
funds) as of December 31, 1998 are as follows ($ in millions):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 47.0 $ 47.4
Due after one year through five years....................... 868.3 887.6
Due after five years through ten years...................... 1,443.4 1,524.8
Due after ten years......................................... 565.0 605.2
-------- --------
Subtotal.......................................... 2,923.7 3,065.0
Mortgage and asset backed securities........................ 499.3 509.0
-------- --------
$3,423.0 $3,574.0
======== ========
</TABLE>
Fixed maturity securities that are not due at a single maturity date have
been included in the preceding table in the year of final maturity. Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Mortgage loans on real estate in the Closed Block at December 31, 1998 and
November 16, 1998 consist of the following ($ in millions):
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 16,
1998 1998
------------ ------------
<S> <C> <C>
Commercial mortgage loans................................... $382.0 $395.7
Agricultural and other loans................................ 73.3 93.9
------ ------
Subtotal.......................................... 455.3 489.6
Less: valuation allowances.................................. 23.6 24.7
------ ------
Mortgage loans, net of valuation allowances................. $431.7 $464.9
====== ======
</TABLE>
An analysis of the valuation allowances for the period from November 16,
1998 through December 31, 1998 is as follows ($ in millions):
<TABLE>
<S> <C>
Beginning balance, November 16, 1998........................ $24.7
Increase (decrease) in allowance............................ (0.8)
Reduction due to pay downs and pay offs..................... (0.3)
-----
Balance, December 31, 1998.................................. $23.6
=====
</TABLE>
F-122
<PAGE> 208
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impaired mortgage loans along with related valuation allowances were as
follows as of December 31, 1998 ($ in millions):
Investment in impaired mortgage loans (before valuation allowances):
<TABLE>
<S> <C>
Loans that have valuation allowances........................ $117.9
Loans that do not have valuation allowances................. 31.1
------
Subtotal.......................................... 149.0
Valuation allowances........................................ (17.5)
------
Impaired mortgage loans, net of valuation allowances........ $131.5
======
</TABLE>
Impaired mortgage loans that do not have valuation allowances are loans
where the net present value of the expected future cash flows related to the
loan or the fair value of the collateral equals or exceeds the recorded
investment in the loan. Such loans primarily consist of restructured loans or
loans on which impairment writedowns were taken prior to the adoption of SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan".
During the period from November 16, 1998 through December 31, 1998, the
Closed Block's average recorded investment in impaired mortgage loans was
approximately $138.3 million and the Closed Block recognized $1.8 million of
interest income on impaired loans.
At December 31, 1998 the carrying values of mortgage loans in the Closed
Block which were non-income producing for the twelve months preceding such date
was $0.5 million, respectively.
At December 31, 1998, the Closed Block had restructured mortgage loans of
$54.8 million. Interest income of $0.7 million was recognized on such loans
during the period from November 16, 1998 through December 31, 1998. Gross
interest income on these loans that would have been recorded in accordance with
the original terms of such loans amounted to approximately $0.8 million.
20. SEGMENT INFORMATION:
The Company's business activities consist of the following: protection
product operations, accumulation product operations, mutual fund operations,
securities broker-dealer operations, insurance brokerage operations, and certain
insurance lines of business no longer written by the Company (the "run-off
businesses"). These business activities represent the Company's operating
segments. Except as discussed below, these segments are managed separately
because they either provide different products or services, are subject to
different regulation, require different strategies, or have different technology
requirements.
Management considers the Company's mutual fund operations to be an integral
part of the products offered by the Company's accumulation products segment,
since substantially all the mutual funds sold by the Company are offered
through, and in conjunction with, the products marketed by the accumulation
products segment. Accordingly, for management purposes (including, performance
assessment and making decisions regarding the allocation of resources), the
Company aggregates its mutual fund operations with its accumulation products
segment.
Of the aforementioned segments, only the protection products segment and
the accumulation products segment qualify as reportable segments in accordance
with FASB Statement No. 131. All of the Company's other segments are combined
and reported in an other products segment.
Products comprising the protection products segment primarily include a
wide range of individual life insurance products, including: permanent and last
survivor whole life, term life, universal life, variable universal life, group
life, and group universal life. In addition, included in the protection
F-123
<PAGE> 209
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
products segment are: (i) the assets and liabilities transferred pursuant to the
Group Pension Transaction, as well as the Group Pension Profits (see Note 9),
(ii) the Closed Block assets and liabilities, as well as the Contribution from
the Closed Block, and (iii) the Company's disability income insurance business.
Products comprising the accumulation products segment primarily include fixed
annuities, non-participating interest sensitive products (including; single
premium deferred annuities, flexible premium deferred annuities, immediate
annuities, and flexible premium variable annuities), proprietary mutual funds,
investment management services, and certain other financial services products.
The Company's other products segment primarily consists of the securities
broker-dealer operation, the insurance brokerage operation, and the run-off
businesses. The securities broker-dealer operation markets the Company's
proprietary investment products and, in addition, provides customers of the
Company's protection and accumulation products access to other non-proprietary
investment products (including stocks, bonds, limited partnership interests,
tax-exempt unit investment trusts and other investment securities). The
insurance brokerage operation provides the Company's field agency force with
access to life, annuity, small group health and specialty insurance products
written by other carriers to meet the insurance and investment needs of its
customers. The run-off businesses primarily consist of group life and health
business, as well as group pension business that was not included in the Group
Pension Transaction (see Note 9).
Set forth in the table below is certain financial information with respect
to the Company's operating segments as of and for each of the years ended
December 31, 1998, 1997 and 1996, as well as amounts not allocated to the
segments. Except for various allocations discussed below, the accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates the performance of each
operating segment based on profit or loss from operations before income taxes
and nonrecurring items (e.g. items of an unusual or infrequent nature). The
Company does not allocate certain nonrecurring items to the segments. In
addition, all segment revenues are from external customers.
