<PAGE> 1
PENSION
INVESTMENT
OPTIONS
KEYNOTE
SERIES
ACCOUNT
CALVERT SERIES SUBACCOUNT
EQUITY GROWTH SUBACCOUNT
EQUITY INCOME SUBACCOUNT
BALANCED SUBACCOUNT
GOVERNMENT/CORPORATE BOND SUBACCOUNT
INTERMEDIATE GOVERNMENT BOND SUBACCOUNT 1998
Annual
MONEY MARKET SUBACCOUNT Report
MONY Life Insurance Company
<PAGE> 2
This report is not to be construed as an offering for
sale of any contracts participating in the Keynote
Series Account, or as a solicitation as an offer to buy
any contracts unless preceded by or accompanied
by a current prospectus which contains the complete
information of charges and expenses.
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(This page intentionally left blank.)
<PAGE> 4
KEYNOTE SERIES ACCOUNT
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Statements of Assets and Liabilities........................ 1
Statements of Operations.................................... 2
Statements of Changes in Net Assets......................... 3
Statements of Changes in Net Assets -- December 31, 1997.... 4
Notes to Financial Statements............................... 5-6
Report of Independent Accountants........................... 7
DIVERSIFIED INVESTORS PORTFOLIOS:
Economic Market Review...................................... 8-13
Statements of Assets and Liabilities........................ 14-15
Statements of Operations.................................... 16-17
Statements of Changes in Net Assets......................... 18-19
Statements of Changes in Net Assets -- December 31, 1997.... 20-21
PORTFOLIO OF INVESTMENTS:
Money Market Portfolio...................................... 22-23
High Quality Bond Portfolio................................. 24-26
Intermediate Government Bond Portfolio...................... 27-28
Government/Corporate Bond Portfolio......................... 29-32
Balanced Portfolio.......................................... 33-35
Equity Income Portfolio..................................... 36-39
Equity Value Portfolio...................................... 40-41
Growth & Income Portfolio................................... 42-44
Equity Growth Portfolio..................................... 45-47
Special Equity Portfolio.................................... 48-53
Aggressive Equity Portfolio................................. 54-55
High Yield Bond Portfolio................................... 56-58
International Equity Portfolio.............................. 59-63
Notes to Financial Statements............................... 64-76
Report of Independent Accountants........................... 77
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO ANNUAL
REPORT.................................................... 79-95
</TABLE>
<PAGE> 5
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.
1
<PAGE> 6
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.
2
<PAGE> 7
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.
3
<PAGE> 8
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.
4
<PAGE> 9
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Keynote Series Account ("Keynote") is a separate investment account
established on December 16, 1987 by 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 capital gains
5
<PAGE> 10
KEYNOTE SERIES ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. Federal Income Taxes: (continued)
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.
6
<PAGE> 11
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
7
<PAGE> 12
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 wides, and
liquidity largely returned to the capital markets. These conditions enabled new
issue markets for equities and bonds to become
8
<PAGE> 13
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.
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),
9
<PAGE> 14
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.
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
10
<PAGE> 15
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.
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
11
<PAGE> 16
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 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.
12
<PAGE> 17
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.
13
<PAGE> 18
DIVERSIFIED INVESTORS PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
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>
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.
14
<PAGE> 19
<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>
15
<PAGE> 20
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.
16
<PAGE> 21
<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>
17
<PAGE> 22
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.
18
<PAGE> 23
<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>
19
<PAGE> 24
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.
20
<PAGE> 25
<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>
21
<PAGE> 26
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
4,200,000 Heller Financial Inc., 5.52%,
01/25/99..................... 4,184,544
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 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.
22
<PAGE> 27
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
5,000,000 Asset Backed Securities
Investment Trust, Variable
Rate, 5.54%,
08/15/99++................... 5,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES (CONTINUED)
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.
23
<PAGE> 28
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.
24
<PAGE> 29
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
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
------------
</TABLE>
See notes to financial statements.
25
<PAGE> 30
HIGH QUALITY BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
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.
26
<PAGE> 31
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
301,329 PL# 332267, 7.50%, 08/15/07....................... 311,593
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- ------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
$ 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
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
------------
</TABLE>
See notes to financial statements.
27
<PAGE> 32
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)
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.
28
<PAGE> 33
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.
29
<PAGE> 34
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.
30
<PAGE> 35
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.
31
<PAGE> 36
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.
32
<PAGE> 37
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.
33
<PAGE> 38
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
-------------
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
-------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C>
PRINCIPAL VALUE
--------- -------------
<C> <S> <C>
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.
34
<PAGE> 39
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.
35
<PAGE> 40
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
410,000 Edison International......... 11,428,750
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ELECTRONICS (CONTINUED)
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
260,000 Diamond Offshore
Drilling, Inc.(a)............ 6,158,750
</TABLE>
See notes to financial statements.
36
<PAGE> 41
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
OIL AND GAS (CONTINUED)
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
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
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
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
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
</TABLE>
See notes to financial statements.
37
<PAGE> 42
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
---------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
$ 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
---------
<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.
38
<PAGE> 43
EQUITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
---------
<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>
<TABLE>
<S> <C>
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:
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.
39
<PAGE> 44
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
181,900 Unocal Corp. .................. 5,309,206
------------
TOTAL OIL AND GAS.............. 63,492,657
------------
</TABLE>
See notes to financial statements.
40
<PAGE> 45
EQUITY VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
============
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:
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.
41
<PAGE> 46
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
------------
FINANCIAL SERVICES -- 5.22%
46,800 American Express Company...... 4,785,300
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
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
148,300 Eli Lilly & Company........... 13,180,162
127,800 Pfizer, Inc. ................. 16,030,913
</TABLE>
See notes to financial statements.