Assets have been allocated to the segments in amounts sufficient to support
the associated liabilities of each segment. In addition, capital is allocated to
each segment in amounts sufficient to maintain a targeted regulatory risk-based
capital ("RBC") level for each segment (see Note 18). Allocations of net
investment income and net realized gains on investments were based on the amount
of assets allocated to each segment. Other costs and operating expenses were
allocated to each of the segments based on: (i) a review of the nature of such
costs, (ii) time studies analyzing the amount of employee compensation costs
incurred by each segment, and (iii) cost estimates included in the Company's
product pricing. Substantially all non-cash transactions and impaired real
estate (including real estate acquired in satisfaction of debt) have been
allocated to the Protection Products segment (see Note 4).
Amounts reported as "unallocated amounts" in the table below primarily
relate to: (i) contracts issued by MONY Life relating to its employee benefit
plans, (ii) expenses incurred in 1996 and 1995 relating to settlements and
reserves for various lawsuits and legal disputes, including lawsuits against the
Company alleging market conduct improprieties (see Note 17), and (iii) expenses
incurred in 1996 in connection with special termination benefits paid to certain
employees under an early retirement program (see Note 6).
F-124
<PAGE> 210
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
PREMIUMS:
Protection Products....................................... $ 602.2 $ 817.0 $ 837.4
Accumulation Products..................................... 2.6 5.0 4.2
Other Products............................................ 16.9 16.6 18.2
--------- --------- ---------
$ 621.7 $ 838.6 $ 859.8
========= ========= =========
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCT POLICY FEES:
Protection Products....................................... $ 86.2 $ 74.9 $ 63.4
Accumulation Products..................................... 64.1 50.9 36.6
Other Products............................................ 1.3 1.5 0.9
--------- --------- ---------
$ 151.6 $ 127.3 $ 100.9
========= ========= =========
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON
INVESTMENTS:
Protection Products....................................... $ 655.5 $ 611.9 $ 605.3
Accumulation Products..................................... 136.3 131.4 144.0
Other Products............................................ 63.0 59.9 74.6
Unallocated amounts....................................... 2.2 1.9 3.6
--------- --------- ---------
$ 857.0 $ 805.1 $ 827.5
========= ========= =========
OTHER INCOME:
Protection Products(1)(7)................................. $ 85.5 $ 94.9 $ 87.7
Accumulation Products..................................... 72.8 52.1 32.2
Other Products............................................ 61.1 53.1 52.2
Unallocated amounts....................................... 5.7 5.3 4.7
--------- --------- ---------
$ 225.1 $ 205.4 $ 176.8
========= ========= =========
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS:
Protection Products....................................... $ 92.4 $ 146.8 $ 135.0
Accumulation Products..................................... 29.6 34.4 23.2
--------- --------- ---------
$ 122.0 $ 181.2 $ 158.2
========= ========= =========
BENEFITS TO POLICYHOLDERS:(2)
Protection Products....................................... $ 663.4 $ 821.1 $ 854.0
Accumulation Products..................................... 79.6 92.5 102.8
Other Products............................................ 41.6 45.2 54.1
Unallocated amounts....................................... 7.9 7.2 8.2
--------- --------- ---------
$ 792.5 $ 966.0 $ 1,019.1
========= ========= =========
</TABLE>
F-125
<PAGE> 211
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
($ IN MILLIONS)
<S> <C> <C> <C>
OTHER OPERATING COSTS AND EXPENSES:
Protection Products....................................... $ 287.1 $ 281.0 $ 276.3
Accumulation Products..................................... 84.4 66.3 52.8
Other Products............................................ 80.2 66.2 81.9
Unallocated amounts....................................... 0.0 3.7 44.8
--------- --------- ---------
$ 451.7 $ 417.2 $ 455.8
========= ========= =========
INCOME BEFORE INCOME TAXES:
Protection Products....................................... $ 193.7 $ 129.0 $ 101.2
Accumulation Products..................................... 80.5 44.1 35.9
Other Products............................................ 19.2 18.3 8.1
Unallocated amounts....................................... 0.0 (3.7) (44.7)
--------- --------- ---------
$ 293.4 $ 187.7 $ 100.5
========= ========= =========
ASSETS:
Protection Products(3)(8)................................. $16,578.7 $15,776.5 $15,158.5
Accumulation Products..................................... 6,171.3 5,757.9 4,747.2
Other Products............................................ 1,256.2 1,234.2 1,417.1
Unallocated amounts....................................... 890.9 842.7 820.7
--------- --------- ---------
$24,897.1 $23,611.3 $22,143.5
========= ========= =========
DEFERRED POLICY ACQUISITION COSTS:
Protection Products(9).................................... $ 857.6 $ 874.1 $ 961.8
Accumulation Products..................................... 136.7 133.0 133.4
--------- --------- ---------
$ 994.3 $ 1,007.1 $ 1,095.2
========= ========= =========
POLICYHOLDERS' LIABILITIES:
Protection Products(4)(10)................................ $10,267.0 $10,105.7 $ 9,996.2
Accumulation Products..................................... 1,318.6 1,416.1 1,601.7
Other Products............................................ 455.6 513.4 542.4
Unallocated amounts....................................... 17.4 16.5 88.3
--------- --------- ---------
$12,058.6 $12,051.7 $12,228.6
========= ========= =========
SEPARATE ACCOUNT LIABILITIES:(5)
Protection Products(6).................................... $ 4,056.8 $ 3,720.1 $ 3,393.0
Accumulation Products..................................... 4,452.6 4,002.6 2,851.4
Other Products............................................ 621.9 547.7 625.6
Unallocated amounts....................................... 776.4 736.0 650.4
--------- --------- ---------
$ 9,907.7 $ 9,006.4 $ 7,520.4
========= ========= =========
</TABLE>
- ---------------
(1) Includes Group Pension Profits of $56.8 million, $60.0 million and $59.5
million for the years ended December 31, 1998, 1997 and 1996, respectively.
(See Note 9).
(2) Includes interest credited to policyholders' account balances.
(3) Includes assets transferred in the Group Pension Transaction of $5,751.8
million, $5,714.9 million and $5,627.6 million as of December 31, 1998,
1997 and 1996, respectively.
F-126
<PAGE> 212
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) Includes policyholders' liabilities transferred in the Group Pension
Transaction of $1,824.9 million, $1,991.0 million and $2,158.1 million as
of December 31, 1998, 1997 and 1996 respectively.
(5) Each segment includes separate account assets in an amount not less than
the corresponding liability reported.
(6) Includes separate account liabilities transferred in the Group Pension
Transaction of $3,829.6 million, $3,614.0 million and $3,358.3 million as
of December 31, 1998, 1997 and 1996, respectively.
(7) Includes $5.7 million relating to the Contribution from the Closed Block
for the period from November 16, 1998 through December 31, 1998 (see Note 3
and Note 19).
(8) Includes Closed Block assets of $6,161.2 million as of December 31, 1998
(see Note 3 and Note 19).
(9) Includes deferred policy acquisition costs allocated to the Closed Block of
$554.6 million as of December 31, 1998 (see Note 3 and Note 19).
(10) Includes Closed Block policyholders' liabilities of $7,177.1 million as of
December 31, 1998 (see Note 3 and Note 19).
Substantially all of the Company's revenues are derived in the United
States. Revenue derived from outside the United States is not material and
revenue derived from any single customer does not exceed 10 percent of total
consolidated revenues.
21. PRO FORMA INFORMATION (UNAUDITED)
The unaudited pro forma earnings information give effect to the Transaction
as if it occurred January 1, 1998. Accordingly, pro forma earnings reflects the
elimination of demutualization expenses, which were assumed to have been fully
incurred prior to January 1, 1998, and the elimination of the differential
earnings (surplus) tax applied to mutual life insurance companies. MONY Life is
no longer subject to the differential earnings (surplus) tax as a stock life
insurance company.
The unaudited pro forma information is provided for information purposes
only and should not be construed to be indicative of the Company's consolidated
results of operation had the Transaction been consummated on the date assumed,
and does not in any way represents a projection or forecast of the Company's
consolidated results of operations as of any date for any future period.
F-127
<PAGE> 213
MONY LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma revenue and expenses of the Closed Block for the year ended
December 31, 1998, based on certain estimates and assumption that management
believes are reasonable, as if The Closed Block had been established on January
1, 1998, are summarized below:
<TABLE>
<S> <C>
Premiums.................................................... $ 643.9
Net Investment income....................................... 373.8
Net realized gain on investment............................. 10.2
Other income................................................ 1.9
--------
Total Revenue............................................. 1,029.8
--------
Benefits to policyholders................................... 665.4
Interest credited to policyholders' account balances........ 8.7
Amortization of deferred policy acquisition costs........... 78.8
Dividends to policyholders.................................. 214.9
Other operating cost and expenses........................... 9.8
--------
Total Benefits and Expenses............................... 977.6
--------
Contribution from the Closed Block..................... $ 52.2
========
</TABLE>
F-128
<PAGE> 214
FORM NO. 13443SL 5/99
<PAGE> 215
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) With respect to Keynote Series Account ("Keynote")
Report of Independent Accountants...................... F-1
Statements of Assets and Liabilities as of December 31,
1998.................................................. F-2
Statements of Operations for the year ended December
31, 1998.............................................. F-3
Statements of Changes in Net Assets for the year ended
December 31, 1998 and the year ended December 31,
1997.................................................. F-4
Notes to financial statements.......................... F-6
(2) With respect to the Diversified Investors Portfolios
Economic and Market Review............................. F-7
Report of Independent Accountants...................... F-13
Statement of Assets and Liabilities for the year ended
December 31, 1998..................................... F-14
Statement of Operations for the year ended December 31,
1998.................................................. F-16
Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997............................ F-18
Portfolio of Investments for December 31, 1998:
Money Market Portfolio................................. F-22
High Quality Bond Portfolio............................ F-24
Intermediate Government Bond Portfolio................. F-27
Government/Corporate Bond Portfolio.................... F-29
Balanced Fund Portfolio................................ F-33
Equity Income Portfolio................................ F-36
Equity Value Portfolio................................. F-40
Growth and Income Portfolio............................ F-42
Equity Growth Portfolio................................ F-45
Special Equity Portfolio............................... F-48
Aggressive Equity Portfolio............................ F-55
High Yield Bond Portfolio.............................. F-57
International Equity Portfolio......................... F-60
Notes to Financial Statements.......................... F-66
(3) With respect to MONY Life Insurance Company
Report of Independent Accountants...................... F-81
Assets and Liabilities for the year ended December 31,
1998.................................................. F-82
Statement of Operations for the year ended December 31,
1998.................................................. F-83
Statements of Changes in Net Assets for the years ended
December 31, 1998 and 1997............................ F-84
Notes to Financial Statements.......................... F-87
</TABLE>
(b) Exhibits
Any form of Form N-4 Exhibits (1) and (3) through (7), (9), (13) and (14)
previously filed with the Commission as part of the Registrant's N-4
Registration Statement-Registration No. 33-19836 under the Securities Act
of 1933 are incorporated herein by reference.