42
<PAGE> 47
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS (CONTINUED)
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.
43
<PAGE> 48
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
- ------------ ------------
<S> <C> <C>
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
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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:
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.
44
<PAGE> 49
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
------------
OIL AND GAS -- 0.23%
75,000 Conoco, Inc.(c)................ 1,565,625
------------
</TABLE>
See notes to financial statements.
45
<PAGE> 50
EQUITY GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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.
46
<PAGE> 51
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.
47
<PAGE> 52
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
--------------
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
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
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
</TABLE>
See notes to financial statements.
48
<PAGE> 53
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)
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
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
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
--------------
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
</TABLE>
See notes to financial statements.
49
<PAGE> 54
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
ENVIRONMENTAL MANAGEMENT
SERVICES (CONTINUED)
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
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
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
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
--------------
</TABLE>
See notes to financial statements.
50
<PAGE> 55
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
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
--------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
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
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
</TABLE>
See notes to financial statements.
51
<PAGE> 56
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
RETAIL (CONTINUED)
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
--------------
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
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ --------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
TRANSPORTATION: FREIGHT (CONTINUED)
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
--------------
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
--------------
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
</TABLE>
See notes to financial statements.
52
<PAGE> 57
SPECIAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- --------------
<C> <S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$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
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.
53
<PAGE> 58
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.
54
<PAGE> 59
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.
55
<PAGE> 60
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
1,100,000 HMH Properties, 7.875%,
08/01/08...................... 1,061,500
</TABLE>
See notes to financial statements.
56
<PAGE> 61
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)
$ 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
625,000 Dyersburg Corp., 9.75%,
09/01/07...................... 556,250
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE
--------- -----------
<C> <S> <C>
CORPORATE BONDS AND NOTES (CONTINUED)
MANUFACTURING (CONTINUED)
$ 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.
57
<PAGE> 62
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.
58
<PAGE> 63
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
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
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
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
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
------------
</TABLE>
See notes to financial statements.
59
<PAGE> 64
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
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
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
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
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
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
------------
</TABLE>
See notes to financial statements.
60
<PAGE> 65
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
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
------------
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
------------
PHAMACEUTICALS -- 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
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
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
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
</TABLE>
See notes to financial statements.
61
<PAGE> 66
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE COUNTRY
------ ------------ -------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
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
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
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL VALUE COUNTRY
--------- ------------ -------
<C> <S> <C> <C>
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
------------
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
------------
<CAPTION>
SHARES
- -----------
<C> <S> <C> <C>
REGULATED INVESTMENT COMPANY -- 0.50%
1,619,530 Merrimac Cash Fund --
Premium Class(b)
(Cost $1,619,530).... 1,619,530 USA
------------
PRINCIPAL VALUE COUNTRY
- ----------- ------------ ---
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>
See notes to financial statements.
62
<PAGE> 67
INTERNATIONAL EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<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
============
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:
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
<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.
63
<PAGE> 68
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 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
64
<PAGE> 69
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
C. FOREIGN CURRENCY TRANSLATION -- (CONTINUED)
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.
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.
65
<PAGE> 70
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
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.
66
<PAGE> 71
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
For its services the Subadvisors receive a fee from the Advisor at an annual
rate equal to the percentages specified in the table below of the corresponding
Series' average daily net assets.
<TABLE>
<CAPTION>
ADVISOR SUBADVISOR
PORTFOLIO SERIES PORTFOLIO SUBADVISORS FEE(%) FEE(%)
- ---------------- --------------------- ------- -----------
<S> <C> <C> <C>
Money Market Series....................... Capital Management Group 0.25 0.05
High Quality Bond Series.................. Merganser Capital Management
Corporation 0.35 (2)
Intermediate Government Bond Series....... Capital Management Group 0.35(1) 0.15
Government/Corporate Bond Series.......... Capital Management Group 0.35 0.15
Balanced Series........................... Institutional Capital Corporation 0.45 (3)
Equity Income Series...................... Asset Management Group 0.45 (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 $50,000,000 in average daily
net assets, and 0.20% on all average daily net assets in excess of
$100,000,000.
67
<PAGE> 72
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
3. FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
(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
68
<PAGE> 73
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
4. SECURITIES LENDING (CONTINUED)
expenses, for lending its securities which is included in interest income on 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>
69
<PAGE> 74
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>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
CONTRACT CURRENCY FOR DATE VALUE APPRECIATION/(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
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)
</TABLE>
70
<PAGE> 75
DIVERSIFIED INVESTORS PORTFOLIOS
Notes to Financial Statements (continued)
6. FOREIGN CURRENCY FORWARD CONTRACTS (CONTINUED)
<TABLE>
<CAPTION>
FOREIGN IN EXCHANGE SETTLEMENT NET UNREALIZED
CONTRACT CURRENCY FOR DATE VALUE APPRECIATION/(DEPRECIATION)
- -------- ----------- ----------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C>
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>
71
<PAGE> 76
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>
72
<PAGE> 77
<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>
73
<PAGE> 78
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>
74
<PAGE> 79
<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>
75
<PAGE> 80
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>
76
<PAGE> 81
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
77
<PAGE> 82
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78
<PAGE> 83
MONY Life Insurance Company BULK RATE
4 Manhattanville Road, Purchase, New York 10577 U.S. POSTAGE
(914) 697-8000 PAID
NEW YORK, N.Y.
PERMIT NO 8048
Distributor:
Diversified Investors Securities Corp. (DISC)
4 Manhattanville Road, Purchase, New York 10577
(914) 697-8000
03-70472 (2/99)