<TABLE>
<S> <C>
Exhibit (2) Not applicable.
Exhibit (8) Not applicable.
Exhibit(10) Consent of Independent Accountants.
Exhibit(11) Not applicable.
Exhibit(12) Not applicable.
Exhibit(14) Financial Data Schedule.
Exhibit(19) Powers of Attorney.
</TABLE>
C-1
<PAGE> 216
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
1. TRUSTEES
CLAUDE M. BALLARD Limited Partner, Goldman, Sachs & Company, New York, N.Y.
TOM H. BARRETT Former Chairman of the Board, President & Chief Executive
Officer, The Goodyear Tire & Rubber Company, Akron, Ohio.
DAVID L. CALL Ronald P. Lynch Dean Emeritus, Cornell University, College of
Agriculture and Life Sciences, Ithaca, New York.
G. ROBERT DURHAM Retired Chairman and Chief Executive Officer, Walter
Industries, Inc., Tampa, Florida and Retired Chairman and Chief Executive
Officer, Phelps Dodge Corporation.
JAMES B. FARLEY Retired Chairman and Chief Executive Office, MONY.
ROBERT HOLLAND, JR. President and Chief Executive Officer, WorkPlace
Integrators
JAMES L. JOHNSON Chairman Emeritus, GTE Corporation, Stamford, Connecticut.
ROBERT R. KILEY President and Chief Executive Officer, The New York City
Partnership and Chamber of Commerce, Inc., New York, NY.
JOHN R. MEYER Emeritus Professor, Harvard University, Cambridge,
Massachusetts.
PAUL A. MILLER Chairman of the Executive Committee, Pacific Enterprises,
Los Angeles, California.
JANE C. PFEIFFER Management Consultant, Greenwich, Connecticut.
THOMAS C. THEOBALD Managing Director, William Blair Capital Partners,
L.L.C., Chicago, Illinois, Chicago, Illinois.
2. OFFICER-DIRECTORS
MICHAEL I. ROTH, Director, Chairman and Chief Executive Officer, The MONY
Group Inc.; Director, Chairman and Chief Executive Officer, MONY; Director,
Chairman of the Board, and Chief Executive Officer, MONY Life Insurance Company
of America; Director, MONY CS, Inc., and 1740 Advisers, Inc.
SAMUEL J. FOTI, Director, President and Chief Operating Officer, The MONY
Group Inc.; Director, President and Chief Operating Officer, MONY; Director,
President and Chief Operating Officer, MONY Life Insurance Company of America;
Director, MONY Brokerage, Inc., Director and Chairman, MONY International
Holdings, Inc., MONY Life Insurance Company of the Americas, Ltd., and MONY Bank
& Trust Company of the Americas, Ltd.
KENNETH M. LEVINE, Director, Executive Vice President and Chief Investment
Officer, The MONY Group Inc.; Director, Executive Vice President and Chief
Investment Officer, MONY; Director, Chairman, and President, MONY Series Fund,
Inc.; Director and Executive Vice President, MONY Life Insurance Company of
America; Director, 1740 Advisers, Inc., MONY Funding, Inc., MONY Realty
Partners, Inc., and 1740 Ventures, Inc.
3. OTHER OFFICERS
THOMAS J. CONKLIN, Senior Vice President and Secretary, The MONY Group
Inc.; Senior Vice President and Secretary, MONY.
RICHARD E. CONNORS, Senior Vice President, MONY; Director, MONY Life
Insurance Company of America.
RICHARD DADDARIO, Executive Vice President and Chief Financial Officer, The
MONY Group Inc.; Executive Vice President and Chief Financial Officer, MONY;
Vice President, MONY Advisers, Inc.; Director, Vice President and Controller,
MONY Life Insurance Company of America.
C-2
<PAGE> 217
PHILLIP A. EISENBERG, Senior Vice President and Chief Actuary, MONY;
Director and Vice President, MONY Life Insurance Company of America.
STEPHEN J. HALL, Senior Vice President, MONY; Director, MONY Life Insurance
Company of America.
RICHARD E. MULROY, JR., Senior Vice President and General Counsel, The MONY
Group Inc.; Senior Vice President and General Counsel, Mony.
FRANCIS J. WALDRON, Senior Vice President, MONY.
DAVID V. WEIGEL, Vice President-Treasurer, The MONY Group Inc.; Vice
President -- Treasurer, MONY; Vice President and Treasurer, MONY Credit
Corporation, MONY Realty Partners, Inc., and 1740 Ventures, Inc.; Treasurer,
1740 Advisers, Inc., MONY Life Insurance Company of America, MONY Series Fund,
Inc., MONY Brokerage, Inc., MONY-Rockville/GP, Inc., MONY Bloomfield Hills,
Inc., and MONY Funding, Inc.
For more than the past five years, the principal occupation of each of the
officers listed above has been an officer of MONY.
The business address for all officers and officer-directors of the Company
is 1740 Broadway, New York, New York 10019.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is directly or indirectly controlled by the Registrant. The
Registrant is a separate account of the Depositor.
The following is a diagram showing all corporations directly or indirectly
controlled or under common control with Depositor, showing the state or other
sovereign power under the laws of which each is organized and the percentage
ownership of voting securities giving rise to the control relationship. (See
diagram on following page.) Omitted from the diagram are subsidiaries of MONY
that, considered in the aggregate, would not constitute a "significant
subsidiary" of MONY (as that term is defined in Rule 8b-2 under Section 8 of the
Investment Company Act of 1940).
ITEM 27. NUMBER OF CONTRACTHOLDERS/PARTICIPANTS
As of March 31, 1999, there were 449 Contractholders.
C-3
<PAGE> 218
[ORGANIZATIONAL CHART]
C-4
<PAGE> 219
ITEM 28. INDEMNIFICATION
The By-Laws of The Mutual Life Insurance Company of New York provide, in
Article XVI, as follows:
Each person (and the heirs, executors and administrators of such
person) made or threatened to be made a party to any action, civil or
criminal, by reason of being or having been a trustee, officer, or employee
of the corporation (or by reason of serving any other organization at the
request of the corporation) shall be indemnified to the extent permitted by
the law of the State of New York and in the manner prescribed therein. To
this end, and as authorized by Chapter 513, 1986 Laws of New York, the
Board of Trustees may adopt all resolutions, authorize all agreements and
take all actions with respect to the indemnification of trustees and
officers, and the advance payment of their expenses in connection
therewith.
Insofar as indemnification for liability arising under the Securities Act
of 1933 ("1933 Act") may be permitted to directors, officers and controlling
persons, if any, of the Registrant pursuant to the above paragraph, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person, if any, of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will
(unless in the opinion of its counsel the matter has been settled by controlling
precedent) submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) MONY Securities Corp. ("MSC") is the principal underwriter of the
Registrant. The names, titles and principal business addresses of the officers
and directors of MSC are as stated on Forms U-4 of Form BD (File No. 8-15289) as
declared effective November 23, 1969, as amended, the text of which is herein
incorporated by reference. Diversified Investment Advisors, Inc., formerly owned
by MONY is now of an indirect, wholly-owned subsidiary of AEGON USA, Inc. MONY
continues to act as investment adviser and administrator to each series of
Diversified Investors Portfolios. With respect to each series of Diversified
Investors Portfolios, Diversified contracted for certain investment advisory
services with a subadviser.
(b) The names, titles and principal business addresses of the officers of
MSC are listed on Schedule A of Form BD for MSC (Registration No. 8-15289)
(originally filed on behalf of MONY Sales, Inc. on November 23, 1969) and Form
U-4 filed by each individual officer, the text of which is hereby incorporated
by reference.
(c) Refer to Prospectus pages 8 and 13, "Charges" and Part B, Statement of
Additional Information, page 3, "Sale of Contracts/Principal Underwriter" for
information regarding compensation.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books, and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are primarily maintained by MONY Life Insurance Company, in whole or in part, at
its principal offices at 1740 Broadway, New York, New York 10019; and at its
Operations Center at 1 MONY Plaza, Syracuse, New York 13202.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
C-5
<PAGE> 220
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file post-effective amendments to the
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the group variable annuity contract may be
accepted;
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
(e) Registrant hereby represents that the fees and charges deducted under
the Contracts in the aggregate, are reasonable in relation to the services
rendered; the expenses expected to be incurred and the risks assumed by the
insurance company.
C-6
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements for effectiveness of this Post Effective Amendment to the
Registration Statement under Rule 485(b) under the Securities Act and has duly
caused this Post-Effective Amendment No. 18 to its Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of New York, State of New York, on the 29th day of April, 1999.
KEYNOTE SERIES ACCOUNT
(Registrant)
By: /s/ KENNETH M. LEVINE
---------------------------------------
Kenneth M. Levine
MONY LIFE INSURANCE COMPANY
(Depositor)
By: /s/ MICHAEL I. ROTH
---------------------------------------
Michael I. Roth
Director, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirement of the Securities Act of 1933 this
Post-Effective Amendment No. 18 to its Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MICHAEL I. ROTH Director, Chairman of the April 29, 1999
- --------------------------------------------- Board and Chief Executive
(Michael I. Roth) Officer
/s/ SAMUEL J. FOTI Director, President and April 29, 1999
- --------------------------------------------- Chief Operating Officer
(Samuel J. Foti)
/s/ KENNETH M. LEVINE Director, Executive Vice April 29, 1999
- --------------------------------------------- President and Chief
(Kenneth M. Levine) Investment Officer
/s/ RICHARD DADDARIO Executive Vice President and April 29, 1999
- --------------------------------------------- Chief Financial Officer
(Richard Daddario)
/s/ PHILLIP A. EISENBERG Senior Vice President and April 29, 1999
- --------------------------------------------- Chief Actuary
(Phillip A. Eisenberg)
/s/ THOMAS J. CONKLIN Senior Vice President and April 29, 1999
- --------------------------------------------- Corporate Secretary
(Thomas J. Conklin)
*/s/ CLAUDE M. BALLARD, JR. Director April 29, 1999
- ---------------------------------------------
(Claude M. Ballard, Jr.)
*/s/ TOM H. BARRETT Director April 29, 1999
- ---------------------------------------------
(Tom H. Barrett)
*/s/ DAVID L. CALL Director April 29, 1999
- ---------------------------------------------
(David L. Call)
</TABLE>
C-7
<PAGE> 222
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
*/s/ G. ROBERT DURHAM Trustee April 29, 1999
- ---------------------------------------------
(G. Robert Durham)
*/s/ ROBERT HOLLAND, JR. Trustee April 29, 1999
- ---------------------------------------------
(Robert Holland, Jr.)
*/s/ JAMES L. JOHNSON Trustee April 29, 1999
- ---------------------------------------------
(James L. Johnson)
*/s/ JOHN R. MEYER Trustee April 29, 1999
- ---------------------------------------------
(John R. Meyer)
*/s/ JANE C. PFEIFFER Trustee April 29, 1999
- ---------------------------------------------
(Jane C. Pfeiffer)
*/s/ THOMAS C. THEOBALD Trustee April 29, 1999
- ---------------------------------------------
(Thomas C. Theobald)
*By: /s/ THOMAS J. CONKLIN April 29, 1999
---------------------------------------
Thomas J. Conklin
Attorney-in-Fact
</TABLE>
C-8
<PAGE> 223
SIGNATURES
Diversified Investors Portfolios has duly caused this Post Effective
Amendment No. 18 to the Registration Statement on Form N-4 of Keynote Series
Account to be signed on its behalf by the undersigned thereunto duly authorized,
in the County of Westchester, State of New York, on the 29th day of April, 1999.
DIVERSIFIED INVESTORS PORTFOLIOS
/s/ TOM A. SCHLOSSBERG
--------------------------------------
Tom A. Schlossberg
Trustee, President, Chief Executive
Officer
and Chairman of the Board of Trustees
of
the Portfolios
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 18 to its Registration Statement has been signed
below by the following persons in the capacities indicated on the 29th day of
April, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ TOM A. SCHLOSSBERG Trustee, President, April 29, 1999
- ----------------------------------------------------- Chief Executive Officer
Tom A. Schlossberg and Chairman of the
Board of Trustees of
the Portfolios
*/s/ NEAL M. JEWELL Trustee of the April 29, 1999
- ----------------------------------------------------- Portfolios
Neal M. Jewell
*/s/ EUGENE M. MANNELLA Trustee of the April 29, 1999
- ----------------------------------------------------- Portfolios
Eugene M. Mannella
*/s/ PATRICIA L. SAWYER Trustee of the April 29, 1999
- ----------------------------------------------------- Portfolios
Patricia L. Sawyer
*By /s/ ROBERT F. COLBY April 29, 1999
- -----------------------------------------------------
Robert F. Colby
Attorney-in-Fact
</TABLE>
C-9
<PAGE> 224
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
99.(10) Consent of Independent Accountants
99.(14) Financial Data Schedule
99.(15) Powers of Attorney
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 291,490,882
<INVESTMENTS-AT-VALUE> 291,490,882
<RECEIVABLES> 991,405
<ASSETS-OTHER> 52,594
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 292,534,881
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 97,128
<TOTAL-LIABILITIES> 97,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 292,437,753
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 292,437,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,694,725
<OTHER-INCOME> 0
<EXPENSES-NET> 743,561
<NET-INVESTMENT-INCOME> 13,951,164
<REALIZED-GAINS-CURRENT> (8,027)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,943,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 60,125,295
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 654,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 743,561
<AVERAGE-NET-ASSETS> 262,046,003
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> HIGH QUALITY BOND PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 223,597,624
<INVESTMENTS-AT-VALUE> 225,449,967
<RECEIVABLES> 2,370,293
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 227,820,260
<PAYABLE-FOR-SECURITIES> 252,129
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,997
<TOTAL-LIABILITIES> 357,126
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 225,610,791
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,852,343
<NET-ASSETS> 227,463,134
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,534,621
<OTHER-INCOME> 0
<EXPENSES-NET> 833,279
<NET-INVESTMENT-INCOME> 12,701,342
<REALIZED-GAINS-CURRENT> 414,827
<APPREC-INCREASE-CURRENT> 727,026
<NET-CHANGE-FROM-OPS> 13,843,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,293,696
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 753,726
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 833,279
<AVERAGE-NET-ASSETS> 215,375,689
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERMEDIATE GOVERNMENT BOND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 160,195,322
<INVESTMENTS-AT-VALUE> 162,225,023
<RECEIVABLES> 1,340,892
<ASSETS-OTHER> 36,786
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,602,701
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,028,234
<TOTAL-LIABILITIES> 5,028,234
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 156,544,766
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,029,701
<NET-ASSETS> 158,574,467
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,214,598
<OTHER-INCOME> 0
<EXPENSES-NET> 549,440
<NET-INVESTMENT-INCOME> 7,665,158
<REALIZED-GAINS-CURRENT> 855,222
<APPREC-INCREASE-CURRENT> 952,909
<NET-CHANGE-FROM-OPS> 9,473,289
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,388,070
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 491,360
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551,820
<AVERAGE-NET-ASSETS> 140,469,013
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GOVERNMENT-CORPORATE BOND PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 583,281,444
<INVESTMENTS-AT-VALUE> 596,341,999
<RECEIVABLES> 7,266,793
<ASSETS-OTHER> 166,961
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 603,775,753
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,840,223
<TOTAL-LIABILITIES> 51,840,223
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 538,874,975
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,060,555
<NET-ASSETS> 551,935,530
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,191,734
<OTHER-INCOME> 0
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 5
<NAME> BALANCED
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<S> <C>
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 6
<NAME> EQUITY INCOME PORTFOLIO
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<S> <C>
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<PERIOD-END> DEC-31-1998
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 1,367,107,496
<DIVIDEND-INCOME> 29,504,261
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<OTHER-INCOME> (83,610)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> GROWTH & INCOME PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<PAID-IN-CAPITAL-COMMON> 552,436,744
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 218,831,717
<NET-ASSETS> 771,268,461
<DIVIDEND-INCOME> 3,919,762
<INTEREST-INCOME> 1,112,484
<OTHER-INCOME> (1,354)
<EXPENSES-NET> 3,403,647
<NET-INVESTMENT-INCOME> 1,627,245
<REALIZED-GAINS-CURRENT> 19,534,576
<APPREC-INCREASE-CURRENT> 150,077,114
<NET-CHANGE-FROM-OPS> 171,238,935
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 395,008,053
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> EQUITY GROWTH PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<INVESTMENTS-AT-VALUE> 760,747,565
<RECEIVABLES> 5,011,526
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 765,759,091
<PAYABLE-FOR-SECURITIES> 7,283,069
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<OTHER-ITEMS-LIABILITIES> 70,027,457
<TOTAL-LIABILITIES> 77,310,526
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 494,095,926
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 194,352,639
<NET-ASSETS> 688,448,565
<DIVIDEND-INCOME> 3,707,378
<INTEREST-INCOME> 883,824
<OTHER-INCOME> (11,581)
<EXPENSES-NET> 3,398,398
<NET-INVESTMENT-INCOME> 1,181,223
<REALIZED-GAINS-CURRENT> 61,370,721
<APPREC-INCREASE-CURRENT> 115,672,317
<NET-CHANGE-FROM-OPS> 178,224,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 262,136,377
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,276,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,409,734
<AVERAGE-NET-ASSETS> 529,172,284
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> SPECIAL EQUITY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 866,509,154
<INVESTMENTS-AT-VALUE> 1,045,415,665
<RECEIVABLES> 31,034,934
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<TOTAL-ASSETS> 1,076,464,576
<PAYABLE-FOR-SECURITIES> 31,993,225
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<OTHER-ITEMS-LIABILITIES> 120,381,467
<TOTAL-LIABILITIES> 152,374,692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 745,183,373
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 178,906,511
<NET-ASSETS> 924,089,884
<DIVIDEND-INCOME> 4,330,519
<INTEREST-INCOME> 3,389,226
<OTHER-INCOME> (34,991)
<EXPENSES-NET> 6,573,671
<NET-INVESTMENT-INCOME> 1,111,083
<REALIZED-GAINS-CURRENT> 17,684,596
<APPREC-INCREASE-CURRENT> 31,347,149
<NET-CHANGE-FROM-OPS> 50,142,828
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 180,701,623
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,579,596
<AVERAGE-NET-ASSETS> 788,814,055
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
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<PER-SHARE-DIVIDEND> 0
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<EXPENSE-RATIO> .83
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH YIELD BOND PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<INVESTMENTS-AT-VALUE> 92,802,254
<RECEIVABLES> 2,139,785
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<TOTAL-ASSETS> 94,942,039
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 71,058
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,108,934
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,237,953)
<NET-ASSETS> 94,870,981
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,147,046
<OTHER-INCOME> 0
<EXPENSES-NET> 461,266
<NET-INVESTMENT-INCOME> 6,685,780
<REALIZED-GAINS-CURRENT> (553,780)
<APPREC-INCREASE-CURRENT> (5,046,919)
<NET-CHANGE-FROM-OPS> 1,085,081
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 55,170,850
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 423,436
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 489,196
<AVERAGE-NET-ASSETS> 77,139,424
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 2,573,277
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<TOTAL-ASSETS> 347,937,184
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<OTHER-ITEMS-LIABILITIES> 27,255,164
<TOTAL-LIABILITIES> 27,719,011
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 289,585,086
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,631,570
<NET-ASSETS> 320,218,173
<DIVIDEND-INCOME> 4,680,770
<INTEREST-INCOME> 954,161
<OTHER-INCOME> (403,645)
<EXPENSES-NET> 2,347,809
<NET-INVESTMENT-INCOME> 2,883,477
<REALIZED-GAINS-CURRENT> 10,177,768
<APPREC-INCREASE-CURRENT> 16,727,273
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 114,912,105
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<GROSS-ADVISORY-FEES> 2,029,625
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<GROSS-EXPENSE> 2,378,573
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<PER-SHARE-NAV-BEGIN> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> AGGRESSIVE EQUITY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
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<OTHER-ITEMS-ASSETS> 090,010,877
<TOTAL-ASSETS> 2,978,314
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<SENIOR-LONG-TERM-DEBT> 5,704,856
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<SENIOR-EQUITY> 59,946,657
<PAID-IN-CAPITAL-COMMON> 0
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,381,050
<NET-ASSETS> 81,327,707
<DIVIDEND-INCOME> 211,894
<INTEREST-INCOME> 123,935
<OTHER-INCOME> 0
<EXPENSES-NET> 484,925
<NET-INVESTMENT-INCOME> (149,096)
<REALIZED-GAINS-CURRENT> 1,181,993
<APPREC-INCREASE-CURRENT> 19,387,276
<NET-CHANGE-FROM-OPS> 20,420,173
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 55,470,057
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 536,280
<AVERAGE-NET-ASSETS> 48,644,457
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> EQUITY VALUE PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 417,803,548
<INVESTMENTS-AT-VALUE> 409,830,460
<RECEIVABLES> 3,095,494
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 412,925,954
<PAYABLE-FOR-SECURITIES> 2,545,466
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,520,713
<TOTAL-LIABILITIES> 23,066,179
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 397,832,863
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,973,088)
<NET-ASSETS> 389,859,775
<DIVIDEND-INCOME> 6,956,444
<INTEREST-INCOME> 667,535
<OTHER-INCOME> 0
<EXPENSES-NET> 2,199,546
<NET-INVESTMENT-INCOME> 5,424,433
<REALIZED-GAINS-CURRENT> 44,679,908
<APPREC-INCREASE-CURRENT> (13,627,414)
<NET-CHANGE-FROM-OPS> 36,476,927
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 154,876,060
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,104,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,242,292
<AVERAGE-NET-ASSETS> 369,647,165
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
[PRICEWATERHOUSECOOPERS LOGO]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 18 to the
Registration Statement of Keynote Series Account on Form N-4 (File Nos.
33-19836 and 811-5457) of our reports dated February 18, 1999, on our audits of
the financial statements of Keynote Series Account and the financial statements
and financial highlights of Diversified Investors Portfolios. In addition, we
consent to the inclusion of our report dated February 15, 1999, except for Note
17(b) as to which the date is March 22, 1999, on our audits of the consolidated
financial statements of The MONY Life Insurance Company and Subsidiaries.
We also consent to the reference to our firm under the caption "Experts" in
the Prospectus and under the caption "Independent Accountants" in the Statement
of Additional Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
April 29, 1999
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, TOM H. BARRETT,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st
day of August, 1990
/s/ Tom Barrett
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 31st day of August, 1990 before me personally came Tom H. Barrett,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, CLAUDE MARK BALLARD, JR.,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 31st
day of August, 1990
/s/ Claude Mark Ballard, Jr.
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 3rd day of August, 1990 before me personally came Claude Mark Ballard,
Jr., to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Rosemarie Tapia
-------------------------------
ROSEMARIE TAPIA
NOTARY PUBLIC, State of New York
No. 41-4876817
Qualified in Queens County
Term Expires November 24, 1990
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, DAVID L. CALL,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th
day of January, 1993
/s/ David L. Call
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF TOMPKINS )
On the 29th day of January, 1993 before me personally came David L. Call,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Janice H. Hatfield
-------------------------------
JANICE A. HATFIELD
NOTARY PUBLIC, State of New York
Qualified in Tompkins County
No. 4688232
My Commission Expires May 31, 1993
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, ROBERT HOLLAND, JR.,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1st
day of October, 1990
/s/ Robert Holland, Jr.
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 1st day of October, 1990 before me personally came Robert Holland, Jr.,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, G. ROBERT DURHAM,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ G. Robert Durham
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came G. Robert Durham,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JAMES L. JOHNSON,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ James L. Johnson
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came James L. Johnson,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JOHN R. MEYER,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ John R. Meyer
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came John R. Meyer,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, JANE C. PFEIFFER,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th
day of July, 1990
/s/ Jane C. Pfeiffer
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of July, 1990 before me personally came Jane C. Pfeiffer,
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, THOMAS C. THEOBALD,
------------------------
(Name)
Trustee of The Mutual Life Insurance Company of New York ("Corporation"),
which Corporation:
(i) has filed with the Securities and Exchange Commission ("SEC"),
Washington, D.C., under the provisions of the Securities Act of
1933, as amended, and/or the Investment Company Act of 1940, as
amended, Registration Statements numbered 2-25204 on Form N-3,
33-19836 and 33-33318 on Form N-4, or such other forms as may be
adopted by the SEC, for the registration under said Act(s) of
certain variable annuity contracts and variable accumulation
annuity contracts to be issued by said Corporation,
(ii) intends to file with the SEC under said Act(s) a Registration
Statement(s), on SEC Form N-4 or such other forms as may be
adopted by the SEC, for the registration of a separate account(s)
consisting of contributions under certain group variable
accumulation annuity contracts issued by said Corporation, as a
unit investment trust which shall invest exclusively in shares of
MONY Series Fund, Inc.,
(iii) intends to file one or more amendments to one or more of said
Registration Statements, and
(iv) has filed with the SEC pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended, Form 10-K Annual
Report for Pooled Account Nos. 1, 4, 6 and 10, annuity contracts
and variable accumulation annuity contracts to be issued by said
Corporation,
hereby constitute and appoint WILLARD G. ELDRED, Vice President and Deputy
General Counsel of said Corporation and THOMAS J. CONKLIN, Senior Vice President
and Secretary of said Corporation, my true and lawful attorneys-in-fact and
agents, either of them to act with full power without the other, for me and in
my name, place and stead, to sign any such amended and/or additional
Registration Statements and/or Annual Report and any and all other amendments
and other documents relating thereto, with power where appropriate to affix the
corporate seal of said Corporation thereto and to attest said seal, and to file
such Registration Statements and/or Annual Report and amendments with all
exhibits thereto, any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done as fully as to all intents and
purposes as I might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23rd
day of July, 1990
/s/ Thomas C. Theobald
----------------------------
(Signature)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of July, 1990 before me personally came Thomas C. Theobald
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
/s/ Catherine A. Mohr
-------------------------------
CATHERINE A. MOHR
NOTARY PUBLIC, State of New York
No. 31-4656544
Qualified in New York County
Term Expires June 30, 1991
<PAGE> 10
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified Investors
Portfolios with the Securities and Exchange Commission under the Investment
Company Act of 1940 and any and all instruments which such attorneys and agents,
or any of them, deem necessary or advisable to enable the Company to comply with
such Act, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Neal M. Jewell
--------------------------------------
Neal M. Jewell
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Neal M. Jewell to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 11
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by The Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Patricia L. Sawyer
--------------------------------------
Patricia L. Sawyer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Patricia L. Sawyer
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 12
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified
Investors Portfolios with the Securities and Exchange Commission under the
Investment Company Act of 1940 and any and all instruments which such attorneys
and agents, or any of them, deem necessary or advisable to enable the Company to
comply with such Act, the rules, regulations and requirements of the Securities
and Exchange Commission, and the securities or Blue Sky laws of any state or
other jurisdiction, and the undersigned hereby ratifies and confirms as his own
act and deed any and all acts that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any one of such attorneys and
agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Eugene M. Mannella
--------------------------------------
Eugene M. Mannella
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Eugene M. Mannella
to me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
<PAGE> 13
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Tom A. Schlossberg,
Robert F. Colby, Alfred C. Sylvain and John F. Hughes, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statement, and any and all amendments thereto, filed by Diversified Investors
Portfolios with the Securities and Exchange Commission under the Investment
Company Act of 1940 and any and all instruments which such attorneys and agents,
or any of them, deem necessary or advisable to enable the Company to comply with
such Act, the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 25th
day of January, 1995.
/s/ Tom A. Schlossberg
--------------------------------------
Tom A. Schlossberg
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of January, 1995, before me personally came Tom Schlossberg to
me known to be the person described in and who executed the foregoing
instrument, and acknowledged that he executed same.
[SEAL]
/s/ Catherine A. Mohr
